The Little Engineers That Could

Brian R.R. Whipple can't say exactly why, but as a teen, he fell in love with railroads. In college, he was an intern with Southern Pacific Railway, became a research analyst there after graduation, and spent the next two decades in various jobs in the industry. Whipple's loftiest ambition, he says, was to become a division superintendent or vice-president. He never dreamed of being a railroad owner--but he is today.

Whipple, 52, is president of the Santa Fe Southern Railroad. But he isn't puffing cigars or consulting a pocket watch. Most days, you can find Whipple in scruffy jeans and boots, fixing engines or inspecting a portion of his tiny railroad's 18-mile stretch of track. He gets paid $1,500 a month for a 70-hour week--and loves it.

SMALL PROFIT. Whipple (who admits his middle initials stand for Randolph Rogers, not railroad) is a short-line entrepreneur, one of scores of former railroad employees who are buying unprofitable railroad branch lines and turning them around. The Staggers Rail Act of 1980 provided the impetus for that, but only in the past few years has the rebirth of short lines picked up steam. The law deregulated railroads, making it easier for them to get rid of unprofitable lines. In 1980, 200 independent feeder lines existed. Since then, some 300 have been formed, and railroaders expect that number to double in the next decade.

The new short-line owners find they can turn a profit where the big railroads couldn't. Atchison, Topeka & Santa Fe Railway Co. lost $100,000 or more annually on the 112-year-old line that runs from Lamy, N.M., to Santa Fe. So in March, it sold the line, with 340 acres of land, a locomotive, and a caboose to Whipple and five investors for $276,000. Whipple's group--which dubbed the line Santa Fe Southern--expects to make a small profit on revenues of $180,000 in its first year of operation.

Short lines like it may be small, but they're hardly humble: A single line averages just 60 miles in length, but the 500 nationwide comprise a hefty 26% of all track in the U.S. (table). They play a crucial role by servicing shippers too small for the big railroads to worry about and feeding those customers' goods into the bigger lines. Now, some small shippers who had defected to trucking companies in the early '80s for lack of service are being wooed back by the smaller lines. The big railroads "are the arteries and veins," says Whipple. "We're the capillaries."

FEW FAILURES. Their big advantage is lower costs. Because short lines don't have to hire union workers, they can cut wages and run smaller crews. Overhead is often lower, too. For six months, Santa Fe Southern's headquarters were housed in the offices of architect Neil A. Carter, the railroad's vice-president.

There are drawbacks. Short lines often depend on a single shipper for business. Sales at RailTex' San Diego & Imperial Valley took a dive when a Mexican cement company that contributed 30% of its business was found guilty of selling below cost in the U.S. and had to stop shipping. High maintenance costs to repair track that main-line owners had let go to seed can cause problems. Then there are natural disasters: Eureka Southern in California, an earlier Whipple endeavor formed in 1984, was knocked out of business two years later after a flood took out 100 miles of track.

Still, failures are few, since feeders can not only cut costs but also can provide a level of service shippers never had before. The feeders have clout with megacarriers, so they can get scarce railcars and win for shippers lower rates for main-line service than shippers could negotiate themselves. Short lines go far to please customers. Louisiana & Delta spent roughly $200,000 rebuilding a spur line to a customer's pipe-coating plant in 1989. As a result, the plant shipped 1,708 railcars last year, up from 281 in 1987.

Some of the short lines also are tapping into a nostalgia for old-fashioned passenger trains. Whipple's group will supplement freight revenues by taking tourists for rides in the caboose and a Pullman car. In late July, it will begin hauling passengers on a "hobo tour" from Santa Fe to Lamy and back. The job may never make Whipple wealthy, but it's more fun than being division superintendent.

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