"WHAT DOES IT DO FOR THE CUSTOMER?
hat question is emblazoned on a banner displayed at a major retailer’s northeastern distribution center. And it’s a very good question for shortline managers to ask.
In recent years shortlines have become increasingly skilled at marketing and customer relations, looking at issues from their shippers’ perspectives, and seeking solutions that address customer requirements. However, they sometimes forget that a shortline is a vendor with a major customer at the other end -- the class 1 connection.
Case in point. Shortline A wants to connect with Shortline B across Large Railroad C’s yard. Recall this is an opportunity covered by the landmark Railroad Industry Agreement (RIA) as a means to eliminate so-called “paper barriers.” There are two ways to approach this. A and B can go to C and say, “You have to do this because.” Or they can get their heads together and ask, “What does this do for C?” before going a step further.
Any shortline initiative provides direct and indirect benefits to the class 1. In this case the direct benefits are easy to spot. The biggest one is the freeing up of class 1 resources. In a standard interchange, A leaves cars for B in C’s yard. That takes track from C, idles the cars for the time it takes C to get them over to B, and takes a locomotive and crew away from other duties to make the move. Having A and B do a headlight meet takes nothing more than the yardmaster’s time to get the shortlines in and out of the yard.
The indirect benefits of this example are a tougher sell. It has to be shown how the more efficient move strengthens the business base of each shortline and how this in turn benefits the class 1. To begin, the shortline revenues improve and - one would hope -the operating ratio drops. That in turn provides greater cash flow for shortline investment in track, cars, better power, and greater access to tools for running a still more efficient property. And it provides further incentive to go out and find new business that will eventually end up in the class 1’s revenue stream.
A second application of the RIA concerns mini-unit trains between two shortlines with a class 1 in the middle. Specifically, there are on the table right now three new business proposals initiated by shortline operators who want to run unit trains from one to another using the rails of the class 1 road interchanging with both. In no case is the class 1 distance greater than 50 miles. Two of the proposals involve moves of 60 and 100 total miles; the third covers about 80 miles.
Each move has the same 20-car cut making three round trips a week, and without the quick turn the move is non-competitive thanks to equipment cost alone. In the hundred-mile project above, each car in the tri-weekly run-though unit train service will generate revenues of $63,000 a year based on truck-competitive rates. Running the business as a traditional three-line haul would be well shy of that mark. Even if you could get the rates to work, and that’s doubtful, each car would earn just $19,000 a year and you’d need four times as many cars to do the job. And less money for more assets is not the way to play the game.
What does it do for the (class 1) customer? Right out of the box the project would generate half a million dollars in trackage rights fees alone, essentially “free money.” It puts six more trains a week, more than 300 a year, on an underutilized piece of track. And it doesn’t add cars to locals whose ability to take 20 additional cars three times a week every week without fail is not guaranteed.
Moreover, the mini-unit train is something the class 1s have begin to use with good effect. Recall the CSX rock train in Florida - two trains a week running 200 miles each way - and Norfolk Southern’s automotive boxcar experience (March 1999 Railway Age.) Then there’s the English Welsh & Scottish (EWS) experience where everything is scheduled and small (40 cars is a big train), and where EWS has to negotiate for track space - not unlike a shortline wanting to schedule a 20-mile move on BNSF or UP. The difference in our examples is the shortline initiating the request and providing the benefit.
It is hoped that in each case the shortline will approach its class 1 partner with the power, car supply, personnel, and specific days and times for a truly scheduled operation worked out ahead of time. Then the questions and potential objections have been met up front and the host carrier knows what it’s dealing with. Besides, the more profitable the shortline the stronger the vendor-customer partnership between large and small roads.
And that’s one answer to “What does this do for the customer?”