Uncertain crossing: will railroad regulations hit profitability of $40 million industry?

THE TRACK MILEAGE OF Arkansas' short lines account for nearly a third of the state's railroad system, and these 983 miles of steel and crossties carried more than $40.4 million worth of freight during 1992.

Short-line railroad growth opportunities have increased in Arkansas, as well as the rest of the nation, since deregulation of the transportation industry began in the mid-'80s. However, the Arkansas Highway and Transportation Commission is considering changes under Act 726 of 1993 that could impact their profitability.

"The railroads, especially the short lines, anticipate that it will require significant capital investment, and they're concerned about it," says Treeca Dyer, staff attorney with the Arkansas Highway Transportation Department.

The changes regard consolidating enforcement of railroad crossing maintenance under the AHTD. The standards for maintenance haven't changed, but short lines are wary they will nonetheless be hit in the pocketbook through extra costs and fines if strictness is the rule of the day.

All the short lines in Arkansas are categorized as class III railroads by the Interstate Commerce Commission. That ICC designation means annual operating revenues for each carrier is less than $17.6 million.

This contrasts with the class I designation for the remaining four railroads that operate in Arkansas: Union Pacific Railroad, St. Louis Southwestern Railroad (Cotton Belt), Kansas City Southern Railway and Burlington Northern Railroad.

The financial threshold for the class I carriers is generating annual operating revenues of $90 million or more. There are no class II railroads, an intermediate category.

In terms of traffic volume, the class distinction is also apparent. Cotton Belt alone handled 269,000 carloads of freight in Arkansas compared with 208,206 carloads for all the short lines in the state combined.

"The basic function of class III is to provide a service to a specific industry, like Georgia-Pacific, or to pick up freight for a number of shippers along the line to hook up with a Class I carrier for long haul," says Cliff McKinney, intermodal transportation planner at the Arkansas Highway & Transportation Department.

In fact, Georgia-Pacific Corp. owns three short lines that emanate from its Arkansas base in Crossett. The Ashley Drew & Northern connects with the Union Pacific line in Monticello, and the Fordyce & Princeton connects with the Cotton Belt in Fordyce. GP's Arkansas Louisiana & Mississippi makes long-haul connection south of the state line.

Other companies with timber interests in Arkansas own short lines. Potlatch Corp. operates two: the Warren & Saline, which runs from near Hermitage (Bradley County) to Warren, and the Prescott & Northwestern, which runs between Highland (Pike County) and Prescott.

Weyerhaeuser Co. operates the DeQueen & Eastern, which runs from east of Dierks (Howard County) through DeQueen and into Oklahoma.

The growth of short-line railroads across the country is a product of the deregulation of the transportation industry.

"The trend is still reaching its peak nationwide," says Larry Fields, general manager of Missouri & Northern Railroad in Carthage, Mo. "There are growth opportunities in Arkansas, too. We've been bringing back business that used to be on the highway. We're seeing about a 10-15 percent growth."

Owned by San Antonio-based Railtex, the Missouri & Northern Railroad began in a sale-lease deal struck with Union Pacific on Dec. 13.

The line operates with 95 employees and 530 miles of track running from Kansas City, Mo., to Newport and from Griffith, Kan., to Clinton, Mo.

The Missouri & Northern has the highest traffic volume of any short line in the state as it hauls coal cars to feed the electric generation plant at Newark (Independence County).

The railroad with the most Arkansas short lines is the Arkansas Midland. The company has four branches around the state that connect with Union Pacific. The branches include Helena, Hot Springs and Norman (Montgomery County). Arkansas Midland is examining the idea of abandoning its Carlisle branch railroad because of low shipping demand.

"I don't think there's been a formal filing yet," says Lester Allen, general manager for Arkansas Midland Railroad in Malvern. "We're really only operating on the seven miles between Galloway and North Little Rock for two customers, Metro Scrap and Quality Wholesale."

If the abandonment becomes reality, Lonoke and Carlisle could joint the roster of Arkansas cities where the sound of chugging locomotives and clank of passing freight cars has become a memory.

A stretch of rail between McGehee and near Lexa (Phillips County), once tagged for possible abandonment, could be converted into a non-tradition passenger operation.

The state Department of Parks and Tourism is studying the line, owned by Union Pacific, for possible use as a tourist train operation.

An obvious suggestion for the tourism train is the Wabash Cannonball, in recognition of the Phillips County town it passes through.