While expanding railroad profits during the economic downturn are drawing shipper attention, the hundreds of small carriers that feed into the Class Is are scrambling for any freight and government help they can get.
So far, smaller railroads are holding up well enough, but they are also under heavy pressure, said Richard F. Timmons, president of the American Short Line and Regional Railroad Association.
“Nobody is saying we are out of business,” he said. “Nobody is saying we’re down for the count.”
He said some of the ASLRRA’s more than 500 members are even boosting traffic this year, or banking on diversified business lines to help overcome the rail freight slide. Many face tough conditions, however, because demand has tanked just as the industry adapts to tougher federal safety laws and other regulations that affect the industry.
“If the tide is falling, there is just so far it can fall before the small guy is caught,” Timmons said.
Most of the short lines are privately held so financial numbers are not available, but business trends suggest they are traveling on different tracks from the big carriers.
As the economy tumbles, smaller railroads are losing carload traffic a bit faster than the seven Class I railroads. And short lines have lost a lot more rail-truck intermodal hauls than the majors.
In the first eight weeks of 2009, the more than 340 short lines tracked in the RMI RailConnect index lost 17.5 percent in carloads of bulk materials and equipment compared with the same period last year.
Carloads at major North American railroads declined 16.5 percent in carloads in the same period, the Association of American Railroads said, so the two segments reflected about the same demand levels for most types of shipments.
But RMI reported intermodal hauls on short lines fell 48.4 percent through Feb. 28, while the AAR said large carriers suffered just a 15.2 percent drop.
The longer this recession goes the more impact it can have on short lines, Timmons cautioned, and “my guess is that this is going to last two or three years.”
Besides the economic turmoil, some small carriers find their networks, or particular line segments, caught in a push by shippers and big cross-country railroads to move higher-volume railcar loads.
One is Stephen M. Gedney, president of Lancaster & Chester Railway in Lancaster, S.C. He said some customers on his line would like to ship freight in the 286,000-pound bulk railcar loads increasingly seen on the national rail system, and which give the customer more price and volume efficiencies than the older 263,000-pound standard.
“It’s a national outlook” shippers use in these issues, he said, and they increasingly want their short-line connections to upgrade and offer more efficient links to the national rail network.
But part of L&C’s tracks are up to 70 years old and have only lighter-test rails, so Gedney would have to spend about $8 million to upgrade 17.5 miles of track — more than he can put together without substantial federal or state help.
There is $27.5 billion in federal stimulus money going to state highway departments, but a short line’s “chances of getting one of those (awards), in my opinion, are slim to none” Gedney said.
He said some states, including South Carolina, for years have given highway funding a higher priority to assisting freight rail, while others are learning how rail-targeted funds helps remove some freight shipments from crowded highways.
Helping L&C weather the downturn are some soy meal and soy oil shipments out of an Archer Daniels Midland plant and steel railroad spikes from Ameristeel that go as far as track projects for distant Canadian railroads. A new oil recycling facility also should open this year.
For Pinsly Railroad, a group of short lines in Massachusetts, Florida and Arkansas, new traffic from long-term business development projects will also help ease the downturn, President John P. Levine said.
But he said Pinsly has cut its traffic forecasts three times since October. Still, he said, there are bright spots for customers in energy or highway aggregate shipments. Some Pinsly properties also are upgrading to woo new business.
And after several years in which soaring fuel costs spurred freight customers to review their entire supply chains, “we’re in the right place at the right time,” Levine said, compared to trucking. “While we’re having a difficult short-term period, and that may continue a while, we’re optimistic about the future.”
Contact John D. Boyd at email@example.com.