PART 2: For Short Lines, Top-Line Growth is an '09 Goal

Count two regionals and one short-line holding company among members of the small railroad industry that are trying to set growth strategies for ’09 amidst the uncertainties surrounding the economy, fuel prices and federal regulatory climate. There’s at least one thing they’re sure of — revenue will increase even though traffic might not.

The Indiana Rail Road Co. (INRD) expects revenue to rise 8 percent to 9 percent primarily because of strong coal and coke carloads. Those gains will help offset declining revenue from plastics traffic and appliances shipped from a General Electric Co. refrigerator plant in Bloomington, Ind., that plans to close by early 2010.

Robust electricity demand will increase coal shipments, which account for 65 percent of annual revenue, says INRD President and Chief Executive Officer Tom Hoback. One coal customer has raised its volume projection from 2008’s 5.9 million tons to 6 million tons.

“It will be a good year dollar-and-cents-wise, but not a record-type year for overall volume,” says Hoback.

The 500-mile regional expects to take in more dollars and cents next year because of rate increases. INRD has renewed a legacy coal contract at a higher rate and obtained price increases that range from 3 percent for one customer to 9 percent for another.

Genesee & Wyoming Inc. (GWI) also is hiking rates, which will generate more revenue next year and help offset drops in lumber and forest products, paper, steel and automotive traffic.

“To a large degree, these areas of weakness are being masked by the strong pricing environment, as well as the ramp-up of several new customers,” said GWI CEO Jack Hellmann during the company’s third-quarter earnings conference held on Nov. 3.

In terms of earnings, the company — which owns 63 railroads in the United States, Canada, Australia and the Netherlands — expects to get a boost from the short-line tax credit extension through ’09.

“Because it lowers our tax rate, we estimate that the credits will increase our 2009 book earnings by about $10 million,” said Hellman.

Depending on traffic Diversification

Meanwhile, Iowa Interstate Railroad Ltd. (IAIS) is counting on a diversified traffic base to help drive up carloads 11 percent and increase revenue 17 percent in 2009. Traffic gains in agricultural products, ethanol, windmill components and intermodal are projected to offset drops in steel and building product, and plastics carloads.

“Obviously, if the economy takes a nosedive early, our projections will decrease somewhat,” says President and CEO Dennis Miller.

The 550-mile regional also expects to reap benefits from 12 GE AC4400 locomotives acquired earlier this year. The new power enabled IAIS to cut fuel and locomotive maintenance expenses, sell five older locomotives and store other older units.

“At some point, we will consider leasing out the stored units to create another revenue source,” says Miller.

Here are a couple of things the new Congress should consider: taking steps to enhance rail usage rather than inhibit it through more regulation, and developing a nationwide transportation plan, he says.

“The rail industry’s biggest challenge in the coming year will be to continue to concentrate on growth and capacity issues, and not be distracted or stymied by some political process,” says Miller