ICLand nordique72: . Another caveat of the CNW was the "Fremont Connection"- which allowed UP-CNW runthroughs to bypass Omaha/Council Bluffs by running over the CNW's line via Blair, something the MILW and RI routes couldn't offer. It was "there" but I don't recall that much traffic going that way.
nordique72: . Another caveat of the CNW was the "Fremont Connection"- which allowed UP-CNW runthroughs to bypass Omaha/Council Bluffs by running over the CNW's line via Blair, something the MILW and RI routes couldn't offer.
It was "there" but I don't recall that much traffic going that way.
In the late 1960s the line was underutilized with only a couple trains a day out to Fremont- of course by comparison in the late 60s the CNW was running about 10-12 trains a day total on it's main line across Iowa.
When the CNW and UP realized the value of the connection- by the mid 1970s the traffic going via the Fremont Connection was quite a bit more-
WESTBOUND-
237 Wood Street (Chicago) to Fremont (UP) Advance 239 Wood Street (Chicago) to Fremont (UP) "Falcon"
239 Wood Street (Chicago) to Fremont (UP) "Falcon"Advance 243 Wood Street (Chicago) to Fremont (UP) "Falcon"
243 Wood Street (Chicago) to Fremont (UP) "Falcon" 245 Wood Street (Chicago) to Fremont (UP) "Falcon"
247 Proviso to Fremont (UP) - "Pak Rak" Autos/TOFC249 Proviso to Fremont (UP) - manifest/perishables251 Proviso to Fremont (UP) - manifest
253 Proviso to Fremont (UP) - manifest
Eastbound
236 Fremont (UP) to Chicago - TOFC 238 Fremont (UP) to Chicago - TOFC242 Fremont (UP) to Wood Street (Chicago) - TOFC "Falcon"
244 Fremont (UP) to Wood Street (Chicago) - TOFC "Falcon"248 Fremont (UP) to Wood Street (Chicago)250 Fremont (UP) to Proviso - manifest & TOFC252 Fremont (UP) to Proviso - manifest256 Fremont (UP) to Beverly, IA - manifest
Paul_D_North_Jr .... right now I can't think of or remember anything major that either railroad did in that time frame - no new classification yards or line relocations, purchases of fleets of cars or locos, other acquisitions, etc. -
Well, that's an interesting description of competence.
As I mentioned, my opinion is second hand from former colleagues that worked for him.
Fred Frailey, in the February 1998 issue of Kiplinger describes "buying new locomotives by the hundreds," opening "big new truck-train terminals in Chicago, Los Angeles and Dallas-Fort Worth," and "adding track capacity across Oklahoma, Texas and New Mexico," as well as a new computer system.
As the context above should have made clear, those were mentioned as mere examples to elucidate what might be the "costly projects" that you mentioned - nothing was said about them having anything to do with competence.
But I misunderstood the scope of your reference to your former colleagues - which you've now clarified or restated - so your not identifying such projects is understandable.
- Paul North.
At the time, this was the rumor floating between Rob's old friends at the Espee.
ICLand [snip; emphasis added - PDN] Fred Frailey, in the February 1998 issue of Kiplinger describes "buying new locomotives by the hundreds," opening "big new truck-train terminals in Chicago, Los Angeles and Dallas-Fort Worth," and "adding track capacity across Oklahoma, Texas and New Mexico," as well as a new computer system.
The underlined portion refers to the double-tracking of that segment of the Southern TransCon Route, which I should have remembered because that is the 'popular' understanding of the reason Krebs was removed as CEO of BNSF by the Wall Street types who wanted more of that Internal Rate of Return faster on those incremental investments (you know - like their selling sub-prime mortgage bond pools and default 'swaps' on the same, I suppose).
The rest seems like 'business as usual' for a modern Class I railroad.
schlimm If you look over the timeline of when mergers were proposed, it looks like the UP purchased the SP after they failed to acquire the ATSF in a bidding war with BN. The Union Pacific (UP) started a bidding war with BN for control of the SF on October 5. 1994. UP purchase and control of C&NW became effective May 1, 1995, formal merger occurred September 30, 1995. The UP gave up on the ATSF January 31, 1995, paving the way for the BN-ATSF merger September 22, 1995 . Subsequently, the UP acquired the Southern Pacific (SP) in 1996.
If you look over the timeline of when mergers were proposed, it looks like the UP purchased the SP after they failed to acquire the ATSF in a bidding war with BN.
The Union Pacific (UP) started a bidding war with BN for control of the SF on October 5. 1994. UP purchase and control of C&NW became effective May 1, 1995, formal merger occurred September 30, 1995. The UP gave up on the ATSF January 31, 1995, paving the way for the BN-ATSF merger September 22, 1995 . Subsequently, the UP acquired the Southern Pacific (SP) in 1996.
Keep in mind that SP and ATSF did have a merger agreement back in the 80's and would have merged were it not for Federal regulators blocking the deal:
http://en.wikipedia.org/wiki/Santa_Fe-Southern_Pacific_merger
"I Often Dream of Trains"-From the Album of the Same Name by Robyn Hitchcock
ICLand dakotafred: But wasn't either GN or NP going to go away in any case -- as the Milw did? In those days, elimination of "redundant" trackage was one of the things driving mergers: Get rid of that nuisance competitor that was responsible for both of you making a poor living. Well, competition does that. That's why it promotes continuing efforts at efficiency. Right? Marxism offers you an alternative vision, I suppose, for those that have all this "competition is bad" ideology.
dakotafred: But wasn't either GN or NP going to go away in any case -- as the Milw did? In those days, elimination of "redundant" trackage was one of the things driving mergers: Get rid of that nuisance competitor that was responsible for both of you making a poor living.
But wasn't either GN or NP going to go away in any case -- as the Milw did? In those days, elimination of "redundant" trackage was one of the things driving mergers: Get rid of that nuisance competitor that was responsible for both of you making a poor living.
Well, competition does that. That's why it promotes continuing efforts at efficiency.
Right?
Marxism offers you an alternative vision, I suppose, for those that have all this "competition is bad" ideology.
Mergers and Marxism, right.
The railroads had plenty of competition -- from trucks, barges, planes and cars as well as each other -- much of it underwritten or otherwise propped up by government. (There's some Marxism in action for you.) Given the circumstances and outlook of the day, would you seriously argue that the rails were not overbuilt for the traffic they could still command in the 1960s and '70s? Elimination of fighting among themselves for the scraps, thru merger of parallel lines, was one of the few options.
No, the 1970 BN merger wasn't a magic bullet, and recovery didn't happen overnight. (The industry itself was another 20 years pulling out of the ditch.) But 40 years later, BNSF's rationalized northern transcon still has sufficient capacity for the traffic, with Stampede Pass, Montana Rail Link and some other options waiting in the wings if they're needed.
Somebody knew what they were doing in 1970.
dakotafred Somebody knew what they were doing in 1970.
Well, I guess you had to be there.
dakotafred No, the 1970 BN merger wasn't a magic bullet, and recovery didn't happen overnight. (The industry itself was another 20 years pulling out of the ditch.) But 40 years later, BNSF's rationalized northern transcon still has sufficient capacity for the traffic, with Stampede Pass, Montana Rail Link and some other options waiting in the wings if they're needed. Somebody knew what they were doing in 1970.
This illuminates nicely the earlier comment about people, even in the rail industry, having no concept of IRR -- Internal rate of return. It is also an example of post hoc ergo propter hoc.
The BN merger of 1970 was not designed to paint a pretty picture 40 years later. It was designed to solve the problems of 1970.
The resulting record shows that did not happen.
dakotafred The railroads had plenty of competition -- from trucks, barges, planes and cars as well as each other -- much of it underwritten or otherwise propped up by government. (There's some Marxism in action for you.) Given the circumstances and outlook of the day, would you seriously argue that the rails were not overbuilt for the traffic they could still command in the 1960s and '70s? Elimination of fighting among themselves for the scraps, thru merger of parallel lines, was one of the few options.
Fighting among themselves for what? Revenue? It was a regulated system.
Freight rates rose between 1970 and 1980 to the highest rates ever charged for railroad freight. Overall Railroad revenues in the 1970s reached all-time highs. Total industry revenues (adjusted) are still lower today than they were at the time of the passage of the Staggers Act. How were they "fighting for scraps"? The problem was they couldn't fight for scraps or anything else for that matter. IT WAS REGULATED. So were trucks. And railroads and trucks were regulated in such fashion as to conform to the government's perception of the proper economic niche and maximum efficiency within certain weight, distance, and service categories. And it wasn't always wrong in that regard.
Now, since you've got this entire picture just about backwards, the effect of Staggers was to restore competition to the system. And THAT'S when you really saw railroads start to scramble over what had been their weakness all along: costs.
And that underscores the danger and damage of a regulated system or a monopoly: if the revenue is guaranteed, and the government is constantly intervening to "protect" collective bargaining contracts no matter how irrational or unproductive, there is little fundamental pressure to lower costs. It was easier to just either b**** and moan -- or apply for a rate increase. And it was during that period of unprecedented rate hikes that railroads lost business and began to really lose money. They weren't fighting for scraps, they were pricing themselves out of market after market.
And that's a whole different game, and exactly the opposite of the circumstance you believe existed.
With a rate increase, you almost never had the threat of nationwide strikes, sticking rusty Management into engineer's seats, last minute Federal Court injunctions, or anonymous employees rolling expensive locomotive sets downhill unmanned. So, when in doubt: attack costs and suffer two or three years of union strife, or demand a rate increase? What do you think railroads usually did?
After Staggers, employees were reduced by 60%. That didn't have anything to do with Staggers, per se, but Staggers had a lot to do with the competitive pressure put on railroads to streamline costs. You just couldn't go to the ICC any more. Fuel efficiency has improved nearly 100%. For the first time, railroads really did have to fight "for scraps" ... and any other business that they cared to solicit. Indeed, compared to your view of railroading then, railroading really became competitive after 1980, and by the means that genuine competition compels: continuous efforts to cut costs at every margin.
But, deregulation had a similar effect on trucking. Costs were cut, fuel efficiency has increased substantially.
Railroads had a 40% share of intercity ton-miles in 1970 and it kept declining. Railroads were losing market share because of one reason: price. See above: costs increasing to their highest levels historically during the 1970s. From 1860 to approximately 1930, railroad rates had virtually always declined. When that reversed, railroads began losing market share. Well, duh. When that reversed again after 1980 -- because of increased ability to actually fight over scraps -- railroad share began to increase again and is now approximately 43%.
"Merging of parallel lines," you say was one of the few options. No, it was in an entirely different category: operating costs. That has very little to do with the theory of merger, or of merging parallel lines. Indeed, in the areas where railroads have gained their efficiencies almost entirely is in those areas were they benefit the most -- operating costs -- and where they needed to push those productivity increases hardest because of the need to offer lower rates than competing railroads.
Indeed, none other than the STB disagrees with your premise. Union Pacific can't be said to have historically had significant long haul competition along its central corridor: it did, in broadly competitive terms, but not directly. Now it does as a result of one of the largest grants of trackage rights, to BNSF, in the nation's history: for the explicit purpose to increase competition by creating competition in parallel corridors.
Finally, your concept doesn't withstand historic or economic scrutiny. The most heavily competitive corridors in 1970 were generally in the Midwest. Generally, they all made money even during times when their corporate owners, as a whole, were losing money hand-over-fist. Admittedly, cost accounting on these things is more art than science, but I would give the gentlemen making the respective studies on these matters within the companies more credibility on the topic than, say, you.
And the second part of that defense goes to the cost of running trains. It costs substantially more, per ton-mile of freight, to operate a railroad over a line running 30 trains per day than it does to operate a railroad over a line running 15 trains per day. That is due entirely to the cost of friction -- the costs imposed by speed, timing, crew and equipment cost, transit time, and facility wear due to system operation -- in a railroad system, which is high.
Unlike manufacturing models -- which unfortunately academics and government officials attempted to utilize as "how railroads should operate" -- railroads do not maximize efficiencies at 80% or 90% of capacity. Railroads optimize at a surprisingly low utilization -- around 20-25%.
And that's what happened at BN. Everyone thought that all the GN/NP traffic could consolidate on the old GN line and achieve high efficiencies. The problem was, NP had been increasing its market share of transcon traffic during the 1960s and had been investing heavily in new ties and heavy rail. GN, with lighter traffic, and which had been declining, had invested little in heavier rail.
With its then-level of traffic, about 10-14 trains a day, GN had a pretty good operation, but even then because of its grade and route characteristics, had the highest operating costs, per ton-mile, of any of the Western railroads, with one exception. And while this isn't in accord with the conventional wisdom, it is firmly established in the statistical record.
However, the thinking on that was that GN simply needed more traffic to bring its per-ton-mile costs down, and that consolidation of the heavier NP traffic would kill two birds with one stone: lower unit costs on the GN line, and eliminate the onerous costs of curvature and multiple 2.2% grades on the NP line. Of course, "the thinking," or what passed for it in those days, didn't grapple directly with the fact of the NP's operating costs, on a ton-mile basis, being significantly lower than GN's. The NP was the line with all of the operating handicaps, right? Why would the NP have lower per-mile operating costs? Nobody asked the question. Everyone believed a public relations alternative, put forth by experienced operating people.
A lot of conventional wisdoms fell apart during that merger implementation.
Well, to make a long story short, consolidation of parallel lines in that case caused the unit costs of transportation to increase, not decrease. MOW costs shot through the roof after more than doubling the traffic on a line which had almost no heavy rail in place, which had seen its tie renewal program cut in half during the thirteen years prior to the merger; and just as 100 ton cars were becoming more common in the US rail system.
Now, can you tell me a story about one that "worked"?
You describe a merger that was poorly implemented -- if he has the right of it -- in the northwest. Some bad choices made. Gee, we haven't seen that before or since. You still show no lasting damage except (in an earlier post) loss of jobs and capital investment that were going to go away anyway (see the Milwaukee Road).
The difference 40 years later is that BN salvaged the most useful of the GN and NP instead of a bankruptcy court simply pulling up the GN. (Again, if he has given us an accurate picture of GN's pre-merger condition.)
The assertion that parallel lines did not compete in the days of the I.C.C. is sheer bunkum. While they might have been constrained from competing on price of identical services, they can and did compete with new services and new products. That's why there was such excitement surrounding such as the Southern's Big John jumbo grain hopper.
The point is that, for one reason or another, there wasn't enough traffic anymore to justify three lines between the Twin Cities and Portland/Seattle.
The Milwaukee went away. The GN and NP were combined. Worked out fine. Not what a railfan would have ordered, perhaps, but at least useful railroading has persisted into the 21st century, which was in doubt for a while.
dakotafred Wow, what billowing clouds of electronic black ink. As usual with ICLand, though, you wonder if the purpose is enlightenment or distraction and obfuscation.
Wow, what billowing clouds of electronic black ink. As usual with ICLand, though, you wonder if the purpose is enlightenment or distraction and obfuscation.
Well, you've been following me across a couple or more threads now apparently for the specific purpose of personally insulting me, trolling for responses, and then obfuscating about whatever the topic is at hand.
You have an opinion that attempts to justify events and conditions at a given point in time in history by a pre-arranged imposition on those events, of your opinion regarding outcomes and conditions 40 years later by a company that is not even remotely close in size and scope to the original BN, under economic conditions which are radically different, under a completely different regulatory scheme.
One of the useful aspects of merger proceedings was the requirement that merging companies specifically identify the proposed benefits and detriments if a proposed merger were approved. The ICC required these, under the watchful eye of the Justice Department which was tasked with supervising and analyzing the effect of mergers under anti-trust law, and the SEC required these for the purposes of full disclosure to shareholders since the "New Company," invariably referred to as Newco in the merger hearings, was in effect issuing a new prospectus for a new company -- which it would be if approved. These proposals would then undergo examination by SEC specialists who would examine the underlying assumptions to determine whether or not the promises to shareholders were realistic or, at the extreme, fraudulent.
So, by the time the record got through all the hearings and presentations and examinations and cross examinations, there was a thorough and detailed record of exactly what a merger was designed to achieve. Because, isn't that the point, to achieve something?
Merger specialists are in virtually unanimous agreement that, if a merger has benefits, those benefits must show up within the first three years. After five years, no study that I have ever reviewed was able to find specific merger benefits "showing up" for the first time, unless something really botched up at the outset. And so, detailed pro forma Balance Sheets, Income Statements, Cash Flow Statements as well as Operating Plans for the Newco are drafted that show specifically the purposes of a given merger, and these are generally projected out to five years, seven if someone is ambitious.
In turn, these pro forma projections are based upon probability analyses attempting to take into account "unknowns" in terms of forecasting, and so based upon (typically) Federal Reserve econometric forecasting, sometimes private forecasting, a range of probabilities will be projected which estimate risk for the purposes of assessing worst case scenarios, likely scenarios, and best case scenarios, and the probability of each. Because probability analysis at that level was not the everyday function of a railroad planning department, that task would often be farmed out to one of several investment banking firms that had specialized departments that did nothing but that kind of evaluation and risk analysis; partly because they were better at it, and partly to get their "name" as a reputable company, on the pro forma projections, as added credibility.
Opponents of a merger, the ICC's Bureau of Economic Research (later the Office of Rail Public Counsel), and the Department of Justice will often have similar, independent studies done.
So, the record is a clearly developed record, obtained by a clearly defined process, subject to extreme scrutiny as to what a merger is designed to achieve. That is to say, ultimately, the "opinion" about what a merger is supposed to achieve comes from the merging companies themselves and, if the merger is approved, accompanied by the approval stamps of the ICC, DOJ and SEC.
It is not a matter of opinion, then, as to whether a merger succeeded or failed. It is a matter of objective reference to what the companies themselves defined as success or failure.
There is not a single reference in the Northern Lines Merger proceedings to what anybody thought would be a nice outcome 40 years later. And this goes, again, to the previous comments about IRR, and, in this case, the fact that you can't predict out that far, and it would be a waste of time to try and do so. It would be beyond idiotic to attempt to premise a current proposal upon an outcome 40 years in the future in a business context. And it simply never happened.
The Burlington Northern Merger did not obtain any of its stated objectives. Its subsequent performance fell below the worst case probability analysis. Had it not been for an 1862 Land Grant, it is likely that the history of Western railroading would have changed considerably by 1977 when BN may very well otherwise have been compelled to enter bankruptcy.
Rather than trying to justify a railfan religion, the better and more useful question about the BN merger is to ask why the pro forma projections were so wrong.
As I attempted to point out, using some actual facts, I believe there were some serious misunderstandings regarding capacity models used at the time. I also think there was a considerable amount of horseplay afoot to maintain the stock valuations of the respective companies. As I pointed out on another thread, the joint engineering team that performed the system review in the Spring of 1970 came away somewhat shocked at conditions. Everybody thought the other guy was doing better than their own company and it was only when the curtain was fully opened to that comprehensive review was their a realization that "uh-oh, we've got a problem."
In hindsight, it is fairly clear in the published statistical record that tie replacements on the three major participants had been severely curtailed for a number of years. NP was the only transcon of the bunch doing heavy rail replacement. These can be looked up.
Similarly, so can the statistics regarding the costs of transportation (an ICC accounting category) of the various Western roads, and you see some odd anomalies that just don't fit the "narrative" and one of those compelling anomalies was the very high cost of transportation, per unit volume, of the Great Northern Railway, compared to the other Western roads. Somebody apparently recently did a study on that; and I got an email about it sometime ago. It was an eye-opener, a real "wow" moment.
It caused me to rethink the BN merger from a different perspective, not changing my opinion about the statistical outcome, but rather going to the reasons why the outcome may have been so much less than predicted, even negative. And I don't recall reading anything about during the Northern Lines merger proceeding..
It would make a terrific doctoral thesis for somebody to go back and re-evaluate the BN merger from the standpoint of what modern econometric models would show, based on the data, compared to the ones used then. But also, to explain why the GN was so atrociously costly to operate and why, then, was traffic consolidated to that line. And i know the answer that was given then, and it made sense to me and likely everybody else then, but it looks to me -- and I have not done the thesis and don't intend at my age to do so -- that there was a premise problem to the whole enterprise. It didn't matter what they projected, a misunderstanding of a key premise dooms all projections based on it to failure.
Of course, this extended comment, offered as a courtesy to you as to my thinking on the topic, and which invariably for some reason always elicits a derogatory personal insult or two from you, I am sure will have the same result this time. However, this underscores an earlier observation that working with engineers always has been more productive for me because 1) they rely on facts not opinions, and 2) they separate religion from business.
dakotafred You describe a merger that was poorly implemented -- if he has the right of it -- in the northwest. ... The point is that, for one reason or another, there wasn't enough traffic anymore to justify three lines between the Twin Cities and Portland/Seattle.
You describe a merger that was poorly implemented -- if he has the right of it -- in the northwest. ...
I misunderstood. I thought the discussion was about mergers. You appear to want to discuss Milwaukee Road for some reason or the effect of a given merger on somebody else.
Well, I thought the thread related to mergers, not to levels of traffic necessary to sustain profitable operations. "The point is ..." wasn't the point that I could see anywhere on this thread until you made the declaration.
How much "traffic" do you think would justify three lines? What levels make the difference? Why? How would that justify or excuse the intrinsic success or failure of a given merger?
There is an extensive, developed record from that era on the proposed merger. Approximately 500,000 pages of testimony and exhibits, and about 3,000 pages of findings and conclusions. At the time, I read through every single page. There is not a single mention of the assertion you now make.
Considering that the record is composed of studies, argument, and observations from over 15 railroads, and myriad other entities, and nobody saw your contention with the clarity you do, I suppose humility compels me to admit I didn't see it either. Admittedly, they were encumbered by facts, but sometimes it takes a fresh look to see the truth.
My point, however, was the original BN merger more or less compelled subsequent mergers by that company, and that any given future merger, such as BN/ATSF, was always to some extent captive to decisions made earlier, or as in the case of UP/SP, for reasons internal to the corporate and financial dynamics of the companies involved rather than external or competitive considerations. And that remains my view for the original BN merger. My additional point was that failure of the BN merger to create the synergy of size gave the Union Pacific Railroad -- a much smaller company at that point -- a great deal of breathing room in the "merger race."
A reminder- this is from the forum policies section: No personal attacks or name-calling. Please keep conversations cordial. We understand that there will be differences of opinion. Please don’t let those differences turn ugly. Accept that others might not have your same point of view, don’t sink to personal attacks. Nothing is gained by doing so. I have edited out some things from a few posts. Let's try to keep this civil and on track. If you disagree with someone, explain what you disagree about, and why. Childish name-calling, whether blatant or wrapped in snide remarks does nothing to promote discussion. I'm not going to take the time to read each post on this thread and wash out the name calling. From here on, on this thread, if your post violates the wording and/or the spirit of the forum policy reference above, I think I'll just delete it, and send the author a PM.-Norris user/moderator
Thanks to Chris / CopCarSS for my avatar.
ATSF+Conrail+KCS is one that should have happened. It would have been an end to end merger with a long haul.
fecsd40-2 ATSF+Conrail+KCS is one that should have happened. It would have been an end to end merger with a long haul.
Interesting - would have been kind of a rough 'mirror-image' of CN+IC, or maybe a southern version of that [EDIT] upside -down 'T' shape.
But it would not have included the Powder River Basin, Pacific Northwest, or the Southeast US, all of which are significant traffic sources and destinations.
Years ago, when the Main Office of BN was still in St. Paul, I heard this interesting tale regarding the BN-ATSF merger. A BN Computer Operations person was going to a computer systems conference and was asked, to his surprise, by someone from the Legal Dept to find out what computer systems were used by UP, ATSF, and SP. He was asked to do this "quietly" and to report back only to that person. What he found was the BN and ATSF used the same system. UP used a different system and SP used another different system.
Now, remember what happened soon after the merger when UP had all kinds of problems with many unhappy customers that had been served by SP?
RKS
What fun! As an insider at the time, here's my take on it:
No, UP+CNW did not cause BN+ATSF. BN first made overtures to Krebs some time back in '88-89, as ATSF was staggering out of the failed SP-SF attempt and being circled by takeover sharks (Sam Zell et al). Krebs (and presumably the board) agreed BN was a good fit, but decided BN's offer was too low. They found a white knight (Olympia & York) willing to finance an internal restructuring and Krebs split up the company (spun off land, mining, etc.) and went to work on the railroad. The new 'pure rail play' ATSF stock debuted at around $6 a share, was up to $11 a year or so later, and eventually fetched an offer of somewhere in the $30's from BN. UP deemed this still too low so drove up the price to $45 or so, as others have correctly noted here.
Given this track record I find it interesting that some deem Krebs' tenure at ATSF a failure. No, he did not have a warm personality nor did he get along with all his people. And, true, ATSF alone could not get its OR below 80%. But I believe that had more to do with the fact that ATSF had virtually no online coal or power plants, a weak chemicals portfolio, and was dependent on intermodal for 50% of its traffic and revenue, than with any significant management failings.
Think about it, 50% intermodal! For just about every other big class 1 at the time, intermodal was barely break-even traffic that was only taken on in order to sop up capacity they couldn't use for anything else, and never amounted to more than 10-20% of the business. So the bit about BN wanting ATSF management is at least partly true, but it wasn't just Krebs they were looking at. It was people like Carl Ice, who were figuring out how to make at least a little bit of money from intermodal. Also don't forget that ATSF's new computer system (which a whole bunch of people within ATSF had built from scratch) was immediately adopted by BN, purchased outright by CN (and look at 'em now) and pretty much set the new standard for the industry over the following decade.
But I digress. The BN+ATSF merger was pretty much inevitable from the minute the SP+SF merger failed, and the reason SF had to merge with SOMEbody was... wait for it...
UP+WP+MP
If you don't immediately see my logic:
1) refer to a map and think about it
2) refer to earlier posts about the positive effect of simply being the largest competitor
2) note one of the first things UP did after snagging WP and MP was to attack ATSF's automobile business, which in the early '80's was extremely lucrative for them. UP lowered the rates by almost half and essentially bought the business, both because they could afford to and because they knew ATSF didn't have any high-margin online traffic, such as chemicals or PRB coal, to replace it with. UP understood that the manufacturers (the domestic 3, anyways) would always choose price over service, that there were economies of scale in hauling autos, and that it was an advantage to be able to offer one-stop shopping for virtually every major market west of the Mississippi.
There may be more to the story; this is only what I saw from my perspective. And now that I've mentioned UP+MP+WP, someone else will no doubt point a finger at whatever caused that. Trying to figure out the root cause of rail mergers is a bit like trying to figure out who hit first in the Balkans. But a lot more fun!
Thanks for those in-sights !
The Jan/Feb 1998 issue of the defunct magazine Vintage Rails has an interview with UP's past president, John Kenefick. He talks about, among other things, the UP-MP-WP merger and the thinking that led to it.
Jeff
A few comments
1: On ATSF being in bad shape. I'm no expert or insider, but as near as I can figure, this is railfan/railroad bias. ATSF was cash poor compared to BN, because a large part of their revenue source was Intermodal, but it was not in finacially tenuous condition. It was a good operation in the 1990s.
2: On Krebs, some would tell you that Krebs had nothing to do with Santa Fe's success and it was all Haverty's doing. Haverty was already gone of course by the time the merger came around. His work at KCS should suggest that he knows what he's doing at least. Krebs was an SP guy and, again this is fan bias, but I have a hard time thinking that anyone that came up in the SP system really knows what they're doing, at least from a leadership perspective. It's a bias for sure, I have no idea if it's true.
3: As I recall, in 2007, the State of Washington started floating the notion of finding SOMEONE to reopen Snoqualmie. The line is as I understand it railbanked. It's a hiking trail, but banked. BNSF was at capacity on Stevens pass and through the gorge and apparently on stampede pass. So I find the notion that route consolidation was clearly the proper choice to get where we are today a little laughable.
As pure speculation, and I'm not an expert of any type in these matters, so please correct my ignorance, but it seems like end to end mergers or mergers of vastly different regions make more sense to the layman.
For an example. The Western Pacific and C&NW mergers for UP make complete sense to me. Getting from the Bay area to Chicago all on one railroad seems like a good thing. Similarly I can understand why BNSF makes sense. They don't with the exception of somewhat in Texas and Illinois really provide competing routes.
I don't however get the BN merger in the first place.
I mean I understand route consolidation and based on the information in this thread, it seems like the primary problem was that they consolidated on the wrong route, but the notion that traffic levels are fixed seems anathema to everything inherent in the market system. The merger seems to be about the divisions on a fixed size pie which is just not how this is supposed to work.
One wonders, in the realm of purely speculative how things would have fallen out had CB&Q and NP been the merged lines.
Or if SP had gobbled up MILW.
A good resource for anyone interested in the history of both the BN and BNSF mergers is the book
"Leaders Count" by Lawrence H. Kaufman; copyright 2005 by BNSF Railway, published by Texas Custom Publishing and distributed by Texas A&M University Press. I don't know if it's still available from Texas A&M; in 2005 BNSF sent every employee a copy, I kept mine but it seemed that most of the employees threw their copies away (judging from comments I heard) so I'm not sure how many copies are still extant.
I found it to be worthwhile reading although somewhat biased (obviously) in favor of the carrier. I found a few factual errors also, with the biggest (to me) howler concerning the Minneapolis & St. Louis Railway. The book claimed that "In 1957, after 35 years in reorganization, the M&StL was merged into the CNW" (page 181). Actually, the M&StL completed reorganization in 1943 (20 years after entering receivership), and the railroad assets (only) were sold to the CNW on November 1, 1960.
The book's biggest strength is that the author was able to interview many former and current railroad officials, and received some solid, candid replies from them. Some of the best information came from the late Robert W. Downing, who started as an Assistant Trainmaster on the GN and retired as BN Vice Chairman.
Mr. Downing was extensively involved with the BN merger studies and is quoted directly many times, other passages suggest they were based on his information.
Regarding the GN, the book states (but doesn't quote him directly) that "Despite the best efforts of the GN managers and fairly stable volumes of freight as measured by tonnage, financial performance was lackluster at best. The operating ratio, which for a long time had been in the mid-70s, went above 80 in the late 1960s. During this period of declining railroad earnings, the GN was buoyed by non-operating income, mostly dividends and interest in other companies. The GN owned shares in pipeline companies, the WP RR, and Trailer Train. And, of course, the GN held its interest in the CB&Q, which continued to pay dividends."
To be continued... (I'm hungry and am going to make supper!)
Kurt Hayek
Back in action with a full tummy and a cold drink in hand (no Rule G here!):
First, a slight addition to my previous message: The quote about the GN's finances was from page 138 of "Leaders Count." Quotations in this message are also from same book.
Until reading the book I don't think I had realized how far back planning for the present-day BN merger went; here's a brief timeline to illustrate:
1955: Steering committee established to study potential for consolidation.
July 16, 1960: GN, NP, and CB&Q announce that they would seek federal approval to merge.
1961: Stockholders of all three railroads approve merger, merger application filed with ICC, hearings begin.
August 24, 1964: ICC examiner Robert Murphy approves merger plan subject to certain conditions.
April 27, 1966: Full ICC rejects proposed merger plan; GN & NP petition for reconsideration.
January 1967: ICC grants re-hearing.
November 30, 1967: ICC now approves merger; US Dept. of Justice successfully challenges merger in courts.
February 1970: US Supreme Court rules that merger can proceed.
March 2, 1970: Merger becomes effective; Burlington Northern begins operations.
From the book:
"The extended process wasn't helpful from a financial standpoint, but "as a matter of getting the thing to work, long planning certainly was helpful," said Downing. Officials of both railroads had more than enough opportunity to get to know each other, and Downing added: "They also didn't know who was going to be boss, so they had to be nice to each other"" (page 150).
""There was a joint planning committee of the operating officers of both companies," Downing noted. "They planned how this thing would work, realizing that they might well be the ones who had to do it after merger"" (page 151).
"Operationally, the new BN was able to implement a pre-merger study that determined the most economic and efficient routes to be used once the railroads were combined. This plan affected primarily the former GN and NP which essentially were parallel railroads. "We set up preferred routings on which we would concentrate freight traffic, especially transcontinentally," Downing said. "The NP as a railroad was considerably less profitable than the GN. The reason for that was that their route structure was not as efficient. They crossed the Rocky Mountains twice. You cross the Continental Divide west of Helena, Mont., but before you get there, you've already gone out of Livingston and up over Bozeman Pass west of there. You come down the other side, and then you go back up again at Helena. It was longer. Their costs to get a train from St. Paul to Seattle were simply higher; the NP was longer and it had less favorable grades. So when the time came to merge the two companies, we used the NP from St. Paul or Minneapolis to Fargo, N. D., the GN from Fargo to Sandpoint, Ida.; and then the NP to Spokane, and the GN from Spokane to Seattle. in each case, those segments were the most efficient. So. we pieced the best parts of each company, and the GN was about 75 percent of the total"" (page 169).
The merger studies indicated considerable savings: "The gains to be obtained from the merger far outweighed costs of concessions to labor and competitors. All but 309 miles of the NP main line were to be reduced to secondary status, which would relive the new railroad of a huge amount of maintenance-of-way expense and future capital spending needs. The consolidation of nine separate yards in the Minneapolis and St. Paul area into one modern facility would enable the new company to handle freight in one-seventh the time previously required—and at a huge saving in operating expenses" (page 145).
Growing up in Minneapolis, and later working for the BN at Northtown, I saw the results firsthand. Counting smaller industry and support yards, the yard total was closer to double the nine mentioned above.
The GN had a particularly poor yard set-up; their main yard was Union Yard in Southeast Minneapolis, with the east end at the Minneapolis-St. Paul boundary. The yard was hemmed on the north by CNW's (ex-CMO) East Minneapolis Yard, and on the south by CGW's East Minneapolis Yard (later CNW's Southeast Minneapolis Yard) and a massive complex of grain elevators and other industries served by the CGW and NP. Motive power and cabooses were serviced at Minneapolis Junction roundhouse which was two miles west of Union Yard. So, all road power (and cabooses) had to be shuttled back and forth in caboose hops or light engine moves between the two points.
West of downtown Minneapolis on the GN line to Willmar were more yards strung along the main lines going as far west as St. Louis Park. The first major yard west of downtown was the big yard at Lyndale Junction, next was Cedar Lake Yard (actually two yards, one after the other).
With such scattered yards plenty of transfers were needed, and road trains would make pickups and setouts at outlying yards also.
The effect of the new BN Northtown Yard was dramatic, according to a BN switchman I worked with. He had been holding regular days-off as a switchman, but after Northtown opened he ended up about one hendred deep on the Switchman's Extra Board.
The Duluth-Superior (Head of the Lakes) area had plenty of potential for consolidation also (another first-hand observation). Both GN and NP had lines from the Twin Cities to the Twin Ports (even with traffic increases over the years the one surviving GN line still has plenty of capacity)
From Carlton (west of Duluth) the NP had a line via West Duluth to Duluth; and GN and NP each had a line going down the hill to Superior (the two lines even crossed each other at Sate Line Tower). The GN was double tracked to handle ore traffic from the Mesabi Range; by the 1960s natural ore shipments had declined enough that the GN line had an abundance of capacity. So, both the NP lines were redundant, especially the original NP via West Duluth with its steep grades.
In the terminal itself, the NP had one ore dock and associated ore yard, GN had four docks and the massive Allouez Yard for their ore business. As mentioned above, natural ore traffic was declining so Allouez had extra capacity; with that the NP dock certainly wasn't needed and could be closed.
Both GN and NP had side-by-side yards in Superior north of Belknap Street; here the NP yard was smaller and not as well situated so it was another retirement candidate.
GN had a roundhouse and car shop in Superior, NP had the same in Duluth at Rice's Point Yard; obvious duplication and the NP facilities were retired.
Rice's Point Yard itself was slimmed down, although this didn't occur until some years after the merger. The former GN Birch Street Yard on the other side of Rice's Point was mostly removed also.
Out west, Spokane had plenty of consolidation potential, but I'll leave the detailed descriptions of that to someone more familiar with the area.
To be continued again... (time for bed!)
YoHo1975 2: On Krebs, some would tell you that Krebs had nothing to do with Santa Fe's success and it was all Haverty's doing. Haverty was already gone of course by the time the merger came around. His work at KCS should suggest that he knows what he's doing at least. Krebs was an SP guy and, again this is fan bias, but I have a hard time thinking that anyone that came up in the SP system really knows what they're doing, at least from a leadership perspective. It's a bias for sure, I have no idea if it's true.
I have to be careful how I say this since I'm not retired yet ... but here goes. I admire Rob Krebs enormously. There are only a handful of CEOs that transformed railroading like he did: Ralph Budd, Downing Jenks ... it's a small list.
RWM
YoHo
I was a low level staff guy with SP when Krebs was Vice President Operations. He was obviously very smart and very dedicated to running the railroad right. They one time I dealt with him on a stressful issue he treated me entirely correctly. I continue to hold him in high regard
I can also recommend as men of exceptional quality John Ramsey, C. T. Babers and Rollin Bredenburg. This list does not include all of them by any means. SP had a long established management training program and had more than their share of good, smart operating people.
W.J. Lacy ruled by intimidation. He spread the fear that you seem to be concerned with and frankly he accomplished far less good in my opinion than any of the others I have mentioned.
The worst problem at SP was at the very top, Ben Biagiani, and his hand picked Board of Directors. In the late 1970's and early 1980's he tried to feed two capital intensive businesses, the railroad and what became Sprint communications, plus he bought Ticor title insurance just before the depression of 1980-82 destroyed Ticor's earnings.
He would have been better to have passed Ticor and spun off Sprint to stockholders early to let it access the capital markets directly. Oh to rewrite history with 20-20 hindsight and without the responsibility!
Mac
CNSF What fun! [snip] And, true, ATSF alone could not get its OR below 80%. But I believe that had more to do with the fact that ATSF had virtually no online coal or power plants, a weak chemicals portfolio, and was dependent on intermodal for 50% of its traffic and revenue, than with any significant management failings. Think about it, 50% intermodal! For just about every other big class 1 at the time, intermodal was barely break-even traffic that was only taken on in order to sop up capacity they couldn't use for anything else, and never amounted to more than 10-20% of the business. So the bit about BN wanting ATSF management is at least partly true, but it wasn't just Krebs they were looking at. It was people like Carl Ice, who were figuring out how to make at least a little bit of money from intermodal. [snip; emphasis added - PDN]
Think about it, 50% intermodal! For just about every other big class 1 at the time, intermodal was barely break-even traffic that was only taken on in order to sop up capacity they couldn't use for anything else, and never amounted to more than 10-20% of the business. So the bit about BN wanting ATSF management is at least partly true, but it wasn't just Krebs they were looking at. It was people like Carl Ice, who were figuring out how to make at least a little bit of money from intermodal. [snip; emphasis added - PDN]
This is pretty much corroborated by the lengthy article that appeared in Trains in the mid-to-late-1990's or so by a former ATSF marketing guy (whose name I cannot remember). He described how it 'sliced and diced' (my term) the InterModal traffic into something like 17 different market segments with regard to service needed in terms of schedule and transit time, priority, consistency/ reliability, rate/ price, etc., and then solicited and priced each so as to maximize the "revenue yield" - an early railroad version of what the airlines do with flight/ seat prices and some other businesses as well today.
I was a member of that ATSF Intermodal marketing team, though not the individual behind the article. Segmenting the traffic based on service requirements and what it would pay was part of the trick, but the other part was actually using that knowledge to generate operating savings while at the same time doing a better job of meeting customer expectations than our competitors. The fact that our operating department was able to do both of those things simultaneously led me to believe that they were one of, if not THE, best in the industry in the '90's. Furthermore, both the marketing and operating teams were enabled by a superb costing group which gave us the information to make intelligent decisions - and that's where Carl Ice came from.
On Krebs v. Haverty, they both have their loyalists and detractors, but personally I feel that the real problem was that they were both good, but had different styles, and in the end, Santa Fe wasn't big enough for the two of them. Haverty's decision to bring back the red-and-silver paint scheme galvanized morale at a time when it was probably near an all-time low, and he provided the personal touch needed to seal the J.B. Hunt deal that revolutionized the industry. But Krebs was the visionary who put us into "quality school" not because it was the latest fad, but because he really believed it would make us a better company (and it did), and who launched the "build it and they will come" capacity expansion that also proved to be correct.
I never would have believed anyone could work in marketing/sales in the rail industry and turn away customers, but that's exactly how it was in the mid-90's. We had a long line of unhappy SP, Pacer, and UP customers outside our door, and the M&S people's job was akin to that of a nightclub bouncer, deciding who would get in and who wouldn't. Krebs, Haverty, and countless others all share in the credit for that.
As for SP, well, I always figured their middle management at least must have been wizards, to keep that thing going as long as they did in the shape it was in. And look what happened when UP took over and fired them all! I did get a chance to personally work with a few former SPers, and can attest that Rollin Bredenberg and Don Skelton were good.
CNSF What fun! As an insider at the time, here's my take on it: No, UP+CNW did not cause BN+ATSF. BN first made overtures to Krebs some time back in '88-89, as ATSF was staggering out of the failed SP-SF attempt and being circled by takeover sharks (Sam Zell et al). Krebs (and presumably the board) agreed BN was a good fit, but decided BN's offer was too low. They found a white knight (Olympia & York) willing to finance an internal restructuring and Krebs split up the company (spun off land, mining, etc.) and went to work on the railroad. The new 'pure rail play' ATSF stock debuted at around $6 a share, was up to $11 a year or so later, and eventually fetched an offer of somewhere in the $30's from BN. UP deemed this still too low so drove up the price to $45 or so, as others have correctly noted here. Given this track record I find it interesting that some deem Krebs' tenure at ATSF a failure. No, he did not have a warm personality nor did he get along with all his people. And, true, ATSF alone could not get its OR below 80%. But I believe that had more to do with the fact that ATSF had virtually no online coal or power plants, a weak chemicals portfolio, and was dependent on intermodal for 50% of its traffic and revenue, than with any significant management failings. Think about it, 50% intermodal! For just about every other big class 1 at the time, intermodal was barely break-even traffic that was only taken on in order to sop up capacity they couldn't use for anything else, and never amounted to more than 10-20% of the business. So the bit about BN wanting ATSF management is at least partly true, but it wasn't just Krebs they were looking at. It was people like Carl Ice, who were figuring out how to make at least a little bit of money from intermodal. Also don't forget that ATSF's new computer system (which a whole bunch of people within ATSF had built from scratch) was immediately adopted by BN, purchased outright by CN (and look at 'em now) and pretty much set the new standard for the industry over the following decade. But I digress. The BN+ATSF merger was pretty much inevitable from the minute the SP+SF merger failed, and the reason SF had to merge with SOMEbody was... wait for it... UP+WP+MP If you don't immediately see my logic: 1) refer to a map and think about it 2) refer to earlier posts about the positive effect of simply being the largest competitor 2) note one of the first things UP did after snagging WP and MP was to attack ATSF's automobile business, which in the early '80's was extremely lucrative for them. UP lowered the rates by almost half and essentially bought the business, both because they could afford to and because they knew ATSF didn't have any high-margin online traffic, such as chemicals or PRB coal, to replace it with. UP understood that the manufacturers (the domestic 3, anyways) would always choose price over service, that there were economies of scale in hauling autos, and that it was an advantage to be able to offer one-stop shopping for virtually every major market west of the Mississippi. There may be more to the story; this is only what I saw from my perspective. And now that I've mentioned UP+MP+WP, someone else will no doubt point a finger at whatever caused that. Trying to figure out the root cause of rail mergers is a bit like trying to figure out who hit first in the Balkans. But a lot more fun!
I agree that UP-CNW didn't cause BNSF. I, too, was on the inside at the time, but at CNW, not on the BN or ATSF side of things. As I mentioned in an earlier post, the "cause and effect" was the reverse. It was the announcement of the BNSF merger, and UP's failed run at ATSF that led to UP's complete takeover of CNW, which had not previously been UP's intention.
One thing to keep in mind is that UP and CNW had a very close strategic relationship long before either the UP-CNW or BN-SF merger. UP and CNW, of course, had closely cooperated in CNW's entry to the Powder River Basin in the 1980's, and the two railroads proved to be powerful competitors for BN's coal business. From a strategic perspective, the two roads were effectively a single competitor to BN for PRB business from 1984 on.
Now, fast forward the the abortive attempt of Japonica to take over CNW in 1989-1990 (I may be off by a year). UP was a "white knight" in this effort and provided much of the financial muscle that ultimately defeated Japonica. In return, UP got two things - trackage rights over CNW's stategic east-west line and the right to appoint directors to the CNW Board. The trackage rights became effective in January, 1991, and effectively gave UP the ability to unilaterally control the marketing of most UP-CNW service over this important corridor (CNW continued to physically operate the service under a "haulage" arrangement, but it was subject to strict service commitments). And, the agreement giving UP the right to appoint directors to the CNW Board had been public knowledge since Japonica, although UP could not fully exercise these rights until the ICC granted UP "control" authority. In other words, from the perspective of BN and ATSF, UP and CNW were as closely tied together as they could be without an actual merger by 1991, and it was clear that the relationship was going to be even closer when the ICC control proceeding was concluded. If the BNSF merger had been "caused" by UP-CNW, it would have been agreed to earlier than 1994.
Finally, those who remember the details of the UP-CNW control proceeding may recall that, while the "control" authority UP sought permitted a full merger, UP repeatedly stated throughout the proceeding that they had "no present intention" to do a full merger or take complete control of CNW. That was also the position they expressed privately with CNW officials. CNW officials, of course, didn't know what was going behind closed doors in Omaha. But, from CNW's perspective, UP seemed to change its mind about a full merger after its failed run at ATSF, particularly from December, 1994 on.
Just to clarify, I'm quite sure there were many intelligent if not brilliant railroad people at SP, I guess my bias is No money for new units, pulling up Track one at Donner, because they couldn't afford new rail on the Sunset, etc etc.
SP in the 70s and 80s feels like a railroad on the brink.
I didn't know about Ticor, knew a bit about Sprint.
Would spinning off Sprint earlier even have worked? Given the way AT&T fell out?
Still, if you look at a Fiberoptic Trunk Map of the Wester United States, where those route go, it looks eerily similar to a railroad route map and for that, you have to credit visionary. Just think, our posts about trains on the internet are probably being bounced around cables that were installed by those railroads.
So, I hate to ask people on the Day before Thanksgiving to devote time to educating little ole me on the internet, but I'm curious to see a bit more debate on the GN vs. NP routing. It seems that in fact the merger team spent the better part of a decade if not longer figuring out which route would result in better efficiencies, but that maybe all of that was based on a false assumption?
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