CSX History

Company Perspectives:

CSX is a transportation company committed to being a leader in railroad, inland water, and containerized distribution networks. To attract the human and financial resources necessary to achieve this leadership position, CSX will support our three major constituencies: For our customers, we will work as a partner to provide excellent service by meeting all agreed-upon commitments. For our employees, we will create a work environment that motivates and allows them to grow and develop and perform their jobs to the maximum of their capacity. For our shareholders, we will meet our goals to provide them with sustainable superior returns.

Company History:

CSX Corporation is a leading transportation-based holding company that operates one of the United States’s leading rail systems. The company’s rail system is the largest in the eastern United States and the third-largest in the country as a whole, trailing only those of Union Pacific Corp. and Burlington Northern Santa Fe Corp. The system, run by the company’s CSX Transportation Inc. unit, covers about 18,500 miles in 20 Southeastern, Eastern, and Midwest states and the Canadian province of Ontario. CSX also owns and operates the world’s largest containership line, Sea-Land Service Inc.; the largest U.S. barge carrier, American Commercial Lines Inc.; the nation’s only full-service intermodal transportation company, CSX Intermodal Inc.; and a leading provider of contract logistics services, including distribution, warehousing, assembly, and just-in-time delivery, Customized Transportation Inc. In addition, CSX manages extensive real estate development activities; operates several large resorts, including the Greenbrier Hotel at White Sulphur Springs, West Virginia; and holds a majority stake in Yukon Pacific Corporation, a promoter of a pipeline to transport natural gas from Alaska’s North Slope to Valdez. CSX has remained at the center of the continuing consolidation of the railroad industry, most recently entering into a mid-1997 agreement to acquire 42 percent of Conrail’s lines, mainly located in the northeastern states. In placing continued, though not exclusive, reliance on rail traffic, the company is looking back to its distant origins. CSX’s railroad, the major part of its business over the years, is the end result of a long series of consolidations involving three historic railroad systems: the Seaboard Coast Line, the Chesapeake and Ohio Railway, and the Baltimore and Ohio Railroad, which together span nearly the entire history of railroading in the United States.

History of the Baltimore and Ohio Railroad

The Baltimore and Ohio Railroad (B&O) was chartered in February 1827 by a group of leading Baltimore businessmen with one of their number, Philip E. Thomas, as the first president. Its purpose was twofold: to challenge major canals, especially the Erie Canal, for trade to the west and to provide more efficient and cheaper freight and passenger service than was then available. In Baltimore’s case this traffic passed over the National Road, which ran from Cumberland, Maryland, to Wheeling, West Virginia, on the Ohio River, with an eastward extension to Baltimore. The railroad’s construction started on July 4, 1828, at a historic celebration presided over by Charles Carroll, the last surviving signer of the Declaration of Independence. The B&O’s planners intended to use horses for motive power, but Peter Cooper’s first locomotive used on the line, the diminutive Tom Thumb, made its first successful run in 1830, ending the railroad’s need for horsepower.

Construction progress was slow, however, and the rail line from Baltimore to Wheeling wasn’t completed until December 1852. A second western extension was completed to Parkersburg, West Virginia, in 1857, with connections to local railroads providing service to Columbus and Cincinnati, Ohio and to St. Louis, Missouri. The Ohio and West Virginia connections fostered a great increase in coal traffic from mid-western mines to the east. By 1860 revenues from coal were about one-third of total rail freight revenue, a ratio that has changed little over the years. In 1990 coal provided 32 percent of CSX’s rail revenue.

The B&O played a key role in the Civil War, as did many other railroads, and the line suffered accordingly with substantial damage to track and equipment. Growth continued after the war under the presidency of John W. Garrett, who served from 1858 to 1884, providing sound management in an era when railroad mismanagement was all too common. Track mileage increased from 521 in 1865 to nearly 1,700 by 1885. As the B&O continued to expand through construction and acquisition of smaller railroads, mileage increased to 3,200 by 1900, reaching 5,100 by 1920 and achieving a peak of about 6,350 in 1935.

After Garrett’s presidency, increasing debt and an overgenerous dividend policy weakened the B&O financially while speculation in the company’s stock hampered its fundraising ability. The financial panic of 1893 proved disastrous for the line, and in 1896 the B&O was placed in receivership. In the following decade and a half the reorganized railroad’s mileage and revenues increased satisfactorily, but the B&O came under the control of the Pennsylvania Railroad, which had purchased a majority of its stock after the bankruptcy. The Pennsylvania involved itself briefly in the B&O’s management, but sold its stock position in 1906 for fear of U.S. government antitrust action. Under the long presidency of Daniel Willard from 1910 to 1941, the B&O’s physical plant and service were considerably improved, and the line, which now spread through western Pennsylvania, Ohio, West Virginia, Indiana, and Illinois, enjoyed increasing prosperity until the onset of the Great Depression in the 1930s.

The 1930s saw declining revenues, layoffs, and wage reductions. In 1932 dividends on the common stock were discontinued, not to be restored until 1952. Track mileage and locomotive and equipment rosters began a long decline that would continue until the B&O came under control of the Chesapeake and Ohio Railway (C&O) in 1963. Roy B. White, however, who served as president from 1941 to 1953, inherited from Willard a first-class railroad that offered excellent service. World War II provided renewed prosperity, but the B&O faced problems during the postwar years from inflation, debt for new equipment, declines in passenger traffic, and chronic labor disputes. U.S. President Harry Truman temporarily seized the nation’s railroads in 1946 to offset a threatened nationwide strike, and similar crises occurred in 1948 and 1950.

During the B&O’s last decade as an independent company, Howard E. Simpson served as president from 1953 to 1961, and Jervis Langdon Jr., served from 1961 to 1964. Operating revenues and net income generally declined during the 1950s as did track mileage and employment. Labor costs grew because of constant union pressure for higher wages. In the late 1950s as the B&O’s traffic and revenue position worsened, the railroad began to consider the idea of a merger with a stronger partner. The C&O and the New York Central Railroad vied briefly for dominance, but in February 1961 the C&O announced that it controlled 61 percent of the B&O’s stock. In 1962 the Interstate Commerce Commission (ICC) approved the C&O’s request to take over the B&O, and on February 4, 1963, the C&O finally took control. The affiliation produced an 11,000-mile rail system, stretching from the Atlantic to the Mississippi River and from the Great Lakes to the southern edges of Virginia, West Virginia, and Kentucky, and brought to the B&O’s rescue a smaller but significantly stronger railroad, not quite as old as the B&O, but with origins that also went back to the early years of railroading.

History of Chessie System

The C&O had its beginning in a short line railroad built to provide rail traffic to farmers and merchants in central Virginia. Chartered in 1836 as the Louisa Railroad, it originally covered 21 miles from Taylorsville to Frederick Hall, Virginia. In 1850 the line’s name was changed to the Virginia Central Railroad, and by 1851 it extended eastward to Richmond, Virginia. A plan to extend westward to the Ohio River was delayed by the Civil War, during which the railroad served the Southern forces effectively but was heavily damaged. In 1867 the reorganized company changed its name to the Chesapeake and Ohio Railway Company and with financial backing from Collis P. Huntington, who subsequently became president from 1869 to 1888, the line was open from Richmond to Huntington, West Virginia, by 1873. The panic of 1873 ended in receivership for the C&O in 1875. In 1888 Huntington lost control to J. P. Morgan, who improved the railroad’s performance such that, by 1900, the C&O was a solvent, well-managed 1,445-mile line connecting Newport News, Virginia, with Cincinnati, Ohio, and Louisville, Kentucky.

The C&O’s history during the 20th century was characterized by conservative financial management supported by strong coal revenues. In 1947 the C&O made a major acquisition of the Pere Marquette Railroad with nearly 2,000 miles of track in the Midwest, New York, and Canada, and a sound base of merchandise traffic. The Pennsylvania and New York Central Railroads controlled C&O’s stock from 1900 and 1909. During the 1920s and early 1930s control was exercised by Martis P. Van Sweringen and his brother, Oris P. Van Sweringen. From the mid-1930s, noted financier Robert R. Young owned a majority stock position, which he sold in 1954 to Cleveland investment banker Cyrus S. Eaton. By this time the C&O was a prosperous 5,000-mile line with $350 million in annual revenues and an exceptionally competent leader, Walter J. Tuohy, who had assumed the presidency in 1948. After completing the line’s dieselization in the mid-1950s, Tuohy moved aggressively to expand the C&O by acquisition, leading to the 1963 merger with the B&O.

The unification of the two railroads proceeded slowly and deliberately with a common annual report appearing in 1964 and senior administrative positions being gradually combined during the 1960s and 1970s. The continued separate operations of the lines avoided the confusion and errors that led to the failure of the Penn Central combination during the same period. It also avoided a downgrading of C&O debt securities because of the weaker financial position of the B&O before the merger, and maximized the benefits of operating two railroads whose traffic was, for the most part, complementary.

Hays T. Watkins became chairman and chief executive officer of the combined C&O and B&O in 1971. He was a strong administrator, firing President John Hanifin in 1975 for spending $2 million on tennis courts at the railroad’s resort, the Greenbrier Hotel. Watkins adopted the name Chessie System Inc. in 1972 for the combined railroads and formally became CEO of Chessie System in 1973. By the late 1970s only three percent of Chessie’s $1.5 billion revenues were from non-rail sources, and Watkins was considering diversification and expansion. In 1978 Chessie proposed to the ICC a possible merger with the slightly larger southeastern railroad system, Seaboard Coast Line Industries Inc. Like the B&O and the Chessie, the Seaboard was a consolidation of several railroads whose history also reached back into the 19th century.

History of Seaboard Coast Line

The Seaboard’s key component, the Atlantic Coast Line Railroad (ACL), began as a series of small railroads running along a northeast-southwest line parallel to the Atlantic coast and connecting communities along the “fall line,” the imaginary line joining towns at the heads of navigation of the coastal rivers. The oldest part of the ACL was the Petersburg Railroad, chartered in 1830 to run from Petersburg, Virginia, south to the North Carolina border. The corporate parent of the ACL, however, was the Richmond and Petersburg Railroad, chartered in 1836. These and similar, small independent railroads running along the fall line through Virginia, North Carolina, South Carolina, Georgia, Alabama, and Florida were joined after the Civil War in a holding company at first called the American Improvement and Construction Company, formed in 1889. In 1893 the name was changed to the Atlantic Coast Line Company. In 1902 the ACL bought a controlling share of the Louisville and Nashville Railroad (L&N) and, following a 1914 reorganization, the name was changed again to the Atlantic Coast Line Railroad Company.

In 1958 the ACL, by then a 5,300-mile railroad with revenues of about $163 million, proposed a merger with one of its southeastern competitors, the Seaboard Air Line Railroad with 4,100 miles and roughly similar revenues. The ACL, with its affiliates, the 5,700-mile L&N and the smaller Clinchfield Railroad, tapping the coal and merchandise markets of the midwest, was the stronger of the two companies. The plan however, was to merge the ACL into the Seaboard to take advantage of the Seaboard’s more modern corporate charter. The consolidation plan was filed with the ICC in 1960 but progress was slow, partly because of antitrust issues, with final approval not coming until 1967. The new company, eventually called Seaboard Coast Line Industries Inc., was the eighth-largest railroad in the United States, with revenues of about $1.2 billion.

Creation of CSX in 1980

The merger proposed in 1978 between the $1.5 billion Chessie and the $1.8 billion Seaboard offered benefits to both sides. It would give the Chessie a relatively inexpensive expansion into the booming southeast and would provide a useful capital infusion for the Seaboard, especially for its maintenance and equipment-starved L&N subsidiary. The ICC approved the merger in September 1980 and the two systems were consolidated into CSX Corporation on November 1, 1980. The Seaboard’s Prime F. Osborn III became chairman and the Chessie’s Hays T. Watkins became president. Watkins was clearly the dominant figure, becoming chairman in 1982 on Osborn’s retirement.

As in the case of the B&O and C&O, the operational consolidation of the two railroad systems proceeded gradually, again to avoid the internal stresses that had marred the Penn Central merger. It was not for another decade that all of the railroad operations of Chessie and Seaboard were consolidated under the CSX Transportation Inc. subsidiary.

Diversification in the Later 1980s

Meanwhile, diversification was in the air in the 1980s. In 1983 CSX made a deal with Southern New England Telephone Company to place a fiber optics telecommunication system along the CSX rights-of-way. A more significant diversification move in 1983 was CSX’s “white-knight” $1 billion purchase of Texas Gas Resources Corporation, with $2.9 billion in revenues, one of the United States’s largest natural gas pipeline companies with substantial gas and petroleum reserves. For CSX, with revenues of $5 billion, this was a major expansion into natural resources, adding oil and gas to its already large coal holdings. Texas Gas had as a subsidiary the American Commercial Lines Inc. (ACL), a large barge operator. On July 24, 1984, the ICC voted to allow CSX to keep and operate this shipping firm, a reversal of longstanding government policy against letting railroads own steamship or barge lines.

Continuing this precedent, the ICC in 1987 voted to approve CSX’s 1986 $800 million acquisition of Sea-Land Corporation, the largest U.S. ocean container-ship line (later known as Sea-Land Service Inc.). This purchase was a continuation of Watkins’s somewhat controversial policy of structuring CSX as an intermodal transportation company capable of serving both national and international markets. CSX became heavily involved in resort operations following its 1986 purchase of Rockresorts, Inc., owner and manager of several luxury resorts, which CSX bought from Laurance Rockefeller. Also in 1986, CSX purchased a 30 percent interest (increased to a majority stake two years later) in Yukon Pacific Corporation, which aimed to construct the Trans-Alaska Gas System to transport natural gas via pipeline from Alaska’s North Slope to Valdez. In 1987 CSX further extended its array of transportation services by forming CSX/Sea-Land Intermodal (later known as CSX Intermodal Inc.), the nation’s only transcontinental full-service intermodal company.

These acquisitions and initiatives were the last engineered by Watkins. The company’s directors became disenchanted with CSX’s low profits, declining return on investment, and stagnant stock price. Lagging rail profits, partially due to labor contracts and problems with the company’s new acquisitions, resulted in major changes in management direction for CSX. A comprehensive restructuring program was announced by Watkins in 1988, but in April 1989 John W. Snow, a former federal highway official, was appointed president and chief executive officer of the company. Watkins continued as chairman until his retirement on January 31, 1991, when that position, too, was assumed by Snow.

CSX underwent a significant change in direction between 1988 and 1990. CSX’s oil and gas businesses (with the exception of its Yukon Pacific stake) were sold in 1988 and 1989, resulting in a net gain of more than $200 million. Most of its resort properties and the telecommunications system were also sold, although CSX kept the Greenbrier Hotel and one smaller resort. A crew-reduction agreement was signed by the railroad with the United Transportation Union in 1989. This was a key step in Snow’s plan to downsize the railroad, as well as other CSX operations, in order to increase profitability. CSX also improved its share earnings by using money from the gas and oil sale to buy back about 39 percent of its outstanding common stock. In his first years as chief executive, Snow installed a new management team determined to improve shipping and real estate profits and to focus on CSX’s traditionally strong rail operations in order to earn a better return on the company’s $12 billion asset base.

Strategic Acquisitions in the 1990s

With Snow’s emphasis on improving both customer relations and profits, CSX’s position grew ever stronger through the 1990s. Revenues increased steadily, from $8.21 billion in 1990 to $10.54 billion in 1996, while net earnings reached a peak of $855 million by 1996. Snow sought to leverage this strength by making selective, strategic acquisitions that would enhance and extend the company’s core transportation operations.

In 1992 American Commercial Lines increased its barge capacity by more than one-third through the purchase of the Valley Line companies. Four years later, ACL acquired the marine assets of Conti-Carriers & Terminals Inc., adding 400 barges and eight towboats to a fleet that subsequently numbered 3,700 barges and 137 towboats. In early 1993 CSX acquired Customized Transportation Inc. (CTI), one of the leading logistics companies for the automotive industry, providing distribution, warehousing, and assembly on a contract basis for just-in-time delivery systems. CTI later added service in Europe and South America to its existing U.S. operations, and in 1996 began to service new industries, including electronics, retail, and chemicals. In 1996 Sea-Land entered into a global alliance with Danish shipping company Maersk Lines involving the sharing of vessels and terminals.

The company’s acquisitions and initiatives of the early 1990s were largely overshadowed by CSX’s attempted purchase of Conrail Inc., which began in October 1996. The 1990s had already seen the mega-mergers of Burlington Northern and Santa Fe to form Burlington Northern Santa Fe and of Union Pacific and Southern Pacific (whereby Union Pacific Corp. absorbed Southern Pacific). It appeared that Conrail and CSX would form the nation’s largest railroad–including Conrail’s lucrative routes to New York City–when Conrail agreed to CSX’s $8.1 billion friendly takeover offer. But Norfolk Southern Corp.–CSX’s archrival and a fellow eastern U.S. rail power that had twice before attempted to buy Conrail–stepped in with a $9.1 billion hostile takeover bid, prompting CSX in November to raise its offer to $8.4 billion. By March 1996, after Norfolk had raised its bid twice more, CSX, Norfolk, and Conrail reached a three-way agreement for a $10.2 billion takeover, with CSX paying $4.3 billion for 42 percent of Conrail’s operations and Norfolk paying $5.9 billion for the other 58 percent. Although the outcome was less than the full merger originally sought, CSX would still gain about 4,500 miles of rail–including lines to New York, Boston, and Montreal–giving it a 23,000-mile system in 23 states and the provinces of Ontario and Quebec. Pending approval by the Surface Transportation Board which was expected sometime in 1998, CSX and Norfolk Southern would operate the two dominant railroads in the eastern United States, with CSX having a slight edge over the 21,000-mile Norfolk system and thus remaining the nation’s third-largest railroad.

An increasing concern in the rapidly consolidating railroad industry of the mid-1990s was whether the mergers were compromising the system’s safety. In the midst of CSX’s seeking of regulatory approval of the Conrail takeover, a jury in New Orleans awarded damages of $3.37 billion, including $2.5 billion in punitive damages, against CSX in relation to a 1987 chemical-car fire. This September 1997 judgement was overturned two months later by the Louisiana Supreme Court, which sent it back to a lower court for reconsideration. CSX’s safety record came under further fire when the Federal Railroad Administration issued a report in October 1997 criticizing CSX’s safety procedures. The agency had started an investigation earlier in the year, following a collision between two CSX trains which killed one employee and injured another. The company paid $750,000 in fines for violations uncovered in the inquiry. More controversially, CSX Transportation hired the Federal Railroad Administration’s safety chief shortly after release of the report, leading to criticism from safety advocates.

Assuming regulatory approval of the Conrail breakup, the consolidation of the company’s newly acquired assets was likely to be CSX’s number one priority into the 21st century. Just as the problems that resulted from the Penn Central merger led to the careful meshing of operations in previous CSX mergers, the kind of snafus encountered in the Union Pacific takeover of Southern Pacific would need to be avoided if CSX and Norfolk were to successfully divide Conrail. With the negotiation of the Conrail deal completed, the following question arose among industry observers–was railroad consolidation finally over? The next step, some felt, was the creation of two coast-to-coast giants, with CSX joining with either Southern Pacific or Burlington Northern Santa Fe and Norfolk Southern joining with the remaining partner. Whether or not further consolidation occurred, CSX was certain to remain at the center of the dynamic railroad industry.

Principal Subsidiaries: CSX Transportation Inc.; Sea-Land Service Inc.; CSX Intermodal Inc.; American Commercial Lines Inc.; Customized Transportation Inc.; CSX Technology, Inc.; The Greenbrier; Yukon Pacific Corporation; Grand Teton Lodge Company.

IAMAW Local Lodge 104

Representing Railroad Machinists across the West Virginia Tri-State

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