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FEC's new owner

Posted by Fred Frailey
on Friday, November 18, 2016

Fortress Investments has Florida East Coast Railway on the block—no surprise there. The modus operandi of companies like this is go in, get out the money, and move on, and it has been nine years since Fortress went in. As I understand it, Florida East Coast Industries, the parent company, is not for sale. FECI owns All Aboard Florida, or Brightline, the new passenger train service set to launch next year, initially between Miami and West Palm Beach (and ultimately Orlando).

So who wants to buy the freight railroad? As of two weeks ago, only four potential bidders had appeared, I’m told, and none was a railroad. This makes sense. Why buy the cow when you already have the milk? This is the position both CSX and Norfolk Southern are in. They both partner with Florida East Coast to serve central and south Florida’s intermodal markets, and it is unlikely that either railroad could buy FEC over the objection of the other for antitrust reasons. Both railroads would probably prefer to just continue the status quo.

But the sale opens two possibilities, either of which I would love to see exploited.

First, CSX and NS go in together and buy the railroad, creating a Florida version of Conrail Shared Assets. CSA came about in New Jersey and Detroit at the time the same two railroads split Conrail. There was no way that made sense to split the facilities in these locales, so a subsidiary was set up to run them as a cost center. In other words, both CSX and NS sell into Conrail Shared Assets territory and through some formula divide the cost of operation. Read: open access for each owner. It has worked spectacularly well. The FEC seems to me a perfect candidate for the same treatment. The eastern half of the state remains competitive in perpetuity, and both railroads have access.

My second suggestion needs an introduction. No railroad has succeeded in modern times running a trucking company. But Florida East Coast is so intermodal-driven that it begs the question: What would happen if a trucking company ran a railroad? This has already happened—almost—because the background of the current FEC president, Jim Hertwig, is almost entirely intermodal.

The problem with this notion is that if a J.B. Hunt Transport or Schneider National weighed in with a bid, all the other truckers would face an unfriendly welcome at Florida East Coast. But matters would be altogether different if a third-party intermodal marketing company were to own this railroad. Companies like C.H. Robinson, Hub Group and JH Rose Logistics come to mind. They sell directly to the customer, arrange pickup and delivery and decide whether and when to deliver the service by highway or rail.

I may as well confess: Love railroaders as I do, I admire the scrappy truckers greatly. Johnnie Bryant Hunt is no longer with us, but if you could turn a trucker like him loose on a railroad, the world might revolve on a new axis. Wouldn’t you like to watch it happen?—Fred W. Frailey

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