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The short line problem: Little money, lots of infrastructure needs

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  • Ronald Dawson
    Recently Karen Sandness wrote about how Portland lost its original streetcar system through the ineptness of its city council of the time. Here is an article
    Message 1 of 1 , Jul 31, 2001
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      Recently Karen Sandness wrote about how Portland lost its original streetcar
      system through the ineptness of its city council of the time.
      Here is an article relating to a similar problem, but with railroads
      instead. Dawson

      The short line problem: Little money, lots of infrastructure needs

      Increasing financial support from government and the Class 1s will help
      by Bill Stephens

      Short lines and smaller regional railroads have always had a hand-to-mouth
      existence, and many pride themselves on getting by with more resourcefulness
      than resources.

      But you can only live on the edge for so long. Sooner or later, ties
      splinter, rail wears out, and bridges need replacing. These are big-ticket
      items that many short lines and regionals simply can’t afford. And this will
      be a problem in the coming years. A big problem.

      Over the next decade, as the Class 2 and 3 railroads’ infrastructure
      deteriorates after years of deferred maintenance, there will be nearly $7
      billion worth of capital needs on the nation’s more than 500 short lines and
      regionals, according to a study jointly funded by the American Short Line
      and Regional Railroad Association and the Federal Railroad Administration.

      Much of the money will be needed to upgrade track and bridges to support the
      industry standard 286,000-pound railcar.

      Don’t blame the short line or regional carrier for the predicament, though.
      Their lines were marginal before being spun off by the Class 1s. After all,
      if these branches weren’t marginal or downright unprofitable for the big
      systems, then they wouldn’t have been shed as excess mileage. And the big
      systems wouldn’t have deferred maintenance for years before selling them.

      Short lines and regionals, with their lower cost structures and customer
      focus, are able to make these castoff lines marginally profitable. They eek
      out enough money to pay for routine maintenance and keep their hand-me-down
      fleets of locomotives running – some long after they’ve become museum

      But at the end of the day, there’s no change left in their pockets to fund
      major capital investments.

      Short lines like snowflakes

      To a certain extent, this has always been a way of life on light-density
      branch lines. But the growth of Class 2 and 3 railroads means that more of
      the total U.S. rail mileage could face under-capitalization.

      Between 1980 and 2000, Class 1s dropped 65,000 miles of light density
      routes. Much of the mileage – about 50,000 miles worth – is now operated by
      short lines.

      Of the 546 non-Class 1s operating in 1999, 359 were formed in 1981 or later.
      They’ve been a success, of course, in keeping freight moving over the rails
      instead of the highways. But after two decades of minimal maintenance, few
      upgrades, and track problems inherited from the Class 1s, their physical
      plant is becoming a liability.

      “Today, this problem is coming to a head because of a new element that is
      completely outside the control of the shortline industry – that is the
      introduction of the heavier 286,000-pound freight cars that have become the
      standard for the Class 1 industry,” Frank Turner, president of the ASLRRA,
      told Congress this spring.

      “These cars cause significantly more stress and wear and tear on rail track
      and bridges. To handle these cars efficiently, light density lines can no
      longer put off major capital expenditures. If they don’t find the money for
      that investment, their lines and their shippers will effectively be
      disconnected from the nation’s main line railroad system.”

      Ed Hamberger, executive director Association of American Railroads, agreed
      in his testimony before Congress. “Absent outside sources of funding, many
      of these companies will be unable to upgrade their lines – which may
      eventually face abandonment,” he said.

      “If this happened, countless communities would be cut off from the national
      rail network, resulting in severe economic displacement.”

      There also would be severe economic displacement for the Class 1s.

      Say what? After all, if the local short line has to shut down, its Class 1
      connection would barely notice – much less miss – its paltry few hundred or
      thousand carloads per year.

      But short lines are like snowflakes. Considered on its own, each is
      insignificant. Considered together, they add up to a major drift of traffic.

      In fact, short lines and regionals originate or terminate more than a
      quarter of all railroad freight. That’s not small potatoes.

      Three sources of funding

      Fortunately, help is on the way through a combination of FRA loans, a bill
      in Congress that would fund outright grants to small railroads, and
      assistance from Class 1s.

      The FRA’s $3.5 billion Railroad Rehabilitation and Improvement Financing
      Program, or RRIF, was maligned earlier this year because of delays in
      turning on the loan spigot. The program was approved by Congress in 1998,
      but no money was made available for nearly three years while the FRA drew up
      loan guidelines. But now the money – $1 billion in loans earmarked for short
      lines and regionals – is starting to flow.

      Struggling carrier I&M Rail Link, whose financial situation was made more
      precarious by this spring’s flood damage, has received FRA approval for a
      $100 million loan. The money will help the Midwest regional refinance its
      existing debt and launch a major five-year track improvement program. “This
      loan ensures quality rail traffic throughout Iowa and helps Iowa businesses
      and industries move their product efficiently to other parts of the
      country,” said U.S. Sen. Charles Grassley of Iowa. “I&M will now have the
      opportunity to make significant improvements to its service.”

      More than 20 railroads have expressed interest in the program, under which
      the FRA acts as a lender of last resort when railroads are refused by
      private lenders. Five railroads – the Tex-Mex; Arkansas & Missouri; Dakota,
      Minnesota & Eastern; Mt. Hood of Oregon; and Livonia, Avon & Lakeville of
      New York – have requested a total of $140 million, and are at various stages
      in the application process, according to the FRA.

      Meanwhile, a bill in Congress, H.R. 1020, would provide small railroads with
      outright grants for infrastructure improvements, particularly those needed
      to support “286” cars. The three-year program, if approved, would earmark
      $350 million a year for three years for direct grants. The bill has been
      approved by the House Transportation Committee, but has yet to come to a
      vote on the floor. It enjoys bipartisan support, however.

      “Certainly the large railroads will benefit from passage of the bill and
      stabilization of light density rail infrastructure,” Turner told Congress.
      “One way to think of the more than 500 shortline and regional railroads…is
      as a very big customer of the mega-carriers. We market business, gather
      traffic from remote locations and tender it to the AAR member Class 1
      railroads….If we fail, that traffic will be lost to the highways and

      The third piece of the puzzle is the various forms of assistance the Class
      1s sometimes give their feeder lines.

      Burlington Northern Santa Fe and Canadian National, for example, have
      provided financial muscle to important feeder lines.

      Last month, BNSF partnered with Iowa Interstate and the Iowa Department of
      Transportation to beef up its busiest 78 miles of track to handle “286”
      cars. The DOT is providing $2.1 million, with BNSF and Iowa Interstate
      sharing the balance of the costs.

      “Our commitment illustrates our willingness to invest in our connecting
      regional and shortline partners, to permit their handling of heavy
      286,000-pound cars, where we find economic justification for doing so,” said
      Pete Rickershauser, BNSF's vice president,
      network development.

      Last year, CN agreed to provide $2.4 million to the Columbus & Greenville
      Railway in Mississippi so it could handle “286” cars to and from a major
      grain shipper. Over the next decade, the shipper is using CN to route a
      substantial portion of grain and grain products to its plant in Indianola,

      Union Pacific has helped critical feeder lines by providing materials on
      occasion, UP spokesman John Bromley says. And Norfolk Southern has, on a
      case-by-case basis, partnered with some short lines to replace bridges or
      other infrastructure.

      These investments by the Class 1s are a win-win situation. The short line’s
      business is boosted or saved, and the Class 1 gets the long haul with
      minimal investment in a short line.

      When combined, these approaches – loans, grants, and Class 1 helping hands –
      should alleviate the capital crunch on some feeder lines, particularly those
      that the Class 1s deem critical.

      To be sure, there will be economic Darwinism at work as short lines face the
      future. Some short lines – particularly those dependent on a single customer
      or commodity, or with exceptionally light traffic – may no longer make
      economic sense, and will not survive.

      But it’s clear that the health of the entire rail industry depends, in part,
      on how well the little guys are able to beef up their track and bridges.
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