CEO PERSPECTIVES, RAILWAY AGE APRIL 2025 ISSUE: Anacostia’s railroads—like most small railroads—are adding value to the global supply chain with a key focus: growth. For the rail industry, real growth is a necessity that can lead to survival. In addition, the conversion of traffic to rail has proven benefits for the environment and can support customer supply chain resilience.
Importantly, carload growth among small railroads is not primarily in revenue per unit, but in absolute volume growth. In many cases, this represents increased rail market share, which includes the Class I partners. As an example, in the seven-year period, 2017–2024, short line carloads (excluding coal and intermodal) grew nearly 5% while Class I carload volume declined nearly 4%, even with our added push.
Why? There are many reasons, but they are simple and fundamental.
Entrepreneurship: Foundationally, most small railroads have entrepreneurship in their DNA. Created during an environment challenged by declining traffic bases, decades of deferred maintenance, fleeing customers, and sometimes bankruptcy—most were inherently turnaround situations. To address these obstacles, an action-oriented, risk-tolerant mindset has become necessary, along with a willingness to experiment. Above all, entrepreneurs need an extreme focus on customers and a persistent approach to transactions.
People: Short line railroads are small businesses where our people are always front and center. Whether the employees are represented by a union or not, culture is important. Our retention record is unparalleled, and this leads to experience and ownership of basic customer relationships. When the art and science of employee empowerment works, there will be professionalism and motivation—a powerful combination that delivers quality service safely and efficiently.
Margins: While entrepreneurs are acutely aware of financial metrics and KPIs, they don’t let them kill growth initiatives. Specifically, new rail business is often won by diverting it from truck and is price sensitive. The operating ratio (OR) of this new business can be higher than the current book of business. As a result, a railroad’s willingness to grow often means a higher OR. So be it. For small railroads, almost all business involves the challenges of the last mile: interchange, switching, spot/pull, and other aspects of direct customer interface. It is the most complex and high-cost subset of rail operations, and the margins are naturally lower. Nevertheless, it is attention to the retail end of railroading—often handled by a short line—which permits the customer to take advantage of the reach of the highly efficient Class I main line networks.
Capital: Strategic use of capital is another important tool for attracting new customers. For example, one of our railroads worked to win the location of a major new facility for a large publicly traded company on their lines. The plant design included rail for inbound raw materials but no provision for outbound finished product. Outbound rail infrastructure was not in the budget or part of the plan. Even though we were a fraction of the size of the customer, we built the outbound dock and track and leased it back to the customer to recoup our investment. Outbound products now move consistently by rail, which was the point. Capital policy must be flexible and market-oriented.
Ancillary Services: Customers want responsiveness and simplicity. Often small railroads add ancillary services to meet this need, including transloading, brokerage services, trucking, plant switching, and industrial development. The objective is to make rail more “truck-like” and reach beyond the track footprint where our customers are often located. We often must acquire these skills for a specific opportunity—whatever it may take!
Next Steps: Small railroads represent a significant opportunity for the rail industry to finally grow market share. Industry leaders need to focus on further unlocking this opportunity. Class I’s should definitely consider creating more short lines in local, service sensitive markets. Several tactical steps can be implemented immediately: interchanges must be disciplined, measured, and reported correctly. Customer service, carload visibility, and safety technologies like RailPulse also need to be embraced and made uniform across the network. Class I’s can better leverage small railroads for market intelligence and support of coordinated marketing and sales efforts. We are the real boots on the ground.
Senior leadership at Class I’s and short lines needs to acknowledge the profound opportunities and improve channels for collaboration. While these partnerships might require some effort, they offer longer term benefits and improve the number of touchpoints with customers and potential opportunities. This may be an era where we can possibly share some of our survival skills with the large railroads.
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