If you could start a short line railroad now, would you want to?
How would you finance it?
How would you staff it?
How would you handle all the new regulatory challenges?
Where would you find it?
Look at what Mr. Gardner did at WSOR, and the benefit back to the state!
Ed
RWM:Are you referring the private equity group by that name?
ed
Thought so
Spring! When a young railfan's fantasy turns to...
"We have met the enemy and he is us." Pogo Possum "We have met the anemone... and he is Russ." Bucky Katt "Prediction is very difficult, especially if it's about the future." Niels Bohr, Nobel laureate in physics
Hmmm. So what constitutes an "Affinity Partner"? Definition?
Limitedclear If you could start a short line railroad now, would you want to? How would you finance it? How would you staff it? How would you handle all the new regulatory challenges? Where would you find it?
I'll give you my answers:
1. Probably, yes.
2. Equity from self and current business partners. Debt as required from bank sources currently seeking to lend to infrastructure companies.
3. Experienced short line managers. No Class 1 people, they take to long to retrain and get to work. Same with labor. Class 1 people with clean histories if not possible.
4. Hire a good regulatory person and continue good government relations practices. Personal lobbying and legal political contributions. Involve myself and people in legislative and regulatory process.
5. Consider all possibilities as they become known. Priority given to ownership of the assets.
LC
(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
Gabe:Not sure of what is available between Indy and South Bend, but one line that has intrigued me is the CSX ex Monon line north of Monon. They dropped the Wellsboro - Malden route several years ago which handled grain, perhaps they would drop this one also.
LC...affinity partners are those in which there is a level of personal interest or relationship along with the financial interests. In other words, partner up with people you know.
No !
Financing would depend on the initial investment and the amount of startup cash. Do I need to buy a fleet of locomotives? or will one or two do? Financing would be on a case to case basis. For a one man railroad, one where I don't have to own any real property I would finance it myself with a loan on what little equity I have. I would like to avoid any real estate taxes as well . I refuse to own a car fleet also.
My staff would come directly from the high schools or county jails.
As a railfan I would love to own a shortline..but as a businessman, I wouldn't want the headaches and the hassles. But if I COULD start a shortline I would answer as follows:
1) Financing... I wouldn't. I would not get into any business that requires financing beyond what I can provide myself. I don't go into business with others nor do I borrow money...and that gives me a alot of freedom and competitive advantage.
2) My only hiring criteria are level of interest, integrity, ability, and work ethic...nothing else matters to me. No rail experience?...no problem.
3) I would take regulatory challenges very seriously and I would dedicate staff and resources to ensure that all the Ts are crossed and I's dotted. The risk in noncompliance these days far outweighs the savings that may result from cutting corners in this area.
4) Where to find it? Anywhere that would make business sense..i.e. a combination of shipper demand..and where the business wouldn't be overly dependent on ONE account or on one connection with a Class 1.
First question: What's in it for me? Never mind the rail aspect, is there business to be had? What do I have as customers, and what is their long term viability? It's nice to be able to play with your own trains, but turning a profit is the whole idea of running a business.
If the answers to those questions are in the "plus" category, I'll move on to financing.
Many areas have local development organizations with money to lend. If the business case is there, they'll be at least part of my financing plan. I don't have a lot to offer personally, so it's going to either take loans or backing from others. If it's backing, it'll depend a lot on how they will fit into the operations - will they be silent partners, or do they expect some seat time?
Randy mentions equipment. Depending on what I can find on the market, I might lease, or buy. Buying lends an aura of permanence - something that my backers might find more comforting than the idea that I'm leasing because I don't think this is going to fly. Rolling stock - only if I need it to provide the service (ie, between two locations on the line).
I'll probably just contract most of my MOW at first.
Hiring - Experience is nice, but as has been noted, not crucial - if the help is trainable. Depending on how much business I expect, I might be able to develop a pool of part-timers, which will save some of the background expense inherent in full-time employees. I know - it's a cheap out, but an option if I don't have enough business to warrant full-time help.
FRA is a force to be reckoned with - especially now that there is the potential for personal financial penalties in addition to the risks the railroad itself faces. I's will be dotted, and T's will be crossed.
Larry Resident Microferroequinologist (at least at my house) Everyone goes home; Safety begins with you My Opinion. Standard Disclaimers Apply. No Expiration Date Come ride the rails with me! There's one thing about humility - the moment you think you've got it, you've lost it...
Ulrich:What differences do you see in owning/operating a shortline vs a trucking company?
What is your biggest issue as a trucking company owner?
Is this a trick question? Or part of a pysiciatric exam?
If no the the two above, the most important thing to decide is "why?", what's the reason to build the line or take it over? Is there any business to pay the freight (so to speak)?.
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MP173 Ulrich:What differences do you see in owning/operating a shortline vs a trucking company? What is your biggest issue as a trucking company owner? ed
I'm sure a shortline would be much harder to own/operate than a trucking company. A trucking company can be started at a very small level, with little or no financing, and grown from there. A shortline, however, would require getting in at a higher level becuase you can't just start with one boxcar and 500 feet of track. So right from the get go the challenges are much more onerous with a shortline.
From an operational standpoint, also, a trucking company would be easier to manage. Each load is independent of the others..i.e. the delay of one truck due to mechanical failure or an accident will not affect the others. With a shortline any failure will have an impact on the whole operation...if a locomotive fails then an entire line is tied up and every load is affected.
My biggest challenge as a business owner is attracting and keeping good quality talent. All the other challenges become...well...less challenging..when you've got an A Team staff that is motivated, interested, and capable. When all you've got is people who aren't motivated and not performing the way they should then even the basic routine tasks get balled up..and that creates annoyed customers..and alot of wasted effort in rework.
gabe (3) Right about now, there does not seem to be a shortage of good people looking for a job . . .Now, back to working on the financing . . . Gabe
Good railroaders are always in short supply. Those who are laid off are the least effective.
Financing is readily available for solid business cases. Even now.
RWM
Most if not all of the above answers presuppose that an existing line will be bought, or an old ROW rehabbed. Which is fine, but . . .
Supposing the RR route is brand-new requiring new track, signalling and motive power? Let's say a hypothetical new coal-fired power generation plant (or some venture company seeking the electric company's business) wanted to build a two-mile spur from scratch between the power plant and the mainline RR of a Big Seven so that a coal train's worth of unit coal could get to the plant.
Would he FRC become involved? The state? County government? How difficult would that be in terms of red tape, planning, permits; and if the Class One wanted the line done would things go more quickly if they had some control of it? I know in Canada there are expedited procedures to abandon minor branch lines -- but building brand-new ones -- which surely must happen even in today's more truck-oriented society -- how does that work, or how do they work if there is more than one method?
Hope I haven't opened up too much of a can of worms but I think my situation is definitely within the scope of the original question. - a.s.
Railway Man Financing is readily available for solid business cases. Even now. RWM
Thanks to Chris / CopCarSS for my avatar.
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?
Interesting question. Maybe even the Big Seven don't have adequate funds on hand to fund large projects, because their earnings go mostly to stockholders and capital improvement/maintenance of infrastructure? Maybe short-line acquisitions have a tradition of being privately (or in some cases municipally) funded? And I'm sure there must be some creative capitalism going on (I don't mean that to sound negative) under exceptional circumstances, to create/take over a brand new line?
Hope this thread gets a lot of answers! - al
I was thinking more along the lines of contract for dee type financing: $$$ down, so we know you're serious, and so much per month. Miss the payments, you get repo'd. A deal on the side to rent power as well. That type of scenario. Didn't NS have a program,( Thoroughbred(?) ) at one time that was something similar?
al-in-chgoMost if not all of the above answers presuppose that an existing line will be bought, or an old ROW rehabbed. Which is fine, but . . . Supposing the RR route is brand-new requiring new track, signalling and motive power? Let's say a hypothetical new coal-fired power generation plant (or some venture company seeking the electric company's business) wanted to build a two-mile spur from scratch between the power plant and the mainline RR of a Big Seven so that a coal train's worth of unit coal could get to the plant. Would he FRC become involved? The state? County government? How difficult would that be in terms of red tape, planning, permits; and if the Class One wanted the line done would things go more quickly if they had some control of it? I know in Canada there are expedited procedures to abandon minor branch lines -- but building brand-new ones -- which surely must happen even in today's more truck-oriented society -- how does that work, or how do they work if there is more than one method? Hope I haven't opened up too much of a can of worms but I think my situation is definitely within the scope of the original question. - a.s.
There are many examples of "build-outs." The typical practice is for the power plant to design, permit, build, and acquire the right-of-way up to the Class 1 right-of-way. The Class 1 separately designs and builds the connection inside their ROW on a force-account basis paid for by the power company. The Class 1 also approves the design and operating plan for the power plant trackage if their locomotives or their crews will use it, and approves the general operating plan and commercial plan before it agrees to serve it.
The FRA regulates safety. The power plant spur as a component of the national rail system is subject to FRA jurisdiction. The FRA can inspect it whenever it wants and issue fines for noncompliance with safety law. The FRA as a matter of policy, not law, usually chooses to not inspect industrial railroads, which are defined as a railroad that does not offer common-carrier service, is wholly contained within a plant's property, does not cross any public roadways at grade or pass overhead any public roadways or navigable waters, and is not parallel to a railway under FRA jurisdiction. Few power plant spurs qualify.
The STB regulates economic matters. Power plant spurs will come under STB jurisdiction if they choose to operate as common-carrier railroads rather than as industrial spurs. Common-carrier railroads accept freight from multiple parties. There are disadvantages to not being a common-carrier because there is no longer federal exemption from local or state ordinances on hours of operation, commodities carried, etc. STB jurisdiction is triggered if the rail line requests common-carrier status. Some do, some don't.
Permitting is required from any agency with jurisdiction. This can include the USFWS, USACE, BLM, USFS, USCG, FHWA, State PUC, State DOT, State SHPO, County, Municipality, etc. It depends on whose land the line crosses and whether there are public roadways to be crossed, wetlands, waterways, historic sites, and so forth. For a power plant, there will be PUC rate base applications too, if it's a regulated utility, plus air quality applications, and so forth.
This can all take years and cost lots of money before one shovel of earth is turned. I've spent years of my life on paper lines that may never see the light of day.
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?
Who would want to do that? It would be like you loaning the money to a developer to buy lumber from your lumberyard to build a motel chain. He has very little cost-control incentive since if he goes broke, you're stuck with running the motels. He might as well pay himself a fat salary, and say, "Gee, my P&L is so terrible because you're charging me too much for my lumber." If you don't cut the lumber price he goes broke and you own the motels. If you do cut the lumber price you're running your business at a loss. Tails he wins, heads you lose.
Murphy Siding Railway Man Financing is readily available for solid business cases. Even now. RWM 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 you're 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 I have control over than part owner in a large business over which I have no control at all.
Railway Man 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? Who would want to do that? It would be like you loaning the money to a developer to buy lumber from your lumberyard to build a motel chain. He has very little cost-control incentive since if he goes broke, you're stuck with running the motels. He might as well pay himself a fat salary, and say, "Gee, my P&L is so terrible because you're charging me too much for my lumber." If you don't cut the lumber price he goes broke and you own the motels. If you do cut the lumber price you're running your business at a loss. Tails he wins, heads you lose. RWM
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?
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.
Murphy SidingDang! 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!
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.
First I would read everything by Roy Blanchard I could get my hands on. Then I'd look to see what the future prospects of the existing on line traffic and economic prospects for the region. Even then, I'd probably say no. Car load, industrial based traffic scares me Maybe it's Conrail Syndrome. It would have to have some real prospect for transload or intermodal terminals to make me think twice.
Financing? No clue. Hit up the stakeholders (on line business, local gov't, etc) for as much as possible as collateral on a loan that will allow the company to lease just about everything.
Staffing? Anyone with a bit of rail experience, above avg. smarts, up to date business or engineering skill set, and an unhealthy interest in railroads will do.
Regulatory stuff? I think I'd leave that to these guys www.aslrra.org.
Where? Near a major metro area that's growing in a state that supports shortlines in general where the RR is laid flat on stable ground with as few bridges or tunnels as possible.
-Don (Random stuff, mostly about trains - what else? http://blerfblog.blogspot.com/)
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