schlimm There are several books written on the Penn Central (including the NH) disaster, such as: .The Wreck of the Penn Central, The Fallen Colossus, The Untold Story of the Survival of the Penn Central Company,and No Way to Run a Railroad . There were many factors beyond the ICC and passenger losses. And then there are the problems of the LV, Erie Lackawanna, Ann Arbor, Reading, Jersey Central and L&HR.
There are several books written on the Penn Central (including the NH) disaster, such as: .The Wreck of the Penn Central, The Fallen Colossus, The Untold Story of the Survival of the Penn Central Company,and No Way to Run a Railroad . There were many factors beyond the ICC and passenger losses. And then there are the problems of the LV, Erie Lackawanna, Ann Arbor, Reading, Jersey Central and L&HR.
Well, there certainly were "other factors" beyond the ICC and the passenger losses. But that's true in any line of business. Corporate management has to constantly adjust to a changing market environment. New products and services must be introduced, existing products and services must be altered or eliminated. It's ongoing and relentless. But very necessary for a vibrant, growing economy.
A very significant element in the death of the New York Central, the Pennsylvania, and others such as the Rock Island, was that the government regulations (as interpreted by the ICC) blocked the necessary changes in the rail industry. The ICC's malignant regulation of the railroads was unique to the railroads. The ICC never had any control over most motor freight or domestic water transportation.
I'll say it again:
The ICC blocked the development of intermodal for decades. This diverted a great amount of high revenue freight to highway movement that would have otherwise stayed on the railroads. The Conrail predicessors such as the NYC and Pennsy were particularly hard hit by this.
The ICC would not allow unit train rates for decades. This put a lot of coal, grain, iron ore, etc. on the water instead of the rails.
The ICC strictly regulated rail rates on perishable traffic. Motor freight rates on fresh fruits, fresh vegetables and chicken were unregulated. Guess how the fruit, vegetables and chicken wound up moving. (along with the beef, pork, veal etc. There were other ICC issues with these.)
The ICC forced the railroads to operate money loosing services (which a normal business would have fixed or discontinued) such as passenger trains and low volume lines. If the railroad had to use the money on a looser, it couldn't use it to upgrade needed services.
There were "other factors". But they were all solveable problems one way or another. The financial collapse that lead to Conrail was, in large part, due to the asinine economic regulations that flat out prevented the railroads from dealing with, and solving, the problems.
All true. But ICC dys-regulation was true for all railroads.
C&NW, CA&E, MILW, CGW and IC fan
schlimm I think all the contributions thus far are accurate, but overlooked has been the mess that was at the core of Conrail, the PC. That railroad's disastrous merger history is well known. But even more telling was the overbuilt nature and the general over capacity of rail lines in the east and northeast. This flew in the face of a rapidly changing and declining industrial base, which had been the case for years prior to the collapse of the PC.
I think all the contributions thus far are accurate, but overlooked has been the mess that was at the core of Conrail, the PC. That railroad's disastrous merger history is well known. But even more telling was the overbuilt nature and the general over capacity of rail lines in the east and northeast. This flew in the face of a rapidly changing and declining industrial base, which had been the case for years prior to the collapse of the PC.
While it was certainly possible to get regulatory approval for mergers prior to the 4R and Staggers Acts, these approvals took a long time, and were typically saddled with conditions which effectively denied the merging railroads many of the benefits of the merger. The PC merger was a good example of this. PC was forced to "include" the destitute New Haven railroad in their merger in order to "save" the NH passenger services, an albatross which was one of the major causes of PC's ultimate collapse. And PC was effectively forced to grant lifetime job protection to the employees of the merging roads.
Finally, I want to make an observation about Heny6's comments about investors buying into railroads in order to get valuable real estate holdings and the like. I've seen similar comments from many other railfans. The implicit (and often unspoken) premise to these comments is the view is that assets like these should have stayed with the railroads, so that they could be used to provide financial support for continued rail services. The problem with this view is that it soaks the shareholders. Why should valuable assets that could be sold or otherwise used for the benefit of the shareholders be instead poured down a bottomless pit to provide life support to a dying business? The problem wasn't that non-rail assets were being sold. It was that many railroads of the time could not survive on the earnings from the rail business. If the railroads had been viable businesses at the time, the disposition of excess assets for the benefit of the shareholders would have been a non-issue.
They "overbuilt" because they were trying to fit the lightweight traffic of human passengers and the heavyweight traffic of cargo on the same rail system.
Plan it all over again in 1850 where the railroad men shall create two rail line systems one for people and one for freight. Combining the two different businesses is NOT as efficient in reality as it looks.
Andrew
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A case could be made that railroads were not overbuilt. Especially in the late 19th and early 20th Centuries. There were no roads...a railroad was the only effective mode of commerce. To be connected was to be connected: goods into and out of town to other towns and locations. Even people could travel easily by train rather than walk. For the time period, railroad were not overbuilt. But as roads were built and improved, as cities grew larger and larger and further apart, the tight web of rails became expensive. By mid 20th Century it could be said that railroads were overbuilt in many areas. And by today's standards it is though that all rails laid anyplace was overbuilding because the only rich earnings are big loads between big terminals. Placing 1850, 1890, 1920, 1940, et al. needs and answers to 2013 in ridicule is,well, ridiculous. Those railroad builders and town fathers back then could not have foreseen 2013 as we see it so built to their needs and specs of their day..
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I don't think the original question has been discussed. Everyone has taken the point of view that PC needed to continue operating somehow.
What if it was just allowed to shutdown and liquidate? Same for the rest of the bankrupts...
Would the lights go out? Coal would stop moving to power plants, but perhaps the power companies would have leased the ROW and equipment, hired displaced workers and mgt and started moving the coal again.
Would there have been a steel shortage? Some plants could have ginned up alternate rail access - particularly on the west end of the system. Take out Fairless and Bethlehem - was there enough excess capacity left in the world to make up the shortfall? Probably.
Same for auto plants. Most on the west end had fairly easy rail alternative. In the east, those plant are gone now - would they have gone earlier?
Intermodal. Did PC move enough to cause a driver shortage?
Bits and pieces picked up over the course of months by the other roads and, perhaps, some of the big customers. Perhaps a big shock with lots of short term pain - but in the long run?
What else?
-Don (Random stuff, mostly about trains - what else? http://blerfblog.blogspot.com/)
Andrew Falconer They "overbuilt" because they were trying to fit the lightweight traffic of human passengers and the heavyweight traffic of cargo on the same rail system. Plan it all over again in 1850 where the railroad men shall create two rail line systems one for people and one for freight. Combining the two different businesses is NOT as efficient in reality as it looks. Andrew
So in 1850 you have 2013 vision - sorry. Not going to happen. In 1850 you can only see and manipulate the 1850 realities. Individual motorized vehicles have yet to be invented. All weather roads have yet to be invented. The world that we know today has yet to be invented - and without the reality of the inventions you can't plan on their invention.
Never too old to have a happy childhood!
The freight/passenger dichotomy is really a rather recent phenomena. Rail works best when you concentrate a lot of traffic over a single route. A train was pretty much a train in this regard in the steam era, particularly. Freight train speeds were higher, axle loadings lower, double track ABS was more predominent, CTC was rare, etc.
The problem with the problem is that there is a difference between operating a railroad by running trains and moving people and cargo and running a railroad by moving money and financial obligations around to appease stockholders. On one side there is the value of having a transportation system that does the job of moving goods and people, serving communities and businesses, and keeping traffic off the roads. On the other hand there is the financial manipulations that keep the money flowing from purchaser to labor to stockholders. The first part fails when the second part overtakes it in importance. But the second part fails when the fist part is inefficient or doesn't produce enough money to satisfy the second part's perception of return on investment. We can, therefore, exclaim the virtues of trains and service while ignoring the vices of financing. Likewise, we can extol the virtues of making a profit and paying dividends over paying for infrastructure and service..
Government regulation of various businesses did not come about in a vacuum, there was a strong political push for it, based on the real and perceived excesses of the businesses to be regulated. Note the current push to reinstate many of the restrictions of the Glass-Steagall Act on banking and other financial entities. Regulation of the transportation business continued as late as it did because there was not a strong political push to remove it. Even now, there have been several attempts to re-regulate transportation, and not just the railroads.
When somebody feels that they're getting the short end of the stick, there will be a push for regulation of some sort.
CSSHEGEWISCH Government regulation of various businesses did not come about in a vacuum, there was a strong political push for it, based on the real and perceived excesses of the businesses to be regulated. Note the current push to reinstate many of the restrictions of the Glass-Steagall Act on banking and other financial entities. Regulation of the transportation business continued as late as it did because there was not a strong political push to remove it. Even now, there have been several attempts to re-regulate transportation, and not just the railroads. When somebody feels that they're getting the short end of the stick, there will be a push for regulation of some sort.
And this is the reality of the argument about deregulation and over regulation. Often it is on the books because one party, often a competitor or client, who brings the accused offending party to court and the determination there become regulatory law rather than an act of legislators or agencies or the court forces them to make the regulation. To do as many claim we should do, get rid of regulations of all businesses, would be such a legal nightmare or overturning so many court cases that it could probably never be straightened out and would also probably start over again. Yes, there are probably some regulations that are wrong or don't fit or no longer are pertinent, but removing all regulations could be suicidal in the longer run.
henry6Placing 1850, 1890, 1920, 1940, et al. needs and answers to 2013 in ridicule is,well, ridiculous. Those railroad builders and town fathers back then could not have foreseen 2013 as we see it so built to their needs and specs of their day..
To continue your line of analysis:
Early in the 19th century the President and Congress might have decided to have a central authority build our railroads. But they didn't. Instead they decided railroads would be built by private companies in order to give the public the benefits of competition. They believed this would result in the lowest possible costs to the consumer. Even today many people believe that having railroads operated by private companies gives the lowest possible costs to the consumer. However, the belief is incorrect and the benefits of rail competition are a myth.
Charles Francis Adams showed that competition would never give the consumer the lowest possible rates because competing lines would be forced to cut rates until one went out of business. That would leave the other line with a monopoly. It would also leave the other line financially weak from the rate war. The surviving line would now need to raise rates and, since it was a monopoly, customers would have to pay whatever rate the railroad company decided to charge. This was not just theoretical. Jay Gould was famous for charging high rates where his lines had a monopoly.
There was also another factor that worked against the public. The self interest of railroads' top management was best served by allowing those manages to make a maximum amount of money from the roads they controlled. Often this was best done by manipulating stock prices. Investors looked at the dividends a road paid when they decided where they would invest their money. Dividends could be increased by raising rates and ignoring maintenance. In this way a road could be falling apart and still maintain high stock values. Management could buy a run down road when its stock was low, pay high dividends for a couple of years and sell the stock for a profit, often a large profit, and many top managers did just that. Managers could also make money by speculating in land using their inside knowledge of where the line would be built and many did that. The Pacific Railroad Act increased the opportunities for land speculation greatly. Finally, and the Credit Mobilier is the classic case, the directors could organize construction companies, over charge for building the road, pull out all of the money borrowed from the government for building and then sell their stock and sit back and live off of their riches. All of these practices were enabled by competition and all of them worked against providing low cost transportation.
Certainly in 2013 we can criticize these practices as a massive theft from the public. But, as Henry points out, this is to take our present day values and apply them to people and practices in the 19th century. Historically we need to understand them and learn from them. We also need to move on and not repeat them.
Had Ripley's 1929 ICC plan (or some variant) been implemented in the Depression, much of the no longer needed (since 1920) lines in the NE and Midwest would have been rationalized in an efficient manner long before Staggers. Not about applying 2013 views on the past, which is not historical. It is about applying the thinking of the time on problems of the time.
As to the railroads' diversification schemes in the 1960's and 70's, the CNW's Heineman and folks at the IC, for example, used the rail's cash flow, deferred maintenance and corporate position to leverage buyouts of various non-railroad businesses, then sold off the core rail business, saddling it with the debt of the buyouts. The was/is the essence of the practice, which made a bundle for some investors, but left a weakened rail property. Some folks have used overblown terms like "corporate raiding" or "vulture capitalism" but in any case, these and similar management practices played a major part in damaging the rails. Blaming all the rails ills on dys-regulation is simplistic because it overlooks the multiple factors. Some lines did fairly well pre-Staggers because they: 1. were not in a declining region with too many route miles; 2. were not victimized ; and 3. they had solid management.
oltmannd I don't think the original question has been discussed. Everyone has taken the point of view that PC needed to continue operating somehow. What if it was just allowed to shutdown and liquidate? Same for the rest of the bankrupts... Would the lights go out? Coal would stop moving to power plants, but perhaps the power companies would have leased the ROW and equipment, hired displaced workers and mgt and started moving the coal again. Would there have been a steel shortage? Some plants could have ginned up alternate rail access - particularly on the west end of the system. Take out Fairless and Bethlehem - was there enough excess capacity left in the world to make up the shortfall? Probably. Same for auto plants. Most on the west end had fairly easy rail alternative. In the east, those plant are gone now - would they have gone earlier? Intermodal. Did PC move enough to cause a driver shortage? Bits and pieces picked up over the course of months by the other roads and, perhaps, some of the big customers. Perhaps a big shock with lots of short term pain - but in the long run? What else?
Thanks to Chris / CopCarSS for my avatar.
Murphy Siding oltmannd I don't think the original question has been discussed. Everyone has taken the point of view that PC needed to continue operating somehow. What if it was just allowed to shutdown and liquidate? Same for the rest of the bankrupts... Would the lights go out? Coal would stop moving to power plants, but perhaps the power companies would have leased the ROW and equipment, hired displaced workers and mgt and started moving the coal again. Would there have been a steel shortage? Some plants could have ginned up alternate rail access - particularly on the west end of the system. Take out Fairless and Bethlehem - was there enough excess capacity left in the world to make up the shortfall? Probably. Same for auto plants. Most on the west end had fairly easy rail alternative. In the east, those plant are gone now - would they have gone earlier? Intermodal. Did PC move enough to cause a driver shortage? Bits and pieces picked up over the course of months by the other roads and, perhaps, some of the big customers. Perhaps a big shock with lots of short term pain - but in the long run? What else? Interesting perspective. I wonder, had there been no Conrail, would today's northeastern railroad map look pretty similar to what we have now? In the end, Conrail or no Conrail, it seems like the weaker lines would have withered away.
I strongly recommend Loving's "The Men who Loved Trains" -already mentioned in this thread, for a solid historical treatise on PC's demise and the federal response.
Basically his conclusion is that without Penn Central the Northeastern RR scene would be much like it is today. The early Conrail studies proposed that Chessie system adsorb large portions of the non-Penn Central routes so your conclusion is probably correct..
"I Often Dream of Trains"-From the Album of the Same Name by Robyn Hitchcock
Why deal with it crisis by crisis? Forming Conrail as a way to deal with a problem, taking time to fix or whatever so that there was something of value in the end was better than dropping a bomb and not knowing how the end was going to happen or what it would be. Why is taking charge, taking control, managing and designing the scenario through a non catastrophic path to an fruitful end a bad thing? It was a time when investors were moving toward needing 12 to 25% return on investment in a year or less and railroads were down between 3 and 6%. It was a labor intensive industry with antiquated labor agreements and rules. It was scrutinized and controlled by the likes of the Interstate Commerce Commission, similar state agencies, with other government letters wanting in on the action. It was viewed as the choo choo train which once was a gravy train whereby widows spent their time clipping coupons and collecting dividends which no longer had any value. Jet planes were the way to travel and the concrete highways were the way to ship. Who wanted the Weary? the Delay, Linger and Wait? The Leakey Valley? Carry New Junk? The Reading was a name on the monopoly board and the PC was rusty and and bankrupt. So who cared at that point to want to invest in a railroad of any kind? The US government and the railroads knew what was wrong and what had to be done.. Not drop a big bomb on the economy and the transportation industry but gather together the information needed to sift out the needed, the needy, and the not needed. Then put together a program and a railroad charged with making it happen. I don't think there was a better way to go because there really wasn't any other way to go.
Murphy Siding What about Conrail? Was it neccesary for the federal government to step in, take over the railroad operations in the northeast, and infuse billions of dollars in tax money to revitalize railroad operations? Had that not been done, would the free market have taken care of the problem on it's own? What do you think?
What about Conrail? Was it neccesary for the federal government to step in, take over the railroad operations in the northeast, and infuse billions of dollars in tax money to revitalize railroad operations? Had that not been done, would the free market have taken care of the problem on it's own? What do you think?
Okay, I'll rush in and take the abuse.
I think that one of the main causes (requiring the massive gov't sponsored fix) was that the gov't was too lax allowing these companies to merger into oversize anti competitive behemoths in the first place.
The only reason PennCentral was "too large to fail" in the first place, is decades of government apathy while the black hole gained momentum.
If they had instead forced the components making up the whole to remain distinct and separate, then even if each one eventually did fail, it would not have been such a devastating collapse, and there would have been more peers extant to pick up the pieces as they fell.
Convicted One Okay, I'll rush in and take the abuse. I think that one of the main causes (requiring the massive gov't sponsored fix) was that the gov't was too lax allowing these companies to merger into oversize anti competitive behemoths in the first place. The only reason PennCentral was "too large to fail" in the first place, is decades of government apathy while the black hole gained momentum. If they had instead forced the components making up the whole to remain distinct and separate, then even if each one eventually did fail, it would not have been such a devastating collapse, and there would have been more peers extant to pick up the pieces as they fell.
It may have been that the government had been too lax but really they followed the tried and sometimes true method of merging as per ICC procedures. But the PC did cover half the railroading int he Northeast at the time. So if it went, so would have the others unless a program was set so that one or all of the others took over PC as an operator or someone took the time to divvy it all up. And, in effect, that's what they finally did but did so realizing that all railroads in the area had to participate of prove why they didn't...thus the D&H, B&M, and Maine Central was able to stay out while the B&O let its Reading and CNJ loose to be part of the negotiating process. In effect, what happened was the only thing that could have been done no matter what was done. If PC were allowed to fall, then the procedure taken would have had to be taken. So, as I said earlier, the government and all got ahead of the flow and took control so as to guide the situation into a reasonable solution.
I'm saying that the problem actually started back when the PRR and NYC were allowed to gobble up so many regional concerns.
\there seems to be this mindset that we owe the corporations the "freedom" to aggregate, to enjoy economies of scale, to combine and strip away the duplicity that results.... and I'm saying that there is sufficient evidence now that allowing these companies to get that big pose an unnecessary burden onto us poor stiffs who will be expected to bail them out if and when something does not go pro forma.
What year are you talking about? These roads were gobbling up from the day the first spike was driven! Maybe before!
henry6 What year are you talking about? These roads were gobbling up from the day the first spike was driven! Maybe before!
From the day of the 2nd railroad - the railroads in the US have been in the hands of the financial wheeler dealers - I am surprised they didn't come up with Credit Default Swaps like the modern day wheeler dealers that caused the financial crisis in 2008 which the burst the real estate bubble that caused the recession we are still in.
Convicted One I'm saying that the problem actually started back when the PRR and NYC were allowed to gobble up so many regional concerns. \there seems to be this mindset that we owe the corporations the "freedom" to aggregate, to enjoy economies of scale, to combine and strip away the duplicity that results.... and I'm saying that there is sufficient evidence now that allowing these companies to get that big pose an unnecessary burden onto us poor stiffs who will be expected to bail them out if and when something does not go pro forma.
The size of and "reach" of railroads has historically reflected their length of haul. The business incentive has always been to merge or construct new lines to expand the "reach" of individual rail companies as average length of haul increased. This was true in the 19th century, when small local lines were put together to create large regional systems (like the Pennsylvania and the New York Central), and it's true of modern mergers. The reason railroads do this is that they want to control the marketing, pricing and operations from origin to destination of as much of their traffic as reasonably possible. Of couse, it's not possible to completely do this. There will always be a lot of interline traffic. But you want to make as much of your important traffic "single line"as you reasonably can, or at least limit the number of interline carriers involved in these moves.
The major railroads that existed in the 1920's (which were themselves products of 19th century mergers) were generally well sized for the traffic they handled. Most of their freight traffic in those days moved relatively short distances compared to today's rail moves. For example, the old C&NW in the 1920's served a traffic cornucopia in the midwest. Most of its traffic movements were regional moves in its own service territory. The long distance interline traffic it handled with UP (which was the main part of its business in the 1990's) was only a small part of its business in the 1920's.
What changed this was the growth of trucking. Trucking decimated the short distance, regional rail moves. This should have triggered a big merger movement from the 1950' s on to consolidate the regional roads into larger systems to reflect the increased length of haul of their remaining traffic. This did occur to a limited extent. But it was discouraged by the regulators. The ICC at the time was hostile to "market extension" mergers, primarily because they supposedly disadvantaged non-merging competitors. Rather, the agency favored "parallel" mergers by railroads in the same territory as a means of eliminating excess capacity (ala' Penn Central), coupled with extensive merger conditions that protected the interests of non-merging roads (and, correspondingly, denied the merging railroads many potential benefits of their merger). The result was that, by the 1970's, roughly 2/3 of all rail traffic was interline. It apparently never occured to the ICC that the correct strategy was to allow market extension (end to end) mergers, which would have forced competing roads into responsive mergers, and restructured the rail industry to better match its changed traffic patterns. This eventually happened after the ICC changed its merger standards in the 1980's, but it would have (and should have) happened much sooner had the ICC not stood in the way.
I think that's true, falcon48, although merging the eastern trunk lines end to end with midwest and western lines would have simply degraded the latter railroads. AFAIK, none of those western lines sent out feelers to eastern partners about merging. Even now we don't hear of any NS or CSX mergers with UP or BNSF, even though the eastern/southern lines are strong.
John WR Early in the 19th century the President and Congress might have decided to have a central authority build our railroads. But they didn't. Instead they decided railroads would be built by private companies in order to give the public the benefits of competition. They believed this would result in the lowest possible costs to the consumer. Even today many people believe that having railroads operated by private companies gives the lowest possible costs to the consumer. However, the belief is incorrect and the benefits of rail competition are a myth. Charles Francis Adams showed that competition would never give the consumer the lowest possible rates because competing lines would be forced to cut rates until one went out of business. That would leave the other line with a monopoly. It would also leave the other line financially weak from the rate war. The surviving line would now need to raise rates and, since it was a monopoly, customers would have to pay whatever rate the railroad company decided to charge. This was not just theoretical. Jay Gould was famous for charging high rates where his lines had a monopoly.
Well, Adams was obviously wrong.
He was the son of a US president and the grandson of another. He had a lot to live up to and really didn't know what to do with his life. Then the Civil War came along and gave him some time. He joined the Union Army as a calvary officer and had enough ability and courage to rise from lieutenant to the command of a regiment. But, he was no economist.
After the war he was right back where he started. "What to do?" He tried practicing law but found it unrewarding. He concluded that railroads were the wave of the future, but his heritage was in government service, not commerce. He then set out to create a government job for himself overseeing railroads. (I am not making this up, it's from "Prophets of Regulation" by Thomas K. McCraw.) Adams never, ever, advocated government control of rail pricing.
To justify his government employment Adams latched on to the economic idea that you're wandering around. Railroads have cost characteristics that resemble what is called a "Natural Monopoly". Now, "Natural Monopolies" do exist, but railroads aren't one of 'em.
A good example of a now obsolete "Natural Monopoly" was the old land line telephone system. It would have been far more expensive to the public to have multiple competing companies setting up multiple pole lines to serve each neighborhood. The low cost solution was to grant exclusive rights to one telephone company, create a legal monopoly, and regulate the rates at a level that would attract the necessary investment but no more. It kinda worked with land line phones. Only AT&T could provide phone service in Milwaukee. The government could draw a boundary around Milwaukee and grant a legal regulated monopoly that provided the lowest possible cost to the consumer.
The government could do no such granting within a freight transportation network. And that is where Adams, and many others, went very, very wrong. Transportation is not a monopoly, and it never was.
Railroads face competition of two types: 1) Route, 2) Market. A railroad may have exclusive service on a route, but they rarely, if ever, have exclusive control of a market. So much for any monopoly.
Let's look at hogs from my home town, Manito, Illinois. Population around 1,000 when I grew up there. Salude!
Now, 100 years ago a farmer near (or in) Manito had but one way to get his hogs to the Chicago market. He had to ship 'em out on the CP&St.L. So the CP&St.L had a monopoly that cried out for government regulation, right? Wrong! There was no monopoly. The railroad didn't have any route competition, but it had market competition in spades. The "Hog Butchers to the World" in Chicago didn't care where the hogs came from. They could draw hogs from all over the midwest and the CP&St.L had to be competitive with every other railroad and steamship line that could bring hogs into Chicago. Adams did not understand this, and aparently, you don't either.
As to the idea that railroads would beat each other bloody seeking traffic eventually creating an impossible monopoly, it didn't happen before regulation and it doesn't happen after regulation.
If a railroad had pricing people who didn't know what they were doing they could get into a rate war. And then that railroad would suffer the consequences. As it should be. Companies with bad management sould be punished or eliminated. With great and ruthless prejudice.
I've been there and done that. I did deregulated intermodal pricing for the ICG. I would never knowingly cut the price on another railroad. And I made sure that the competing railroads knew that if they cut our price we'd fight back hard. I'd cut a trucker's rate as hard as I had to, but I never went for another railroad's business on price.
This resulted in some interesting interactions with our sales force.
Sales Person: "I can get a gazillion loads from XYZ corporation if you put in a rate of too few dollars."
Me: "How is the freight moving now?"
Sales Person: "Via the Slowpoke and Western".
Me: "We'll match the rate but not cut it."
At this point the sales person would go into some kind of ritualistic rant that often involved stalking out.
Then the sales person would then return with the sales supervisor.
Sales person: "Are you prepared to loose this business?'
Me: "Yes"
Sales person and the sales supervisor would then perform another ritual and leave in disgust.
The sales person and sales supervisor would then return with MY supervisor. (after telling him what an AH I was.)
Time to explain. A logical explination on why I wouldn't cut the rate on another railroad usually, but not always, worked. Although the sales folks generally braketed my name with profanities.
The moral of the story is that Adams didn't understand economics. The railroads are capable of managing their own pricing. They don't need big brother holding their hand and showing them the way.
Falcon48 .......... What changed this was the growth of trucking. Trucking decimated the short distance, regional rail moves. This should have triggered a big merger movement from the 1950' s on to consolidate the regional roads into larger systems to reflect the increased length of haul of their remaining traffic. This did occur to a limited extent. But it was discouraged by the regulators. .................
..........
What changed this was the growth of trucking. Trucking decimated the short distance, regional rail moves. This should have triggered a big merger movement from the 1950' s on to consolidate the regional roads into larger systems to reflect the increased length of haul of their remaining traffic. This did occur to a limited extent. But it was discouraged by the regulators.
.................
Henery6, I admire your analysis of the Conrail situation, which was what I thought at the time Conrail was created.
Now go and examine a 1930's NYC subway and elevated map and answer my question at Classic Trains.
henry6 CSSHEGEWISCH Government regulation of various businesses did not come about in a vacuum, there was a strong political push for it, based on the real and perceived excesses of the businesses to be regulated. Note the current push to reinstate many of the restrictions of the Glass-Steagall Act on banking and other financial entities. Regulation of the transportation business continued as late as it did because there was not a strong political push to remove it. Even now, there have been several attempts to re-regulate transportation, and not just the railroads. When somebody feels that they're getting the short end of the stick, there will be a push for regulation of some sort. And this is the reality of the argument about deregulation and over regulation. Often it is on the books because one party, often a competitor or client, who brings the accused offending party to court and the determination there become regulatory law rather than an act of legislators or agencies or the court forces them to make the regulation. To do as many claim we should do, get rid of regulations of all businesses, would be such a legal nightmare or overturning so many court cases that it could probably never be straightened out and would also probably start over again. Yes, there are probably some regulations that are wrong or don't fit or no longer are pertinent, but removing all regulations could be suicidal in the longer run.
What I find curious in the cry for re-regulation of railroads - the loudest cries are coming from organizations that have virtual market monopoly in their own lines of business. Their complaints harken from the need for all parties to renegotiate their contracts for carriage. In the years post Staggers, these contracts were generally negotiated for long terms of 5 to 10 years. In simplistic terms the shippers negotiated to ship X millions of tons of freight over the carrier per year at a rate of Y. Both parties would adhere to the terms of the contracts, with the railroads seeking 'Fuel Surcharges' when costs in the fuel market skyrocketed.
When it comes time to renegotiate a renewal of a long term contract - Sticker Shock is a fact of life for the shipper. When one encounters sticker shock the first thing that is thought of is that 'I am being gouged on the purchase of this good or service. By the same token, I am certain the parties that are crying the loudest, have been routinely increasing the prices for their goods and services over the period of time that the original contract was in place. The reality of our economy is that prices on everything (except a very narrow segment of technological products) continue to rise. It has been many a moon since I could get a gallon of gas for 25 cents and get S&H Green Stamps along with that purchase.
Yes, it is odd that those who cry the loudest about government and regulations are also the first ones to run to government and the courts to get a law or regulation to help them! But one thing to take into consideration: the railroads no longer have a monopolistic hold on most traffic. The government built and maintained highways and the truck and trailer trains allowed on many highways and the mergers and shrinkage of the rail system removes the monopoly argument.
As for distance for economy and profitability. Back when Conrail was being formed, union and state laws of crew size and distances to be traveled were restrictive. The Reading tried their B Line Service of a shipper calling the railroad and an engine and crew would be right out to pick the car up and deliver it anywhere on the Reading as soon as possible, hopefully the same day. But as industry changed and spread out, coupled with the full crew and a caboose rules, it didn't work. Today, the rules have changed and the caboose has gone...and industry is even further flung across the landscape. However, these factors along with containerization, clogged and ill maintained roads, high fuel costs, lack of truck drivers, may in fact drive short distance moves onto the rails if designed and marketed correctly....I think it is close to emerging in some areas, especially in the East and Mid West.
And back at CR's creation, there were both the UP and SF looking at end to end mergers along the line of demarcation: Chicago then west and down the Mississippi. It was and still is an illusionary line if you will, a mind set and mind block simply existent because it always has been that way. Canada never got that mind set and both CN and CP are true transcontinentals. Traffic managers and marketers have found ways around and across the imaginary line but investors and railroad companies have not.
There is a whiff here of what is known as tacit collusion, a form of price fixing, in which there is an implied agreement between participants on the same side in a market to offer a service at the same price.
Well, how about 1882 for starters? Like when the West Shore was still independent. In 1881, the West Shore had been planned as a link in a new cross-country line from New York to San Francisco using the Nickle Plate, Chicago Milwaukee & St Paul , Northern Pacifi,c and Oregon Navigation Company.
To block that Vanderbilt gobbled up the Nickle Plate, Bled the West Shore dry and then in 1885 decided along with the PRR (collusion?) how to divy up the spoils.
I doubt that anyone here would say that the idea of a combined West Shore/NKP/CMStP/NP combination does not inspire the imagination. And HAD THIS HAPPENED, I think that the landscape would have been sufficiently different to the point where a Penn-Central would never have happened.
Granted, I am working with the benefit of hind sight, but more or less I think you could use as a general benchmark whenever a railroad acquires a parallel competitor and immediately starts pulling up the tracks, that the merger was not because the acquiring entity needed additional capacity. Anti competitive strategies being the more likely game plan
The instances such as this are prime examples of how big money in this country have generally owned our government, and the premise of "preserving competition" has always been in the back seat, if not an outright ruse.
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