Initial steps to judge the feasibility of acquiring a short line?

[WPAMachinist]

Long time listener, first time caller.

 

As the title states, I am in the preliminary stages of studying the feasibility of acquiring a local short line. I am trying to figure out what I need to read and research and who exactly to contact to get the ball rolling in the right direction.

The various forums I’ve read are very helpful, but it seems most suggestions go straight to the more mature steps, i.e., contacting customers for shipping forecasts, joining ASLRRA, hiring good employees, budgeting maintenance/payroll.

Ditto the STBs “So you want to start a small railroad”. It explains the purchasing process and related laws and regulations surrounding such transactions but nothing on how to get to that point.

What should be step 1, step 2, etc.?

Price and funding source is a big hurdle right off the bat. I can’t imagine cold calling the railroad that owns the line asking for a price with no immediate plan for purchase. I also can’t imagine putting months of research into the market conditions, rules, and regulations only to find out the railroad isn’t willing to sell or holds a firm over-valuation of the line. What does a private appraisal typically cost?

And once you have a purchase price and a plan, what kind of funding sources are available moving forward? I don’t think I can walk down to my local credit union and mortgage a railroad. Maybe I can?

Second thought is market research. Following the same concerns as I stated above for pricing, I don’t know how serious customers would take a random gentleman inquiring about shipping forecasts or willingness to ship by rail. How would one go about this stage of research? Ditto the viability of the tourist side of operations, though I imagine mailing out a survey to the general populace would be easy enough.

 I’ve also read working with the local development committee can be helpful as well but it falls under the window shopper impression above.

 

I look forward to hearing the groups thoughts!

Thanks,

WPaMachinist

[BaltACD]

Suggest you contact the principles in 'East Terminal Railway'

https://www.youtube.com/watch?v=ulYMoZYYA3E

 

They are undertaking a similar project.

[tree68]

Some simple observation might answer some of your questions.  

Who are the shippers/receivers?  How much traffic do they appear to generate?  

Is there the potential for more traffic?  Are there potential customers already in place?  Is there space to add more customers?  Is there local demand for the products and services they may provide?  

Consider the current company.  Are they independent, or part of a larger organization (ie, GVT, G&W, etc).  What does the plant and the rolling stock look like?  Well maintained or suffering from deferred maintenance?

Are they actively trying to sell the property, or are you looking to buy a healthy property?  If they are trying to sell, why?  Local scuttlebutt can be telling.

Check your local tax maps.  What are the property taxes?  

You can learn a lot before you ever contact them directly.  

[WPAMachinist]

BaltACD

Suggest you contact the principles in 'East Terminal Railway'

https://www.youtube.com/watch?v=ulYMoZYYA3E

 

They are undertaking a similar project.

 

I have been following them since the beginning but never thought to contact them. Thats an excellent idea. The scope of the line in question is a touch different than their situation, and I will explain below. But the root startup procedure is probably very similar.

tree68

Some simple observation might answer some of your questions.  

Who are the shippers/receivers?  How much traffic do they appear to generate?  

Is there the potential for more traffic?  Are there potential customers already in place?  Is there space to add more customers?  Is there local demand for the products and services they may provide?  

Consider the current company.  Are they independent, or part of a larger organization (ie, GVT, G&W, etc).  What does the plant and the rolling stock look like?  Well maintained or suffering from deferred maintenance?

Are they actively trying to sell the property, or are you looking to buy a healthy property?  If they are trying to sell, why?  Local scuttlebutt can be telling.

Check your local tax maps.  What are the property taxes?  

You can learn a lot before you ever contact them directly.  

 

Tree, I was actually going to follow up the first post with this one but being my first post on the forum, I had to wait for approval and you gentleman beat me to the punch while I was at work.

Some background of myself and the line:

I am a mid-20s machinist in W. PA with no professional railroading experience. I was inspired by Mr. Muller, who came from a non-railroading background and proceeded to help rejuvenate the area by building a customer focused railroad and never letting up on marketing to bring in more and more industry on the eastern side of the state. Mr. Maples has had similar successes with the Everett Railroad after buying it at 21 with money his parents had saved for him to go to college.

In the same vein I would like to try and help the dying coal towns on my side of the state in the same way and preserve what remains of a historic and scenic 100-year-old coal road as well.

The line in question is the remaining 20-mile segment of a former coal hauling short line with 3 current on-line customers. Purchased in the mid-90s by the G&W, the majority was abandoned in the mid-2000s. A coal plant was the major customer on the southern end until its closure in the early 2010s. Since then, traffic has noticeably diminished. It is currently owned and operated by G&W as a sub.

 Looking ahead to future possibilities, the line includes 3 more on-line companies that were former customers with spurs intact, those being a bulk fertilizer dealer, a scrapyard, and an aggregates mining operation.

On the location end of things, there is a town of 12,000 at the southern end which is under 30 miles from a major urban center and a town of 5,500 on the northern end. Recently a small short line went under that served a rolling mill in close proximity to the southern end of the line in question. It was hardly a scenic or long trip, but it sold out every excursion it ran right up until the end. I believe properly marketed, excursions could be a viable revenue source.

The line interchanges with a Class 1 at the southern terminus, with a jointly served intermodal(river/truck/rail) bulk goods facility located there, currently switched by the Class 1.  Very little traffic moves to or from that end on this line, possibly once a year. This Class 1 also holds trackage rights between that interchange and the G&W on the northern end as an emergency bypass.

The bulk of activity is 14 miles to the north, with a small graphite plant taking a few cars monthly, a small yard with a team track and no formal shops, a steep interchange up to the G&Ws mainline, and a small metallurgical mineral plant. The scrapyard, aggregates plant and fertilizer dealer are in the same couple mile stretch with mineral plant. Beyond that is a few miles of track leading to a decommissioned coal fired powerplant, a 1000’+ bridge and a tunnel just beyond which the tracks are pulled.

There are 3 sites along the line that could potentially be developed, a large open space that was the site of a large mine and coal washing plant up until the 80s, another flat open strip that housed a river dredging operation into the mid-2000s, and a decommissioned coal fired plant. All three of these would be great candidates for brownfield grants which are the hot button topic these days. Id like to envision some type of distribution center being a great fit, among other things as two major highways intersect in the same general area.

On the maintenance and operations end, this segment of the line seems relatively easy. It has 2 or 3 bridges between 60 and 80’, and 7 or so road crossings spread across the 24 miles, the grade is “water level” as it follows a large river. The long bridge sits toward the end of the track on the north, where the line gets exciting, very scenic (multiple tunnels and 1100’+ viaducts) but the tracks are pulled as it is also a very expensive piece of railroad.

The physical plant is probably class 2 at this point. The railroad was well maintained by the original line up until the mid 90s, they were well known for their "overmaintained" track. Id assume alot of maintenance has been deferred since the early to mid 2010s when the powerplant closed and heavy unit coal trains stopped rolling over the line. The last G&W timetable I can get ahold of lists it as class 2 with a 25mph speed restriction, but that was 2002.

 

I will contact the county for a tax records, that is an easy step!

 Anyhow, that about sums up my current level of knowledge of operations and opportunity.

Sorry again for the long-winded posts but I am trying to be as descriptive as possible. I appreciate the help!

-WPaMachinist

[Backshop]

Sounds like the old Pittsburg and Shawmut.

[WPAMachinist]

Backshop

Sounds like the old Pittsburg and Shawmut.

 

You would be correct

[mudchicken]

East Terminal Railroad is an accident looking for a place to happen.

Start with things like the STB, ASLRRA , FRA and AAR basic instruction publications before going off to play with the shiny toys. Starting a shortline requires building a qualified team to cover all the bases. 

[WPAMachinist]

mudchicken

East Terminal Railroad is an accident looking for a place to happen.

Start with things like the STB, ASLRRA , FRA and AAR basic instruction publications before going off to play with the shiny toys. Starting a shortline requires building a qualified team to cover all the bases. 

 

 

I appreciate the advice. I dug deeper into the ASLRRA site and found the webinar subscription. I will definitely start there.

[chutton01]

mudchicken

East Terminal Railroad is an accident looking for a place to happen.

Hey, they just began replacing (a handful) of their ties.
If you mean physically, they (Brian, Graham, and whoever else) do know safety around rail oerations as their full time business is attending to railcar issues (they have shown this a few times, such as repairing a boxcar door that fell off or rerailing a covered hopper under which the track spread).
Now, if you mean finanically, well, maybe - I believe that section of track went inactive in 2012 when the Ball company can plant closed (IIRC the "South Yard" they talk about were the sidings to that plant). Now, Brian keeps talking about restarting service to Orlando Bakery and perhaps the company that uses carbon black, but then why didn't the Ohio Central system try this in the years prior?

[mudchicken]

So?

They have yet to get through even the basics of FRA/STB/AAR/OH-PUC reporting compliance. It isn't showing up where one would expect to find it.

All they are right now is a glorified industry track owner. They are more like a contractor (derailment & mechanical) with a few non-main track storage tracks that they happen to own. Maybe a few Code-1s  (at $10K a pop) from FRA or Ohio PUC with a court order shutting them down will get their attention. (hiding behind a shortline with its own shortcoming isn't helping the situation ... FRA will probably get in their business first) 

Show me the STB finance docket where they even have the basics covered to operate as a railroad capable of interstate commerce. Not sure if AAR even knows who they are. Operating certificate? Interchange agreement?

[zugmann]

Asking as someone with no legal training, but who is curious - 

 

If they are currently just a glorified industry track owner, what jurisdiction does the FRA have over them?

[chutton01]

Well, just taking Brian's statements over the past 15 months or so at face value:
Scenario A) They just end up using the ETR trackage for rail-car storage, interchanging with (what I think is) the Ohio Central (OC) system at the north end of their line with their pride and joy GE 2021.  No service to any on-line/tranload clients.
Does this require less STB/FRA et.al. approvals than...
Scenario B) They service on-line clients - they get Orlando back on line, they get Jacobi Carbons, maybe they get a contract to service Amcore Plastics (it was a bit vague when they discussed this during the 'measuring the ETR' episodes), maybe the mysterious client looking to locate on-line that they mention in this week's video (its Elon Musk, the answer nowadays  is always Elon Musk ), they get that pole transload yard, and so on...now you have real clients requiring interchange revenue traffic with other railroads.  What are the minimum set of requirements needed for that?

[zugmann]

Becoming a "real" railroad is going to put a damper on their vlogging, too. 

[samfp1943]

Tale of a Masochist, in search of sadists.....

  Next step will be to plant an orchard of money trees in your back acreage....You may start off with George Washingtons but your second crop will need to be Benjamin Franklins; or better!

P.S. Wish you all the best, maybe you can win the next Lottery...

 

[rixflix]

I've always thought that it's nice that they have a hobby. They should be alright keeping their activities within their own and railroad customer trackage. Their problems would come with connecting to a real railroad or with having rolling stock certified for interchange. Kinda like a 1:1 model railroad.

Rick

[WPAMachinist]

samfp1943

Tale of a Masochist, in search of sadists.....

  Next step will be to plant an orchard of money trees in your back acreage....You may start off with George Washingtons but your second crop will need to be Benjamin Franklins; or better!

P.S. Wish you all the best, maybe you can win the next Lottery...

 

 

Well I appreciate the words of encouragement! But it is noted. A PowerBall win would definitely get the whole plan kicked into gear quite nicely. As I stated above I'm well aware this could be an impossible endeavor. I've just seen quite a few startups that started from humble roots instead of robber barons, and was curious to the how of the accomplishment. Not looking to get rich, just make a living, help the community and preserve a little bit of history.

Plan B involved getting a group together to start a nonprofit and attempt to get ahold of the severed northern section  located in the county seat, that holds the shops and yard, with a nice viaduct that connects to an overflow yard that still has the original scalehouse. 4 miles of track or so and a historic shop complex would make a nice little working historical attraction. It connects to the G&W in the largest city in that county through an ex Pennsy/Conrail line that winds about 20 miles through wild creek valleys with several trestles. The shops were used by the G&W until the mid 2010s when they consolidated them to another location. Now it is used to serve to a locomotive company next to the shop complex. Down the road I could see the potential for mileage excursions over that line that is used for little else.

I'd still prefer option A to benefit the community but that may be an unreasonable goal short of a major windfall.

This is Monday and the 3rd reply I've sent since Saturday so apologies to those who haven't yet received a response, it seems the moderators are busy these past few days.

 

Thank you all again!

WPaMachinist

[mudchicken]

zugmann

Asking as someone with no legal training, but who is curious - 

 

If they are currently just a glorified industry track owner, what jurisdiction does the FRA have over them?

 

Your track is connected to the interstate commerce (rail) system. Anything coming or going is subject to FRA/STB/PUC/PHMSA rules and inspection. Track safety, inspection, operation and geometry rules apply to the private track owner (not exempt). PUC/RR Commission will enforce clearance and crossing rule (by memorandum of agreement letter between each state and FRA). As a track owner/operator, they can be fined or shut down like any common carrier. ("I dunno"  does not fly with FRA or the state agencies (PUC et al), especially where there has been an incident, fatality or injury...railroad is only responsible for inspection to division of ownership in its reporting, but railroad inspectors will call out defects anywhere they see them, any discipline.)

Bubbawits in Columbus is in really deep doo-doo if he misrepresents himself as a railroad doing inter- or intra-state business and can't back up the claim with the appropriate documentation. The question is which agency will do the biting. (and is it straying into the fraud statutes?) ... Several freshly minted shortlines have been shut down by FRA for basic compliance failures.

Several shipper industries decided to incorporate as railroads to bypass local NIMBY/BANANA regulation and then discovered a new set of headaches they had not counted on. (the grass is NOT greener on the other side of the R/W fence)

[kgbw49]

If I recall correctly the rule of thumb for success of a shorltine to make it financially is 100 cars per mile per year.

Are there transload opportunities to expand the customer base?

How often can you interchange with the Class I?

Can you store cars on the stub end of the line?

Can you access any State of PA grants for some of the needed ongoing track maintenance?

How much cash will you have available at startup?

How large of a locomotive will you need to lease to operate the line? Can a 1,500 HP locomotive such as an old GP9 make it work or do you need something larger like a GP-38?

Where will you get it serviced and inspected?

Who will handle your accounting?

Who will handle your legal filings for the purchase?

Are you able to get insurance?

There will be 1,001 more questions you will have to answer.

I have not ever bought a railroad but I have worked in finance all my life and of course, revenue is king, but also as a startup you do not want to get overextended on your capital cost payments.

Watch the expenses, pinch pennies and don't get overextended to the bank.

Wishing you good luck and the fates smiling upon you!

[Backshop]

Multiple trestles will also add greatly to your MoW costs.

[WPAMachinist]

kgbw49

If I recall correctly the rule of thumb for success of a shorltine to make it financially is 100 cars per mile per year.

Are there transload opportunities to expand the customer base?

Indeed, as I mentioned in my not so short story above, the active portion of the line includes a yard and light facilities with a set of team tracks for transloading,  located within minutes of major East/West and North/South highway interchange. There is also a large intermodal facility at the southern end that is truck/river/rail served.

How often can you interchange with the Class I?

Im not sure at what rate interchange would be done with the Class 1. The G&W interchanges with them at a few other points on the system, I imagine we would have to underbid the G&W to capture some traffic that would otherwise be routed further north. As far as prompt service, the Class 1 switches the intermodal facility daily, according to their website.

Can you store cars on the stub end of the line?

Indeed, there is 8 miles of track beyond the last customer that is stub ended. A further 3 miles still appears on the latest route maps but the rails are lifted and have been for roughly 8-10 years probably due to deterioration of the tunnel that accesses that section of ROW. 

Can you access any State of PA grants for some of the needed ongoing track maintenance?

Great question and part of the information I'm attempting to gather here!

How much cash will you have available at startup?

Again, I'm not independently wealthy, unfortunately. I'm a solid median income earner with roughly 40k in liquidable assets. As such I did propose the question about funding sources and methods. 

How large of a locomotive will you need to lease to operate the line? Can a 1,500 HP locomotive such as an old GP9 make it work or do you need something larger like a GP-38?

The line in its current state is water level save for the lead to the G&W interchange, I cannot seem to find the number but I'd say it's 1-1.5% against loads. The fallen flag that operated it for the first 80 years used a fleet of SW900s though they did roster a pair of GP7s in the later years. I envision using a pair of SWs as power if I had to have my pick.

Where will you get it serviced and inspected?

Another unknown/undecided. The fallen flags shops are located on the northern end of the line, which is a long severed connection. The southern end had limited facilities. There is room to erect a pole building in the yard. The other option would be to send power to the G&Ws shops about 20 rail miles distant for inspections and major service. I do have a close contact who is a lead electrician for a railroad who may be of assistance in this regard.

Who will handle your accounting?

Unsure at this point, as mudchicken noted I need to reach out and put together a team if I am to advance this idea. I would like to get a solid plan of attack assembled before consuming my acquaintances free time.

Who will handle your legal filings for the purchase?

I would plan on a paid legal council for this, at least in the short term. 

Are you able to get insurance?

Personally, I have a clean record. I have a one ton that requires commercial insurance and carries a million dollar policy. How that will translate over to an operating railroad? I will have to find out!

There will be 1,001 more questions you will have to answer.

Indeed! The little sample Q&A set you posted definitely helped illustrate that. The devil is in the details and that is the sticking point for me at the moment, what questions do I need to ask at this stage in the process and how do I find the answers. It was mentioned above to "Read the FRA, STB and ASLRRA startup documents" but unless I have overlooked it, nothing says "Just getting started? Click here!" If I could get some references to some of the relevant ground level documents to guide my planning at this stage it would help me navigate through the subsequent levels. 

I have not ever bought a railroad but I have worked in finance all my life and of course, revenue is king, but also as a startup you do not want to get overextended on your capital cost payments.

Watch the expenses, pinch pennies and don't get overextended to the bank.

Great advice and something that needs addressed early on in this process. I know I don't want to go public with the company and get the rug pulled out from under me. Being bankrolled through a handful of private partners sounds risky as well. But it may be the only way to realistically go about such an undertaking. Business owners who would benefit from the "office right down the street, will discuss any issues and ideas for improvement over coffee" service model seem like the right avenue to pursue private funding in that respect.

Wishing you good luck and the fates smiling upon you!

 I appreciate the well wishes!

Very thought provoking, kgb. Thank you for your input!

[WPAMachinist]

Backshop

Multiple trestles will also add greatly to your MoW costs.

 

For certain, Backshop!

Option A, or the line I am eyeing as a potential for-profit shortline operation has only a 2 or 3 bridges on the active portion and they are less than 100 feet in span.

My option B where I mentioned the trestles is creating a 501c3 with the goal of operating just the 4 miles of track left on the north end of the mainline, and the historic shop complex as a working museum if you will.  The 20 mile segment of Pennsy would be retained by the G&W for their infrequent service of the locomotive manufacturer, with our group working out trackage rights for mileage excursions over the underutilized section vs outright ownership, in a perfect world. I already have a few leads for a team I could assemble for this approach, as at face value it is a much less risky proposition than attempting to wrangle an active sub from a regional carrier on our personal finances.