Rail Plan Deserves Fast Track

September 5, 2007
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The proposed ownership transfer of sections of Michigan railroad for operations of the Michigan Central Railway needs to be taken seriously by transportation officials as a viable option providing an opportunity for long-term stability of freight rail service crucial to businesses in the state.

A number of Democratic state representatives and some transportation union officials are among those who recently took issue with the Norfolk Southern Railway Co.’s proposal to transfer operation of nearly 400 miles of rail line in Michigan and Indiana to Pittsburg, Kan.-based shortline operator Watco Companies, a move that would create a new rail service called Michigan Central Railway.

It is a joint venture between Norfolk Southern Railway and Watco. Watco is contributing the capital financing for the venture and Norfolk Southern the rail assets.

Objections raised by the critics of the plan include concerns regarding the size classification— and financial strength— of Watco, a Class Three railroad operator vs. the current financial clout wielded by Norfolk Southern, a Class One operator.

The federal Surface Transportation Board, which has final say in the proposed agreement, has determined a Class One railway has annual operating revenues that exceed $250 million, while a Class Three unit has operating revenues of $40 million or less.

Will Watco be able to invest sufficiently in track maintenance, which includes keeping rails in condition to achieve minimum train speeds, particularly for passenger lines such as Amtrak? Watco officials maintain that they will and are willing to sign such agreements on the dotted line. Certainly in the changing economics of freight service in this state, they will be obligated to keep the tracks functional to make this a viable business concern.

According to reports coming from a meeting of the minds on the proposal held in Kalamazoo last week, Ed McKechnie, chief commercial officer with Watco, said Watco and Norfolk southern are nearing a deal with Amtrak that would insert legally binding enforceable language into the Michigan Central agreement, requiring the railway be maintained to Amtrak standards, an essential threshold in maintaining the tracks’ value.

He said Michigan Central would spend an average of $18,000 per track mile on maintenance — about three times as much as Watco normally spends on tracks.

Norfolk officials told the Business Journal it is selling the lines because there has been a significant drop in freight volume over the last couple of years— certainly related to the auto manufacturing industry decline. The company believes establishing a joint venture with Watco— a proven short-line operator —would revitalize the lines and add freight to those routes. It will bring a sharper focus on developing freight business in Michigan, something commerce and economic development representatives would be wise to encourage.

To misguided political and union reps looking to once again butter their own bread while meddling with the state’s economic future, keep your hands off.

This proposal deserves immediate passage by the federal regulators.

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