One hundred plus years ago, I'm sure most big businesses, railroads included, did some serious investigation before investing in a major business expansion. I've been trying to find the justification the Milwaukee Road envisioned for it's Pacific Coast Extention built in 1909. By then, there were 5 American transcons: UP(1869), ATSF(1882), SP(1883), NP(1883) and GN(1893). There was also a true Transcontinental north of the border. CP(1889) went from Atlantic to Pacific. If there was a big need to get freight to or from the Pacific coast, it would seem like there was ample railroad capacity already in place. I'd have to believe, that a fair amount of heavy, low paying fright still went to the west coast by ship. The trade coming from the orient was what?- tea, silk and spices? Given that the Chicago, Milwaukee & St. Paul didn't have a crystal ball, what did the directors use as justification to extend a midwest Grainger railroad to the Pacific?
Thanks to Chris / CopCarSS for my avatar.
I'm going to be interested in seeing a knowledgeable repy to this myself. It's always been difficult for me to understand what they were thinking, particularly since there were already 3 existing transcon routes to the Pacific Northwest (GN, NP and UP). Probably it was in the nature of "if we build it, they will come", coupled with the euphoria in transportation investment (otherwise called a "bubble") of the times. Remember, this was the same era that produced the ill-advised investment in interurban electrlc railroads. Clearly, the investment in the Pacific Coast extension proved to be a mistake, as it ultimately bankrupted the comapny
I believe the Milwaukee Road Pacific Coast Extension was built to gain entrance to a government sanctioned and enforced railroad cartel.
The original "St. Paul", later the "Milwaukee", had made a good return to investors by linking the northern transcons, which terminated at St. Paul, with Chicago and eastern connections. In this situation, the St. Paul was a profitable part of the cartel.
When those two northern transcons bought the CB&Q and their own route to ChiTown, the St. Paul had a problem. They would get cut out. What to do?
They decided to build on out to Seattle and get cut back in to the cartel. The government had a really bad idea that the right thing to do was to enforce rail rate levels that allowed the weakest, least efficient, railroad serving an origin-destination pair to be financially successful. So there was little percieved risk. The government would enforce prices that would make the PCE finacially successful. Heck fire, why not build it! The government would see to it that the general population would suffer and bear the cost of excess rail capacity.
It wasn't the first rail line to be built to gain entrance to a cartel, and it probably wasn't the last. (A cartel uses too many economic resources, such as railroad capacity, to produce a given economic output. A monopoly uses too few. Niether one is desireable.)
But the government lost control of the cartel soon after the PCE was built as motor freight developed. A knowledgeable, enlightened government (I know, dream on) would never have enforced the cartel. Just let the market forces work and the public would have been generally better off. But then, the likes of one Joseph B. Eastman wouldn't have enjoyed his exhaulted government job in that case.
More on him later. I've just ordered his 1952 biography from an Amazon dealer.
There are quite a few good books on the Hill Lines as well as MLW...Northwest railroading has a big fan base and your library surely has these books.
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Since the Hill Lines bought the CB&Q, both the Milw and the C&NW lost a lot of through business they picked up in St Paul and forwarded to Chicago. The Milw had trans-con ambitions and decided to build the Pacific Extension. There appeared to be a lot of traffic available, but there several issues:
The Milw wound up with massive debt. Add the traffic taken away by the Panama Canal, and the Milw never really recovered financially and went into receivership. Even after re-organization, the debt load kept the Milw throttled...
Jim
Modeling BNSF and Milwaukee Road in SW Wisconsin
I remember reading the C&NW Cowboy Line was considered for expansion to the West coast. The CB&Q did surveys on a line from Denver to Salt Lake City.
Why did these Grangers not expand farther west? Are there corporate records on the subject?
greyhounds- I see where you're coming from, but..... Even if the rates were set by the government, that was no guarantee that there would be enough business to go around, or, as history later pointed out, enough to support all competitors in the northwest. Nor, was there any kind of guarantee that the Milwaukee could get any of that business at all.
henry6 There are quite a few good books on the Hill Lines as well as MLW...Northwest railroading has a big fan base and your library surely has these books.
I vote for the explanation submitted by greyhounds above, for a couple of reasons.
First, for historical context, since no date was provided yet above: "Chicago, Burlington & Quincy Railroad . . . Control acquired by Great Northern and Northern Pacific in 1901." (from the "BNSF Railway Merger Family Tree" here at: http://trn.trains.com/en/Railroad%20Reference/Railroad%20History/2006/06/BNSF%20Railway%20merger%20family%20tree.aspx ) So that supports the post.
Second: In a previous thread on this subject within the last year, I noted that Charles and Dorothy Wood in their book Milwaukee Road - West (Superior Publishing, 1972) stated that the impetus for that extension was to avoid being "marginalized" (my wording) by the other Upper Mid-West railroads that surrounded them, to avoid being left with just the local branch line agricultural and some urban traffic. I didn't quite understand that at the time, but now it makes perfect sense with the facts as organized by greyhounds. That is entirely typical and predictable behavior by members of a cartel - just as in poker, if you don't ante up with your own line, then you have to fold and leave the game - which the MILW was unwilling to do. Add to that the interlocking directors - chiefly John Ryan of Anaconda Copper in Butte needing another railroad to compete with the NP, as I recall - and you can see where the momentum was heading.
Third: See George W. Hilton's several articles on that behavior in Trains from the 1960's and 1970's, as follows:
No, there were no guarantees of the sort you point out - and that became painfully evident as the MILW went into bankruptcy in the otherwise economically good 1920's (I believe), and many other railroads did later on. But it did take the factor of price competition as between 2 or more railroads off the table for shippers, and so "leveled the playing field" in that respect - so they would then compete on the basis of seemingly non-monetary aspects of the business, such as "service", speed/ transit time (the MILW's extension was supposedly 18 miles shorter than the NP's, if that really mattered to anyone - and had better grades, per: http://en.wikipedia.org/wiki/Chicago,_Milwaukee,_St._Paul_and_Pacific_Railroad ), car supply, golf games, etc., etc.
- Paul North.
Murphy Siding Our city has 4 libraries. I can honestly say that I've read every railroad book in those 4 libraries. I've also read just about every railroad book that my friendly librarian can find for me through inter-library loans. I also own 100+ railroad books of all types. (And given away another couple of dozen.) The problem I have, is in finding titles of good books. If there is a book out there that explains the decision process behind the PCE, I haven't run accross it yet. Any mention of it in a book about the Milwaukee Road seems to be written by a fan, explaining what a great milestone it was for the railroad. If you think of any titles you'd suggest, please let me know. Thanks
About libraries and train/railroad books: 1) too often library people don't know the differences between model and toy trains and real railroad history, operations, pictures. etc. so books can be mixed between two Dewey number locations, you've got to check both places on the shelves as well as regular and oversized locations for both. 2) if you can't find it in your library, search through the system or ask your librarian to search by title or heading for books in other libraries..
henry6 About libraries and train/railroad books: 1) too often library people don't know the differences between model and toy trains and real railroad history, operations, pictures. etc. so books can be mixed between two Dewey number locations, you've got to check both places on the shelves as well as regular and oversized locations for both. 2) if you can't find it in your library, search through the system or ask your librarian to search by title or heading for books in other libraries..
Victrola1 IThe CB&Q did surveys on a line from Denver to Salt Lake City. Why did these Grangers not expand farther west? Are there corporate records on the subject?
IThe CB&Q did surveys on a line from Denver to Salt Lake City.
The CB&Q surveys 1882-1885 happened in the middle of a financial panic. The Q had a tough time surviving and its priorities changed. Those surveys were filed under the guise of the "Colorado Railway" and filed with the GLO (BLM today). In several places, those surveys were later built, not by CB&Q, but by DNW&P and D&RG(W)...and are part of the Union Pacific's Moffat Sub and Glenwood Sub......DRGW bought the rights to Colorado Railway's surveys on the Aspen Branch and through the Glenwood Canyon to control their access in some narrow or limited access places.
The 1883 Colorado Railway Survey through Gore Canyon figures prominently in the 1905 UPRR/Moffat DNW&P "Gore Canyon War" that also involved Teddy Roosevelt. CB&Q saved Moffat's butt for a price. (UP tried to kill off Moffat by damming the Gore Canyon with a phony water/hydro-electric project - Ironically, who owns the line today?) Moffat's Chief Engineer, Horace Sumner, was part of that 1883 Colorado Railway field crew as an assistant locating engineer.
Excellent book on the Milwaukee Western Extension:
http://www.amazon.com/Milwaukee-Roads-Western-Extension-Transcontinental/dp/0972335668
Stan Johnson did a really nice job explaining what evolved instead of just publishing another worthless cofffeetable book with pictures of the railroad's shiny toys.
The CB&Q corporate records reside in the Newberry Library in Chicago (west of the Loop)...CNW's records are scattered between Chicago & Iowa City. (still exist, hard to access)
Those who think the Milwaukee was one railroad too many in the Pacific Northwest must not remember Michael Sol explaining how the M. was kicking everybody's posterior out that way at the end and was done in only by a conspiracy between the road's creditors and the bankruptcy court.
mudchicken Excellent book on the Milwaukee Western Extension: http://www.amazon.com/Milwaukee-Roads-Western-Extension-Transcontinental/dp/0972335668 Stan Johnson did a really nice job explaining what evolved instead of just publishing another worthless cofffeetable book with pictures of the railroad's shiny toys.
I second the dirty feathered one's recommendation of Johnson's book, and found it to have been thoroughly researched. Lots of interesting details on how obstacles were overcome in the construction of the line. The line between Morbridge and Harlowton was nicely engineered, only a few curves sharper than 2.5 degrees and maximum grade of 0.6% (with the exception of a short stretch of 1% EB in North Dakota).
Johnson pointed out that many of the directors of the "St. Paul" line were also directors of Anaconda Copper Mining Co and they wanted some competition for freight in and out of Butte and Anaconda. There were also hopes of getting timber traffic from the forests covering the Bitterroots.
- Erik
The purpose of the Pacific Coast Extension was ostensibly to compete more effectively with NP and the GN for west coast traffic. The supporters of this project no doubt saw a competitive advantage in having a line from Chicago to the west coast...GN and NP only went as far east as the twin cities and had to transfer to other roads to reach Chicago.
dakotafred Those who think the Milwaukee was one railroad too many in the Pacific Northwest must not remember Michael Sol explaining how the M. was kicking everybody's posterior out that way at the end and was done in only by a conspiracy between the road's creditors and the bankruptcy court.
I was thinking of those threads, too. While best approached with the caution and protective gear of haz-mat personnel, they did contain much provocative and (to me, anyway) useful information. Some other things to consider:
With all that, a third transcon in the PNW would not necessarily look that far out of line. Indeed, had the Texas & Pacific and the C&NW gone ahead with their earliest ideas to expand to Pacific tidewater, there would have been three competing companies along the other two routes as well.
That left the Milwaukee looking at a future of being the only important Granger road without a friendly connection to funnel traffic to it from western points and vice versa. After looking at the risks (not enough traffic to support the cost of construction vs. being shut out of western/transcontinental traffic entirely), the costs (building the line from scratch vs. making friendly connections with a system that someone else's money had established) and the rewards (full control of haul/rate division vs. sharing with a western partner), I can't blame the Milwaukee's board for deciding to build the PCE. In the context of their history to that point they almost had to. Sadly, the timing (in hindsight) almost could not have been worse...
jrbernier [snipped] The Pacific Extension cost much more to actually build that estimated, and electrification was needed to be able to really move the traffic in the mountain districts. The Panama Canal slowed import traffic for the railroads to a crawl for a number of years, The Milw wound up with massive debt. Add the traffic taken away by the Panama Canal, and the Milw never really recovered financially and went into receivership. Even after re-organization, the debt load kept the Milw throttled...
Receivership happened in the 1925-26 time frame, well after the WW I difficulties - the MILW went from being financially very sound pre-extension to a basket case. But that financial reorganization was not very lasting - it went into bankruptcy again in 1935, which lasted until 1945 or 1947.
If the ininial cost estimate was $45 million, then $60 million, but the finished line cost $234 million, plus the electrification cost, then it appears to me that the directors weren't paying enough attention to at least some aspects of the business. I've read several times on these forums that 100 years ago, the average line haul was a couple hundred miles. Was there really that much traffic moving to and from the Pacific Northwest?
Murphy Siding If the ininial cost estimate was $45 million, then $60 million, but the finished line cost $234 million, plus the electrification cost, then it appears to me that the directors weren't paying enough attention to at least some aspects of the business. I've read several times on these forums that 100 years ago, the average line haul was a couple hundred miles. Was there really that much traffic moving to and from the Pacific Northwest?
Anyone know how much the electrification cost above that $234 mil.? Sounds like massive debt load killed a rail line that probably had a fairly high expense ratio.
C&NW, CA&E, MILW, CGW and IC fan
I can look that up tonight in the Woods' book. Meantime, I'm recalling that it was not that huge - the figure of $17 million is coming to mind - and had a fairly rapid 'payback', so that on the whole, the MILW's PCE was much better off with and after the wires went up than without.
Yes, the debt load from that construction is what turned the MILW from prosperous to a beggar and forced the 1925 receivership and 1935 bankkruptcy. The effect of the electrification was only to slow down the rate of the hemmoraghing (sp?) of money (what's today called the cash "burn rate" down in the Silicon Valley and other such places) from what it would have been otherwise. So it now appears all that did was to buy the MILW some more time and prolong the agony . . .
Not to split hairs, but I believe that the PCE debts were typically largely wiped out or converted into something less burdensome (such as a stock of some kind) by one or both of the 1925 - 1935 reorganizations. Plus, a lot of intervening/ supervening events occurred and changed things between then and the ultimate demise of the line in the mid-1980's - so I doubt if that massive debt load can be traced to have directly "killed" the line then. Crippled it and stunted its growth and prosperity in those early years - yes, without a doubt - and perhaps also 'set the stage' for the future difficulties. But the MILW needed other forces against it to eventually 'do it in' . . .
IIRC from one of the livelier posts on this subject...the $234 million amount was not strictly the construction cost but was "total investment in plant" or something like that-at any rate, it was the total (as of the 1920's, I believe) of all the capital investment since construction. I believe the example given was if you added in the replacement of appliances or of adding carpet, etc. to your house. They are all capital expenditures but aren't properly considered part of the cost of building the house in the first place. Taking that out, the final construction cost of the PCE was nearer $100 million. I don't vouch for the figures but if someone finds the thread (I'm off to work soon) they can check the citations.
As for the Milwaukee's debt load, the ICC's proposal for "Consolidation of the Railroads of the United States Into A Limited Number of Systems" listed the NP with a debt to capitalization ratio (as of 1919) of 44.9%, the GN of 39.5% and the Milwaukee of 61.9%. This was up by almost half again from where it was in 1910.
I miss Michael Sol.
Probably in the minority, but we certainly had some interesting conversations...definately not milk toast. Also futuremodal.
Ed
Paul_D_North_Jr I can look that up tonight in the Woods' book. Meantime, I'm recalling that it was not that huge - the figure of $17 million is coming to mind - and had a fairly rapid 'payback', so that on the whole, the MILW's PCE was much better off with and after the wires went up than without. Yes, the debt load from that construction is what turned the MILW from prosperous to a beggar and forced the 1925 receivership and 1935 bankruptcy. The effect of the electrification was only to slow down the rate of the hemmoraghing (sp?) of money (what's today called the cash "burn rate" down in the Silicon Valley and other such places) from what it would have been otherwise. So it now appears all that did was to buy the MILW some more time and prolong the agony . . . - Paul North.
Yes, the debt load from that construction is what turned the MILW from prosperous to a beggar and forced the 1925 receivership and 1935 bankruptcy. The effect of the electrification was only to slow down the rate of the hemmoraghing (sp?) of money (what's today called the cash "burn rate" down in the Silicon Valley and other such places) from what it would have been otherwise. So it now appears all that did was to buy the MILW some more time and prolong the agony . . .
Whoops! I seem to have posted over the top of you, earlier. Hopefully you're not up at this hour...
According to a study quoted in John Droege's Freight Terminals and Trains (pg. 515-517), "...the capital investment required...aggregates in round numbers $23,000,000 against which is credited $7,000,000 as the investment in steam power replaced and retired, making a net capital investment of $16,000,000 or at a rate of $24,600 a mile." An accompanying table shows the operating savings of the electrification minus the carrying charges on the additional investment required. Interestingly, the annual savings for the Harlowtown-Avery segment averaged $1,396,264/year (8.5 years); from a low of $658,651 in 1921 up to $1,888,037 in 1919. The savings were usually between $1,000,000-$1,600,000 per year. On the Othello-Tacoma segment, though, the average saving was only $111,949/year; from a low of only $12,363 in 1921 to a high of $249,003 for the nine months of 1920.
Not a problem, Kevin (on either point). To supplement your data just a little: The Woods concurred with that $23 Million total cost for the electrification, broken down as follows: $16 Million for the Rocky Mountain Division completed in early 1917, and $9 Million for the Coast Division completed in late 1919 (yes, I know - they add up to $24 Million, not 23 - but's that's how it appears in the book). As of 1924, the electrification was calculated to have saved a total of $12.4 million in operating expenses.
As to the higher construction costs: The Woods wrote that two of the chief causes were much higher ROW costs - no land grants available, and speculators and competitors driving the prices up; and higher labor costs due to both booming railroad line construction elsewhere at the time, and generally busy economic conditions. But I'd agree that the Board was either lax or too optimistic in its oversight . . .
As to the higher operating costs, it seems to be more that the expected traffic - mostly lumber - did not materialize, thus the revenue wasn't there.
Traffic is what makes or breaks railroads. The PCE had very little relative to its cost of construction, operation, and maintenance, thanks to its astonishingly bad location.
In part the Milwaukee chose to locate parallel to existing railroads that had virtually identical cost structures and equal or better access to gateways and seaports. Existing railroads had fully developed branch-line networks feeding traffic to the main line while the Milwaukee Road had a very poor network. The industries and commercial relationships and investments had already grown up around the existing railroads. These industries were hardly going to tear down their brand new grain elevators and sawmills and rebuild next to the Milwaukee Road, nor were they going to build duplicative structures that doubled their fixed investment in the hope it would eke out a fractionally better freight rate some of the time.
In other parts the Milwaukee Road chose an independent path that was sterile of traffic.
Traffic in the era that the Milwaukee Road was built was dominated by local traffic. Lumber milled in Idaho was largely consumed in Montana and the Dakotas. Grain harvested in the eastern Dakotas was milled in Minneapolis-St. Paul. If you look at the waybill samples from western railroads in the 1910s, 20s, and 30s, you will see that the overwhelming preponderance of loads terminated within 125 miles of origin station. Lumber as late as the 1950s on average moved less than 150 miles from origin to destination.
Bankruptcy might eliminate the fixed debt but it will do nothing about a bad location.
As to reasons why the Milwaukee Road's senior officers chose to build the PCE, we can't at this point give them truth serum nor examine their psychology. Perhaps they were caught up in an investment bubble. Perhaps they were seeking to goose their stock holdings. Perhaps their ego couldn't tolerate being "just a Granger." Perhaps they were using it to enhance the value of their Anaconda Copper traffic and pressure the Hill roads to lower rates. Perhaps they were making a run at Hill himself and hoped he would panic and sell his roads to them cheaply, or buy their road expensively. Perhaps they were simply incompetent and never bothered to build a proper business plan and bet on the come. I think to start to know what they were up to, I would start by seeing if I could find out when the large investors came into the stock, when they left the stock, and what the difference was in the purchase and sales prices. If they bought high and sold low, I think I would start looking at ego and bubbles. If they bought low and sold high, then I would start looking at the whole thing as a stock promotion scheme.
RWM
Ulrich The purpose of the Pacific Coast Extension was ostensibly to compete more effectively with NP and the GN for west coast traffic. The supporters of this project no doubt saw a competitive advantage in having a line from Chicago to the west coast...GN and NP only went as far east as the twin cities and had to transfer to other roads to reach Chicago.
I have no idea what the purpose and need was of the PCE. There are many reasons that have been suggested but I see none that are either supported by evidence nor logical.
On its face value, building the PCE to complete with the GN and NP for West Coast traffic to me seems illogical. There wasn't much to speak of flowing through the Twin Cities. For example, lumber traffic moving east primarily dropped to destination in Montana and the Dakotas. Minnesota lumber supplied the Minnesota market, Wisconsin lumber the Wisconsin market, and both together with Michigan lumber and southern yellow pine the Chicago market. Also, GN and NP owned the CB&Q, which got their Twin Cities traffic to Chicago just fine.
Murphy Siding One hundred plus years ago, I'm sure most big businesses, railroads included, did some serious investigation before investing in a major business expansion. I've been trying to find the justification the Milwaukee Road envisioned for it's Pacific Coast Extention built in 1909. By then, there were 5 American transcons: UP(1869), ATSF(1882), SP(1883), NP(1883) and GN(1893). There was also a true Transcontinental north of the border. CP(1889) went from Atlantic to Pacific. If there was a big need to get freight to or from the Pacific coast, it would seem like there was ample railroad capacity already in place. I'd have to believe, that a fair amount of heavy, low paying fright still went to the west coast by ship. The trade coming from the orient was what?- tea, silk and spices? Given that the Chicago, Milwaukee & St. Paul didn't have a crystal ball, what did the directors use as justification to extend a midwest Granger railroad to the Pacific?
One hundred plus years ago, I'm sure most big businesses, railroads included, did some serious investigation before investing in a major business expansion. I've been trying to find the justification the Milwaukee Road envisioned for it's Pacific Coast Extention built in 1909. By then, there were 5 American transcons: UP(1869), ATSF(1882), SP(1883), NP(1883) and GN(1893). There was also a true Transcontinental north of the border. CP(1889) went from Atlantic to Pacific. If there was a big need to get freight to or from the Pacific coast, it would seem like there was ample railroad capacity already in place. I'd have to believe, that a fair amount of heavy, low paying fright still went to the west coast by ship. The trade coming from the orient was what?- tea, silk and spices? Given that the Chicago, Milwaukee & St. Paul didn't have a crystal ball, what did the directors use as justification to extend a midwest Granger railroad to the Pacific?
Beats me. I can't figure it out either.
Victrola1 I remember reading the C&NW Cowboy Line was considered for expansion to the West coast. The CB&Q did surveys on a line from Denver to Salt Lake City. Why did these Grangers not expand farther west? Are there corporate records on the subject?
Because they determined there wasn't sufficient traffic to support the lines. Or at least, that's what they told investors, investment banks, and the railway press at the time.
The PCE was built in part with the belief that there would be a continuous expansion and growth of population and commerce and, thus, the need for a good railroad. And the one with the better grades, more modern applied technologies coupled with filling the gaps between the other roads, would be a winner. Remember, too, that unlike today, the endpoints were not the end all but the untapped natural resources and undeveloped land in between the end points were as important if not more so. Business thinking and models were different than what we have today. Today investors invest for today and the end of next week rather than for the next 20, 50 or a hundred years. Yesterday they were empire builders working to build and nourish a new country rather than merely lining their own nests and working for their own self interests,
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