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November 2019
Editor's note: This story was updated Nov. 25, 2019, to reflect Gary Marino and IRP's current relationship to RailUSA.
By Julie Sneider, Senior Associate Editor
Barbara Wilson relishes her new position as president and chief financial officer of RailUSA LLC, a Boca Raton, Florida-based independent freight railroad and rail services holding company, which she joined in August.
In her new role, she is charged with overseeing all commercial, operational and financial functions of RailUSA, which is majority-owned and controlled by Equity Group Investments (EGI), the private investment firm of American billionaire businessman Sam Zell.
A 26-year rail industry veteran, Wilson says she found the RailUSA position appealing because it would allow her to return to an “entrepreneurial environment” similar to one she experienced in earlier days as CFO for Helm Financial Corp., an independent locomotive and rail-car leasing firm that “created opportunities by listening to and meeting the needs of customers.”
Most recently, Wilson was president of Wells Fargo Rail, the largest rail equipment operating lessor in North America, where she managed more than $8 billion worth of assets and led a 215-person team, helping to grow the business three times over through acquisitions.
Now at RailUSA, she has the chance and challenge of leading and growing a new company.
RailUSA was formed in October 2018, when an investor group headed by EGI that included International Rail Partners (IRP) pooled more than $200 million to help IRP form the business to acquire and manage regionals and short lines. IRP’s senior management team — led by Gary Marino, a rail industry veteran who founded and managed RailAmerica Inc. and Patriot Rail Corp. — collectively has more than 200 years of rail industry experience. Marino and IRP are no longer part of the day-to-day operations of RailUSA.
Prior to officially announcing RailUSA’s formation, the group in summer 2018 acquired what would become the first of RailUSA’s two short lines, Grenada Railroad LLC — a 212-mile line between Memphis,Tennessee, and Canton, Mississippi — from Iowa Pacific Holdings LLC. RailUSA now is restoring the line’s southern portion, about 81 miles between Grenada and Canton, which has been closed since 2011. RailUSA is operating the railroad through a lease-purchase agreement with the North Central Mississippi Regional Railroad Authority.
Then in June of this year, RailUSA announced it acquired its second railroad, a 430-mile segment of a CSX rail line that cuts through the Florida Panhandle. Renamed the Florida Gulf & Atlantic Railroad (FGA), the line operates from Baldwin to Pensacola and passes through and is based in Tallahassee, Florida, with a connection to Attapulgus, Georgia.
In August, RailUSA announced more of its leadership team. In addition to Wilson being named president and CFO, Charles Hankerson was named vice president of operations; and David Pope, general manager of the FGA. In addition, Jay Carter is the FGA’s assistant GM, and Trevor Costilow is Grenada’s GM.
“Barbara’s expertise in strategic planning, financing, acquisitions and integrations in the rail sector, along with her strong reputation and relationships throughout the industry, are a great value add for RailUSA,” RailUSA board director Evan Harwood said in press release issued at the time of Wilson’s hiring. Harwood also is managing director at EGI.
Hankerson, who initially joined RailUSA as general manager after stints at Canadian Pacific and Norfolk Southern Railway, now oversees the company’s day-to-day operations, including railway operations and commercial growth at both rail lines.
Pope joined RailUSA earlier in 2019 as assistant GM of the Florida line prior his promotion to GM. He previously worked for R. J. Corman Railroad Group, Genesee & Wyoming Inc., RailAmerica and NS.
Wilson has high praise for the company’s leadership team — another reason she was excited to join RailUSA, she says.
“We have a mix of folks who’ve worked at regional railroads and Class Is, and that applies not only to our operating side but to our accounting team, as well,” Wilson says. “We have a controller who’s joined us from Norfolk Southern, where she was a point person for the NS short-line team. And most recently, the controller for Grenada joined us from Patriot Rail. So, we’ve put together a team with complementary experience, which we think is quite powerful.”
RailUSA is making “significant investments” at both railroads to rebuild the rail franchise, with the Grenada restoration a “turnaround situation” and the FGA a startup, Wilson says. The $14 million restoration of Grenada’s southern portion is expected to wrap up by year’s end so it can reopen to customers.
Since RailUSA took over Grenada, the short line’s transportation and maintenance-of-way teams have been expanded, and service levels have grown from three to seven days a week to better meet the needs of customers located on that part of the line that remained open, says Wilson. On the line’s southern portion, the rebuild project has included the installation of 80,000 ties, 90 miles of rail and the upgrade of 20 rail bridges.
Since starting her job, Wilson has spent considerable time on the road, getting to know the railroads’ local teams, as well as the Class I partners and key shippers in the regions.
“When working with rail properties that are turnarounds or startups, it’s very important to understand the needs of the shippers and Class I partners,” she says. “It’s also important to spend time with our team and empower them to listen to and understand our customers so that we can align our operations to meet their needs in ways that will grow the business.”
Based on feedback from conversations with Class Is, shippers and customers, there are three lines of business that both RailUSA short lines can pursue: growing freight business, providing rail-car storage and building out transloading capabilities, Wilson says.
“We’ve seen a strong demand at both properties for storage,” she says. “Some of it is long-term storage, but more of it seems to be a need for storage in transit — shippers who need a place to store their rail cars for short periods of time.”
On the Grenada property, the main priority for the rest of 2019 is finishing up the restoration. A $7.5 million U.S. Department of Transportation grant plus a Mississippi state loan have helped fund the work. Once the project is completed, the reopened segment will enable RailUSA to market rail service to a growing-but-underserved central Mississippi region.
“The line being closed means there’s no state business originating or terminating there right now,” Wilson says. “But there are a number of significant business development projects that are going on, where they’re talking about [bringing] track business to the line. Basically, it runs north-south from Memphis to Jackson, and we feel the region will benefit from additional rail capacity.”
Grenada Railroad interchanges with CN at Southaven, Mississippi, and also has access to NS, CSX, BNSF Railway Co. and Union Pacific Railroad. Commodities moved by the short line include forest products, plastics, petroleum products, flour and grain.
The largest customer in Grenada is Resolute Forest Products, a paper company. RailUSA representatives also are talking with other area lumber companies about their rail needs once the short line’s restoration wraps up.
Meanwhile, RailUSA execs believe the 430-mile Florida Panhandle line acquired from CSX is a good fit for the new company’s strategy.
“We think we are among only a couple of groups capable of doing startups of this scale, and to really reinvigorate the retail rail product along the panhandle,” Wilson says of FGA. “We see the panhandle as a very robust region in a state that’s very attractive to business.”
To RailUSA, the Florida line offered a diverse customer base already in place under CSX, as well as the opportunity to attract new customers by providing a “higher-touch service” than was available under the Class I as it shifted to a precision scheduled railroading model, Wilson says.
“There’s a nice diversity of customer types within the panhandle,” she says. “It ranges from sand and aggregates, to steel companies and pipe companies. We also have grain that’s going in and out, and we have fertilizers.”
As RailUSA was preparing to take over the CSX line, a number of the Class I’s employees chose to join the new short line’s ranks. Although RailUSA officially took over the line June 1, the RailUSA team began preparing for it months earlier, says VP of Operations Hankerson.
“We were starting a new railroad from scratch,” he says. “There were no people or locomotives or other equipment, so we had to hire over 60 conductors and engineers. When [CSX] removed all their resources from the line, we had to be ready with our resources and step in from Day One.”
RailUSA began interviewing personnel in January, made offers and conducted training over spring. The company also worked with its equipment provider to position 18 locomotives on the line so that FGA could begin serving existing customers as of June 1, Hankerson says.
Also during that time, Wilson, Hankerson and other execs met with the line’s existing customers to assure them of a smooth ownership transition.
In addition to moving freight and possibly adding storage and transloading to existing customers, RailUSA’s marketing team has been actively recruiting new customers. As of early October, the company has signed on a new shipper and a storage customer for the FGA line.
Part of the company’s growth strategy also involves converting truck business to rail, Hankerson says.
“For example, we’re engaged with a scrap shipper who’s paying about $500 or $600 per 18-wheeler to ship scrap, but we know we can put three trucks-worth of scrap in one rail car for a reduced rate and reach more of [the potential customer’s] end users for that product,” Hankerson explains.
In their conversations with existing and potential customers, both Wilson and Hankerson say they’re pitching the kind of “boutique” or high-touch service that short lines and regionals typically can offer in part by being located geographically closer to their customers.
“Tallahassee is right in the middle of the FGA line, so customers are able to see our team more often,” Wilson says. “And I think that’s really important. Because at the end of the day, the rail business is a customer-service business.”
While execs are ramping up RailUSA’s business under turnaround and startup scenarios, Wilson and Hankerson acknowledge they’re doing so at a time when North American freight-rail traffic has been trending downward. For the first 42 weeks of 2019, U.S. railroads’ combined volume fell 3.1 percent compared with the same period in 2018, according to Association of American Railroads data.
While the industry’s overall traffic downturn has affected certain commodities, Wilson says RailUSA is helped in part by serving a diverse mix of commodities.
“While we’re not sheltered from the slowdown across the board, we’re seeing opportunities as a hands-on retail provider from bringing new customers to rail,” she says. “We’re really working with existing shippers one by one to see if we can convert more truck traffic to rail, or bring traffic back to rail [with] customers that haven’t used rail but now have access to our local service.”
The softness in some parts of the economy also may present opportunities for RailUSA’s storage capabilities, says Hankerson.
“When customers are seeing that their fleet isn’t turning, they need a place to store those cars until the market starts to trend up,” he says. “As a short line, we become that outlet.”
Also among Hankerson’s objectives is to make RailUSA’s rail operations more efficient.
“Everything we do has to have a purpose, has to be strategic,” he says. “One of our goals is to reduce our operating ratio, so we are looking at every way possible to get our fuel consumption in line with operations. We’re also looking for opportunities to right-size our locomotive fleet.”
Looking ahead, Wilson says RailUSA is open to acquisitions and has considered potential properties across North America.
“I think our experience with startups and turnarounds differentiates us from other railroad buyers,” she says. “We’re also open to different ownership structures that may accommodate families or others who want to sell their railroad, but perhaps don’t want to sell 100 percent upfront.”
Email comments or questions to julie.sneider@tradepress.com.
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