Shortline Freight Rail System Review: North American Experiences and Brazilian Perspectives

Abstract

Abstract Shortline industry plays a prominent role in the North American Freight Rail System (mainly United States and Canada), providing a customized freight rail service to the shippers, i.e. the first/last mile rail access for those low dense/light demand markets, outside the Class I’s business model (highly loaded corridors), as well as competition enhancers, through the connection of shippers facilities with more than one Class I railroad. The Short Line’s Rail industry role and its inherent freight rail business model have been strengthened in the years that followed the so called Staggers Act (1980), in the U.S., in which freight rail carriers have focused their efforts on the high density rail markets. Meanwhile, the Shortlines, also known as Class II and Class III freight rail companies, have lead the way in the light density branch lines, providing a customized freight rail service to those shippers located outside the boundary limits of the rail trunk corridors. The importance of Shortline for the U.S. freight rail industry is illustrated by the 603 U.S. shortlines currently operating on 76,000 km (47,500 miles), providing service for one in five (20%) cars moving each year, which accounts for 29% of freight rail production in the country. Furthermore, the recent launch of the controversial Class I Precision Schedule Railroading (PSR) concept, and its inherent asset maximization (mainly associated with disruptive service features — essentially lane and yards closures), has strengthened the strategic importance of Shortlines in the U.S. freight rail scenario, which ultimately requires an improved Class I – Shortline relationship, to guarantee/maintain a connection between shippers (farmers, manufacturers and other industries), and the customers market. Brazil, a continental country located in South America, has a sprawled and low density rail network (28,218 km – 17,636.25 mi). Besides sprawled/low density, the Brazilian rail network is not uniformly demanded, with just 40% of the network with used (demanded) capacities higher than 50%, basically associated with iron ore and agricultural commodities transport (which accounts for almost 80% of the country’s whole freight rail production), while almost 60% of the network remain with very light use (available capacity higher than 80%). This picture shows a great opportunity for the introduction of the Shortline Rail Concept in the Brazilian Freight Rail System, focused on smaller rail operators to provide a customized and accessible freight rail service for shippers located in the influence area of the rail network. To reach this target, Brazil has basically two alternative pathways: i) a structural approach, associated with a complete network restructuration (in a similar way the U.S. Class I railroads have marketed unproductive branches to short line operators) and ii) a regulatory approach, in which the current concession format would be maintained, with the imposition of rail stretches production targets to current rail concessionaires (incumbents), which ultimately could be encouraged to set operational partnerships with the so called Independent Rail Operators (IRO), to comply with those production rail targets. This work is supposed to present an overview, in a review format, of the North American Shortline Freight Rail experience, highlighting its operational regime/requirements, the business model, the tax incentives and the Shortline’s role in the class I PSR scenario. This analysis is, then, followed by an assessment of the perspectives and the inherent pathways for a Shortline Freight Rail Model implementation in Brazil.