1960 to 1970: what the heck happened?

[markffisch]

I love this thread.

 A couple of thoughts to ponder. The question was raised as to why the eastern roads were more impacted by the economy of the 60's and 70's than the western roads.  A possible factor was the traffic mix.  As was pointed out, manufacturing in the east headed south and west during this time frame.  Part of it was to avoid the highly unionized work force and partly to reduce other costs.  Another factor was the disappearance of coal as the primary heating fuel.  Up through WWII, coal was a major source of traffic for many eastern roads -- CNJ, LV, Erie, Lackawanna, PRR, CNE and the NH.  Transport of coal for heating is different than transport for power plants or heavy manufacturing -- it lends itself to support what otherwise would be marginal or unprofitable branch lines.

Another factor mentioned but not fully appreciated was the cumulative impact of more than a decade of high inflation.  Partly due to the oil price hikes in the 70s but mostly due to the way the Vietnam war was financed, inflation ran into double digits for a long time.  A fascinating study is how the government caused the inflation on one hand while seeming to fight it on the other.  I think this is where the impact of the ICC was most strongly felt.  The government was being pressured, through the political process, to hold the line on costs using the regulatory process as a weapon.  When costs in nominal dollars rise due to inflation, but a business cannot respond by commensurately raising its prices, it is losing real money.  If nothing else, the process required to raise rates (documenting higher costs and requesting approvals that took months if not years to obtain) guaranteed the regulated industries would fall behind.  It wasn't just the railroads.  The electric power and telephone industries faced a constant cycle of rate hearings where one filing would finally be approved with the next either already pending or waiting to be filed.  The public perception was that inflation was out of control.  Rather than attacking the true cause (deficit government spending) the political process responded with either half baked or truly detrimental responses.  Witness Nixon's implementation of wage and price controls or Ford's WIN (whip inflation now).  At the same time, labor used their allies in goverment to attempt to keep pace with rising prices.  For the railroads, and other heavy industries, it was a disaster.  A previous poster mentioned that basically the railroads started eating the seed corn.  By not maintaining the right of way and cutting back in investing (in real dollars) to replace the equipment acquired after WWII, it is not suprising that reliability went way down.  That gave the trucks an opening to start winning over shippers who may have been more economically served by rail but were spooked by the real problems.  And, just for fun, add in the post merger issues that many of the roads experieinced in that same time period.

A third factor is the quality of management.  If you assume 1906 as a starting point, by the 50s there would have been no one in management at any of the railroads who had operated in a non regulated environment.  Many of the managers would have, in fact, learned the ropes from managers who had only experienced regulation.  A previous poster noted that regulation tends to be blamed for what are primarily failures of management.  I could not agree more.  While regulation imposes significant obstacles to innovation, strong managers can thrive.  Weak managers build kingdoms complete with castles and moats to preserve the status quo.

My bottom line: an economic situation that was unprecedented in the managerial lifetimes of a marginal management force damn near wrecked a premier industry.  The fact that the government created the economic situation and was partly responsible for the regualtory framework through which management had to operate, made everything worse.

[MichaelSol]

BTW - Thank you Michael for the idea of purchasing older Moody's Transportation Manuals. I bought a 1968 Edition as the result of our dicussion and there is a fascinating amount of information in there. The price for recent issues put me off, but used older copies are quite reasonable. 

Those things are addictive. There is so much good information all in one place.

[beaulieu]

     I'm curious now which of the BNSF lines are you thinking of?

Well, this isn't something I keep track of at all. In my neck of the woods, I "understand" -- that's a big qualification -- that four "lines" are unused, but not abandoned. One near Great Falls. Helena to Butte. Drummond to Phillipsburg. Homestake to Butte. On the last two, I notice that the rail and ties remain in place even though they have been unused for 20 years or more -- which suggests to me that there are original deeds out there with reverter clauses -- meaning salvage isn't an option unless they really want to lose the line completely.

 

Another item is that BNSF doesn't want MRL to reach Butte, or more specifically Silver Bow and the UP.  I think that if they abandon a line they have to remove bridges and perhaps seal tunnels too.  This could eat up money frome the salvage of rail and ties.

 

BTW - Thank you Michael for the idea of purchasing older Moody's Transportation Manuals. I bought a 1968 Edition as the result of our dicussion and there is a fascinating amount of information in there. The price for recent issues put me off, but used older copies are quite reasonable. 

[MichaelSol]

 If the Hepburn Act had an effect on railroad investment, someone forgot to tell the railroads.

I have a feeling, with no proof whatsoever, that without the Hepburn Act the railroads would have built more than they did. I don't believe you could show what their investment would have been without the Act.

As I mentioned above, the contemporary literature for the period 1910-1914 shows railroads preparing to expand in all directions. Too, the additional investment in the period 1909-1924 shown for the roads above exceeds their investment, 1893-1906, by a considerable amount.

It may be true that no one can "prove" they wouldn't have spent more but for the Hepburn Act. But that's not an evidentiary question, because no one can prove a negative. The proposition is that the Hepburn Act caused a "nosedive" and yet it is the proof for that, not that even more may have been done, that is lacking in the statistical record.

I am sure you will see the logic that several railroads which invested heavily after 1908, and spent more than they did prior to the Hepburn Act, is a proof. And the "nosedive" went the wrong way for a nosedive.

Perhaps you meant to ask for proof of the nosedive and how it was connected to the Hepburn Act rather than the more obvious influences of the Panic of 1907 and the destruction of the European bond market, let alone the traffic losses to the Panama Canal after 1914?

 

 

[nanaimo73]

 If the Hepburn Act had an effect on railroad investment, someone forgot to tell the railroads.

I have a feeling, with no proof whatsoever, that without the Hepburn Act the railroads would have built more than they did. I don't believe you could show what their investment would have been without the Act.

[MichaelSol]

The 1906 date is very sharply scribed in railroad history. After that date railroad expansion and heavy reconstruction nosedived. (This is old hat, my friend. A.C. Kalmbach and D.P. Morgan co-authored the article “The Golden Age of Railroad Construction”: in the February 1949 issue of Trains that described and analyzed this watershed quite sufficiently.  Well, at least I thought they had!)

They hadn't.

After recovery from the Panic of 1907, 1909, most railroads began a period of extensive renovation and improvement. There was an explosion of investment in rebuilding and construction. The Milwaukee made improvements totaling approximately $318 million. The Great Northern made improvements of approximately $122 million. The Northern Pacific spent approximately $180 million, The North Western spent $212 million. The Burlington spent $192 million.

The Milwaukee laid approximately 2200 miles of additional track, compared to 507 for the NP, 1,264 for the GN, 363 for the "Q" and 802 for the North Western. The rate of return on the "new" investment average was .5% among the five railroads for this time period. The Northern Pacific suffered a negative rate of return of 4.2% on the money invested during this time; the Great Northern enjoyed a positive rate of return of 4.6%. The Milwaukee was just slightly better than the average of the five railroads, at .6%. This was during the period of government control, drought, and severe and sustained agricultural depression.

If the Hepburn Act had an effect on railroad investment, someone forgot to tell the railroads.

 

[bobwilcox]

The FRA made it possible to show a "loss" without having to poor some money into track maintance.  In the 1970s the FRA came out with track standards saying the mininimum was Grade I. It would let you run at 10 MPH but you could not carry haz. mat. We would go into the hearing and prove the existing track was below Grade I and put into the costs the "expense" for binging the track up to the minimum requirement.  We also had a Federal case where a group of shippers tried to force us to bring a line up to Class I but thats another story.

[MichaelSol]

     I'm curious now which of the BNSF lines are you thinking of?

Well, this isn't something I keep track of at all. In my neck of the woods, I "understand" -- that's a big qualification -- that four "lines" are unused, but not abandoned. One near Great Falls. Helena to Butte. Drummond to Phillipsburg. Homestake to Butte. On the last two, I notice that the rail and ties remain in place even though they have been unused for 20 years or more -- which suggests to me that there are original deeds out there with reverter clauses -- meaning salvage isn't an option unless they really want to lose the line completely.

 

[Murphy Siding]

The above post contains some insight into things a guy doesn't think about often.  Thanks.

  

In many cases, railroads intentionally hung on to little used branchlines. Like a tree farm -- maybe of little value right now, but it could provide our bread and butter in the future. BNSF is hanging onto a couple of such lines nearby.

 

     I'm curious now which of the BNSF lines are you thinking of?

[MichaelSol]

What I saw over a 27 year period was more of an "ebb and flow" rather than a decline of the financial contributions of branch lines per se.

      In that case, I would wonder if that "ebb and flow" of rail traffic turn all into ebb between 1960 and 1970?  That is a period when a lot of new highways, especially interstates, came on line.  They moved a lot of traffic and mail off the railroads.

Well, like I say, I've looked at that for one large Midwestern/transcontinental road, and that shift just isn't there. Maybe it was everywhere else but ....

The Rail industry is so full of "conventional wisdoms" and "received truths"  -- baloney in new packages --I am simply skeptical.

In many cases, railroads intentionally hung on to little used branchlines. Like a tree farm -- maybe of little value right now, but it could provide our bread and butter in the future. BNSF is hanging onto a couple of such lines nearby.

Branchline abandonment proceedings did represent that question at all times, and it wasn't an easy answer for railroads or for the ICC. The ICC was charged with protecting the overall integrity of the US Rail System from individualized cannibalization under a given management regime at a given railroad company. There was, and remains today under the STB, regulatory oversight to protect the future needs of the nation from cannibalization or destruction of what is becoming an irreplaceable resource, much like water, air, coal, and oil.

The process was somewhat perplexing. From one perspective, it makes sense. From another, it seems irrational.

The railroad needed to show that the branchline represented a financial drain on the resources of the company. Herein was the problem. Most of the time, they actually didn't -- or it was at least negligble in the broad scheme of things. That's the problem with gravel, steel, creosoted wood, and steel spikes -- they are fairly robust and particularly if they are not being stressed by use. Oh yes, eventually ... but that was a long time.

So, in order to show a "loss" which justified abandonment, the railroad had to go and spend some good dollars on some piddling work, fix a fence, or replace some ties -- then they could show expenses exceeding revenue. Until they did that, however, any kind of traffic at all on those lines showed them to be profitable -- and they were.

And there was a time frame involved in that. Many railroads had spent prodigously on maintenance, including branchlines, during WWII, since an "excess profits" tax was in place, and they might as well spend the money on something instead of to taxes. These branchlines, even in the post WWII losses to trucking, maintained their integrity for 20, 25, 30 years without needing much real maintenance.

Well, the timing of that of course put it right about when all sorts of other problems started to afflict the rail industry -- 1965-1980 -- and the "railbank" of branchlines began to require reinvestment if they were going to be used, or abandonment if they weren't. Too, that was the beginning of the point at which the write downs of remaining depreciation wouldn't kill the bottom line, and abandonments made more sense -- gradually -- from an accounting standpoint. Kind of a "fish-or-cut-bait" point in time.

The ICC still required the "loss" to be shown to meet the regulatory requirements for abandonment -- just the wrong time to ask managers to go out and waste some money installing new rail just so they could get permission to tear it out.

There was a logic to the system, and logic to the management frustration with that system, and, in each of their respective worlds, their logics seemed irrefutable and the other position ridiculous.

 

[Murphy Siding]

What I saw over a 27 year period was more of an "ebb and flow" rather than a decline of the financial contributions of branch lines per se.

      In that case, I would wonder if that "ebb and flow" of rail traffic turn all into ebb between 1960 and 1970?  That is a period when a lot of new highways, especially interstates, came on line.  They moved a lot of traffic and mail off the railroads.

[MichaelSol]

      What effect did the effect of the drying up of business on branchlines in the 60's have on railroad profits?  That seems to be about the time that most railroads were trying (unsuccesfully, mostly) to shed unprofitable branch lines.

Two points:

1. Did traffic "dry up"?

2) Did the 60s really represent a "movement" about branchlines?

You created several presumptions in your comment. Is there a basis for them?

I read that more as a question than comment - and read "drying up" as refering to a general reduction in branchline traffic (which had been going on well before the 60's. 

     Michael:  I think erikem perceived this more the way it was intended-as a question, not a definitive statement by any means.

     To be more general:  It seems the railroads had been trying to thin out their unprofitable branch lines from about WW II on.  The shippers involved, and the ICC seemed to resist this.  Did this greatly effect the fortunes of railroads in general,during the period we are discussing in this thread?

Well, the reason for my post was that railroads began the abandonment process in the 1920s, by my reading of the statistics. And, rather than anything necessarily negative about branchlines per se, the process appeared -- to me -- to represent a normal flexibility of a large network adjusting itself.

Certainly, as trucks replaced branchlines, this represented a change of technology that didn't hurt railroads, necessarily, but I'm reluctant to agree that it represented a "1960s" phenomenon.

Line segment analysis at MILW, for instance, during that period showed that several formerly "sleepy" branch lines suddenly became big revenue generators in the 1960s. Others went back to sleep. What I saw over a 27 year period was more of an "ebb and flow" rather than a decline of the financial contributions of branch lines per se.

Not done with that analysis yet, but that was a preliminary survey -- another 250,000 data points and I can offer a stronger opinion on the subject.

 

[Murphy Siding]

      What effect did the effect of the drying up of business on branchlines in the 60's have on railroad profits?  That seems to be about the time that most railroads were trying (unsuccesfully, mostly) to shed unprofitable branch lines.

Two points:

1. Did traffic "dry up"?

2) Did the 60s really represent a "movement" about branchlines?

You created several presumptions in your comment. Is there a basis for them?

I read that more as a question than comment - and read "drying up" as refering to a general reduction in branchline traffic (which had been going on well before the 60's. 

     Michael:  I think erikem perceived this more the way it was intended-as a question, not a definitive statement by any means.

     To be more general:  It seems the railroads had been trying to thin out their unprofitable branch lines from about WW II on.  The shippers involved, and the ICC seemed to resist this.  Did this greatly effect the fortunes of railroads in general,during the period we are discussing in this thread?

[erikem]

      What effect did the effect of the drying up of business on branchlines in the 60's have on railroad profits?  That seems to be about the time that most railroads were trying (unsuccesfully, mostly) to shed unprofitable branch lines.

Two points:

1. Did traffic "dry up"?

2) Did the 60s really represent a "movement" about branchlines?

You created several presumptions in your comment. Is there a basis for them?

I read that more as a question than comment - and read "drying up" as refering to a general reduction in branchline traffic (which had been going on well before the 60's. 

[MichaelSol]

      What effect did the effect of the drying up of business on branchlines in the 60's have on railroad profits?  That seems to be about the time that most railroads were trying (unsuccesfully, mostly) to shed unprofitable branch lines.

Two points:

1. Did traffic "dry up"?

2) Did the 60s really represent a "movement" about branchlines?

You created several presumptions in your comment. Is there a basis for them?

 

[Murphy Siding]

      What effect did the effect of the drying up of business on branchlines in the 60's have on railroad profits?  That seems to be about the time that most railroads were trying (unsuccesfully, mostly) to shed unprofitable branch lines.

[MichaelSol]

I assume that in all your comparisons of then and now you take into consideration the intracies of betterment accounting vs. depreciation accounting.

Michael did you?

Answer the question.

Yes, GAAP dictates the result, including the "intracies".

I do expect, in the event I similarly command an answer from you in the future, that you will respond just as appropriately.

 

[GP40-2]

I assume that in all your comparisons of then and now you take into consideration the intracies of betterment accounting vs. depreciation accounting.

Michael did you?

Answer the question.

[penncentral2002]

Some points that have yet to be mentioned in this thread

1)  Saying that while railroads were regulated in the 1960s and 1970s while other competitive industries (trucking, airlines) were unregulated is simply not true.  Since the 1930s every industry in the U.S. has been regulated to a certain extent.  All industries have to follow minimum wage/maximum hours laws, for example.  All public companies have to follow SEC regulations.  Plus, both those "competitive industries" were in fact regulated.  While regulation of the trucking industry started later than regulation of the railroads, they were regulated starting in the 1930s (which marked the origins of the interstate trucking industry).  In fact, the ICC also had jurisdiction over interstate trucking and busing during that time period (the Surface Transportation Board retains limited jurisdiction over trucking and busing).   Thus blaming regulation and the ICC is simply not the full story.  Perhaps the rail regulations were more stringent than the airline or trucking regulations, but to pretend that only the railroads were regulated is to ignore history.  Don't forget that interstate trucking and the airlines were in fact deregulated at the same time that the railroads were deregulated.

2)  In the period from the 1950s to 1970s there was really no such thing as coordinated transportation planning.  While today, the federal and state governments have Departments of Transportation, at that period, you'd have a Bureau of Public Roads in charge of roads, the ICC and railroad departments with jurisdiction over railroads, and the Civil Aviation Authority with authority over air.  Most of these agencies were under the Department of Commerce which meant that they were often run by economists or lawyers and not transportation planners.  In other cases, the "regulatory/planning" agencies were run by representatives of the regulated industry - so the Bureau of Public Roads, for example, was composed of people from the automotive, construction, and oil industries.  There was no attempt at reaching a rational transportation policy across the industries to use the stregths of rail, barge, ship, highway, and air.

3)  While railroads were no longer directly or indirectly subsidized by the government by the 1950s, highway and air transportation were at least indirectly subsidized by the government.  While pay as you go plans funded by tolls or the gas tax were rejected by Congress, the government instead decided to fund the construction of highways through a highway trust fund from the general treasury and a very low gas tax.  Additionally, the oil prices in the United States  have effectively been subsidized and artificially low.  The U.S. government has never charged the oil companies anything close to market rate for drilling rights on federal land - effectively subsidizing the use of oil because that holds down the market price for oil in the United States.  The United States also has refused to follow European practice and use the gas tax to reflect the true cost of driving.  In economics, gas prices have long been used as the example of a price that is too low in that the cost of driving is less than the social cost of driving and thus results in over consumption.  Aviation also was subsidized in the sense that the government paid for air traffic control, airport construction, and other necessary expenditures through the general revenue.  Of course, it helps to remember that many of the raillines were constructed using direct government subsidies - at the very least they were given eminent domain power where they could take private land for public use (railroad construction) which lowers land acquisition costs.  But those subsidies had stopped.  Going back to the Romans, its hard to find any self sufficient transportation system/means that exists without some sort of government subsidy.

4)  Don't forget the reason why the airline bankruptcies occurred after deregulation, not before.  Because the airline regulations were largely designed to prevent competition by limiting which airlines could fly on what routes.  Airlines prior to the 1980s generally had very high fares because they had little competition due to the requirement to get government approval before serving a route.  Also, the airlines had to make multiple stops - a flight from Chicago to Washington in that period might make 2-3 intermediate stops - to satisfy the regulations.  There were fewer centralized airports - prior to deregulations for example, both Greensboro and Winston-Salem had airports served by commercial airlines.  The airlines when exposed to competition after the deregulation saw many legacy carriers (Pan Am, TWA, Eastern, etc.) go bankrupt.  Airline fares have decreased, but many smaller cities have less extensive air service than they did under deregulation because the airlines are no longer forced to follow their licensed routes.

5)  Road building declined after the 1970s dawned as well - for around that period, the Federal Highway Administration decided to build I-40 through Overton Park in Memphis, TN.  The resulted Supreme Court decision (Committee to Save Overton Park v. Volpe) led to having many urban interstates to get blocked because it required the FWHA to actually follow their regulations in siting interstates and enabled community opposition groups to sue in federal court to block construction.  Very few new interstates/interstate quality highways have been approved since the 1970s (and not just due to environmental concerns since the EPA was formed in 1970 leading to the requirement of an environmental impact statement for new roads) - by that point, many of the original interstates had already reached capacity (in fact, original design capacity for the interstates was based on woefully inadequate estimates for traffic in 1975).  Many of the interstates were obsolete before they were even completed in that they were overcapacity.  This actually led to a return towards mass transit rail projects like the Washington Metro system (today badly over capacity itself) and to more comprehensive transportation planning to finally appear.

So this is really about like asking what caused the Civil War.  You have a simple answer which is too simplictic and you have a complex answer which if you ask 10 people about it, you'll get 12 different opinions.   

[SALfan]

Hello everyone!

In one of his previous post, Gabe mentions the Southern Railway as, in his opinion, one of the premier railroads. This is a company that I have followed through the years also. It always seemed to be one of the more successful companies, yet, one that you didn't hear much of, a "quiet" company. It never stood out like a New York Central or Union Pacific. And if you look at it's route structure, it didn't seem to serve an industrial region, but one that was rather rural. I once read that it was "the biggest railroad that went from nowhere to nowhere".

Any thoughts on this? I hope I'm not intruding onto the thread, but this is a question that has been in the back of my mind for some time and this thread brought it to the forefront when Gabe mentioned his observation.

G Mack

 

Southern Rwy had a couple of advantages over the Northeastern railroads, at least in my opinion.  Don't claim to be a great expert, but here goes.

1.  Management Quality: D. W. Brosnan, IMHO, is one of the most under-appreciated RR presidents this country has produced since 1900.  Someone once said "There was no status quo with Brosnan.  You either moved up or moved out."  He and his management team were great innovators and they ran a very tight ship.  Southern was also small enough to be managed more easily than PRR or NYC. 

2.  Location/Operating Environment: Southern in the 1960's ran basically between Washington, DC,  New Orleans and Jacksonville, FL.  South of Richmond, their main competitors were ACL (double track along the Atlantic Coast with a line west to Birmingham) and SAL (weak, and single-track thru inferior country, with basically a long branch to Montgomery, AL).  ACL was too far east of the Southern to be much competition except for Atlanta traffic, and SAL wasn't a strong competitor.  Southern's territory wasn't as overbuilt with railroads as the Northeast, the road system wasn't as good (which hurt the truck competition), and Southern wasn't burdened with a huge amount of shorthaul or passenger traffic.

Comments or corrections are welcomed.

[Datafever]

A little pricey, but considering the size of these bound volumes:

At http://railpub.com/

pp. 42-43 of the current catalog. 

Another source is abebooks.com.  They have several of the years that railpub.com was missing (and they are missing several of the years that railpub.com has), and the prices are consistently lower. 

[Cris_261]

The 1960s were quite the paradox for railroads. On one hand you had technological improvements in the way freight was transported, to advances in bookkeeping through use of computers, to early ways of tracking a railcar's whereabouts (remember the ACI lables?), and of course, the advancements made by EMD and GE in diesel locomotives. And on the other hand the was all the federal regulations, state property tax issues, railroad employee wage hikes, unprofitable passenger train routes, and competition from other modes of transportation, that bled the railroads.

For some railroads, it was the begining of the end, while others held their own in that decade. I don't have access to company records or such, but it seemed to me, that two railroads that actually did well (or at least gave the impression of doing so) were Santa Fe and Southern Pacific. Granted, Santa Fe had one thing that no other western railroad ever had: its own line from Chicago to the Pacific Coast giving it the long haul without having to worry about a second railroad forwarding its freight to Chicago. Perhaps that helped Santa Fe's fortune during the '60s. In the coming decade, I know SP's fortunes took a turn for the worst, but I do not know how Santa Fe fared, other than I think it did all right, when compared to other railroads.

[MichaelSol]

Dont know if I want to sit thru a Power Point, but it would be interesting to see the operating ratio data.  Also, what time frame are you referring to?

 

BTW, anyone know where one can pickuup old Moody's?  I have checked a couple of times at EBAy...nothing.   Or, is there a database of railroad financials? 

ed

A little pricey, but considering the size of these bound volumes:

MOODY'S STEAM RAILROADS/TRANSPORTATION MANUAL - Moody's Investors Service, HD: (ask about other dates)

.1915, 1666p, interior complete but spine plate missing and covers separated, $165.

.1916, 1602p, good, $150.

.1931, 2006p, good, $120.

.1933, 2148p, good, $120.

.1935, 2161p, good, $120.

.1937, 2326p, good, $110.

.1940, 1922p, good, $110.

.1942, 1766p, good, $100.

.1944, 1590p, good, $100.

.1946, 1546p, good, $95.

.1948, 1491p, good, $95.

.1950, 1448p, good, $95.

MOODY'S MANUAL OF INVESTMENTS, TRANSPORTATION: RAILROADS-AIRLINES-SHIPPING,TRACTION,BUS AND TRUCK LINES - HD:

(ask about other dates)

.1951, 1436p, good, $90.

.1955, 1523p, vg(ex lib.), $90.

.1958, 1472p, good, $90.

.1960, 1462p, good, $90.

.1962, 1405p, good, $90.

.1964, 1374p, good, $90.

.1966, 1386p, good, $65.

At http://railpub.com/

pp. 42-43 of the current catalog. 

I've purchased historical materials from this source over a number of years, and he's very high quality.

 

 

 

[MP173]

Dont know if I want to sit thru a Power Point, but it would be interesting to see the operating ratio data.  Also, what time frame are you referring to?

 

BTW, anyone know where one can pickuup old Moody's?  I have checked a couple of times at EBAy...nothing.   Or, is there a database of railroad financials? 

ed

[Kevin C. Smith]

Warning: you can kill Graduate Students with lectures about Railroad Operating Ratios. I was charged with three negligent homicides.

ROFLMAO!!!!

I'd carry a copy of that just for self defense on a college campus.

You ever think of letting people take out contract "hits"? (An Ivy League version of "The Sopranos".)

[jeaton]

Operating ratio improved? 

Well, one of those things that happens when a person actually sits down and examines data in Excel and does a linear regression analysis: discovery. I ran that one past three Business School colleagues -- all PhDs -- including a member of the GN Historical Society. Indeed, I presented these results in a graduate seminar -- seemed like a good example of the seminar series, "The Strategic Value of Mergers" -- "OK, I am seeing that GN, NP and CBQ had deteriorating Operating Ratios during this period, and MILW's was improving.

"This isn't what I've heard."

Warning: you can kill Graduate Students with lectures about Railroad Operating Ratios. I was charged with three negligent homicides.

Double checked the data against Moody's, Transport Statistics of the United States, and company Annual Reports. I can post a Power Point presentation on the lecture -- it was actually on the proposed MILW-CNW merger -- the OR was an accidental discovery when I tried to make an exhibit showing that MILW's position was deteriorating, necessitating the merger.

On that basis, I long ago gave up believing a word coming from "conventional wisdoms".

I assume that in all your comparisons of then and now you take into consideration the intracies of betterment accounting vs. depreciation accounting.

[beaulieu]

Mr. Sol,

If I can try to recap what you have said:

Part of the problem that some railroads had (in the 60's/70's) was a lack of debt - debt that in a period of high inflation is paid back with cheaper dollars.  Those railroads that had encumbered themselves with debt in order to rebuild infrastructure found themselves in a cozier position than those railroads that had delayed infrastructure expense and had cash instead.

Well, the "cash" mght have gone out the door to dividends. Every railroad in serious trouble 1965-1980 had been engaged in very serious merger efforts during the 1960s. While I would agree that by and large the ICC's efforts to "get it right" backfired into time-consuming, time-wasting, proceedings, I also note that the rail industry itself bore a large burden for time-consuming objections, appeals, and argument, often based purely on obstructive litigation tactics rather than honest participation in the process.

But, your point is, I think, accurate.

So if the 70's had not been a time of high inflation, one could posit that the results would have been significantly different.  In that case, capital investment in infrastructure may have been an undesirable use of monies.

I think railroads would have benefitted from infrastructure investment no matter what. High inflation was a boon to discounting debt, but an enormous obstacle to railroads genuinely growing during the 1970s, such as Milwaukee. Recall, railroads themselves were "investing" heavily in merger efforts during the 1960s. Infrastructure had to wait until the merger was resolved.

Econometric studies -- Kent Healy -- suggested that mergers would harm the industry, rather than help it. Penn Central proved it. Burlington Northern threaded the eye of a needle with a camel. It was close. Had it not been for the extraordinary planning by Robert Downing and Worthington Smith, the outcome could have been considerably different and almost was.

Were there indications that inflation was going to be as bad at it ended up?  Could a savvy management team have foreseen that inflation was going to go "out of control" and acted accordingly? 

The argument about "Guns and Butter" starting with the Great Society and Viet Nam War of Lyndon Johnson in 1965 brought about exactly such predictions from the Chicago School Monetarists. The accuracy of their predictions -- shown conclusively with a vengeance during the 1970s -- fundamentally changed American political and economic thinking. Railroads, however, did not employ "economists" -- not a useful tool in that industry's mindset at that time.

But, what does any of that suggest about "regulation" during that time?

In 1981, it gained its "freedom." It merged, it gained market share, it created captive shippers, it abandoned useless lines, it consolidated traffic into high utilization corridors. It did everything that deregulation permitted.

Union Pacific Railroad earned a 12.2% operating profit in 1965 in an anemic economy operating underutilized track with multiple inefficient interchanges and running a large transcontinental passenger train service.

Forty years later (2005), after deregulation and historic productivity achievements, it earned a 7.6% operating profit in a booming economy.

Your comparing Dick Davidson to John Kenefick? Give me a break Dick Davidson never met a merger he couldn't screw up. In 1965 UP was using the slogan Dependable Transportation, and they meant it. The City of Everywhere didn't often get in the way of fast freights. I suspect that the UP had the longest or second longest average haul in 1965. Try comparing the PRR in 1965 vs. the NS in 2005! 

 

 

Progress?

GN in 1968 -- 12.38%, operating at about half capacity, running a transcontinental passenger train service.

BN in 2005: 12.27%.

Note that BNSF still has 3 Transcontinental Passenger trains to avoid.  

I thought you were saying that the GN doing wasn't very good.  What were the MILW's numbers over the same time periods.

 

It is simply stunning what these companies achieved when the artificial burden of regulation was removed and they were finally unshackled to permit their creative management abilities to soar to new heights of corporate profitability.

 

[MichaelSol]

Operating ratio improved? 

Well, one of those things that happens when a person actually sits down and examines data in Excel and does a linear regression analysis: discovery. I ran that one past three Business School colleagues -- all PhDs -- including a member of the GN Historical Society. Indeed, I presented these results in a graduate seminar -- seemed like a good example of the seminar series, "The Strategic Value of Mergers" -- "OK, I am seeing that GN, NP and CBQ had deteriorating Operating Ratios during this period, and MILW's was improving.

"This isn't what I've heard."

Warning: you can kill Graduate Students with lectures about Railroad Operating Ratios. I was charged with three negligent homicides.

Double checked the data against Moody's, Transport Statistics of the United States, and company Annual Reports. I can post a Power Point presentation on the lecture -- it was actually on the proposed MILW-CNW merger -- the OR was an accidental discovery when I tried to make an exhibit showing that MILW's position was deteriorating, necessitating the merger.

On that basis, I long ago gave up believing a word coming from "conventional wisdoms".

[MP173]

Operating ratio improved?