McCloud Railway news?

BoxcabE50 Oct 5, 2006

  1. BoxcabE50

    BoxcabE50 HOn30 & N Scales Staff Member TrainBoard Supporter

    62,363
    8,217
    652
    Read a brief note elsewhere- Someone has acquired a fair sized portion of the McCloud Ry. Anyone have details???

    :D

    Boxcab E50
     
  2. John Barnhill

    John Barnhill TrainBoard Member

    3,277
    83
    49
    Wheres JDLX? He has all the details. :) I do know they are trying to finish up moving the ex Sierra 2-6-6-2 from McCloud to Merril,OR as it sits on the sold property. Think all they have left is the boiler.
     
  3. Shannon

    Shannon TrainBoard Member

    308
    0
    17
    Boxcab and John,

    Seaside holdings bought the McCloud but not the shops or the yard in McCloud. They said when the bought the railroad they would run it for the next two years.

    I know Jeff could give you more information but I hope that will hold you for now.

    Shannon
     
  4. John Barnhill

    John Barnhill TrainBoard Member

    3,277
    83
    49
    Thanks Shannon. Couldn't remember the name of the purchasing company.
     
  5. BoxcabE50

    BoxcabE50 HOn30 & N Scales Staff Member TrainBoard Supporter

    62,363
    8,217
    652
    Sounds odd. I wonder why they'd establish such a strict time frame? What happens after two years pass?

    :confused:

    Boxcab E50
     
  6. JDLX

    JDLX TrainBoard Member

    310
    0
    17
    I get around to this site once a day...I apologize for not picking this up sooner.

    Here is what happened. It is a lengthy story, so please bear with me for a few minutes.

    This story really starts in the late 1970's. The McCloud River Railroad had enough freight traffic to make it a very prosperous company until 1977. A series of sawmill closures dropped the company's customer base down to one sawmill/plywood plant in the Burney area. Sierra Pacific Industries purchased and reopened one of the closed sawmills in Burney, which gave the company two good shippers of outbound products. The McCloud River managed to hang on through the early 1980's on this traffic, mostly thanks to an ownership that needed the railroad for other purposes and was therefore willing to put up with the annual operating losses (roughly a quarter million per year, according to some sources I have talked to).

    In 1986 Itel Rail, McCloud's corporate parent, brought in Jeff Forbis as a marketing manager. Jeff quickly advanced to a Vice President position with the company, and he assumed the presidency of the McCloud River at the beginning of 1989. Jeff's marketing efforts brought the McCloud River two new steady customers, a diatomaceous earth firm (Dicalite) that shipped 15-20 outbound loads each month and a paper warehouse in McCloud (Sprint Reload) that received 30-60 carloads of paper each week. Sprint Reload would house that paper until the giant printer firms in Stead, NV, needed it, at which time the paper would be loaded into trucks operated by the affiliated Sprint Trucking for final delivery. This traffic helped the railroad survive another blow around 1990 when one of the two Burney mills closed.

    When Jeff bought the railroad in mid-1992 and started up the McCloud Railway Company he continued to provide service to the three large shippers (Sprint Reload, Dicalite, Sierra Pacific). Sprint accounted for 50-60% of the McCloud's traffic base, with Sierra Pacific providing the bulk of the remainder. The McCloud Railway prospered, with its high water mark reached in 1995-1997 when the company handled roughly 3,000 loads per year.

    Things changed in early 1998 when BNSF gained trackage rights into Reno as a condition of the UP-SP merger. Sprint Reload immediately closed, which deprived the railroad of at least half of its freight business. Sierra Pacific and Dicalite remained the last two shippers on the road, although the company would haul for others when the opportunities presented themselves. Unfortunately, very few other shippers came along, and those that did failed to last long.

    The first blow came in December 2003. The McCloud interchanged with BNSF at Lookout Junction, CA, on the old Inside Gateway. Interchange traffic between the two railroad dropped to less than six cars each week, with some trains going to or from Lookout Junction handling as few as one or two cars. Getting this traffic to BNSF involved 13 miles of McCloud owned trackage, from Bartle to Hambone, CA, and then 33.4 miles of trackage from Hambone to Lookout owned by BNSF but operated by the McCloud. In December 2003 BNSF struck a haulage agreement that saw Union Pacific handled the McCloud-BNSF traffic between the McCloud at Mt. Shasta City, CA, and BNSF at Klamath Falls, OR. This move allowed BNSF to abandon the Lookout-Hambone trackage.

    Once the competative pressures brought by BNSF vanished Union Pacific no longer had a reason to cooperate with the McCloud Railway. Getting empty cars from UP became a real issue, even though almost all of the lumber shipped off the railroad moved in MR's fleet of leased centerbeams and Dicalite had their own hoppers. In 2004 BNSF convinced Sierra Pacific to establish a reload for the Burney mill at Nubieber, CA, which further cut into the McCloud's traffic base.

    In March 2005 the McCloud Railway finally gave up hope and initiated abandonment proceedings. Initial plans called for the outright abandonment of the entire railroad east of a point three miles east of McCloud. This included the mainline from M.P. 3 to Burney, which is roughly M.P. 60; the 13-mile branch from Bartle to Hambone; the 7-mile Sierra branch in the Burney basin; and the stub end remnant of the old Pondosa branch. The trackage west of Milepost 3 would be retained, although the company planned to abandon common carrier service and maintain operations as a private carrier. By the time the company got around to filing the formal application it had decided to maintain common carrier operations on the line west of Milepost 3.

    The Surface Transportation Board granted the McCloud Railway approval to abandon the line east of McCloud in mid-October of last year. However, there is a section in the abandonment regulations that grants outside parties an avenue to continue operations of a rail line up for abandonment, either through subsidizing the continued operations of the existing carrier or through purchasing the line. The process is known as the Offer of Financial Assistance. Parties interested in this avenue must first file a "Notice of Intent to File an Offer of Financial Assistance". Three parties filed these Notices of Intent: Seaside Holdings, a largely unknown company based in Palm Beach, FL; the Oregon Pacific & Eastern Railroad, based in Roseburg, OR (burninbob's company); and the Pacific Unified Railroad Company based in Las Vegas, NV. Of these three Seaside filed the only formal OFA.

    Once a company files a formal OFA the STB gives them thirty days to negotiate with the railroad company seeking the abandonment to come to some form of agreement. The abandonment regulations contemplate that the two parties will come to an agreement on their own, but in case they do not then either party can ask the STB to set sale terms for them. Seaside and the McCloud Railway could not come to terms, largely because they had widely divergent beliefs as to the value to the rail line to be abandoned. The abandonment regulations specify that the purchase price cannot be less than the "Net Liquidation Value" of the line; Seaside figured this to be $1,288,955, while the McCloud Railway estimated this to be $3,514,833. On the last day of the 30-day negotiating period Seaside asked the STB to set sale terms.

    On 25 August 2005 the STB set the purchase price for the railroad at $3,466,313. Seaside then had ten days to accept or reject this price; if they accepted the price then the McCloud Railway would be bound to sell, and Seaside bound to buy, the trackage up for abandonment at that price. If Seaside rejected the terms then the abandonment would go forward. The McCloud Railway had no further say in the issue. On 5 September 2006 Seaside accepted the terms.

    The STB stipulated that the transaction must be finalized within 90 days, which falls in the first week or two of December. Seaside must give the specified amount of money to the McCloud Railway, after which the McCloud must convey the line east of Milepost 3 to Seaside via a quitclaim deed. Seaside then must provide common carrier service over the line for no less than two years, after which they can either sell the line back to the McCloud Railway or pursue abandonment on their own. They must operate the line for no less than five years before they can sell is to anyone else.

    The actual sale may come at any time between now and mid-December. My guess is that is will happen on or near the last possible day. Then we will see what happens next.

    There are many in both the railfan and railroading communities that believe Seaside is operating as a front company for a scrap firm, with A&K Railroad Materials being the name mentioned most often. Those people suspect that A&K is using Seaside Holdings to obtain rail lines through the OFA process at a price far below what they would otherwise have to pay for them on the open competative market. The McCloud Railway openly accused Seaside of this at one point late in the abandonment process; both Seaside and A&K denied that any such bonds existed between the two companies. Many people felt that Seaside would walk away from this deal after the STB set the purchase price basically at the McCloud Railway figures; it came as a surprise when they did not. One clue is that Seaside appears to be fishing for lines up for abandonment- the McCloud is the only line they have actually purchased, but the company has filed Notices of Intent to File OFA's on no less than three other rail lines to date, most of them CSX abandonments in the southeast.

    The key words in all of this is the requirement that Seaside provide common carrier service; there is no requirement that they actually ever run a train. The McCloud Railway ended all freight operations east of McCloud at the end of June by implementing at $1,000 per carload surcharge on all freight traffic east of McCloud; this surchage prompted both remaining shippers to start trucking their products to reloads eastablished on the BNSF at Nubieber and the UP in the Redding area. Seaside could elect to keep this surcharge in place and therefore effectively prevent any shippers from using the railroad. They could meet their two year obligation without ever having to actually hire an employee or run a train.

    If they do elect to actually run the railroad this opens up a whole host of other problems. The first is logistics- as noted their ownership starts three miles east of McCloud. In order to effect interchange with the outside world the McCloud Railway would have to grant Seaside three miles worth of trackage rights so that they could operate to McCloud or Seaside would have to grant the McCloud Railway 15 miles of trackage rights to reach the siding at Bartle. Nothing exists at the point where the ownership will split save for a milepost sign and a grade crossing. Once they get past this obstacle then they must address their physical plant- it is is terrible shape. The McCloud Railway survived as long as it did primarily by borrowing against the equity it inherited in the property, and that equity is all used up. The railroad literally needs several million dollars worth of work now, and even that much money will only put band-aid fixes on the gaping wounds. The entire railroad needs complete rehabilitation, with many stretches requiring complete rebuilding. The McCloud Railway suffered an average of a derailment a week for the last year or so of their operations, and a round trip from McCloud to Burney and back took them anywhere from two to three full days to complete. That is unacceptable, and it is something that can only be addressed through massive upgrades to the physical plant.

    I simply do not see that there is any potential return on the needed investment in that property. The industry that built and sustained that railroad is almost completely gone, and nothing has come along to replace it. I have come to believe that very few people could have done a better job with that property than what Jeff did...he stuck with it for a lot longer than just about anyone else would have.

    When all is said and done the McCloud Railway will still exist as a common carrier short line on approximately 18 miles of railroad (the 15.2 miles between McCloud and Mt. Shasta, plus the first 3 miles east out of McCloud). The company has handled no freight traffic since the end of June, with the only revenues coming from the continued operations of the affiliated Shasta Sunset Dinner Train. The railroad will make its final stand on tourist dollars, and whether it continues to survive or not depends entirely on the ability of those dollars to support the continued upkeep of the remaining railroad.

    It will be interesting to see if early December brings a revival of the eastern end of the railroad, and if it does what form that will take.

    Thanks for sticking with me through all this.

    Jeff Moore
    Elko, NV
    http://www.trainweb.org/mccloudrails
     
  7. BoxcabE50

    BoxcabE50 HOn30 & N Scales Staff Member TrainBoard Supporter

    62,363
    8,217
    652
    Jeff-

    Thanks for a thorough update. It will be interesting to follow how this plays out. And see what really happens.

    :sad:

    Boxcab E50
     

Share This Page