ARE SHORT LINES AND
CLASS I S EXPERIENCING
A SERIOUS DISCONNECT?
rom an AAR press release: "The large freight railroads must recognize their essential partnership with shortline and regional railroads and they are working with small railroads to come up with mutual development strategies. The major railroads pledge to the STB to continue this important dialog to insure effective relationships between class 1 and shortline railroads."
The occasion for these remarks was the STB hearing on rail access and competition issues. Speaking for the railroads were Jim Hagen, retired Conrail President and Interim AAR President, John Snow CSX Chairman, Samuel Sipe of Steptoe & Johnson, and Professor of Economics Joseph Kalt from Harvard. What they're telling the STB is that the class 1s recognize the need to team up with the shortlines and regionals. And that ought to really open some doors for the shortlines and regionals. Recall that in January 1998 the theme of this space was to encourage shortlines to "think about redefining class I relationships" through strategic partnerships. That column sparked a fair amount of controversy. Comments like, "The class 1s are more interested in taking freight from us than off the highway." Or, "we can't rely on our connections to run the trains we depend on for connections according to plan." One correspondent went so far as to say "The larger the class Is have become the less in touch with their customers and shortlines they have become."
The feeder lines are not without fault, either. Typically the smaller road approaches a class 1 connection with a scheme not well thought-out and is unhappy when they are turned down. Unfortunately, the proposition refused can turn into "they don't want partnerships" in the eyes of the proposers.
Yet shortlines coming to the table with homework half-done is part of the reason some class 1s have been underwhelmed with the quality of response to their strategic partnership initiatives. The experience has not been unique to one more than another. We've seen a lot of "reaching" in the Conrail merger, there have been line sales requests that had no business ever being put on paper, and inappropriate complaints about car supply from properties that don't even turn equipment promptly. Clearly, something's amiss.
And that's why I returned to the topic for this column. I sent e-mail notes to about 30 class 2 and 3 roads asking for input specifically on the subject of "strategic partnerships." Copies of the same letter (sans feeder line addressees) also went to the feeder line marketing groups at the class 1s for their comments. The responses came quickly, clearly, and with feeling. Symptomatic of the lot was this note from a shortline whose president came from a class 1 background. He wrote, "Where we have found some new business and convinced our customers to use rail rather than truck, the class 1 marketing personnel told us available empties had to go to THEIR customers first. I was under the impression our customers WERE their customers (emphasis supplied)."
My class 1 respondents leapt on this one. Said Warren Wilson of UP, "UP policy has always been to treat customers on the spinoff short lines as if they were served by UP direct when it comes to equipment supply. The car supply programs available to shippers on the UP are also made available to shippers on our spinoff short lines." Conrail's car management system places empties at the closest available load opportunity, local or shortline, in order to save empty miles. And a BNSF shortline that had complained of car supply problems went back to the class 1 as a collaborator rather than a challenger and found a responsive ear.
In my experience every time a shortline comes to town with a willingness to explore the rules and find a fit, they generally do. The theme of the NS shortline meeting a month ago was an olive branch if I ever saw one. Every presenter, including CEO David Goode, expressed a commitment to work with the shortlines and make the shortlines true business partners. And the majority of the people I spoke with came away feeling that maybe -- just maybe -- here is a chance to get rid of the disconnect between words in meetings and actions in the field.
Now that the AAR has told the STB officially that it wants "to continue this important dialog" it's up to the shortlines to give the class 1s every opportunity to do exactly that. With a door opener like that, how can the feeder railroads not walk in?