Colorado’s San Luis Valley is a favorite destination among railroad fans. With an average altitude of 7,664 feet above sea level and scenery that includes the Great Sand Dunes, the San Juan Mountains as a western backdrop and the Sangre de Cristo Mountains to the east, it’s a spectacular place to photograph trains.
But camera-toting rail fans standing at La Veta Pass in the Sangre de Cristo Mountains might be disappointed. Instead of a steam locomotive blasting its way down narrow-gauge tracks across a rickety-looking bridge to an old gold mine, they would see modern locomotives hauling Yukon Gold potatoes, not gold nuggets.
The 150-mile San Luis & Rio Grande Railroad, which connects with Union Pacific Railroad at Walsenburg, Colo., boasts the highest rail freight line in North America, with the track going over La Veta Pass at 9,242 feet above sea level. The short line, part of Iowa Pacific Holdings’ Permian Basin Railways, soon will boast one of the rail industry’s largest refrigerated boxcar fleets with 250 mechanical reefer railcars.
“Permian Basin has six short lines, and two of them have substantial reefer traffic,” Iowa Pacific President Edwin Ellis said. “The San Luis Valley is the second-largest potato-growing area in the country. Our Mount Hood Railroad in western Oregon also has a lot of reefer traffic, mainly pears.”
Formed in March 2001 to acquire railroads and create rail-related businesses, Iowa Pacific Holdings sees refrigerated cargo as a promising market and has entered the market in dramatic fashion. A few months ago, the short lines had a total of 40 mechanical reefer cars, a figure that expanded to 150 when it signed a deal with Rail Logistics for a long-term lease of 110 refrigerated boxcars. Under the agreement, Rail Logistics will manage, operate and market the reefer fleet for the short line carriers.
In addition to the 110-car lease, Iowa Pacific has ordered 100 64-foot refrigerated boxcars from Greenbrier Industries at a cost of $25 million. Those cars are expected to join the fleet next year.
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“Right now with our 150-car fleet, we’ll be acting as an asset-based 3PL,” Ellis said. “There is a terrific market, both on our own lines and across the country. We ship fresh potatoes from the San Luis Valley to Houston; that’s a major lane for us. At this point, we only have about a 10 percent market share in the valley; the rest of the potatoes are trucked out. That’s because there wasn’t capacity to ship more by rail.”
The immediate goal is to add more lanes and increase the potato business, he said.
The current business model is simple, with no unit trains or other special services, Ellis said. “We offer our customers through rates, and they don’t have to worry about leasing cars, or fuel or which railroads carry their product.”
That sort of single-car manifest service in West Coast lanes is something Rail Logistics has done well for years, he said.
Railroad interchange rules provide a viable, although complex, way to fill the cars and move them around the country for revenue loads, Ellis said. “We load cars off one of our lines, and we get a free return — either to the origin or some other point for loading. Just last week we sent some cars with potatoes to Houston. When they were done with the cars, they were sent to California, where they were loaded with other produce,” he said. “Maybe those loads will go to Oregon, and we’ll load them with pears and ship them somewhere else.”
All the moves made by the San Luis and Mount Hood railways currently are done under tariff rates. Although having contract rates with the connecting carriers might be less costly, shippers are still eager to obtain the rail service because it is less expensive than moving goods by refrigerated trucks, Ellis said. “We don’t see a problem getting full utilization with these cars,” he said.
The Greenbrier contract calls for the 100 cars to be delivered in the second and third quarters of 2013, probably at a rate of a car a day. “Once we get those cars in, we’ll have more options, Ellis said. “A unit train requires 50 railcars. We are looking at setting up something like that next year. It would be very attractive because you get a lot more use out of the expensive equipment.”
Railcar cargo, especially in unit trains, will be a different mix than what is hauled by the intermodal Cold Train service, said Steve Lawson, president of Rail Logistics, which will manage the fleet. “I think that type service will be a lot of frozen meats,” he said. “It’s not retail business like intermodal. We’ll probably be moving things for large customers from one cold storage to another cold storage.”
Iowa Holdings is considering a third business model for some of its cars, running an expedited service with Green Zephyr, a new addition to reefer rail service companies, Ellis said.
Expedited service puts a reefer railcar at the end of an intermodal train, providing faster transit times for perishable shipments. “It might save one day; it might save three days,” Ellis said. “It depends on the lane.”
To place a car in intermodal service, the braking system must be modified, something he said the carrier is considering. “With the size of fleet we have right now, we don’t have enough cars to implement unit train service,” Ellis said. “Next year we would really like to run them in a unit train or expedited service or both.”
He said demand for reefer rail service is so strong that there are “a bunch of opportunities” available. “We have opportunities to go to Mexico, and I’m talking to some people about that,” Ellis said.
Serving Mexico isn’t simple, he said. “Customs can’t handle refrigerated rail traffic at all border crossings.” He said the Eagle Pass border crossing in Texas is equipped to handle protein shipments. Southbound cargoes could include beef, pork and chicken, with fruits and vegetables shipped north on the return trip.
Green Zephyr has conducted a number of test loads during the past 18 months, President Kevin McKinney said. The tests are completed, and McKinney is talking with investors to take the company into active operation.
Transportation consultant Ted Prince, a columnist for The Journal of Commerce, is working with another group of investors that are considering putting together a reefer unit train service to be hauled by BNSF Railway. “The idea is to be able to operate one unit train a week,” Prince said. “With each boxcar costing $250,000, you have to have that sort of utilization to make it viable.”
Prince said the group is making progress on setting up the business but hasn’t finalized the deal.
The level of activity and interest in investing in reefer rail equipment is having a dramatic impact on the North American fleet. The North American refrigerated railcar fleet has dwindled over the past four decades as obsolete or broken down mechanical refrigerated boxcars were scrapped and railroads didn’t replace them, let alone add any new equipment.
About a decade ago, Union Pacific built new boxcars for its fleet. But during the past five years, the only new reefer cars in North America were purchased by Cryo-Trans, a rail leasing company that also offers cold storage and logistics services.
“Right now, we’re building another 100 72-foot mechanical reefers,” said Dwight Price, director of sales and marketing for Cryo-Trans. “When these are delivered, we will have 1,150. That’s the second-largest fleet in the U.S. Our fleet is already bigger than the BNSF.”
Figures compiled by the Association of American Railroads show a total of 15,485 refrigerated boxcars in North America in 2011, down from 26,507 in 2002. That number is misleading, Price said, because about half the cars in the report are merely insulated, and don’t have refrigerator units. There are about 8,000 mechanically refrigerated boxcars in North America, he said.
“The shells for the new cars are being built now, and they will be completed and delivered sometime this fall. We’ll get them out to customers in the second half of 2012,” Price said.
The company’s main business is leasing cars to frozen food manufacturers including ConAgra, Heinz and Frito-Lay. “We provide full cold-chain service; we manage the cars, provide the fuel, track and trace and do reporting.”
Cryo-Trans, Price said, is in discussions with investors to put together a unit-train service. “It would be a very effect business model,” he said. “We’ve built new cars just about every year. We expect to buy more next year.”
He said the cars are expensive, but because they are in demand, “we know that if we have railcars they will be used.” The 100 cars on order already have been leased to customers.
The Cryo-Trans business model works because food is a stable market and reefer cars offer transportation savings, especially as the price of fuel increases. “When transportation capacity gets tight, you start hearing lots of drumbeats about using rail,” Price said. “Fuel, driver shortages, anything that affects the truck market leads people to us.”
Despite that demand, Price said future investment would probably remain the province of non-railroad companies. “I don’t foresee railroads buying reefer boxcars anytime soon,” he said. “For a railroad, there are a lot of other things you can do with the money. A small cube covered hopper car costs a lot less and is in great demand right now. From a finance guy’s point of view, it’s a lot better deal.”
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