Wisconsin Central Domination

[Murphy Siding]

     A railroad map in a book I have, dated 1994 shows Wisconsin Central and Fox Valley & Western as hving the majority of trackage in Wisconsin at the time.  It also seems to to show them as being the only trackage in about 3/4 of the state.  Did WC dominate Wisconsin traffic during that period?

[beaulieu]

 

Murphy Siding

     A railroad map in a book I have, dated 1994 shows Wisconsin Central and Fox Valley & Western as hving the majority of trackage in Wisconsin at the time.  It also seems to to show them as being the only trackage in about 3/4 of the state.  Did WC dominate Wisconsin traffic during that period?

 

Yes, the WCL dominated traffic in the NE 2/3rds of the state. Most of it is paper traffic bound for the Chicago gateway, and so it was hard for a Class I to make much money on it. Since the CN has taken over the WCL, CN has let much of the traffic go away too. The better quality publishing paper they are soliciting, but lower quality Sanitary paper (toilet paper, napkins, paper toweling, diapers, etc) they are not seeking since it is bulky but cheaper and can't bear higher freight rates.

[zardoz]

WC certainly dominated the locally-generated traffic in Wisconsin, but as to whether they dominated thru traffic is another matter.  The CP and (to a much lesser extent) the UP combined traffic thru the state probably exceeds the current CN total.

At one point the WC was planning to double-track their line from at least Fond du Lac to Chicago, as they were running up to 30 trains per day on the Waukesha sub.  When the WC (or was it CN) began routing traffic south from the Duluth area instead of southeast thru Wisconsin, the number of trains dropped.  I do not know if the project has been abandoned, put on hold, or is still "in the works".

[Murphy Siding]

    Paper was the bulk of WC traffic?  If CN bought WC to provide a conduit for traffic directly from Duluth to Chicago, why wasn't WC able to attract this traffic in quantity?

[beaulieu]

Murphy Siding

    Paper was the bulk of WC traffic?  If CN bought WC to provide a conduit for traffic directly from Duluth to Chicago, why wasn't WC able to attract this traffic in quantity?

 

 Yes, paper was a big part of WCL traffic. Of course they had some miscellaneous other traffic, like the roofing granules out of Kremlin, WI, plus feedstocks into the paper mills. Their other big traffic was the Iron Ore traffic. They had the "All-Rail" trains from Duluth, but that traffic is possible to divert and CN didn't do as good a job as WCL did, BNSF was able to win more of that traffic. Also the amount of that traffic has fallen as the RR have raised their rates, the mining companies made a greater effort to get enough supply moved during the shipping season by lake boats. CN overhead traffic has been affected by two factors, congestion in Chicago, and big decreases in the movment of building materials(lumber), Potash, and Molten Sulphur. CN (with the purchase of BC Rail) is the biggest mover of lumber out of Canada, so they are affected move by the drop in that traffic. CN had hoped to build up Intermodal from Prince Rupert to make up for some of that drop, but the severe recession has slowed that traffic as well.

[Murphy Siding]

     OK  I think you just busted ny bubble about the WC legend.  It was simply a regional , hauling fair amounts of local products, and a little bit of overhead traffic?  That's not sitting too well with the legend of the little railroad that could.  So much for making silk purses out of sows ears, and boldly going where no one had gone before.

WCL= Wisconsin Central Limited(?)

[Anonymous]

beaulieu

Murphy Siding

    Paper was the bulk of WC traffic?  If CN bought WC to provide a conduit for traffic directly from Duluth to Chicago, why wasn't WC able to attract this traffic in quantity?

 

 Yes, paper was a big part of WCL traffic. Of course they had some miscellaneous other traffic, like the roofing granules out of Kremlin, WI, plus feedstocks into the paper mills. Their other big traffic was the Iron Ore traffic. They had the "All-Rail" trains from Duluth, but that traffic is possible to divert and CN didn't do as good a job as WCL did, BNSF was able to win more of that traffic. Also the amount of that traffic has fallen as the RR have raised their rates, the mining companies made a greater effort to get enough supply moved during the shipping season by lake boats. CN overhead traffic has been affected by two factors, congestion in Chicago, and big decreases in the movment of building materials(lumber), Potash, and Molten Sulphur. CN (with the purchase of BC Rail) is the biggest mover of lumber out of Canada, so they are affected move by the drop in that traffic. CN had hoped to build up Intermodal from Prince Rupert to make up for some of that drop, but the severe recession has slowed that traffic as well.

I remember the deal WC had with SP there for a while for the shipment of iron ore and coal (ore going south and coal north - wasn't that the deal?).  I even snapped a couple photos of an all SP-powered northbound unit train at Neenah, WI that I saw during one of my many bar-hopping forays to Appleton (oh those screwdrivers they made at Cleo's - what a recipe for a hangover).

[WSOR 3801]

 The WC went after the local business that the other roads had left behind, or decided they didn't want to handle. The CN is now trying to divest itself of most of the traffic the WC brought in. 

The line that originates/terminates a load gets more money for the service than a line that just hauls it (bridge traffic).  

Part of the purchase from the Soo stipulated that they really coundn't solicit bridge traffic.  They had to purchase the Owen-Superior line later, after buying the parallel CNW line.  They then made 1 line out of the best pieces of the 2.  

[Murphy Siding]

WSOR 3801

 The WC went after the local business that the other roads had left behind, or decided they didn't want to handle. The CN is now trying to divest itself of most of the traffic the WC brought in.   

If WC could make money on that traffic, why can't (or won't) CN?

[Railway Man]

Murphy Siding

WSOR 3801

 The WC went after the local business that the other roads had left behind, or decided they didn't want to handle. The CN is now trying to divest itself of most of the traffic the WC brought in.   

If WC could make money on that traffic, why can't (or won't) CN?

 

Speaking in very general terms :

1.  One business model attempted to optimize the profit potential from a region.  Another attempts to optimize the profit potential from half a continent.  Rarely will two such models have good correspondence with each other, as what works for one often diminishes the other.  If I am moving Product A from Appleton to Chicago, to hand off to another railroad, and that's all my territory consists of, all I need to worry about is setting my price just high enough to cover my costs and my profit, and to heck with what it does to the same commodity moving from a mill in Louisiana to the same gateway, because that's not my railroad.  Now, if my territory should happen to grow to include both mills, and I can get $1 vs. $0.90 expense to move the product from Louisiana to Chicago, and $0.40 vs. $0.36 expense to move the same product from Appleton to Chicago, they both have the same profit margin but very different free cash flows. Why should I short-haul myself?

2.  You can use a given physical plant to support a given number of trains.  But if it doesn't have the capacity to support both traffic base A with low cash flow, and traffic base B with high cash flow, you'll pick B.  If A can pay for the new capacity needed to support itself, wonderful, then you'll build it.  If it doesn't you will demarket it and be satisfied with B.

RWM

[beaulieu]

Murphy Siding

WSOR 3801

 The WC went after the local business that the other roads had left behind, or decided they didn't want to handle. The CN is now trying to divest itself of most of the traffic the WC brought in.   

If WC could make money on that traffic, why can't (or won't) CN?

 

 

Murphy, the first thing that you have to do is separate the WCL into two eras. The first is the Ed Burkhardt era, and the second is the post Ed Burkhardt era. Ed was gung-ho on going after traffic, and building up the railroad, once he had acquired all the trackage and traffic available he turned is attention elsewhere, first to New Zealand, and then to the UK. Neither of the later two ventures really panned out, at least not as well as the investors would have like. His partners got restless and forced him out and brought in people to try and wring better returns out of the company, in the end the best returns were had by selling the company to the CN.

[MP173]

Murphy:

To follow up on what RWM stated, but in a slightly different perspective (that of LTL trucking).

Typically a transportation company will select the niche market they wish to serve.  For shorter haul carriers, such as a shortline or a regional, the density is important.  Thus, they will solicit and handle very marginal traffic, as they are wishing to maximize revenue and since fixed costs will support a certain volume, they attempt to fill that volume level.  Often the handling thru terminals is minimal and remember than terminal costs are often very expensive.

A longer haul carrier, as RWM indicated will look to maximize revenue.  Thus, shorter haul traffic will carry lower revenues and will not be attractive.  Plus, the terminal handlings are often more frequent and more expensive. 

Also, when a shorter haul carrier is picking up (either with trucks or a local) at a local industry, the cost of that pickup is minimal since they are picking up other shipments.  Often, due to this mentality, the short haul carrier will pickup considerable traffic that not only moves on line but also offline.  These offline shipments are often considerable and cost effective to handle,as long as the volume is sufficient.

Thus, WC could solicit not only the online traffic but since they were building blocks for all carriers in Chicago could also solicit that freight, as long as the rates were competitive, along with interline service.  No doubt the shippers were happy as suddenly there were more options available to them.  The line haul divisions were attractive enough for WC to handle this freight since they were already picking up at the industry and since they were more than likely building a block for the carrier in Chicago.

CN, on the other hand will be very careful to handle freight which fits into their system or into lanes that make sense for them.  While WC often built blocks in Wisconsin for other railroads, CN more than likely would yard the cars in Chicago (Markham) and then transfer, thus adding terminal costs and transfer costs.  There goes the profit for short haul business, with the extra handling.

So, CN will raise the rates in order to build the profits on these segments.  With higher transportation costs, the shipper will explore other avenues and often the rails will lose the business.

Remember, volume is vanity and profit is santity.  Each company has a niche that has been developed to maximize profitability, which is the name of the game, only there are different avenues to achieve that.

ed

[Murphy Siding]

MP173

Remember, volume is vanity and profit is santity. 

ed

  Boy does that speak volumes- in any business.  I find it interesting, that WC, who operated under a certain business model, would be coveted by CN, who operated under a different model.

[Railway Man]

Murphy Siding

MP173

Remember, volume is vanity and profit is santity. 

ed

  Boy does that speak volumes- in any business.  I find it interesting, that WC, who operated under a certain business model, would be coveted by CN, who operated under a different model.

When one carrier acquires another, some or all will be factors:

1. Enables use of the acquired carrier's facilities to reduce costs (e.g., shorter route, lower labor costs, fewer grades, lower terminal costs -- the latter is very important but usually overlooked by the rail enthusiast press because it's not easy to see).
2. Eliminates competition, not just for the head-to-head, parallel moves (again, what the railfan press sees) but for the shippers on the acquiring carrier that serve the same customers but might be located in entirely different states.
3. Eliminates an option for a competitor, who might be stuck with a second choice acquisition to accomplish the same thing.
   
4. Drives up the cost of the next acquisition, for the competitor, by reducing supply,
5. May give the carrier more leverage over its brotherhoods.
6. May give the carrier more leverage over shippers who have been playing one carrier against another.

Railroads are a franchise business, and purchasing another railroad is purchasing the value of the franchise, which may have very little to do with its Going Concern Value.  In fact the Going Concern Value from the perspective of the purchasing road might be very small.  Because it's a franchise, the facilities are impossible to duplicate, so acquisitions are usually a strategic play, not a tactical play. 

RWM

[Paul_D_North_Jr]

Railway Man -

Can you tell us where you learned or acquired the technical knowledge and skills to analyze these situations and summarize them so succinctly ?  It seems this isn't the first time you've looked at this kind of a thing . . .  

I could understand it easy enough if you're a business school graduate, but somehow that doesn't seem in character with your technical background and proclivity to post here and engage in a dialogue with us lesser mortals.  Plus, you've already told us a few days ago what you'd be doing instead if you were an investment banker (much to the great amusement of myself and many others, I'm sure).  Accordingly, I'm presuming that isn't it - so where did you get it instead ?  OJT ?  Absorption / osmosis from so many hours with others in the business ?  Are there any courses or seminars that you would recommend ? 

Just curious, to the extent that you're able or willing to share, because there seems to be an sub-group here that's interested in such things.  If not, I think most of us would understand.

- Paul North.

[Murphy Siding]

     Paul- by now, you have to realize, that what you're dealing with is the world's most sophisticated computer/robot.  The sneaky folks at Kalmbach have installed this system on the forum.  It's picks up the main thoughts and ideas out of a post, and instantly types up a technical reply that would take me a month to research and an hour to type.  There really is no other rational explanation-is there? ( )

-Norris

[Paul_D_North_Jr]

Norris -

LOL !  Actually, that's a good thing, if it works for you.  For me, it would be kind of like one of my favorite Sunday (longer) Dilbert cartoons, from maybe 8-10 years ago.  Short version:  "Managment Consultant" Rasputin (yes, that was his name in the strip) is told by the Boss to use his "charisma" (= projected choke hold) on Wally.  But it backfires, and Rasputin collapses instead.  Then Dilbert to Wally: "Your anti-charisma is strong today."  Wally: "He never had a chance."  You betcha - a computer working on my mind would be, "warp".

- Paul North.

[Railway Man]

Paul_D_North_Jr

Railway Man -

Can you tell us where you learned or acquired the technical knowledge and skills to analyze these situations and summarize them so succinctly ?  It seems this isn't the first time you've looked at this kind of a thing . . .  

I could understand it easy enough if you're a business school graduate, but somehow that doesn't seem in character with your technical background and proclivity to post here and engage in a dialogue with us lesser mortals.  Plus, you've already told us a few days ago what you'd be doing instead if you were an investment banker (much to the great amusement of myself and many others, I'm sure).  Accordingly, I'm presuming that isn't it - so where did you get it instead ?  OJT ?  Absorption / osmosis from so many hours with others in the business ?  Are there any courses or seminars that you would recommend ? 

Just curious, to the extent that you're able or willing to share, because there seems to be an sub-group here that's interested in such things.  If not, I think most of us would understand.

- Paul North.

 

1. 35 years of practice.
2. A lot of motivation to understand what was going on, because I wanted to make a living at railroading and not in a rote job.
   
3. An observation that much of what was written down didn't add up, and wasn't helping me understand what's going on.  Railroading as written by railfans is typically hagiographic, that is, they are religious peans, not histories, written by people in love with their subject and can see no wrong.  They are unable to explain why anything happened that will pass a sniff test.  They are highly creative in their conspiracy theories, however.  Railroading as written by the railroad industry is rarely any better, it's heavily biased on the sell side.
4. A willingness to ask a lot of questions, and a lot of respect for my elders.
5. Willingness to take a lot of abuse from peers who themselves didn't quite understand it, and didn't much appreciate my questions subtlely reminding them that their own answers didn't make complete sense either.
6. A lot of practice constructing logic trees, to see if I could describe what happened, then studying the logic and finding the flaws, and looking to address the flaws.
7. A lot of motivation.  Did I mention that previously?
8. The good luck, a little of which I made, to be able to spend a lot of time with people who are smarter and more experienced than I.
9. Ideology is the bottom line with everyone, not money.  I work at figuring out what people's ideology is, and make sure I don't tell them I disagree with it, but that I appear to them that I accept it.  That makes them much more open to divulging information.  If you tell someone you think their ideology is wrong, they will either consider you an idiot and a waste of time to talk to, or a threat and someone to isolate.  I try to be secular in my railroad ideology if I'm looking for information and insight.
10. I have no idea if a business-school education is valuable.  My own graduate degree stressed critical thinking and analysis, and generally I left my seminars with a splitting headache because the pressure to think and talk clearly was high.  I didn't learn how to think or talk more clearly, but I sure did learn to keep my mouth shut if I didn't have anything constructive or useful to say, unless it was to ask questions and seek insight from others. 
    
11. Linear thinking is generally a bad idea, but so is skipping all over the place.  There's no simple cure-all strategy to thinking clearly.  It's hard work.  I don't like hard work any more than the next person, nor does it come naturally to me, but I accept that it's going to be a quid pro quo to learning anything about railroads.
12. This last point is important: I proceed from the premise that railroaders are usually pretty smart people and usually get it right.  You might think that was obvious, but a heck of a lot of people, even some inside the industry, proceed from the premise that railroaders are stupid and usually get it wrong.  (The fact that somehow they've been "stupid and wrong" for going on 170 years now, and the trains still run and the employees still take home a paycheck, doesn't seem to faze them.)  Railroaders are the craftiest bunch of people I have ever met, and when they are in an organization with non-railroaders as peers or interacting with non-railroaders as adversaries, they run circles around the non-railroaders.  In other words, I take railroading on its face value and don't waste my time looking for zebras when I hear approaching hoofbeats.
    

Murphy is the smartest person here because he asks the most questions, doesn't waste his time pontificating, and doesn't get offended by the abuse.

RWM

[Murphy Siding]

  I've always wondered if Dilbert appealed mostly to those in engineering type jobs, or to all those in the business world?  We've been college touring with our oldest son, and it seems that every college professor has cartoons on his/her door or bulletin board.  Without exception, there seemed to be at least one Dilbert included.

[Murphy Siding]

Railway Man

Murphy is the smartest person here because he asks the most questions, doesn't waste his time pontificating, and doesn't get offended by the abuse.

RWM

  I think I'm the dumbest person here.  I don't even know what pontificating is, unless it's something the Pope does.

[Paul_D_North_Jr]

RWM -

Thanks much for the courtesy of your customary thoughtful and informative response.   As usual, some of it was as anticipated, but a pretty good portion was not.  Something to think about a little further in some quiet time.

And it appears I'm in good company here, then.  Even the cartoon my fraternity brothers had done of me way back when had as the caption "I don't understand ? . . . "  And I was (in)famous in class and at seminars as the "Voice of Doom" for being unafraid to ask the first - or any question.  Not to embarrass anyone or build myself up - the opposite happened too often for that to be a profitable strategy - but to understand better the concept that was being discussed.  I can live with all that.

Thanks again.

- Paul North.