Railway Age,
November 1996

Short line/Class I relationships:
Another country heard from

The other country in this story is Canada, and what we're hearing from Montreal and Toronto ought to be music to a short liner's ears.

Canadian Pacific has created an interesting new hybrid--an international regional railroad. It set up the former Delaware & Hudson, plus its own Quebec City-Chicago corridor, as the St. Lawrence & Hudson Railway (SLH), a wholly-owned regional railroad that connects with 28 short lines in the U.S. and three in Canada. In order to boost itself up the short line learning curve, it sponsored a two-day retreat to bring together CP, regional, and short line decision makers. And the tone was definitely not business as usual.

SLH is no small-change regional. It operates a 4,000 mile railroad, including 1,200 miles of trackage rights. There are 4,400 employees in the U.S. and Canada and roughly a half-billion dollars (all U.S.) in annual revenue. Parent CP has given SLH a clear mandate to improve financial results (SLH lost $45 million last year) to become the most efficient low cost provider of trunk line rail services in the region.

Short lines play a major role, bringing in $18 of every $100 in revenue. And their role will grow. SLH's plans to divest of or abandon track will move well over 20% of its holdings into the hands of short lines. Iron Road Railways, for example, has just taken over 245 miles of former CP lines running between Farnham and Lennoxville, Quebec, and into Vermont. And Montreal-Quebec City could become a third party lease or internal short line.

SLH is meeting its charge to improve profitability. According to President Jacques Cotè, 1995's operating loss has been beaten back to break-even in 1996, and he expects a profitable bottom line in 1997. Looking forward, operating ratios should be in the low 90s a year out. Car-hire that was running about 16% of revenues last year should be reduced to 10% (close to what regional carrier Wisconsin Central reports).

SLH is banking on short line partnerships to create the seamless, low cost interface that today's competitive transportation environment demands. For example, Cotè said he is setting up new distribution centers, and will fully support short line participation in this effort.

SLH Chief Operating Officer Paul Gilmore said there have already been a number of feeder-line operating initiatives to lower costs and improve service reliability. To that end, SLH has become an 80% scheduled railroad. With more short lines pre-blocking railcars according to destination, SLH is cutting in-terminal time, car cycle time, and yard switching costs Moreover, interchange times can now be scheduled almost as "headlight meets." Car dwell times at interchange have been dramatically reduced and total transit times made more competitive and reliable.

Having set this framework, the focus of the meeting turned to the feeder lines' "expectations" (their word, not mine) of SLH. With more than 60 people representing most of SLH's connecting lines, the discussion was lively and constructive. Robert Grossman of Emons Transportation said there are "plenty of challenges, both internal and external," and noted that Class I treatment of short lines has been uneven at times, especially within Class I marketing groups. One way to alleviate the unevenness, he said, is to recognize that the short line-Class I relationship is one of ever-shifting vendor/buyer roles. Sometimes the short line is selling and the Class I is buying, sometimes the roles are reversed. The "excellent" Class I partner recognizes this and shapes the relationship accordingly.

On the subject of operational challenges, Iron Road's Bob Schmidt spoke approvingly about the excellent relationship between the Bangor & Aroostook (BAR) and SLH. By scheduling BAR operations and pre-blocking cuts for SLH, Iron Road has cut several days off transit times to western points and has improved reliability. This has resulted, for example, in an increase of 900 cars of paper to customers in Pennsylvania alone.

Readers of this column will recall that, in the September issue, we invoked the BAR experience to illustrate how " putting the customer first" pays the bills. Here again, the benefits are better fleet management with higher load factors and lower car-hire exposure, faster and more accurate pricing to customers, and, most important, commitments from customers to keep the business on the rails.

A spirited discussion took place during a panel featuring Buffalo & Pittsburgh's Chuck Chabot, Vermont Railway's Dave Ploof, Green Mountain's Gerry Hebda, and yours truly as moderator. John McCreavey, Philadelphia area rep for CP/SLH, directed the panel to discuss "what short lines need most from Class I connections."

The panelists generally took the tone of "Come to us, listen to us, use our strengths. We know the local issues and can make things happen." But it was Chabot who got to the nub of the issue, citing an all-too-common occurrence on other Class I's: "Above all, answer the dad-blamed phone!" After the applause died down, the panel then turned the question back on the hosts: What do you need from your short lines?

Our hosts said they needed to know more about what we as short lines could do in support of their business development initiatives: car supply and management, scheduling, and pricing. the focus was more on growing revenues than cutting costs. What was most gratifying was the way everyone contributed.

Another country heard from? What was discussed at the conference certainly wasn't what some short lines are used to hearing from their Class I partners. Is CP's approach working? It's too early for all the results to be tabulated, but the stock market certainly thinks there's a better game afoot. For the first nine months of 1996, CP did well, closing at $23.50 a share September 30, up 28% year-to-date, and taking first place in the stock price appreciation sweepstakes among North American Class Is.

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