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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
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
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.
Elkins Act of 1903
• Strengthened the Interstate Commerce Act of 1887
• Imposed heavy fines on railroads offering rebates and shippers accepting them.
Surface Transportation Board (STB)
• Replaced the ICC in 1995
• Shift in Control from Shippers to the Railroads
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
Shipper Advantages
• Mandatory Interchange– Interchange traffic w/out discrimination– Contract-like preferences were illegal
• Nonnegotiable Tariff Rates
• ICC Enforcement
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.
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
Bankruptcy• Northeastern Railroads
• Midwestern Railroads
Lead to Congressional Involvement!
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
Staggers Rail Act of 1980
• NationalizationOR
• Deregulation
Deregulation was chose.
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.
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
Consequences
• Shippers captive to a single railroad.
• Lack of Competition
Railroad Classification Today
2006
Class 1 Railroads >$277M OR
Class 11 Railroads > $20.5 M OR
Class 111 Railroads < $20.5 OR
Classifications Rarely Used
• Regional Railroads
Regional Railroads350 miles $40 M
Local Railroads
Non-regional feeder railroads
Switching & Terminal RailroadsBRC 28 MILES
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
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
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.
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
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