Wisconsin sets the pace in Europe and Australasia

INTRO: Ed Burkhardt’s vision of how rail can win freight and make profits is capturing enthusiastic converts in some unlikely places, as Richard Hope discovered

ED BURKHARDT is unique. That often overworked adjective is justified by the fact that nobody else has hands-on experience of carrying freight profitably by rail in such diverse economic, political and cultural environments as North America, western Europe and Australasia (see box).

Looking at Wisconsin Central, Tranz Rail in New Zealand, and English Welsh & Scottish Railway, where is his greatest success seen to date?

’Of the three operations, I think EWS will turn out to be the most successful. It was the least developed, but it is the largest and we started from a lower point. Rail’s market share was much lower in the UK than in the US or New Zealand, and the operation was not as good - the poor condition of locomotives, for instance. So if you equate those problems to opportunites, EWS offered the biggest potential for improvement; it is here that we expect to triple gross tonne-km in a decade.’

Britain is also linked to the rest of the European Union through the Channel Tunnel, though EWS did not finally get access to Railfreight Distribution (which currently moves all Tunnel rail freight) until November 22 1997.

In retrospect, Burkhardt does not regret that ’we didn’t have RfD at the beginning’ because ’we needed a year and a half as a domestic operation - you can only go in so many directions at once. There is still plenty to be done in Britain, but I think we now have a better view of what is needed and have taken steps in those areas.’

Most prominent of these steps was the ordering of 250 Class 66 (RG 4.98 p247) and 30 Class 67 diesel locos from General Motors, along with 2500 wagons from Thrall - tangible proof at more than £400m of Wisconsin’s commitment to making a success of EWS.

New frontiers

Despite this gratitude for a pause to consolidate, there is no sign that expansion of Ed’s empire is slowing down. Australia is clearly a target area where his particular talent for turning around neglected freight operations could be put to profitable use.

’There are three privatisations in the mill right now: V/Line, National Rail Corp and Westrail. With Victoria and New South Wales still arguing with the federal government over the NRC sale, Westrail may actively move ahead as the government there is quite orientated towards privatisation. They recognise this would have to be an open access regime because it is enshrined in law, but they favour a vertically integrated operation that includes freight and passenger, and we certainly agree with that.’

’V/Line has a very high preponderance of grain which produces big variations within a crop year as well as between seasons - not an easy operation.’ Burkhardt describes Queensland as ’a fine railway’ where ’privatisation will happen at some point’ - but not just yet.

Asked why Wisconsin is not expanding on its home territory, Burkhardt says ’we keep our eyes open, but prices have gone up precipitously - there are dozens and dozens of people who aspire to run what I call Mom and Pop operations, and pay unbelievable prices for an 80 km line. One of the things you have to be careful about is not overpaying - and repenting at leisure!’

Latin America has been a not-always-happy hunting ground for some American rail operators. Burkhardt says ’we haven’t been active there because they have mostly been selling franchises. A time limited franchise is difficult when many lines are totally run down and require a lot of money to fix them up.’

Sorting out Europe

Across the Atlantic, Calais represents a frontier opportunity of a different kind. Through Railfreight Distribution - which for technical reasons still exists as a wholly owned subsidiary - EWS currently operates jointly with SNCF some 90 trains a week in each direction through the Channel Tunnel carrying around 3 million tonnes a year, only about 3% of this market.

For reasons which have been well aired in these pages, RfD’s early expectations of climbing steadly upwards from 6 million tonnes in the first year after the Tunnel opened have been dashed. Germany is Britain’s biggest trading partner, the distances are right for rail, yet the tonnage actually moved is negligible. Here, surely, is a major opportunity for EWS?

’We are working very hard on our partners to stitch together deals that offer a good service and good prices, with good equipment’, says Burkhardt. But he admits that ’getting there won’t be easy.’

And the reaction? ’Really good! I think the European railways viewed with great alarm the fact that - for the first time ever - a private company was going to be co-owner of Intercontainer-Interfrigo, and sit at the table with all the other state railways. But they have found we are not bomb-throwers. We are responsible people who simply want to have a good, competitive, successful rail network - and they are certainly not going to say "we disagree".

’We are critical where we need to be, and seek change, but even though we stepped on a few toes in doing that, we have gotten a good hearing. People have understood the points we are trying to make, and have actually gone out of their way to try and change things.

’They are telling me now that they are very interested in our views on how they can be more successful. You know about the issue of restrictive technical standards in Britain, where I came to the conclusion that wagons were being over-specified and were too expensive. Well, you would be surprised who agrees with that in Europe - starting with the Deutsche Bahn which said "let’s form a committee and do something" - doesn’t that knock you over?

’We are finding excellent attitudes out there. It enables us to take the lead in some of those areas, and they are very supportive of it. They know we are not coming in with a political approach, and I think professional railway people who have often had to operate politically appreciate the fact that we are going to be out there calling a spade a spade. It’ll take a while to take care of all aspects of this thing, but we have a big push going on Anglo-German business which is the biggest market and very poorly served at present.’

Germans rethink pricing

One issue that EWS has tackled head-on is the notorious issue of tariffs designed to steer Anglo-German tonnage towards ro-ro ships using German ports rather than the Tunnel, so as to maximise the distance covered on DB tracks.

Burkhardt says the Germans are ’looking again at pricing via the French frontier. Sending a UK shipment through Hamburg might produce more money for DB, but it takes a week so they only have a small market share.

’A 24 hour schedule through the Tunnel will get any business. Are they willing to walk away from 90% of the business in order to protect a profit margin on 10%? Historically, the answer was "yes". Maybe they didn’t think it through, but I can tell you they are looking at it differently today.’

Wembley to Lens

France is another area where Burkhardt says SNCF is ’re-studying how to bring down costs. Right now, we are looking at running our Class 92 locomotives into Lens, or somewhere in the interior of France.’ Lens is the principal depot for freight locos in the area, and the initial objective is to have French and British drivers work through between Lens and Wembley.

Reminded of the need to fit the KVB automatic train protection, he confirms ’that’s part of what we are talking about. None of this just happens. Some of it is going to take a fair amount of money, and cultural change in involved.’

But he has established a ’solid relationship’ with SNCF’s Freight Director, Armand Toubol. ’I admire the man greatly. I find him to be very progressive, and he looks on us as the kind of people that can work with SNCF and make some very significant moves for the better in terms of the overall relationship. And that’s what it’s going to need - relationships.’

Terffs ’helpful’

If problems are best negotiated directly between the state railways, where do Trans-European Freight Freeways fit in?

’I consider Terffs probably to be of some benefit in that there would be a streamlined process to set up corridors. I would find that helpful, but we still have to make deals where railways provide traction and crews to run trains. Perhaps a common approach to infrastructure costs will come out of Terffs.

’I think Terffs were set up with the concept that we would have open access operators use them. You can see that I’m not coming from that standpoint; I would say open access is something you keep in your back pocket when all else fails. To set up an isolated operation would take a huge amount of management - it’s not a well constructed scheme.

’Just to get an EWS driver to Lens, or an SNCF driver to Willesden, would require a great training cost in terms of language, capability, rules and route knowledge. If you were talking locomotives and drivers crossing three or four countries, the complications would be unbelievable.

’That’s why I’m working towards competitive European railways that can form a network with each other. Together, we have a lot of work to do there to get ourselves competitive, to eliminate bureaucratic processes. For example, when a customer phones for a price he doesn’t want it in 30 days, he wants it right now.

’Interestingly, the fundamental problems are the same that we had between railways in the US. We’re not perfect, but we have generally found ways to deal with them. For instance, a lot of US railways will give another railway a general power to quote rates within a certain range.’

If not Terffs and open access, what is Burkhardt’s vision in Europe? ’I would like to see those state operations privatised; they would be so much more effective as operators. I believe that with the generally reasonable attitudes we’ve seen from the state-owned railways we can deal with the problems, but it will be that much harder.’

Man-made crisis

Burkhardt believes that rail’s long period of financial losses and declining market share was essentially a man-made crisis: ’there has never been anything fundamentally wrong with the steel wheel on steel rail and it’s potentials, but we have been so beat-up politically. Railways came to be looked upon as some kind of enemy to be controlled, rather than one of the greatest inventions for the well-being of people.’

From this attitude stemmed onerous regulation, coupled with ’a political preference for highway transport and a determination to milk the railways for social and political purposes.’

Safety is one area where gross inequalities exist. Apart from level crossings, Wisconsin Central has only killed two people in accidents since it was set up in 1987, yet the company is currently fighting a law mandating two-person train crews, Wisconsin being the only US state to introduce such legislation in recent times. This legislative action resulted from a single fatality following a derailment on WC.

Burkhardt says ’we were very upset with that, and took a terrible beating in the press. However, we were able to point to over 150 fatalities in 12 months on the state’s highways caused by trucks. Our safety record on a tonne-km basis is hundreds of times safer.’

At the same time, Burkhardt says ’the Federal Railroad Administration has temporarily put restrictions on our use of driver-only crews - though they are not as extreme as the state law - and restricted our use of remote-controlled locomotives.’ Oddly, the FRA order actually helps WC’s court action (in which it has been joined by BNSF and UP) because ’it is very important when we attack the state law in the federal court to show that the FRA has regulated crew size.’

Burkhardt is confident of winning both driver-only crews and remote controlled shunting, both fully demonstrated as safe elsewhere. ’The fact is that we want to have the best safety performance we can get, but when railways were sold off in the US they were typically in poor condition. We have had to spend a lot of money getting Wisconsin into good shape.’

Track charges

Another bone of contention for Burkhardt is the failure to recover highways costs from truckers. ’Travelling round Tasmania recently I noticed the problem the state has in maintaining low-volume twin lane roads for what must be the world’s biggest truck loadings, exacerbated by one of the world’s lowest cost recovery ratios for truck usage.’

Despite this, and the small scale of Tasrail’s operations, Burkhardt is investing in 26 rebuilt locomotives costing A$16m and new wagons with a target of doubling traffic and revenue within three years. He believes Tasrail’s employees understand ’that privatisation means the end of the free lunch at taxpayer expense ... it is time to sink or swim in truck-infested waters, and I believe we are a company of good swimmers!’

But he warned a public inquiry in January that Australians must ’take action to remove the trucking industry from welfare roles. If they do not, the renaissance of railways made possible by privatisation in Australia will be still-born.

’New Zealand addressed this problem by imposing a gross tonne-km charge on heavy goods vehicles. Total New Zealand highway usage charges are four times the Australian level, and the Kiwis plan to further increase charges on HGVs soon to reflect the capital cost of the road network.’ He puts the US and UK ’somewhere in between’ on cost recovery from trucks.’

Track authorities

Burkhardt has a strong aversion to track authorities and open access. Notwithstanding every indication that EWS is set to become a rip-roaring success within just such a regime, ’I consider these twin devils to be major obstacles to the creation of strong, privately owned railways from the ruins of state ownership.’

Are there any circumstances where it is the right answer, such as a government that will not relinquish control of national infrastructure, or a passenger dominated railway that won’t take freight seriously? He agrees that these are ’among the stronger arguments for track authorities and open access, but state ownership has been maintained in New Zealand and Tasmania where we pay a peppercorn rent for our lease.

’Where passengers dominate, there are ways to handle that too. It is still better if the infrastructure is in the hands of the predominant operator, because there is a much more intimate relationship between the track and the business being done on it than the theoreticians that set up this system realise.

’I would rather have a passenger operator look after the infrastructure than a track authority, provided there was a legal basis for them not to discriminate against another operator. We have tens of thousands of trackage rights agreements in the US where the track is always maintained by one railway operator.

’Those contracts generally will provide for equality of handling of trains. If the owner starts making life tough, the tenant has recourse to the courts for an order to comply with the contract. Wisconsin Central grants trackage rights over 80 km to Chicago’s commuter authority, Metra; the basis of charging gives us bonuses for on-time trains, so they have a very good on-time record.’

Despite a cheerful prognosis, Burkhardt warned the Australians that ’without a doubt EWS confronts huge problems stemming from dealing at arm’s length with an unresponsive, high cost landlord [Railtrack] with an agenda of its own.’ Prominent among these is the allocation of extra paths for franchised passenger operators, leaving a serious shortfall for predicted freight expansion on the West Coast and East Coast main lines.

Open access, as a legal right, is something else. Close questioning narrows the focus of Burkhardt’s objection to his view of single wagonload traffic as the basis for success in the kind of railway he operates. Legally imposed open access in the US is potentially on the Congressional agenda for 1998 - aimed mainly at bulk flows of coal to power stations - but ’nobody would be interested in coming after Wisconsin Central’s market because they weren’t before we started up. As a 90% single wagon railway, one of the things we have a hard time envisioning is competing operators using the same network.’

Despite the general move to one-commodity trains and intermodal in recent years, Burkhardt insists that ’profitability is best with wagons, second best with containers, third with swap bodies and fourth with piggyback. That doesn’t say, however, that you don’t compete across the board in all those areas because there may be some business that will only move by piggyback, and you’ve got to see if you can eke out a profit.

’If we are going to have any growth opportunities in Europe - and Britain is a wonderful specific example - it is going to be moving towards well operated single wagon networks - this is where EWS is very slowly accessing new business.

’Single wagon networks have such complex economic and operational features that a second operator coming in on that can screw it up badly. Presumably, the second operator comes in and cherry-picks where you do have block movement, and I don’t like that, obviously.’

Asked about the proposal by road haulier Eddie Stobart to buy and operate his own trains between Scotland and the Midlands, Burkhardt makes a different point. ’This is new business that EWS is not handling now, and it is business that we think is rather difficult, economically. I would get upset if Stobart is going to have the whole thing paid for with government money.’

No discrimination

Perhaps the key point on open access, for Burkhardt, is that it should not be fostered with public money. Regarding Railtrack’s self-imposed target to have 10% of freight carried by new open access operators, he finds ’a philosophical problem with a percentage objective like that. Railtrack has to make its tracks open to all comers on a fair basis, and if they do that, I don’t have any problem.

’But if Stobart is looking at two options - one is to use EWS and the other to run it himself - and Railtrack cuts a special deal in order to make the 10% objective, that would be a violation of Railtrack’s licence conditions.

As Burkhardt told the Australians, ’only a large-scale operator can develop the economics needed to compete successfully in today’s cut-throat markets. Such an operator should be able to deal with on-rail competition by offering the benefits of his scale economics to his customers, at the same time offering real competition to the truckies.

’If such an operator is hobbled by artifically stimulated on-rail competition, he will lose the economics of scale that are so necessary to develop the lowest possible unit cost structure - and ultimately to compete with the highway.’ o

Ed Burkhardt’s extraordinary empire began modestly in 1987 when he carved Wisconsin Central out of Soo Line’s Lake States Division, buying lines deemed unprofitable. Wisconsin Central Ltd acquired Fox Valley & Western in 1993, and Algoma Central in Canada in 1995. Together with some other lines, these companies form a 4025 km network that carried 40 million tonnes in 1997.

The outside world sat up and took notice when Wisconsin Central Transportation Corp led the Tranz Rail consortium’s purchase of New Zealand’s 3260 km national network in 1993. Traffic has increased steadily to 12 million tonnes last year; Tranz Rail also carries passengers and runs inter-island train ferries.

Essentially the same consortium bought five of British Rail’s six freight companies between December 1995 and November 1997, but English Welsh & Scottish Railway owns no track outside terminals. EWS absorbed the rail operations of National Power on April 1 1998 and now carries 92% of 109 million tonnes moved each year in Britain including 3 million through the Channel Tunnel.

In November 1997, Tranz Rail led the Australian Transport Network consortium which bought the 581 km Tasrail network during the break-up of Australian National Railways. In April 1997 ATN aquired the Emu Bay Railway Co from Pasminco, bringing its Tasmanian network to 726 km handling 2·2 million tonnes a year.

Ed Burkhardt chairs the boards of all these companies, and is also chief executive of Wisconsin Central and EWS.

CAPTION: National Power’s operations were taken over by EWS on April 1 1998

CAPTION: Wisconsin Central is not expanding on its home ground, but Burkhardt says ’we keep our eyes open’

Privatisation means the end of the free lunch at taxpayer expense ... it is time to sink or swim in truck-infested waters

If such an operator is hobbled by artifically stimulated on-rail competition, he will lose the economics of scale

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