Short lines are on the headpin as the North American rail business embraces a welcome rebound.
“It’s been a tumultuous eight years but the railroad industry is turning a corner as a whole, and that’s where [short lines] are going,” said Chuck Baker, president and chief executive of the American Short Line and Regional Railroad Association, speaking at the RailTrends conference in New York.
“This year I have visited with all six Class 1s and they all have engaged short-line teams. They all say that short-line traffic is the fastest growing segment of their carload and merchandise traffic.
“It’s a real success story.”
Short lines and regional carriers provide first mile-final mile services across a disparate network that totals 50,000 miles of track, handling volume ranging from a single car to thousands of carloads a year.
Canadian National President and Chief Executive Tracy Robinson agreed, and said the Canadian carrier this year reestablished its interline team in part to include 150 short-line connections in its growth strategy.
“This is how we grow, we have to be nimble,” Robinson said in a RailTrends presentation, “no matter where we are in the economic cycle. Our interline volumes are up 10% over 2023.”
The railroad in late 2023 announced its intention to acquire short line Iowa Nothern Rwy. The Surface Transportation Board in February ruled it a “minor” transaction, setting some of the parameters of the review, and the deal is still pending.
“These are the ways we are going to grow,” Robinson said.
There are a number of positive signs for short lines coming out of Washington, Baker said.
“CRISI [Consolidated Rail Infrastructure and Safety Improvement] grants are a huge deal for railroads and short lines specifically. Those are funded through the next two years so the election won’t affect that.”
A total of $2.5 billion in 2023-2024 CRISI grants were authorized under the Biden administration’s infrastructure bill. The grants help fund a wide range of rail-related projects and are critical to short-line infrastructure development.
Baker is also optimistic about prospects for legislative action. New Senate Majority Leader John Thune is highly regarded for his knowledge and engagement on railroad issues, having served as railroad director of South Dakota. “He’s probably the first Senate majority leader who was a state rail director,” said Baker.
“Short lines — these are the railroads that know about growth,” said Stefan Loeb, vice president, First & Final Mile Markets for Norfolk Southern, moderating a panel discussion at RailTrends.
When a building materials customer generating several thousand carloads a year couldn’t find a suitable site for expansion, Regional Rail found one — its own headquarters property!
“We’re in the process of finding a new home for ourselves,” said President and Chief Executive Al Sauer, a panelist. “Our administration, crew offices. It is the ideal site for them.”
Panelist Dean Piacente, chief executive of OmniTrax, said leveraging rail and real estate helped boost the company’s growth by 52% in the past four years.
“That brought OmniTrax thousands of carloads by controlling land,” Piacente said. That includes the carrier’s Savannah Gateway Industrial Hub, a 2,700-acre multimodal park in Rincon, Georgia, near the Port of Savannah. Amid the boom in warehouse and distribution center construction, OmniTrax has seven more parks featuring non-rail served industrial real estate, as well. “We have one in Colorado with a Home Depot lumber distributor. We do the short-haul business very well, such as bringing limestone 20 miles for Clorox, and silica sand in New Jersey. But it’s hard to grow if you don’t own land.”
The entrepreneurial DNA runs through most short lines, sussing out even modest opportunities that don’t fit Class 1 operating plans.
“We are working directly with farm families in New York state on feed additives,” said panelist Bob Babcock, president and chief executive of Livonia, Avon & Lakeville Railroad. “We’re good at finding five cars a week, that’s 250 cars a year.”
Short-line executives are firmly in the “if you build it, they will ship” school of rail development.
In Kentucky, R.J. Corman Railroad Group built a distribution center that does hot and cold rolled products for an aluminum producer, said Executive VP of Commercial Affairs and panelist Justin Broyles, “that generates 6,500 carloads a year for two short lines and a Class 1 over 250 miles of track. We provide shuttle service including finished product outbound moves from there.”
There’s a transload solution at the destination, said Broyles, to handle 35-car unit trains three times a week. “And, CSX puts a crew on our equipment. Not many Class 1s will do that kind of train.”
Panelist Ryan Ratledge, chief executive of Pinsly Railroad Co., said his company works with a Class 1 and a large shipper that in three switching moves produces two loaded moves for the Class 1 and only one empty move. “We’re looking to replicate that kind of opportunity in other locations,” said Ratledge.
The panelists emphasized that extra effort is required since rail seems weirdly foreign to many shippers.
“We have to teach people about rail,” Babcock said. “The rail industry has cut back on ‘face-to-face”. We are byzantine and have to teach customers how to use rail. We have to have more people knocking on doors.”
What appears to be a move toward some reindustrialization of America puts short lines in an ideal position.
“With near-shoring and reshoring, if you’re not ready you can’t play,” said Piacente. “You need land or bolt-on projects if you don’t have land. And, you need customers to spread the good word. We’ve had ports contact other ports and say how we know how to do business, also with land developers. Procter & Gamble did that.
“Be pro-active and we don’t cut back on that. Kind of like truck brokerages.”
The short-line business model, Paciente said, means being an integrated logistics provider. OmniTRAX provides warehousing, and started a logistics management business for bulk imports.
Ryan said that short lines have to serve as an extension of their Class 1 partners’ network, even where it doesn’t directly connect, in order to reach new markets.
The CRISI grants and 45G tax credit are another linchpin to growth.
“We try to use the money to grow our business,” said Babcock. “We have won two CRISI grants. States want to see how we grow our business.”
Corman is using grants with a 25% match to replace a 100-car fleet serving an aluminum customer.
Grant and tax credit funding can be a vital aid to development, Sauer said, since some properties are “fixer-uppers” that take a long time and a lot of money to rehabilitate.
Piacente called CRISI crucial to funding operations. Otherwise, we would have to put 40% of our gross revenues into it which is very, very difficult for a short line.
“The proof’s in the pudding,” said Loeb. “You want to grow, work with a shortline.”
This article was updated Nov. 25 to clarify Baker’s comments regarding short-line traffic, and to correctly state that CN’s acquisition of Iowa Northern is still pending review by the Surface Transportation Board.
Find more articles by Stuart Chirls here.
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