UNION BRIDGE, MD. -- The Maryland Midland Railway has its headquarters in a Victorian red-brick building that once served as a station for the Western Maryland Railway.

Inside, the building looks much like it did at the turn of the century.

In October, the line handled 539 carloads, an increase of almost 37 percent from October 1986. The same figure holds for the first 10 months of the year.

"In the last two or three years, we've had a phenomenal amount of success," said Paul D. Denton, company president, who reports cargo and revenue growth of about 25 percent in each of the last two fiscal years.

The railroad owns 37 miles of former Western Maryland mainline from Westminster in the east to Highfield in the mountains in the west. It bought the line from CSX for $1 million in 1983.

Maryland Midland also operates trains on 17 miles of state-owned track from Taneytown to Walkersville, just outside Frederick.

The railroad is small, but represents one of many growing regional roads across the country.

The major railroads are drastically cutting the amount of track they own and operate. CSX owned about 25,000 miles of track in 1980. By 1990, that number will be cut by about 40 percent.

Until recently, tracks given up by railroads were abandoned. But entrepreneurs have created a market for these tracks.

Under a new marketing and operating strategy, the major lines operated a trunk system, with smaller, independent companies feeding freight to them, much like the major air carriers and the commuter airlines.

In 1983, 16 regional railroads were created with 330 miles of track. Two years later, 28 new roads emerged with almost 2,700 miles of track. As of Oct. 15, 29 more regional roads were started with 5,800 miles of track.

The new lines have two advantages over well-established companies. They know their communities and often provide better service, and they can operate more cheaply with lower wages, smaller crews and greater flexibility.

Maryland Midland has been successful in finding new business. When Denton quite CSX a year ago, a Union Bridge cement plant accounted for 90 percent of the line's business. That number is down to 80 percent this year, he said.

"We are close to our customers," said Denton, who has a background in marketing and finance with CSX. "We consider one car a train if a customer needs it."

Maryland Midland also has no union. The two-person crews are half the size of those on the major lines.

The company is considering expanding. Another 12 miles of track from Westminster to Glyndon in Baltimore County will be added next year. That will give MM access to CSX on the east, so that MM trains will not have to climb the mountain grades west of Thurmont to link with CSX at Highfield.

The line also hopes to buy the CSX line from Hagerstown to Fairfield, Pa., about 7 miles south of Emmitsburg, allowing it to connect with Conrail and Norfolk Southern. Denton said he is thinking about running passenger ski service from Baltimore to the Ski Liberty resort.