A long-simmering dispute between CSX (NYSE: CSX) and its rival Norfolk Southern has landed in court, with CSX claiming that Norfolk Southern’s (NYSE: NSC) control of a small railroad within the port of Hampton Roads is all but blocking CSX from launching any intermodal service from there.
According to the case filed last week kin U.S. District Court for the Eastern District of Virginia, the focus of the suit is the Norfolk & Portsmouth Belt Line Railroad (NPBL). The suit says the railroad operates approximately 26 miles.
It is jointly owned by CSX and Norfolk Southern and was described in the suit as a “terminal switching railroad.” According to the lawsuit, it was created in 1896 to be shared by many railroads, and ownership was distributed among many railroads, with none having a controlling interest.
But with mergers and consolidation, there are now two owners: Norfolk Southern and CSX. The latter has 43%; the former has the rest.
And with that control, according to the lawsuit–which also names several Norfolk Southern executives who are also directors of NPBL–there has been a conspiracy “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 battleground is over the Norfolk International Terminals. According to the suit, the only two railroads that have access to NIT are Norfolk Southern and the NPBL. NPBL uses Norfolk Southern tracks to get into the NIT, and the two of them “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 service to NIT,” the suit alleges.
One of the tools for restricting access has been to starve NPBL of investment, the suit says, with sales of important assets and a rate card that is “designed to exclude competition in the relevant market.” As a result, while more traffic has been coming through NIT, “NPBL’s revenues have tellingly remained flat or decreased.”
In the suit, CSX does not say whether it is completely shut out of intermodal opportunities. At one point, the suit says CSX 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 expense and because NS refuses to allow NPBL to handle intermodal trains over its tracks on a regular basis.” It did say that the only “modern example” of CSX use of the system was in 2015 when NIT was overwhelmed with containers.
“No new sources of substantial and recurring business have been added in recent years nor do any appear to be planned,” according to the suit.
In the suit, CSX said it had recommended to the NPBL board a plan for increasing capacity and allowing it more access, but the recommendations were “summarily quashed.”
“NS in conspiracy with the NPBL have operated the NPBL as a vehicle for advancing NS’s interests at the expense of their contractual duties to CSXT,” the suit says.
The suit alleges several violations of the Sherman Anti-Trust Act and violations of the fiduciary duties of Norfolk Southern and the individual directors of NPBL. The suit seeks damages but also asks for an injunction against the defendants that “restores CSXT’s right as a co-equal shareholder and/or establishes an independent board structure as previously proposed by CSXT.”
A Norfolk Southern spokesman declined comment on the suit.