BNSF and CSX announce new joint domestic and international intermodal service

BNSF Railway and CSX today announced an intermodal partnership that will offer seamless domestic coast-to-coast service, plus new international service linking BNSF’s Kansas City terminal with CSX-served ports on the East Coast.

The move comes little more than three weeks after Union Pacific and Norfolk Southern unveiled their plans to merge into the first U.S. transcontinental railroad. But a CSX spokesman said the railroads had been working on the intermodal agreement for months.

BNSF and CSX said they would introduce direct domestic intermodal service between Southern California and Charlotte, N.C., and Jacksonville, Fla. Service also will be launched between Phoenix and Atlanta.

The seamless service, the railroads said, will aim to convert over-the-road freight to rail.

To support the new service, BNSF will add two new 10,000-foot passing sidings between Phoenix and Flagstaff, Ariz., junction of the Phoenix Subdivision and the Southern Transcon. BNSF has previously proposed building a massive new intermodal and logistics facility outside Phoenix.

In addition, the railroads said they will offer new direct international intermodal services linking Kansas City with the ports of New York and New Jersey, and Norfolk, Va.

“This collaboration between BNSF and CSX demonstrates the power of partnership, delivering greater flexibility, efficiency, and value for our customers,” Jon Gabriel, BNSF group vice president of consumer products, said in a statement. “We are looking forward to these offerings providing immediate, streamlined service to the supply chain across key markets nationwide.”

Drew Johnson, CSX’s vice president of intermodal sales and marketing, said the joint lanes will create faster and more reliable service. “Together, we’re opening access to key markets and strengthening options for our mutual customers,” he said in a statement.

CSX spokesman Austin Staton said the interline agreement with BNSF is unrelated to the UP-NS merger.

“I can understand why in the current context why people might make that leap. However, let me be clear — this should not be interpreted as a reaction to anything. This is simply two railroads working together as we work together all the time and is no different than our SMX announcement in July,” he said, referring to the joint Southeast-Mexico service launched with Canadian Pacific Kansas City through their new interchange at Myrtlewood, Ala. “Interline agreements like this are common, and we’ve worked on this particular agreement for many months.”

Analysts widely believe that a BNSF-CSX merger is the inevitable competitive response to UP-NS.

But the Surface Transportation Board’s tougher 2001 federal merger review rules note that joint marketing agreements and interline partnerships can produce merger-like efficiencies without the risk of integration-related service meltdowns like those that accompanied the UP-Southern Pacific merger and the NS-CSX carve-up of Conrail.

And those rules also say that the board will weigh whether “claimed merger benefits can be achieved through cooperative agreements among carriers short of a merger. Given the size of the transactions with which we may be faced, and the dangers involved should these transactions fail, we will scrutinize claimed merger benefits very closely.”

Joint marketing agreements do not require board review or approval.

BNSF and CSX said the new intermodal service “will offer immediate value for customers by increasing flexibility and optionality, while delivering integrated service for freight moving across the U.S.”

Activist investor Ancora Holdings, in a letter released this week, publicly criticized CSX for not moving faster to find a merger partner. CSX CEO Joe Hinrichs has said the railroad is open to any options that will “deliver value for our shareholders, drive profitable growth, and serve our customers better.”

CSX’s stock initially dropped as much as 9% on the news.

“The only reason CSX’s stock is down is because the market is disappointed the press release is for a CSX collaboration, rather than an acquisition,” says Rick Paterson, an analyst at Loop Capital markets.

The interline service announcement was no surprise, he says.

“The recently announced UP-NS merger proposal has obviously pushed BNSF and CSX into each others’ arms and it’s much easier to collaborate and trust each other when there’s a common enemy,” Paterson says. “This is completely rational and was expected.”

Independent rail analyst Anthony B. Hatch says the interline agreement was “an attempt to prove you don’t need a merger.”

Intermodal analyst Larry Gross says the BNSF-CSX deal should show that railroads can solve the intermodal interchange problem without a merger. “The lanes into the Southeast are long-haul lanes that rightfully should be prime for intermodal. L.A.-Atlanta is 2,200 highway miles,” he says.

“The KC to East Coast offering is interesting because the BNSF portion is relatively short haul,” Gross says. “This has been a key reason why the watershed markets have remained an intermodal hinterland — because the length of haul for one of the players is too short to be interesting. Perhaps this marks a change in that kind of thinking?”

BNSF, a unit of Berkshire Hathaway, has not commented on the UP-NS merger.

The railroads did not provide details on when the new services would start.

The New York/New Jersey and Port of Virginia traffic will be interchanged in Chicago for the trip over BNSF to Kansas City. The domestic cross-country service will rely on the BNSF-CSX interchange at Birmingham, Ala., and BNSF’s haulage rights over CSX to Atlanta.

Note: Story updated at 2:38 p.m. Central with comment from analyst Rick Paterson, at 4:08 p.m. with comment from intermodal analyst Larry Gross, and at 6:07 p.m. with comment from analyst Anthony B. Hatch.