<HTML> <HEAD> <TITLE>96 CW Line Dynamics Revealed, Glen W. Squires, Wheat Life</TITLE> </HEAD> <body bgcolor="FFFFFF" text="000000" link="0000FF" vlink="FF0000" alink="0000FF"> <basefont face="Arial, Tahoma, Times New Roman" size="3" color="#000033"> <TABLE border="0" width="100%" cellspacing="0"> <TR align="left" valign="top"> <td><small> <A href="https://sgi25.netservers.net/bluefish.org/thefilm.htm">the film</A><br> <A href="forum.htm">forum</A><br> <A href="library.htm">library</A><br> <A href="tutorial.htm">tutorial</A><br> <A href="contact.htm">contact</A> </small></td> <TD> <A href="economic.htm"><img src="images/economic.gif" border="0" width="110" height="110" align="center" alt="Economic and dam related articles"></a> <TD> <CENTER><FONT FACE="Arial, Helvetica" COLOR="0000FF"> <strong><BIG><H2 align="center">CW Line Dynamics Revealed</H2> </BIG></STRONG></FONT><FONT COLOR="FF0000">by Glen W. Squires <BR>Wheat Life, April 2006</FONT></CENTER> </TABLE> <HR> <P align="left"> The state of Washington is trying to sort out the ramifications of potential loss of shortline rail infrastructure and possible investment. Thus, the historical, current and potential future of the market surrounding the Palouse River and Coulee City Rail Lines (PCC) is being determined through various research projects at the request of the Washington State Department of Transportation (WSDOT).

A market analysis of one section of the PCC system, known as the CW Line (the rail line running between Coulee City and Spokane), was recently completed by researchers Ken Casavant and Eric Jessup at Washington State University. The CW line is one of three shortlines making up the PCC system (see map). It is also the one rail line section where the state of Washington does not own the right of way and has been targeted for potential abandonment by the current owner operator.

WSDOT has also ordered three, separate independent appraisals of the CW rail line's Net Liquidation Value (NLV). The first appraisal by Cahill and Associates set the NLV at $1,397,458, as of February 8, 2006. The other two appraisals by HDR and Railroad Industries were to be completed and reported to stakeholders by March 10. WSDOT recently sent a formal request to the line's owner, Watco Company/Palouse River and Coulee City Railroad, Inc., to provide current net liquidation value, supporting information and a description of the CW line and any appurtenant facilities by April 1, 2006.

The researchers initially describe a dynamic and uncertain market environment wherein a multitude of competing forces and decision makers/stakeholders in the market have different options. They note, correctly so, that the Burlington Northern Santa Fe Railroad (BNSF) may be the overriding ultimate market force, due to its approach to rates and railcar availability. Therefore, the state is encouraged to use its negotiating leverage for all partnerships with BNSF in all areas of the state-not just the shortline.

A WSDOT synopsis of the study reveals the volume of carloads on the CW line dynamics revealed CW line has been consistently below that which is needed to cover all costs of operation, at various levels of maintenance. Shortfalls have been covered by deferring maintenance on the line. The accompanying chart shows the actual number of rail carloads shipped in 2000 through 2005, as reported by Watco and grain shippers on the line. The number of carloads required for the operator to break even, at different levels of expenditure on track maintenance, is shown by the red horizontal lines. The national average for track maintenance is $6,000 to $8,000 per track mile per year. As spending decreases on track maintenance, the break-even point decreases because spending is deferred, but the real cost comes when the track condition deteriorates. The break-even level appears to be 3000 to 4000 rail cars.

The WSU study finds the most probable scenario in the future is that the CW line is marginally profitable or unprofitable depending on shifting market conditions and shipper commitment. If high maintenance investments per mile are necessary to operate at the cost efficient 25 mph, and shipper commitment to the line is low or remains at recent levels, and existing carrier costs (irrespective of who the carrier is) are incurred, a shortfall loss will occur and continued ownership (state, port, or whomever) will require an annual operating cost investment (subsidy). This investment would probably be around $200,000 to $400,000 if high maintenance is required, and zero to $100,000 if only medium levels of maintenance are necessary.

The best possible scenario would occur when grain volumes increase over 3000 cars as a result of renewed shipper commitment to the CW line (due to Scoot train efficiencies, desire to maintain competitive transportation market, search for marketing flexibility, new firms and traffic), while maintenance is only required at the medium level (still twice the current levels) and operating costs are decreased (due to new ownership/operating management, increased volume, earlier rehabilitation investment, state Grain Train cars, etc.). Under this scenario, revenues will cover both fixed and operating costs, including any return on investment desired by the operators or owners. No additional annual investment (subsidy) would be required by the state.

The worst possible scenario would arise when increasing traffic volumes fail to materialize (for whatever reason), no new "economic development" traffic is realized, a high maintenance level is required (for whatever reason), increase in carrier costs per car caused by low traffic levels occur, a new 110-car load facility is built in competition with CW line movements, and BNSF rate differentials make the Ritzville facility even more attractive. In this case annual investments (subsidy), if the line is to be kept operational, might be as high as $1,000,000 per year.

Three main geographical market attraction zones currently exist including the CW line, the Snake River and the Ritzville shuttle facility-the smallest of the three (see chart). It is estimated that slightly less than half the statewide wheat production is produced within 35 miles of the Snake River. Pavement analysis as part of the study identifies roads and impacts should the CW line be abandoned.

The researchers found public and private benefits, both quantifiable and potential, are substantial and should be considered by the state. There was no benefit/cost analysis requested for the study but a positive benefit/cost ratio is probable. Road damage and usage costs avoided by maintaining the CW line are estimated to be from $3.4-million to $11.5-million for state highways every 15 to 20 years. For the same period of time county roads, because of their lower level of construction, and the routes chosen by the trucks, are estimated to incur road expenditures of $21.7-million to over $50-million, from traffic related to the CW line. The range of total highway impacts from CW line abandonment is between $25.7-million and over $51.4-million (or more, if extra reconstruction on certain county roads is necessary), identifying a significant benefit to the state and counties from maintaining the CW line.

Other benefits include the competitive and complementary functions of the CW line, such as lower cost rates to shippers with competition; shipper flexibility in marketing their products through different modes of transportation; routes; and marketing/storage alternatives. Energy consumption and emissions production is also lower if the line remains operational.

The research revealed long-term potential industrial traffic from further development of a Geiger Spur connecting to the CW line in Spokane County. Additionally, the federal government may have a role to play as the CW line provides capacity to supply equipment to Grand Coulee Dam.

Finally, the report raises concern that incomplete and confusing financial information has been provided by Watco to assist the state in its evaluation regarding the CW line. With the WSU market and pavement analysis for the other two segments of the PCC lines (the P&L and PV Hooper Lines) expected by April 15, it is hoped that more complete information can be obtained from the shortline carrier, thus enhancing the state's decision process.

For a complete description of the market and pavement analysis for the CW rail line and updated financial analysis of the line, please go to www.wsdot.wa.gov/Projects/Rail/PCC_Acquisition.


WSDOT reports that in early March, BNSF formally proposed a haulage arrangement to the WATCO/ PCC Railroad over the CW Line for no more than 78-car unit trains of wheat, originating on the PCC between Cheney and Coulee City and terminating on the BNSF line at the grain shuttle facility at Ritzville/ Templin (a scoot train concept). WSU researchers note potential economies for the Ritzville facility from moving 270,000 bushels in 78 cars in one day for the week, rather than 235 truck loads over five days of the week; increased volume on the shortline saving a competitive mode; and shippers avoid refurbishing rail elevators into truck-friendly elevators.

<HR> <strong>Glen W. Squires</strong><br> <A href="http://www.wheatlifemagazine.com/0307/pg48_0307.pdf"> <I>CW Line Dynamics Revealed</I></a><BR> <strong>Wheat Life</STRONG>, April 2006 <HR> <P align="center"><CENTER> <BIG><strong>See what you can learn</STRONG></BIG><P> <A href="topic.htm">learn more on topics covered in the film</A><BR> <A href="https://sgi25.netservers.net/bluefish.org/video.htm">see the video</A><BR> <A href="script.htm">read the script</A><BR> <A href="songs.htm">learn the songs</A><BR> <A href="forum.htm">discussion forum</A><BR> <IMG src="salmon_swimming_md_wht.gif" width=150 height=70 alt="salmon animation"> </CENTER> </basefont> </body> </HTML>