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CSX looks at rolling out of South Florida

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by Alexis Muellner

CSX Corp., the Jacksonville-based rail operator and transportation giant, is considering a departure from the South Florida market.

"We will confirm discussions are going on at the highest level," South Florida Regional Transportation Authority Executive Director Joe Giulietti said through a spokeswoman.

If CSX (NYSE: CSX) pulls out and puts the operating rights to its Orlando-Miami route up for sale, questions arise about who may step in and vie for that short line, how the changes could impact the Regional Transportation Authority, and whether a regional railroad like Florida East Coast Railway (NYSE: FLA) or short line operator RailAmerica (Nasdaq: RRA) would be interested in acquiring those rights.

It could also figure into a study about putting passenger service on the FEC line, which runs through the downtowns of major coastal cities, and potentially shifting more freight traffic onto the other tracks.

FEC spokesman Husein Cumber declined to address whether the company is involved in the CSX discussions or if it is interested in operating the short line. But FEC and CSX Intermodal - the integration of truck and rail service - work closely together, he said.

"CSX Intermodal is one of FEC's most important customers and we value that business relationship," he said.

The corridor CSX runs on is the same one used by the Tri-Rail commuter line. As far as freight, automobiles are typically hauled south, while rock from Miami-Dade County quarries goes north. The state owns the land under the tracks from a purchase it made in the 1980s.

FEC also moves freight and rock on its line to the east, which runs parallel with the CSX line up to West Palm Beach, before the CSX line turns toward Orlando and FEC's snakes up the coast.

"FEC would be a natural suitor of any South Florida CSX asset, which could result in greater efficiency of freight movement," said an industry source that asked not to be named.

CSX's self-examination

Examining CSX's Orlando-Miami leg fits into the $1.92 billion company's corporate strategy.

It has been in a restructuring mode, having completed three rounds of layoffs it announced in November, and cut 900 jobs for a savings of $90 million.

The company is looking at some of the lines it believes could be more efficient, "possibly making some of those available to short-line operators," said Gary Sease, spokesman for CSX Transportation in Jacksonville.

The idea is to direct the company's capital to its highest capacity routes, with the target of disposing of 1,200 miles in 2004, he said. CSX has 23,000 miles of track nationwide, with 1,748 miles in Florida.

"To reduce our system by those 1,200, we have some low-density routes where we don't have a lot of traffic or have parallel routes," he said.

So far, the company has identified those miles on routes in Virginia, West Virginia and Ohio. One major line accounting for 275 miles goes from Crestline, Ohio, to Tolleston, Ind., just east of Chicago. There, the company is negotiating a lease with Boca Raton-based RailAmerica, which operates short lines around the country.

A CSX spokesman said he is not aware of any lines outside of the four being actively looked for divestiture.

"The whole system is up for evaluation, but these are the only ones active," Sease said. "We are looking at evaluation of some similar line dispositions in 2005."

Awaiting a new round of mergers

A series of railroad mergers and acquisitions in the 1990s left a lot of lines with crisscrossing routes and redundant

business. Up until last year, there was a moratorium on mergers of class 1 railroads - the top four rail companies in the United States: CSX, Norfolk Southern, Burlington Northern Santa Fe and Union Pacific.

If the CSX South Florida divestiture evolved, a formal heads-up would be made to the Federal Railroad Authority and the Surface Transportation Board. Calls to both agencies showed no declaration yet in the public record.

The financial news for CSX hasn't been great.

Earlier this month, Moody's Investors Service affirmed its ratings on CSX's debt, but lowered its outlook to "negative" from "stable." The ratings agency said the outlook reflected the railroad company's under-performing expectations and its high debt.

CSX owns one of the largest rail networks in the United States. It is the parent of CSX Transportation, one of the country's largest freight railroads. CSX also owns companies that provide intermodal and global container terminal operations. All together, the Jacksonville company employs more than 30,000 who provide rail transportation services over a network of 23 states, Washington, D.C., and two Canadian provinces.

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This is an interesting story. I wonder how the rail shift will affect the new transit options that are finally emerging in the tri-county area. Hopefully, there will be plenty of room for efficient and speedy commuter service.

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