Murphy Siding Ulrich Murphy Siding Ironically, my customers are finding that to be true in the real estate developing business. If you have money to invest, and honestly, there are people that do, would you rather put it in the stock market, or invest it in a small business? In both cases your doing the same thing..investing in the stock market is investing in a business. I would rather be sole owner of a small business that that I have control over than part owner in a large business over which I have no control at all. Same thing, except, in my view, you're investing your money in the stock market against professional gamblers, who know a lot more about playing the ponies than you and I.
Ulrich Murphy Siding Ironically, my customers are finding that to be true in the real estate developing business. If you have money to invest, and honestly, there are people that do, would you rather put it in the stock market, or invest it in a small business? In both cases your doing the same thing..investing in the stock market is investing in a business. I would rather be sole owner of a small business that that I have control over than part owner in a large business over which I have no control at all.
Murphy Siding Ironically, my customers are finding that to be true in the real estate developing business. If you have money to invest, and honestly, there are people that do, would you rather put it in the stock market, or invest it in a small business?
Ironically, my customers are finding that to be true in the real estate developing business. If you have money to invest, and honestly, there are people that do, would you rather put it in the stock market, or invest it in a small business?
In both cases your doing the same thing..investing in the stock market is investing in a business. I would rather be sole owner of a small business that that I have control over than part owner in a large business over which I have no control at all.
Not really...I do better than most of them... If you investigate the companies you are buying and you limit yourself to what you know then you can do quite well without gambling...
Railway Man One model is a lease with a take-or-pay for a minimum carload guarantee, and guaranteed level of maintenance by the short line and guaranteed service offerings by the short line. This bets the traffic will never fall below a certain level. It exposes the Class 1 to risk that the traffic will persist and the short line won't find a way to either drive them away or encourage to locate on another of its properties that is stand-alone without a take-or-pay. Why not, because the Class 1 is guaranteeing the short line can't fail. The opposite model is to lease without a guaranteed maintenance level or service level. This bets the traffic will be so high that the short line will see its best long-term interest is in providing good service and good maintenance. But if traffic is not so high, the short line is then incentived to cut maintenance to zero (it doesn't own the track or structures) and the service to the bare minimum, and extract as much free cash flow as possible. RWM
One model is a lease with a take-or-pay for a minimum carload guarantee, and guaranteed level of maintenance by the short line and guaranteed service offerings by the short line. This bets the traffic will never fall below a certain level. It exposes the Class 1 to risk that the traffic will persist and the short line won't find a way to either drive them away or encourage to locate on another of its properties that is stand-alone without a take-or-pay. Why not, because the Class 1 is guaranteeing the short line can't fail.
The opposite model is to lease without a guaranteed maintenance level or service level. This bets the traffic will be so high that the short line will see its best long-term interest is in providing good service and good maintenance. But if traffic is not so high, the short line is then incentived to cut maintenance to zero (it doesn't own the track or structures) and the service to the bare minimum, and extract as much free cash flow as possible.
RWM
Given this train of thought, it would seem like the Class 1's aren't going to sell any trackage that has a chance of success. In that case, would the only shortline ownership option be, to buy an existing shortline? So, wouldn't any shortline that is offered for sale have some financial obstacles to overcome?
Thanks to Chris / CopCarSS for my avatar.
Ulrich Murphy Siding Ulrich Murphy Siding Ironically, my customers are finding that to be true in the real estate developing business. If you have money to invest, and honestly, there are people that do, would you rather put it in the stock market, or invest it in a small business? In both cases your doing the same thing..investing in the stock market is investing in a business. I would rather be sole owner of a small business that that I have control over than part owner in a large business over which I have no control at all. Same thing, except, in my view, you're investing your money in the stock market against professional gamblers, who know a lot more about playing the ponies than you and I. Not really...I do better than most of them... If you investigate the companies you are buying and you limit yourself to what you know then you can do quite well without gambling...
Yes..probably to some extent..but overall and over the long term the price of the stock still reflects the value of the company. The gambling effect would be more short term as day traders and such who have no interest in the business buy and sell...
What is the background, or nature of a *typical* shortline that would be for sale? Is it in financial distresss? Owner wishing to retire? Broken off of another railroad?
You've just hit on the 64 thousand dollar question..a question that should be top of mind for anyone who is considering purchasing a business of any kind. Generally speaking the reasons probably vary greatly from one property to the next...but lack of profitability or lack of profit potential would be as good as reason as any not to buy..
There is no such thing as a "typical short line". There are a small number of short lines at any particular time. The number in operation is usually less than 600 or so depending upon how you define a short line. Of that total less than 5% are probably for sale at any time and the opportunity for formation of new short lines from other track, either spin offs by larger railroads, leases from government or other non-operating owners, previously abandoned track or new construction is even smaller currently. There are many different business models and reasons that what works for one operator may not work for another and many of the "rule of thumb" sorts of information out there may help to quantify practices common to many short lines should not be taken as a rigid structure. Many of the smaller short lines subsist just fine without following those "rules".
I started this thread to see what others were thinking about short lines and to kill some time after minor surgery earlier this week. It is interesting to see the level of misinformation that is out there about short lines.
LC
Murphy Siding I'm curious why some short lines don't develop from seller financing, of some type, by the Class 1 that wants rid itself of the headache, to some enterprising shortline company that wants to work hard for a just reward?
I'm curious why some short lines don't develop from seller financing, of some type, by the Class 1 that wants rid itself of the headache, to some enterprising shortline company that wants to work hard for a just reward?
Who says they haven't? Many of these arrangements are now on a case by case basis and may include some consideration from the Class 1, particularly as many spin offs are now lease structures rather than line sales.
Railway Man Murphy Siding Dang! You make that so logical that even I'm having doubts about my sanity! Here's my thought: It would be more along the line of subcontracting part of the business. Every time I read about shortlines, the emphasis seems to be on how a shortline could make a go of it, on a line where a Class 1 couldn't. Usually cited is flexibility, labor costs, overhead, etc., as being in the shortline's favor. Pick a hypothetical situation- a grain gathering division on some Class 1. Could the line be *subcontracted*, so to speak, by selling it to a shortline? The sale would include provisions of exactly what Class 1 desires/wants/demands from new operator. Class 1 still gets the traffic. Shortline gets all the other fun stuff to deal with. Presumeably, the shortlines profit would come from whatever efficiencies and growth it could find, in comparison to how Class 1 ran the line. Class 1 still holds all the cards. Shortline gets to invest it's money on the line, allowing Class 1 to invest its money somewhere else. Things go sour for shortline, and Class 1 regains ownership. Isn't this similar to what NS did for a while, in spinning off some shortlines? Sure, assuming the labor agreements would let you do this, but it's a difficult structure to make work. (It's the same model the airlines used for regionalizing low-density routes and look how well it's worked out for them.) One model is a lease with a take-or-pay for a minimum carload guarantee, and guaranteed level of maintenance by the short line and guaranteed service offerings by the short line. This bets the traffic will never fall below a certain level. It exposes the Class 1 to risk that the traffic will persist and the short line won't find a way to either drive them away or encourage to locate on another of its properties that is stand-alone without a take-or-pay. Why not, because the Class 1 is guaranteeing the short line can't fail. The opposite model is to lease without a guaranteed maintenance level or service level. This bets the traffic will be so high that the short line will see its best long-term interest is in providing good service and good maintenance. But if traffic is not so high, the short line is then incentived to cut maintenance to zero (it doesn't own the track or structures) and the service to the bare minimum, and extract as much free cash flow as possible. RWM
Murphy Siding Dang! You make that so logical that even I'm having doubts about my sanity! Here's my thought: It would be more along the line of subcontracting part of the business. Every time I read about shortlines, the emphasis seems to be on how a shortline could make a go of it, on a line where a Class 1 couldn't. Usually cited is flexibility, labor costs, overhead, etc., as being in the shortline's favor. Pick a hypothetical situation- a grain gathering division on some Class 1. Could the line be *subcontracted*, so to speak, by selling it to a shortline? The sale would include provisions of exactly what Class 1 desires/wants/demands from new operator. Class 1 still gets the traffic. Shortline gets all the other fun stuff to deal with. Presumeably, the shortlines profit would come from whatever efficiencies and growth it could find, in comparison to how Class 1 ran the line. Class 1 still holds all the cards. Shortline gets to invest it's money on the line, allowing Class 1 to invest its money somewhere else. Things go sour for shortline, and Class 1 regains ownership. Isn't this similar to what NS did for a while, in spinning off some shortlines?
Dang! You make that so logical that even I'm having doubts about my sanity!
Here's my thought: It would be more along the line of subcontracting part of the business. Every time I read about shortlines, the emphasis seems to be on how a shortline could make a go of it, on a line where a Class 1 couldn't. Usually cited is flexibility, labor costs, overhead, etc., as being in the shortline's favor.
Pick a hypothetical situation- a grain gathering division on some Class 1. Could the line be *subcontracted*, so to speak, by selling it to a shortline? The sale would include provisions of exactly what Class 1 desires/wants/demands from new operator. Class 1 still gets the traffic. Shortline gets all the other fun stuff to deal with. Presumeably, the shortlines profit would come from whatever efficiencies and growth it could find, in comparison to how Class 1 ran the line.
Class 1 still holds all the cards. Shortline gets to invest it's money on the line, allowing Class 1 to invest its money somewhere else. Things go sour for shortline, and Class 1 regains ownership. Isn't this similar to what NS did for a while, in spinning off some shortlines?
Sure, assuming the labor agreements would let you do this, but it's a difficult structure to make work. (It's the same model the airlines used for regionalizing low-density routes and look how well it's worked out for them.)
One quick point. A spin off to a Class 3 railroad (short line) is exempt from labor protection under STB regulations so the existing labor agreements do not need to be assumed by the short line. There are still possible impacts on the selling/leasing Class 1 in terms of reallocation of employees and the possibility of the imposition of employee protection on the Class 1 related to that aspect.
gabe (1) Absolutely. (2) I would vigorously pursue a pending class action against Class 1s for antitrust violations, and after I made millions from the settlement and started my shortline, wonder why no one would interchange with me . . . . We'll, actually, I am staying out of that one. But, I have entered class action law, because it is the area that has the best chance to accrue enough capital to join such a venture . . . Also in addition to other forms of finance listed above, I would have as close of a connection as possible to local, state, and federal grant programs . . . pure capitalism be darned. (3) Right about now, there does not seem to be a shortage of good people looking for a job . . . (4) Our legal department would be pretty strong . . . (5) North of I-70 in Indianapolis, south of South Bend, Indiana . . . Now, back to working on the financing . . . Gabe
(1) Absolutely.
(2) I would vigorously pursue a pending class action against Class 1s for antitrust violations, and after I made millions from the settlement and started my shortline, wonder why no one would interchange with me . . . . We'll, actually, I am staying out of that one. But, I have entered class action law, because it is the area that has the best chance to accrue enough capital to join such a venture . . .
Also in addition to other forms of finance listed above, I would have as close of a connection as possible to local, state, and federal grant programs . . . pure capitalism be darned.
(3) Right about now, there does not seem to be a shortage of good people looking for a job . . .
(4) Our legal department would be pretty strong . . .
(5) North of I-70 in Indianapolis, south of South Bend, Indiana . . .
Now, back to working on the financing . . .
Gabe
Lawyers...! (edited for content by selector)
BTW, I'm thinking this so called financial crisis presents a number of class action opportunities. Now that the Children's Investment Fund has given up the ghost, any good legal arguments against them on behalf of the "regular" CSX shareholders?
Limitedclear There is no such thing as a "typical short line". There are a small number of short lines at any particular time. The number in operation is usually less than 600 or so depending upon how you define a short line. Of that total less than 5% are probably for sale at any time and the opportunity for formation of new short lines from other track, either spin offs by larger railroads, leases from government or other non-operating owners, previously abandoned track or new construction is even smaller currently. There are many different business models and reasons that what works for one operator may not work for another and many of the "rule of thumb" sorts of information out there may help to quantify practices common to many short lines should not be taken as a rigid structure. Many of the smaller short lines subsist just fine without following those "rules". I started this thread to see what others were thinking about short lines and to kill some time after minor surgery earlier this week. It is interesting to see the level of misinformation that is out there about short lines. LC
When someone goes looking at a shortline for sale, what is he looking for, or at? A bigger question I can't get a grip on, is: If the current owner can't make a go of it, what is the incentive for anyone else to buy it?
Murphy Siding When someone goes looking at a shortline for sale, what is he looking for, or at? A bigger question I can't get a grip on, is: If the current owner can't make a go of it, what is the incentive for anyone else to buy it?
That is the most important question any buyer of any business must ask and answer. So many people get into the restaurant business because they like to eat or they like to cook but have no restaurant business or business experience. The same thing here with a short line railroad: why should it be bought...because you like to watch trains? because you like to ride trains? Because you like the railroad line? Not good answers. Is there business on the line...is there business potential on the line...have you ever worked for a railroad, especially in management positions? How and why do you think you can do it when the present owner, whether a Class One or a short line operator or an industrial company, can't make a go of it.? If you have the answers...and the money...then go ahead. But if you don't ask the right questions of the seller and of yourself, no matter what the business, then don't buy...throw a party instead.
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If you are trading stocks, you are subject to the mob mentality in the market. There is a huge difference between traders and investors. A trader sees an imbalance in the price of the stock and the value and then takes steps to fill that imbalance. They might be right ... or wrong, but it is based on completely different mindset than investors.
An investor looks at a stock as owning that company. An investor might make his ownership decision based on existing margins or on future growth and margins, but it always about a return on the investment.
It should be exactly the same with owning a shortline railroad or a hot dog/Italian Beef stand on the south side of Chicago. Is this where I can maximize my return of investment? Does the potential reward meet or exceed the risk involved? The risk/reward equation got way out of balance in the banks and financial institutions the past five years...hence the problems we face today (among others).
If I were to invest in a shortline railroad there are a number of financial factors that would be considered including....existing business, profitability of those businesses, potential growth of those on line businesses, external competitive forces against not only my shortline, but also those businesses, other forms of competition, future regulatory issues including government policies towards certain industries.
That list doesnt even begin to address the physical issues involved such as ROW, rolling stock, and track conditions. Nor does it approach the issues involved with the connecting Class 1's such as car supply, joint marketing, reliablity of service, continued operation of their connecting line and their attitude towards carload traffic in the future.
The ideal investment in a shortline, in my opinion is a line in which the origin and destination are both under your control and it has very little natural competition. Without those ideal factors, then you must assign values of risk for each and every factor which may go wrong.
Regarding the hedge fund and CSX....the railroad needed a little push, they had been asleep or at least napping for a long time. Had they taken care of business there wouldnt have been a problem
ed
Murphy Siding Limitedclear There is no such thing as a "typical short line". There are a small number of short lines at any particular time. The number in operation is usually less than 600 or so depending upon how you define a short line. Of that total less than 5% are probably for sale at any time and the opportunity for formation of new short lines from other track, either spin offs by larger railroads, leases from government or other non-operating owners, previously abandoned track or new construction is even smaller currently. There are many different business models and reasons that what works for one operator may not work for another and many of the "rule of thumb" sorts of information out there may help to quantify practices common to many short lines should not be taken as a rigid structure. Many of the smaller short lines subsist just fine without following those "rules". I started this thread to see what others were thinking about short lines and to kill some time after minor surgery earlier this week. It is interesting to see the level of misinformation that is out there about short lines. LC So, how 'bout you correct some of that information for us? I know nothing about shortlines, other than the little dribs and drabs I've read in books and magazines. Chances are, that 50% of what I read is wrong anyway. When someone goes looking at a shortline for sale, what is he looking for, or at? A bigger question I can't get a grip on, is: If the current owner can't make a go of it, what is the incentive for anyone else to buy it?
Wow. I wish I had the time to put out that multi-volume set...lol...
In general what troubles me is the attempt by certain industry pundits to quantify all short lines and try to make broad overreaching generalizations about them (for example the 100/cars/mile/year rule). Short lines are often pretty unique even those the holding companies have attempted to homogenize. It is the creativity and imagination of the short lines that makes them unique and led to a number of innovations in marketing, operations and even engineering that have allowed preservation of so much operating railroad that would otherwise be just another bike trail.
Also, as the number of new short lines being formed has fallen off there is less information that is current out there about how the regulatory process works to form new railroads. It is frightening to see how little about the formation of short lines is actually known outside the small fraternity of transportation lawyers practicing before the STB and the short liners themselves. Even many of the Class 1 lawyers are not well versed on how things work and how they should work.
The art of short lining is wiggling into all the small holes in the process and wringing the expense from each one. Wedging open every valve of traffic and bolting on every new customer you can find to enhance revenues. While you're doing this creating a vision of thre future that ensures your operating plan can move all the traffic at the lowest possible cost, with the smallest number of people and equipment in a manner loved by communities and industries. Not a great mission statement I know, but then again as short liners we don't have a separate department to draft such.
Limitedclear Murphy Siding Limitedclear There is no such thing as a "typical short line". There are a small number of short lines at any particular time. The number in operation is usually less than 600 or so depending upon how you define a short line. Of that total less than 5% are probably for sale at any time and the opportunity for formation of new short lines from other track, either spin offs by larger railroads, leases from government or other non-operating owners, previously abandoned track or new construction is even smaller currently. There are many different business models and reasons that what works for one operator may not work for another and many of the "rule of thumb" sorts of information out there may help to quantify practices common to many short lines should not be taken as a rigid structure. Many of the smaller short lines subsist just fine without following those "rules". I started this thread to see what others were thinking about short lines and to kill some time after minor surgery earlier this week. It is interesting to see the level of misinformation that is out there about short lines. LC So, how 'bout you correct some of that information for us? I know nothing about shortlines, other than the little dribs and drabs I've read in books and magazines. Chances are, that 50% of what I read is wrong anyway. When someone goes looking at a shortline for sale, what is he looking for, or at? A bigger question I can't get a grip on, is: If the current owner can't make a go of it, what is the incentive for anyone else to buy it? Wow. I wish I had the time to put out that multi-volume set...lol... In general what troubles me is the attempt by certain industry pundits to quantify all short lines and try to make broad overreaching generalizations about them (for example the 100/cars/mile/year rule). Short lines are often pretty unique even those the holding companies have attempted to homogenize. It is the creativity and imagination of the short lines that makes them unique and led to a number of innovations in marketing, operations and even engineering that have allowed preservation of so much operating railroad that would otherwise be just another bike trail. Also, as the number of new short lines being formed has fallen off there is less information that is current out there about how the regulatory process works to form new railroads. It is frightening to see how little about the formation of short lines is actually known outside the small fraternity of transportation lawyers practicing before the STB and the short liners themselves. Even many of the Class 1 lawyers are not well versed on how things work and how they should work. The art of short lining is wiggling into all the small holes in the process and wringing the expense from each one. Wedging open every valve of traffic and bolting on every new customer you can find to enhance revenues. While you're doing this creating a vision of thre future that ensures your operating plan can move all the traffic at the lowest possible cost, with the smallest number of people and equipment in a manner loved by communities and industries. Not a great mission statement I know, but then again as short liners we don't have a separate department to draft such. LC
I've been wondering . . . do you think the shorts save significant amounts of money by leasing or acquiring lower-Tier locomotives that have less stringent pollution standards when not on a Class I? - a.s.
al-in-chgo I've been wondering . . . do you think the shorts save significant amounts of money by leasing or acquiring lower-Tier locomotives that have less stringent pollution standards when not on a Class I? - a.s.
In a word "No". The Gensets acquired by short lines are being purchased the same way UP and BNSF have been doing it. Using Federal CMAQ grant funds (Congestion Mitigation Air Quality). You can save a significant amount of money in fuel by carefully choosing your locomotive power. Buying 12 cylinder units can save you significant amounts over 16 cylinder power (for example replacing a GP7/9/10/16 with an SW1500/MP15 or a GE B23-7 or U23B).
What one looks at is the business viability as viewed through the lens of the particular short line operator's business model including the inherent strengths and weaknesses of their management team. Not every team is expert at all aspects. One business model or style can make something work where perhaps a predecessor or competitor could not. One such line I am aware of still frustrates a number of other short lines including some large holding companies who still can't figure out how it manages to keep going and expanding almost a decade after its founding...
OK here's my 2 cents worth on "GOOD" people..
Since my wife is from another country she has noticed Americans are lazy...
however Ya are looking at 1 person who like to work hard but hates hard work.....
tell me we're going to lay rail all day ok..but that sd40-2 neeed to be pushed uphill forget it...
I have gone to NS and csx interviews they give the spech and then release me has happen so many times i gave up..
If you want to hire me interview me personally and tell me personlly what the outcome is so i know what to do better next time.
So if any of ya ever get it going gve me a shout. Ya got 1 that will work my time out till the job is done. Personlly i like to do the yard work and road switching. i stay in practice using www.yardduty.com
PS ya talking to a dumb ole trucker and from what i hear nowadays truck is more like RR everyday.. if ya have 1 truck u can lose up to $5000 a day making 1 mistake like getting to dest late. it useda be run truck hard and make money but now it not how many mile u run as it fuel/equipment nightmares and being able to get your money.
Godsend_slim OK here's my 2 cents worth on "GOOD" people.. Since my wife is from another country she has noticed Americans are lazy... however Ya are looking at 1 person who like to work hard but hates hard work..... tell me we're going to lay rail all day ok..but that sd40-2 neeed to be pushed uphill forget it... I have gone to NS and csx interviews they give the spech and then release me has happen so many times i gave up.. If you want to hire me interview me personally and tell me personlly what the outcome is so i know what to do better next time. So if any of ya ever get it going gve me a shout. Ya got 1 that will work my time out till the job is done. Personlly i like to do the yard work and road switching. i stay in practice using www.yardduty.com PS ya talking to a dumb ole trucker and from what i hear nowadays truck is more like RR everyday.. if ya have 1 truck u can lose up to $5000 a day making 1 mistake like getting to dest late. it useda be run truck hard and make money but now it not how many mile u run as it fuel/equipment nightmares and being able to get your money.
Have you tried hiring out on the track. Track and B&B are always looking for good people with CDLs who are willing to work hard.
gabe (2) I would vigorously pursue a pending class action against Class 1s for antitrust violations, and after I made millions from the settlement and started my shortline, wonder why no one would interchange with me . . . . We'll, actually, I am staying out of that one. But, I have entered class action law, because it is the area that has the best chance to accrue enough capital to join such a venture . . .
That is not quite right! The person who walks away with the big payday is going to be the lawyer who initiated the class action,not the participants in the class.
Dakguy201 gabe (2) I would vigorously pursue a pending class action against Class 1s for antitrust violations, and after I made millions from the settlement and started my shortline, wonder why no one would interchange with me . . . . We'll, actually, I am staying out of that one. But, I have entered class action law, because it is the area that has the best chance to accrue enough capital to join such a venture . . . That is not quite right! The person who walks away with the big payday is going to be the lawyer who initiated the class action,not the participants in the class.
BUT, Gabe IS the LAWYER....
LOL
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