a shippers perspective on the ever changing railroad industry march 14 th, 2007 badger mining...
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A Shippers A Shippers Perspective on the Perspective on the
Ever Changing Ever Changing Railroad IndustryRailroad Industry
March 14th, 2007
Badger Mining Corporation
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The Beginning of Railroading
1827 1st Railroad in North America–The Baltimore & Ohio
1840 2,800 miles of track–5 of the 6 New England States, Kentucky & Indiana
1850 9,000 miles of track–U.S. World Leader
1865 35,000 miles of track–“The Golden Age” of Railroads
1916 254,000 miles of track
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Interstate Commerce Act of 1887
• Interstate Commerce Commission (ICC) Formed
• Subjected railroads to comprehensive federal economic regulation.
• Controlled railroad operations for the next 108 years and nearly destroy the industry.
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Elkins Act of 1903
• Strengthened the Interstate Commerce Act of 1887
• Imposed heavy fines on railroads offering rebates and shippers accepting them.
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Surface Transportation Board (STB)
• Replaced the ICC in 1995
• Shift in Control from Shippers to the Railroads
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The Peak Period of Railroads
• In 1916, there were over 1,500 railroads operating in the U.S.
• They operated on about 254,000 miles of rail
• Employed 1.8 million people. – Largest U.S. Employer
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Shipper Advantages
• Mandatory Interchange– Interchange traffic w/out discrimination– Contract-like preferences were illegal
• Nonnegotiable Tariff Rates
• ICC Enforcement
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Government Intervention
• Federal Government seized control of railroads during World War I
• 1920s returned to private ownership – Rundown condition
• By 1940s Unregulated Competitors– Automobiles, buses, trucks, planes,
pipelines, etc.
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Bankruptcy in the Future
• After World War II, railroad invest billions– New locomotives, freight equipment,
passenger trains, etc.
• Rail market share continues to decline
• Deferred Maintenance in the Billions– Operate at Reduced Speeds
– Standing Derailment
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Bankruptcy• Northeastern Railroads
• Midwestern Railroads
Lead to Congressional Involvement!
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Consolidation from 1980
Avoid Bankruptcy or simply increase profits1982 - WP & MP merge into UP
1985 – Milw Rds & Soo Line = CP
1986-87 – Seaboard System, B&O, C & O =CSXT
1988 – DRGW & SP
1988 – MKT = UP
1995 – CNW = UP
1995 – ATSF = BN
1996 – SP = UP
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Staggers Rail Act of 1980
• NationalizationOR
• Deregulation
Deregulation was chose.
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Post Staggers Rail Act 1980
1980s Over 40 Class I Railroads
Today Only 7 Class I Railroads•Of which 4 control over 95% of the U.S. railroad business.
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Staggers Act Worked For Class 1’s• From the brink of bankruptcy in 1980
The free market place conditions allowed by Staggers produced 2006 4th quarter profits:
• BNSF $519 million• Canadian National $499 million• Canadian Pacific $145 million• CSXT $347 million• Kansas City Southern $88 million• Norfolk Southern $385 million• Union Pacific $485 million
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Consequences
• Shippers captive to a single railroad.
• Lack of Competition
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Railroad Classification Today
2006
Class 1 Railroads >$277M OR
Class 11 Railroads > $20.5 M OR
Class 111 Railroads < $20.5 OR
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Classifications Rarely Used
• Regional Railroads
Regional Railroads350 miles $40 M
Local Railroads
Non-regional feeder railroads
Switching & Terminal RailroadsBRC 28 MILES
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Why short lines are needed
• In 1916 250,000 miles of track 1,500 + railroads
• 2006 – 500, regional & local rail roads (short line) railroads feeding the 7 class 1s
• 150,000 miles of track
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The Role of The WSOR & Feeder R R
• WSOR is one of 34 Regional Railroads• 700 miles of branch & mainline track• 21 counties in Wisconsin• Made up of defunct WI & C, M R, C&NW
runs over UP & CP track• Connects with 6 Class 1’s BNSF, CN,
CP,UP,CSXT,NS
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Operational costs
6 of the 7 class 1 railroads intend to spend over 1 B @ in 2007 on Maintenance of Way, Infrastructure, & Horsepower
Without State & County help the WSOR’s could not compete or stay in business.
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Operation Comparison
Class 1 2m onlymi
TRACK ONLY
Class 1 New Track 2m per mile
Rehab track $250,000.00 per mile
WSOR $10,000.00 PER MILE
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Private vs. Railroad Owned Equipment
North America
Rail Fleet
Class I Railroad
Private Short Line
1997 1.4 Million 37% 58% 5%
2004 1.6 Million 25% 69% 6%
Data Source: AAR Umler File, Ownership Mark