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By Angela Cotey, Associate Editor
What a difference a few months can make. U.S. freight railroads ended 2006 on a high note, posting record traffic volume for the ninth-straight year. But since then, rail traffic has slowed. Through March 3, regionals’ and short lines’ carloads were down 10 percent compared with the same 2006 period, according to RMI’s RailConnect™ index, which comprises information obtained from 307 U.S. and Canadian railroads.
The slowing traffic means railroads’ capacity issues — which came to a head the past couple of years — have subsided somewhat, as well.
“With the softening of the housing and auto market, rail traffic is on a downward trend right now, so capacity today might not be as big of an issue as it was, say, six months ago,” says Paul Pascutti, vice president of RMI, which provides Web-based transportation management products for railroads. “But it will inevitably continue to be a concern of all railroads because as traffic comes back, railroads discovered before they don’t have the capacity to handle it.”
Anticipating a comeback
Some expect it to come back soon — several regional and short-line execs still anticipate double-digit carload growth by year’s end.
“The capacity issue is [still] one of the greatest concerns I see facing our industry over the next 10, 20 years,” says Tom Hoback, president and chief executive officer of The Indiana Rail Road Co. (INRD). “If we think we can coast by and not make strategic investments, our service and reliability levels will go down, and I think we’ll pay a big price for that.”
Adding capacity carries a high price tag in and of itself, which most short lines can’t afford. So, at last month’s “Railroad Day on Capitol Hill,” freight-road officials lobbied Congress to extend the existing short-line tax credit through 2010 to provide small railroads a financing option for large-scale infrastructure projects.
In the meantime, regionals and short lines are attempting to address capacity by upgrading infrastructure and acquiring additional cars and locomotives, as well as finding ways to optimize existing capacity.
At INRD, officials are trying to convince two industrial customers to build their own car storage yards, which would free up space in the 500-mile regional’s yards for classifying cars, says Hoback. Both projects are expected to move forward this year.
“Right now, we charge them for storage or demurrage, so we’re giving them an economic incentive to build their own yard,” says Hoback.
And later this year, INRD plans to build an 8,000-foot siding near Sullivan, Ind., where train delays are becoming increasingly common.
The regional also is trying to make better use of existing capacity by increasing train speeds. When INRD first launched operations in 1986, speeds along most of the corridor were 10 mph. The railroad since has raised speeds to 25 mph. Now, INRD is installing continuous-welded rail (CWR) and replacing ties to boost speeds to 40 mph.
Iowa Northern Railway Co. is upgrading track to improve operations, too. The short line projects traffic growth of about 40 percent annually for the next five years, mostly because of skyrocketing ethanol and biofuels traffic, says President Dan Sabin.
To handle the traffic spike, the 163-mile short line will install 50 to 100 miles of CWR and 120,000 ties.
The railroad began construction in October and expects to complete the first 50 miles of track in about six months. Iowa Northern also will build two yards to handle an additional 2,500 cars and increase interchange capacity with Union Pacific Railroad, Iowa, Chicago & Eastern Railroad Corp. and Canadian National Railway Co. Construction on the yards will begin in second quarter and be complete by 2009’s end. In addition, the railroad will acquire about 20 locomotives and 600 rail cars during the next four years.
The short line is financing the infrastructure project costs, which will total up to $70 million, in part through a $25 million Railroad Rehabilitation and Improvement Financing program loan obtained from the Federal Railroad Administration.
Bringing in business
Raritan Central Railway L.L.C. also is contending with increasing biodiesel and ethanol-related traffic. The 16-mile short line is designing a 2,000-foot pier to move biodiesels and ethanol along the Raritan Center Business Park’s New Jersey waterfront by rail and barge. The $20 million project could begin in 2008 or 2009, says President Eyal Shapira.
The short line also recently began building a $610,000 steel and lumber transload facility, and a $410,000 food grade terminal in the park. And Raritan Central soon will spend $1.3 million to build and rehabilitate track along a former rail right-of-way in the park for plastics transloading business.
The railroad spends about $2.3 million annually on capacity-related projects and will need to spend at least another $1.5 million on new rail alone during the next two years, says Shapira.
“If we want more customers to come onboard, we have no choice but to spend this kind of cash,” he says.
For Anacostia & Pacific Co. officials, finding the space to expand capacity at its five short lines is as difficult as coming up with the funds. The company owns and operates the Chicago SouthShore & South Bend, Louisville & Indiana, New York & Atlantic, Northern Lines and Pacific Harbor Lines railroads, which serve such areas as New York City, Chicago and Los Angeles, where there’s limited room to add track. This year, the company might build track in an old New York City yard, where tracks were removed years ago.
“But that’s a unique situation — all we had to do was put the yard back in service,” says Anacostia Chief Financial
Officer Bruce Lieberman. “Either there’s plenty of space and no traffic, or plenty of traffic and no space.”
So, the company is seeking other means to increase capacity. For one, the firm’s short lines rarely store cars for customers these days because it takes up too much yard space. Anacostia also more closely monitors its roads’ car velocity.
“We’re measuring it and asking for explanations when velocity doesn’t improve,” says Lieberman. “We’re also compensating our [managers] when velocity does improve.”
Other short lines are exploring different options to optimize existing capacity. Iowa Northern plans to implement computerized dispatching, wayside scanners and an automated car-management system next year to speed operations. And late last year, INRD developed a more detailed operating plan for unit and merchandise trains to help optimize crews, equipment, track time and yard space, and control traffic flows.
“It sounds simple and straightforward, but it’s something we’ve never had to do before,” says Hoback.
As traffic continues to mount, regionals and short lines will need to explore every option to accommodate it. Regardless of how the roads decide to address capacity constraints, what’s most important is that they address it.
“There’s going to be substantial continued growth, unprecedented growth, and I don’t see the capacity issue as being something that will just go away,” says INRD’s Hoback.