Traditionalists aren’t happy–and that’s just fine with Rob Krebs. In seven years at the Santa Fe’s throttle, the 52-year-old railroad veteran has shunted tradition to turn an all-but-derailed property into the industry’s top performer, Now the Santa Fe is the prize in a war that could reshape transportation across the West. Shareholders must decide this week whether to pursue a $3.25 billion merger with the larger Burlington Northern or to go with a hostile $3.3 billion takeover by the Union Pacific. Either deal, if approved by the Interstate Commerce Commission, would create a giant dominating grain shipping in the farm belt and the import-export trade through West Coast ports. Both offers attest to Krebs’s achievement in reshaping an old business for the 21st century. Says analyst James Higgins of Brown Brothers Harriman, “He is perhaps the most talented railroad manager there is.”
When Krebs took charge in 1988, the Santa Fe was noted mainly for ancient equipment and miles of little-used track running through the sparsely populated farmlands of Kansas, Oklahoma and Texas. The ICC had blocked a proposed merger with a competing carrier, the Southern Pacific. Santa Fe Pacific Corp., the holding company that had owned both roads since 1988, was forced to shed one or the other. To almost universal astonishment, Krebs opted to hold on to the Santa Fe. He got rid of such unlikely assets as a plywood mill, sold off marginal track and began investing millions to rebuild the Chicago-LOS Angeles main line. He also cut a third of the railroad’s jobs-and won plaudits from skeptical union leaders. Says Mac Fleming of the Brotherhood of Maintenance of Way Employees, “He has rescued the Santa Fe.”
Lower costs and more reliable service have won freight from an unlikely customer, truck lines. Since 1990, truck-rail has grown into a business that moves 3,500 trailers a week. At a new yard, a rolling overhead crane straddles a mile-long train, loading a trailer, complete with chassis and wheels, onto a flatcar every 90 seconds. A new operating center in Schaumburg, where dispatchers use computers and remote cameras to control signals and switches as far away as California, makes sure that the trailer-trains don’t get stuck behind slower freights. That lets the Santa Fe promise two-day service to California for a premium price. In a typical Krebs strategy, Santa Fe has only six managers at the yard; everyone else works for a contractor.
The newly robust Santa Fe drew a marriage proposal from Burlington Northern, which has struggled with slow growth. The team would serve all major Pacific ports and stretch as far east as Alabama. That would threaten the Union Pacific, which fired back with a takeover offer. The catch: the UP and the Santa Fe are direct competitors, and Washington may be reluctant to bless their merger. Krebs says he’ll gladly endorse a UP bid that pays cash up front and lets the UP bear the risk of a government rejection. “I don’t want my shareholders hung out to dry,” he says. Not that they’re worried. Since 1991, the Santa Fe has delivered a 45 percent annual return.
