Who says we can't cope with Class I requirements? - short line/regional perspective

Railway Age, Oct, 2003 by Richard F. Timmons

This month, I will attend the last of the seven Class I/short line railroad meetings, my first such meetings as president of the American Short Line and Regional Railroad Association. Sponsored by the Class I's and attended by a majority of their connecting short lines, these annual sessions are intended to improve communication, address operating issues, and focus on new business opportunities.

When I became ASLRRA president last year, numerous individuals indicated that I would find significant issues dividing the Class I's and the short lines that deserve serious attention. I heard much about them during these meetings. But I also heard something else that doesn't get enough attention. For the Class I's, short line traffic is an increasingly important source of revenue, and short line managers are an increasingly important marketing force in bringing carload business back to the national railroad system.

While the Class I's do not produce uniform data, it appears that short lines contribute 15-23% of their annual revenues. CN measures that statistic with and without intermodal traffic: Without intermodal, short lines contribute 28% to its annual revenues. Since 2000, CN has been tracking the relative growth in revenue from short line related traffic vs. CN's overall revenue growth. The Class I has found that short line traffic revenue growth has consistently outpaced CN's overall revenue growth by 2%.

CSX Transportation indicated that its merchandise traffic with short lines grew by 6% in 2002. That growth alone generated $31.9 million in annual revenues. CSXT's goal is to grow by an additional 8% in 2003, for additional annual revenue of $48 million. Symbolic of and consistent with its commitment to short line business, CSXT has created three cash awards for short lines that bring the most absolute carload growth, the highest percentage of carload growth, and the most significant industrial development site announcement in 2003.

Norfolk Southern has created six individual short line awards that focus on joint business development in various commodity areas and has adopted specific targets for short line carload and revenue growth. As one NS presenter said at its meeting, "you can't beat the value-added component that the short lines have brought to the NS marketing equation."

These trends are very encouraging. Equally encouraging are the unmistakable signs of a new and much more innovative relationship between the Class I's and the short lines. Consider these examples:

* BNSF and its Watco short line connections have completely reversed the traditional Class I/short line working relationship to move a large piece of business from truck to rail. The move involves small unit trains of cement between Kansas and Oklahoma. In this new move, the short line has the line hard while the Class I does the switching work in its yard in Oklahoma City. The short line manages the inventory of cars, the demurrage arrangements with the shipper, and the per diem arrangements with the car owner. BNSF leased the short line track and land to handle the incoming unit trains and is required to do the switching based on the short line's schedule.

* Coal is traditionally viewed as the near-exclusive preserve of the Class I's, but NS and Wheeling & Lake Erie have teamed up to turn a rail/barge coal move into an all-rail move. About 2,500 cars a year of Powder River Basin coal move to a utility plant in Ohio. This is the farthest east that western coal has moved into the U.S. W&LE terminates the move over 168 miles of its track and was responsible for initiating this joint marketing effort. The cars arrive from destination in eight days vs. the 14 days the rail/barge move required.

* Union Pacific's Express Lane service, which handles fresh and frozen agricultural commodities from California and the Pacific Northwest to the East via CSXT, sees about 50% of its origin loads from short lines. The San Joaquin Valley Railroad increased service from three to five times per week to accommodate new melon shippers participating in this service. California Northern Railroad designed and installed a new shipper spur in ten days to take advantage of a new perishable opportunity. Express Lane has been so successful that UP has tripled its order for new mechanical refrigerator equipment.

The Class I system is in the midst of significant change. The railroads are building new business models requiring trains that are heavier, longer, faster, and more scheduled. These changes present real challenges for the short line industry. The pessimists among us might say we cannot cope with those changes.

Yet, it appears that we are coping, and, according to our Class I partners, coping in a way they believe is making a significant, lasting contribution to their bottom lines.

Richard F. Timmons

President, American Short Line and Regional Railroad Association