You wouldn't think that a railroad company could generate much business with just seven miles of rail line, but Sacramento Valley Railroad is riding a steady growth track.

Sacramento Valley – known as SAV for short – has 20 customers at McClellan Business Park. It carries cargo between these businesses and the big, long-haul rail lines run by Union Pacific and BNSF Railway (formerly known as Burlington Northern Santa Fe Railway).

Since winning a 20-year contract to operate at McClellan in March 2008, SAV has seen its business jump from handling 2,928 goods-laden railcars in 2009 to 6,095 last year. This year, SAV is aiming for 7,500.

"We've done well even when others have been struggling," said Richard McGowan, SAV's general manager and a third-generation railroad man.

Short line railroads in the United States have undergone a dramatic change over a generation, starting with the Staggers Rail Act of 1980, which was intended to make U.S. railroads more competitive by easing government regulation.

Among many other changes, the law made it easier for large railroad companies – so-called Class 1 operators with annual revenue of $250 million or more – to sell or lease their short line operations.

They were snatched up by smaller rail companies or holding companies, which had lower overhead costs and could operate the specialty lines at a profit.

One of those holding companies is Boca Raton, Fla.-based Patriot Rail Corp., parent of SAV.

"The Class 1 focus is more on the major customers, the big manufacturers and coal customers," said Stan Wlotko, Patriot's senior vice president of operations. "The short line (operators) can concentrate on freight and customer service in their own areas."

Patriot is a relative newcomer, having been founded in 2006, but it has expanded aggressively and now owns and operates 13 short line railroads, comprising 500 miles in 12 states. Last year, Patriot purchased six lines from Weyerhaeuser Co., effectively doubling the size of the company.

At McClellan, Sacramento Valley Railroad has grown by meeting the specific needs of tenants at the business park. More than a third of SAV's business involves ethanol fuel, brought in from the Midwest by UP and BNSF. SAV delivers it to McClellan, where it is loaded onto fuel trucks for transport to widespread destinations.

But ethanol is just part of the mix. Other goods include fly ash for concrete products, paper, pumice, food products (including tomato paste), lumber, petroleum products and metals.

SAV's presence allows for multitasking among companies.

For example, Hydra Logistics Group is a rail receiving, warehousing, storage and trucking company at McClellan. With SAV's help, it offloads lumber and paper components that ultimately will be turned into cardboard boxes by nearby Sacramento Container Corp.

In turn, Hydra collects scrap paper on-site and throughout the region. The scrap is loaded and shipped to mills in the region and Mexico.

"(SAV) has been very good for our business. We enjoy their services," said Ralph Peck, vice president of Hydra. "We're doing almost 100 cars a month. That's up from 300 a year … The interchange (services) with UP and BNSF allow us to cater to Fortune 1000 companies, which is a big benefit."

Larry Kelley, president of McClellan Business Park, said SAV has helped boost the park's profile.

"It has been very beneficial to have first-class rail operations here," he said. "Not only for our tenants who need that service, but for bringing new companies to the park who need it.

"It gives us another arrow in our quiver when we talk with companies."

The company's move into the Sacramento market hasn't been completely smooth. The owner of the short rail line that used to have a contract at McClellan has alleged in a federal lawsuit that Patriot used unethical means to gain that new business.

The suit, filed in 2008, alleges that Patriot used confidential business information it learned when discussing a potential purchase of Sierra Railway Co. to get the McClellan contract for itself.

Sierra, based in Davis, is a long-time area short line railway company with 88 miles of track. It runs freight and tourist-oriented trains.

Patriot filed its own complaint, alleging an assortment of misbehavior on Sierra's part, including fraud, misrepresentation and deceit.

The parties are scheduled to go to trial in 2012.

McGowan noted that the past three years have not been without setbacks. He said the lumber segment of the business dropped off dramatically when California's housing market crashed.

Patriot Rail's Wlotko said "the (rail) industry, like every other industry, has had its challenges since the bottom of the recession in 2009 … But we've seen a renaissance in the railroad business, and the industry statistics out there say that business will increase."

David Whorton, a spokesman for the Washington, D.C.-based American Short Line and Regional Railroad Association, agreed that the U.S. rail industry "is starting to experience an upswing. After a significant drop from 2008 to 2009, carloads were back on the rise in 2010 – the first year-over-year growth since 2005-06."

Industry officials say any economic uptick will increase competition among freight transporters of all stripes. Although short line railroads and trucks often work hand in hand, they also compete for the same business.

SAV is not shy about touting its advantages over trucks, including the ability to handle larger loads, better access to some areas and environmental benefits from reducing tailpipe emissions.

McGowan said he's hopeful of expanding operations at McClellan in the near future, including new rail lines and structures. He does not have a specific timetable but said "we have enough business to use the extra space."

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