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Watco: A Key Player In The Short Line Industry

Published: August 9, 2024

By: Adam Burns

Watco Companies, LLC, headquartered in Pittsburg, Kansas, is a prominent name in the transportation and logistics sector. Established in 1983, Watco has grown from a single-location switching operation to a comprehensive service provider with a wide array of offerings.

Today, it operates over 8,000 miles of track in North America and Canada, and is positioned as one of the largest short line operators in the United States. The company epitomizes innovation, customer focus, and a commitment to operational excellence. 

In addition to its rail operations, Watco manages and often owns more than 70 transload and marine terminals. Watco also specializes in the repair and maintenance of railcars and locomotives, operating several terminals dedicated to these critical services.

In 2024, the company added its 46th short line, the 3-mile Verdigris Southern Railroad (VESO) which serves the Port of Inola in Oklahoma.

Under the leadership of Chief Executive Officer Dan Smith, Watco is powered by a dedicated workforce of approximately 4,800 employees. The company achieved a remarkable financial milestone in 2022, generating $1.6 billion in revenue. 

With a diversified portfolio that spans freight transportation, terminal and port services, and mechanical services, Watco stands as a vital player in the supply chain industry.

Blue Ridge Southern SD40-2R #4202 leads train T31 as it heads to Canton from Asheville, North Carolina with woodchips and other products during August of 2014. Mike Derrick photo.

History and Evolution

Watco started its journey with a modest switching operation at a single location. Over the past several decades, it has dramatically expanded its services and footprint.

The company's growth strategy has been robust, involving strategic acquisitions, partnerships, and the development of new service lines.

The Watco Companies, better known as simply Watco, has expanded into related fields beyond just rail services. For instance, the company's railroads are operated under its Watco Transportation Services arm while other divisions offer such things as contract switching, rail car repair, and business development.

Watco began as a humble operation in 1983, launched by Charles “Dick” Webb to provide industrial switching for a local customer in DeRidder, Louisiana.

The company's expansions took off rapidly from there as a rail car repair service opened in Coffeyville, Kansas a few years later. Around the same time Webb came to an agreement with Union Pacific to acquire a large segment of former Missouri Pacific trackage from Coffeyville, Kansas to Nevada, Missouri, which turned out to be the Class I's first short line sale.

Today, this trackage is part of Watco's much larger South Kansas & Oklahoma Railroad that passes through its headquarters in Pittsburg, Kansas.

There was a flurry of more acquisitions in the 1990s as it acquired the Blue Mountain Railroad along with the Palouse River & Coulee City Railroad in 1992; Eastern Idaho Railroad (1993); and in 1998 launched the Stillwater Central Railroad and Timber Rock Railroad.

All of these acquisitions were startup short lines utilizing trackage shed from the large Class I's. This philosophy continued into the 2000s when Watco's new subsidiaries included:

• Kansas & Oklahoma Railroad (2001),
• Pennsylvania Southwestern Railroad (2003)
• Great Northwest Railroad (2004)
• Kaw Railroad (2004)
• Mission Mountain Railroad (2004)
• Alabama Southern Railroad (2005)
• Louisiana Southern Railroad (2005)
• Mississippi Southern Railroad (2005)
• Yellowstone Valley Railroad (2005)
• Austin Western Railroad (2007)
• Baton Rouge Southern (2008)
• Pacific Sun Railroad (2008)
• Grand Elk Railroad (2009)

Watco's growth has not subsided into the 2010's as it went international in 2010 operating a short line in Western Australia with operations commencing in March of 2012.

It has also continued to expand domestically by acquiring or taking over the following railroads:

• Autauga Northern Railroad (2011)
• Swan Ranch Railroad (2011)
• Controlling interest in the large regional Wisconsin & Southern (2012)
• Pecos Valley Southern (2012)
• San Antonio Central (2012)
• Blue Ridge Southern (2014)

The company's second notable acquisition of a historic short line came about in January of 2013 when it took over the remnants of the Ann Arbor Railroad between Ann Arbor, Michigan and Toledo, Ohio.

In May of 2016 it announced another new startup, the Kanawha River Railroad launched in July of that year. The corridor totals 309 miles of former New York Central and Virginian trackage from Refugee, Ohio (just southeast of Columbus) to Alloy, West Virginia with another section between Cornelia, West Virginia and Mullens, West Virginia (ex-Virginian).

Today, the Watco Companies' rail operations total more than 8,000 miles via 46 different railroads. The two most notable properties in its family mentioned above is the Wisconsin & Southern and Ann Arbor.

The W&S has a history tracing back to its chartering in 1980; at the time the bankrupt Milwaukee Road was attempting to scale back its extensive secondary trackage across the Midwest.

In hopes of preserving service across the state's southeastern region Wisconsin purchased many of these lines, which were subsequently leased to the W&S. Since then the Class II has blossomed into a 700+ mile system handling more than 60,000 annual carloads while serving Oshkosh, Prairie du Chien, and Madison with trackage rights into Milwaukee and Chicago.

Without the state's and W&S efforts these lines would most likely have been abandoned, a true testament to their potential and the unfortunate time period the railroad industry dealt with during the 1970s.

While much smaller the Ann Arbor has a history dating back to its creation in 1895 by combining a number of smaller roads running diagonally across Michigan from the southeast to northwest.

The "Annie," as it was affectionately known, grew into a 291-mile system connecting Toledo, Ohio with Frankfort, Michigan where carferry service (reaching Menominee, Kewaunee, and Manitowoc, Wisconsin) across Lake Michigan provided it with much of its freight traffic.

The railroad was somewhat unique in having no feeder or branch lines although it did interchange with several larger systems. Over the years the AA came under the ownership of different railroads, first the Wabash and later the Detroit, Toledo & Ironton (a Pennsylvania subsidiary).

Sinking freight resulted in its bankruptcy in 1974 and via DT&I ownership it wound up as part of Conrail in 1976. The state acquired the section from Toledo and Ann Arbor while another large segment north to Yuma was later purchased by the Great Lakes Central Railroad (the rest to Frankfort was abandoned).

In addition to its main line operations, Watco also contracts or operates 70 terminal/switching operations. While most other other short line conglomerates are involved in this field to some capacity none operate such a number quite reaching Watco's involvement.

In 2014 it launched a joint venture with The Greenbrier Companies, known as GBW Railcar Services, LLC, offering the most rail car service centers throughout North America (totaling 38 shops). The company is composed of four different divisions: transportation, mechanical, terminal/port services, and compliance.

Service Offerings

**1. Freight Transportation**

Watco's core service offering is freight transportation, primarily through its extensive network of short-line railroads. The company operates over 8,000 miles of track across multiple states in the U.S., making it one of the largest short-line railroad operators in North America.

Watco's rail services are customized to meet the specific needs of various industries, including agriculture, mining, energy, manufacturing, and more.  Key aspects of Watco's freight transportation services include:

- **Short-line Railroads:** These are localized rail lines that connect with larger national networks, providing crucial last-mile delivery solutions.

- **Railcar Switching:** The company offers switching services to enable efficient, on-site movement of railcars at industrial facilities.

- **Railcar Storage:** With extensive storage facilities, Watco provides secure storage solutions for railcars.

**2. Terminal and Port Services**

Watco's terminal and port services are integral to its comprehensive transportation solutions. These facilities enable the efficient transfer of cargo between different modes of transport, such as rail, truck, and ship. Watco operates numerous terminals and port facilities across North America, each designed to handle various types of cargo, including bulk commodities, breakbulk cargo, and containers.

Key services offered at Watco terminals and ports include:

- **Loading and Unloading:** Expertise in handling and transferring cargo to and from railcars, trucks, and ships.

- **Storage Solutions:** Providing both short-term and long-term storage options to meet diverse customer needs.

- **Logistics Management:** Advanced logistics and supply chain management services that enhance efficiency and reduce costs.

**3. Mechanical Services**

Watco's mechanical services division supports the operational efficiency and safety of its rail operations. This division offers a range of services, including railcar repair, maintenance, and refurbishment. Watco operates several mechanical shops equipped with state-of-the-art technology to handle various types of railcars and locomotives.

Key mechanical services include:

- **Inspection and Repair:** Thorough inspections and prompt repairs to ensure railcars and locomotives are in optimal condition.

- **Maintenance Programs:** Customized maintenance programs that enhance fleet reliability and reduce downtime.

- **Railcar Refurbishment:** Extensive refurbishment services to extend the useful life of railcars and improve their performance.

Kansas City Terminal Railway GP38-3 #3855, operated by Watco's Kaw River Railroad. Warren Calloway photo.

Holdings

An interesting mix of power leads this Wisconsin & Southern train on the Oshkosh Branch near Brandon, Wisconsin on July 11, 2002. Mike Derrick photo.

Today

Watco Companies, LLC stands as a cornerstone in the transportation and logistics industry. With its comprehensive service offerings, commitment to innovation, and unwavering focus on safety and sustainability, Watco continues to set industry standards and deliver exceptional value to its customers.

As the company looks to the future, it remains dedicated to driving growth, fostering innovation, and making a positive impact on the communities it serves.