Late dieselization = better financials?

[beaulieu]

A point to consider is what was the newest steam power bought by a railroad, for example for SR their main freight power was Mikado and Santa Fe types, certainly nothing like the C&O, N&W, and NKP was operating. The tight tunnels on the CNO&TP's Rathole district meant that the Santa Fe types could not be used, inspite of the grades.

The railroad I am most familiar with is the Soo Line. With the exception of 4 Northern types their steam locomotive fleet was all built by 1930, and the majority by 1920. Many of their secondary mainlines could not operate even the more powerful of the Mikado types. The Soo Line and its vassal the Wisconsin Central went bankrupt during the Depression, the Soo Line emerged in 1944, the Wisconsin Central not until 1954. Road dieselization started in 1947 on the Soo Line, and 1948 on the Wisconsin Central. The two railroads completed dieselization on February 15th 1955. A handful of excursions were operated after that date (one each year). The last excursion operated by the Soo Line ran in 1959 .  It was the Wisconsin Central, leased but not fully controlled by the Soo Line that caused the full dieselization in 1955. The original plan was to finish in 1960 as the last batch of steam locomotives came due for overhaul. Likely the recession of the late '50s would have brought the date forward by at least a year. In any event Abraham Watner, an investor and member of the Board, was the driving force behind the WC's final dieselization. He was not on the Soo Line Board. At the time the Soo Line was the largest institutional investor in the Wisconsin Central, and was operating it by lease, but it did not control enough of the stock to control the company. Once the Wisconsin Central Board made its decision the Soo Line Board followed and increased its own 1954 diesel orders. The delivery of these locomotives by January 1955, ended the real steam era on the Soo.

[doghouse]

My thinking is that it might not have been a question of when you dieselized but how quickly you adapted and adjusted to diesel as apposed to steam.

[Murphy Siding]

Kevin C. Smith

    There has seemingly always been a debate if the industry (or an individual company) dieselized "too fast". There are so many variables, though, that I don't know if we can ever find the answer or, if we do, they anyone could really fault the people responsible at the time. Among others to consider:................     ................ No wonder we still can't figure out if "they" were "right" or not. As mentioned above, there are a few threads that explored this in a bit more detail. Be sure to wear goggles and appropriate safety gear.

 

     I remember those shouting matches.... discussions.  What I got out of them, was that the railroads weighed the options, and decided that buying new diesels on credit would save enough money to cover scrapping fairly new steam locomotives.  It made sense to me.  The Boeing 707's probably sent a lot of prop. airliners to early retirement as well.

     Overlooking when, or at what rate, and for what reasons the railroads switched over diesel,  did those that dieselized reletively late enough to find themselves with a roster of new GP7's have an advantage competing against those that had FTs, Fs, ALCOs, Baldwins, Lima-Hamiltons, etc?

[Murphy Siding]

ICLand

And close to home there is the C&NW.  Not in good financial condition until Heineman and then rapid completion of dieselization and a move toward profitability.

 

Well, don't give old Ben too much credit. It was a definite train ride while he was on board, but a few numbers put his first 13 years in perspective:

Operating Ratio, Freight, Average 1950-1956:  72.9

1956, Ben Heineman becomes President of the Chicago & North Western.

Operating Ratio, Freight, Average 1957-1970: 79.5

For the record, as far as operating ratios go, 79.5 is a considerable deterioration from 72.9.

This roughly coincides with the period of dieselization and the period after dieselization as well, but its hard to tell what that means in the case of the North Western.

     There's an interesting subject.  Perhaps you could start a thread on that.  You seem to have some interest and opinion on it.

[schlimm]

Murphy Siding

 

Overlooking when, or at what rate, and for what reasons the railroads switched over diesel,  did those that dieselized reletively late enough to find themselves with a roster of new GP7's have an advantage competing against those that had FTs, Fs, ALCOs, Baldwins, Lima-Hamiltons, etc?

 

That seems like a more answerable question at first glance, especially if starting later allowed a railroad to avoid the "lemons" of whichever manufacturer.  A list of generally agreed on bad engines might be worth coming up with in a Trains article.

[SALfan]

beaulieu

A point to consider is what was the newest steam power bought by a railroad, for example for SR their main freight power was Mikado and Santa Fe types, certainly nothing like the C&O, N&W, and NKP was operating. The tight tunnels on the CNO&TP's Rathole district meant that the Santa Fe types could not be used, inspite of the grades.

Southern Rwy. bought their last new steam locomotive in 1928.  They bought a few FT's for passenger and freight service before World War II, and I don't know about diesel purchases during the war, but at war's end their fleet was pretty tired.  That is probably one of the big reasons for SR's early dieselization. 

(I'm no expert and this is all from memory, so corrections are welcome.)

[ICLand]

SALfan

 

 

Southern Rwy. bought their last new steam locomotive in 1928.  They bought a few FT's for passenger and freight service before World War II, and I don't know about diesel purchases during the war, but at war's end their fleet was pretty tired.  That is probably one of the big reasons for SR's early dieselization. 

Illinois Central purchased large numbers of steam engines as late as WWII. By 1955, IC had this breakdown of steam purchases:

1920-1924: 211

1925-1929: 257

1930-1934: 78

1940-1944: 20

This compares with the Southern Ry numbers, and CNW's are as follows:

<1919: 174

1920-1924: 62

1925-1929: 7

1935-1939: 4

CNW was dieselizing more rapidly than IC, but it also had a considerably older Steam fleet than IC.

Digging out some old studies, I see that in the past I have estimated inventory costs for locomotive fleets, based on EMD cost estimates, at about 7/10ths of 1% of the overall operating cost of a given fleet of diesel-electric locomotives. In comparing the inventory cost of an older FT fleet with the estimated costs of a relatively new EMD fleet, the cost was just about the same. For locomotives for which the manufacturer had gone out of business, the costs weren't that different because those parts peculiar to any given machine were either overhauled in-shop anyway -- rewiring, rewinding traction motors -- easy to machine (piston rings), or available from an original supplier (bearings).

One of the advantages of the diesel-electric is that commonality among things that need to be replaced is quite high because locomotive manufacturers, as part of their own inventory control, use third party items heavily -- things such as bearings and gasket materials. A traction motor may be a unique design, but the parts in it generally are not.

I do note that for those items that needed to be custom fabricated because of loss of supplier, the cost of in-house manufacture was approximately 3 times the cost of the equivalent part.

Now, the original question. Did late dieselization provide a competitive advantage?

Well, if the point of dieselization in the first place was to lower costs substantially enough to justify the change, then presumably a railroad that dieselized earlier gained a competitive advantage over railroads that dieselized later.

That was the whole point, wasn't it, of Dieselization?

So, would the very small cost of inventory provide a competitive advantage for a railroad dieselizing relatively late in the game (and therefore benefiting from the more homogeneous inventory resulting from more homogeneous fleets)?

The question raises several assumptions, the primary one being that the parts necessary to maintain in inventory are, in fact, different because they are from different builders and that this requires a larger overall inventory. I can't find that in the statistical record that I have been able to review. In large part, that is because the parts inventory is based on perceived need, which in turn is based on fleet size, not fleet disparity. 

You might want to keep five traction motors on the shelf for every 20 locomotives that operate out of your roundhouse.  And you might have 20 Baldwins, 20 Alcos, and 20 EMDs operating out of the roundhouse. Well, you keep 15 traction motors in your inventory. They may be of three different types, but the cost of rewinding them on the electrical bench is roughly the same. The guy that rewinds the motors gets the same rate of pay regardless of who originally manufactured the traction motor. And the copper windings are still copper windings.

The fleet changes to 60 EMD units. You still keep 15 traction motors on the shelf. The "cost" of the inventory remains the same.

The advantage, if all else is equal, if the theory of Dieselization was correct, would have to go to the railroad that dieselized first, rather than the railroad that dieselized last because the railroad that converted first received the full economic benefits of Dieselization earlier, and therefore gained profitability at a faster rate. [Edit: this likewise invokes a presumption, that Dieselization did, in fact, reduce operating costs of the motive power fleet. I understand there are studies that suggest this is not true. The assumption is made, here, that it is true for the purpose of discussion and not to start an argument about it].

Too, a cost of conversion related to the timing of any conversion was the financing cost. CNW converted when interest rates were perhaps averaging 2-2.5%. IC converted at an average interest charge of perhaps 3.5-4.0%. That is, interest rates in the early 1950s, of about 1.5%, steadily increased during the 1950s and continued to do so into the late 1970s when they finally reached 16% on motive power purchases. The later the purchase, the higher the carrying cost.

So, the late converter from the standpoint of Dieselization incurred an interest penalty that was far greater than the entire percentage cost of maintaining a locomotive parts inventory. 

I won't argue that Operating Ratios show any of this, not clearly at least, because too much else was going on at the same time, but the Operating Ratios by themselves emphatically do NOT support the idea that a competitive advantage was gained by late dieselization.

Operating Ratios:

CNW, a railroad that converted relatively early:

1953: 85.9

1966: 77.6

IC, a railroad that converted relatively late:

1953: 72.8

1966: 78.7