Why are short-line railroads able to survive, and sometimes thrive, in an industry dominated by a few giant companies? An article at Railway Age suggests some answers. These points are relevant, I believe, in other industries as well. To excerpt summarize the points in the article:
–Short lines are formed with a much lower manpower cost structure that includes more-flexible work rules.
—Short lines are very effective at negotiating service and shared capital project business deals with their face-to-face local customers. That was always a hurdle when the corporate headquarters of a railroad like Conrail was hundreds of miles away in Philadelphia compared to sites like Cairo, Ill., or Kewaunee, Wisc.
–Short lines are focused directly upon industrial development along their limited geography service tracks. They are not distracted by competitive locations that want their location to be the next job creation site.
–Short lines have a simple way to calculate customer profitability as a guide for managing their service responsiveness.
–There is an ease of doing business with short lines. The difficulty of transacting business has long been an internally acknowledged Class I issue. Local small railroads have successfully addressed this with local managers dealing one-on-one with local customers.
–The short line railroads have worked to grab growth opportunities. They developed local community and state railroad DOT programs that gave them access to development and rehabilitation capital.
Most of these advantages could, in principal, be achieved by the large railroads through improved organization design and better internal measurements/incentives. And similarly in other industries…but it rarely seems to actually work out that way. Re the profitability-measurements point, the article notes that Class I’s have tried for decades to calculate and then share with their remote train crews information about branch line financials. The Class I’s even tried to create regional cluster profit centers that would better focus attention on local branch line customers and new business development. The results were at best a mixed success.
Selling off or otherwise leasing “troubled lines” to a smaller company typically became the favored big railroad divestiture business process.
Any thoughts on similar factors at work in other industries?