"Rule of 100" continued from Resources Page:
Some say Rules of Thumb are meant to be broken. Others of us maintain they are useful things to have around when you're trying to figure out whether the Fallen Flag & Eastern Shortline will ever make any money.
The Rule of 100 says that to be profitable a shortline must average 100 revenue carloads per mile per year. To begin, assume operations five days a week because anything less will kill you in car hire and your car suppliers in cycle time. You have to have somebody to answer the phone and handle event reporting, somebody to look after the power, probably two somebodies to look after the track and facilities. You'll also need two CLEs to run the train. Pay these fine folks $20 an hour, your self $40,000. With a 50% burden you're already up to $268,000 before turning a wheel.
Two decent GP-somethings will set you back maybe 75 grand each. They'll need $50 a day in parts & supplies and will burn 80 gallons a day of diesel fuel at a buck-fifty a gallon. Call it $100,000 a year including depreciation over 14 years. Add 20% GS&A and a 10% profit margin and you're up to $500,000 a year and still you've yet to turn a wheel.
The FF&E will want to maintain its track to FRA class 2 (25 mph) standard because it's safer than excepted or FRA class 1 (10 mph) and because you can get your work done twice as fast. If you've already got class 2 track, keep it there. (Many's the shortliner who let it degrade to class 1 only to have to bite the bullet and restore it later on.) FRA class 2 track requires eight good ties per 39-foot rail length -- see 49CFR213.109 if you doubt me. That works out to 1083 good ties per mile; with 30-year tie life you have to replace 36 a year.
Figure $50 a tie installed and fifty cents a foot for tamping and surfacing and it works out to $4445 per mile. Call it $5000 per mile per year. Do the math and see that a 15-mile railroad needs $75,000 a year just to keep the track up to class 2 spec. A 30-mile railroad needs $150,000 and a 60-mile railroad needs $600,000.
Now go back to the Rule of 100 and see what happens with 1,500 cars for a 15-mile railroad, 3,000 cars for a 30-mile railroad and 6,000 cars for a 60-mile railroad. Average shortline handling fees run about $250 per car nationwide. Car hire will run $20 a day depending, and for argument's sake say 40% of the cars are private with no mileage to the shortline. Say car hire exposure runs five days or $100 per car.
Thus the FF&E will need to budget $90,000 to $360,000 for the 15, 30, or 60-mile railroad. Now add it all up and see the total operating budgets for these three railroads are $650,000, $800,000 and $1.2 mm respectively. Divide each of these totals by $250 a car and see how many cars it takes to cover the nut. Because of the high fixed cost, it'll take from 2,500 to 3,000 cars to do it on the 15 and 30-mile properties and 6,000 will cover it with a few to spare on the 60-mile railroad.
Like I said, rules of thumb are meant to be broken. But the Rule of 100 is a great place to start. I have the spreadsheet all set and ready to go if you wish. Drop me a line and I'll send it to you FREE. Your only cost is a brief note telling me how it worked. [Offer open only to persons actively employed in or by the railroad industry.] (1/17/2007)
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