CSX Transportation (CSXT) has filed an antitrust lawsuit in federal court saying it is being denied competitive access to the Virginia Port Authority’s largest container terminal by Norfolk Southern Railroad (NS) and a shortline railroad NS controls, the Norfolk & Portsmouth Belt Line Railroad (NPBL).
In the complaint, filed last week in U.S. District Court in Norfolk, CSXT said NS and NPBL have denied it competitive access to Norfolk International Terminal (NIT).
“Only two entities have the ability to access NIT by rail: NPBL and NS. Currently, NPBL must utilize NS tracks in order to reach NIT,” said CSXT. “NS and the NPBL have used the NPBL as a chess piece to establish and maintain NS’s monopolistic control over intermodal transportation in and out of NIT by making it practically impossible for any other rail carriers to provide intermodal rail service to NIT.”
In 2017, VPA handled 2,841,016 TEUs or 1,612,760 container units. Through August of this year, volume is up 1 percent.
A large part of the containerized cargo moving across the VPA’s docks — 35 percent — moves inland by rail.
VPA said its Hampton Roads terminals represent “the largest rail port, by volume, on the U.S. East Coast and much of our success comes as the result of our long-standing and productive relationships with both” CSXT and NS.
Both railroads have invested massively in improving rail connections from Norfolk to the Midwest over the past two decades, improving clearances to accommodate more economical double stack trains. NS opened the Heartland Corridor that connects Norfolk with Columbus, Ohio, Chicago and other Midwest cities in 2010; and CSX has improved links to East Coast ports, including Norfolk, with its National Gateway Initiative. A year ago CSX opened an intermodal terminal in Pittsburgh, which it said was “the last key component” of the National Gateway.
Joe Harris, a spokesman for the VPA, said NIT and Virginia International Gateway (VIG) in Portsmouth — the semi-automated container terminal that was built by APM Terminals, opened in 2007 and was eventually sold to the VPA in 2014 — handle the vast majority of containerized cargo moving through the port. Both are undergoing expansions.
While the port does not provide data on the number of containers moving through each terminal, the VPA website said NIT has a capacity of 1,426,800 TEUs or 820,000 containers and Virginia International Gateway has a capacity of 1,131,000 TEUs or 650,000 containers.
While both railroads have access to VIG, CSXT said in its lawsuit it is “practically precluded from using the NPBL to connect to NIT because the rate set by NPBL’s board, in concert with NS, is prohibitively expensive and because NS refuses to allow NPBL to handle intermodal trains over its tracks on a regular basis.”
In a statement issued after the lawsuit was filed, the VPA added that through CSXT and NS, “we are able to offer efficient, on-dock, double-stack rail service to many important markets throughout the nation’s heartland, and it is our goal to work with the railroads to cultivate new markets and customers. As we expand our capacity at Virginia International Gateway and Norfolk International Terminals, it will be necessary to have rail capability and operational efficiencies that are expanding in parallel.”
CSXT said the only recent example in which it “actually utilized NPBL to connect to NIT occurred in 2015 when, due to closures of other ports around the country, the NIT was inundated with excess containers and because of demands from its customers, CSXT was forced to pay the high rate charged by the NBPL.”
It added, “This was the briefest of windows in which CSXT could feasibly pay these rates because the other port closures caused all costs associated with ocean shipping to temporarily skyrocket. Under normal business conditions, the NPBL’s rate and its operating procedures effectively preclude competitor access to NIT.”
The lawsuit says not only CSX has been hurt, but shortline NPBL as well, by demanding a rate “designed to exclude competition” at NIT and disposing of key rail assets. NS owns 57 percent of the shares of the shortline, while CSXT owns 43 percent.
“Though NIT has been rapidly expanding and increasing its revenues in recent years due to increased shipping, NPBL’s revenues have tellingly remained flat or decreased,” said CSX.
In fact, while CSX’s lawsuit names NS, NPBL and several NPBL directors as defendants in the lawsuit, it also names NPBL as a plaintiff, since CSX is a minority owner of the shortline.
“NS, the directors and the NPBL management conspired to operate the NPBL in order to benefit NS at the expense of the profitability and viability of the NPBL and to harm NS’s competitor CSXT,” the lawsuit charges.
Robert Szabo, an attorney at Van Ness Feldman, and a former executive director of Consumers United for Rail Equity, said the public spat between two Class I railroads is unusual.
“Majors don’t normally go public making accusations about antitrust or anticompetitive actions,” he said.
The lawsuit discusses the history of the NPBL, saying it was established in 1896 to connect eight railroads operating in the cities of Norfolk, Portsmouth and Chesapeake for “the mutual benefit of each in the interchange of business.”
“As a result of mergers and acquisitions among the original eight railroads, by the end of the 20th century the number of NPBL members had decreased to three. In the late 1980s, the then-remaining three shareholders of NPBL — CSXT, Norfolk and Western Railway Company, and Southern Railway Company — agreed to reapportion the amount of board seats associated with each shareholder.”
None of the three had a majority stake in the shortline, but when Norfolk and Western and Southern Railway merged, NS gained control, and CSXT said it has “inserted former NS employees in all management positions of the NPBL and current or former NS employees in four of the six NPBL Board of Directors voting positions and one non-voting director.”
“NS and these directors and the NPBL management they put in place have conspired to operate the NPBL in order to benefit NS at the expense of the profitability and viability of the NPBL and to harm NS’s competitor CSXT,” the complaint says.
CSXT’s lawsuit alleges violations of the Sherman Act and a conspiracy to restrain trade saying CSXT and consumers have been injured by “paying artificially inflated prices for intermodal transportation.”
The complaint says the board of the shortline railroad has rejected “without any reasonable meaningful and lawful consideration of negotiation” a service proposal it made on March 23 that it estimated would generate $1.44 million in incremental revenue and $660,000 in incremental operating income in the first year of service. It proposed NPBL lower its rate per car to $80 from its tariff of $210 per car (or unit in the case of articulated cars).
In exchange, it said it would make a minimum annual volume guarantee to the shortline of 18,000 cars.
CSXT says the $210 charge remains an economic barrier for intermodal freight and “is simply not competitive for any lane on our network and beyond.”
CSXT asks for a jury trial and actual, consequential, compensatory and treble damages and punitive damages. It also wants to be named a co-equal shareholder of the shortline or an independent board structure that will approve its service proposal.
NS was not immediately available for comment.