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The Indiana Rail Road Co.

A third-generation railroadman joins Indiana's rail revival.

For years, entrepreneurs dreamed big dreams about the resurgence of the rails in this country, but their dreams fizzled and died as the railroads disintegrated. Bad tracks, bad management and government regulation all contributed to the demise of the industry. So why would anyone in his right mind attempt a revival of the railroad system, especially in indiana?

Thomas G. Hoback, president and CEO of Indiana Rail Road Co., makes a good case for the return of the regional railroad. In fact, he's staked his life on it, or at least his money and venture-capitalist money. What makes Hoback so sure he can pull off what other financiers found to be a hopeless case? For one thing, the railroad business is in his blood.

Hoback, 42, grew up in the industry. His father spent more than 50 years working on the Atchison, Topeka & Santa Fe Railroad, finally retiring in 1976. Even further back, his grandfather was head of one of the big shops that repaired locomotives for the Burlington Route.

Hoback himself knew as early as high school that he wanted a career working on the railroad. ignoring a high-school guidance counselor's advice, Hoback attended Golden Gate University in San Francisco, where he pursued a major in transportation and a minor in economics.

Hoback started his railroad career with the Western Pacific Railroad working in marketing and cost analysis. In 1977, he moved back to the Midwest, joining the illinois Central Railroad in Chicago. When Conrail formed in 1976, many railroads were sold off or abandoned. At that time, Hoback pursued the idea of buying his own railroad. He did his homework first, looking at 75 or 80 different railroads.

"I was looking for a property for a strong regional railroad with a substantial amount of growth potential," recalls Hoback. "It had to have a good existing volume, but one which could develop more business. About that time, the illinois Central wanted to abandon this line and concentrate on its main line between Chicago and St. Louis. I pursued negotiations with them, but the Federal Railroad Administration offered them a large grant of several million dollars. They took the money to renovate the track and decided not to sell. Instead they offered me a position in marketing."

Hoback took the position and bided his time. Finally, he approached management in the early 80s and in late 1985 struck a deal to purchase 117 miles of track stretching from Indianapolis to Sullivan for $ 5.3 million. He set up shop in an old Illinois Central office in Indianapolis. He named his company the Indiana Rail Road Co., making the word railroad two words instead of one because that was the way the word was spelled originally. He also wanted to distinguish his company from other past Indiana railroads.

When Hoback purchased that particular line, the carrier had handled approximately 12,000 carloads a year. The first year Hoback ran the company, the railroad increased its carloads to 14,000 per year. By the third full year, the number had reached 23,000. "Our growth has been a lot quicker than people would have expected," says Hoback. "A lot has to do with the area. Indianapolis is a good area for business, and there are a lot of new markets for rail transportation. We're a great distribution center because we're so centrally located."

Indiana, Hoback maintains, eventually could serve as a merchandise-warehouse location for the nation. Goods could be brought in from all over the country and then trucked out. Hoback's company already serves as a lumber reload and distribution center. "We bring the lumber and plywood in by rail and store the products at a facility and then truck them out to the customer as needed," he says. We would like to do it for paper, food products and other kinds of commodities. The distribution concept lends itself to Indiana because we're a central hub."

But there are other reasons why railroading today can be successful though it failed in the past. Deregulation in 1980 is the main reason the industry has bounced back. "Once that happened, the whole industry changed," he says. "The railroad business had been in the doldrums for years because we were the first industry to be government-regulated. We got stiff competition from the barge industry and the motor routes because many segments for the bulk business weren't regulated."

The railroads were handicapped in pricing. Rates essentially were set at rate meetings. "With few exceptions, we all had the same rates. There was no price competition," Hoback says. "That was bad business and contributed to the railroad's inherent inefficiency."

Hoback also believes that railroads have a bright future because they are four to eight times more fuel-efficient than trucks. Given a product and distance comparison, railroad transportation can save the shipper 5 percent to 10 percent over other means of transportation, Hoback says. Sometimes the savings can be as great as 25 percent. "Because we can move so many more tons with one gallon of fuel, trains are far less of a pollution hazard than autos or trucks," he says.

Although Hoback's railroad only has a mainline stretch of 117 miles from Indianapolis through Bloomington and Sullivan, he does not feel this is a disadvantage. "The railroads are interconnected and over half of our business involves other carriers. The shipper will only see one freight bill, but we'll pay a portion to the different carriers," Hoback explains.

Hoback is always on the lookout for railroad lines in Indiana. He recently acquired an additional 40 miles of track north through Tipton. He's hoping to purchase another 107 miles from the Illinois Central that would extend his track from Sullivan west through Newton, Ill. We also have negotiations pending to buy two smaller stretches of track. By the end of 1990, we hope to have a 250-mile system and handle close to 50,000 carloads on that trackage."

This return to regional railroads is happening all over the country. There have been about 300 similar railroads created in the last 10 years, although most of them are not as large as Hoback's enterprise. Hoback speculates that the major railroads are selling off the smaller ones to concentrate their resources on the main routes. "The big railroads do a great job moving large volumes of freight," he says. "I think they feel the smaller lines can generate new business, which will help them. We can serve Indiana and feed new business back to the connecting railroads."

Although Hoback has had opportunities to expand out of the state, he has turned down all such offers to date. "What Indiana needs is a strong-core regional railroad. If we were to go out and buy elsewhere, we would lose some of that focus and personal touch and be like any other big railroad. It isn't fair to our customers," Hoback says.

Hoback stresses that the line his company is buying in Illinois is contiguous to its existing line. It will make the railroad more efficient to operate and will allow more goods to be moved over its main line.

As far as operating costs go, the biggest single cost to any railroad is maintaining the track. "It's pretty capital intensive-controlling vegetation, fixing railroad crossings and keeping up the track," Hoback explains.

There is also the cost of maintaining locomotives. Indiana Rail Road Co. has 13 engines that it owns, operates and repairs locally.

In its first year of operation under new management, the Indiana Rail Road Co. had several derailments. As it continues to improve its track, the accident rate has gone down close to zero. "We've done a lot to minimize track problems, but," he points out, "no railroad is completely accident-proof. It's just a cost of doing business. Fortunately, the insurance market has stabilized since the mid-80's," he adds.

As far as the future goes, Hoback would like to get into hauling more building materials, such as lumber and brick. When the company started, 92 percent of its revenue came from hauling coal for Indianapolis Power & Light Co. With increased marketing, now only 70 percent of its revenue comes from coal-hauling. Hoback also would like to expand into carrying grain and grain products. Currently, there are no passenger trains on his routes, but there might be an interest in a commuter train from Bloomington. Hoback does not see this as a profitable alternative unless the state provides some assistance for rebuilding tracks for high-speed trains.

Hoback admits that the price of running a railroad is having little time for activities with his daughter and two stepdaughters. "But building up the railroad is pretty important to me so I don't have any regrets. I've increased employment and investment in the state, and we're good for the communities we serve," he concludes.

Dining By Rail

Dining by rail conjures up visions of the Orient Express-champagne, caviar and coquilles served by distinguished waiters. Not exactly a Hoosier scenario. That is, not yet. But coming this spring, move over, Hercule Poirot and Agatha Christie, because the train's comin' to town.

Dining by Rail is the brain child of Lisa and Thomas G. Hoback, who as owner of the Indiana Rail Road Company already had a train, some track and the energy to attack such a project. They started by visiting dining cars all over the country in an effort to see what worked and what didn't. The second thing Tom Hoback did was to entice his wife, Lisa, away from her lucrative real-estate career and to hire her as director of marketing and sales. He then hired Lawrence Begia, who has put together a similar dinner train in San Antonio, Texas, and is familiar with the mechanical aspects of equipment restoration.

What finally emerged is a dining train that will run four nights a week, departing from Union Station in downtown Indianapolis. The excursion will last approximately three and a half hours and involves a round-trip to Brown County. The Hobacks envision several renovated passenger cars, vintage 1920, '30 or '40, pulled by an authentic diesel engine. In addition to the dining cars, there will be two lounge cars where cocktails will be served. The kitchen will be a separate, standard-sized car (85 feet long), totally self-sufficient. All food will be prepared on board.

As yet, plans have not been firmed up as to which restaurant will be in charge of the dining facilities. Lisa Hoback, however, does have some ideas about the food content. "We'll let people make a choice right there on the train, no preordering," she says. "I know we'll have a beef, seafood and poultry entree daily. But the menu won't be as extensive as a restaurant because we're limited by space requirements in the kitchen."

Hoback already has a host of plans for marketing the venture, including murder-mystery excursions, football tailgate treks to Bloomington, fall foliage trips and overnight junkets and chartering for private parties and awards banquets. The train's maximum capacity is 196 passengers. Thomas Hoback estimates the fare will be $49.95 for the meal and trip.

All aboard!
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Article Details
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Title Annotation:includes related article on a dining train; regional railroad company
Author:Partington, Marta
Publication:Indiana Business Magazine
Article Type:company profile
Date:Feb 1, 1990
Previous Article:Real estate around the state.
Next Article:Indiana trucking: Indiana's major trucking companies.

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