CP Rail, Guilford may sign pact enhancing N.E. rail competition

WASHINGTON — An agreement that will inject a new element of rail competition into New England and the rest of the Northeast is close at hand.

CP Rail, a unit of Canadian Pacific Ltd., and Guilford Transportation Industries Inc. have reached an agreement in principle giving CP the access it wants as a condition to its acquisition of the Delaware & Hudson Railway.

Final agreement would remove a major obstacle to CP Rail’s acquisition of the 1,600-mile D&H system.

That apparently would confront Consolidated Rail Corp. with its first competition — since Conrail’s creation in 1976 — from another major rail system on traffic moving to or from New England.

However, the Federal Railroad Administration appears to have some problems with one part of the deal, which, unless resolved, may create some difficulties.

CP Rail, along with the Providence and Worcester Railroad Co. and Delaware Otsego Corp., have submitted bids to acquire the D&H, which has been in bankruptcy reorganization since 1988.

CP appears to have the inside track to acquire the railroad, but an agreement with Guilford is a precondition to that transaction.

Provisions of the CP Rail-Guilford pact give the D&H track rights between Rotterdam, N.Y., and Fitchburg, Mass., via the Boston & Maine Railroad, a subsidiary of Guilford, sources familiar with the agreement said.

“Nothing is in writing, but we are reasonably optimistic that we can work out a deal with Guilford, providing some obstacles that are in the hands of the Federal Railroad Administration can be resolved,” John Cox, public affairs manager for Canadian Pacific, said.

A final decision on whether to go forward with the bid, Cox said, will be made shortly.

In exchange for access to Fitchburg, CP Rail will assume responsibility for the balance due in loans Guilford received from the FRA when it owned the D&H.

Several years ago, when Guilford owned the D&H, the FRA loaned Guilford $25 million to help finance the upgrading of its system. About $14 million has not been repaid.

CP officials met with FRA Administrator Gilbert E. Carmichael Thursday to see if an agreement covering the loan transfer could be worked out.

CP Rail’s agreement with Guilford is intended to limit damage resulting from Guilford’s recent decision to interchange most of its traffic to and from New England with Conrail at Ayer, Mass. For years, the primary interchange point had been with the D&H at Mechanicville, N.Y.

Traffic along the D&H has dropped off dramatically since the Conrail-Guilford routing opened April 1. This has created major problems for the D&H, which depends on traffic it interchanges with other carriers for most of its revenues.

“Fitchburg is just west of Ayer, so it sounds like what this deal will do is give CP the same footing with Conrail on the interchange,” said Tim Murphy, a vice president of Barber Associates Inc., a Washington consulting firm.

The D&H also should become more viable since the transaction would extend its operations into the Boston markets, said another analyst, who asked not to be named.

Conrail has enjoyed a virtual monopoly on traffic to and from New England, because service along the D&H — a regional railroad that was Conrail’s primary competitor there — deteriorated as the D&H’s finances dwindled.

“This is going to mean more competition for Conrail. I don’t think there is any question about it,” Murphy said.

“I tend to think that CP will be more competitive with Conrail than the D&H was simply because of the different size and geographic reach of the two railroads,” he added.

Guilford also will benefit, Murphy said, since it will be in a position to negotiate rate agreements with both Conrail and the CP Rail system.

His views were echoed by shippers located along the D&H.

“CP will compete with Conrail locally, improving service to our facilities and keeping rates competitive,” said James Benham, vice president for sales at Distribution Unlimited Inc. of Rotterdam, N.Y.