Public has interest in Pan Am Railways sale

ON JUNE 29, Trains Magazine reported that Pan Am Railways, the dominant freight carrier in northern New England, is for sale. Pan Am is perhaps best known to the public because it shares track with MBTA commuter rail trains on the Fitchburg and Haverhill lines (it owns the former from Fitchburg to Wachusett) as well as Amtrak’s Downeaster service between Boston and Maine (it owns the line outside of Massachusetts). This potential sale carries major implications not only for passenger rail, but for public policy, transit, logistics, and infrastructure in Massachusetts and indeed every state in New England except Rhode Island.

Pan Am and its corporate predecessor Guilford are notorious for paring service and infrastructure investment to an absolute minimum while offloading as many costs as possible onto the public sector. To rectify the resulting unnecessary deficits in rail infrastructure and service incurred through decades of Pan Am/Guilford disinvestment, and to revitalize rail service for both passenger and freight throughout New England, the public sector must take a strong role in determining the ultimate fate of the Pan Am system.

While the federal government no longer regulates railroads as strongly as it did under the defunct Interstate Commerce Commission, the Surface Transportation Board still has the capability to intervene to protect competition and the public interest. Thankfully, government money is as green as that of the Class I railroads and hedge funds that may be circling the property. As we illustrate, it is likely that even if the public sector does not become decisively involved now, it will nevertheless be drawn into a discussion about the need to invest large sums of money in the Pan Am infrastructure to make up for decades of private sector neglect.

For these reasons, TransitMatters proposes that Massachusetts, in cooperation with other New England states, take a strong interventionist role in guiding the fate of the Pan Am rail infrastructure. Our recommendation is based on four interlocking principles:

Prevent further retrenchment of the rail network

Pan Am has a history of abandoning or neglecting much of its rail infrastructure. But for this neglect, some of the abandoned routes would have been helpful for passenger service (for example, the route through New Hampshire that historically linked Boston and Montreal); others could have hosted viable freight service. The public sector has a responsibility to ensure that the remaining important rail assets are protected and preserved for future use.

Examples of some of the lines and infrastructure abandoned or allowed to deteriorate to the point of near-unusability under Guilford/Pan Am stewardship include:

• The New Hampshire Main Line from Lowell to Manchester and Concord is an attractive target for extended regional rail service, but  traffic has been allowed to wither and the signal system abandoned.
• Numerous branches in Maine, endangering the state’s already fragile economic prospects.
• The Watertown branch off the Fitchburg Line between Cambridge and Waltham.
• The East Boston branch, splitting off the Newburyport/Rockport main line south of Winthrop Avenue in Revere.
• The Danvers branch (allowed to deteriorate and then partially abandoned).

Pan Am has even allowed its core assets to deteriorate to the point that the public sector or a private partner has had to intervene. In the late 1980s, it deferred maintenance on the Connecticut River Line in Vermont so severely that Amtrak, which used the line for its Montrealer (now Vermonter) service, initiated eminent domain proceedings so it could hand the line over to a more responsible operator (see more below).

Pan Am’s core main line runs from Mechanisville, New York, to Maine, but Pan Am has systematically allowed sections of that line to deteriorate to the point where trains are unable to run at more than 10 miles per hour, until (depending on the location) state or federal funding or another railroad such as its partner Norfolk Southern have paid to upgrade the infrastructure.

Just this spring, the Hoosac Tunnel–the key piece of infrastructure connecting Pan Am to New York state, and a project that was ultimately paid for and finished in the late 19th century by the Commonwealth of Massachusetts–suffered a partial collapse that shut the line for over a month. Should the Hoosac Tunnel close again, New England would be left with only one high-capacity freight route to the rest of the country, allowing that railroad (CSX) to jack up freight rates.

Ensure freight rail competition

Competition between carriers is the keystone of public policy regarding freight railroading in the US. While the federal government has largely retreated from close regulation of the railroads following the Staggers Rail Act of 1980, the Surface Transportation Board, or STB, still reviews mergers and major transactions to ensure that they do not have a negative impact on competition. For example, STB provisions attached to the breakup of Conrail in 1997-1998, such as the retention of Conrail as a terminal railroad between the two acquiring railroads, have had positive ramifications in several areas.

An existing shipper who previously had the option of being served by, or routing through, two railroads but now only has one option, will almost certainly see their rates raised. Likewise, a less competitive freight rail market allows providers to raise rates that they quote to prospective new shippers. Given that the railroads already operate at a competitive disadvantage to the trucking industry (which quietly enjoys significant public subsidy) this is likely to hand more traffic to trucks, worsening traffic congestion and undercutting public policy goals on a variety of fronts. Public sector intervention in private sales such as this is not unprecedented. Indeed, between 1907 and 1914 the public sector intervened to prevent a merger involving some of the same lines at issue today, blocking a combination of the New York, New Haven, & Hartford and Boston & Maine railroads that would have dominated most of New England.

Today, the impact of the Pan Am sale on freight competition will depend heavily on who the bidders are and what their plans are for the property. If one of the major Canadian railroads becomes involved, it will introduce a new, strong player to Massachusetts and the rest of New England. But if one of the major freight railroads with existing interests in the region–Norfolk Southern, CSX, or the holding company Genesee & Wyoming (which already owns several secondary lines in New England) is able to buy out the entire Pan Am property, it would likely establish that railroad as the single dominant player in New England. The STB can intervene to establish a pro-competitive outcome by blocking transactions or introducing conditions, but it typically needs to be encouraged by state and federal political leaders. Several analystsalready believe that the Pan Am system is likely to be broken up rather than sold in one piece, and the public sector should consider very carefully how it should be broken up in such a way as to maximize competition.

Bring key elements of infrastructure under public ownership

Sales of railroad infrastructure represent an opportunity for the public sector to intervene and bring pieces particularly critical to future needs under public stewardship. Massachusetts residents have benefited enormously from decisions made mostly during the Dukakis, Patrick, and Baker administrations to purchase or acquire strategic rail rights of way.  Where relevant, public ownership ensures that moving passengers will always be the priority. Ownership comes with associated obligations to maintain safety standards, creating a virtuous cycle that is the foundation of our efforts to move more people and goods more sustainably and efficiently.

One ambitious framework for bringing this infrastructure under public ownership would be for the New England states to collaborate on buying the entire Pan Am system. The long Pan Am mainline from the Hudson Valley to Northern Maine connects with three Class I freight railroads and several smaller ones, many of which have a variety of interests throughout the region. In Europe, many such mainlines operate as “open-access” infrastructure, with operators paying to use it as they go. Because of its many transportation connections, the Pan Am line–with some significant infrastructural improvements–could be a feasible place to experiment with that approach for the first time in the United States, providing revenue that could be reinvested in an expanded passenger network. The multi-state nature of the Pan Am network raises challenges regarding the ability of one state to own infrastructure in another, so multi-state collaboration is critical. Potential federal stimulus funding in reaction to the COVID-19 crisis could be an important piece of such a purchase, as could funding programs such as FRA’s ultra-low-interest Railroad Rehabilitation & Improvement Financing RRIF loan.

Failing that very ambitious plan, there are key pieces of infrastructure that the public sector should target for acquisition:

• Routes actively used by passenger rail, but not already under public ownership (Haverhill to Brunswick, Maine, is the best example; the line from Wachusett to Fitchburg to North Adams via the Hoosac Tunnel may also be in this category but more clarity is needed regarding Pan Am’s business relationship with Norfolk Southern on this line)
• Routes that could become passenger-primary in the future (Lowell to Nashua, Manchester, and Concord in New Hampshire and Andover to Lowell)
• Freight-only branches that may otherwise be vulnerable to abandonment. Several New England states already own branch lines, usually leased to private operators; but other states, such as Washington and South Dakota, have been more aggressive with developing rail service on marginal lines, often with great success.

Ensure passenger rail rights and priority

While all four of our principles interlock, the question of public ownership of key infrastructure is especially intertwined with the question of priority and rights for passenger trains. Too often, poor infrastructure or unreliable locomotives on freight trains have delayed MBTA or Amtrak services operating over lines owned by Pan Am. Pan Am’s refusal to implement positive train control on its portion of the rail line to Portland restricts Downeaster service to a maximum of six roundtrips per day. Continued infrastructure deterioration of the New Hampshire Main Line to Manchester and Concord has increased the cost of potential passenger service on that line, introducing new barriers. While the Northern New England Passenger Rail Authority has done a terrific job shepherding Downeaster service to this point, the states should consider a bolder and more aggressive approach to expanding passenger rail service on that and other lines.

The imminent sale of Pan AM Railways provides a rare opportunity for the public sector to act decisively to improve the mobility needs of the region by protecting important rail assets.  It is also an opportunity for the public sector to ensure consumer protection by demanding outcomes that enhance, rather than diminish, freight competition. We hope that all public sector stakeholders in New England, and especially here in Massachusetts including the Baker administration and Attorney General Maura Healey, will take steps necessary to reverse decades of neglect and ensure a more competitive environment for the movement of goods and people throughout the region and beyond.

This article is the product of a collaborative effort on the part of several members of the TransitMatters rail group.