May 1, 2014

Demand for grain could boost Wichita’s short-line K&O Railroad

Jimmy Patterson is hoping for a better year.

Jimmy Patterson is hoping for a better year.

Not that 2013 was a bad year for the Kansas & Oklahoma Railroad, a Wichita-based short line that Patterson oversees as general manager.

But the former Sedgwick County 911 dispatcher said business last year didn’t hit the goal set by the railroad and its Pittsburg-based parent company.

“2013 was a down year compared to ’12, and our expectations,” said Patterson, who has worked for K&O since 2004.

In the railroad business, “we live and die by our customers,” so a late start to wheat harvest or a dip in anticipated customer shipments of other products goes directly to the railroad’s bottom line, Patterson said. He added that despite 2013’s slowdown, K&O was “still profitable.”

“We just didn’t meet our goal,” he said.

The K&O is a short line railroad, meaning it takes or delivers shipments from Class I railroads such as Burlington Northern Santa Fe Railway or Union Pacific to or from the end user or manufacturer of those shipments. “We are the brown UPS truck that runs around town,” Patterson said, figuratively. “We are the first and last mile” of large shipments, primarily raw materials.

He said K&O differs from a lot of short line railroads because it transports a “tremendous amount” of grains and other agricultural products.

The American Short Line & Regional Railroad Association estimates that there are more than 500 short line railroads in the U.S. and they constitute about a third of the American rail network. While short lines have existed since the early days of railroading, the federal Staggers Act in 1980 helped to spur their growth. The act allowed Class I railroads to sell what they considered less profitable rail lines and concentrate their business on interstate main lines.

The abandonment of those short lines bred a lot of new entrepreneurs, “who stood up and said, ‘Let’s give it a try,’ and they did, and with great success,” said David Mears of the association.

The K&O was established in 2001, after Watco Cos. in Pittsburg bought the Central Kansas Railway from Denver-based OmniTrax.

It employs 90 people and has a fleet of 42 locomotives, 35 of which would typically be operating at any given time on K&O’s 800 miles of track.

That network of track stretches from Wichita west to Towner, Colo., and south to Conway Springs. It also has smaller sections of track between Newton and Conway, and from Salina to Osborne. Its track network intersects with BNSF’s and UP’s main lines at several points in central and eastern Kansas.

Keeping that track network usable is a daily job. Patterson said the company has 28 crews that maintain and repair tracks, crossings and related equipment. Track sections are inspected daily by a team of six track inspectors. They check not only the K&O’s mainlines, but also rail spurs – sections of track that come off K&O’s mainline track and into a customer’s place of business, such as a grain elevator or warehouse.

Patterson said the company spends millions of dollars annually for maintenance of its track network.

“We set aside a pretty sizable amount … every year,” he said.

The railroad annually transports between 55,000 and 62,000 carloads a year, Patterson said. Besides grains and other agricultural products, the K&O also transports chemicals, natural gas, scrap metal, lumber and paper.

Its peak operating season is generally between June and August.

At its headquarters at 1825 W. Harry, the K&O operates a large railyard as well as a maintenance facility for its locomotives. Its main office also hosts the train dispatching center for not just the K&O, but all of Watco’s 28 railroads that operate in 21 states. Communication between dispatchers and train crews is done largely by way of cellphones. Dispatching is where Patterson got his start with the K&O, before being promoted to assistant trainmaster and other positions leading up to his appointment as general manager.

While K&O has a stable of customers that range from grain elevators across the state to companies such as Occidental Chemical Corp. and Star Lumber & Supply, the company is always looking to increase the number of carloads with its existing customer base as well as gain new customers. Customer service is a huge part of K&O’s founding principles, he said, and is only second to safety. That means consistently delivering or shipping products on time and undamaged.

“We commit to them we’re going to be there when their schedule demands,” Patterson said.

Patterson said the K&O’s primary competition is the trucking industry.

Short line railroads have become an increasingly important part of economic development in recent years, said David Bossemeyer, vice president of business development for the Greater Wichita Economic Development Coalition.

For instance, when a manufacturer is looking to move or expand into a new city they generally want close access to rail service. Bossemeyer estimates that one in every 10 projects his organization works on demands rail access and one in eight prefer to have rail access.

“We’re seeing more and more of that in last few years,” Bossemeyer said. “As fuel prices go up, there’s more dependence on rail. The short line, they are just another tool in the arsenal. They’re willing to take smaller loads, willing to go to places like rural communities. They’re an essential element in the economy and what we do.”

Patterson said he looks for 2014 to be a better year for the railroad.

It has started with something of a bang, he said, noting that K&O is about $1.4 million in revenue ahead of where it expected to be at this point in the year.

“It’s been a great year so far,” Patterson said.

Mears of the short line association said the business environment for the industry right now is very good, and the outlook is for additional growth.

The unexpected increase in business at K&O this year is due to an increased demand overseas for U.S. grain, Patterson said.

“I think we’re going to do very well,” he said. “The way we’re trending, I think we’ll finish (2014) above expectations.”

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