Starting a Railroad, Phase 1

[Anonymous]

So here we are in Phase 1.

Business Plan

A few thoughts on how I would select a railroad to buy. I have always thought it is easier to raise capital when one has something to show potential investors. So I would produce a draft business plan focussed on the first acquisition. This business plan requires a preliminary management team for the railroad appropriate in size and function for the railroad to be acquired and operated. It requires a detailed financial plan including pro forma projections of both revenues and expenses in exacting detail. Balance sheets, income statements and capital sources and uses are critical to success with private investors and/or lenders. The projections would be for a minimum of five years based upon available information.

Locating Available Properties

There are many ways of locating railroads that may be available for sale or lease. In this example I will focus on a purchase. Lines may be advertised in industry or other publications, but more often one must seek them out. This is especially true of the better opportunities. In this case I have selected a line that was rumored to be for sale by a Class 1. The rumors were compelling enough for the state in which the line was located to authorize bonds for its purchase. The line was never sold and remains operated by the Class 1.

LC

[Anonymous]

How long is the line going to be and is it expandable for future growth?

[Junctionfan]

Which line is it? What industries does it serve currently?

[Anonymous]

The Team

For my team I'll need a handful of people. These folks need to havea good quality of railroad experience, financial experience, legal experience and will need to have enough grey hair to convince serious investors and bankers that they have a serious project.

Why do I deserve a seat in this august group? About 15 years in the industry in one capacity or another including brakeman, conductor, locomotive engineer, manager, general counsel and outside counsel. Practice in law firms in major cities. Legal formation of three short line railroads. In addition to President, I'll fill the roles of Counsel (Except in conflict situations), labor relations, marketing, sales, DSLE to recertify management, locomotive engineer on occasion and bottle washer...

I'll be bringing along someone with the necessary engineering background for the position of V.P. Engineering, this individual has 30 years MOW and operating experience and is also fully qualified as a track inspector, conductor, locomotive engineer and DSLE.

I'll need a good finance guy preferably with a good MBA and a good mechanical guy to round our the preliminary team.

LC

[Anonymous]

QUOTE: Originally posted by Blue Ridge Front

How long is the line going to be and is it expandable for future growth?

Real railroads are rarely "expandable". Growth is generally what is very nearby and/or what can be reached by transloading.

LC

[Junctionfan]

My recommendation would be Trillium Railways. It moves a lot of cars in Niagara and St.Thomas Ontario and has access to CP, CN and NS. Because there is a lot of abandon track from CN and CP getting rid of it, it gives the company potential growth to expand. The CN Van Der Water yard in St.Thomas is rarely used and when it is, it is used as car storage. Surely CN would sell it off if givin the right price.

There are a lot of transloading possibilities.

If we started to slowly rebuild much of the old CASO line, we could serve a number of industries a long the way that would welcome it by means of transloading or direct spur. Because the rails have been ripped out but the land has remained intact for the most part, attempting to reclaim the land for ourselves should prove not difficult. There are several laws that dictate that we have a right to reuse the land if it's abandoned or the railroad isn't planning on using it. The competition act is one and another is legislation that was passed during the time of Ernie Eves as Premier of Ontario. A private member by the name of Frank Klees, passed a bill dictating that rail routes were to be protected against rail trail and redevelopment.

In Canada, it is cheaper to hire workers because the workers here get paid Canadian but the railroad collects in U.S. The employer doesn't pay for health and because we have the Workers Compensation Board, on the job injuries of your workers are payed for by the government and the worker doesn't sue us for hundreds of thousands or millions.

[CSXrules4eva]

I wonder when u (LC) aquire the railroad; would you invest some money into expansion and growth? It seems to me as if ur eventually going to ponder on the issue of money, time, and labor your RR is going to put in for proper infrastructure. This of course comes after the guys with the extreamly white hair convince investors and customers that your RR corp is a dependable and relible one. With respect to the fact that your going to have to expand as the demand for your excellent transportation of goods rises.

[Junctionfan]

In Niagara, trillium ships about 10 hoppers of grain to ADM in Port Colborne, 9 to 11 cars of corn and at least 9 empty corn syrup cars to Casco, about 30 hoppers of grain to Robin Hood.

They ship 3 or 5 empty sulfuric acid tankers to General Chemical in Thorold. In St.Catharines, they ship about 2-4 box cars to Interlake Paper, 1 depressed flat to Trenegy boilers works, 1 or more depressed flat to Feranti-Packard transformers, 1-3 tankers of chemicals to Kemira Chemical and 3 to 10 gondolas to Glendale (ex Newmans) metals for scap loading.

In Welland, the ship 1 tanker of chemicals to GDX Automotive, about 20 or more gondolas of scap metal from International Marine Salvage, medium transloading of mostly pipe and dimensional loads from Mel Jones Heavy Construction, and 2 or 3 covered two bay hoppers for Vasuvius.

There is at least 20 to 30 other businesses alone in Niagara, that would consider transloading if not direct spur which they would likely prefer transloading facility.

[Anonymous]

QUOTE: Originally posted by M.W. Hemphill

LC, I take it you'll be assessing the current and potential revenue, then?

Correct.

LC

[Anonymous]

QUOTE: Originally posted by Junctionfan

In Niagara, trillium ships about 10 hoppers of grain to ADM in Port Colborne, 9 to 11 cars of corn and at least 9 empty corn syrup cars to Casco, about 30 hoppers of grain to Robin Hood.

They ship 3 or 5 empty sulfuric acid tankers to General Chemical in Thorold. In St.Catharines, they ship about 2-4 box cars to Interlake Paper, 1 depressed flat to Trenegy boilers works, 1 or more depressed flat to Feranti-Packard transformers, 1-3 tankers of chemicals to Kemira Chemical and 3 to 10 gondolas to Glendale (ex Newmans) metals for scap loading.

In Welland, the ship 1 tanker of chemicals to GDX Automotive, about 20 or more gondolas of scap metal from International Marine Salvage, medium transloading of mostly pipe and dimensional loads from Mel Jones Heavy Construction, and 2 or 3 covered two bay hoppers for Vasuvius.

There is at least 20 to 30 other businesses alone in Niagara, that would consider transloading if not direct spur which they would likely prefer transloading facility.

Thanks Andrew, but I already have a railroad in mind. I'm actually fairly familiar with the railroads of western Ontario including Trillium Rail and Ontario Southland. Regardless, I am not interested in starting lines in Canada for a number of reasons. High taxes, high employee costs, high health care costs etc...

LC

[Anonymous]

OK, so here it is.

The mystery line is the Gulfport Subdivision of the Kansas City Southern Railway Co.

This includes the 65.2 mile Gulfport Branch, plus 5miles of trackage rights over CN (IC) to Hattiesburg, MS (MP70.2) and the 13 mile Dupont Industrial Lead.

The line has several customers at different locations including Dupont Chemical, which produces both inbound and outbound loads and the Mississippi State Port at Gulfport and other industries.

LC

[ericsp]

QUOTE: Originally posted by Limitedclear

Dupont Chemical, which produces both inbound and outbound loads

Nice. However, since these loads are probably shipped/received in tankcars and/or covered hoppers, the same cars cannot be used to ship out product that brought in raw materials (unless DuPont wants to clean them). How does that affect revenues, compare to say, boxcars loaded both ways?

[Anonymous]

QUOTE: Originally posted by ericsp

QUOTE: Originally posted by Limitedclear

Dupont Chemical, which produces both inbound and outbound loads

Nice. However, since these loads are probably shipped/received in tankcars and/or covered hoppers, the same cars cannot be used to ship out product that brought in raw materials (unless DuPont wants to clean them). How does that affect revenues, compare to say, boxcars loaded both ways?

Doesn't really matter unless car supply is a problem (it isn't). Any impact is simply in car hire and demurrage. In this case Dupont has a dedicated fleet of private mark boxcars and uses private mark tanks and covered hoppers for outbound shipments so a few days car hire relief and car supply from KCS or CN or even CSX is more than adequate.

Oh, I should've mentioned that the new railroad, to be known as MIssissippi Gulf Railway, LLC will interchange with KCS at Hattiesburg, CN at Hattiesburg and CSX at Gulfport. Tomorrow, after work I'll fill in a few more details...

LC

[Junctionfan]

What are the workers in the U.S payed compaired to in Canada keeping in mind that the U.S dollar is stronger than the Canadian? Even after the exchange rate, Canadian workers should be cheaper shouldn't they?

[dehusman]

A good question to ask yourself is why is the railroad selling the line? What expenses are they looking at that make it unattractive financially to retain the line?

What bridges are on the line and how much repair do they need?

What is the subgrade and drainage condition of the railroad?

Dave H.

[Anonymous]

QUOTE: Originally posted by Junctionfan

What are the workers in the U.S payed compaired to in Canada keeping in mind that the U.S dollar is stronger than the Canadian? Even after the exchange rate, Canadian workers should be cheaper shouldn't they?

Thats What I calculate-

[oltmannd]

Anybody interested in owning/investing in shortlines should check this out:

http://www.rblanchard.com/

Lots of good stuff there.

Also, a shortline needs someone familiar with the commercial side of the business as well as someone familiar with IT requirements for shortlines. It is nearly a requirement to be able to send and receive trip plans/ETI/ETA messages these days.

[Anonymous]

QUOTE: Originally posted by oltmannd

Anybody interested in owning/investing in shortlines should check this out:

http://www.rblanchard.com/

Lots of good stuff there.

Also, a shortline needs someone familiar with the commercial side of the business as well as someone familiar with IT requirements for shortlines. It is nearly a requirement to be able to send and receive trip plans/ETI/ETA messages these days.

IT issues are easily handled through Railinc and a couple of other vendors who provide the software necessary and all the support you could want on a per carload basis. It will be a line item in the pro forma budget.

LC

[bnsfkline]

For Anther....L/C's RS18 needs to be sold (Or Given) to Jhhtrainsplanes, and you need to buy a couple GP38-2's

[Junctionfan]

I picked Trillium personally because the rail is in fairly good conditions (also uses 136 pound rail), a large amount of customers, tremendous amount of oppurtunity, the workers aren't expensive but you can pretty much guarantee a good tradesman, you can get government subsidies especially now that Canada is gun-ho on the Kyoto Protocol, getting the wood for ties is cheap because it is close by (Northern Ontario) , there are several railroad construction and maintainance companies with in the region for contracting, you are close to Buffalo and so have access to both two countries and have access to 3 class 1 railroads currently. Infrastructure is well intact so no rebuilding is necessary. This is just a few great advantages.

The problems with Trillium is poor marketing strategy, too expensive, need better motive power and need vision and the leadership to go after opportunities. Minor problems includes yard compacity limits which can be solved by removing some of the switches at Eastchester Yard as well as some of the track which is not necessary and relocate at Feeder Yard (main yard). There is also some other areas of track not used but still in good condition just needs to be consolidated.

[88gta350]

Do I get to be Chief of Police for this little railroad? As a campain pledge, I promise to allow railfans to photograph our great railroad without labeling them as terrorists!

If you need a resume, I have several years of experience defending nuclear power stations, with training in SWAT style tactics, sniper shooting, night vision devices, and a host of other little toys I probably shouldn't write about on the internet. I have a Bachelor of Science in Criminal Justice from Pennsylvania State University.

[Anonymous]

Due Diligence

Records concerning traffic over the line and revenues will be obtained from the KCS under confidentiality agreement for the preceding five (5) years. Revenue and traffic will be analyzed for the pro forma budget.

Records concerning the real property titles and related documents including grade crossing agreements, pipeline, wireline and other easements or profits (real estate term) will also be obtained from the KCS. Local real property taxes will be verified by county.

Records concerning track and bridge inspections, employees (numbers and types), communications facilities, equipment used (both on track and MOW), transportation service, customer service, car service, car repair and other records will also be obtained from the KCS.

One or more hirail trips will be arranged to inspect the physical plant in detail including all bridges, culverts, trestles, overpasses, underpasses, grade crossings, private crossings, track structure, and subgrade. Conditions will be compared with bridge and track inspection reports. There are no tunnels on the route.

Other documents and records will be requested based upon the results of the above.

LC

[Anonymous]

QUOTE: Originally posted by Junctionfan

What are the workers in the U.S payed compaired to in Canada keeping in mind that the U.S dollar is stronger than the Canadian? Even after the exchange rate, Canadian workers should be cheaper shouldn't they?

Andrew-

Please focus on this line. It is not in Canada. Even if Canadian labor rates can be less than U.S. labor rates due to the exchange rates there are other disadvantages. Also, remember that if a short line were acquired in Canada, there would be no exchange rate benefit in terms of cost as there would be no parent company in the U.S. to take advantage of the exchange rate...

LC

[Anonymous]

QUOTE: Originally posted by bnsfkline

For Anther....L/C's RS18 needs to be sold (Or Given) to Jhhtrainsplanes, and you need to buy a couple GP38-2's

The RS18 is not currently for sale and GP38-2s are going for $200,000+, far too expensive for a simple short line operation. To make it in the short line business pennies count. We'll be looking for cheaper power.

LC

[Junctionfan]

I have located some locomotives for sale.

Candic Route (Cedar Rapids and Iowa City): 5 GP9

H Bracer Equipment Sales and Service Inc.: 1GE 65 ton and 1 GE 50 ton

Turner Locomotive and Components: 3 SW1200s, 1 GP9, 5 GP40, 3 GP7, 1 GP20

Global Energy Equipment: 4 SW1500

Rail America: 15 GP7, 15 GP9, 6 GP10, 4 GP16, 3 GP18, 8 GP20, 3 GP30, 2 GP35
5 SD20, 2 Alco 412, 1 SW12

They don't have a price listed though.

[Anonymous]

QUOTE: Originally posted by 88gta350

Do I get to be Chief of Police for this little railroad? As a campain pledge, I promise to allow railfans to photograph our great railroad without labeling them as terrorists!

If you need a resume, I have several years of experience defending nuclear power stations, with training in SWAT style tactics, sniper shooting, night vision devices, and a host of other little toys I probably shouldn't write about on the internet. I have a Bachelor of Science in Criminal Justice from Pennsylvania State University.

Sorry, don't need a police department. Just an expense. Can't afford it.

LC

[Anonymous]

QUOTE: Originally posted by dehusman

A good question to ask yourself is why is the railroad selling the line? What expenses are they looking at that make it unattractive financially to retain the line?

What bridges are on the line and how much repair do they need?

What is the subgrade and drainage condition of the railroad?

Dave H.

Good points. The bridges along the line are largely of timber construction and are in fair condition. Some state funding may be available to assist in rehabilitation. Subgrade and drainage condition is generally good, although the line does cross some lowlands and flooding and washout risks are substantial.

LC

[Junctionfan]

I would recommend trying to get a loan or government grant and replace them especially if the area is prone to dry weather which could make the bridge fire hazard.

How long are thease bridges? It might be better in the long run particularly if the area is prone to flooding, to use concrete.

[Anonymous]

QUOTE: Originally posted by Junctionfan

I would recommend trying to get a loan or government grant and replace them especially if the area is prone to dry weather which could make the bridge fire hazard.

How long are thease bridges? It might be better in the long run particularly if the area is prone to flooding, to use concrete.

Andrew-

As you'll see I have provided for maintaining the bridges. Absent MAJOR government help, which is unlikely, the best we can expect is to maintain existing infrastructure. On a line of this length the cost of replacing the bridges with concrete is prohibitive. There simply isn't enough traffic to support a program like that which would certainly be in the $100Million+ range in costs.

LC

[Junctionfan]

How many industries do we serve? Is there any transloading opportunities? What kind of profits do we look to achieve in the fiscal year?