UTU News Digest - Thursday, March 4, 1999

UTU Daily News Digest

Information of interest to operating railroad and transportation employees

Thursday, March 4, 1999

Shortline railroads doing well in Northwest

PORTLAND, Ore. -- Over the past 18 months, at least seven short-line rail companies have sprung to life in Oregon and Washington. This week, the state of Oregon concluded its most recent deal, helping kick-start Albany & Eastern Railway Co. In Washington, Yakima Valley Transportation Co. signed a deal to reopen an abandoned stretch of track that will restore rail service to small wood-products companies and apple shippers in nearby Natches.

But amid all the hoopla, rail enthusiasts see an ominous sign: Most politicians aren't on board in devoting the resources needed to continue the boom. And unless they sign on soon, it may be a short trip.

That, they argue, would be a costly mistake. They note that while lawmakers in Salem and Olympia are constantly seeking ways to bring new jobs to rural areas, most don't realize that short-lines are an effective rural economic-development tool that preserves jobs and aids small businesses that rely on the rails for low-cost transportation.

"Railroads aren't necessarily a sexy thing, but these lines are pretty important," says John Mitchell, an economist in Portland at U.S. Bancorp.

For more than a decade, the Federal Railroad Administration funneled as much as $1 million a year to Washington and $400,000 to Oregon, as part of the Local Rail Freight Assistance Program. But Congress sidetracked that payout in 1995 and is no longer funding it.

So now, it is up to the states to help existing short-lines expand, and to open up new miles of track to serve more rural areas, says Ray Allred, Washington's rail-freight planner. "The public sector is going to have to offer assistance."

The problem is that the short-line constituency is small, and money is tight. A 1995 study by the Washington Department of Transportation found that in order to salvage the at-risk or abandoned rail lines in the state -- and allow short-line operators to take them over -- the state Legislature would need to dole out $10 million annually. It votes to spend substantially less: $1 million every two years.

In Oregon, meanwhile, legislators are more interested in spending money on highway improvements. A special fund created by the Legislature in 1987 to rehabilitate deserted stretches of track is empty because subsequent Legislatures focused on roads and never appropriated any money. Last month, in a show of how politicians view the industry, the Senate Transportation Committee even questioned the state's commitment to rail-crossing safety.

"Until we get more money for asphalt, I don't intend to subsidize railroads," says Newburg Sen. Gary George, a Republican on the Senate Transportation Committee.

In many ways, highways and railways are competing interests. Roads serve far more people than do short-line rails, and the rail issues that do get attention tend to center on high-speed passenger service along the Interstate 5 corridor.

"The No. 1 goal for the [Washington] Legislature is reducing congestion in Spokane and around the King, Pierce and Snohomish counties," says Rep. Doug Ericksen, vice chairman of the state's House Transportation Committee. Short-line rail, he says, is important "and the state should definitely take an interest in preserving the tracks. But [rail] takes a back seat to" higher-profile highway needs.

Short-line enthusiasts say that's unfortunate. Not only do short-lines help preserve and create jobs in remote regions, they say, use of the lines also saves the states millions in highway-maintenance dollars.

In fact, the Washington Department of Transportation estimates that the 17 short-lines now traversing the state keep about 500,000 truckloads a year off state highways, saving about $20 million annually in maintenance costs. The Yakima line, while covering a puny 11 miles in central Washington, is expected to reduce truck traffic by 1,400 loads a year, according to the Washington transportation department.

"This is the case," says Mr. Allred, "that we try to make to the Legislature every year: that it's in the best interest of the state to preserve the rail infrastructure."

Oregon and Washington have lost more than 2,500 miles of track, combined, since the U.S. Congress deregulated the rail industry nearly two decades ago. And still more track -- some of it in disrepair -- is at risk of abandonment.

Bob Melbo, president of Willamette & Pacific Railroad Inc., the Albany, Ore., subsidiary of New York's Genesee & Wyoming Inc., says states should act now to rehabilitate the stretches in the worst shape. He says maintaining a mile of track costs about $7,500 a year, while refurbishing track allowed to deteriorate can cost between $50,000 and $150,000 a mile.

Unless lines are acquired "while they're viable," he says, "we don't get to the patient until he's on the brink of death."

To do this, transportation departments in the two states are forging ahead with creative aid and financing plans. Washington, for example, lent $500,000 to Yakima Valley Transportation to help get that 11 miles of track chugging again. And it recently funded a $200,000 grant to help reopen an old stretch of track running between Morton and Tacoma.

With Albany & Eastern, the Oregon Department of Transportation found a way to help, short of direct funding.

McMinnville-based Willamette Valley Railway Co., the parent of Albany & Eastern, paid Dallas-based Burlington Northern Santa Fe Corp. about $250,000 for track and structures along the line snaking from Lebanon to Sweet Home. Willamette, however, couldn't shoulder the roughly $2 million tab for the land beneath the tracks. So the department stepped in and gave Burlington Northern an incentive to deed the 17-mile long, 60-foot-wide swath of land to the state.

Burlington Northern did, and now it gets to write off the value of the land, turning a marginal asset into a valuable tax credit. The state, which now owns the land, allows Albany & Eastern to use the right of way free of charge, giving the railway a new route and access to five new customers.

"It's a good deal for everybody," says Mike Root, who, along with his brother David, owns and operates Willamette Valley Railway.

Such novel approaches "have allowed deals to happen that wouldn't otherwise," says Mr. Melbo at Willamette & Pacific, whose operations have benefited from two such transactions.

The new Yakima line in Washington will be a boon for the Yakima division of International Wood Industries Inc. of Sherwood, Ore. Joe Carlos, general manager for the maker of pallets, bins and shipping crates, says the company will be able to expand and sell in California, a prospect that hadn't been feasible because of the higher cost of shipping goods by truck.

On the Oregon coast, Columbia River Trus Co., an Astoria maker of roofing components, is moving its 15-person shop to the small town of Tillamook in April specifically because of the Port of Tillamook Bay Railroad. The line offers regular service to Portland, a route the company lost when the tracks it once relied on in Astoria were abandoned by Burlington Northern in 1996.

It doesn't hurt that the railroad company is "paying to bring the rail line right to our building," says Sandra Brownley, who owns Columbia River Trus with her husband. The company says it is doing so to generate more business for its rail line.

Some short-line companies also are getting into low-margin businesses that the big carriers shunned years ago for sexier commodities. Central Oregon & Pacific Corp., owned by San Antonio's RailTex Inc., is now hauling logs, a low-value commodity, while Willamette & Pacific is carrying gravel.

"These products don't make the big railroads salivate," says Ed Immel, Oregon's state rail planner, "but this is the stuff that gets short-lines really pumped up."

And it keeps them relatively profitable. Though they operate with far fewer ton-miles of business than the big-name railroads do, Mr. Immel estimates that more than half of Oregon's 19 short-lines are making money.

This short-line renaissance began in the early 1980s, after railroad deregulation. Since then, large companies such as Union Pacific Corp., Dallas, and Burlington Northern have been disgorging tens of thousands of miles of unprofitable light-density lines, typically routes to tiny communities that often support only one or two carloads a week.

Small rail companies have stepped in to grab some of these routes. And because many of the tiny players aren't unionized and run on shoestring budgets, they keep costs down and squeeze profits out of tracks that once ran in the red. In fact, the failure rate among the small rail empires "is significantly less than business as a whole," says Mr. Immel.

Moreover, because they can offer small shippers a level of service the national lines don't, short-line car loadings are rising. Willamette & Pacific now handles about 62,000 carloads a year, more than double the level in 1993, when the line was run by Burlington Northern and the former Southern Pacific Rail Corp., now part of Union Pacific. And an old Southern Pacific line in Oregon between Woodburn and Stayton that once mustered just one carload a week is now generating one carload every business day under Willamette Valley Railway's stewardship.

"We're just sticking close to our customers," says Willamette Valley's Mr. Root, "and getting back the business that was always there."

JOC: Dakota, Minnesota and Eastern reevaluates Powder River Basin rail project

WASHINGTON -- An eminent domain statute passed this week by the South Dakota Legislature prompted the Dakota, Minnesota and Eastern Railroad to re-evaluate the future of its $1.2 billion plan to build a new rail route to Wyoming's Powder River Basin, the Journal of Commerce reports.

The measure passed Tuesday by the South Dakota House and last week by the state's Senate gives Gov. Bill Janklow the power to determine whether the railroad can have eminent domain powers to seize land needed for a right-of-way from reluctant sellers.

DM&E opposed the measure on grounds that it would create 'a cloud of uncertainty' that could discourage investment in its 1998 proposal to rebuild existing lines and reach the Powder River Basin by building approximately 260 miles of new track. That region is the largest single origin for U.S. rail tonnage.

'We have to stand back and consider what the range of options are,' said DM&E president Kevin Schieffer. He would not put a timetable on that process.

He said the new law might kill the project from a financial standpoint because of potential lenders' reluctance to back a venture that could be stopped by one person who has no limits on their decision-making power.

State officials say that the power over eminent domain would be used to assure that the best interests of South Dakota were protected.

The governor says he is a supporter of the project, though he has expressed concerns about some financial, commercial and environmental aspects of the plan.

Bob Mercer, a spokesman for Gov. Janklow, said 'The governor made it clear to legislators that there may be nothing that makes sense but to do the current route. He won't use the eminent domain power to hold DM&E hostage to get what some people want in a few communities. He won't try to force DM&E to do something that is financially unreasonable.'

DM&E has secured preliminary approval of its plan from the Surface Transportation Board, which is weighing environmental issues before rendering a final decision.

Opponents, including some ranchers and some communities along the railroad's current lines in South Dakota and Minnesota, have doubted both the demand for more rail coal transportation and DM&E's financial ability to build the project. Critics also have claimed negative environmental impact would result from increased train traffic.

Mr. Schieffer declined to identify specific options under consideration. An appeal is possibility since Mr. Schieffer maintained that his project was interstate commerce. Assuming that is true, that would put much of the project beyond the state's legal jurisdiction.

There is a possibility that eminent domain may never come up, since Mr. Schieffer has said he would prefer to reach negotiated agreements with all landowners along the route.

Mr. Schieffer located a positive aspect in recent developments, saying that the attention given by legislators meant 'that the importance of this project to the state of South Dakota came through in spades. This project is now recognized for what it is, one of the most important projects in the state's history.'

The railroad claims it will result in more than 5,000 new jobs in the state.

Another bright spot the railroad president cited was completion of $23 million in project financing needed to cover legal, engineering and other development costs. He said those funds came primarily from current shareholders of the privately held company.

Mr. Schieffer also maintained that the new law could discourage further involvement by companies that have put their own resources at risk in developing proposals for ties, rail and other material needed for construction.

'If there is a cloud of uncertainty, people will think twice about how much of their resources to put at risk,' Mr. Schieffer said.

In addition to giving Mr. Janklow or future governors the eminent domain power, the new legislation ended a tax credit passed in the 1970's when government officials were trying to encourage additional rail investment in the state.

Mr. Mercer said the eminent domain revision was launched after a review of similar statutes in surrounding states and recognition that the previous law applying to railroads was more than a century old.

AAR tries to undo shippers decision at STB

WASHINGTON -- The Association of American Railroads (AAR) is attempting for the second time this year to undo a Surface Transportation Board (STB) decision that favored shippers.

In a case filed in the District of Columbia Circuit of the U.S. Court of Appeals, the railroads are fighting new rules that make it easier for customers to obtain relief from serious service problems. The appeal argues that the STB overstepped its authority in the Dec. 21 decision.

Last year the STB published proposed new service relief rules during its review of service problems that originated with Union Pacific Railroad. During that crisis, the agency used existing emergency authority to allow access for two other railroads to portions of UP track in Texas.

Edward Hamberger, president of the AAR, said, "You shouldn't have STB come in and say which piece of service is good and which isn't. We would end up with the old (Interstate Commerce Commission) car-supply and car-and-crew allocation rules. That's not where you want to go. That would take decision-making out of the private sector and move it to D.C."

Earlier this year, the railroads asked the STB to reconsider a decision involving rate cases that also was viewed as helpful to shippers. In that decision, the STB removed two defenses that the railroads had used for more than a decade when carrier rates were challenged as unreasonable.

Edward Emmett, president of the National Industrial Transportation League, told a Senate hearing this week that "it's disheartening to see the railroads appeal the rulings."

The STB created three different approaches that shippers could use during "substantial measurable deterioration in the rail service provided by an incumbent carrier," he said. The STB's decision said each approach had a different purpose. One option, which was used in the UP case, was for expedited, short-term emergency relief with a time limit. A second choice was meant for temporary alternative service, and the third option was meant to address serious problems that persisted over an extended period.

Customers were required to discuss problems with the carrier first, get a commitment from another railroad to provide service, and demonstrate how the substitute service could be done safety and without interference with the owners' operations.

Mr. Hamberger maintained the new rules would lead to a cycle of litigation to determine what constituted inadequate service. The agency did not set time periods or define what constituted substantial service deterioration, saying that those matters should be judged on a case-by-case basis.

"When there has been a precipitous drop in service, the board should have authority" to step in, Mr. Hamberger said. "To be out there with no standards gets the STB into an area that invites litigation."

He maintained that the STB's decision lacked procedures to handle issues such as rates and operations.

He also argued that the existing common-carrier authority of railroads and the private-sector interaction of buyer and seller should be adequate to work out the vast majority of problems.

METRA to appeal $30 million award

CHICAGO -- An attorney for Metra and the former Chicago and North Western

Railroad says he plans to ask a judge to overturn the nearly $30-million-dollar verdict awarded to Rachel Barton. If that fails, C. Barry Montgomery told the Chicago Sun-Times, he will appeal the verdict in the Illinois Appellate Court. Barton was awarded $29.6 million Monday after losing her leg in a Metra commuter rail accident.

Maryland Operation Lifesaver backs safety awareness, stronger enforcement

ANNAPOLIS, Md. -- Maryland's Operation Lifesaver (OL), a nonprofit, highway-rail safety organization, has stepped up its public awareness campaign in response to five collisions in February, according to Barbara Belk, Maryland's OL State Coordinator. She spoke before a Maryland House of Delegates subcommittee considering a bill to enhance rail trespass enforcement introduced by Maryland Rep. Kevin Kelly.

Following the death recently of a 12-year-old girl on the tracks in Cecil County, Operation Lifesaver presenters will visit the Northeast Elementary School in Cecil County March 31 to discuss safety measures. The middle school student died while walking on the tracks with family and friends. She pushed a five-year-old boy out of the train's path, but was unable to escape.

"The only way we will be able to eliminate these preventable tragedies is through public awareness of safety on the rails and rail rights-of-way," Belk said. "Education and enforcement go hand-in-hand in reducing deaths and injuries. Every day we take our awareness campaign to the people of Maryland. Our safety partners in law enforcement back-up that message."

The Operation Lifesaver message is simple, according to Belk:

* It takes a mile or more to stop a train -- that's about 18 football fields.

* Judging the speed of a train as it comes toward you is nearly impossible, just as it is hard to determine the speed of an airplane as it lands. It's physics at work.

* Trains overhang the tracks by three feet or more on either side of the outside rails.

* To be on the railroad tracks or railroad rights-of-way is extremely dangerous and illegal.

* Tracks and rights-of-way are private property. You can be arrested or fined for trespassing. "Stay Off! Stay Away! Stay Alive!"

Belk asked the middle and elementary schools in both Cecil County and Cumberland for the opportunity to speak to students. Earlier in February, an 11-year-old boy lost his life while attempting to climb onto a moving train. Students in Southern Prince George's County Schools will also receive Operation Lifesaver presentations in the coming months.

"Safety for the people of Maryland is our highest priority," Belk said. "If we all work together -- community leaders, parents, teachers, students -- we can accomplish our goal -- eliminating tragedy on Maryland's rails." To contact Belk at 301-669-6671 or 800-537-6224.

Leaders of the North American railroad industry join forces

WASHINGTON – Yesterday and today marks the beginning of a new chapter in rail history. "Destination D.C." -- a first ever gathering of freight railroads, railroad unions and suppliers -- brings together industry representatives from across the country, with their sights set on the 106th Congress.

Members of the Association of American Railroads, the United Transportation Union, the Brotherhood of Locomotive Engineers, the American Short Line and Regional Railroad Association and Rail Supply and Service Coalition united to encourage Members of Congress to help railroads continue their twenty-year record of progress and momentum.

"We have come together -- companies, employees and suppliers -- to tell the good news about North America's railroads," said Edward R. Hamberger, President and CEO of the Association of American Railroads. "We are here today to talk with Members of Congress about the future of our industry and about the ways in which railroads are the Vital Link to North America's economic future."

Wearing bright red buttons proclaiming, "Ton of Progress," participants detailed the extraordinary progress the railroads have made since deregulation in 1980, and cautioned Members of Congress of the devastating consequences of reregulating the industry.

"The consequences of reregulation will not be confined to the freight rail industry," said Hamberger. "Railroads are vital to North America's economic future and reregulation will jeopardize not only the industry's future, but the future of the economy as well."

Participants in the collaborative event discussed the national and regional economic impact of the railroads -- $13 billion a year in wages and benefits. America's railroads transport 40 percent of the nation's freight -- more than any other mode of transportation. Railroads move 60 percent of the coal that generates electricity, nearly half the grain from harvest to market and 70 percent of the automobiles manufactured in the U.S.

"Railroads are a healthy, vital industry, playing an essential role in our economic prosperity," said Hamberger. "Our customers pay less for our services; rates are down 55 percent since 1980. Investment reached an all time high in 1998 of $7.5 billion, a higher level as a percentage of revenues than any other major industry. Our accident and injury rates are 70 percent lower, with 1998 being the safest year on record. Productivity continues to grow, and wages have doubled since 1980."

According to Hamberger, such successes will be reversed in a reregulatory environment. "As reregulation drives revenues down, our ability to keep costs low, to keep productivity growing and to keep accident and injury rates improving will be severely diminished," he said.

In addition, "Destination D.C." participants spoke with Members about the railroads' commitment to customer service and the new levels of communication and cooperation forged among all sectors of the industry. As a result of such cooperation and to further improve communication, the railroads have become the first industry in the nation to publish weekly performance standards.

Nearly 20 years ago, the U.S. Congress enacted legislation that opened America's freight railroads to the possibility of sustained growth and progress. The 1980 Staggers Act breathed life into the struggling industry. Since that time, the railroads have invested more than $230 billion in new equipment, technology and capital improvements, making it the most efficient freight rail system in the world, according to World Bank figures.

"We remember an era when 20 percent of our industry was controlled by companies in bankruptcy, when shippers' rates were climbing, when safety records were at crisis levels and wages were stagnant," said Hamberger. "Working together, we are writing a new chapter in rail history, and we're committed to a strong, efficient, safe and financially viable freight industry."

SOURCE: Association of American Railroads; CONTACT: Steve Hart, 202-639-2525, or Tom White, 202-639-2556, both of the Association of American Railroads/Web site: http://www.porternovelli.com/

Providence and Worcester Railroad Company announces 1998 results

WORCESTER, Mass. -- Providence and Worcester Railroad Company announced its results of operations for the year ended December 31, 1998. Income before taxes and extraordinary items rose 113% to $6.4 million, from $3 million in 1997. Net income doubled to $3.8 million in 1998 from $1.9 million in 1997 and earnings per share (diluted) rose 36% in 1998 to $1.10 from $.81 in 1997.

Operating revenues for the year were $22.7 million compared to $22.1 million in 1997, an increase of $600,000, or 3%. P&W's operating revenues were adversely affected in the fourth quarter by the global recession, which resulted in reduced shipments of scrap metal and U.S. made steel. Operating revenues for the fourth quarter, 1998, were down 6.9% to $5.5 million compared to $5.9 million in 1997. In addition, delayed award of highway construction projects in 1998 caused a decline in shipments of construction aggregate used in the production of asphalt.

Operating expenses of $20 million were 9.3% higher than expenses of $18.3 million in 1997. The increase in operating expenses is attributable to a number of factors, including additional hiring, increased maintenance expenses and fewer contracts for rail related projects such as railroad grade crossing rehabilitation projects. The nature and amount of these projects vary year to year but generally include railroad grade crossing rehabilitation work, bridge reconstruction and tie and rail replacement. These recollectable projects are performed by Company employees using Company owned equipment under agreement with the sponsoring agency. Reimbursement to the railroad for use of its forces and equipment is typically a percentage of the project costs and sometimes can be 100%.

As a result of the increase in operating expenses, income from operations fell to $2.7 million in 1998 from $3.8 million in 1997, or 27.9%.

Conventional carloads in 1998 were down 1.6% from 31,000 in 1997 to 30,500. Inbound volumes of raw materials to the Company's customers, however, rose approximately 7.5% in 1998, reflecting a revitalization of the southern New England manufacturing base as well as the Company's successful marketing efforts.

Container volumes in 1998 rose by 10,400 units to 53,800 units, or 24% over 1997. This increase is attributable to a rise in imported consumer products, successful marketing efforts and the growth of a rail shuttle operated by Conrail and the Company between the port of New York/New Jersey and the Company's Worcester intermodal facilities.

The weakness in carload shipments experienced in the fourth quarter of 1998 continued through January 1999. Carload shipments in February have shown renewed strength. The Company's intermodal business has continued its strong performance into early 1999.

Other income in 1998, principally generated from real estate asset management, rose sharply to $4.2 million from $638,000 in 1997.

Canada rail freight down 5.8% in week to Feb. 14

OTTAWA -- Canadian rail freight volume, excluding intermodal traffic, totaled 4.6 million metric tons in the week ended Feb. 14, down 5.8% from a year earlier, Statistics Canada said.

The number of rail cars loaded during the week declined 3.3% from a year earlier. Intermodal (piggyback) volume totaled 343,000 tons in the week, up 8.4% from a year earlier.

Total traffic in the week, including carloadings of freight and intermodal traffic, declined 4.9% from a year earlier. For the year to date, traffic totaled 28.7 million tons, down 6.2% from a year earlier.