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Was Conrail really neccesary?

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Posted by blownout cylinder on Thursday, January 10, 2013 4:36 AM

schlimm

Journalist Robert B.Stinnett's thesis, apparently.  A critique by Adm. Young:   http://www.artbarninc.org/REY/Stinnett.pdf

Interesting stuff....

[edit] dropping s's wherever we go here...[/edit]

another edit...sigh...

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Posted by schlimm on Wednesday, January 9, 2013 10:43 PM

Journalist Robert B.Stinnett's thesis, apparently.  A critique by Adm. Young:   http://www.artbarninc.org/REY/Stinnett.pdf

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Posted by erikem on Wednesday, January 9, 2013 10:20 PM

CSSHEGEWISCH

The problem with revisionist history is that most proposals come from somebody who has an axe to grind, such as the fallacy that FDR knew about the Pearl Harbor raid in advance...

If you limit the fallacy to FDR knew the exact date of the attack and that Pearl Harbor was the specific target, then I wouldn't have an argument with the statement. OTOH, Churchill did send a message in late November that caused FDR to dramatically change his approach to negotiations with Japan and on December 3rd, the Army intelligence branch, G-20, sent a message to the listening posts on Guam and the Philippines ordering the destruction of the radio and cryptology gear as war was thought to be a few days away. This latter bit may be what drove the rumors that FDR knew about the attack in advance - though indications are that he wasn't aware that Pearl Harbor was to be attacked on December 7.

As for the Milwaukee, the developers of the coal mines near Roundup probably wished that the line between Roundup and Miles City was still intact as it would be a shorter and better profile to the east than what the BNSF has recently built to serve the mine. BTW, one of the first things that my grandfather did after he came to the US was helping with the building of the Puget Sound Extension around Terry.

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Posted by oltmannd on Wednesday, January 9, 2013 9:13 PM

CSSHEGEWISCH

The problem with revisionist history is that most proposals come from somebody who has an axe to grind, such as the fallacy that FDR knew about the Pearl Harbor raid in advance, or that the Milwaukee Road should have kept its electrification, Pacific Coast Extension, etc. or that American railroads were wrong in dieselizing.  Too many revisionist proposals seem to hinge on conspiracy theories or a strong attitude of "I'm right and the world is wrong".

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Posted by John WR on Wednesday, January 9, 2013 8:37 PM

schlimm
Revisionist histories, especially about the near past, are often written by non-historians who may have been participants in the event under consideration

The ones you describe may not even be history.  

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Posted by schlimm on Wednesday, January 9, 2013 8:29 PM

Revisionist histories, especially about the near past, are often written by non-historians who may have been participants in the event under consideration. or written by a trained historian with some connection to the event.  Often very thin on documentation and long on contentions.  For example, Rush Loving.  His book is a good read, but he does not pretend to be a historian.

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Posted by John WR on Wednesday, January 9, 2013 6:36 PM

CSSHEGEWISCH
The problem with revisionist history is that most proposals come from somebody who has an axe to grind

Is that any different from all history?

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Posted by Convicted One on Wednesday, January 9, 2013 10:16 AM

CSSHEGEWISCH

The problem with revisionist history is that most proposals come from somebody who has an axe to grind,

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Posted by CSSHEGEWISCH on Wednesday, January 9, 2013 10:08 AM

The problem with revisionist history is that most proposals come from somebody who has an axe to grind, such as the fallacy that FDR knew about the Pearl Harbor raid in advance, or that the Milwaukee Road should have kept its electrification, Pacific Coast Extension, etc. or that American railroads were wrong in dieselizing.  Too many revisionist proposals seem to hinge on conspiracy theories or a strong attitude of "I'm right and the world is wrong".

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Posted by John WR on Wednesday, January 9, 2013 9:31 AM

BaltACD
Revisionist history postulations always end up in urination contests.  We only know the outcome of the choice that was made back in history and can NEVER KNOW what would have REALLY happened if alternative choices had been undertaken.  These discussions are the epitome of beating a dead horse.

All history is an attempt to explain the events of the past.  In that sense all history is beating a dead horse.  We can never change our history but we hope that by understanding it we can avoid repeating the errors that were made.

Revisionist history is explaining the events of the past in a new way by understanding the events in a new way or by finding new facts to shed light on the events or both.  

Perhaps what is shown best by this discussion is that the formation of Conrail is not yet far enough from a current event to be considered history.  

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Posted by Murphy Siding on Wednesday, January 9, 2013 9:11 AM

Falcon48

Murphy Siding

jrbernier

  The good news about Conrail was that the government got their money back.  Once the system was pared down and rebuilt,  Conrail was a profitable operation - Something the Federal government is not really accustomed to.

  The final sale of Conrail to NS & CSX was very successful - Now if we can get our money out of GM....

Jim



     Best information I can readily find, is that the government spent $7 billion to make Conrail profitable.  Sale of Conrail netted about $1.9 billion.

  I'm curious about these numbers, but I don't know the answer.

PC went bankrupt in June, 1970.  As I recall, it was hopelessly insolvent and didn't have the cash to continue operations, so the Feds covered the shortfall.  The PC deficit included both freight and PC's extensive passenger operations (Amtrak took over the intercity operations in 1971, so presumably the "intercity" deficit showed up on Amtrak's books after that date, not PC's).

Conrail didn't take over freight service on the restructured northeastern railroads until April, 1976.  It was initially supported by Federal funds, but eventually became viable in its own right, and got off the Federal dole.

My question is this.  Is the $7 billion figure you mention all money that the Feds provided to Conrail after April 1976, or does it include money the Feds paid to keep PC's services running prior to April, 1976.  I don't know the answer.  But if it includes pre-1976 funding, it's not all fairly attributable to Conrail, because it would have included a lot of money for PC's passenger deficit (one of the main reasons for PC's demise).

  Where I found the numbers was on a website about corporations and financing, so I presume it was all about Conrail the corporation.  On the web, most things about Conrail seem to read like a Conrail appreciation tribute.

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Posted by Murphy Siding on Wednesday, January 9, 2013 9:06 AM

BALTACD-  What you say about revisionist history postulations is certainly true.  But, in a way, they tend to stimulate discussion about what did happen, and the context of why things happened the way they did.  I figure any time I learn something because I want to, not because I have to, that  it's a bonus.  'Keeps the ol' brain working

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Posted by Convicted One on Wednesday, January 9, 2013 9:06 AM

BaltACD

.  We only know the outcome of the choice that was made back in history and can NEVER KNOW what would have REALLY happened if alternative choices had been undertaken.  These discussions are the epitome of beating a dead horse.

Sometimes wrapping  "what if" around  a fact or set of facts are just a polite way of reminding  someone they are overlooking a particular aspect of the scenario they are discussing. It's not always done out of animosity, however sometimes that aspect is less than obvious .

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Posted by BaltACD on Wednesday, January 9, 2013 8:08 AM

Revisionist history postulations always end up in urination contests.  We only know the outcome of the choice that was made back in history and can NEVER KNOW what would have REALLY happened if alternative choices had been undertaken.  These discussions are the epitome of beating a dead horse.

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Posted by Falcon48 on Tuesday, January 8, 2013 10:53 PM

Convicted One

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?

Okay, I'll rush in and take the abuse. Surprise

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.

Whistling

The problem the government faced in 1970 wasn't so much that PC was "too big to fail" Rather, it was twofold. 

First, the PC included extensive and heavily used passenger services (primarily commuter) which were considered vital to the cities they served (NY, Philadelphia, etc).  While vital, they were hopeless money losers (and were, together with PC's intercity passenger services, a major reason for PC's collapse).  No private enterprise was going to step in to take them over.  Now, from an economics standpoint, one can argue that, if these services didn't produce enough income to even cover their operating costs, let alone their capital costs, they should have been allowed to die and good riddance. But, politically, there was no way that was going to happen.

Second, the rail industry at the time was viewed as a dying industry in the investment community.  The returns produced by the industry were dismal and, on many properties, non-existent.  There may have been (and probably were) railroads which, from a strategic standpoint, would have been willing to take over key PC freight routes and facilities.  However, given the poor financial performance of the industry, the capital markets would not have been willing to provide the investment dollars for a private sector solution like this.  In other words, PC wasn't "too big to fail".  The other roads were too poor to save it.  So the choice the government faced was to let the PC services die, which would likely have brought down other railroads, possibly destroyed much of the rail network and had cascading effects in other industries which used rail services, or provide the funds for a orderly transition.  In my view, subsequent history shows that they did the right thing.

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Posted by Falcon48 on Tuesday, January 8, 2013 10:06 PM

Murphy Siding

jrbernier

  The good news about Conrail was that the government got their money back.  Once the system was pared down and rebuilt,  Conrail was a profitable operation - Something the Federal government is not really accustomed to.

  The final sale of Conrail to NS & CSX was very successful - Now if we can get our money out of GM....

Jim



     Best information I can readily find, is that the government spent $7 billion to make Conrail profitable.  Sale of Conrail netted about $1.9 billion.

  I'm curious about these numbers, but I don't know the answer.

PC went bankrupt in June, 1970.  As I recall, it was hopelessly insolvent and didn't have the cash to continue operations, so the Feds covered the shortfall.  The PC deficit included both freight and PC's extensive passenger operations (Amtrak took over the intercity operations in 1971, so presumably the "intercity" deficit showed up on Amtrak's books after that date, not PC's).

Conrail didn't take over freight service on the restructured northeastern railroads until April, 1976.  It was initially supported by Federal funds, but eventually became viable in its own right, and got off the Federal dole.

My question is this.  Is the $7 billion figure you mention all money that the Feds provided to Conrail after April 1976, or does it include money the Feds paid to keep PC's services running prior to April, 1976.  I don't know the answer.  But if it includes pre-1976 funding, it's not all fairly attributable to Conrail, because it would have included a lot of money for PC's passenger deficit (one of the main reasons for PC's demise).

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Posted by Falcon48 on Tuesday, January 8, 2013 9:49 PM

henry6

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..   

I agree that, on the whole, the rail network was not overbuilt in the late 19th and early 20th centuries, for the reasons you mention.  There were certainly some markets where this was true (like Chciago-Omaha/Council Bluffs, where excessive construction was unintentionally encouraged by the Iowa Pool), but it was not generally true.  

The problem was that, as traffic patterns changed, and many rail lines and services became non-viable, the regulatory system made it very diffficult for railroads to respond to these changes with service and mileage reductions,  It eventually happened as the industry descended into crisis, but it should have happened sooner.  

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Posted by Falcon48 on Tuesday, January 8, 2013 8:09 PM

Convicted One

Falcon48

  I think it would be well for you to step back and take a high level view of how changes in traffic patterns dictated the ideal size of the rail enterprises at various points in time and their merger objectives .

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.

 

Not really true. I'll point out the folly of speaking in absolutes, then go on to outline anti-competitive mergers such as the already mentioned NYC/NKP, the NYC/West Shore, and in more recent times when the Norfolk And Western acquired both the NKP and the Wabash (by long term lease in the case of the latter) and proceeded to pull up the former Cloverleaf paralleling the Wabash, as well as the Wabash's 4th district across Northern Indiana.

i'm sure there are many more, we've all read about them. They tend to eliminate choices for shippers, thus guaranteeing the prevailing road opportunity to control their market.

  Perhaps I should have expressed byself more clearly, but I didn't say that mergers were "always" driven by length of haul, and I went on to discuss (in the part of my note you didn't reproduce) some modern mergers (like PC) that weren't driven by this consideration.  In fact, as I also mentioned in my earlier note, the ICC favored "parallel" mergers prior to the PC debacle as a way of eliminating excess capacity (as opposed to "market extension" or "end-to-end" mergers like UP-CRIP, which would extend the "reach" of the merged system into territories served by other railroads), In other words, the ICC favored mergers where the combined roads would (as you say) "pull up" parallel routes, and agency considered that to be an important benefit of these mergers.  As one might expect, given the position of the ICC, there were "many" mergers like this until the ICC changed its merger policy.  

My point was that length of haul has "always" been a major, consistent driving force (not the only one) for mergers throughout the history of the railroad industry.  It was the major driving force for the development of the large regional systems in the late 19th and early 20th centuries  (like PRR and NYC) which were largely pieced together from smaller predecessor roads  And its true of recent modern mergers like BNSF,  UP-SP and NS-CSX-CR, all of which were driven primarily by the desire to expand the "reach" of the merging carriers rather than elimination of competition (as shown by the fact that the merging carriers readily agreed to conditions designed to replicate competition lost by the transaction and even to create competitive options that didn't exist prior to the merger). 

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Posted by John WR on Tuesday, January 8, 2013 8:02 PM

greyhounds
Well, Adams was obviously wrong.

Let me try to briefly respond to your thoughtful analysis.  

I have not read Prophets of Regulaton by Thomas K. McCraw.  However, I am familiar enough with CFA to recognize your description of him as correct.  CFA was also a President of the Union Pacific Railroad until it went bankrupt and he returned to Harvard where, as I recall, he taught history.  He also wrote  on the subject of railroads.  

You point to two types of competition that keep railroad prices low:  Route competition and market competition.  I don't dispute your description of market competition but it does seem reasonable to point out that a 19th century hog farmer did not just ship hogs to market by rail; everything he brought for his farm or home came by rail.  The merchants that sold things to him had local businesses and it is not clear to me that market competition would necessarily keep their prices low.  It is certainly true that railroads had very elaborate tariff schedules and price discrimination existed.  

As I understand it there was not an actual railroad monopoly in the US during the 19th and early 20th centuries but there were very large systems such as the Union Pacific and Southern Pacific under E. H. Harriman and the Great Northern under James J. Hill which acquired control of the Northern Pacific.  

I especially appreciate the insights from your personal and professional experience.  However, I believe in your account you acknowledge that not all railroad men share your high standards.  

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Posted by Falcon48 on Tuesday, January 8, 2013 7:27 PM

schlimm

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.

  There was a lot more that a "whiff" of "tacit collusion" in the rail industry prior to Staggers.  It was open and notorious price fixing.  Railroad were permitted (even encouraged) to make rates through so-called "rate bureaus".  These were legal price fixing organizations which had antitrust immunity under the Interstate Commerce Act (a modified version of the immunity provision still exists, but the rate bureaus do not). 

Keep this in mind next time you read someone bemoaning the loss of rail "competition" because there are fewer Class I railroads today than there were pre-Staggers. From a competitive standpoint, it doesn't matter how "many" railroads there were in the good old days, if they were making their pricing decisions together by voting on them in a conference room.  I'm not making this up.  I was there.  I saw it, and I was part of it.  The rail industry today is far more competitive with "fewer" big railroads, than it was with "many" railroads making their prices through legal rate cartels 

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Posted by Convicted One on Tuesday, January 8, 2013 2:37 PM

greyhounds

.  The railroads are capable of managing their own pricing.  They don't need big brother holding their hand and showing them the way. 

 

If nothing else, this is an interesting read:


http://features.blogs.fortune.cnn.com/tag/csx/

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Posted by Convicted One on Tuesday, January 8, 2013 12:30 PM

henry6

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! .

Not odd at all. "Can't beat 'em , then join 'em" | "monkey see, monkey do" | "What's good for the Goose, is good for the Gander", | "A dose of their own medicine" |

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Posted by Convicted One on Tuesday, January 8, 2013 12:20 PM

Falcon48

  I think it would be well for you to step back and take a high level view of how changes in traffic patterns dictated the ideal size of the rail enterprises at various points in time and their merger objectives .

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.

 

Not really true. I'll point out the folly of speaking in absolutes, then go on to outline anti-competitive mergers such as the already mentioned NYC/NKP, the NYC/West Shore, and in more recent times when the Norfolk And Western acquired both the NKP and the Wabash (by long term lease in the case of the latter) and proceeded to pull up the former Cloverleaf paralleling the Wabash, as well as the Wabash's 4th district across Northern Indiana.

i'm sure there are many more, we've all read about them. They tend to eliminate choices for shippers, thus guaranteeing the prevailing road opportunity to control their market.

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Posted by Convicted One on Tuesday, January 8, 2013 12:09 PM

schlimm

.  AFAIK, none of those western lines sent out feelers to eastern partners about merging.

Well, there was George Gould, buying the Wabash and extending it into Pittsburgh, for one.

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Posted by schlimm on Tuesday, January 8, 2013 11:47 AM

That would have been an interesting combo!  However, I was referring to setting prices to shippers to be in line with what other lines charged.

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Posted by henry6 on Tuesday, January 8, 2013 11:32 AM

carnej1

 Prior to the formation of Penn Central, The PRR sought to merge with N&W and Wabash(Pennsy held 

The ICC blocked both mergers, thus paving the way for the near collapse of the industry in the Northeast...

The conjecture here is multiple.  First is that he ICC was protecting the highway/trucking industries as opposed to taking  care of the railroad industry.  Second is that perhaps the ICC was protecting investment bankers and Wall Street based on the low return on investments railroads were showing.  There are probably more items of conjecture one can come up with....

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Posted by carnej1 on Tuesday, January 8, 2013 11:12 AM

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.

 Prior to the formation of Penn Central, The PRR sought to merge with N&W and Wabash(Pennsy held major stock in both roads) as a counter to NY Central's proposed merger with C&O(which presumeably would also have included B&O and WM). These two systems would have avoided much of the route duplication that plagued PC, and would have the advantage of significant coal hauling revenue (which was the one bright spot in the Eastern RR scene once everything started collapsing). A map of the two proposed railroads would look much like the modern Northeastern RR system.

The ICC blocked both mergers, thus paving the way for the near collapse of the industry in the Northeast...

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Posted by Convicted One on Tuesday, January 8, 2013 11:11 AM

henry6

What year are you talking about?  These roads were gobbling up from the day the first spike was driven!  Maybe before!

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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Posted by schlimm on Tuesday, January 8, 2013 11:05 AM

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.

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Posted by henry6 on Tuesday, January 8, 2013 8:28 AM

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.

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