by David Beal

When officials from New York Metropolitan Transportation Authority (MTA) sought to privatize their long-declining Long Island Rail Road (LIRR) freight service in 1997, they looked for a model urban rail system – one where freight and passenger services had been successfully split into two entities.

A consultant directed them to the Chicago SouthShore & South Bend Railroad. A unit of Anacostia & Pacific Co. Inc., the 129-mile short line had been making a go of its freight service for seven years by operating on tracks shared by a commuter line managed by Northern Indiana Commuter Transportation District.

As it turned out, Anacostia & Pacific's principals – Bruce Lieberman, Peter Gilbertson and a third owner who no longer has a stake – were ready for a new urban challenge. Their SouthShore experience had given them “confidence that it is a model that can work”, says Lieberman, Anacostia & Pacific's chief financial officer.

The small-road model appears to be working in a big way on Long Island . Since Anacostia & Pacific's principals paid $12.7 million for a 20-year concession to operate the freight service 1997, the 235-mile Long Island short line – now known as the New York & Atlantic Railway (NY&A) – has been on the comeback trail.

Shortly before the deal closed, the railroad served 60 shippers; now, it serves 112. It had seven locomotives eight years ago; now, the railroad owns 13. The NY&A also have established transload centers, added yards, launched training programs, and built a modest headquarters and an engine house.

NY&A execs expect the rail revival to continue. This year, the 56-employee railroad – which interchanges with CSX Transportation, Canadian Pacific Railway, Providence and Worcester Railroad Co. and via the New York Cross Harbor Railroad, Norfolk Southern Railway – should carry 20,000 carloads, up 12 percent compared with 2004's total, NY&A officials predict. By 2010, it could haul 25,000 carloads annually, says Marketing Director Ray Schloss.

That'd still be a far cry from the 100,000 annual carloads the freight railroad hauled a generation ago, when manufacturing was booming on the island. But it's also quite an improvement from the 9,500 annual carloads the railroad hauled in the mid-1990s.

What's driving the slow but steady uptick? A more aggressive local marketing strategy that's helping the NY&A win more and more business by delivering food, pulp and paper, lumber and other commodities to wholesalers, which then distribute the goods to Long Island's vast consumer market. The railroad also is cultivating a new niche: filling outbound cars with debris from the island's many demolished factories and dwellings.

And NY&A also stands to benefit from new partnerships with business and government leaders who are anxious to take trucks off Long Island 's gridlocked highways. A recent New York State Department of Transportation (DOT) study concluded that only 1 percent of all freight shipped on the island moves by rail vs. 15 percent nationally.

The NY&A has “reinvigorated the option of rail freight on Long Island”, says Mitchell Pally, vice president of government affairs for the Long Island Association, a business group whose members employ half the island's workforce.

A ONE-OF-A-KIND TERRITORY

And NY&A's team is doing it in a one-of-a-kind territory. Long Island is home to 7.5 million people packed onto a slim finger of often-pricey real estate that reaches for 116 miles from Brooklyn and Queens through Nassau and Suffolk counties to the island's eastern tip.

The NY&A operates nine to 10 trains each weekday across 235 track miles in three district environments, West from its headquarters at Fresh Pond into Brooklyn , the railroad runs on commuter-free tracks. Eastward from central Long Island to the island's eastern tip, passenger traffic isn't as prevalent. But from Queens and Nassau County into western Suffolk County, NY&A must co-exist with LIRR commuter trains that receive higher dispatching priority.

Meanwhile, the dense population also means the NY&A encounters its share of opposition to yard or track expansion proposals. When New York MTA moved ahead with the East Side Access Project, the LIRR converted its 30-track freight yard in Long Island City to other uses. The NY&A responded by activating out-of-service tracks here and there, but it hasn't replaced the capacity it lost to the LIRR conversion.

“Expanding capacity is our biggest challenge, both near term and long term,” Lieberman says.

Working with the capacity NY&A officials do have is a present-day challenge, as well. Finding windows to punch freight trains through on the tracks of the LIRR, which runs the nation's busiest commuter-rail service with 743 trains a day, tests NY&A's transportation managers daily.

Then there's the 171-year-old LIRR's rulebook, which Lieberman says is unusually restrictive. It sets the weight ceiling for rail cars at 263,000 pounds, well below the generally prevailing 286,000-pound limit. The rules also lessen opportunities for the NY&A to put taller, more modern “Plate F” boxcars on LIRR tracks.

But NY&A officials believe they have gotten pretty good at working within predetermined confines – be they of the geographic or rulebook variety. As evidence, they point to the progress the railroad's made during the past eight years – and the progress they believe is yet to come.

“We've got potential customers all over the place,” Lieberman says.

‘A WHOLE NEW BALL GAME'

That potential was there when Lieberman & Co. took the railroad's reins. Turning potential into actual business, NY&A strategists knew, wouldn't happen overnight. So, they've ramped up gradually.

In NY&A's early days, President Fred Krebs and Director of Transportation Joel Torres were the only managers with significant industry experience, Krebs, who had been general manager of the San Joaquin Valley Railroad Co., has had two stints as NY&A's president: from 1997 to mid-2000, when he left to take a job as general manager at TK Construction in Dallas; and from late 2001 to the present. Torres came to NY&A from Conrail, where he had been an engineer.

Torres wasn't all that NY&A netted as a result of the Conrail carve-up. The 1999 deal, which sent 41 percent of Conrail to CSXT and 58 percent to NS, brought new rail competition to the market – and the potential for new business for NY&A.

“It was great,” says Krebs, adding that, in essence, Conrail had been telling potential rail-freight customers, “If you don't like it, truck it.”

A year later, the NY&A got another big lift when the Gershow Recycling Corp., in Medford on Long Island , began ramping up business. Because of the LIRR's poor service, Gershow had been giving the railroad only a dribble of its freight – 100 carloads a year, at best – says Kevin Gershowitz, the recycling company's president.

“When the NY&A took over, it was a whole new ball game,” Gershowitz says.

The new game prompted Gershow to extend one siding, add a switch, and build up a fleet of 225 owned and leased rail cars. The investment enabled NY&A to ship sizable amounts of Gershow's shredded steel to manufacturers across the United States . Today, Gershow is one of NY&A's largest customers; Gershowitz expects to ship 3,000 carloads on the NY&A in 2005.

NY&A officials have had help while they've followed their potential-to-actual quest. In 2002, the New York DOT and Port Authority of New York & New Jersey directed nearly $10 million in grants to NY&A. The railroad used the funds to improve its Bay Ridge and Bushwick lines to accommodate heavier rail cars, and upgrade Fresh Pond Yard in central Queens , including construction of a new engine house.

A CINEMATIC SHORT LINE

Gradually, the NY&A began cracking new markets. Witness its entry into the construction and demolition (C&D) market. Trucks deliver debris from demolished buildings – wood, plasterboard, carpeting, concrete – to a transfer station in Farmingdale , NY, where the debris is loaded into rail cars and hauled to landfills in northern Ohio .

It's a lower-margin business, but one that's grown mightily. From 1999 through 2004, C&D moves accounted for nearly one-fourth of NY&A's carloads; by fall 2005, outgoing carloads of C&D and scrap shipments exceeded carloads of incoming goods.

Meanwhile, inbound goods also have driven up the NY&A's overall volume, says marketing director Schloss. The railroad's commodity portfolio now ranges from rice destined for Chinese restaurants to cornflower for tortilla makers and Mexico 's Corona beer.

The business growth has elevated the NY&A's profile among New York-area shippers. Hollywood producers might have raised it a bit, as well. Television and movie crews have filmed episodes of “Law and Order” and “American Justice”, and parts of the film “Sweet and Lowdown”, on the railroad.

Movie crews were attracted to the railroad's East New York Tunnel, which is three-quarters-of-a-mile long and features an abandoned station, NY&A officials say. Another draw: the “urban rail” setting at NY&A's Fresh Pond yard. And by shooting in New York , producers could hold down per-diem costs by hiring New York-area crews, Lieberman says.

The producers also told Lieberman that the NY&A is far less bureaucratic – and, as a result, easier to deal with – than the major railroads.

HELP WANTED: ‘RAILROAD GUYS'

It'd help if NY&A recruiters could use the less bureaucratic, “easier to deal with” trait to attract next-generation employees. Long term, hiring and training will continue to be significant issues for NY&A – the way they are for all railroads, particularly short lines. There's no shortage of applicants, but once a person is hired, he or she must pass the same rigorous tests would-be LIRR employees take, Lieberman says. There also simply “aren't enough railroad guys” in the applicant pool, he adds.

“You have to train them”, Lieberman says.

The trainees, who need 18 to 24 months to learn railroading skills, come from many different fields, Lieberman says. Among them was John Whalen, a former Nasdaq stock trader who decided to cut short his lucrative Wall Street career after close friends were killed in the 9/11 terrorist attacks that destroyed the World Trade Center.

Whalen's uncle, a U.S. Federal Railroad Administration employee, pointed him to the NY&A. In 2003, Whalen went to work for the same railroad he had ridden as a commuter for 20 years.

“Every day is a new challenge,” says Whalen, who this year earned his engineer's license.

The same is true for NY&A's marketing team. Officials hope to keep picking up new wholesalers who've discovered a viable option to trucks. And C&D business could remain strong for years to come; many abandoned buildings in the region stand for years before they get demolished, Krebs says.

The NY&A still hasn't hauled municipal solid waste, but that remains a possible source of significant new business. The market could be huge, given the massive amount of waster the city and its suburbs generate.

In New York City , goods are no longer manufactured, Director of Transportation Torres says. Instead, the city is a gigantic consumption machine, continuously fueled by a sea of people who take in consumables and, for the most part, turn out only waste, he adds.

So far, no customers have asked NY&A to haul waste; shippers would face substantial barriers to entry, including the acquisition of specialized rail equipment, the cost of new connections and complex approval processes, Lieberman says.

TRUCKING THE ODDS

The NY&A also could benefit from the proposed Cross Harbor Rail Tunnel. New York City lacks direct rail access from the west. The tunnel would remedy that by linking Brooklyn with New Jersey . However, the project's estimated $7 billion or more cost suggests it won't be built anytime soon.

“Many smaller projects need to be done sooner if we are to continue the growth and viability of rail freight east of the Hudson ,” says Lieberman.

Help could come in the form of an intermodal facility, which could attract job-creating distribution hubs now concentrated in New Jersey and eastern Pennsylvania . Long Island still lacks an intermodal center, but one has been proposed for a 50-acre portion of the Pilgrim State Hospital site in Suffolk County . The Long Island Association backs the $75 million project, which is still under study. The current target for completion is 2010 – 15 years after the project was first proposed.

“On Long Island , that is fast,” says Pally, who is on MTA's board. “We sure are hopeful.”

So are other transportation policy shapers. Railroads' “convoluted” access to New York City has held down their piece of the Long Island freight market to an almost negligible share, and “anything that gets trucking off those intensely congested roadways would be good for New York City and Long Island,” says Tom Downs, chief executive officer of ENO Transportation Foundation, a Washington, D.C.-based organization that promotes “creative and visionary leadership for the transportation sector.”

Heavy truck traffic to and from Long Island intensifies congestion and boosts truckers' fuel expenses, costs they ultimately must pass on to shippers.

It's a refrain NY&A officials have been singing since 1997. But it's nice to hear other links in the transport chain chime in.

As NY&A's Krebs puts it: “People are finding out they need rail.”