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A Shippers A Shippers Perspective on Perspective on the Ever the Ever Changing Changing Railroad Railroad Industry Industry March 14 th , 2007 Badger Mining Corporation
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A Shippers Perspective on the Ever Changing Railroad Industry March 14 th, 2007 Badger Mining Corporation.

Mar 26, 2015

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Page 1: A Shippers Perspective on the Ever Changing Railroad Industry March 14 th, 2007 Badger Mining Corporation.

A Shippers A Shippers Perspective on the Perspective on the

Ever Changing Ever Changing Railroad IndustryRailroad Industry

March 14th, 2007

Badger Mining Corporation

Page 2: A Shippers Perspective on the Ever Changing Railroad Industry March 14 th, 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

Page 3: A Shippers Perspective on the Ever Changing Railroad Industry March 14 th, 2007 Badger Mining Corporation.

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.

Page 4: A Shippers Perspective on the Ever Changing Railroad Industry March 14 th, 2007 Badger Mining Corporation.

Elkins Act of 1903

• Strengthened the Interstate Commerce Act of 1887

• Imposed heavy fines on railroads offering rebates and shippers accepting them.

Page 5: A Shippers Perspective on the Ever Changing Railroad Industry March 14 th, 2007 Badger Mining Corporation.

Surface Transportation Board (STB)

• Replaced the ICC in 1995

• Shift in Control from Shippers to the Railroads

Page 6: A Shippers Perspective on the Ever Changing Railroad Industry March 14 th, 2007 Badger Mining Corporation.

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

Page 7: A Shippers Perspective on the Ever Changing Railroad Industry March 14 th, 2007 Badger Mining Corporation.

Shipper Advantages

• Mandatory Interchange– Interchange traffic w/out discrimination– Contract-like preferences were illegal

• Nonnegotiable Tariff Rates

• ICC Enforcement

Page 8: A Shippers Perspective on the Ever Changing Railroad Industry March 14 th, 2007 Badger Mining Corporation.

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.

Page 9: A Shippers Perspective on the Ever Changing Railroad Industry March 14 th, 2007 Badger Mining Corporation.

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

Page 10: A Shippers Perspective on the Ever Changing Railroad Industry March 14 th, 2007 Badger Mining Corporation.

Bankruptcy• Northeastern Railroads

• Midwestern Railroads

Lead to Congressional Involvement!

Page 11: A Shippers Perspective on the Ever Changing Railroad Industry March 14 th, 2007 Badger Mining Corporation.

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

Page 12: A Shippers Perspective on the Ever Changing Railroad Industry March 14 th, 2007 Badger Mining Corporation.

Staggers Rail Act of 1980

• NationalizationOR

• Deregulation

Deregulation was chose.

Page 13: A Shippers Perspective on the Ever Changing Railroad Industry March 14 th, 2007 Badger Mining Corporation.

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.

Page 14: A Shippers Perspective on the Ever Changing Railroad Industry March 14 th, 2007 Badger Mining Corporation.

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

Page 15: A Shippers Perspective on the Ever Changing Railroad Industry March 14 th, 2007 Badger Mining Corporation.

Consequences

• Shippers captive to a single railroad.

• Lack of Competition

Page 16: A Shippers Perspective on the Ever Changing Railroad Industry March 14 th, 2007 Badger Mining Corporation.

Railroad Classification Today

2006

Class 1 Railroads >$277M OR

Class 11 Railroads > $20.5 M OR

Class 111 Railroads < $20.5 OR

Page 17: A Shippers Perspective on the Ever Changing Railroad Industry March 14 th, 2007 Badger Mining Corporation.

Classifications Rarely Used

• Regional Railroads

Regional Railroads350 miles $40 M

Local Railroads

Non-regional feeder railroads

Switching & Terminal RailroadsBRC 28 MILES

Page 18: A Shippers Perspective on the Ever Changing Railroad Industry March 14 th, 2007 Badger Mining Corporation.

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

Page 19: A Shippers Perspective on the Ever Changing Railroad Industry March 14 th, 2007 Badger Mining Corporation.

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

Page 20: A Shippers Perspective on the Ever Changing Railroad Industry March 14 th, 2007 Badger Mining Corporation.

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.

Page 21: A Shippers Perspective on the Ever Changing Railroad Industry March 14 th, 2007 Badger Mining Corporation.

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

Page 22: A Shippers Perspective on the Ever Changing Railroad Industry March 14 th, 2007 Badger Mining Corporation.

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