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Trying to line up a prized contract; Pact: Winning the cooperation of the East Coast's two dominant railroads could lead to a revitalizing deal for the port of Baltimore.


State officials are trying to plug the last hole in a deal viewed as the great hope for the port of Baltimore's revitalization.

But if history is any gauge, that hole could be an abyss.

The Maryland Port Administration is trying to get the East Coast's two dominant railroads to cooperate -- not just with the state, but with each other. And as such, it has tapped into a heated corporate rivalry that has the power to scuttle the city's bid to become an East Coast mega-port.

If port officials can get CSX Transportation Inc. and Norfolk Southern Corp. to share space and set favorable rates on their railroads, Baltimore will be poised to capture a quarter of the business at the port of New York, which would instantly make Baltimore one of the country's major shipping terminals.

But first, the state will have to persuade one railroad to give up an exclusive contract and perhaps help the other with a $100 million project to reconstruct a century-old tunnel in the heart of the city.

The prize is a contract with the world's largest shipping companies that would triple the amount of container cargo shipped through Maryland.

The cost might depend on how willing the railroads are to bend.

"It really is a very, very complex issue because of all the parties involved," said James White, executive director of the Maryland Port Administration. "Is it a deal-breaker? I hope not."

Shipping giants Maersk Inc. and Sea-Land Service Inc. are a few weeks away from picking Baltimore or New York as their new East Coast hub. If the costs at the waterfront were all that mattered, Baltimore would be celebrating.

The MPA has offered to undercut New York's annual lease rate by as much as $10 million by some estimates, and the local longshoremen have agreed to every hour and wage concession the two companies asked for. "The package was so good, it really made us sit up in our chairs," a Sea-Land official said.

But the shipping companies also want a port with two railroads that extend almost to the piers, because they want to move more than half of their 550,000 containers a year by rail. And there Baltimore finds itself scrambling for options.

Sharing with a nemesis

The state has offered to build Maersk and Sea-Land a 335-acre complex at the Dundalk Marine Terminal, but the terminal is served by just one railroad, Norfolk Southern, which will acquire the track from Conrail Corp. this summer. The state also has agreed to build a rail line to give CSX access to Dundalk, but the only place to put the new line is on Norfolk Southern's right of way.

So port officials are asking Norfolk Southern to share its franchise with a company that has been its nemesis.

If Norfolk Southern says no, Maersk and Sea-Land might decide to remain in New York. And the railroad will have shooed away 300,000 cargo boxes a year to protect its access to a terminal that is little served by rail today.

If Norfolk Southern agrees and lets CSX into Dundalk, it will have bowed to its chief rival and given it the opportunity to steal away business. CSX is generally considered to have the better rail connections out of Baltimore, so Norfolk Southern's cooperation could hand away the business.

White said of Norfolk Southern, "They have not told us no. That really keeps the door open. But Norfolk Southern certainly isn't going to give up their trackage rights without getting something."

'True and fair competition'

Whether the railroad can expect to get anything besides a share of the cargo is unclear. State and company officials refuse to discuss the negotiations in detail, or any possible solutions. A Norfolk Southern spokesman would say only that the railroad's goal is "true and fair competition."

All involved see the issue not only as the final page in Baltimore's offer to Maersk and Sea-Land, but perhaps its thorniest.

"Baltimore has a lot to offer as a port," said a railroad official. "But the port won't work without the land-side operations."

The situation is complicated by the East Coast's market geography. Maersk and Sea-Land could well decide that Baltimore is a cheaper place to bring their ships, but much of the cargo on those ships still must go to New York. One Sea-Land official estimated that more than half of the cargo originates from, or is destined for, the New York area.

The Baltimore-New York corridor is a relatively short one, usually served by trucks, but Maersk and Sea-Land are proposing to move so much cargo that they want a dedicated, overnight rail service to handle it.

From Baltimore, that typically means using the rail lines operated by CSX, which owns a direct track between the two cities and can move cargo between them in eight hours.

Norfolk Southern has to ship New York-bound cargo through a yard in Harrisburg, Pa., which can take 14 hours. It is trying to schedule cargo between commuter trains on Amtrak's northeast corridor, but that line is crowded, and cargo moves on it only at night.

A primary reason that Maersk and Sea-Land want to consolidate their cargo in one port is to cut back on the time spent sailing from port to port so they can promise customers faster service. In Baltimore, that time advantage is already diluted by a 10-hour voyage up the Chesapeake Bay, and six more hours on the railroad might be too much for the shipping lines.

Capacity lacking

The complications do not stop there. Officials at CSX say their local rail lines -- essentially the old Baltimore & Ohio Railroad -- lack the capacity to move the amount of cargo that Maersk and Sea-Land are proposing. A crucial deficiency is the Howard Street tunnel, a 100-year-old line running beneath the city that is too low to accommodate "double-stacked" trains. Railroads prefer to ship cargo containers -- essentially the back half of a tractor-trailer -- stacked two high on their cars, reducing the length of the trains and increasing the capacity on their lines.

Officials with the state and the shipping lines think CSX has plenty of capacity, but the railroad sets its rates based on its costs. And if CSX decides its old tracks and low clearance require more locomotives or slower trains, that will translate into higher rates for moving cargo to and from the city.

CSX has not asked state officials to improve the Howard Street Tunnel in return for lower rail rates, but several sources say it has made the connection between the two clear. The cost of providing double-stacked container access through the tunnel has been estimated at as much as $100 million.

Maersk and Sea-Land say the price Baltimore is willing to charge for the use of its port is so low that the companies can absorb some increased costs of shipping by rail. But when the shipping lines decide next month whether New York or Baltimore should get their business -- at least 550,000 but as many as 750,000 cargo containers a year -- the decision could come down to a few dollars a box, they say.

"We're going to look at everything and determine what is the best option for our customers," said James Devine, Sea-Land's Northeast operations manager. "But rail access is a critical piece of the whole equation."

The railroads can kill the deal by setting their rates so high that an inexpensive port in Baltimore costs more than an expensive port in New York. Both railroads have updated, fast access to the New York area, so they would likely get the business regardless of where it comes off the ship.

Norfolk Southern is generally considered to have the favorable access at Maersk's and Sea-Land's current terminal in Elizabeth, N.J., so aiding the shipping lines' move to Baltimore could cost it business.

A further complication is that Sea-Land is a wholly owned subsidiary of CSX Corp., parent company of the railroad. And though the shipping line works with many railroads, including Norfolk Southern, "we're not going to do something that's going to be a shot in the head to CSX," said Charles G. Raymond, Sea-Land's chief transportation officer.

Maersk, based in Copenhagen, Denmark, and Sea-Land, based in Charlotte, N.C., share vessels and marine terminals on most trades throughout the world. Company officials named three finalists for their East Coast hub in December and have eliminated Halifax, Nova Scotia. The MPA won't say how much the proposed deal would cost the state, but its proposal includes purchasing gantry cranes, constructing several buildings for offices and maintenance work, reconstructing a mile of berthing space, and dredging about 4.2 million cubic yards of mud out of the Patapsco River.

The terminal could provide several thousand new jobs to the area and increase work at warehouses, rail yards, and freight-forwarding and other port-related businesses throughout the state.

Industry observers assume that Maersk and Sea-Land are bluffing, that they must operate in New York because of its market size and are using Baltimore to get a better deal from the Port Authority of New York and New Jersey.

Decision due next month

Officials with the shipping lines say they have not negotiated with New York port leaders in almost five months and are concentrating on completing the proposal in Baltimore. They expect New York to offer them some concessions but plan to make a decision next month.

"We see the industrial base shifting away from New York over time, so being in Baltimore 20 years from now might actually be a more favorable advantage," said Devine, the Sea-Land manager. "The facility that Baltimore is offering is an outstanding one, the economics associated with it are very good, and overall Baltimore is a very viable option for us right now. We're not finished, but Baltimore is certainly a real option."

Pub Date: 2/21/99

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