WASHINGTON -- A restaurant I knew and liked recently closed its doors, writes Lawrence Kaufman in a Journal of Commerce Online editorial. That's too bad, because I liked the food, and the prices were competitive with other restaurants in the area whose menus weren't as venturesome and whose food I didn't think was as good.

What has this got to do with short-line railroads?

Well, a lot of short lines are going to go the way of this restaurant over the next few years. Their customers, like me, will mourn that the service was good and the prices were competitive, but in the end they will be forced to make other arrangements to move their goods, just as diners must find new restaurants.

The same could be said for shoe stores, gasoline stations - any business that passes from the commercial scene.

Short-line proponents like to point out that they are in the same industry as their larger brethren, the trunk line railroads. Their rails are the same gauge, only their length is different, they say. But, there are other differences.

Many short lines, particularly those created in the last couple of decades since the railroad industry was substantially deregulated, exist only because the Class 1 carriers used the freedom they obtained through the Railroad Revitalization and Regulatory Reform Act of 1976 and the Staggers Rail Act of 1980 to shed themselves of losing branch lines. They weren't economically viable then and they aren't now. They continue to exist because they effectively have been subsidized by the Class 1 connections.

Smaller railroads that existed prior to that time generally had specific traffic bases that caused them to have economic viability.

More recently-created short lines have had to make do with the same traffic base that was insufficient to justify a Class 1 keeping the line. Their seeming advantage was that they had lower operating costs than the former operators. They frequently were nonunion operations and had work rules that allowed them to be profitable where the Class 1 wasn't.

My union friends say labor was subsidizing them.

The typical short line relies on its former owner for car supply and to set prices. The idea was that by spinning off the unprofitable retail, local gathering and distribution function, the Class 1s would rid themselves of the high-cost part of the business, and would retain the profitable line-haul revenue they need.

The situation is changing, however, as Class 1s scour their books to find ways of shedding costs. Many have determined that the cost of servicing many of their short-line connections exceeds the contribution they receive from the line-haul revenue. That's sort of like saying: "We lose money on each unit, but we make it up on the volume." That's voodoo economics.

So, Class 1s increasingly are adopting a harder line with their short-line connections. When they provide rolling stock, they want the rates to be high enough to cover the cost of the cars.

Class 1 railroads are rapidly adopting the 286,000-lb. standard for their covered hopper and open-top hopper fleets. Most short lines' infrastructure cannot handle cars of that weight, leaving them between the proverbial rock and a hard place. The efficiencies of the heavier loading cars for the trunk lines is such that they can give shippers a rate that, in the case of grain, encourages trucking to a mainline point and transloading. Few short lines have balance sheets that allow for upgrading their lines on their own.

There still is a lot of cooperation between Class 1s and their short-line connections. In a three-way deal, some big railroads are financing line upgrades for the shorts in exchange for long-term contracts with key shippers on the short line. Most notable was the recent arrangement among Canadian National, the Columbus & Greenville in Mississippi, and a large catfish farm that receives trainload quantities of grain. Other Class 1s have similar arrangements.

At the same time that Class 1s are looking anew at their arrangements with short lines, they are about to offer the short lines thousands of additional miles of branch lines. Many will be leased at prices as low as $1 a year, on the theory that the big railroad already has written down the asset and if the operator is spared a capital burden, the line may be operated profitably. After all, the Class 1 needs all the revenue it can find. Getting rid of branch lines and their revenue is like trying to cut your way to prosperity: It doesn't work.

Unrealistic valuations made by short-line holding companies when many small railroads were created in the early 1990s is part of the current problem. In the rush to go public, the holding companies were stimulated to show rapid growth to would-be underwriters and investors. This led to unrealistic bidding for branch lines. That's not likely to happen this time.

Some Class 1 railroads are considering creating more rolling stock pools. If car utilization can be increased and the load-to-empty ratios of cars on line improved, significant operating costs can be taken out of the system. This will contribute to keeping many short lines economically viable for a while longer. In the long run, however, just as with restaurants and other retail businesses, short-line railroads either will have to be profitable for themselves and the connecting trunk lines or they will go out of business.