Katy-UP Merger

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Posted by greyhounds on Friday, August 22, 2008 1:35 AM

True Katy story from my ICG days.

The rail service route from Chicago to Dallas was ICG - St. Louis - SLSF.  If you turned over a TOFC trailer to the ICG in Chicago before 10:00 PM the Frisco would make it available in Dallas by 7:00 AM second morning.  (As an example, if you gave us a trailer by 10:00 PM on Wednesday it was available for delivery in Dallas by 7:00 Friday.)  This was fully truck competitive and beat anything the Santa Fe or MoPac did. We handled a lot of Chicago-Dallas freight.  Katy couldn't compete with the Frisco service out of St. Louis.  But they did have a sales office in Chicago.

A guy in the Katy's Chicago sales office was named Hollem.  He'd always answer the phone: "Katy Hollem." in a loud Texas voice.  He put together a Plan II TOFC rate from Chicago to Dallas that the ICG bought in to.  (Plan II meant that the ICG had to do the truck pick up in Chicago and the Katy had to deliver by truck in Dallas.)  He basically "bought" the frieght by offering a lower price for slower service.

This was something like on trailer per week.  No big deal.  But our operating (God Bless 'Em) guys always got it wrong.  They consistantly delivered the trailer to the Frisco in St. Louis instead of the Katy.  The Frisco then took it to Dallas and delivered it, depriving the Katy of the business that Hollem had sold.  He did not like this.

So every week the ICG had to collect the revenue from the shipper, then pay the Frisco for handeling and delivering the load.  Then we also had to pay the Katy a similar amout as a "Deprived Revenue" claim because we misrouted the load.  Hollem thought we were trying to do something bad to the Katy.  He got downright upset with me.  But, he did understand when I explained that operating people are basically idiots that can't be relied on to actually read instructions.

After several screaming phone calls the mess got straightened out.  Then we went on to the loads for the K Mart distribution center in Corsicana routed ICG - St. Louis - SSW.  The operating guys took a couple months to figure that one out too.

 

 

"By many measures, the U.S. freight rail system is the safest, most efficient and cost effective in the world." - Federal Railroad Administration, October, 2009. I'm just your average, everyday, uncivilized howling "anti-government" critic of mass government expenditures for "High Speed Rail" in the US. And I'm gosh darn proud of that.
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Posted by garyla on Friday, August 22, 2008 2:41 PM

txhiballer: 

About that high-handed General Order to keep MKT units off the lead of any trains: 

It sounds like a warm-up for the UP mergers in the 1990s, and we know how those went, regardless of whose locos were in front.

If I ever met a train I didn't like, I can't remember when it happened!
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Posted by fuzzybroken on Saturday, August 23, 2008 7:36 AM
 greyhounds wrote:

Then we also had to pay the Katy a similar amout as a "Deprived Revenue" claim because we misrouted the load.  Hollem thought we were trying to do something bad to the Katy.  He got downright upset with me.  But, he did understand when I explained that operating people are basically idiots that can't be relied on to actually read instructions.


Hey, revenue is revenue, regardless of where it comes from...  Somebody else did the work, Katy got paid for it!
-Fuzzy Fuzzy World 3
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Posted by fuzzybroken on Wednesday, September 10, 2008 1:54 PM
 doghouse wrote:
 fuzzybroken wrote:

Just want to throw in a technicality here...  MKT was merged into MP; not that it particularly makes any difference, since MP had been a ward of UP since '82.  (Or was it the other way around...?)  The corporate remains of MP actually outlasted CNW...  SP too, though I don't want to get too deep in, uh, technicalities... Wink [;)]

No, no, no, go ahead, Go deep.  Love to hear about the Mopac.


Well, it's not so much a MoPac story as a UP/SP/DRGW story, but I had this posted to my website for a few years...
Union Pacific = Rio Grande?

-Fuzzy Fuzzy World 3
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Posted by doghouse on Wednesday, September 10, 2008 5:31 PM
 fuzzybroken wrote:
 doghouse wrote:
 fuzzybroken wrote:

Just want to throw in a technicality here...  MKT was merged into MP; not that it particularly makes any difference, since MP had been a ward of UP since '82.  (Or was it the other way around...?)  The corporate remains of MP actually outlasted CNW...  SP too, though I don't want to get too deep in, uh, technicalities... Wink [;)]

No, no, no, go ahead, Go deep.  Love to hear about the Mopac.


Well, it's not so much a MoPac story as a UP/SP/DRGW story, but I had this posted to my 

website for a few years...
Union Pacific = Rio Grande?

Nothing wrong with trying to keep as much of your profits as you can.  Incorporating a business in Delaware is just where the 'paper' is kept.  Corporate offices, or where your HQ is, often speaks volumes about you're company.    

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Posted by billio on Wednesday, September 17, 2008 9:32 PM
 Bob-Fryml wrote:

Bob-Fryml wrote, in part:  "During 1988 MoPac acquired the Missouri-Kansas-Texas and Oklahoma-Kansas-Texas for something like $110-million. 

But, here's the clincher:  Ross Perot (?) wanted the land - a full square block, mind you - on which the Katy headquarters building stood along with its adjacent parking lot.  He paid MoPac something like $100-million for that little piece of prime downtown Dallas real estate; so, really, the MoPac gained control of the Katy for not much more "than the price of a song."

A diverging opinion:  Given that the Katy was a junkheap, that it owed far more than was owed it, maybe these factors implied what it was truly worth as a going railway concern. Certainly nobody (from the financial community, anyway) would claim Katyto be worth much more than that.

People tend to look at traffic over the line today and claim, "Looky there at all the traffic running over the line!"  They conveniently forget, or more likely never realized, that without the traffic "feed" from ex-MoP and UP origins, Katy by itself could command little enough traffic, so little, in fact, that it barely got by without entering Chapter 11. Katy's primary assets lay in the points it connected (access to some Dallas shippers, plus a couple of come lately on-line power plants), not in traffic it originated.

I recall as a kid going to family reunions in Grandview, Texas, 40-odd mioes south of Ft. Worth, and seeing the two streaks of (mostly) rust, and virtually NEVER seeing a passing train.  One could have likened it to an empty suit -- a little something to see on the outside, nothing within.

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Posted by SFbrkmn on Wednesday, July 10, 2019 8:42 PM

When was the date of the first UP-Katy merger called off? I want to say this was around New yrs of '86. What conditions lead to the merger being abolished the first time around?

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Posted by MJ4562 on Saturday, July 13, 2019 11:02 AM

What motivated UP to consumate the merger, what were its main benefits?

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Posted by kgbw49 on Saturday, July 13, 2019 8:05 PM

I recall that a large coal-fired power plant that used PRB coal was developed on the Katy, and UP also wanted a direct route to Dallas from Kansas City.

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Posted by jeffhergert on Saturday, July 13, 2019 11:31 PM

SFbrkmn

When was the date of the first UP-Katy merger called off? I want to say this was around New yrs of '86. What conditions lead to the merger being abolished the first time around?

 

For some reason I'm thinking there were some outstanding bonds of some kind still floating around.  I think there was an item in Trains at the time titled something like "Katy's funny pieces of paper" or similiar.  Or maybe I'm thinking of something else.

Jeff

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Posted by ATSFGuy on Sunday, July 14, 2019 11:27 PM

Seems like the Katy-UP merger got reactions from both sides. Some wanted it, others didn’t. I know Katy/Mopac were a lot stronger than RI and didn’t have any labor problems that plauged RI.

Was the Katy struggling a bit shorty before UP absorbed them?

 

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Posted by CSSHEGEWISCH on Monday, July 15, 2019 7:22 AM

ATSFGuy

Was the Katy struggling a bit shorty before UP absorbed them?

That is an understatement of the first degree.  MKT seemed to be on the edge of bankruptcy almost since the end of WW2 and wasn't doing much better before Pearl Harbor.  The board of directors brought in two outside executives (Deramus and Barriger) to try to turn the road around and even the legendary John W. Barriger wasn't completely successful.

The daily commute is part of everyday life but I get two rides a day out of it. Paul
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Posted by MP173 on Tuesday, July 16, 2019 11:32 AM

I pulled my 1980 Moody's Transportation Manual and did a quick review of MKT in 1978 and 1979.

During 1978 MTK generated $136million in revenue, with an OR of 77.3% and net income of $1.9m.  

In 1979 revenue spiked to $166m, the OR fell to 75.9 with $2.8m in net income.

The difference?  My guess in PRB coal began to move.  

In 1978 coal tonnage was 1,048,000 tons with 898,150 originating on the MKT and 150,000 tons coming from another carrier.

A year later MKT hauled 2,482,000 tons of coal with 1,047,000 tons originating and 1,435,000 coming from interlines.  

The PRB coal party was beginning and suddenly MTK was a valuable property.

 

Ed

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Posted by jeffhergert on Tuesday, July 16, 2019 11:35 AM

MP173

I pulled my 1980 Moody's Transportation Manual and did a quick review of MKT in 1978 and 1979.

During 1978 MTK generated $136million in revenue, with an OR of 77.3% and net income of $1.9m.  

In 1979 revenue spiked to $166m, the OR fell to 75.9 with $2.8m in net income.

The difference?  My guess in PRB coal began to move.  

In 1978 coal tonnage was 1,048,000 tons with 898,150 originating on the MKT and 150,000 tons coming from another carrier.

A year later MKT hauled 2,482,000 tons of coal with 1,047,000 tons originating and 1,435,000 coming from interlines.  

The PRB coal party was beginning and suddenly MTK was a valuable property.

 

Ed

 

A company with a OR of 77.3% was considered doing good back then.  Now it would be viewed as being at death's door.

Jeff 

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Posted by MP173 on Tuesday, July 16, 2019 12:26 PM

Jeff:

You are spot on.  But....looking at net income vs revenue ($2.8 / $166) yielded only 1.6% it was still ugly.

I love these old Moodys as you can dig thru the data.  Ihave 1955, 1970, 1971, 1980, 1990 and 1998.

 

Ed

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Posted by kgbw49 on Saturday, July 20, 2019 3:07 AM

A 77 operating ratio on $166 million in revenue would yield an operating income of about $38 million.

Then subtract off interest expense - back in 1978 interest rates on debt were in the double digits - and depreciation expense and local property taxes to get income before taxes.

Federal Corporate Income Tax Rates in 1978 were 48% on net income over $50,000.

https://taxfoundation.org/federal-corporate-income-tax-rates-income-years-1909-2012/

Then subtract off State Corporate Income Taxes.

High interest rates and high income tax rates - that is how you end up with only 1.6% of revenue falling through to the bottom line on what would have been a decent operating ratio at the time.

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Posted by rr1969 on Tuesday, September 03, 2019 10:28 PM

Your about right,The first shift was the Agent.second shift was second shift operator,third was third shift operator which was employed by the mop then you had a swing operator that worked the days off,He worked 1 for the Agent because the agent was a 6 day position then 2 days for the 2nd shift and 2 for the 3rd shift,I went to work for the Katy in April 1969 and came to Durant in 1971 or 2 I worked at Durant almost up to the Merger.I worked the 2nd and swing job but also was the Agent for 10 plus years,Right before the merger i went to Ray yards as a clerk then shortly after the merger people were being moved to Omaha and St Louis,I bided on the agents job in Chickasha and stayed there for about 7 years it was the last agent job to go that i know of,I was furloughed for about 6 months with pay then recalled with choice of Omaha or North Platte NE,I took North platte and on arrival at North Platte i started putting in for Management Positions and one month later was awarded a Syo position at Mockingbird (Dallas) for a year then the MYO position at Chico texas for about 10 years then the MYO at Ney Yard then over to Supt Office until retirment in 2009 with 40 years and 3 months,Before coming to Durant I worked all up and down the Cherokee Sub Muskogee North and the Choctaw Muskogee south on the Operators Extra Board

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Posted by SD60MAC9500 on Wednesday, September 04, 2019 12:05 PM

fuzzybroken
  greyhounds wrote:

Then we also had to pay the Katy a similar amout as a "Deprived Revenue" claim because we misrouted the load.  Hollem thought we were trying to do something bad to the Katy.  He got downright upset with me.  But, he did understand when I explained that operating people are basically idiots that can't be relied on to actually read instructions.


Hey, revenue is revenue, regardless of where it comes from...  Somebody else did the work, Katy got paid for it!

 

 

Fuzzybroken.. Katy got paid, but ICG incurred additonal cost it didn't need to if instructions were read correctly...If you were running said service would you have said your same statement?

Rahhhhhhhhh!!!!
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Posted by MP173 on Wednesday, September 04, 2019 2:17 PM

rr1969:

What services did an agent perform?

 

I have a wonderful old book - The Station Agent's Blue Book which is a textbook for agents.  Lots of back office type stuff such as bills of lading, tariffs, accepting freight, OSD, freight claims, etc.  

The book ($10) was distributed by "The Order of Railroad Telegraphers Education Bureau".

What services did you perform in your era.

BTW...I had a similar position in the LTL trucking industry from 1980 - 1990 before leaving the industry.  I handled rates, claims, etc.

 

Ed

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Posted by Deggesty on Wednesday, September 04, 2019 3:56 PM

Station agents were not only railroad agents but also Railway Express agents. I remember watching the agent in my home town pepare a remission to the REA; after placing it into an envelope, he took sealing wax, melted it over two or three spots on the back, and pressing a seal on each blob of wax. I do not remember just what he sent, whether ther was cash or just paperwork.

Johnny

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Posted by BaltACD on Wednesday, September 04, 2019 6:14 PM

Deggesty
Station agents were not only railroad agents but also Railway Express agents. I remember watching the agent in my home town pepare a remission to the REA; after placing it into an envelope, he took sealing wax, melted it over two or three spots on the back, and pressing a seal on each blob of wax. I do not remember just what he sent, whether ther was cash or just paperwork.

Agents - in the day was the railroad contact person in a community.  Virtually any function that a resident or business in a community wanted to contact the railroad about would go to and through the Agent.

Remember 'in the day' telephone service was not universal and long distance telephone service was not a simple or cheap undertaking.  Agents were 'The Railroad' as far as the local community was concerned.

Depending upon the station, the agent was part logistics manager and part travel agent.  The agent would relay the car and other needs of his freight customers to the appropriate operating and/or accounting department and follow the issues through to resolution. 

On the passenger side the agent was expected to be able to properly rate and ticket the needs of the customers that walked through the door.  That could be Aunt Maude going to the next station to visit her sister or the local factory Chief Executive that needed to go to Washington DC to iron out issues between his company and the government in his efforts to support the war effort.  Or it could be the factory's #2 official that needed to go to the other coast to check out production of the company's other factory and needing to go to Chicago on coach to connect to a Western Carrier's streamliner to the other coast in Pullman; with a return scheduled for two weeks after arrival on the other coast but returning via Pullman on another route than the outbound trip.

Not all stations were served by Railway Express Agency and for most Agent's REA was was a very small slice of their day, for which they would get a few dollars commission on the REA shipments they handled.  However, at some locations, the REA business far outstripped the railroad business.  At one agency I trained at, the Agent had given up his regular Train Dispatcher's job to bid in the Agent's job after his father retired.  The particular agency handled the REA business for the Naval Ammunitation Depot at Crane, IN (during the build up for Viet Nam) - and they did a lot of REA business, both inbound and outbound - the REA commissions amounted to a little over three times the jobs railroad rate of pay.

As communications improved across the country - the Agent became just another employee to be told his job function at his location was no longer needed and he was also no longer needed. 

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