The Value-Added Shortline Railroad

1
The Value-Added Shortline Railroad

• Midwest Association of Rail Shippers
• Itasca, Illinois
• 1/11/2006
• Roy Blanchard, The Railroad Week in Review

2
The Shortline Railroad Universe

• More than 600 shortline names, 53,000 route
  miles, 12 mm cars per year (cpy)
• 32 STs (BRC et al), steel roads (EJE) have 2600
  route miles, 5.2 mm cpy
• NS has most (253), CP fewest (61)
• Top 20 SL ops companies (ex steel, ST) - 174
  roads, 27,000 miles, gt 4 mm cpy
• Top 5 Commodities 13 chemicals, 10 grain, 9
  coal, 8 metals and related, 8 ores.
• More accurately, revenue units (Ill explain)

3
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
Totals 174 26,598 4,033,300 152
4
Shortline Growth

• 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.

5
Giblins Transit Time RuleAll dock-to-dock TTs
have three parts

• Transit time between terminals (line haul).
• Time spent in terminals.
• Pick-up and delivery time.

6
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.

7
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

8
Shortline Economics

• Shortlines get on average 20 or less of Class I
  line-haul revenue per car.
• Class I average revenue per merchandise load
  US1662 through October 31, 2005.
• Shortline pro forma allowance US250-300 per
  revenue load.
• Rule of 100 Need 100 revenue loads per
  route-mile per year to sustain 80 OR.

9
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

10
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.

11
How to Tell a Value-Added Shortline - 1

• Theyre 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.
• Theyll 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.

12
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.

13
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 dont
• 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.

15
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 its a sign that
  something isnt working as it should.
• Load and release by destination.
• Pre-block for the distant node.

16
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.

17
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 youre dealing with stop, look,
  listen.
• Team up with your value-added shortline to lower
  the logistics portion of your Cost of Goods Sold.

18
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.

19
Thanks

• For your kind attention. Now for the fun part
• Its QA time!