Late dieselization = better financials?

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Late dieselization = better financials?

  •      A couple places I've read  about railroads switching from steam to diesels made me wonder about something.  Illinois Central and Norfolk & Western were two of the last Class 1's to dieselize.  The reasons given, are that they were both big coal haulers, so it made financail and political sense to do it that way.

         By delaying the inevitable switch, did they unkowingly give themselves a financial boost, compared to other Class 1's at the time?  

         Other railroads were scrapping steam locomotives that were not at the end of their economic lifespans.  Some were reletively new by comparison.  That cost would have been a financial write-off. 

         Because there was a such a rush to buy diesels after WW II, it appears that some railroads purchased whatever they could, from whomever they could.  That would have led to higher maintenance costs,  moreso later,  when some builders disappeared.

         Because IC and N&W started late, they were able to choose from later model locomotives whose bugs had been worked out, and were able to purchase fleets of locomotives from a single source,  streamlining maintenance issues and cost.  I think both railroads jumped right in with GP7's and the like.  Compare that to PR and NYC, each of which must have had at least one make and model from every builder out there.

         Did late dieselization give IC and N&W a leg up on the competition?  Did it have any lasting effect on their financials?

        

    Thanks to Chris / CopCarSS for my avatar. Otherwise I, too would be in the Lego Witness Protection Program

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  • Those that dieselized first needed the economies that the diesel provided.  Those that dieselized last had enough financial support that they could afford the extra cost of maintaining steam.  Since those that used steam last, were in better financial status to start with....they would be in better financial status after the switch.

    Never too old to have a happy childhood!

  • Interesting thesis there, Murphy.   Without a lot of deep thought or research, I'd be inclined to agree, for the reasons that you set forth. 

    Further, John Kneiling liked to point out that it was an outfit with no money - the New York, Ontario and Western - which was the first significant railroad to dieselize.  And one of EMD's founders - either Dick Dilworth or 'Boss' Kettering, I can't remember which - used to say, when asked about how powerful their diesels were, that "I reckon they were powerful enough to pull several railroads out of bankruptcy !".  And remember Henry Ford's aphorism that "Pioneering don't pay". 

    - Paul North.  

    "This Fascinating Railroad Business" (title of 1943 book by Robert Selph Henry of the AAR)
  • Murphy,

    You have a subject for a PhD Economics paper. 

    There were well over 100 Class I carriers at the time each with different traffic, financial, and steam fleet characteristics.  You are correct about many of the early adopters being in such a rush that they bought anything diesel.  PRR stands out in this regard and they got some real lemons.  The thing is no one knew when the early purchases were made what manufacturers, engines, control systems, and traction motors were the best or the worst.  Some experimentation was necessary.  While the pioneers bore those costs, they also got the benefits first, even if the benefits were diluted by having a diverse fleet.

    Then there are others, Michael Sol comes to mind, who argue that dieselization had a negative financial impact.  This line of thought is based on the fact that the carriers incurred substantial new debt to acquire diesels.  My personal opinion is that while the debt was a fact, the steam locomotive required a huge amount of labor to keep operational.  Think roundhouses and huge shops for openers.  Then think about the hidden infrastructure costs of fuel and water facilities and all the labor required to man and maintain them.  Most railroads had a "water service" department just to build and maintain the water supply. 

    The diesels certainly reduced the head count in many areas of the railroad.  I do not believe any carrier would have survived the post WW II inflation of labor costs had they not been able to reduce the head count through dieselization.  That N&W was able to stay steam as long as they did is a tribute to the fact that they had a very simple fleet, three main line classes, they managed and maintained the fleet very well, and litterally sat on mountains of the best steam coal in the country, if not the world.

    Mac

  • Thought:  N&W and IC were both dieselized at about the same time, but I suspect the reasoning was different.   I think IC would have dieselized sooner if it could have afforded to.  It wasn't one of those making-money-hand-over-fist lines like N&W was, and it was buying diesels for passenger and yard service very early on.  IC's freight service was dieselized with GP7s and GP9s; N&W used GP9s and RS11s.


    Another thought--it didn't take much to dieselize N&W--keep in mind that it was much, much smaller than IC at the time (or at least more compact).


    C&O and B&O were two very different railroads that seemed to dieselize at about the same time.  They made that final sprint to total dieselization in about the same way--lots of GP9s.  But C&O had started a little later.  


    The Southern Railway System dieselized early--maybe that was one of the railroads that got pulled out of bankruptcy.  Hard to believe, but MP was a chain of bankrupt railroads well into the 1950s, and its dieselization looked more like ICs than like N&W.


    How does one explain GTW?  It got some F3s, but didn't do much about getting rid of steam until the mid- and late 1950s--its passenger engines were GP9s (just like N&W!),  Steam was finally banished with GP18s for the main line and SW1200s for branch lines (the yard jobs were dieselized pretty early on).  It presumably came under CN's umbrella, and CN wasn't showing that many big returns for its government.


    I don't really know what to conclude about why and when railroads dieselized relative to each other, but  I suspect that it was done on profitable railroads (most of them) when it became more eexpensive to keep steam than to make the investment in diesels and their technology.  Less profitable railroads just did as much as they could, whenever they could.

    Carl

    Railroader Emeritus (practiced railroading for 46 years--and in 2010 I finally got it right!)

    CAACSCOCOM--I don't want to behave improperly, so I just won't behave at all. (SM)

  • 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.

  • schlimm

    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 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:

    • Investment cost: New diesels meant new financing and new facilities; steam shops were already "bought and paid for" but that didn't mean that new generation steam locomotives could be serviced entirely in old facilities.
    • New diesels had to be bought, not built - fewer employees and shops needed to do that but more financing costs. Steam could often be built in house - it saved on financing costs but meant retaining the large shops and forces.
      Maintenance: New locomotives (steam or diesels) are going to need less maintenance. When they do, though, how soon and what would it cost?
      Fuel cost/supply: Oil was cheap and getting cheaper. Coal was getting more subject to labor costs & disruptions.

         All these had costs. Now, as a railroad executive at the time, pick any year from 1946-1960, collect all the data you could about interest rates for new financing, depreciation of your existing assets, fuel costs, labor rates, types of traffic, line profiles, plus a load of other factors to consider. Then sort it all out to get a snapshot of what your options are and what looks like the "best" option to take. Then, remember that your data is already obsolete and your projections are subject to any change (foreseen or not) in union proposals, fuel costs, interest rates, stock markets, traffic levels...and it all changes relative to what your competitors are doing at the same time.

         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.

    "Look at those high cars roll-finest sight in the world."
  • You used operating freight ratio.  However, the overall performance is best seen in operating ratio for the railroad.  1950-56 average = 86.4;  1957-1970 = 83.6.  Only a slight improvement, but certainly not worse.  The line also went from net losses to profitability for a while in the 1960's.  Given all the other factors (all rails declining share of the freight business), it is hard to see a real improvement through total dieselization, but how much worse it might have been if the C&NW had continued partially in steam, given that much of its steam roster was old and obsolete?

  • schlimm

    You used operating freight ratio.  However, the overall performance is best seen in operating ratio for the railroad.  1950-56 average = 86.4;  1957-1970 = 83.6.  Only a slight improvement, but certainly not worse.

    There was a reason I said freight ratio and specifically identified it as such. Most roads with long-distance passenger services made gains as the trains losing the most money were peeled off during the early and mid-1960s. Reduced loss was virtually automatic as those trains came off. Freight ratio, however, demonstrates what management was doing at managing its franchise: railroading. And that was getting worse at North Western, and sure, its easy to say that if hadn't been for dieselization, things would have been worse, but that requires more than just a wave of the hand. 

    Ultimately, after dieselization, things did get worse. That's not an argument that supports the premise. But, with Ben Heineman -- management by ADHD -- all sorts of things were going on and, in any case, it takes a lot of number crunching, not broad philosophical conclusions, to really find an answer. 

    It would be an interesting PhD thesis. It seems like somebody would have done one early on, and it may well be out there, unpublished, somewhere.

  • It is an interesting topic b/c Heineman was so controversial.  Here is the academic study I found the O/R in, which looks a the management styles of the CNW and RI in the same period -Heinemen vs Langdon.

    wai.hri.tu.ac.th/.../phd%20Cognitive%20change,%20strategic%20action,%20and%20%20%20organizational%20%20renewal.pdf

  • schlimm

    It is an interesting topic b/c Heineman was so controversial.  Here is the academic study I found the O/R in, which looks a the management styles of the CNW and RI in the same period -Heinemen vs Langdon.

    wai.hri.tu.ac.th/.../phd%20Cognitive%20change,%20strategic%20action,%20and%20%20%20organizational%20%20renewal.pdf

    Is there a better link for this?

  • Murphy Siding
      Illinois Central and Norfolk & Western were two of the last Class 1's to dieselize.  The reasons given, are that they were both big coal haulers, so it made financail and political sense to do it that way.

    Let me enquire about the premise, vis-a-vis IC.

    Last revenue Steam run:

    CN: 1960

    CP: 1960

    B&O: 1960

    CBQ: 1960

    CRI&P: 1952

    C&S: 1962

    GB&W: 1950

    GTW: 1960

    GN: 1957

    IC: 1959

    MILW: 1957

    Monon: 1949

    NYC: 1957

    Nickel Plate: 1959

    N&W: 1960

    NP: 1960

    Santa Fe: 1957

    Seaboard Air Line: 1953

    Soo: 1955

    Southern: 1953

    SP: 1958

    Penn: 1957

    UP: 1959

    Illinois Central doesn't really jump out at me here as one of "the last" to dieselize. It looks to be about in the middle of the pack, which is how I remember it. In many cases, we are talking about a few months difference. N&W isn't really an outlier either. Is there a source for this or something I am missing here?

  • Try:

    http://wai.hri.tu.ac.th/Phd%20SM%203/phd%20Cognitive%20change,%20strategic%20action,%20and%20%20%20organizational%20%20renewal.pdf

  • Not sure, but perhaps the variable on late dieselization would need to look at % steam operation year by year.  If the N&W dieselized at the same time as the IC, but was almost 100% steam for freight one year earlier, while the IC was only 20%, that would show a truer picture.