RESTRICTIONS SPUR NEW RAIL STRATEGIES

RESTRICTIONS SPUR NEW RAIL STRATEGIES

Preserving the habitat of the spotted owl may not seem to have much to do with railroading at first glance, but Western carriers are finding they have to develop new strategies to serve the forest products market as a result of reductions in timberland that can be cut in the Pacific Northwest.

"The No. 1 challenge in forest products is where the resource is going to come from," said Dick Krase, Burlington Northern Railroad's director of product development for forest products. "We're putting our resources where the demand is going to improve.""We are trying not to be held captive to Option 9 (President Clinton's

plans that reduce cuttable federal acreage)," said Don Veidt, Southern Pacific's general director of forest products. "If we do nothing, we will have a serious revenue shortfall."

Although supply of timber from some traditional sources is dwindling, officials at BN, SP and CSX Transportation believe a combination of new sourcing, different marketing and service improvements will keep the railroads' share of forest and paper products and could channel more traffic onto the rails.

One key feature in the rail picture today is a shift toward sourcing wood

from the Southeast.

Mr. Veidt said "With shifting supply, we will have to supply capacity from all wood baskets. We are going to work aggressively to market those products in Southern California and Arizona. If there is a place where we might have a competitive advantage, it would be Southern California and Arizona."

SP is counting on new programs with other railroads and greater attention to pricing in an environment in which motor carriers are having difficulty with lack of drivers and equipment, as well as rising costs due to factors such as fuel price increases.

One approach Mr. Veidt identified was working with railroads, such as Union Pacific, that serve timber-originating areas when inter-line movements made economic sense to both parties.

Mr. Veidt also was upbeat about working with short-line railroads such as North Coast Railroad that has new management eager to increase past volumes.

The key, Mr. Veidt said, is to provide reliable transit times beyond the short-line's North California coast tracks, as well as an adequate supply of freight cars in good condition to handle forest products.

SP isn't very enthusiastic about using reload centers that truck products to rail rehandling sites to extend their market reach, because the railroad believes that can spawn inter-carrier battles that lead to a downward price spiral, Mr. Veidt said.

Another approach being pursued by several carriers is to work with mills to find markets for higher-valued products that increase revenue for companies whose volume of timber processed is going down.

Like SP, Burlington Northern is looking to connections to channel new supply to on-line customers and is working with those connections to assure that adequate car supply is available to serve BN markets.

Mr. Krase said timber supply from Canada, north central states and perhaps overseas will be used to supply BN customers.

As if the spotted owl wasn't enough for BN, this year's flooding knocked a big hole in the Midwestern housing markets that are a primary market, Mr. Krase said.

Unlike SP, BN has a network of more than 100 reload centers that handle paper or forest products because they offer flexibility that customers want in their supply chain, Mr. Veidt said.

"The distribution network is changing," Mr. Krase said. "The question is not where is my car, but how is my pipeline performing. We're becoming more of a warehouse than we ever were before. That trend is going to accelerate."

Like BN, CSX Transportation uses a network of warehouses and reloading to deliver truckload size volumes of paper and other products to customers that use boxcars for the long haul.

James Howarth, CSXT's assistant vice president of forest products, said CSXT is focusing on taking a customer-by-customer approach to forest products markets in an effort to grow business for forest products, inbound fibers and paper.

Part of that effort includes working with individual customers to determine their needs and tailoring service packages to meet them, Mr. Howarth said, especially in the area of inbound fibers that the railroad belives can be profitable through that approach.

Another focus is to simplify the pricing structure to make them easier for sales staff and customers to use.

A boxcar rehabilitation program is being considered to boost equipment quality, he said.

"The entire forest products business is having some severe financial problems," Mr. Howarth explained. "We are trying to listen to them and help them in any way we can."