Back on track

Shortline railroads in Canada suffer from a bit of an unfair rap.

Many shippers see them as niche players: economically and environmentally appealing, but hampered by geographic location or bound to a single industry. This was the case for decades, and, to be fair, some shortlines still focus on one-commodity, A-to-B transportation.

But it’s no longer accurate to group all shortlines this way. Many are improving their networks to make themselves more accessible to shippers.

Together, shortlines comprise 25 percent of the overall rail business in Canada. Even in non-recessionary times, it’s not an easy business. Money is tight—the average operating ratio is between 85 and 90 percent, much higher than what the Class 1s experience—and risk is high, particularly when commodities go bust and credit dries up.
“The industry is down 20 to 25 percent year-to-date in terms of movements,” confirms Bruce Burrows, vice-president of public and corporate affairs at the Railway Association of Canada.

“A lot of shortlines that are skewed towards commodities that have been quite weak are particularly hard-hit right now.”

Making adjustments
The recent drop in freight volumes is prompting traditional cargo shortlines to expand their businesses.

“[Shortlines are] knocking on doors as hard as I’ve ever seen them, frankly,” Burrows says. “They’re getting much more creative.”

Some are adapting by testing non-cargo traffic, like commuter service, on their lines. Others have branched into the rail car storage business, using underused track to hold cars that are simply not needed at the moment.

These developments should not necessarily be interpreted as a retreat from cargo, but rather a shrewd survival technique, says Roger Gadd, general manager of Saskatchewan’s Great Western Railway. In his view, initiatives like car storage—which has given his company a spike in business recently—offer a means of revenue diversification that will support his railway’s core freight business once the economy rebounds.

“2008 was a tough year for grain; there wasn’t a lot to haul…So we looked at diversification,” Gadd explains. “[Car storage] creates a cash flow, some extra money when the grain business is slow.”

Other shortlines are exploring more sophisticated freight capabilities to broaden their appeal.

Ontario’s Trillium Railway, for example, has started working with a company called Future Transfer to provide consolidation services. Future Transfer receives and stores vast amounts of the cargo—in this case, liquid bulk product—in its trackside facilities until the customer requires it, at which point Trillium delivers the necessary amount. It’s an option designed to give shippers with smaller volumes the cost savings of rail.

Across the country, the Southern Railway of British Columbia has developed transload facilities on its network—seven, to date—to serve as portals to the four Class 1 railway lines it connects to. Partner truck carriers pick up the customer’s cargo at source and drive it to a transload site, where it is transferred from trailer to railcar. This gives shippers in remote areas to access the main rail network at a point much closer to home than the nearest Class 1 connection, shortening the truck trip and saving money.

“A big part of our role in the future is going to be an on-ramp and an off-ramp to the main service,” explains Frank Butzelaar, Southern Railway’s president. “There are a lot of shippers that would like to have access to the North American rail network, but don’t have a rail spur, and the likelihood of them getting a rail spur is not good, based on where they’re located. We’d like to provide them an option, an alternative way of accessing rail.”

Despite these advances, few shortlines have been able to match the operational sophistication of the Class 1 railways. Many shortlines operate decades-old equipment on aging stretches of track previously abandoned by CN or CP. New

technologies are out there, like more efficient locomotives, but slim financial leeway tends to preclude major upgrades. “No shortline in Canada can make the economics work,” says Butzelaar.

The industry has been agitating for funding and tax breaks, with some success: in the recent federal budget, shortlines in Manitoba, Quebec and Labrador received specific handouts to upgrade service, and many companies— particularly those in Ontario—became eligible for infrastructure renewal money.

Shortlines will never be the right transport option for every company—they’ll never be able to compete with the speed or sheer convenience of truck transit. But shippers willing to factor in a little extra lead time may be surprised to find a keen, cost-effective, environmentally friendly and increasingly resourceful alternative on the tracks.

“The Class 1 railroads are very good at moving big trains long distances,” Trillium Railway owner Wayne Ettinger says. “But when it comes to making short trips or giving service at odd hours, they’re not as good at doing that…Shortlines give that kind of service, because we know it’s our bread and butter.”