Railway Age,
September 1996

Remember Rule One

Possibly you remember that piece of office humor: Rule One -- the customer is always right. Rule Two -- when in doubt, consult Rule One.

A short line/feeder line is a railroad that moves freight from one class of customers (shippers) to another (class I connections). What both sets of customers want is reliable service, simply explained. Remembering Rule One helps make a lot of complicated business decisions surprisingly easy for us.

What do you do when you buy a railroad and discover you have 3,800 rates covering three class I connections? Do what the new owners of the Bangor & Aroostook did: create a zoned matrix of 180 rates and throw the books away. What do you do when your tank car customer's customer is cutting rail use due to high constructive placement costs at destination? Do what the Arizona & California did: feed the cars to the class I at a rate specified by the customer so they arrive just in time, charging a modest storage fee for managing the process.

What do you do when what you're selling isn't what the customer wants? Remember Rule One and in our business delivering on Rule One is called service design.

When Iron Road Railways assumed control of the Bangor & Aroostook (BAR), opportunities abounded, according to Chief Operating Officer Dan Sabin. All they needed was to shift the focus from what had been done to what could be done. First, customers needed faster and more consistent over-the-line service from Canadian Pacific to the midwest. So BAR arranged to pre-block outbounds according to the carriers beyond CP, saving up to four days yard dwell time on CP.

Second, they needed a better and more reliable pool of cars for their paper customers. Working through Kent Zehner of Radnor Associates in Radnor PA, Sabin was able to assemble a fleet of freshly rehabbed boxcars at a fraction of the cost of newer cars in the same or even worse condition. And CP's improved service design contributes to the velocity and economic return on the investment. (As we pointed out on our boxcar panel in Richmond, getting the cars is only half the challenge. Keeping them moving is the killer.)

BAR's commitment to Rule One begins with a scheduled railroad. Do the same thing the same way every day and you keep customer, crews, and connections (and local communities) happy. BAR doubled the number of train starts, went to two-man crews, and eliminated overtime, cutting overall labor costs and car hire by as much as 30%. Short, frequent trains (shades of Al Perlman!) are now the norm, with car dwell times between interchange and customer cut to 24 hours or less.

Remembering Rule One has recaptured lost market share in paper, dimensional lumber, and OSB. By splitting the cost of a side track extension with customer Louisiana & Pacific, BAR was able to double the business practically overnight. Propane business also doubled, again by lending a hand with some track capacity improvement. And now, with the new St. Lawrence & Hudson "regional" railroad, BAR can offer two-regional service without the class I overhead and limitations, worth another 900 cars of new business.

Farther west, Iron Road also owns the venerable Iowa Northern (IANR), a 140-mile ex-Rock Island shortline in north central Iowa with a largely agricultural traffic base. Here again, doubled train frequency and more cars meant car cycles could increase to five turns a month from two. Thus 200 additional covered hoppers generate 1,000 more carloads per month, surely an economically attractive proposition.

But it gets even better. Thanks to a direct CP connection, IANR will be able to participate in the 3.5 million ton feed grain market in eastern Canada. Until recently this business had been dominated by the boats, but shifts in governmental policies and decreased subsidies to the Lake boats created new rail opportunities. Corn and beans come in for use in feed stuffs, beans come in for processing to meal and oil, and there are even export opportunities via Searsport, Maine on the BAR. By focusing on the needs of the customer in this shifting market, IANR is winning new buisness.

Even farther west, a relative newcomer to the regional railroad world -- the Arizona & California (ARZC) -- opens new customer doors daily. According to ARZC President Bill Frederick, when they opened for business May 9, 1991, they inherited about 11,000 overhead carloads and a tenth of that in local trade from the Santa Fe. At this writing ARZC has grown the overhead business 12% and local business by a factor of three. How? By focusing on customer needs.

To begin with, ARZC's service area is hardly what you'd call highly industrialized. Their main shoots straight across 200 miles of Arizona and California's hottest desert (When I was there late last month it was only 113). Yet Frederick and Company have been able to find business owners for whom desert spots with minimal amenities -- and cost -- work exceedingly well. Like the company that takes mixed residues from pipelines and separates them into their original commodities, meaning carloads in and out to ARZC. Or the firm that brings in municipal sludge, spreads it on the desert to air-dry, and packages the dried product as a desirable fertilizer.

Then there's the need to reach out and make change work in your favor. Take the Phoenix market for Pacific Northwest Lumber, for instance. Destinations have traditionally been either SP or Santa Fe, with the larger ones on the latter. Service and rates were such that neither road did especially well, and today as many as 100 trucks a week drive in from Oregon and Washington, locking up a 50% share of market. Enter Burlington Northern- Santa Fe with their friendly ARZC bridge route covering the south end. With the majestic mountains just south of Phoenix rapidly disappearing into the smog and the Interstates jammed at rush hour, taking a few thousand trucks off the road has to benefit the customers and the community. And maybe put a few shekels in ARZC's pocket as well.

Remember, though, that the short line has a customer at one end and a customer/partner, the class I, at the other. What these two companies -- Iron Road Railways and ARZC -- have in common goes beyond nose-to-nose customer-driven service design. They also rely heavily on superior working partnerships with their class Is. Perhaps Henry Lampe, BNSF's AVP for Interline Development, sums it up best. "What we're looking for is the ability to create strategic alliances with our feeder line connections." And in this regard, Lampe says they are looking particularly hard at how they and the feeder lines can cooperate on growing the business.

Which means the really successful feeder lines will be able to look beyond today's traffic patterns to what's possible by making sure what they're selling the class Is is what the class Is are looking to buy. If that doesn't make complete sense to you, just consult Rule One.

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