New short line rail company rolling in GR

April 13, 2009
| By Pete Daly |
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A new railroad company that began operations in March between Grand Rapids and Elkhart, Ind., has hired 56 Michigan people and is now moving freight for about 55 West Michigan companies.

Rodney Gordon, general manager of the new Grand Elk Railroad, said the new short line company has replaced the Norfolk Southern on the 123-mile line and expects to handle about 18,000 carloads this year.

"We are looking at this as a real growth opportunity for Watco" — the owner of the Grand Elk, said Gordon. Despite the impact of the recession on West Michigan, he said he believes the Grand Elk "will continue to grow year after year."

Watco Companies Inc., headquartered in Pittsburg, Kan., now has 20 short line railroads in 17 states. It is leasing the Grand Rapids-Elkhart track from Norfolk Southern, and spending $8.9 million for the first year of operation, which includes purchase of 10 locomotives and other equipment. About $3.2 million will be spent replacing 20,000 ties between Kalamazoo and Grand Rapids, plus replacement of a bridge in Portage and rehabilitation of two rail yards.

Operating speeds on parts of the railroad had been reduced to 10 miles per hour for safety reasons, but the Grand Elk plans to improve track conditions to allow operating speeds back up to 25 miles per hour, according to the Watco Web site.

"We actually have hired more people to work this line than what (Norfolk Southern) had locally," said Gordon. "The NS only had 39 people locally, and we've hired now 58."

The Grand Elk will connect with three Class I (major) railroads: the NS, the CSX and the Canadian National. Four short lines will also interchange with the Grand Elk: the Marquette Railroad, Mid-Michigan Railroad, Michigan Southern and Grand Rapids Eastern Railroad.

Gordon said the Grand Elk picked up the West Michigan customers that had been served by the NS, including companies such as Magic Steel, Louis Padnos Iron & Metal and Pfizer. He said the USG Corp. paper mill in Otsego is “one of our big customers."

The General Motors stamping plant in Wyoming is a customer, too — until June, according to Gordon.

"We know we're going to lose about 3,000 carloads a year with GM going away. We just think the opportunities elsewhere up and down the line will easily" replace that business, he said.

"We haul a lot of different commodities for a lot of different (types) of customers," said Gordon.

In recent years, the number of short line railroads has increased nationwide while the total miles of track used by the big Class 1 railroads has declined.

"We're able to come in and service customers at a lower rate than what Class 1’s are able to do," said Gordon.

Bob Chaprnka, president of the Michigan Railroad Association in Lansing, said trackage has been sold or leased to short lines by Class 1’s because "the larger railroad can't operate it and make a profit, while the short line can, for various reasons."

One reason is wages, which are lower in general at the short lines. The small companies tend to be non-union, while the Class 1 companies have union employees.

Short lines are "more nimble" than the large companies because they are subject to fewer regulations and work rules, said Chaprnka. At a small company, an office employee who is also qualified to operate a locomotive might perform both functions, as needed.

Although Class 1 companies had, until very recently, been decreasing the miles of track they use, in general, the railroad industry in the U.S. is very healthy, especially since the cost of fuel for operating trucks hit $5 a gallon last year.

"Railroads can ship three times the amount of freight on the same amount of fuel that a truck can," said Chaprnka.

While Class 1 trackage has diminished somewhat, "their shipping is actually increasing. They are shipping more on less track. As I understand it, since the end of World War II, (railroads) are shipping twice as much freight."

"The industry itself is growing, particularly in the past four and five years — growing quite healthily," he said.

Michigan, however, has never been a great state for railroading because the Lower Peninsula is cut off on the east, west and north by the Great Lakes. Large railroad companies operate most efficiently on lines that run uninterrupted all the way across the country.

"It's particularly difficult to railroad in Michigan because we are landlocked, so to speak," said Chaprnka. Railroads going north eventually hit a dead end.

"That is probably part of the reason" Class 1’s have been selling off portions of their lines in Michigan, he said.

But there are still customers here that must use railroads. While a Class 1 railroad may find it more difficult to efficiently serve a small company, "a short line loves those kinds of customers. They will do everything they can to service smaller customers," said Chaprnka.

Gordon is very optimistic about the future of the Grand Elk. For example, he noted that there is "big talk" about commercial wind farms being built in Michigan. Commercial wind turbines are comprised of very large and heavy components.

"If you're going to set up a bunch of windmills, they are probably going to come by rail," he said. "We are hoping to see a whole bunch of them coming to West Michigan," said Gordon.

Agriculture is another promising source of revenue for the Grand Elk, said Gordon. His short line is moving corn and soybeans, and there is talk of possibly moving tank cars of ethanol in West Michigan.

The Kalamazoo area paper industry is promising, too. "We're seeing an increase already in shipments."

"We're going to bring back customer service. We're local. We're here," he said.

"You would not believe the amount of people calling us right now, asking for prices to ship commodities into the area," said Gordon. 

"I've got a vice president of sales and marketing, and she has just been swamped trying to get new prices out to everybody. Rail is a much cheaper way to ship for everybody. Everybody is exploring alternatives to the long-haul truck.”

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