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Short line economics

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Short line economics
Posted by TODD SCHULTZ on Monday, February 25, 2019 5:17 AM

In 1985, the BN abanonded the former NP branch from Brainerd, Minnesota to International Falls. I’m thinking of building a model of the first 40-ish miles, between Brainerd and Pine River, MN. In reality there was very little traffic on the line.

If I a going to have a plausible railroad, I am going to have to play God and plop down a fairly sizable industry in Pine River—a plywood mill or something originating a decent number of cars.

My question is this: if you had a 40 mile railroad in 1986 where most of the traffic traveled the entire length of the line, about how many carloads a year would be needed to keep a 10 mph railroad in business? I know the variables and nuances of pricing vary widely, but is there a rule of thumb that says “x cars anually per mile of RR” or some such thing?

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Posted by dehusman on Monday, February 25, 2019 9:21 AM

Figure it costs a couple hundred dollars an hour to run a train.  I am more familiar with class 1 costs, which involve larger trains and better track, so I am guessing down.   You will probably need two or 3 crews to run the railroad.  40 miles at 10 mph is an 8 hour round trip (assuming it has no delays and operates at max speed 100% of the trip).  That leaves only 4 hours to get the train together at origin, do the switching at the plant and put the train away when it gets back.  You would probably need 2 crews.  One gets the train together and departs origin with the train and switches the plant.  The other goes on duty when the train is about done with the switching at the mill, gets in a van, drives to the mill, gets on the train, takes it back to the origin, switches the train and delivers it to interchange.  Meanwhile the first crew gets in the van and drives back to the origin.  Might even be able to get both crews on straight time.

16 hours at $200 an hour = $3200 per day to run the trains (crew, engines, fuel, car hire).  Lets say you can make $100 a load (the total revenue on a load might be $4000, but you only get a fraction of that since you are only 40 miles of a 1500 mile trip), and logs/pulpwood is waaaaaaaaaaaay lower revenue, maybe $100-$500 a car totalfor the entire move (your revenue would be part of that unless the pulpwood/logging operations were on your line).  If your line is only 40 miles long, most logging operations would just truck the inbound wood directly to the mill, if it was sources close enough to load it on your line.  You would have to haul 32 LOADS a day to break even on the costs to run a train.  That might not cover capital costs (track maintenance, expansion, bridge replacement, car leasing, etc).

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Posted by Doughless on Monday, February 25, 2019 9:33 AM

Interesting stuff. 

At 20mph instead of 10mph, the costs should go down considerably.  Maybe 20 to 25 car loads a day just for the plywood shop.  And if there are other industries on the line, perhaps there is more revenue, but not really a similar increase in costs.

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Posted by gmpullman on Monday, February 25, 2019 9:37 AM

Get the state to subsidize you.

A couple of the short lines in Ohio and Michigan that I'm familiar with got grants and subsidies from both the shipper and the state Surprise

 

http://www.ontracknorthamerica.org/wp-content/uploads/Regional-and-Short-Line-RRs-in-the-US-OnTrackNorthAmerica.pdf

 

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Posted by mbinsewi on Monday, February 25, 2019 9:40 AM

I would say if GOD is going to put down a plywood mill, I think he will also provide more industries along the way, or even another branch line to more industries.

GOD is good!

Mike.

EDIT:  OOOPS! was that a religious statement?

 

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Posted by wjstix on Monday, February 25, 2019 10:04 AM

Remember that one reason why lines like these were sold off to shortlines was that the shortlines had less costs. Union contracts allow (allowed?) small railroads to pay employees less than the large Class 1 railroads. So a branch line that's unprofitable when operated by BN might be able to eke out a small profit if operated by a shortline railroad.

As far as adding an industry, easiest way would be to reseach the NP an dfind out whan industries NP served on the line back in say the 1950's that are now closed, and say that in your world one or more of them stayed open.

Too, if a shortline is mainly hauling cars from one end of it's line to the other, it usually is bridge traffic - running cars from Big Railroad A to Big Railroad B. You might see if there were (in 1986 or in the past) a connection near Pine River with another railroad. Then your railroad could haul cars to and from BN and the other railroad (Soo Line for example.)

Stix
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Posted by mbinsewi on Monday, February 25, 2019 10:36 AM

Good info Stix, I like the part about the NP.  I think that is worth checking into.

Mike.

 

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Posted by dehusman on Monday, February 25, 2019 10:44 AM

wjstix
Too, if a shortline is mainly hauling cars from one end of it's line to the other, it usually is bridge traffic - running cars from Big Railroad A to Big Railroad B. You might see if there were (in 1986 or in the past) a connection near Pine River with another railroad. Then your railroad could haul cars to and from BN and the other railroad (Soo Line for example.)

Can anybody point to an actual shortline that makes its money by providing a bridge line between two class 1's (other than a terminal line).  Railroad A delivers trains or large numbers of cars to the shortline, the shortline carries those cars 50-100 miles and interchanges them to railroad B.  Not talking about a shortline that has interchanges with multiple class 1's but that actually provides line haul, overhead business.

The only one I can think of off hand, was the Montreal Maine and Atlantic (of Lac Megantic infamy). 

I have always thought that the shortline road haul scenario was pretty rare in the greater scheme of things.

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Posted by cv_acr on Monday, February 25, 2019 2:23 PM

There's a lot of shortlines that have a certain amount of line-haul or bridge traffic, but I'm not too sure many that exist off line haul alone.

My railroad of choice, the Algoma Central, handled a certain amount of overhead traffic for CN and CP between different interchanges, but its primary existence was to handle pulpwood, lumber, paper, iron ore and steel loads originated on-line. The iron ore traffic and some of the pulpwood was handled entirely between on-line points, the rest interchanged out to CN, CP and SOO Line to ship across the continent.

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Posted by BRAKIE on Monday, February 25, 2019 5:28 PM

What you are talking about is every short line operator's nightmare to many miles with few customers.

What to do.

1.Offer transload and warehouse services for off line customers.

2.Through aggressive marketing seek former rail served industries and  new customers..Your plywood mill could be a former rail customer or a new customer since you are freelancing.

3.Seek State and Federal money for upgrading the track.

Freelancing a short line.

I would use two 4 axle Geeps such as GP7/9s or GP20s. Six axle would be SD7/9s. ExBN locomotives  would work..

My traffic formula is simple and rather easy to understand and comes close some real short lines and terminal switching roads.

A example.

I will use 3,600 cars a year,that's works out to be 300 cars a month,75 cars a week 15 cars a day based on a short lines 5 day work week...

Operation.

I would offer Monday through Friday service. Saturday would be as needed with a surcharge.

Larry

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Posted by BRAKIE on Monday, February 25, 2019 5:44 PM

dehusman
I have always thought that the shortline road haul scenario was pretty rare in the greater scheme of things.

Dave, I have studied short lines and visited short line since the 60s and you are correct..

I think many modelers confused short line and regional railroads as the same when there are not. The regional railroad may span one or more states with local and line haul trains with several interchange points whareas a shortline offers local freight industrial switching which is their bread and butter and may have two interchanges with no bridge traffic..

Larry

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Posted by Doughless on Tuesday, February 26, 2019 6:33 AM

IMO, shortlines that created from abandonments of class 1 lines exist for the purpose of serving a major industry that still needs rail service.  OPs plywood/forest products company would be the reason the railroad exists.

A viable operation could also attract new businesses over the years.  Not resurrecting old ones, but brand new industries that never existed on the BN line.  Times change. 

From Brainerd to IF, I would think heating fuel would be in big demand, and an LP gas or oil dealer could have located a new facility on the line.

Also, concrete is needed everywhere, so a cement distribution structure, like Walthers Medusa Cement, could have located on the line as well.

Looking at current satellite imagery of International Falls, there is a huge packaging plant and a huge forest products yard that both look to be railserved from the north ( I assume CP or CN).  These companies could be served by your short line in a small way.  Although its normally more economical for large companies to simply use the class 1 for their large volumes, they like the option of keeping the Class 1s from having a monopoly on their business.  They could regularly throw some traffic your way just to keep the shortline open and use it as a bargaining chip if the Class 1 gets too expensive in rate negotiations.  ( I assume they ship by water too).  

- Douglas

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Posted by jeffhergert on Tuesday, February 26, 2019 10:35 AM

The old rule of thumb was you needed 100 loads per mile of track annually. (I orginally posted one load per mile per day, but I did some searching and found the formula in an old Trains article.)  Forty miles would need 4000 loads a year.  Could be a combination of inbound and outbound as long as it made a minimum of 4000 loads annually.  That's about 16 loads per day, in or out, for a 5 day week.

Jeff

 

 

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Posted by wjstix on Tuesday, February 26, 2019 12:59 PM

Re-reading the OP, I think it might make more sense to have your shortline run the entire distance between Brainerd and International Falls, even if you're only modelling the 30-40 miles between Pine River and Brainerd. You could sometimes have through trains that don't stop at any of your industries, or way freights that have cars to drop off at the industries on your layout plus cars going to or from industries not on your layout.

Stix
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Posted by davidmurray on Tuesday, February 26, 2019 1:21 PM

On the  economic front:  The GM parts plant I worked at paid the tax on the rail line that served it.  (16 to 25 cars a day).  A new owner said he would not pay this tax, CN said the line is coming out,  It did, the plant closed six years later.

If similar tax laws apply, a similar arrangment would be possible.

Dave

 

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Posted by BRAKIE on Wednesday, February 27, 2019 7:58 AM

Doughless
Not resurrecting old ones, but brand new industries that never existed on the BN line.

Doughless,This is exactly what short line goes for since every inbound or outbound  car load is mone and gettingy old rail customers back is as important as finding new customers.

But!!!!

For every customer a short line looses they must find a replacement if there is any candidates.

A short line marketing staff must be aggressive in finding customers knowning every customer counts...

Larry

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Posted by Doughless on Wednesday, February 27, 2019 9:09 AM

deleted. See below.

- Douglas

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Posted by Doughless on Wednesday, February 27, 2019 9:46 AM

BRAKIE

 

 
Doughless
Not resurrecting old ones, but brand new industries that never existed on the BN line.

 

Doughless,This is exactly what short line goes for since every inbound or outbound  car load is mone and gettingy old rail customers back is as important as finding new customers.

But!!!!

For every customer a short line looses they must find a replacement if there is any candidates.

A short line marketing staff must be aggressive in finding customers knowning every customer counts...

 

Just speaking from railfan experience, two shortlines in Indiana benefited from new grain mills springing up on the line.  Brand new huge concrete structures on each line. 

As time moves on, companies find plants and facilities becoming outdated or too expensive to refurbish.  A viable company might just build new plants near rail lines.

And if the class 1s aren't interested in switching, the short line has a location advantage.

Also, Honda Motor Company built a huge assemebly plant on a short line, although, CSX has trackage rights and does some of outbound switching directly, but not always.  The short line motive power does the other switching.  In these cases the line exists, but some of the motive power is class1.  A rare situation, but plausible for a layout.

Notice that these examples are bulk commodities or bulk inventory, like finished automobiles.  No new small mom and pop shops are looking for rail service, IMO.

But I think transload facilities are becoming popular rail served industries also. 

- Douglas

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Posted by BRAKIE on Wednesday, February 27, 2019 3:35 PM

Douglas,A short line must maintain a customer base in order to survive. Relaying on seasonal car loads  can doom a road to failure by their connecting road withholding the needed covered hoppers or worst their connecting road offers better rates and the grain is trucked to a transload point on the bigger railroad.This was covered in one of Trains yearly short line issues. These issues should be a must read by any short line fan.

On the other hand some short lines seen  gain in carloads from hauling frac sand to processors.

Larry

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Posted by Doughless on Wednesday, February 27, 2019 7:14 PM

BRAKIE

Douglas,A short line must maintain a customer base in order to survive. Relaying on seasonal car loads  can doom a road to failure by their connecting road withholding the needed covered hoppers or worst their connecting road offers better rates and the grain is trucked to a transload point on the bigger railroad.This was covered in one of Trains yearly short line issues. These issues should be a must read by any short line fan.

On the other hand some short lines seen  gain in carloads from hauling frac sand to processors.

 

That's what I was talking about.  Grain elevators/feed mills pop up along the line where there was none before.  They provided more than just seasonal traffic.  As does the auto plant of course, and the transload facility.

Brand new industries that formed after the class 1 sold the line to a short line.  These aren't stragglers from days gone by.

OP could play God in the same way.  If the economics says 100 loads per year for the shortline, OP can divide that up over several brand new industries, as long as they are compatible/plausible for northern Minnesota.

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Posted by MJ4562 on Wednesday, February 27, 2019 7:35 PM

Are short line employees usually union members?  Do short lines train their employees from scratch or do they hire former Class I employees?  For some reason I thought that was part of the cost savings was more flexible work rules and pay structure. Just curious. 

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Posted by BRAKIE on Wednesday, February 27, 2019 8:17 PM

MJ4562
Are short line employees usually union members?

Some short liines are unionized while others pay top wages.

The reason is simple.. Railroading is a harsh career where train service employees put their life and limb on line while working  in all types of weather so short lines need to pay top wages..

Recall railroading doesn't suffer fools or carelessnees.

Short lines usually hire former class one employees but,will consider those that have went through training at one of the railroad trainig schools..

Larry

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Posted by NHTX on Thursday, February 28, 2019 7:41 PM

     One aspect of this discussion that interests me is the potential to add industries that would add to traffic flow and, tie in to the forest products basis for the shortline.  If the shortline is set post 1985 or so, how about a plant that takes the waste generated from manufacturing plywood and compresses it into fireplace logs?  This material was at one time simply burned on site, to dispose of it.  With enlightened environmental policies, this became unacceptable and gave rise to the processed fireplace log.  The angle for the railroad would be hauling in tankcars of a bonding agent. If the plywood plant didn't generate sufficient waste, it could be brought in by truck or, woodchip gondola.  The logs are wrapped for sale and, the paper wrappers could also come in by rail in boxcars. 

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Posted by Doughless on Thursday, February 28, 2019 9:07 PM

Or a maybe a charcoal briquette factory, for many eras. 

Kingsford has plants in KY, OR, MO, and WV. 

Charcoal briquettes are made from wood and a little bit of coal, along with a binding agent like corn starch and an ash whitener like lime.  

 Google satellite.  Kingsford plant in Oregon. Rail served.

https://www.google.com/maps/place/Kingsford+Manufacturing+Co/@44.064384,-122.9806909,563m/data=!3m1!1e3!4m5!3m4!1s0x0:0x3abed50db76aabbf!8m2!3d44.0641139!4d-122.979202

 

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Posted by BRAKIE on Thursday, February 28, 2019 9:16 PM

NHTX
es that would add to traffic flow and, tie in to the forest products basis for the shortline. If the shortline is set post 1985 or so, how about a plant that takes the waste generated from manufacturing plywood and compresses it into fireplace logs? This material was at one time simply burned on site, to dispose of it. With enlightened environmental policies, this became unacceptable and gave rise to the processed fireplace log. The angle for the railroad would be hauling in tankcars of a bonding agent. If the plywood plant didn't generate sufficient waste, it could be brought in by truck or, woodchip gondola. The logs are wrapped for sale and, the paper wrappers could also come in by rail in boxcars.

Great idea! Another would be to ship the waste to a processor also the compress fire logs could be shipped out in boxcars to distribution warehouses.

Larry

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Posted by richg1998 on Friday, March 01, 2019 12:22 PM

You might be interested in a short line a few miles from me. It use to come through my small ciy which is now a rail trail.

Lots of product distribution in the Westfield area. It has expanded the past ten years. Big box companies require a lot of products. Even local lumber compnies.

In the Yard, many trailer trucks pickup plastic pellets from tank cars. One coating company takes a few cars for unloading for product production.

https://www.pinsly.com/services-solutions/pioneer-valley-railroad/

The line is sixteen miles long. I sometimes go to the yard in Westfield, Ma and watch from an overhead bridge near the CSX interchange.

It has a track past a company I use to work at in Holyoke. I use to have lunch at a siding in the good weather. A turnout in front of me had no lock. I see cars parked there now on GPS so it must have a lock now.

I do remember seeing a high rail pickup when I would come into work stopped at the beginning of the siding.

Nearby, they connect with Pan Am Railways mainline.

You can see everything on Google maps.

Many times rolling stock are stored in Holyoke on sidings near old mills.

Last I saw a CF-7 being used. I did see those on a roster list sometime ago.

Rich

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Posted by MIKE0659 on Monday, March 11, 2019 6:39 PM

A loose rule of thumb in the prototype shortline railroad community is you want 100 revenue cars per mile, per year as a break-even operation. Speed doesn't really affect this equation.

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Posted by BRAKIE on Monday, March 11, 2019 9:21 PM

MIKE0659

A loose rule of thumb in the prototype shortline railroad community is you want 100 revenue cars per mile, per year as a break-even operation. Speed doesn't really affect this equation.

 

That would be a dream short line however the majority is lucky to see 2500 cars a year which works out to be roughly 10 cars a day for the normal 5 day work week.

Then you have the day to day operations of short lines that handle less then 1200 cars a year.

When it comes to short lines there is no real rule of thumb because every short line is different  as far as car loads handled annually.

The livelihood of a short line is keeping and finding new customers as well as  finding replacement customers for former customers  lost to trucking or plant closures. A vicious cycle to say the least.

As one short line operator put it this way in a issue of Trains many years ago(the 80s?),its either feast or famine.

 

Larry

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Posted by MIKE0659 on Monday, March 25, 2019 7:25 PM

Brakie, you are right in saying every shortline is different, I can't dispute that point. I've been in the shortline railroad industry as a Trainmaster for over 31 years and have met with a lot of very knowledgable people in the industry. In talking to other shortline people at national and regional meetings, it is something most everyone agrees on. This isn't just my opinion or a guess, it is based on fact.

It's not a "Dream Short Line", it is what you need to be profitable. What I stated has been the rule of thumb for a very long time. The key is that the rule of thumb number is what you need to be a financially viable - read that as "profitable" - shortline railroad. An old shortline industry joke is, "How do you make a small fortune in the shortline railroad business? Start with a large fortune."

What you don't state is how long your shortline examples might be. If you find railroads that meet those numbers, you may find they don't actually operate many miles of railroad, or they don't run 5 days a week. The length of the railroad is a key to this. You have to have revenues sufficient to maintaining all those miles.

I know from the inside what it costs to run a profitable shortline and that number of 10 cars per mile/per year is pretty good. Up to that point you are fighting your fixed costs, but when you break over that point, it is nearly all pure profit. Until you hit that next level where you have to add people and equipment and up your track maintenance to meet the new traffic levels.

The Class I railroads refer to that turnover of customers as "Churning", and expect to have ten percent turn over every year. It may not be that bad on your average shortline, but it happens just the same. Customers, even good ones, will come and go no matter what you do.

I stand by that metric. If you could see the financials of a shortline, or a few shortlines, you would see it plays out that way. Over the years we were approached to take over operations at shortlines owned by industries or state/county governments and it proved itself over and over. Go through all the financials and the traffic and you can look back and see that formula being proven true.

It isn't cheap to run a shortline railroad. It is way more expensive than those outside the industry can imagine. It's why so many railroads fail, it just bleeds the owner dry.

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Posted by Doughless on Monday, March 25, 2019 7:53 PM

MIKE0659

 

What you don't state is how long your shortline examples might be. If you find railroads that meet those numbers, you may find they don't actually operate many miles of railroad, or they don't run 5 days a week. The length of the railroad is a key to this. You have to have revenues sufficient to maintaining all those miles.

I know from the inside what it costs to run a profitable shortline and that number of 10 cars per mile/per year is pretty good. Up to that point you are fighting your fixed costs, but when you break over that point, it is nearly all pure profit. Until you hit that next level where you have to add people and equipment and up your track maintenance to meet the new traffic levels.

 

Mike.  Thanks for the inside info. 

Just to be clear about the rule of thumb.  10 revenue cars/mile per year.  For a 16 mile shortline, that's 160 cars per year, or about 3.1 cars per week.  (I can do the math, just wanted to example what you wrote.)

- Douglas

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