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The Value-Added Shortline Railroad

Midwest Association of Rail Shippers Itasca, Illinois 1/11/2006 Roy Blanchard, The Railroad Week in Review. The Value-Added Shortline Railroad. The Shortline Railroad Universe:. More than 600 shortline names, 53,000 route miles, 12 mm cars per year (cpy)*

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The Value-Added Shortline Railroad

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  1. Midwest Association of Rail Shippers Itasca, Illinois 1/11/2006 Roy Blanchard, The Railroad Week in Review The Value-Added Shortline Railroad MWARS 1/11/2006

  2. 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) MWARS 1/11/2006

  3. MWARS 1/11/2006

  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. MWARS 1/11/2006

  5. 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. MWARS 1/11/2006

  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. MWARS 1/11/2006

  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 MWARS 1/11/2006

  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 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. MWARS 1/11/2006

  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 MWARS 1/11/2006

  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. MWARS 1/11/2006

  11. 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. MWARS 1/11/2006

  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. MWARS 1/11/2006

  13. Signs of a Value-Added Shortline MWARS 1/11/2006

  14. 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. MWARS 1/11/2006

  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 – it’s a sign that something isn’t working as it should. • Load and release by destination. • Pre-block for the distant node. MWARS 1/11/2006

  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. MWARS 1/11/2006

  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 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. MWARS 1/11/2006

  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. MWARS 1/11/2006

  19. Thanks For your kind attention. Now for the fun part… It’s Q&A time! MWARS 1/11/2006

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