(The following story by Mateusz Perkowski appeared on the Capital Press website on November 14.)
SALEM, Ore. — The federal Surface Transportation Board has opened the way for a coastal Oregon port to buy an important timber and lumber shipping rail line, but the final outcome will depend on money.
The Central Oregon & Pacific Railroad, whose reporting Association of American Railroads mark is CORP, was ordered to sell the 111-mile line connecting Coos Bay and Eugene to the Port of Coos Bay, but the board has yet to determine the line’s value.
Once it does, the Port of Coos Bay will need to decide whether to make the purchase.
“I guess you could say we won one point, but the real issue is the price,” said Martin Callery, freight mobility director for the port.
According to the port, the line is worth less than $10 million, but CORP estimates its value at over $20 million.
“We don’t agree with that at all,” Callery said. “We’re a long way apart.”
The port and the railroad have been feuding since September 2007, when CORP shut down the line, citing the danger posed by several deteriorated tunnels.
After ceasing operations on the line, CORP asked the Surface Transportation Board to abandon it altogether, since repair costs outweighed economic benefits.
“We concluded it was not a justifiable business decision to invest money in the tunnels while operating a money-losing operation,” said Scott Williams, general counsel and senior vice president for RailAmerica, CORP’s parent company.
The Port of Coos Bay and shippers along the line objected to the abandonment, saying that a permanent closure would hinder outgoing lumber and incoming timber, threatening the viability of mills and other businesses.
The railroad company’s excuse about deteriorated tunnels didn’t pass muster, because those conditions have existed for 15 years and not much has been done about them, said Bob Ragon, head of the Coos Siskiyou Shippers Association and executive director of Douglas Timber Operators.
“It wasn’t something that happened yesterday,” he said.
For that reason, the port asked the Surface Transportation Board to force CORP to sell the line. Abandoning the line would be unfair, especially since the port has invested $12 million in repairs with the help of state and federal public funds, Callery said.
On Oct. 31, the Surface Transportation Board ruled that CORP didn’t provide adequate service on the line and that a forced sale would not seriously affect the company’s finances or hamper shipping on the line, justifying the sale to the Port of Coos Bay.
However, the board rejected the port’s valuation of the underlying real estate: Whereas the port estimated the land value to be under $1 million, the board pegged it at over $6.7 million.
The board also threw out the port’s request that CORP set up an escrow account to pay for repairs to the line.
“It looks to me like they’ve split the baby in this case,” Ragon said. “It must be a perfect solution, to make nobody happy.”
Most likely, the board is expecting CORP to appeal the forced sale in court, and didn’t want to appear biased toward one side or another, he said.
To the port’s advantage, however, scrap steel prices – a major determinant in the rail line’s value – have plummeted.
During the month of October alone, the price per ton of scrap steel fell from $570 to $130, said RailAmerica’s Williams. “That has an adverse impact on us.”
The Surface Transportation Board will issue a selling price based on a new value estimation, revised to include the lower steel price, submitted by the port on Nov. 5.
If the port rejects the price, CORP will be allowed to abandon the line.