Paying only for the service as required has eliminated tremendous overhead expenditures in fleet repair cost throughout the railroad industry. New and bolder possibilities are now becoming possible in the maintenance of way / work equipment area.

Easing Financial Burden of MOW Equipment

Innovative ideas for reducing or sharing the burden of big ticket items have been put into place on the mechanical side and in track agreements, but have yet to take off in engineering.

by Dennis J. Gilstad

Dennis J. Gilstad worked for Union Pacific and Grand Trunk Western before entering the leasing business. He started Financial Corporation of Michigan (incorporated in 1979) as a full-service leasing entity. Over the last ten years, FCM has acquired, negotiated and /or sold more than $150 million of capital assets to more than 50 major U.S. companies. FCM serves a number of railroads including Southern Pacific, Santa Fe and Grand Trunk Western. FCM Rail, a subsidiary, specializes in MOW, locomotive and other longer-life railroad assets.

How can we get innovative financing ideas used in areas such as locomotive acquisition into maintenance of way?

To discuss this question we must first look at the current trends that many of North American railways are employing today:

Joint operating agreements have become a way of life. Railways are sharing routes that allow for through train using the originating railways power to cross over several railroads to deliver cargo directly to the customer. Stopping only to refuel and change crews, these trains are roaring across heretofore divisional boundaries while scarcely slowing down, bypassing interchange yards and time-consuming switching and reblocking for the next railways part of the shipment.

Unit trains carrying auto parts, coal and perishables are but a few examples of participating railways combining to give the customer better on-time or just-in-time service.

Acquiring Power as Needed

Power by the Hour and Power by the Mile provide not only the locomotive but also maintenance services. This has created working relationships or joint venture agreements with vendors to supply needed power at a significant cost savings. Paying only for the service needed as required has eliminated tremendous overhead expenditures in fleet sizing and repair costs.

Railways have gone a long way to limit the size of their fleets. Many times large numbers of units were required to be in standby condition to provide the transportation departments with additional power as tonnage requirements dictated or as replacement units when other units were out of service.

Reduced repair facilities and management staffing along with better utilization of repair personnel has allowed for greater coverage on individual railways and consolidation of resources.

Contractors for Special Services

Contracting services are being performed in one form or another throughout the rail industry and their range and scope are very broad depending on the particular circumstances.

Projects like the 70,000 concrete ties installed on Metro North Railroad by CN North America's contracting and consulting group, CANAC International, is a good example.

Using a CN-owned P-811 track renewal machine built by Fairmont Tamper, CANAC personnel and various additional equipment performed the entire program for replacement of wood ties with concrete ties.

The scope of the work and the equipment required was outside the ability of Metro North and its work crews, making CANAC's replacement program less costly than staffing up and purchasing very expensive equipment for a one-time or short-term project.

Another consideration was the fact that the entire project was completed in only nine weeks, providing minimum system disruption.

Production rail grinding is another example of contracting services that has the ability to conserve money. North American railways spend an estimated $85 million per year on main line and switch rail grinding. The value of this equipment exceeds $400 million; the cost of maintenance, while I don't have the exact figures, is millions per year. And the crew costs are also substantial. Of the various types of maintenance-of-way equipment, grinders are one of the most technical and difficult to operate and maintain. Railways, by not owning this equipment, are probably better off having the work done for them than attempting it themselves.

Obsolescence can be a major concern as new features and abilities are added to the equipment, features like dust collection, better rail profile measurement capabilities, grinding technological enhancements and software improvements. These are expensive modifications that could require the additional commitment of capital and depending on the cost, force consideration for an earlier retirement of the unit and a replacement with a newer even costlier unit.

Contractors for Special Services

With the rail industry reaching new highs in tonnage hauled, profitability, equipment utilization and higher employee productivity, new and bolder possibilities are now becoming possible in the maintenance of way / work equipment arena. Lets try to dream up a few ideas and maybe identify some that are already working.

Think of joining forces with another railway for the joint ownership of the more expensive work equipment, where two roads would share in the cost of the equipment and share in the usage and facility the equipment could deliver. Rail grinders, ballast undercutter / cleaners, ballast transfer units and rail laying / renewal systems might be easily afforded if the cost were to be divided by more than one owner.

In a similar idea, CN North America and Santa Fe Railway have embarked on a project that will provide Santa Fe with usage of CN's BDS (Ballast Distribution System) and a Plasser C.A.T. Tamper over the winter months when CN is not working the equipment due to weather conditions.

Santa Fe will also be using excess ballast regulators CN has available in the spring-fall months that are usually used in snow removal service. ATSF gets needed equipment at a reasonable price and CN has lowered its cost of its work equipment by generating positive cash flow from the equipment's rental, a win / win scenario!

How about a work equipment facility where several of the major maintenance-of-way manufacturers combine efforts with a few select railways to create and run a work equipment shop that can maintain and refurbish many of the "work horses" currently used like regulators, tampers, tie cranes, tie removal / inserters to name a few. Or maybe even fabricate many of the parts needed to keep your work equipment working that are not easily obtained in the marketplace.

A facility like this located in a convenient geographic location easily accessible might provide better productivity and more reliable equipment at a potential cost savings. The participating manufacturers could offer railways greater assurances of the quality of the work product obtained by their direct involvement. Increased knowledge of the repairs their equipment requires in the normal operating usage may result in better designs, quality control and materials used. Another win/win, maybe?

Let me ask a couple of questions.

Pay Only for Productivity

Would it be nice to pay only for the productivity of your work equipment, not for equipment with relatively low actual production?

Think about the transportation department's power by the hour, how about paying for tamping by the insertion?

Could ballast cleaning by the mile, like today's grinding contracts, be appealing?

Or should manufacturers provide an equipment warranty that would keep your work equipment in "like new" condition?

Does equipment and technology obsolescence bother you?

Are you paying too much for what you receive back from your work equipment in productivity'?

And, finally, is your work equipment staff able to cope with an ever changing technological environment?

These are tough questions and the answers are even tougher. I think that one of the many solutions is for railways not to be in the work equipment business, but instead be in the roadbed management business.

A step in the right direction will be the utilization of as many of the combined manufacturer, financing, contracting and maintenance options we as an industry can conceive. Ownership of equipment needs to be refined to ownership of work capacity. Availability of quality work equipment when the job needs to be done is a must! Railways need not take the responsibility of equipment obsolescence. That responsibility should only be with the manufacturer and / or lessor of the equipment. Training and monitoring equipment and operator performance needs to be joint commitment of both the railway and the manufacturer.

As an update to the article I wrote in the May, 1994 issue of this magazine entitled Get more use from MOW units, I talked about a warranty program that was being created with Pandrol Jackson for their 6700 Tamper. This program has started and the initial response has been good.

There are significant savings to be gained by capping the annual operating / maintenance costs of the 6700 Tamper. And it brings the manufacturer closer to the user's usage of the equipment. We are all hopeful that this will lead to improved design and reliability of components.

In conclusion, creative approaches that combine ownership questions, financing / leasing options, maintenance and cost control of work equipment with the actual requirements of the railways can be and are possible. Programs that provide for "grinding type contracts" are available, with terms that will provide costs directly related to performance and completed work obtained.

Talk to the manufacturers; detail your needs and work together for better solutions and lower costs. What do you have to lose?

Reprinted from November 1994 Progressive Railroading Magazine

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