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STARTUP SHORT LINE?
Start-ups require a number of different things. For purposes of this brief note, which only scratches the surface, I'll assume you are not in the railroad industry and are looking to start a short line by acquiring it by lease or purchase either from a Class 1 railroad or an existing short line or regional railroad. Another way is to lease and operate a line for a governmental enitiy that owns the line. Usually such lines are leased through a bid process. Unless you are local and have sufficient political clout it is unlikely that you would win such a bid over experienced operators bidding against you. In any event, the team and skills you need won't vary that much from what I have outlined below under critical skills. As I'm sure you can tell, I've done this myself before, more than once.
STB Publications and Short Line Environment
The STB publications are a good starting point, but both are somewhat dated and don't include a number of the current important legal and regulatory changes in the railroad industry which affect the ability to start a new railroad. Even existing short lines seeking to expand are finding it difficult due to the small number of available viable lines as Class 1s curtail or shrink their spin-offs and viable short lines are acquired by short line holding companies or Class 1 railroads, the poor economic climate and resulting difficulty in obtaining loan financing, increasing competition from Class 1 railroads for traffic and the new extremely burdensome regulatory scheme from Washington including massive new safety regulations and the hiring of hundreds of new FRA inspectors to enforce them. Also, in many states rail funding has been cut substantially or put on hold pending the resolution of the financial crises gripping many states even after accounting for the effects of the Federal Stimulus Bill so you can't count on much help there either.
Team and Skills
You'll need an excellent team at least some of whom are known in the railroad industry. The critical skills below will help determine your team. If you must include folks without railroad backgrounds find those with enthusiasm, but beware the armchair railroaders and railfans who will drive you away from the core goal of running a successful railroad business.
As a small industry, personal relationships count and building them takes time. Start now. Attend ASLRRA and other industry meetings. If you reach an agreement to buy or lease a property, try to get the current owner to introduce you to the Class 1 connections, particularly their short line marketing group. Read all you can about railroad finance, accounting law and regulations. Get the book "The Railroad, What it is; What it does" from Simmons Boardman Publishing and read it.
Here are the critical skills needed to start a short line assuming you are not a huge conglomerate or someone else with more cash than sense:
1. Finance and administration - Critical to the evaluation of each potential property including cash flow and expense analysis and potential areas where savings over the existing operations can be realized.
2. Engineering - Inspection of the property particularly all bridges and structures, track conditions and local conditions is critical in determining feasibility of the line and ongoing costs of maintenance and rehabilitation.
3. Operations - Evaluation of existing operations and creating a workable operating plan and knowing how to save when interfacing with the Class 1 railroads and government is critical to a start-up especially where one can expect to hear from the FRA immediately upon filing with the STB concering how the property will be operated and what types of lading is expected, particularly any hazmat. TSA will not be far behind.
4. Marketing - Marketing starts even before you get the property, usually as soon as the owner gives permission to talk to the existing customers. Ideas for new traffic should be explored much sooner as a marketing plan must be part of your business plan for financing. BE REALISTIC. Your marketing staff must not just sell, but have a familiarity with railroad accounting, car accounting and the new information technology that drives it all.
5. Legal and regulatory - Keeping everyone happy and making sure there are no legal or regulatory problems begins as soon as you begin planning and becomes more critical when governmental filings must be considered. Although some legal work should be sent out to a reputable and experience law firm in the start-up area, having in house talent cannot be ignored. STB, FRA, TSA, EPA, and a pack of other alaphabet soup awaits, be prepared.
You'll also need cash and quite a bit of it. Those old GP9s and similar units that have been the staple of short lines for a long time are now priced well over $100,000 for a running blue carded unit if they can be found at all. End cab switchers are even more. Track equipment is harder to find at an affordable price and even railroad crossties atr now at least $25 each new and over $60 installed by a contractor. At a minimum you'll need $250,000 to $2,000,000 in cash (with some substitution of credit if it is GOOD credit with a bank or entity with significant worth) to start a new railroad. Purchasing anything relating to a railroad is expensive, so knowing what you NEED is critical.
The simple answer on how to start and finance a short line in the current economy is "Don't". I know that probably isn't what you want to hear, but as I said above the new issues are daunting. Consider just a few: PTC (Positive Train Control) which will affect short lines handling certain hazmat shipments and any regularly scheduled passenger service AND any short line which must cross Class 1 track that is PTC equipped (estimated minimum cost to equip locomotives is $50,000 to $150,000 or more per unit), Hours of Service changes limiting employees weekly and monthly including all employees who perform any covered service which will make it harder for short line employees to perform multiple roles, the new Railroad Safety Act signed into law last October includes these provisions and dozens of others including a requirement for comprehensive bridge regulations for the safety of all railroad bridges and requiring at least annual inspections by a qualified railroad bridge inspector and a bridge maintenance plan supervised by a railroad bridge engineer. Breathing apparatus will be required for the train crew of any train hauling certain toxic commodities such as chlorine and anhydrous ammonia, and the list goes on. Each item has a cost for existing and new railroads and the old "we are just a short line" excuse isn't going to work anymore.
Big changes are also coming at Surface Transportation Board (STB). Efforts to change antitrust laws pertaining to railroads in Congress and efforts by rail customers to eliminate paper barriers and make other changes in rate structures will all have an effect on short lines. What effect is presently unknown, yet all possibilities should be considered when planning for a start-up. Recent STB changes have included extending the time for filing a Notic eof Exemption to start a short line from seven (7) to thirty (30) days and significant new restrictions have been added on properties where municipal solid waste, construction and demolition debris and similar lading is hauled.
There is so much more I could add, but not knowing your specific issues or questions that would be difficult. A short line is possible with a large amount of work and investment. It will always be a work in progress and you will face every challenge you can imagine and more. Oh, and did I mention you will not make much money yourself, but you must be always looking and shoring it up or it can all come down quickly. Good luck.
I too am looking at starting up a short line/regional railroad.
I have discovered that there are a lot of different from state to state as to what is required for start up as well as continued operations.
What state are you looking at starting up in? perhaps we can help each other.
In reply to toporange:
Hello - I am with a group also looking to start up a short line or (preferably) find an existing short line operator.
A little history. I am VP of the Newtown Brand Preservation Foundation. My partner and I are looking for an interested freight operator to serve and nurture a healthy but untapped manufacturing sector in southeast Pennsylvania on the former Reading Newtown Branch. The 15.2 mile line can initially generate 1,000 annual carloads of heating oil, raw materials and manufactured goods using five (5) miles of existing stick rail rated for Class III service. Connections to CSX and NS, Greenwich Yard, Tioga Marine Terminal exist and there are many existing sites for future development. There are also seasonal heritage operation opportunities as well.
Trains last operated on an irregular basis until 1988. The line is currently owned by a public transit agency that has no plans to utilize the line. The agency is more than willing to sell the line to an interested party at rock bottom scrap price. In anticipation of this, we have recruited the talents of Transport Handling Specialists, Inc. (thsrail.com) to assist in such negotiations. It should be known that line is also in danger of becoming a rail trail, a fate we are trying to prevent at all costs.
We are looking for a progressive railroad whose business philosophy is focused on economic development, as well as finding new customers and working on regaining former rail customers. We have a complete business plan and the valuation maps for the line if this business opportunity is of interest to you.
Paul Iverson - 215.620.0763
Jon Frey - 267.984.8445
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