Short-Line Railroad Managers Discuss Class I Railroads

Article excerpt

INTRODUCTION

Short-line railroads (defined herein as railroads with less than 250 miles of trackage) have been part of the transportation industry for many decades. Before 1970 their numbers had been in a long term decline. For example, in 1916 there were approximately 1,000 of these carriers, but by 1970 the number had shrunk to about 240 companies (Levine et al., 1982). The federal regulatory environment became more friendly toward the formation of new short-line railroads starting in the early 1970s. This was precipitated by the bankruptcy of the Milwaukee Road and the Rock Island railroads. Because portions of these railroads could be operated profitably, the federal government enacted laws to facilitate the operation of the viable segments of the failed carriers. Specific legislation included: (a.) The 3R Act of 1973, (b.) The 4-R Act of 1976, and (c.) The Local Rail Service Assistance Act of 1978 (Babcock et al., 1995).

Further encouragement of the short-line rail sector took place in 1980 by the enactment of the Staggers Rail Act. This law facilitated the formation of new short-lines by procedures that liberalized the abandonment of light traffic density trackage by the larger Class I railroads. (Class I railroads are defined by the Surface Transportation Board in terms of their annual revenues, adjusted yearly for inflation. Currently, Class I railroads have approximately $260 million or more in revenues.) Much of the abandoned trackage became the new short-line railroads (Due 1984). Between 1980 and 1989, approximately 230 new short-lines began operation (Babcock et al., 1995).

The purpose of this study is to learn more about what managers of short-line railroads think about Class I railroads. To accomplish this objective, we surveyed about 450 owners/ managers of short-line railroads. Specifically, this article will address the following topics: (a.) A brief literature review, (b.) A description of the research methodology utilized, (c.) An examination of the respondents' answers to this question, "Overall, how would you describe your company's business relationship with the Class I railroads with which you interchange traffic?" (d.) A look at how the short-line owner/managers answered this query, "Do you think the recent history of mergers between Class I railroads has been good or bad for short-line rail companies?" and (e.) An analysis of how the respondents replied to this question, "Besides merger activity, what do you believe will be the most important trend for Class I railroads in the next ten years?"

BRIEF LITERATURE REVIEW

Short-line railroads are typically established when a Class I railroad spins-off their low traffic density trackage. For example, when the Burlington Northern and the Santa Fe railroads merged in 1995, the combined carrier sold about 2,000 miles of trackage to short-line railroads (Fairbank 1999). In 2000 the BNSF indicated that additional lighter density trackage will be spun-off to short-lines (Blanchard 2001c). Other rail industry observers believe that additional

Class I carriers will also continue to rationalize their route system (Kruglinski 2001). Class I railroads prefer to sell this trackage, because short-lines generate additional business that would have been lost if the trackage was abandoned (Due 1984; Landry and Ozment 2001a). Finally, short-line railroads are also involved in mergers. RailAmerica operates approximately 40 short-lines in North American and continues to add properties to its corporate structure. In late 2001 it purchased StatesRail, a privately owned company that operates eight short-line railroads (Gallagher 2001a; Rock 2002).

Operating Characteristics

There are approximately 450 short-line railroads in the United States today (Pocket 2000). They operate in an analogous manner to commuter airlines that feed passengers between smaller cities and major city airports. Short-line railroads collect freight from shippers on light density trackage and transport it to the Class I main-line intercity trackage for delivery to the consignee, and vice versa. …