The flip side to the economies of scale are the diseconomies of scale. You can google the phrase, but it essentially refers to the increasing difficulty of managing an increasing number of people. The large RRs seem to feel it's better to spin off marginal lines (and their personnel, costs, liabilities, etc.) and replace all that with an employee to coordinate all the traffic that hopefully the shortline will supply to the big road. And if the spin-off fails, the original RR often has the option to re-acquire, or let it expire.
We should mention the significant operating cost savings resulting from owners and managers doing multiple tasks. When you have an ownwership equity you do whatever is necessary; and when you hire people you look for that same commitment. There was a Trains story recently about how a very successful short line RR worked which gave details of the commitment all who worked there had.
How long will the Class Is keep accepting single carload traffic from shortlines. Certainly the customer will be better off if the final delivery is by another shortline. The big problem with the Class Is is operational discipline. If you want to see true precision railroading look at the Swiss Federal Railways domestic carload network, next day delivery of your load from anywhere in Switzerland to anywhere else in Switzerland overnight. And if you are along one of the mainlines it will be by noon the following day. So say you are the Brewery at Rheinfelden, east of Basel, and you need a carload of Beer shipped to Geneva. Your carload will be picked up by 5 pm, humped at Basel, put on a mainline train to Lausanne, humped again, and delivered to your warehouse near Geneva by noon the next day. On a US railroad you might be lucky if they completed the hump switching at Basel by noon the next day. A big part of the problem is the very big size of carload trains in the US. It cuts down on the linehaul cost of carload movement, but tends to create real problems in execution of switching. BTW SBB delivers 98% of the carload traffic on time which is defined as within 30 minutes of schedule. US railroads can't achieve that percentage within 24 hours of schedule.
Of course the corollary for the Swiss is that your carload better be ready on time, or it won't move at all.
See generally Roy Blanchard's website and references, publications, etc. at:
http://www.rblanchard.com/resources/index.html
Because they go after business the Class 1s (at least some of them) turn their nose up at.
A couple months ago I was at a RITS regional meet where Dan Sabin of the IANR was the featured presentation. He talked about the Manly Railroad musuem he's sponsering, but also about the IANR.
Another thread mentions the new IANR expansion on a former UP branchline. He talked about that and said he thought the acquisition would take a couple of years to pay for itself, but it only took a few months. They (IANR) did more business on the line in the first few months than the UP did in the last few years. (He gave specific numbers, but I don't remember them.) My wife whispered to me that she didn't believe that, but I whispered back that I did, knowing how the UP looks at short haul/smaller volume traffic.
It used to be said of the railroad, "If it doesn't fit in a box car, we don't care about it." Now it's more of, "If it isn't a unit train sized move, we don't care about it." It's like they (class 1s) want the cream off the top, but don't want to milk the cow.
And it's not about being able to make money from a one car per week customer at the end of a 20 mile branch line. Unless more business can be found, that line will be abandoned by either a short line or class 1. The difference is the short line is more likely to try to find business that will keep the line active, the class 1 probably would not.
Jeff
Looking at my own industry (non-RR) the BIG Companies I have worked for expected large margins and volumes or it was not worth doing. The smaller companies picked up those areas since their margins did not need to be a big to operate. Also, not everything needs the Best of the Best so the hand-me-down stuff can work just fine in smaller operations. I would assume the same holds true for nearly all industries.
Darren (BLHS & CRRM Lifetime Member)
Delaware and Hudson Virtual Museum (DHVM), Railroad Adventures (RRAdventures)
My Blog
How are shortlines and regionals able to run some lines profitably when their class 1 predecessors couldn't? The Class 1 roads have the advantages of ecomomies of scale, they are able to keep their locomotive fleets up to date with the latest technology etc. So how is it that a shortline/regional can thrive with old locomotives, lower volumes, and no economies of scale?
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