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August 2012
— by Jeff Stagl, managing editor
About one-fifth to one-quarter of U.S. Class Is' annual traffic involves short lines. The small railroads typically handle a move's first or last mile and work closely with their customers to arrange rail-car switches. The large roads complete the bulk of most interline moves and manage bookkeeping, such as rate quotes and billing.
It's a profitable business relationship when it's clicking, á la Class Is and short lines recent efforts to jointly generate traffic in Pennsylvania's burgeoning Marcellus Shale region. And, for the most part, it clicks because roads large and small have mutual goals.
"We are all interested in growing business, sustainability and investing in infrastructure," says Rob Robinson, Norfolk Southern Railway's assistant vice president of short line marketing and commercial development. "We look at short lines as an extension of us."
Class I/short-line relationships are better than they were a decade or so ago because the large roads were in merger mode and needed to address other pressing issues, such as service meltdowns, says John Levine, president of Pinsly Railroad Co., which owns seven short lines.
"Now, they have good service plans," he says. "Their investments are showing."
But even with ongoing efforts to build better bonds, both Class I and short-line officials agree their relationships could be better. How? By fostering open communication, exploiting more business opportunities and resolving ongoing issues, such as the consistency of interline pick-ups and deliveries, reliability of transit times and acceptability of rate request turnarounds. Jointly assessing opportunities and addressing concerns from the start is vital.
"If we develop the partnership to the point we're involved in discussions at the beginning, that's nirvana," says Andrew Fox, president of the Chicago SouthShore & South Bend Railroad and managing director of Pacific Harbor Line Inc.
To help prompt open, two-way dialogues, each U.S. Class I maintains a caucus or advisory group staffed by their executives responsible for short-line matters, elected representatives from several small roads, and American Short Line and Regional Railroad Association (ASLRRA) President Richard Timmons.
The groups, which meet quarterly, generally seek to problem-solve from a "30,000-foot level," says Robinson, but members can speak on behalf of an individual railroad and a specific concern. Short-line representatives serve three-year terms and no member can serve more than two consecutive terms.
"Caucuses are opportunities to discuss policy initiatives with a representative sample of short lines," says Fox.
RailAmerica Inc. Vice President of Strategic Relations Josh Putterman is a member of NS' and CSX Corp.'s caucuses and Union Pacific Railroad's advisory group, and chairs BNSF Railway Co.'s caucus. He believes the quarterly meetings are a good way to exchange ideas on best practices and business opportunities.
"We share information, such as where the economy is at, and discuss what the organizational roadblocks are at each Class I," he says. "The talks depend on the times, too. When the economy tanked, we talked about how to increase velocity and increase business; when the shale plays boomed, we talked about how to take advantage of that growth."
The meetings also present an opportunity to review the results of performance surveys the ASLRRA conducts for each Class I prior to their annual short-line conference. The surveys provide ratings on such service metrics as car deliveries and pick ups, car supply and transit times.
Efforts are under way to improve the surveys, says Fox, who has served on various caucuses and advisory groups for about eight years. Currently, the surveys show aggregate results and don't include concerns cited by individual respondents.
"We're making progress in changing the survey so short lines can check a box if they want their individual survey, perhaps with a complaint, sent to a Class I," says Fox.
The latest ASLRRA survey NS obtained earlier this year showed the results of recent service-improvement efforts. The Class I received a 16 percent more favorable overall rating, says NS' Robinson, adding that 25 percent of the Class I's industrial traffic originates or terminates on a short line.
By category, reliable delivery improved 34 percent; interchange pick up performance improved 31 percent; transit times improved 17 percent; car supply improved 10 percent; and rate responses were 9 percent better.
The survey results reflect 854 face-to-face meetings NS executives conducted last year with officials at many of the Class I's 251 short-line partners, says Robinson. The talks included exchanges on ways the Class I could improve performance, since there were "pockets of service deterioration in 2010," he says.
One way to bolster service: a swivel alignment coupler that could eliminate the problem of non-aligning couplers on NS and short-line locomotives. The swivel alignment coupler was developed by a supplier and is being championed by NS, says Robinson.
The parties are seeking Association of American Railroads approval for the coupler, which currently is being tested.
"It's a one-time fix at a low cost," says Robinson.
During short-line meetings, NS execs also have been stressing the need to define and establish interchange service agreements (ISAs), which determine the hours and days service is provided. Not all short lines recognize the value in ISAs, says Robinson.
"We're both trying to create value for customers. We need a reliable operating plan to have reliable service," he says.
Some old ISAs are "getting stale" and there can be misunderstandings between a Class I and short line, such as cars getting dropped off in the morning instead of in the evening as stipulated in an agreement, says Pinsly Railroad's Levine.
"We need to agree on what the plan is," he says.
UP execs also are meeting with short-line officials to discuss mutual objectives.
Either quarterly or annually, depending on the amount of interline traffic involved, UP execs conduct business reviews with short liners both by phone and in person to discuss the volume handled together, whether business is up or down, and what's new at the Class I and short line, says Brian Maher, UP's assistant VP of network and industrial development.
"We can see what business we might be missing on," he says, adding that the Class I has about 175 short-line partners.
Last year, UP placed more of an emphasis on the reviews, says Robin Ringwald, senior manager of short line development.
UP execs also conduct joint sales calls with short lines, which have a hand in about 15 percent of the Class I's annual volume. The calls are made in areas where the Class I conducts business with many short lines, such as in Texas, a shale hotbed.
Maher is encouraging UP's short-line team — which includes Ringwald and Senior Director of Interline Marketing Dan Hartmann — to conduct more joint sales calls.
Meeting and interacting with short lines is essential to CSX, as well.
As part of a Total Service Integration (TSI) program, the Class I is conducting site visits with all 240 short-line partners this year, says CSX Director of Regional and Short Line Development Len Kellermann.
A representative from one of CSX's corresponding 10 divisions is part of each visit because they are "fluent" in the local operations, he says.
"We talk about what we're missing on. Is it capacity? Are the days of the week or the hours set properly?" says Kellermann.
As of early July, CSX had completed about 40 percent of the visits, which will continue throughout the year.
The visits are the first ever done on a holistic basis, says Kellermann.
"We usually tick off issues on a case-by-base basis," he says.
Levine believes CSX's visits could help Pinsly Railroad improve service for its customers.
"The concept is right. It is more deep-rooted," he says. "It's all about raising the bar."
CSX also continues to offer short lines an online performance measurement tool that provides real-time service metrics for each individual railroad. Launched five years ago, the tool "helps to prompt fact-based decisions," says Kellermann.
BNSF also offers short lines a web-based tool. Developed late last year, the velocity tool provides short lines visibility to BNSF's traffic at the carload level, says AVP of Interline/Shortline Dick Ebel.
BNSF plans to solicit help from some of its 200 interchange partners during short-line workshops to help improve carload visibility, says Ebel.
Velocity is key because all railroads want to handle more loads with fewer assets, he says, adding that 43 percent of BNSF's total industrial products volume is touched by short lines.
One way to boost velocity is by migrating to more unit trains, which BNSF is doing for frac sand, crude oil and other commodities. For example, the round-trip cycle time for frac sand typically is 40 to 45 days in the old merchandise train model, but the cycle time drops to one week if the sand is moved by unit train, says Ebel.
BNSF wants more short lines to be able to handle unit trains, he says. Hondo Railway L.L.C. in Hondo, Texas, was named BNSF's Short Line of the Year in 2011 because it built a loop track to accommodate unit trains.
BNSF is making another move aimed at improving interline service, as well. The Class I has submitted an application to the Surface Transportation Board to acquire the Nebraska Northeastern Railway, which began operations in 1996 on about 120 miles of former Burlington Northern Railroad track between Ferry Station and O'Neill, Neb.
"It makes sense to bring it back in," says VP of Network Strategy Dean Wise, adding that the short line is heavily involved in some of BNSF's agricultural product moves.
Ultimately, BNSF adheres to four tenets that both the Class I and short lines need to follow, says Ebel: always seek ways to keep customers happy; take an entrepreneurial approach to conducting business; determine how short lines fit into the global supply chain; and reinvest in infrastructure.
Like the large roads, small roads need to adopt emerging technology, provide good service and enhance infrastructure, among a host of common objectives, says UP's Maher.
"We expect the same thing from short lines that we expect of ourselves," he says.
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