Outlook 2024: What's ahead for short lines?
1/10/2024
By Julie Sneider, Senior Editor
Editor's note: Earlier this week, RailPrime Senior Editor Julie Sneider chatted with American Short Line and Regional Railroad Association President Chuck Baker to get his perspective on the business trends, challenges and political topics that will keep him and ASLRRA members on their toes in 2024. Following is an edited transcript of their conversation.
RailPrime From a business perspective, what are you hearing from your members in terms of their outlook for the new year?
Baker: Over the last 10, 20 or 30 years, most short-line owners, presidents, CEOs and top executives would have told you, if you asked, that they’re focused on growth. They wake up and they go to sleep thinking about how can they get one more carload. They talk to their customers and will say “yes” to essentially every request you can think of. They work on getting creative and flexible with customers on how to move one more car, or how they can help [customers] win in their market so that they can grow with the customers. Or they look at how they can get one more customer, and if that new customer represents just five carloads a month, they’ll figure out how to do it.
It’s one carload at a time. That can feel painstaking. But if you do that every day, every week, every year, and you add all that up, by the end of a year or in a couple years, it works, right? That's how short lines have turned into a successful story over the decades.
The data shows that short-line carload traffic has outgrown Class I traffic over the last 10 years. The year-over-year growth rate is slightly higher for short lines. Then we take all that traffic and bundle it up and hand it to our Class I partners and they do a phenomenal job of moving it long-haul. That is a successful win-win partnership.
RailPrime How will the short-lines' focus be different in 2024 compared to 2023?
Baker: I don’t have a 2024 focus that’s totally different than the 2023 focus. A big impediment to growth over the previous few years has been the [Class Is’] rail service problems in 2021 and 2022. Those problems started to get much better throughout 2023. We're hoping that there will be fewer and fewer service problems in 2024. The good news is that our Class I partners, from the CEO level down, are largely starting to focus on growth, volume and being committed to doing what they need to do from a customer service and flexibility standpoint.
I think everyone in this whole industry is frustrated when you look at the last 20 years; it’s been kind of flat. It's time to grow overall.
RailPrime Would you say ASLRRA members are optimistic about business in 2024?
Baker: I think so. One of the things I say a lot is, “There are 600 short-line railroads out there, and if you know one, you know one.” So how optimistic you are probably depends on your specific seven, 10 or 15 customers and exactly what industry they're in, what they're hearing and what your Class I partner is saying.
But in general, yes, I hear a fair amount of optimism. There's a lot of jump-ball business out there that can be won by the railroads if they have the right price, service, equipment availability and customer experience. Short lines by their nature are optimistic; they hustle, scrap and fight — they want to go after that business.
RailPrime What legislative issues will ASLRRA and short-line railroad owners be following on Capitol Hill this year?
Baker: We continue to be very excited about the federal CRISI [Consolidated Rail Infrastructure and Safety Improvements] grants. They've become a huge deal. Short lines are stewards of infrastructure that typically needs a fair amount of investment help. Short lines try to keep those lines viable and successful and do as much of that work as possible out of their own pockets. But, generally, short lines need, want and have been really blessed to get both federal and state support for lots of short-line projects over the years and the CRISI grants have become a really big deal at the federal level.
The good news from the Infrastructure Investment and Jobs Act (IIJA) from a couple years ago was that it set a [CRISI] funding level at a minimum of $1 billion per year for each of the fiscal-years 2022 through 2026. But then the IIJA also allows Congress to appropriate up to another $1 billion dollars per year. So, we spend a lot of time and effort in D.C. focusing on trying to get that second tranche up as high as it can be. We had good success on that in FY22 and 23, with levels around $400 million to $500 million each. We've seen the FY22 money get out on the street. The NOFOs [notices of government funding opportunity] for FY23 and FY24 are likely going to be announced in the next month or two. And then FY25 and FY26 are off into the future. But we are, and will be, spending a lot of time and effort focusing on those funding programs on Capitol Hill.
At the state level, we're also excited that dozens of states now have some sort of program to support short lines — mini-CRISI programs, if you will. Those tend to be much smaller, like grant totals of $10 million here, $20 million or $5 million there, but they add up. That’s not something the ASLRRA coordinates, but the short lines themselves are working on [advocating for such programs] very hard and successfully. And so, we'll be looking for short lines to do even more of that work in state capitals.
RailPrime What’s the status of proposed legislation that would help short lines that have experienced natural disasters, such as hurricanes?
Baker: There’s really no federal program that exists to help short lines deal with natural disasters. FEMA is not set up for private companies. And the SBA really only does loans, not grants, and they're typically limited to about $2 million. In the world of rail infrastructure, $2 million just doesn't move the dial very much. Even a small short line could experience $10 million or $15 million worth of damage in a natural disaster. The U.S. Department of Transportation has other programs that deal with similar types of things: The Federal Transit Administration, for example, has a program for transit agencies. But there's no similar program at the Federal Railroad Administration that short lines could access. So, we are talking to members of Congress about the possibility of creating one.
There’s a bill [the Short Line Railroad Relief Act] that’s been introduced by Congressman Byron Donalds (R-Fla.), and it's got 26 co-sponsors, which is pretty good.
RailPrime That bill has bipartisan support, right?
Baker: It does have bipartisan support. We're going to do our best to turn that legislation into reality.
RailPrime I imagine the biggest issue that ASLRRA will be focused on this year in Washington, D.C., is rail safety.
Baker: Post-East Palestine, there's been a huge focus on rail safety and that's perfectly appropriate. But we are very focused on making sure that any bill that is targeted at rail safety actually improves rail safety and doesn't put mandates on short lines or on the industry that are counterproductive or where the costs are out of whack with the safety benefits. A lot of times short lines are operating on the margins and are keeping lines that are barely viable. They are just not in a position to shoulder giant new regulatory burdens that don't have commensurate safety benefits.
RailPrime What other issues at the federal level does ASLRRA have its eyes on this year?
Baker: Environmental regulation is a huge one. Proactively, rail is the environmentally friendly way to move freight and we're always pushing lawmakers, policymakers and regulators to keep that in mind and work on policies that help us shift freight to rail.
Over the last year or so, we've unfortunately been forced to play a lot more defense than offense on the environmental issue, and it's really been led by the folks at the California Air Resources Board (CARB). They've passed a rule in California that is just draconian, impractical, unworkable and unrealistic from the short-line point of view. Among other things, starting in 2030, the rule says that a railroad cannot operate a locomotive that is older than 23 years. If that rule weren't so problematic, it would be laughable. There are many short lines in California and elsewhere that only have locomotives that are older than 23 years. We spent a lot of time and effort trying to tell CARB that they shouldn't implement the rule because of the substantive concerns, which they’ve so far ignored. We’re now trying to tell them via court that they can't do that, that it is federally preempted. We will see how we do on that lawsuit.
RailPrime In the interim, how are California short lines preparing to take on what could be a considerable expense to meet the new requirements?
Baker: There are 20-plus short lines in California; each one will have their own unique answer to that question. But I would say many of them are scrambling and looking under every rock they can find for help on the funding side to look at upgrading their locomotives.
We already think we're helpful to the environment. We know that, in general, shifting a ton of freight from truck to rail is hugely beneficial to the environment. But short lines very much want to do more, too. They want to run cleaner and newer locomotives. It’s just that they have real funding constraints. These are small businesses. They're short lines because you need a small, nimble, flexible company to scrap, save, hustle and do everything they can to keep these rail lines viable. That generally doesn't involve buying fancy new $5 million locomotives. So, short lines are out there looking for every possible funding solution they can, but they're also in a wait-and-see mode and we'll see what happens with the lawsuits.
