The Milwaukee Road

[jrbernier]

All of this is very interesting. I worked for both the CBQ and the MILW in the late 60's(summer school jobs). I even 'model' the MILW in HO scale. A couple of things I noticed through the 60's and 70's. The MILW's traffic west of Mpls was basically 261/262, and 263/264. Sometimes a 'dead freight' of an 'H & D' extra ran, but traffic was pretty slim. The Milw and NP had a lot more 'mountains to cross' than the GN. When the BN merger happened in 1970, the 'preferred route' was CBQ to St Paul, NP to Fargo, and the GN the rest of the way to Seattle. Only a small portion of the NP around Spokane played into this route. The old NP line died on the vine, as well as the Milw.
Back in the Midwest, the Milw had more crew districts. The BN used 3 crews to go from Chicago to Northtown(Mpls-St Paul). The Milw used 4 crews to get from Chicago to St Paul yard, and then used a 'Twin City Terminal' crew to move the train 10 miles to South Mpls where an 'H&D' crew picked up the train for the run to Montevideo. The Milw still had lots of 'patrols' that ran with a old Alco or SD7, an empty box car, and a caboose. It was joked that they would leave in the morning, find no business and be back home within the hours of service. All that said, I loved to chase Milw locals in Wisconsin and Southern Minnesota. They still ran on published schedules!
I have sometimes thought about combined Milw/NP operations in Montana and Washington - but the bottom line is that the Milw always seemed to have another mountain to cross.....

Jim Bernier

[Anonymous]

QUOTE: Originally posted by martin.knoepfel

"Additionally, clearances in Milwaukee's Snoqualmie tunnel would allow double stacks over this line. "

Would this be accurate only if catenary was removed or for electric traction too?

Others can probably answer this better, but I believe BN had no intention of re-stringing the catenary through Snoqualmie if indeed they had chosen to rebuild this line, so by that measure the question is moot. However, from what others have stated in past threads, I don't believe there is room through the Snoqualmie tunnel for both double stacks/high cubes/ tri-level auto racks and catenary.

[martin.knoepfel]

"Additionally, clearances in Milwaukee's Snoqualmie tunnel would allow double stacks over this line. "

Would this be accurate only if catenary was removed or for electric traction too?

[Anonymous]

QUOTE: Originally posted by trails2rails

Given this scenario: BN closed Stampede, invested in Snoqualmie:

- What would traffic patterns on Snoqualmie be like today?
- What would the physical plant be like?
- Where would the route's operating hubs, yards, etc, be?

This has been discussed at length in other threads. If BN had rebuilt the Milwaukee line between the Puget Sound and Ellensburg, they could have replaced Stampede's 2.2% grades with Milwaukee's 1.7% eastbound and 0.7% westbound. Additionally, clearances in Milwaukee's Snoqualmie tunnel would allow double stacks over this line. If we include the addition of Milwaukee's Ellensburg to Lind segment, then it is possible that traffic patterns would be inclusive of most if not all Spokane-Seattle traffic. Grain trains and other heavy tonnage consists would be able to run Spokane to Seattle via Pasco and Yakima over the old NP alignment used today, while intermodals could run Spokane-Seattle via the Lind-Ellensburg cutoff. The ruling grades over the MIlwaukee's Lind-Ellensburg segment are 1.7% eastbound and 2.2% westbound, effectively eliminating use by grain trains, thus the Pasco-Yakima routing. Thus, it is possible that BN could have abandoned or mothballed their Stevens Pass line.

According to the Washington State Rail Capacity study, the authors envisioned the possibility of a single intermodal crew district between Spokane and Seattle via this routing, but I doubt that existing crew districts for heavier trains would have changed much. There would have been a built in double track between Ellensburg and Easton with both the ex-NP and ex-Milwaukee lines running parallel between this two towns.

[CSSHEGEWISCH]

The proposal by GE to re-electrify MILW may have been a lot like CTA's proposal in 1957 to operate the Chicago Aurora & Elgin from Forest Park to Wheaton with modified PCC's. It provided work for the planning department but with no concrete funding proposals attached, it may have been more for show than anything else.

[carnej1]

A question regarding possible upgrading of the C,M,St.P&P electrification. I've read on the Milwaukee Road Historical Association site that General Electric actually offered to completely rebuild the infrastructure in the early 1970's at little or no cost to the railroad. Presumedly this would have been an AC installation comparable to what was done with the NEC in the 70's and would have utilized a fleet pf E60C variants. But according to that source, the value of the copper wire as salvage was considered more important by MILW management.
What is the real story on this? Was GE counting on Federal investment ot make this work? It would seem that they wanted top use the project as a test bed, large scale electrification schemes then being hot topic in U.S railroading due to the Energy Crisis.
The plan supposedly involved closing the gap, but not extending catenary further East.

[Anonymous]

This is an interesting discussion, especially the speculation regarding "what if the BN/BNSF had kept Snoqualmie open in the 1980's.

Given this scenario: BN closed Stampede, invested in Snoqualmie:

- What would traffic patterns on Snoqualmie be like today?
- What would the physical plant be like?
- Where would the route's operating hubs, yards, etc, be?

Thanks very much for your expert input!

Regards,
Louis Judice

[Randy Stahl]

I'm still black and orange, I was reminded of that the other day as I sat in my office with my ex Milw forman and the Western Ave gen forman, LAST WEEK !! The Milw lives on in the spirit of the old employees who decided to stay in the RR industry... Not that I'm that old or anything !!!
Randy

[MichaelSol]

QUOTE: Originally posted by rob_l

Mark wrote:
"I said: Lumber from Idaho, for instance, could not consistently penetrate markets east of North Dakota on a profitable basis until the 1970s …

Mark, I would be interested in any marketing information you might have on this, as, like Rob, it seems contrary to my own personal observations, at least insofar as Western Montana is concerned, which is "almost" Idaho. Indeed, I recall seeing Idaho Bennett and Potlatch carloads eastbound on Milwaukee frequently during the 1960s.

In 1950's, the lumber markets took off in Western Montana. By 1957, the surplus of wood chips from lumber mills running at full bore was presenting all sorts of interesting problems of disposal. Teepee burners were running 24 hours a day, various companies attempted to exploit new markets for "Presto-logs" and "Pellets," but this attracted all sorts of outside interest. The Milwaukee Road Real Estate Dept convinced Hoerner Corp and Waldorf Paper Products Company to locate a paper mill near Frenchtown, Montana on the Milwaukee mainline. The jointly owned Waldorf-Hoerner Pulp mill was, at its opening in 1958, the largest Kraft process pulp plant in the world. Even at that, it was unable to consume the surplus of wood chips being produced in Western Montana and Northern Idaho.

This was quickly followed by another joint venture, between Vancouver Plywood Products and Evans Products Company, with their Van-Evans Plant near Missoula, located on the NP mainline, producing plywood and particle board. This opened in 1961 and shipped almost entirely to the upper Midwest and points east. The giant Bonner plant of the Anaconda Forest Products Division had so much business back east and the markets were so good that in 1963 it spent several million dollars on new state-of-the art plywood machines, which it housed in the "largest building in Montana" completed that year, giving a big boost to Milwaukee Road long haul to the East. Louisiana-Pacific opened a huge plant on the NP line in approximately 1964 and another in Deer Lodge on the Milwaukee at about the same time.

Intermountain Lumber Co., located on the Milwaukee mainline in Missoula, completed a set of ten new drying kilns and new saws to handle the demand for the standard dimension lumber that had always been its strong point. White Pine Sash & Door in Missoula, on the NP mainline, invested in the late 1950s and early 60s in several new production lines of window and door products which it shipped almost entirely to Wisconsin, Michigan, Illinois, Ohio and Indiana.

The expansion of the forest products industry in Western Montana, and Missoula in particular, was so dramatic in this period, 1955-1965, that it threatened to steamroll over the other components of the local economy. There was so much activity that the "Missoula Forest Products Industry Association" was organized in 1961, complete with sophisticated television advertising and extensive lobbying. Regionally, the Inland Forest Products Resource Council was organized in the same year, representing the forest products industries of eastern Washington, Idaho, and Montana, in promoting marketing, lobbying, and industrial relationships with the USDA Forest Service's Region One headquarters in Missoula. A friend of mine, Howard McDowell, was the founding executive director of the IFPRC, and I recall him commenting that the demand for Region 1 plywood and dimension lumber "Back East" was "insatiable" during those years.

This began to change in the early 1970s. As inflation began to roar through the economy, the cost of housing began to skyrocket. "Stagflation" was the major concern of the second Nixon administration, 1972-1976. Housing starts were way down; inflation was approaching 14% by 1974. Home mortgages were costing between 17 and 21%. US Plywood had bought the Bonner Mill operations in 1970, and based on the past market expanded the plywood plant to the largest capacity in North America, and promptly fell flat on its face as the market collapsed, selling out to Champion.

The forest products industry practically collapsed in the Northern Region (USDA Region One). Even after inflation was tamed in the mid-1980s, and housing markets again boomed in the 1990s, the forest products industry of Montana and Idaho never recovered. After 1980, of course, rail competition and service -- a key component of the ability of Region One industries to compete for Eastern and Midwestern markets -- no longer existed.

In dramatic contrast to the explosion of investment and facilities in the industry in the late 1950's/early 1960s, since 1980 and the shutdown of the Milwaukee PCE, there has not been a single new forest products plant built in Western Montana, and in fact dimension lumber mills have continued to shut down. Intermountain is gone. White Pine & Sash is gone. L.A. Hamilton is gone. Darby Lumber is gone. Champion left. Most because of high freight rates and poor service. LP keeps threatening to shut down. The Pulp Mill had to install its own chipping facility to create wood chips. Very little moves east from the remaining finished lumber producers.

The general manager of the Smurfitt-Stone Container mill -- the successor to the original Waldorf-Hoerner mill originally constructed in 1957 -- is Bob Boschee and he is a friend of mine. Coincidentally, we are working together on a business plan analysis today by email, and I've got to get to that. However, a few weeks ago I happen to ask him about his plant's shipping costs and patterns. They spend about $30 million a year on transportation these days, but he indicated that their markets are no longer transcontinental as they were in the heyday of the Milwaukee Road.

I recall by 1978, how the Pulp Plant's (then Hoerner-Waldorf, soon to become Champion Paper Mill) shipping manager (*** Wood, former Milwaukee Missoula sales agent) was trying to ensure as much business as possible to Milwaukee Road but BN was practically dumping boxcars in the yard to make sure that the mill had "good service" during Milwaukee's time of difficulty, and that Milwaukee seemed, to *** "uninterested" in supplying the requested boxcars after 1977.

Today Bob says that the Container Plant has been forced to look to regional markets, in Canada, Idaho, the West Coast, Utah, and Colorado. The marketing orientation has changed dramatically. In marked contrast to the exclusive use of rail service 1957-1980, Bob reports that they primarily use trucks now, and prefer to use trucks if they can because rail service has just been "awful." The BNSF is simply unresponsive, supply of boxcars is unpredictable, delivery of freight is slow and inconsistent, and they are charged some of the highest shipping rates for this kind of product in the country. The Mill has been forced to both downsize and readjust its markets.

So, like Rob, I was suprised Mark by your remarks on the Intermountain forest products industry not really serving markets east of North Dakota until the 1970s. From my perspective -- a purely anectodal perspective -- things were going great guns during the 1950s and 1960s, and began to fall flat during the 1970s. Markets did not expand to the east, they began to falter since demand itself collapsed during the 1970s. As I have mentioned previously, the largest regional producer of dimensional lumber, Big Blackfoot Milling Company/Anaconda Forest Products shows through its operating records that its biggest markets dating back to 1910 were, in fact, "east of North Dakota" since there were practically speaking no real markets between Western Montana and eastern North Dakota to serve after 1920. Eastern Montana and the Dakotas showed almost no growth the 1950s and 1960s. If railroads weren't shipping to the east of the Dakotas during that time, I'm puzzled as to where they were shipping because there surely was nothing going on west of the Dakotas. Yet, during that time, the industry was booming.

Best regards, Michael Sol

[MP173]

Free cash flow (cash generated after capital expenditures) is the most important number a corporation reports.

Does a company generate or consume cash? All other numbers are used to determine that figure.

Generally speaking railroads are not very good at generating cash. Currently CN is the best at doing this.

ed

[MichaelSol]

QUOTE: Originally posted by SPandS-fan
[brI do understand the difference between operating revenue and net income, and the operating ratio arrived at by comparing operating revenue against operating expenses. It ain't rocket science. I covered Fortune 500 businesses as a journalist., and have studied hundreds of 10Ks and 10Qs, including railroads'.

Net income is also relevant because that's profit, and that's why businesses can continue to exist. Discontinued operations, interest, accounting changes, charges, etc., can turn a positive operating income (pre-tax figure after operating expenses are substracted from operating revenue) into a net loss -- sustained losses lead to Chap. 11.

As a measure of railroad operating efficiency, operating income measures that.

Net income measures sales of trees, lumber, minerals, losses in investing misadventures off right-of-way, and any number of things that railroads used to dally in.

Net railway operating income measures the effect of government tax policy on railroads, which changes from time to time, and reflects little about the railroad operation itself as compared with railway operating income.

In 1965, Milwaukee Road, as an example, received a substantial refund on federal taxes overpaid in previous years. This didn't affect its railway operating income in any of the years, 1956-1960 or 1965, but it meant that net railway operating income for the years 1956-1960 was under-reported, and then when the adjustment was made in 1965, showed the refund reflected in the computation of net railway operating income as a higher income than would have been the case otherwise for that year. Look at UP's report of yesterday, 31% effective tax rate this year compared to a 36% tax rate last year. That's significant money and is important to managers and investors, but has nothing to do with the performance of the railroad. It's not something you would take to the VP-Operations and say "you need to fix this," or "good job on tax policy this year." At least not without an emergency escape route from his office.

Accounting adjustments can wildly change net railway operating income; see my previous post comparing Milwaukee Road's $55 million loss vs its $10 million profit in the same year due to accounting changes. Tax loss carryforwards can skew the net railway operating income for reasons entirely unrelated to a current year's operating results or the performance of the railroad itself.

The different levels of income categories measure different things for different purposes. Railroad operating efficiency, which seemed to be the point of your post, is measured by railway operating income.

Do any of these income measurements measure free cash flow for use by the company, which many managers consider the most important and useful measure? Not at all, since even railway operating income includes depreciation, which is an artificial deduction that represents no actual cash outlay in the current operating year. Best regards, Michael Sol

[Anonymous]

Rob,

Thanks for the clarification regarding Milwaukee's expanded territory in the PNW after the BN merger. I wan't aware of the SP-Milwaukee relationship post-BN.

[Anonymous]

QUOTE: Originally posted by MichaelSol


I don't think you understand your question. Railway operating income and railway operating expenses are the components of the operating ratio, not "net income." Net income includes taxes, and income from non-rail operations which aren't necessarily relevant to the operating efficiency of the railroad. In fact, I would suggest to you they are not, if that is what you are really interested in. And, are you interested in net income ICC, or net income SEC (generally accepted accounting principles)? They are different.

I do understand the difference between operating revenue and net income, and the operating ratio arrived at by comparing operating revenue against operating expenses. It ain't rocket science. I covered Fortune 500 businesses as a journalist., and have studied hundreds of 10Ks and 10Qs, including railroads'.

Net income is also relevant because that's profit, and that's why businesses can continue to exist. Discontinued operations, interest, accounting changes, charges, etc., can turn a positive operating income (pre-tax figure after operating expenses are substracted from operating revenue) into a net loss -- sustained losses lead to Chap. 11.

Also, net income growth or loss can trend with an increase or decrease in operating ratio, as it did with UP's recent 3Q statement (O/R increased from 80 percent to 86.4; net income down 36 percent).

So, yes, I do understand my question. It was and remains quite simple: What was the operating ratio for the three railroads in 1967, and what was their net income? SEC figures are more applicable, in my opinion, because they would be the more relevant to a stockholder.

QUOTE:
GN's average operating ratios for the years 1957-1959 averaged 76.8%. By 1967, GN's operating ratio had fallen to 81.79%. NP's operating ratio for 1967 was 96%, and was 90% in 1966. Milwaukee had an operating ratio of 80% in 1967, down from 78% in 1966.

These figures weren't flukes. In 1961, NP's operating ratio was 95%. GN and Milwaukee were 79%. But, the slide had been rapid for NP. As recently as 1958, NP had been able to report a 78% operating ratio. Interstate Highway construction had begun in 1957.

Thanks, Michael. Those O/R's are exactly what I was asking for. I can see what you mean now by the association between the Interstate and NP's O/R.

[Sterling1]

I suppose it's nice to reminisce on the old Miwaukee Road, but I wonder even with all the mistakes and errors I seriously wonder if its history could have been changed earlier on.

[MichaelSol]

QUOTE: Originally posted by CSSHEGEWISCH

The existing electrification at 3000 volts DC was obsolete ...

Why do you think it was obsolete?

Best regards, Michael Sol

[MichaelSol]

QUOTE: Originally posted by SPandS-fan

Great! You then should have the net income and operating figures available at your fingertips to provide for comparison for all three railroads for 1967. Net income and operating ratio are important, especially the latter, because it reveals the overall efficiency of the railroad -- unless revealing that information would tend to poke holes in your assertion. . .

Not sure what you are suggesting here. "Revealing" information -- or secreting it for that matter -- from annual reports available in most general libraries in the country isn't something I care to spend my time on. You are surely welcome to poke all the holes you want ....

I don't think you understand your question. Railway operating income and railway operating expenses are the components of the operating ratio, not "net income." Net income includes taxes, and income from non-rail operations which aren't necessarily relevant to the operating efficiency of the railroad. In fact, I would suggest to you they are not, if that is what you are really interested in. And, are you interested in net income ICC, or net income SEC (generally accepted accounting principles)? They are different.

GN's average operating ratios for the years 1957-1959 averaged 76.8%. By 1967, GN's operating ratio had fallen to 81.79%. NP's operating ratio for 1967 was 96%, and was 90% in 1966. Milwaukee had an operating ratio of 80% in 1967, down from 78% in 1966.

These figures weren't flukes. In 1961, NP's operating ratio was 95%. GN and Milwaukee were 79%. But, the slide had been rapid for NP. As recently as 1958, NP had been able to report a 78% operating ratio. Interstate Highway construction had begun in 1957.

Best regards, Michael Sol

[Sterling1]

I have the biography of James J. Hill and the through the the later part of the story the book refers to Hill's disdain for the Milwaukee's build out to the Pacific Northwest, because by the time it did do so, the market couldn't tolerate another company! Had the Milwaukee folks built their road 20 years earlier who knows who would be in that part of the U.S.?

[Anonymous]

Operating ratio is the more important of the two, and net income is at least as important as revenue.

[Anonymous]

QUOTE: Originally posted by SPandS-fan

Great! You then should have the net income and operating figures available at your fingertips to provide for comparison for all three railroads for 1967. Net income and operating ratio are important, especially the latter, because it reveals the overall efficiency of the railroad -- unless revealing that information would tend to poke holes in your assertion. . .

... except that net income, etc. for a large conglomerate like the railroads includes a lot of money that has nothing to do with railroad operations. You have to dig down into the footnotes and supporting schedules to find out what those numbers are. If they are good, they are usually prominently displayed. If they are bad, not so easy to find!

Remember the California railroad that was described as an oil company that just happened to own a railroad?

[Anonymous]

Great! You then should have the net income and operating figures available at your fingertips to provide for comparison for all three railroads for 1967. Net income and operating ratio are important, especially the latter, because it reveals the overall efficiency of the railroad -- unless revealing that information would tend to poke holes in your assertion. . .

[MichaelSol]

QUOTE: Originally posted by SPandS-fan

Curious. What's your source for this, Michael? And what was NP's operating ratio and net income for that year compared to MILW's? Those are at least as good a barometer as operating income of a line's overall performance.

Annual Report, Northern Pacific Railway, 1967; Annual Report CMStP&P, 1967, Annual Report, Great Northern Railway, 1967. I guess I'm not sure why net income, including millions in land grant income, is a good barometer of a railroad operation ....

[Anonymous]

QUOTE: Originally posted by MichaelSol

"If there is any doubt about that, reflect on the fact that, by 1967, the profit had finally just about been squeezed out of the Northern Pacific Railroad, as it earned only $$9,767,000.00, net railway operating income, compared to the Milwaukee Road's $51,386,019.00, which was, by the way, even better than the Great Northern's that year. There was nothing left of the NP as a profitable transcontinental. It was doomed, and the Northern Lines people knew it."

Curious. What's your source for this, Michael? And what was NP's operating ratio and net income for that year compared to MILW's? Those are at least as good a barometer as operating income of a line's overall performance.

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