SHORT TAKES Caddo Valley Railroad Co. Headquarters: Glenwood, Ark. Route: 52.9 miles from Gurdon to Bird Mill, Ark. Interchange: Gurdon, with UP PREX GP16 1610 cuts through the piney woods near Gurdon, Ark.

It’s a great time to be in the railroad business, but if you’re a short line that’s going to make it, you’ve got to learn how to add big-time value

by Roy Blanchard

riters such as Archie Robertson, Lucius road, or about 30 percent of the U.S. rail sys- Beebe, and William S. Young prepared us tem. They handle more than 12 million revenue Wfor short lines of an unhurried nature. Far units a year.* from the hustle and bustle of big-city commerce, Of the short lines operating today, 16 are these railroads went about their business in a lei- owned by Class I railroads, and they fall into two surely way. Robertson captured such lines in categories: switching and terminal railroads, and 1945’s Slow Train to Yesterday; Beebe immortal- actual short lines like the Winston-Salem South- ized them in his 1947 classic Mixed Train Daily; bound (a joint property of Norfolk Southern and and Young kept Trains readers informed about CSX, and a holdover from joint control of Norfolk the little roads well into the 1950s with his & Western and Atlantic Coast Line) or the monthly column, “Short Lines.” Mexican ( City Southern). The three best The 1980 Staggers Act [page 10], the subse- known are probably the Belt Railway of quent deregulation of railroad rates, and Wall (owned by six Class Is), probably the biggest Street have combined to end all that. Competi- switching and terminal railroad; the tion from unit trains, intermodal double-stacks, Harbor Belt (Canadian Pacific, NS, CSX); and and the China trade, plus cell phones and the Houston’s Port Terminal Railroad Association Internet make everything move faster, and the (BNSF, Union Pacific). Together they operate on slow train that Robertson once wrote about is some 1,900 route-miles of track and handle gone. It’s a smarter, faster world out there, and roughly 4.5 million revenue units annually. short lines have benefited. Yet, the challenges More than two dozen industry-owned rail- have never been greater. That’s why shortline op- roads exist to serve their corporate owners’ core erators and fans are keenly interested to know businesses. U.S. Steel’s Transtar Inc. (Union; El- what it takes to keep their railroads running in gin, Joliet & Eastern; Birmingham Southern; and the black. The short answer is to pay attention to others) and Weyerhaeuser (Columbia & Cowlitz; the “Rule of 100,” a rule of thumb we’ll explore, Texas, & Eastern; and others) are two and for the railroads to become “valued-added” of the biggest. These roads account for nearly short lines. We’ll also explain that concept in 1 million annual revenue units and operate more depth, but first, let’s survey the shortline world than 1,000 route-miles of railroad. to understand where it is and what’s ahead. The switching and terminal railroads, Class The United States has about 600 short lines. I-owned short lines, and the industry-owned They range in size from Arkansas’ 2-mile Delta roads together add up to 48 companies that own Valley & Southern to the 500-mile Kyle Rail- *We count revenue units rather carloads because intermodal con- Hoge tainers are revenue units that can load two to four per platform or road in Kansas. Taken as a whole, short lines car. Also, a five-platform articulated intermodal set is technically

operate more than 52,000 route-miles of rail- a “car” because it carries one number. David

28 TRAINS JUNE 2 0 0 6 tively. With the consolidation in other Hoge

Benson

industries — steel comes first to mind C.

David — more of the same is likely. John fter two decades of rationaliz- ing their networks, most of the AClass Is seem to be content with the systems under their control. The only two Class Is with active programs to sell or lease branches to short lines are BNSF and CSX. Since the beginning of 2004, the trend has been more toward leases and always with known operators of multiple railroads. Thus far, BNSF has transferred about 600 miles variously to Watco, OmniTRAX, and Anacostia & Pacific. CSX has shed about twice that, again going with the known players: G&W [see “First Coast’s First Days,” pag- es 36-42], Watco, and OmniTRAX. Between Class I line transfers to the known players and industry consolida- tion, it’s gotten to the point where the top 20 shortline operating companies SHORT TAKES ranked by annual revenue units own Co. and operate 170 separate railroad Route: 750 miles in northwest Kansas names with more than 26,000 route- Headquarters: Phillipsburg, Kan. miles of track moving 4 million loads a Interchanges: Courtland and Concor- year. Pure short lines — that is, the to- dia, Kan., with BNSF; Salina, Kan., tal number of lines less the switching and Limon, Colo., with Union Pacific and terminal railroads, steel roads, and holding-company railroads — number Kyle SD39s work west of Phillipsburg. just under 400 carriers with about specs. A 30-mile railroad needs 1.69 trillion ton-miles, up 2.4 percent 30,000 route-miles handling 3 million $150,000, and a 60-mile railroad needs from the prior year’s record. loads a year. That’s an average of 100 tive ownership, upkeep, and fuel will $300,000. Applying the Rule of 100, a This is good for short lines. Railcar revenue units per mile per year, a han- consume another 20 percent of reve- 4,000-car railroad will support 40 Management Inc., a provider of short- dy number to keep in mind because nues, and car-hire, the amount one route-miles, which, at $5,000 per mile line railroad revenue and asset-man- we’re about to explore that Rule of 100. railroad pays another to use the latter’s per year, comes to $200,000, leaving agement services, reports that full- The shortline world has many rules cars, will take another 20 percent. our sample railroad $60,000 to keep year 2005 shortline traffic was up 6 of thumb: 100 cars per mile per year, That’s 70 percent of revenue, or the lights on and pay the insurance. percent year-over-year. There are two $5,000 per mile per year in track main- $840,000, and there’s been no money That’s why the 100 cars per mile per factors at work here: Short lines do a tenance to keep FRA Class 2 track (25- allocated yet to track. year average for the independent short much better job of increasing carloads mph) up to specs, 12 gallons of diesel Track will consume about $5,000 lines may be a bit thin. from smaller shippers than do their SHORT TAKES fuel per car handled per year, and oth- per mile per year in ties and surfacing Sixty percent of short lines handle larger counterparts, and there were Delta Valley & Southern Railway Co. ers. These can tell an observer a lot in to meet FRA Class 2 specs, the mini- fewer than 4,000 cars a year, which is short lines on the books at the end of Headquarters: Wilson, Ark. a short order. The Rule of 100 is per- mum required for maximum freight- kind of a cut-off for profitability. You 2005 that did not exist a year before. Route: 2 miles haps the most important of all. It’s a train speeds of 25 mph. Why, you may still need two train-service people, two We’re also seeing increased instanc- Interchange: Delpro, Ark., with BNSF useful tool to have when you’re trying ask, does a short line need 25-mph track workers, a clerk, and a manager. es where the Class Is are using short- to figure out whether the “Fallen Flag track? The answer is because it’s twice It still takes upwards of $600,000 a line tracks as routing alternatives and operate more than 3,000 route- Smallest of the small: GE 50-tonner & Eastern” will make money. as fast as Class 1 (or worse, “excepted” year just to open the doors before the where the larger railroad is capacity- miles of railroad, and handle nearly No. 50 works the Delpro interchange. The Rule of 100 works like this: The track) and doesn’t carry hazmat and first car arrives at interchange or the constrained. The Western New York & 6 million revenue units every year. Back typical short line gets an “allowance” other restrictions of the lower grades. first spike is hammered. Lines this Pennsylvania, and the Nittany & Bald them out, and non-Class I or industry- that averages 20 percent or less of the The $5,000 per mile per year rule is small — the proverbial 10 miles of rust Eagle, for example, both handle Nor- affiliated short lines handle the remain- Genesee & Wyoming, and Railcar Man- Class I revenue per car — call it $2,000 based on the fact that Class 2 track re- and a cloud of dust — won’t make it. folk Southern unit coal trains, taking ing 6 million revenue units on just un- agement. Then came consolidation as based on calendar year 2004 Class I quires eight good ties per 39-foot rail But the short lines that focus on mileage out of an all-NS route and der 50,000 route-miles of track among RailAmerica acquired RailTex, and revenue per revenue unit other than length. That works out to 1,083 good building their revenue base, regardless providing better use of assets. 550 different operating companies. Genesee bought Railcar Management. coal or intermodal. Call it $250-$300 ties per mile; with 30-year tie life, you of how big they are, will have a bright In fact, asset management has tak- Here is where it gets interesting. Further, North American RailNet over per carload to the short line. have to replace 36 a year. Figure $50 a future. Fact is, railroading is having a en on new importance as the major There are two types of non-affiliated the past year and a half sold its five A short line with 4,000 loads a year tie installed and 50 cents a foot for true renaissance. For 2004, the Asso- railroads look to improve returns on (no Class I or industry ownership) short lines to OmniTRAX (three), Savage In- is looking at annual revenues of $1.2 tamping and surfacing, and it works ciation of American Railroads said invested capital. The trend is toward lines: independents and lines that are dustries (one), and Watco (one). million, tops. A well-run short line out to $4,445 per mile. Call it $5,000 that railroads had another record year minimizing what Watco calls consum- part of holding companies. The trend is There is also consolidation among ought to be able to meet its expenses per mile per year including odds and in both intermodal traffic and total ables per revenue unit: car-hire ex- toward more of the latter and fewer of shipper-owned short lines. Just last for 80 percent of revenues, implying ends. volume as measured in ton-miles. U.S. pense, fuel burn, and man hours. Tom the former [see “Big players ...,” page year, Alcoa and Georgia Pacific sold an operating budget of roughly $1 mil- Do the math and you’ll see that a carloads increased 1 percent for the Hund, chief financial officer at BNSF, 35]. RailTex was one of the first holding their industry railroads to RailAmeri- lion. Payroll and benefits will take 15-mile railroad needs $75,000 a year year — 152,000 carloads — and total will tell you that 75 percent of the companies, followed by RailAmerica, ca and Genesee & Wyoming, respec- about 30 percent of revenue. Locomo- just to keep the track up to Class 2 volume for the year was estimated at money you don’t spend if you don’t run

30 TRAINS JUNE 2 0 0 6 TRAINSMAG.COM 31 The parallel thread is maximizing Hoge merchandise tonnage per scheduled Zollitsch

David train. That means, as NS has demon-

strated with its Thoroughbred Operat- Mike ing Plan, scheduling the core network first and then building the feeder net- work around it. So, with all this unit- izing and scheduling going on, what’s the poor short line to do? The only option is to take part. Take stone and gravel, for example. Say there are three stone users on your SHORT TAKES short line that bring in 75 cars a week Lycoming Valley Railroad Co. among them. Your interchanging Class Headquarters: Northumberland, Pa. I railroad wants to run 75-car trains Route: 38 miles, Avis to Muncy, Pa. on a 24-hour turnaround at destina- Interchanges: Linden and Muncy, tion. If you’re going to split this train Pa., with Norfolk Southern among three customers, your best bet is to lease 75 cars yourself so that What is a SW9s 238 and 239 step along at a when the Class I shows up for its train, smart pace at Saegers, Pa. you have one to give it. short line? Single-car customers are best served with a page out of the AIM If you go looking for the definition of a short line, good luck. There is no hard playbook. The first step is to help cus- and fast rule on them. The Association of American Railroads classifies railroads tomers accelerate the load-unload pro- according to annual operating revenues: cess to get cars back into the pipeline A Class I railroad earns more than $267 million. more promptly. With understanding A Class II earns less than $267 million but more than $21 million. will come a list of short-term action And a Class III earns $21 million or less. items for both railroad and customer. The Class Is tend to lump every railroad that isn’t another Class I under the Finally, measurement — are we going shortline rubric. However, that route has its faults, because doing so includes the where we said we’d go? Results, so far, switching and terminal railroads, which the Class Is own in the first place. are encouraging because taking assets And so it is generally agreed that a short line is a Class II or III railroad that SHORT TAKES out of the move lowers cost, lowers serves a limited market and is locally managed or owned. Short lines are typically Southeast Kansas Railroad Co. (with rates, and improves profitability for paid a percentage of the Class I revenue for every car moved and rarely partici- Watco’s South Kansas & Oklahoma) all. What better incentive could one pate in rate negations with other railroads or shippers. — Roy Blanchard Headquarters: Pittsburg, Kan. ask for? Route: 140 miles in southeast Kansas Interchanges: Pittsburg, Kan., with o it is that short lines do have a Kansas City Southern; Coffeyville, mer single-car domains such as aggre- loader or receiver releases them. niche in this world of unit trains agement, enhancing the customer’s perceived product or service quality Kan., with Union Pacific gates, automotive, and metals. The The BNSF initiative centers on its Sand scheduled operations. If advantage against his competitors. — relative with respect to the competi- whole idea is to take out intermediate AIM Strategy (Assess the carload prod- ever there was a time to be in the No less an authority than manage- tion; perceived by the customer” (see Southeast Kansas SW10 1274 “Bubba” yards and inherent delays in order to uct, Improve the carload model, Maxi- shortline business, this is it, and what ment and leadership consultant Tom Peters’ book Thriving on Chaos, page works the KCS interchange. produce, yet again, greater revenue mize the carload network). The effort I call the “value-added” short line is in Peters reminds us that “sustainable 67). To be sure, railroads are not yield per train-crew hour, gallon of starts by examining the resources re- the best position of all. Value is added market share comes through relative known for proactively working with fuel, and dollar of car-hire. quired by commodity lane (one com- to the customer’s process where the customers in supply-chain manage- a train goes to wages, fuel, and equip- CN and BNSF have taken slightly modity moving between specific short line can enhance the logistics ment. But they ought to be. ment. different tacks to unitize the single-car points) for such things as volume, chain, operations, and inventory man- SHORT TAKES The short line that can spot loads so One result is the unit train. It loads franchise. CN is moving away from equipment needs, and track speed. Nittany & Bald Eagle Railroad Co. as to fill inventory voids as they are cre- in one place, goes directly to another unit trains, instead running scheduled With this information, planners then Headquarters: Northumberland, Pa. ated, eliminate demurrage, keep rates place, unloads and returns, and serves trains point-to-point with each train can see where to improve productivity Route: 68 miles, Tyrone to Lock Haven down by helping customers turn cars both intermodal and coal well. The taking as much as it can regardless of and move on to service design, cus- Interchanges: Lock Haven and faster, and shorten the time lag between shift to unit grain trains helped doom commodity. At Taschereau Yard in tomer involvement, and, most impor- Tyrone, Pa., with Norfolk Southern; load release and the Class I core train, such “granger lines” such as the Colo- Montreal, for example, CN has inter- tant, measurement and feedback. Sunbury, Pa., with Canadian Pacific will be perceived as a quality supplier. rado & Eastern, Iowa Northwestern, modal, automotive, transload, and This, mind you, comes from the Short lines such as Watco’s Eastern and more former Chicago, Burlington bulk transfer for commodities from railroad that generates 19 percent Nittany & Bald Eagle Geeps work the Idaho even have gone so far as to have & Quincy branches than I can count. plastics to cooking oil, and lumber re- more revenue from intermodal and Hilex plant at Milesburg, Pa. their customers’ releases trigger Union Here again, farmers, country elevator loads, all in one place. coal than it does from all other com- Pacific trip plans through to the desti- operators, and users from millers to In this way, CN can fill each train modities combined, by far the highest nation. And if being able to tell a cus- exporters found that super trucks, su- with everything scheduled to be on it percentage differential in the industry. tomer when his shipment will arrive per highways, and super shuttles could and get it out of town. Thus, the 5 p.m. On the other hand, CN’s merchandise isn’t adding value to the rail transpor- Zollitsch move more grain faster and more departure for Winnipeg with 10,000 franchise (everything but intermodal tation product, I don’t know what is.

cheaply than single-car moves involv- feet of capacity can leave full every and coal) represents 73 Canadian Mike As Yogi Berra is reported to have ing lots of cars and locomotives. day. Locomotive-fleet management im- cents out of every dollar in revenue. said, “You can observe a lot just by And now, the Class Is — Canadian proves, too, as power is matched to What could two railroads with fran- looking.” How a short line is managed National being the exception — are scheduled trains rather than, say, chises at opposite ends of the single- is reflected in the way it looks. Bill taking the unit train concept into for- grain trains that can’t go until the carload spectrum have in common? Strawn, president of the Ohio Central

32 TRAINS JUNE 2 0 0 6 TRAINSMAG.COM 33 pretty much on a just-in-time basis. The big players in short lines Benson

One day the short line’s train crew C. noticed the plant was not unloading Owner Lines Miles Annual Carloads CPMPY* cars as usual. Loads were plugging the RailAmerica 47 8,728 1,140,000 131 John industry plant, and the crew was Genesee & Wyoming 43 3,027 1,021,000 337 afraid they’d have to be “constructively Group (MRL) 2 723 285,000 394 placed” (modern railroad jargon for Cedar American (DME-ICE) 2 2,300 227,000 99 parked someplace other than the in- OmniTRAX 17 2,600 200,800 77 tended receiver), clogging up the rail- Watco Cos. 9 2,834 200,000 71 road and adding demurrage penalties Paducah & Louisville 1 309 181,000 586 for the customer. Anacostia & Pacific 4 594 137,000 231 As it turned out, the gluing machine Wheeling & Lake Erie 1 769 87,000 113 had broken down and the logistics Quebec Railway 7 1,643 83,000 51 manager had not told the supplier to Ohio Central 7 516 71,000 138 shut off the tap. So, the railroad owner Iowa Interstate 1 552 65,000 118 got on the horn with the plant man- Indiana Rail Road 2 200 65,000 325 ager to get the supply turned off. Then Rio Grande Pacific 3 484 57,000 118 they worked out a schedule to unload Gulf & Ohio 9 276 46,000 167 the back-logged cars so as to minimize Lehigh Valley Rail 6 81 45,000 556 demurrage exposure. They also fixed a Western Group 6 751 44,500 59 timeline for repairs to be complete and Pinsley 6 200 43,000 215 gave a re-start date to the supplier and Sandersville 1 11 35,000 3182 the originating railroad. Totals 174 26,598 4,033,300 Avg. 152 Finally, there’s the paper receiver *Cars per mile per year. Source: Industry estimates, company reports from 2005. with an inventory problem. Every month the serving short line would murrage bill was the inventory prob- more productively, but for whatever send a five-figure demurrage bill. Natu- lem: too much paper, too little room. reason failed to do so. The good news is rally, the plant manager thought irreg- The solution was to have some truck that in every instance there was a short SHORT TAKES ular transit times were causing cars to paper delivered to the outlying ware- line with the people and skills to iden- Morristown & Erie arrive faster than he could unload houses, keep no more than 4 million tify a problem and recommend a pro- Headquarters: Morristown, N.J. them. So he called the shortline owner pounds in the printing plant, and un- cess to rectify it. That’s what being a Route: 42 miles on three divisions: seeking relief. The plant consumed load railcars as they arrived, releasing value-added short line is all about. Whippany Main Line, Chester, and 4 million pounds a week in its printing empties back to the railroad as they There are, as we noted at the open- Dover & Rockaway Branch operation. It kept 7 million pounds of were made empty rather than waiting ing of this article, many shapes, sizes, Interchange: Lake Junction, N.J., paper on the floor of the printing plant, for that evening’s train. and approaches to the shortline busi- with Norfolk Southern plus several million pounds in outlying The common thread among these ness. However, the economics and warehouses. Most of the paper arrives examples is that the customers had it in commercial aspects are common to M&E C430 No. 16, at Morristown, is a by truck during the day, and railcars their power to manage their rail asset all: Being perceived as a quality sup- bright attraction to customers. Five attributes separate the value- important for the shortline owner to are unloaded at night. plier in the eyes of the customer will added short line from the others. The spot trouble and step in before it esca- But because trucks filled up the get you through times of no money railroad is busy, running six or seven lates into something expensive. available space by day, there was little SHORT TAKES better than money will get you through shortline network, correctly maintains days a week, and may even have multi- For example, there are places where room to store the paper to be unloaded Louisiana & North West times of no customers. that a clean locomotive is a short line’s ple train-starts per day. Everything is customers take multiple cars twice a from the boxcars at night. As a result, Headquarters: Homer, La. After so many years of managing a best calling card. In New Jersey, the clean and wears a fresh coat of paint. week, unload them with no pattern, boxcars were not unloaded promptly, Route: 62 miles, from McNeil, Ark., to shrinking asset base, today’s industry 100-year-old Morristown & Erie got Track is immaculate — good ballast and release empties all at once. Then and as more arrived they were set aside. Gibsland, La. leaders have to think in terms of invited to switch a refinery simply be- and ties, no low joints, and free of veg- they wonder why they get demurrage There was no problem with transit Interchanges: McNeil, with Union Pacif- growth. And isn’t it interesting that the cause a refinery executive had seen the etation. Most important of all, the val- bills. Better for them to unload cars time, so the root cause of the high de- ic; Gibsland, with Kansas City Southern 2005 stock price performance of the M&E’s bright red Alcos on his way to ue-added short line switches its cus- from the gate back and release them as best-run North American railroads work every morning. tomers at the same time every day. The unloaded to stop the demurrage clock. A worker dismantles an old L&NW eclipsed that of so many e-business It works the other way, too. A farm- line understands its customers’ supply Then if the train crew shows up be- Geep. darlings from e-Bay to Yahoo. er in the Midwest saw me photograph- chain dynamics and knows “train time fore the last car is unloaded, they can Yes, consolidation within the short- ing a particular short line operating is any time” no longer works. To do pull the empties and loads, shove in line industry will continue, and the big over a Class I fallen flag. Track had de- this, the value-added short line mea- new loads, and put the remaining will get bigger. Yet there will always be Hoge graded to FRA Class 1 or worse, and sures everything (the fifth attribute) loads from an earlier switch on top of room for the value-added short line re-

the three units on the point of the from gallons of diesel fuel and train- the new loads. The process eliminates David gardless of length. The small road is train in my viewfinder had paint crew hours per revenue load to elapsed demurrage and keeps cars cycling. But just as wide as the big one and has just schemes that did not match, with the time at the customer’s facility, and is often the railroad has to step in and as good a shot at being another value- leasing company’s initials carelessly prepared to drill down to root causes of make these suggestions. added short line. 2 stenciled under the cab window. Said failure in order to add more value to the farmer, “Since that outfit came to the commercial relationship. ometimes a glitch in the custom- Roy Blanchard is a shortline man- town, that railroad’s really gone down It’s important for customers to take er’s manufacturing process can agement consultant who publishes a hill.” In other words, customers will the lead in fixing the rail relationship Scause a hiccup in rail service. A weekly railroad industry newsletter and use a railroad that looks like it has its where they are in control — empty car commercial carpet-maker uses pow- has been a Railway Age contributing act together, and they can tell from ap- ordering, load-unload sequence, even dered limestone in the adhesive back- editor for more than 15 years. This is pearances how much attention the down to making sure the gate or door ing that holds the finished product to- his first Trains byline. railroad gets from its owner. is open for train crews. But it’s just as gether. The limestone arrives by rail

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