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Midwest Association of Rail Shippers Itasca, Illinois 1/11/2006 Roy Blanchard, The Railroad Week in Review. The Value-Added Shortline Railroad. The Shortline Railroad Universe:. More than 600 shortline names, 53,000 route miles, 12 mm cars per year (cpy)*

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slide1
Midwest Association of Rail Shippers

Itasca, Illinois

1/11/2006

Roy Blanchard, The Railroad Week in Review

The Value-Added Shortline Railroad

MWARS 1/11/2006

the shortline railroad universe
The Shortline Railroad Universe:
  • More than 600 shortline names, 53,000 route miles, 12 mm cars per year (cpy)*
  • 32 S&Ts (BRC et al), steel roads (EJ&E) have 2600 route miles, 5.2 mm cpy
  • NS has most (253), CP fewest (61)
  • Top 20 SL ops companies (ex steel, S&T) - 174 roads, 27,000 miles, > 4 mm cpy
  • Top 5 Commodities: 13% chemicals, 10% grain, 9% coal, 8% metals and related, 8% ores.

*More accurately, revenue units (I’ll explain)

MWARS 1/11/2006

shortline growth
Shortline Growth
  • Most roads started as Class I branch lines
  • Staggers Act encouraged spin-offs
  • Only BNSF, CSX shedding lines now, mostly leases
  • 3Q05 SL carloads up 16% to Class Is’ 3%, 90,000 units to Class Is 47,000.
  • Shortline growth masking Class I losses? Not necessarily – Class Is focus on core routes, more local business to shortlines.

MWARS 1/11/2006

giblin s transit time rule all dock to dock tts have three parts
Giblin’s Transit Time Rule:All dock-to-dock TTs have three parts
  • Transit time between terminals (line haul).
  • Time spent in terminals.
  • Pick-up and delivery time.

MWARS 1/11/2006

reality check
Reality Check
  • Motor carriers consistently do all 3 very well (note that highway driving time only one part of 3 part equation).
  • Class I railroads are very good at the line haul but poor in other 2 functions.
  • Shortlines can provide daily service, minimize car dwell time at the dock and cut out intermediate yards.
  • Railroads can be more truck-like with planning and discipline on both sides.

MWARS 1/11/2006

why the class is use shortlines
Why the Class Is use Shortlines
  • Gathering and distribution is shortlines’ forte;
  • Shortlines are closer to the smaller customers;
  • Shortlines are NOT the low-cost operator any more
    • Shortlines have 2-man crews as do Class Is
    • Shortlines lack the Class Is’ economies of scale in loco and track maintenance
    • Fuel costs the same or more

MWARS 1/11/2006

shortline economics
Shortline Economics
  • Shortlines get on average 20% or less of Class I line-haul revenue per car.
  • Class I average revenue per merchandise load US$1662 through October 31, 2005.
  • Shortline pro forma allowance US$250-$300 per revenue load.
  • Rule of 100: Need 100 revenue loads per route-mile per year to sustain 80 OR.

MWARS 1/11/2006

shortline consolidation
Shortline Consolidation
  • Bethlehem Steel roads to Lehigh Valley Rail Mgt., Georgia Pacific to GWR, Alcoa to RailAmerica
  • Consolidation among shortlines: RailNet to OmniTrax, Savage; Rail Management Group to GWR
  • Second-tier moves – Caney Fork & Western to Cundiff Group
  • Class Is wary of buyers over-paying

MWARS 1/11/2006

shortline realities
Shortline Realities
  • 60% of shortlines may not meet minimum economic thresholds for viability.
  • Exceptions: very short, single-purpose lines with high volumes.
  • Low-volume on a shortline indicates customers are using rail as a back-up or as a lever to keep truck rates in line.
  • The smaller the railroad the more demanding of Class I time and resources.

MWARS 1/11/2006

how to tell a value added shortline 1
How to Tell a Value-Added Shortline - 1
  • They’re busy, run six or seven days a week, have multiple crew-starts per day.
  • Everything is clean with a coat of paint.
  • Track is immaculate.
  • They’ll switch you the same time every day; “Train time is anytime” will not do.
  • They understand your supply chain and can help you make it run better and cheaper.

MWARS 1/11/2006

the v a shortline measures everything
The V-A Shortline Measures Everything
  • Resources consumed (fuel, car hire, man-hours) per revenue unit;
  • Variation in Class I interchange times, drills down to root causes to minimize;
  • Financial performance (operating ratio, net margin)
  • Hours elapsed between interchange on and off;
  • Time between place and pull at your facility.

MWARS 1/11/2006

how customers can use the value added shortline to their advantage
How Customers Can Use the Value-Added Shortline to Their Advantage
  • As your advocate with the Class I – shortlines have contacts you don’t;
  • To pick the best option among routing choices;
  • To reality-check rate quotes;
  • By scheduling switch times to improve efficiency at your location – a daily appointment as with a truck;
  • To control floor inventory costs with scheduled transit times.

MWARS 1/11/2006

rail asset management for customers
Rail Asset Management for Customers
  • Use shortline to manage empty car supply – COTS, LOGS, GCO.
  • Avoid demurrage with timely place and release – ask me about multiple car spots behind a closed gate.
  • Avoid Constructive Placement – it’s a sign that something isn’t working as it should.
  • Load and release by destination.
  • Pre-block for the distant node.

MWARS 1/11/2006

how shortlines maximize value to their connecting class is and thereby to customers
How Shortlines Maximize Value to their Connecting Class Is and thereby to Customers
  • Minimize equipment dwell time between interchanges.
  • Run unit trains on schedule to eliminate terminal delays and turn cars faster – lessees like this.
  • Run pre-blocked trains directly into Class I serving yard taking out Class I crew-starts and yard dwell.
  • Report car movement events in accordance with the established protocols.

MWARS 1/11/2006

in summary
In summary…
  • There are many sizes, shapes and approaches to the shortline business.
  • The good ones will grow; the others will go away.
  • Know which you’re dealing with – stop, look, listen.
  • Team up with your value-added shortline to lower the logistics portion of your Cost of Goods Sold.

MWARS 1/11/2006

take aways
Take-Aways
  • The value-added shortline is your advocate with the Class Is.
  • The value-added shortline creates a seamless network with the Class Is.
  • The only limit to what you can do with value-added shortlines is your own imagination.

MWARS 1/11/2006

thanks
Thanks

For your kind attention. Now for the fun part…

It’s Q&A time!

MWARS 1/11/2006