Transcript The Value-Added Shortline Railroad

The Value-Added Shortline Railroad
Midwest Association of Rail Shippers
Itasca, Illinois
1/11/2006
Roy Blanchard, The Railroad Week in Review
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The Shortline Railroad Universe:
• More than 600 shortline names, 53,000 route miles, 12 mm
cars per year (cpy)*
• 32 S&Ts (BRC et al), steel roads (EJ&E) have 2600 route
miles, 5.2 mm cpy
• NS has most (253), CP fewest (61)
• Top 20 SL ops companies (ex steel, S&T) - 174 roads, 27,000
miles, > 4 mm cpy
• Top 5 Commodities: 13% chemicals, 10% grain, 9% coal, 8%
metals and related, 8% ores.
*More accurately, revenue units (I’ll explain)
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Owner
Lines
miles
Annual Carloads
CPMPY
RailAmerica
47
8,728
1,140,000
131
Genesee & Wyoming*
43
3,027
1,021,000
337
Washington Group
2
723
285,000
394
DME
2
2,300
227,000
99
Omnitrax
17
2,600
200,800
77
Watco
9
2,834
200,000
71
Paducah &Louisville
1
309
181,000
586
Anacostia & Pacific
4
594
137,000
231
Wheeling & Lake Erie
1
769
87,000
113
Quebec Railway
7
1,643
83,000
51
Ohio Central
7
516
71,000
138
Iowa Interstate
1
552
65,000
118
Indiana Rail Road
2
200
65,000
325
Rio Grande Pacific
3
484
57,000
118
Gulf & Ohio
9
276
46,000
167
Lehigh Valley Rail
6
81
45,000
556
Western Group
6
751
44,500
59
Pinsley
6
200
43,000
215
Sandersville
1
11
35,000
3182
26,598
4,033,300
152
Totals
174
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Shortline Growth
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Most roads started as Class I branch lines
Staggers Act encouraged spin-offs
Only BNSF, CSX shedding lines now, mostly leases
3Q05 SL carloads up 16% to Class Is’ 3%, 90,000
units to Class Is 47,000.
• Shortline growth masking Class I losses? Not
necessarily – Class Is focus on core routes, more
local business to shortlines.
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Giblin’s Transit Time Rule:
All dock-to-dock TTs have three parts
• Transit time between terminals (line haul).
• Time spent in terminals.
• Pick-up and delivery time.
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Reality Check
• Motor carriers consistently do all 3 very well (note
that highway driving time only one part of 3 part
equation).
• Class I railroads are very good at the line haul but
poor in other 2 functions.
• Shortlines can provide daily service, minimize car
dwell time at the dock and cut out intermediate yards.
• Railroads can be more truck-like with planning and
discipline on both sides.
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Why the Class Is use Shortlines
• Gathering and distribution is shortlines’ forte;
• Shortlines are closer to the smaller customers;
• Shortlines are NOT the low-cost operator anymore
– Shortlines have 2-man crews as do Class Is
– Shortlines lack the Class Is’ economies of scale in
loco and track maintenance
– Fuel costs the same or more
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Shortline Economics
• Shortlines get on average 20% or less of Class I linehaul revenue per car.
• Class I average revenue per merchandise load
US$1662 through October 31, 2005.
• Shortline pro forma allowance US$250-$300 per
revenue load.
• Rule of 100: Need 100 revenue loads per route-mile
per year to sustain 80 OR.
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Shortline Consolidation
• Bethlehem Steel roads to Lehigh Valley Rail Mgt.,
Georgia Pacific to GWR, Alcoa to RailAmerica
• Consolidation among shortlines: RailNet to
OmniTrax, Savage; Rail Management Group to GWR
• Second-tier moves – Caney Fork & Western to
Cundiff Group
• Class Is wary of buyers over-paying
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Shortline Realities
• 60% of shortlines may not meet minimum economic thresholds
for viability.
• Exceptions: very short, single-purpose lines with high
volumes.
• Low-volume on a shortline indicates customers are using rail
as a back-up or as a lever to keep truck rates in line.
• The smaller the railroad the more demanding of Class I time
and resources.
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How to Tell a Value-Added Shortline - 1
• They’re busy, run six or seven days a week, have
multiple crew-starts per day.
• Everything is clean with a coat of paint.
• Track is immaculate.
• They’ll switch you the same time every day; “Train
time is anytime” will not do.
• They understand your supply chain and can help you
make it run better and cheaper.
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The V-A Shortline Measures Everything
• Resources consumed (fuel, car hire, man-hours) per
revenue unit;
• Variation in Class I interchange times, drills down to
root causes to minimize;
• Financial performance (operating ratio, net margin)
• Hours elapsed between interchange on and off;
• Time between place and pull at your facility.
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Signs of a Value-Added Shortline
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How Customers Can Use the Value-Added
Shortline to Their Advantage
• As your advocate with the Class I – shortlines have
contacts you don’t;
• To pick the best option among routing choices;
• To reality-check rate quotes;
• By scheduling switch times to improve efficiency at
your location – a daily appointment as with a truck;
• To control floor inventory costs with scheduled transit
times.
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Rail Asset Management for Customers
• Use shortline to manage empty car supply – COTS,
LOGS, GCO.
• Avoid demurrage with timely place and release – ask
me about multiple car spots behind a closed gate.
• Avoid Constructive Placement – it’s a sign that
something isn’t working as it should.
• Load and release by destination.
• Pre-block for the distant node.
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How Shortlines Maximize Value to their
Connecting Class Is and thereby to Customers
• Minimize equipment dwell time between interchanges.
• Run unit trains on schedule to eliminate terminal
delays and turn cars faster – lessees like this.
• Run pre-blocked trains directly into Class I serving
yard taking out Class I crew-starts and yard dwell.
• Report car movement events in accordance with the
established protocols.
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In summary…
• There are many sizes, shapes and approaches to the
shortline business.
• The good ones will grow; the others will go away.
• Know which you’re dealing with – stop, look, listen.
• Team up with your value-added shortline to lower the
logistics portion of your Cost of Goods Sold.
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Take-Aways
• The value-added shortline is your advocate with the
Class Is.
• The value-added shortline creates a seamless network
with the Class Is.
• The only limit to what you can do with value-added
shortlines is your own imagination.
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Thanks
For your kind attention. Now for the fun part…
It’s Q&A time!
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