Blanchard Company - Shortline Benchmarks

Benchmarks for Shortline Railroaders

Benchmarks set targets for achievement and a methodology for discovering the root cause of failure in any part of the business enterprise. Shortline railroads, typically privately held, owner-managed sole proprietorships, have long had the reputation for operating on a shoestring. The usual financial and operating measurements and controls found in larger firms are generally lacking, and - until now - there has been little incentive to put such measurements in place.

Not that many years ago a shortline with one or two locomotives, 20 miles of FRA class 1 track and a handful of carload customers could eke out a living. But the growth of a worldwide economy and manufacturers' shift toward sharper inventory management has mandated fewer smaller shipments from fewer vendors. At the same time there has been a consolidation of shipments from distant origins to regional distribution centers for shipment to destination in truckload lots or smaller.

This consolidation of industry has caused a dynamic shift in the life of the shortline community. Operators are seeing local firms replaced with regional manufacturers, distribution centers, and transload facilities for everything from corn syrup to plastic polymers. Others saw their small railroads wither and die as the local lumber yards and hardware stores displaced by Home Depot, the local feed mills replaced by Tyson and ConAgra, and the local widget makers replaced by faster, cheaper, and more flexible competitors from Taiwan to Turkestan.

With this change came a rail user demand for bigger cars and bigger trains operating with a consistency and reliability hitherto never expected of a small railroad. The shortline operator is thus faced with two highly demanding customers: the businesses along his own route and the class 1s that provide the long haul. The mom-and-pop idiom no longer suffices and a more involved, sophisticated management style is a must.

But companies don't operate in a vacuum, and customers are always looking for faster, smarter, lower-cost vendors, whether for goods or services. That's why smart managers are constantly measuring their own company performance against the competition. Benchmarking, in a word.

There are two kinds of small railroad benchmarks, financial performance and productivity, and they are inextricably linked. Excellent financial performance provides the wherewithal to provide superior customer service, and the benchmarks provide a measure of what is excellent or merely passable. Railroad productivity benchmarks tell the shortline owner whether his financial resources are being properly deployed.

Track, locomotives, fuel, even good employees are a "wasting asset," meaning they have to be replaced continuously and the rate of replacement is determined by the rate of consumption. Too high a rate and revenues will be insufficient to cover the costs and profits will suffer. Too low a rate and customer service suffers as parts wear out and break and people leave without there being replacements in the pipeline.

Because the shortline industry is so diversified creating a set of benchmarks has been a challenge, at best. However, the advent of the Internet and downloadable spreadsheets has accelerated the process. The Blanchard Company has over the years identified the Best Practices of railroads large and small, has combined them with investor performance standards, and has developed a set of ten financial and ten railroad productivity benchmarks specifically designed with the shortline operator in mind.

Readers may download the benchmark spreadsheet (Microsoft Excel 97 for Windows) and enter the appropriate metrics for their railroads. The spreadsheet will return the financial and productivity performance measures for the railroad.

--Roy Blanchard

THE BLANCHARD COMPANY
2041 Christian Street - Philadelphia PA 19146-1338
Roy Blanchard.215-913-7740 mobile, royblan@icloud.com
Laura Blanchard, 215-985-1445, lblanchard@rblanchard.com