NRC panel: Four short-line holding company leaders share positive trends, current concerns
3/29/2021
By Jeff Stagl, Managing Editor
So what’s on the minds of short-line holding company leaders? What challenges are they facing these days?
Those were two of the questions addressed by four such leaders during the National Railroad Construction and Maintenance Association’s (NRC) “Short Line Railroad CEO” webinar held March 18. NRC President Ashley Wieland moderated the panel, which featured Doc Claussen, president of Gulf & Ohio Railways Inc. (G&O); John Fenton, chief executive officer of Patriot Rail & Ports; Dan Smith, CEO of Watco Cos. LLC; and Lon Van Gemert, CEO of Progressive Rail Inc.
Doc Claussen, president, Gulf & Ohio Railways Inc.In terms of mounting concerns, it isn’t the pandemic anymore, said Claussen. COVID-19’s impact on traffic at G&O — which owns five short lines — “was puts and takes” last year, negatively affecting some sectors, but not others, he said.
“It’s outside forces more than the pandemic,” said Claussen.
For example, a struggling propane customer cut its carloads by 75% last year.
G&O is registering a business bounce-back in 2021, with traffic up 13% and revenue up 17% so far this year, said Claussen. The company worked to increase metals and storage-in-transit business, and regain a road salt customer that was lost in 2019.
For Patriot Rail & Ports, the pandemic forced the company to alter its course, which is paying off now.
“Adaptability is the key word,” said Fenton. “We had to learn how to manage better and rethink the way we do things.”
An improved management approach helped Patriot Rail — which owns 13 short lines — keep traffic afloat. In 2020, carloads only fell 3% year over year. The company also set free cash flow and operating ratio records, and logged solid safety metrics.
Patriot Rail even pulled off “a nice acquisition” late last year by purchasing the Salt Lake Garfield & Western Railway, said Fenton. The company plans to build more track this year for the short line, which operates a 26-mile line and interchanges with BNSF Railway Co. and Union Pacific Railroad.
John Fenton, president and CEO, Patriot Rail & PortsSo far in 2021, Patriot Rail’s traffic is up 15%.
“The new shipper inquiries we are receiving are encouraging,” said Fenton.
Watco also set a free cash flow record last year despite absorbing a “gamut of declines” in traffic segments, said Smith. The company expects to be operating 48 U.S. short lines by sometime later this year.
More beneficial than besting a financial record, Watco managers learned a few things last year they plan to hang onto, such as not skimping on capital spending, said Smith. The company expects to spend $105 million on capex in 2021 versus $85 million last year.
“People are more distracted now than they’ve ever been. We need to stay the course in 2021, and that means improving assets and investing in capital,” said Smith.
So far, Watco’s traffic volume is showing an uptick — meaning business in 2021 is poised to maintain the momentum that surfaced in late 2020, he said.
Progressive Rail learned a few things during the tumultuous 2020, too. That figures to translate into more business this year for the company, which owns 13 short lines, including the Iowa Traction Railway, the only electric freight railroad still operating in the United States.
For example, Progressive Rail plans to expand its reach in recession-proof commodities, such as food and beverages, said Van Gemert. Transload traffic is strong and — what’s even more encouraging — frac sand business in Wisconsin is staging a comeback, he said.
“That’s really good because frac sand used to be our cash cow,” said Van Gemert.
Dan Smith, CEO, Watco Cos. LLCProgressive Rail built a new transload facility in Mason City, Iowa, and is seeking to expand transloading at all of its short lines.
While addressing a panel question about current challenges, the holding company leaders shared a number of issues, including the potential for more rail regulation under the Biden administration, the effect and cost of technological advances, the difficulties short lines face with environmental, social and governance (ESG) efforts, and the evolving labor market.
The cost of doing business is going up and there’s more pressure to keep costs down, said Fenton. It’s also difficult to find people who are skilled in technologies, such as artificial intelligence, he added.
The labor market is very competitive and Watco is losing employees to the Class Is, said Smith.
An even bigger challenge that’s hard to overcome: ESG.
“It requires a lot of data to move the needle. We don’t always have that information available, like emissions data,” said Smith.
Employees have been loyal to Progressive Rail, but it’s proving difficult to ensure the company is rightsized, said Van Gemert. Tightening controls is vital, he believes.
“We have found it easier to contract out MOW work,” said Van Gemert.