Economic Development and Transportation, Distribution & Logistics

Indiana Rail Road on track for customer growth: Acquisition of Canadian Pacific line brings more jobs

July 10, 2006

What little some people see of active railroads these days is when they catch a glimpse of Indiana Rail Road Co.'s Ferrari-red engines pulling hopper cars from downstate coal mines up to Indianapolis Power & Light's Harding Street generating station, south of town.

"People feel like railroads are a dying industry," said Thomas Hoback, founder and CEO of Indiana Rail Road, the 20-yearold freight concern based in Indianapolis.

Looks can be as deceiving as the speed of a locomotive approaching a rail crossing. Hoback and his regional railroad crew have quietly engineered an economic development machine that now rolls not all that quietly across more than 245 miles of its own track in Indiana and Illinois.

That machine is picking up speed. In May, Indiana Rail Road acquired for an undisclosed price 93 miles of Canadian Pacific Railway track stretching roughly from Bedford to Terre Haute. The deal added 25 employees to Indiana Rail Road, which now employs about 160, including 25 at its 101 W. Ohio St. headquarters. It also operates a rail yard and cargo-processing center on the south side of downtown.

Meanwhile, another railroad company plans to add jobs in Indianapolis.

Boca Raton, Fla.-based RailAmerica, which owns six short lines in Indiana, has decided to make Indianapolis home of its central business unit. It's one of three units being created as part of a decentralization to reduce layers of management.

"It is too early ... to determine final staffing" levels, said Tracy Tilson, a spokeswoman for Rail-America. Among RailAmerica's short lines here are Central Railroad of Indianapolis, Indiana Southern Railroad, and Indiana and Ohio Railway.

Indiana Rail Road might also be in a position to add jobs in the state. When it snapped up Canadian Pacific track here, it also got 335 miles of track rights-giving it direct connections to Chicago and Louisville, along with Ohio River ports. That track passes near lucrative potential customers.

Among them is General Motors Corp.'s foundry in Bedford. Hoback is trying to lasso a deal to ship by rail more than 800,000 pounds of aluminum components the plant now ships by truck to its transmission plants.

"That is one plant that is definitely on our radar screen," Hoback said.

The CP deal also gave Indiana Rail Road a number of new customers, including plastics firms PolyOne and Bemis Plastics. "We think there are substantial industrial development opportunities in and around Terre Haute."

The railroad, named after the former Indianapolis interurban passenger line that folded in 1941, started in the mid-1980s when Hoback picked up 110 miles of former Illinois Central tracks between Indianapolis and Sullivan. Back then, it hauled about 12,000 carloads per year; today, it hauls more than 108,000 carloads.

Although the privately held firm doesn't disclose revenue, it was between $50 million and $100 million in 2005, up 4 percent, Hoback said.

It was as profitable last year, he added.

"They've done a very, very good job in the last several years. They're doing a heck of a good job," said Gary Hunter, CEO of Railroad Industries Inc., a Reno, Nev.-based rail consulting firm.

So well, in fact, that Jacksonville, Fla.-based rail giant CSX Corp. has been slowly buying up shares. It now owns the 85 percent of the company's common stock that Hoback doesn't.

Ironically, it was major railroads such as CSX that over the last several years had been selling off their secondary routes to short lines. There are about 35 such railroads in the state.

Financial data wasn't available. Generally, though, "I think everybody has commented business is up," said Thomas Fruechtenicht, a Bose McKinney & Evans attorney who represents the Indiana Railroad Transportation Group.

Yet many of the short lines face significant capital costs to upgrade their track and bridges, especially as customers insist on using larger and heavier freight cars. A state grant program funded by a fraction of sales tax has just over $1 million a year in grant money available.

Meanwhile, Hoback is eyeing an emerging industry-conversion of corn to ethanol as a gasoline substitute. The railroad for the last two years has hauled ethanol from Marathon Ashland's refinery in Robinson, Ill.


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