Economic engine | A state grant program promotes business expansion while strengthening Maine's aging rail infrastructure

Nearly every day, a rail car carrying 100 tons of dry talc from Montana rolls into Safe Handling Inc.'s 55-acre Auburn railyard, where its contents are whisked into silos alongside a metal-sided building. Inside, two industrial mixers stand ready to blend the talc with water and chemicals ˆ— the exact recipes vary ˆ— to create a slurry essential to the paper-making process, which is then pumped into tanker trucks waiting on the other side of the building and trucked out to paper mills across the state.

Before 1998, when Safe Handling built its slurry processing plant, Maine mills had to order their talc slurry already mixed, doubling its volume and requiring twice as many rail cars to make the 2,000-mile haul ˆ— at a cost of about $4,000 each. Talc slurry is only one of the products moving through Safe Handling's complex, which, since its founding in 1989, has become a vital link in Maine's industrial supply chain. The so-called trans-shipment facility specializes in receiving bulk products and raw materials by rail ˆ— 100 tons of wheat flour a day for a local bakery, 100 tons of plastic pellets a day used to make bottles at a local bottling company ˆ— that can be broken down into smaller portions and transferred into trucks for delivery to end users across Maine.

Beginning next year, though, Safe Handling plans to be doing a lot more on-site processing like its talc slurry operation, thanks to a $600,000 grant the company received last month through the Maine Department of Transportation's Industrial Rail Access Program. The IRAP grant will pay a portion of the estimated $3 million Safe Handling intends to spend on a new, 60,000-square-foot warehousing and manufacturing facility, which will receive a host of dry or super-concentrated liquid raw materials and mix them on site into final products that currently are trucked into Maine every day ˆ— thereby removing an estimated 2,500 trucks from the roads annually and lowering shipping costs for Safe Handling's industrial customers.

"The realization underlying all that we're about to do is that dry product takes up less space than liquid, and Maine is near nothing," says Ford Reiche, president of Safe Handling. "Being remote from everything, Maine has a huge transportation burdenˆ… [but] our whole business plan is that we can reduce those transportation costs."

Safe Handling's plan epitomizes the goals of the state's IRAP, which is essentially an economic development program embedded within a transportation infrastructure funding mechanism. IRAP grants, funded through state bond issues like last November's $63.4 million transportation package, are awarded to businesses, municipalities and rail operators that agree to match at least 50% of the money to pay for projects that expand or improve Maine's rail system. IRAP grants can be used to build new sidings, improve existing sidings to accommodate more rail traffic or fund railside facilities, like Safe Handling's processing plant. But each project must demonstrate significant economic benefits, such as the potential to create new jobs or create transportation and logistics cost savings.

"We recognized that a key factor of the program was helping rail users, rather than the rail operators themselves," says Allan Bartlett, a railroad specialist in the DOT's Office of Freight Transportation who was instrumental in creating the IRAP in the mid-1990s. He helped administer both the first round of grants, in 1999, and the recent awards, before retiring at the end of April. "That's why we tied infrastructure improvements in with goals like job creation or retention, economic expansion and generally providing more business opportunities for the railroad users."

The IRAP approach
This year, the state awarded $3.9 million in IRAP grants to 13 projects (see "Workin' on the railroad," p. 29). Some recipients, like Correct Building Products in Biddeford, will build new sidings that tie their operations to the railroad for the first time. Others, like the town of Anson, which was awarded $563,930 to rehabilitate its branch line, potentially will increase rail efficiency for a number of users. In all, Maine DOT estimates this year's IRAP projects have the potential to create 250 new jobs and eliminate 40,000 annual truck trips from Maine roads, reducing wear-and-tear on highways, traffic congestion and emissions.

As Reiche points out, Maine's geography makes the IRAP almost a necessity. Given the cost to transport raw materials in and finished products out, manufacturing companies closer to large population centers have a built-in cost advantage that has contributed to Maine's recent manufacturing struggles. "When the issue is simply truck versus truck, the greater distance is going to make it more difficult for the Maine company to compete," says Charles Banks, president of R.L. Banks & Associates Inc., a Washington, D.C.-based transportation consulting firm specializing in rail projects. He cites a study he did a few years ago for an economic development organization in northern Maine, which discovered that it was cheaper to ship potatoes from the West Coast to Boston by rail than it was for Maine producers to deliver to Boston by truck.

In cases like that, the obvious solution would be for Maine companies also to ship by rail. "But you have to have the [rail] infrastructure around to do that," adds Banks ˆ— a longstanding problem in Maine that the IRAP is attempting to address head-on.

As in the rest of the country, Maine's railroad heyday exists in memories and black-and-white photographs. Though the state was home to the second railroad built in New England ˆ— the Bangor & Piscataquis Canal & Railroad, completed in 1836 ˆ— railroad infrastructure peaked in 1924 at approximately 2,380 miles of track. Since then, railroad tracks have gradually been torn up or abandoned, leaving about 1,200 miles of active routes in the state today (see "Maine freight railroads," below).

Nationwide, about 40% of all goods are still carried by rail. In 1998 (the last year for which comprehensive freight statistics are available), though, Maine railroads carried just eight percent of the 102 million tons of freight shipped in and out of the state ˆ— while trucks carried 87%. And even though Maine DOT estimates rail's share of the transportation market will increase to 9% by 2006, that figure still lags the Northeast regional average of 15% of freight tonnage shipped by rail.

For customers moving large volumes of product, rail can be more cost- and energy- efficient, since a typical rail car is the equivalent of three or four truckloads. Investing in new or existing rail infrastructure hasn't been a high priority for most states or the federal government, however, which still bestow the majority of their transportation funds on highway projects. That bias is understandable, say rail industry experts, given that most railroads are privately owned networks ˆ— as opposed to highways and roads, which are public infrastructure ˆ— making them less appropriate for large-scale investment of public funds.

But targeted programs like the IRAP help the state take a balanced approach to transportation infrastructure, says Department of Transportation Commissioner David Cole ˆ— one that offers a blend of transportation modes suited to the different needs of various businesses. "We recognize that there aren't good or bad modes," says Cole. "We're trying to look at it as a question of 'What do we need for businesses to be more competitive?'"

That approach means IRAP grants, though smaller than typical highway improvement projects, can tie into bigger, strategic statewide efforts. The $137,000 grant awarded in April to the Montreal Maine & Atlantic Railway will help rebuild rail lines to the Mack Point cargo terminal in Searsport, which reopened last fall after a $13 million state refurbishing project. The new tracks will serve two warehouses at the port that are ideal for storing pulp and paper products; eventually, they could serve as a new distribution point for several paper mills in northern Maine strung out along MMA's rail lines. "This project is making rail and water transportation available to a number of customers who can only move by truck now," says Robert Grindrod, president of the Hermon-based Montreal Maine & Atlantic Railway. "Rail and water are lower-cost alternatives than truck, which in and of itself could help make Maine mills more competitive."

'The market doesn't always cooperate"
It's a value proposition that managers at Sappi Fine Paper North America's Somerset facility learned first hand four years ago, when the company received a $274,000 IRAP grant to build more track and upgrade switching functions at its mill in Hinckley. Sappi had not increased its rail capacity since the mill was built in 1976, despite having grown during that time from a simple pulping operation to one with two paper machines ˆ— which meant finished products often had to be loaded on trucks when there weren't enough train cars available on site to carry products out of state.

Now, the company has the flexibility to meet increased product demand with more train shipments, and also has begun receiving some of the wood for its pulping operation by rail for the first time, an option the mill's managers hope to expand. "The ability to do the best we can in terms of transporting materials in and products out is a requirement today," says John Donahue, managing director of Sappi's Somerset operations. "It's not so much that [the IRAP-funded project] created new jobs as it helped retain jobs."

Awarding grants primarily to rail users, rather than to rail operators, also helps the IRAP be more effective with limited funds, says Allan Bartlett. Because grant requests are typically tied to a company's expansion plans, the infrastructure created is more likely to actually be used than if the state or railroad operators just spent money to refurbish interior tracks or branch lines in hopes of attracting more traffic. For example, Mechanic Falls-based Maine Wood Treaters, which makes pressure-treated wood, intends to use its $55,500 IRAP grant as part of a long-standing plan to gradually increase its production volume. Extending its existing siding to handle up to six cars at once, instead of just three, will help the company handle its current volume of 15-20 carloads of southern pine a week more efficiently, and accommodate increased shipments in the future, according to president Hal Bumby. "Freight is a huge cost for any business, so in my opinion a businessman is going to spend that [IRAP] money more wisely."

That's not to say that every grant will deliver its intended results. Although Maine DOT hasn't done a formal study of the results of the first round of IRAP grants given between 1999 and 2000, Bartlett says at least a few haven't worked as planned. Case in point: a $62,000 grant award to the Bangor and Aroostook Railroad to rehabilitate and expand a siding at the McCain USA plant in Easton, which was supposed to help the company use rail to transport potatoes in and finished products out. But the project withered after the Bangor and Aroostook filed for bankruptcy in 2001, and a spokesman for McCain says the company currently is not making significant use of rail at its Easton operation. "That comes with the IRAP territory," says Bartlett. "We're doing projects with private enterprises that are subject to market forces, and the market doesn't always cooperate with what the company wanted or intended to do."

Any plan with a stated goal of removing large numbers of trucks from Maine roads might also seem likely to draw criticism from local trucking companies, but so far there's been no serious objection from the rest of Maine's transportation industry, says Bartlett. Dale Hanington, president of the Maine Motor Transport Association, which represents Maine's trucking industry, doesn't object to the state funding rail programs, as long as programs like the IRAP aren't taking funds otherwise earmarked for highway projects (IRAP doesn't). "I would support a program that supports and brings more industry into Maine," Hanington says. "If there's more industry and healthy industry, that doesn't necessarily mean less truck traffic."

Rail's image problem
That's a reality even rail's biggest supporters acknowledge, saying that rail, sea, air and truck shipping should ideally work in conjunction as industry grows. If more shipments come into Maine by rail, more trucks may still be required to carry smaller loads to the end users. There also will always be smaller businesses, using a lower volume of raw materials and producing fewer finished goods, that will never require the bulk capacity rail cars offer.

What's most important, say transportation experts, is the type of truck trips that can be eliminated: long hauls of bulk or raw materials that could instead be handled more cost effectively and efficiently by rail transport. And given that the U.S. Department of Transportation estimates the volume of freight shipments will grow 65% by 2020, encouraging such shifts will be essential to avoiding a potential congestion nightmare on the country's highways. "It's not a matter of highways versus rail, it's about having capacity to grow," says Commissioner Cole.

At Safe Handling, Ford Reiche hopes to demonstrate the power of increased infrastructure capacity. The company's new processing facility will not just help it meet growing demand from existing customers, but could create demand for the company's services from a host of new customers, says Reiche. He envisions the additional warehousing space helping the company become a distributor for certain raw materials such as plastics, which are used by several local customers whose individual orders don't justify a full trainload and, as a result, must be hauled into the state by truck. But by combining those orders, Safe Handling could import the plastic from the Southeast by rail, then break it down into truckloads for the final haul to end users.

Reiche also plans to use the company's proprietary product-mixing capabilities to become a rail exporter for the first time. Safe Handling is already working on a proprietary chemical asphalt additive that makes an asphalt mixture able to withstand a wider range of temperatures than it normally would, which has already attracted interest from potential customers as far away as Texas and California.

Given the opportunities he sees for new business, Reiche's goal is to double the size of the company ˆ— from $10 million in revenues to $20 million in revenues ˆ— in three years. And while that growth would benefit Safe Handling's railroad line, the St. Lawrence & Atlantic, through increased traffic, it may also deliver another, less quantifiable benefit. By giving rail shipping an additional layer of sophisticated handling capabilities and logistics services ˆ— the ability to safely transport food-grade materials and specialty chemicals, computer-controlled mixing and manufacturing, inventory control and online shipment tracking ˆ— Safe Handling's growth could help rehabilitate the image of railroads as a rusty, rattling industry in decline. "We pride ourselves on being the bridge that gets you away from [that] perception of railroading, which is true to some degree. Railroads as an industry are not nearly as progressive as airlines, container ships and trucking companies, but they have their place," says Reiche. "We make [rail] much more user friendly."