The Milwaukee Road

[MichaelSol]

QUOTE: Originally posted by SPandS-fan

you mentioned in an earlier post the revenues for the Washington Division. I'm aware of the Coast Division (Tacoma-Othello), Idaho Division (Othello-Avery) and Rocky Mountain Division (Avery-Harlowton), but no Washington Division.

Is the Washington Division a consolidation of the Coast and Idaho divisions immediately following the BN merger and MILW's gaining trackage rights to Portland and Bellingham, or was it a creation of the late 1970s? I understand it did exist, as I've found today timetables from the late 1970s.

On January 16, 1958, the Idaho Division was abolished. Malden, Wa. east to Avery, including Spokane and the Metalline Falls Branch became part of the Rocky Mountain Divison. Malden west to Othello became part of the Coast Division. Several division realignments later, on January 1 1976, the Coast Division was renamed the Washington Division, and the Rocky Mountain Division became the Montana Division. Best regards, Michael Sol

[Anonymous]

Michael,

You mentioned in an earlier post the revenues for the Washington Division. I'm aware of the Coast Division (Tacoma-Othello), Idaho Division (Othello-Avery) and Rocky Mountain Division (Avery-Harlowton), but no Washington Division.

Is the Washington Division a consolidation of the Coast and Idaho divisions immediately following the BN merger and MILW's gaining trackage rights to Portland and Bellingham, or was it a creation of the late 1970s? I understand it did exist, as I've found today timetables from the late 1970s.

Also, can you provide the profit figure per mile for the Washington Division to compare with the earlier revenue figure you posted. That would provide context as to the financial viabilty of the Puget Sound Extension for the period you cited.

[Anonymous]

Michael,

I noticed that you have reviewed a couple of books about MILW on Amazon.
Have you written any? If you haven't you should. You have a wealth of knowledge about it and it seems that the subject of the Milwaukee Road is very popular!

Regards,
Dennis

[MichaelSol]

Gabe, Milwaukee Road's Chicago-Twin Cities mainline carried three types of traffic: the long haul transcontinental freight, Louisville to Portland. Very good business for Milwaukee Road.

The line also carried a goodly amount of Chicago-Twin Cities traffic, some good traffic, and the Sprints. Sprints didn't earn their fully distributed costs, but they earned in excess of their marginal costs, so that was OK traffic.

Finally, that line carried a substantial amount of Chicago-Milwaukee traffic. Extremely short haul stuff and there was a lot of it. Of course there was the usual intermediate traffic of all varieties.

There seemed to be a feeling at a certain executive level that all that traffic would still remain on the line in the event the PCE was shut down. That particular notion was, to me, something of a head scratcher. If BN and UP captured that traffic by way of a shut-down, why on earth would they be handing it back to the Milwaukee at Twin Cities Terminals or Council Bluffs? Well, the answer I got during a somewhat confrontational discussion with a well-known company officer on the topic was, "that traffic is there because it is economically justified and nothing is going to change that!"

Milwaukee's planning staff shared my skepticism, somewhat differently expressed. They attempted to tell the Trustee, Stanley Hillman, that shutting down the PCE would eliminate $162 million in gross revenue. But there was no way that the Milwaukee would generate $162 million in savings from the shutdown, the actual operating expenses of the PCE were nowhere near the amount of revenues received. The best the Company could do in actual cost savings was about $120-$130 million.

Shutting down the PCE was going to CREATE a financial crisis, not solve one.

Hillman didn't take that advice well. He exchanged some comments with the planning staff regarding his feelings on the matter and about the planning staff. The planner who had done the projections, and was directly involved in the presentation got up, walked out the door and quit the company, convinced that the Trustee had no interest in the financial viability of the Milwaukee Road. Pete White just sat there.

Further, of the gross revenue, approximately $80 million was truly transcontinental, that is, it originated or terminated at points on the PCE traveling over the Chicago-Twin Cities main, much of it bound for or coming from points east of Chicago or to or from Louisville.

Take that traffic -- or revenue -- off the Chicago-Twin Cities corridor and the remaining traffic was all short haul or extremely short haul. But, for whatever reasons, the existing traffic on that line was viewed as something independent and apart from the transcontinental traffic, and so all they needed to do was save that busy mainline and everything would be fine.

My point being that, as a system, Louisville to Portland, Milwaukee Road had this terrific mainline that gathered and delivered traffic to and from seven very large terminals: Louisville, Galewood, Milwaukee, Twin Cities -- on one end, and Seattle, Tacoma, and Portland -- on the other end. A very long haul system, the longest mainline in the country.

Taking a 440 mile chunk out of the middle of that 2700 mile mainline didn't mean that those 440 miles were going to generate the same kind of revenue; particularly not supporting the enormous infrastructure developed around that central core that was designed to support a transcontinental system: in particular, the Milwaukee Shops, a double-tracked mainline, and Bensenville, Air Line and Pig's Eye automated yards.

In May, 1979, the Trustee's consulting firm, Booz, Allen and Hamilton, delivered their report. By then, of course, the mechanics of abandonment were well underway and probably irreversible. Hillman had already decided on a course of action, based in part he said cryptically at an earlier news conference, on a "letter" from the consulting firm that said Milwaukee could not be reorganized if it included the transcontinental line.

So, the actual written report from the consulting firm was intriguing, and must have been quite a shock to Hillman. Their conclusion was that the Milwaukee Road's greatest profit potential as a railroad, based on existing traffic and the probability of recovering former traffic, as well as obtaining new traffic which had been specifically identified through a detailed traffic study done on a shipper by shipper basis, was the option that BAH termed its "Louisville-Transcon" alternative: Louisville-Chicago -Twin Cities-Seattle -Tacoma-Portland.

Indeed, the four most profitable configurations all involved the transcontinental system.

All configurations which BAH could plausibly construct around a reorganized Midwest core alone, that is, the Chicago-Twin Cities main line, were unprofitable or, even with successful, agressive marketing efforts, only marginally profitable after several years. It was quite a report.

This wasn't what Stanley Hillman had confidently been telling the ICC, the Bankruptcy Court, and the general public for the past year and a half. Yet, his actions had made the exercise of that option well nigh impossible. It's hard to tell what Hillman must have thought from the detailed findings of the consultants. He had ulcers. One of them perforated within a few weeks after receiving the report. Gravely ill, he resigned and his role at the Milwaukee Road was over.

The PCE was abandoned. True to the planning department's prediction, instead of decreasing, losses shot up. On its own, the Chicago-Twin Cities main could not carry the system.

Best regards, Michael Sol

[gabe]

For those with "capacity impaired" minds such as my self, could somenoe please go into a little bit more detail about the Milwaukee Road's Eastern lines in relation to profits. Is the assertion that the Milwaukee Road's Milwaukee-Chicago corridor was not profitable? Or is the assertion that Chicago - Pacific coast was profitable, the rest was not?

Isn't that line still there? Why was it not profitable? Wouldn't the alleged profitability and traffic of the pacific extension necessarily run over to the Chicago - Milwaukee corridor?

Thanks,

Gabe

[Anonymous]

Thank you Michael, et. al. for all the very well written and informative posts on this topic. I, for one, have learned more about the Milwaukee Road (and railroading in general) from this forum topic than I have in the last year.

This topic is showing how railroads actually earn money, and has brought to light many fallacies I had wondered about. This is indeed the topic of the month, if not year.

[MichaelSol]

QUOTE: Originally posted by jwieczorek

As Mark has so eleoquently presented, there was not and still is not enough traffic to justify three transcontinental lines in the notrthern tier. If the ICC was really interested in competition, perhaps a more logical 1970 merger would have been MILW + NP, and GN + CB&Q. This could have given the Milwaukee Road on line customers and wouild have allowed the removal of duplicate trackwork.

For approximately 69 years, the Milwaukee, the NP and GN operated profitable transcontinental operations. During most of those years, all three railroads offered better operating ratios than today's roads. The idea that "capacity" has something to do with anything regarding the fundamental nature of railroading as an economic enterprise seems to missing from the conversation.

"Not enough traffic?" I have no idea what that means. Railroading is still an economic enterprise. If it makes money, there must be "enough" traffic. If it isn't making money, it really doesn't matter how much traffic it has.

This was a problem at Milwaukee Road. They kept looking at "all that traffic" Chicago-Milwaukee --Twin Cities. Four times as many carloads as out West. It was the only Milwaukee line that met the minimum "traffic" levels for 4R funding. So, "we need to keep the traffic." It was the part of the railroad that was losing money. Go figure.

NP was historically the busiest of the three roads out West. Yet, after 1914, it began, according to one of its biographers, Louis Renz, its "long decline." This was due in main part to the impact of the Milwaukee Road's PCE. The NP was indeed the "Mainstreet of the Northwest," and carried chickens from Deer Lodge to Butte and goats from Miles City to Livingston. It had to work hard to make schedules on its long and winding route and it carried a lot of short haul traffic, probably the most of any transcontinental carrier. Plenty of traffic in chickens and goats, but let's keep the Land Grants just in case. 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, 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.

GN looked more like the Milwaukee. Heavy traffic on its east end, 50% iron ore, thin out West. Mostly long haul stuff after James J. Hill's homesteaders dried up and blew away, leaving, in Joseph Kinsey Howard's memorable phrase "empty trains rattling through empty towns" on Montana's "Hi-line." But GN's long haul typically began at St. Paul or even less impressively, in North Central Montana where it picked up Burlington traffic routed over the Billings & Northern.

Milwaukee was truly the long haul carrier in the Northern Tier. Prior to 1970, it always had a longer average long haul than GN, NP or UP. This gave it an economic advantage even while handling fewer carloads: it received more money for each carload. After electrification, it was the low cost carrier, and it could offer the fastest schedules, which it continued to do right up until the deferred maintenance of the 1970s. From an economic perspective, it offered premium service on high revenue freight and operated at significantly lower cost.

All three made money although for some reason the conventional wisdom fails to reflect on the fact that the NP was, by far, the weakest of the three in its final years. Milwaukee, if true to its historical profit ratio Lines East/Lines West, earned approximately twice as much from its PCE as the NP, at approximately half the gross tonnage carried (and fewer expenses).

As early as 1921, a Milwaukee President commissioned a study of the economics of Lines West. A former "Q" man, and a former superintendent of the GN's Cascade Division, he knew well the allegations -- the conventional wisdom then as now -- that the PCE was unprofitable. Indeed, he was hired to undo Albert Earling's "mistake" and he needed a study to show that it was a "mistake." He was surprised by the conclusion of the study, that the PCE generated 25% of the gross revenue of the Company, but 40% of its net. [First National City Company, “Chicago, Milwaukee & St. Paul Railway", First National City Bank, 1922, p. 5].

Not a mistake he wanted to undo or could afford to undo. Not a mistake at all. The economic success of the entire company was now tied inextricably to the inherent profitability of its Pacific Extension. This remained true throughout its history except that the contribution to net became higher and higher, finally representing ALL of the net profit of the Milwaukee Road after 1969.

Brock Adams, a politician with not an ounce of business experience, started this discussion about capacity back in the 1970s while at DOT, and since DOT was handing out 3R, 4R and MRRA federal rehabilitation funds and loan guarantees based upon allegiance to its new doctrine of reduction of "excess" capacity, it became a mantra for rail executives, for reasons which I cannot fathom except as a means to obtain federal dollars.

There has perhaps been no federal railroad policy so misguided and poorly informed, and especially as it translated into private initiative. The economic results of efforts of the past 20 years of eliminating "excess capacity" have resulted in congestion, frustrated shippers, loss of shippers, significant economic damage to whole industries, and no discernible positive effect on the operating results of railroads, in fact, to the contrary.

"Excess capacity" is a term used in industry to manage allocation of fixed and variable costs. But, it has a different meaning and a very different significance to an industrial enterprise than it does for a railroad. For an industry, it means a physical plant that is not utilized for production, incurring fixed costs.

That was never true in railroading. The physical plant was, in fact, being utilized. As Rob has pointed out previously, "capacity" is a term that is very difficult to even define in a railroad context. Four trains a day each way can mean that the railroad capacity is being used for efficient handling of high revenue freight with a minimum of facilities and personnel. Sixty trains a day means a railroad bottleneck, slow freight movement, and a high investment in facilities and personnel, subject to much more complicated risk interruption probabilities.

Capacity depends entirely on what the purpose is. Nordstrom's has a completely different "capacity" than Walmart; they are opposite ends of the retailing spectrum. They both make money serving different markets. The railroad executive that does not realize that the "Ford Fast" serving a JIT Just-in-Time inventory system is a premium service for which the customer will pay will eventually force Ford to abandon railroads altogether. But the wheat farmer with wheat lying on the ground for three months will wonder why railroading is called a commodity -- which means it is a commonality -- when covered hopper cars are not available to carry his crop because of long equipment cycle times resulting allegedly from rail congestion. As railroads race to the bottom, dropping to the lowest common denominator of service, shippers become convinced that railroads, simply, cannot offer "service."

For these modern, marginally profitable behemoths, all that utilization of "capacity" did was create scenarios wherein failure, any failure, had such catastrophic effects as to potentially wreck the company. The economic losses in Texas caused by the UP debacle of the mid-1990s illustrates that the return for high utilization of capacity -- some not very impressive operating ratio -- is obtained at the risk of half a billion and billion dollar losses, as well as heightened risk to the general economy. At the same time, shippers such as UPS elect to abandon railroads altogether because the concept of premium service is something that the railroads can no longer deliver.

As a result, margins continue to erode. For more effort, investors receive less return. The idea that capital for railroads may become more expensive than capital for other endeavors, because of well-grounded concerns for risk, is frightening for an industry that depends so heavily on capital.

The infatuation that the industry has shown for eliminating excess capacity over the past quarter century makes a fascinating study considering how many intelligent, well educated executives have now come and gone, making odious comparisons to bygone days when railroads had excess capacity all over the place, and ... provided better service and made more money at it.

Interesting times.

I am paraphrasing, but Historian Albro Martin once asked Donald Russell: "how is it that in spite of low returns and heavy regulation, that the railroad industry has been able to attract and retain first class executives?"

Russell looked at Martin with surprise: "Why Mr. Martin, I'm not sure that we did."

Best regards, Michael Sol

[CSSHEGEWISCH]

Rates from intermediate points may be higher, but that's part of the price to be paid for living in the Dakotas and Montana. Similar rate situations exist in all forms of transportation. Chicago-Detroit air fares are appreciably lower than the fares from Chicago to Flint, Grand Rapids, Lansing, etc.

There may be widespread shipper support now for a second transcon in the Northern Tier, but how would it be created and once it exists, would farmers and elevators be willing to pay the additional truck charges to move their grain to be transloaded onto that line.

Open access is not the solution. Trackage rights charges would have to be negotiated, and should cover more than just incremental costs. It would be unreasonable to force the hosting road to absorb all of the maintenance of way costs and other related expenses.

[MP173]

Just my 2 cents on this subject...

May I nominate this for "Thread of the Year" honors?

And, which line is next for discussion? I nominate Erie Lackawanna.

ed

[Anonymous]

QUOTE: Originally posted by jwieczorek

This is a fascinating and enlightening discussion. This is a topic of particular interenst to me. I try to learn as much as I can (in a casual manner) of the extension and demise of the MIlwaukee Road.

In my caual efforts and own ponderings, some of my conclusions are as follows:

The "writing was on the wall" for teh pacific extension when the Justice Departemnt allowed James Hill to own both the Northern Pacific and the Great Northern. Possibly had he had to divest one or the other much like Harriman had to divest the Southern Pacific, much would have changed.

As Mark has so eleoquently presented, there was not and still is not enough traffic to justify three transcontinental lines in the notrthern tier. If the ICC was really interested in competition, perhaps a more logical 1970 merger would have been MILW + NP, and GN + CB&Q. This could have given the Milwaukee Road on line customers and wouild have allowed the removal of duplicate trackwork.

Would this have saved the Milwaukee "lines west"? Probably not, except for the few locations where the MILW alignment was better than the NP.

The Pacific Extension was a bold(perhaps foolish in hindsight) attempt by the managers to compete on thier own terms with the Hill lines. But at least those men had vision and sought to survive as their own company rather than be part of another. Men (and women) with such vision and drive are few these days. Just my opinion.

Counterpoint: There is but one Northern Tier transcon, that being BNSF. UP reaches up to the PNW in places, but does not affect rail pricing for those intermediate points between the Puget Sound and Chicago. This gives BNSF sole reigh over the Northern Tier.

There are two market characteristics that would suggest a second NT transcon would be viable. One, BNSF turns down business with aplomb, otherwise shippers would not be long hauling grain, containers, et al to PNW ports by truck. If economic growth remains relatively strong, both BNSF and UP have shown that they cannot handle it. Two, there is deep shipper disatisfaction with BNSF predatory rates, thus there would be widespread shipper support for a second NT transcon.

The Pacific Coast Extension was not foolish, but it's application throughout the century was left wanting.

[jeaton]

I'll have to second Paul's remarks.

This is very bold on my part, but if I may, I'd like to summarize what I hear from Mark and Michael. We should learn from history, but we should be careful how we use what we learn.

Now, having looked at many good fragments of the story, including Michael's excellent views from the inside, may I ask if there is anything out now (book, good series of in depth articles) that covers the story? I'd buy.

Jay

[Anonymous]

QUOTE: Originally posted by SPandS-fan

Mark and Michael,

What a wonderful discussion. I feel in many ways as if I've been in a college-level course regarding transportation. Both of you raise thought-provoking points.

I agree with Michael, now that he points it out, that there is an inherent pitfall to the Strategic Fallacy model because it can't be tested. War-gaming (the intensive board/computer variety at a strategic level) may at times offer a glimpse into different possible outcomes in warfare. Nothing conclusive can be drawn, however, just fodder to chew on for those with an interest in military history. I don't play those games. What happened is what happened; I tend to strongly embrace the idea of predestination. I'm more interested in "why" and "what" for the sake of not repeating strategic, or even gross tactical, errors.

How this relates to the Milwaukee Road is similar: I regret the mistakes that were made, wish it was still around, but am interested more in the "why/how" and "what" of its demise. There is of course a stark difference between a field/sea/air commander making decisions in the heat of a battle that is the turning point of a war (Midway, Battle of Britain, Vicksburg, Adrianople) and the demise of the Milwaukee Road. Of course, historians can teach us much from both.

QUOTE: The messianic executive usually leaves the greater mark on history, though often it's a black mark. Their weakness is their hubris. It makes them inable to adapt to setbacks and changed conditions, and rather than build support among those on the margin they turn inward to a smaller and smaller set of people who pass their litmus test for ideological purity. Those who do not subscribe to the faith begin to withdraw their interest and look elsewhere for opportunity that seems more feasible.

Hmmm, I can think of another application to what you've stated. Enough said.

What in the name of the Reverend James J. Hill are you guys talking about?!

[Anonymous]

This is a fascinating and enlightening discussion. This is a topic of particular interenst to me. I try to learn as much as I can (in a casual manner) of the extension and demise of the MIlwaukee Road.

In my caual efforts and own ponderings, some of my conclusions are as follows:

The "writing was on the wall" for teh pacific extension when the Justice Departemnt allowed James Hill to own both the Northern Pacific and the Great Northern. Possibly had he had to divest one or the other much like Harriman had to divest the Southern Pacific, much would have changed.

As Mark has so eleoquently presented, there was not and still is not enough traffic to justify three transcontinental lines in the notrthern tier. If the ICC was really interested in competition, perhaps a more logical 1970 merger would have been MILW + NP, and GN + CB&Q. This could have given the Milwaukee Road on line customers and wouild have allowed the removal of duplicate trackwork.

Would this have saved the Milwaukee "lines west"? Probably not, except for the few locations where the MILW alignment was better than the NP.

The Pacific Extension was a bold(perhaps foolish in hindsight) attempt by the managers to compete on thier own terms with the Hill lines. But at least those men had vision and sought to survive as their own company rather than be part of another. Men (and women) with such vision and drive are few these days. Just my opinion.

[Anonymous]

Mark and Michael,

What a wonderful discussion. I feel in many ways as if I've been in a college-level course regarding transportation. Both of you raise thought-provoking points.

I agree with Michael, now that he points it out, that there is an inherent pitfall to the Strategic Fallacy model because it can't be tested. War-gaming (the intensive board/computer variety at a strategic level) may at times offer a glimpse into different possible outcomes in warfare. Nothing conclusive can be drawn, however, just fodder to chew on for those with an interest in military history. I don't play those games. What happened is what happened; I tend to strongly embrace the idea of predestination. I'm more interested in "why" and "what" for the sake of not repeating strategic, or even gross tactical, errors.

How this relates to the Milwaukee Road is similar: I regret the mistakes that were made, wish it was still around, but am interested more in the "why/how" and "what" of its demise. There is of course a stark difference between a field/sea/air commander making decisions in the heat of a battle that is the turning point of a war (Midway, Battle of Britain, Vicksburg, Adrianople) and the demise of the Milwaukee Road. Of course, historians can teach us much from both.

QUOTE: The messianic executive usually leaves the greater mark on history, though often it's a black mark. Their weakness is their hubris. It makes them inable to adapt to setbacks and changed conditions, and rather than build support among those on the margin they turn inward to a smaller and smaller set of people who pass their litmus test for ideological purity. Those who do not subscribe to the faith begin to withdraw their interest and look elsewhere for opportunity that seems more feasible.

Hmmm, I can think of another application to what you've stated. Enough said.

[Anonymous]

Mark,

I think what needs to be culled from this discussion is not the perception of nostalgia (though some may participate on that reason), but that we as a nation must learn from the past if we are to plan for the future. The case of the Milwaukee road brings to the forefront several points which may provide guidance for future transportation intrastructure planning, including but not limited to:

1. Given the influence UP and BN had over the eventual demise of the Milwaukee, perhaps it is best that no one with ties to the railroad industry be allowed to sit on the STB, nor be allowed to take a position with any railroad after being a member of the STB. Does anyone still deny that elimination of competition is the sole reason someone from railroad A would be allowed to give advice and consent on the fate of struggling railroad B?

2. In the same vein, it seems the STB only judges the viability of a railroad based on the here and now, not on the needs of the future. Even if the judgement of the trustee at the time was mostly correct that the Milwaukee represented excess capacity (still a debatable issue), do these guys not have the ability to look 10 or 25 years down the road? Given current traffic levels and rejected business opportunities based on maxed capacity, we could use another railroad or two to take up the slack.

3. Isn't the purpose of the STB to protect regions from monopolistic practices, rather than simply protecting the interests of railroad stockholders? When the Milwaukee was allowed to retrench in 1980, it left most of the Northern Tier states at the mercy of a single dominant railroad, and the predictable result of predatory pricing has come to fruition as a result. This is a situation that still begs for correction, and should not be simply swept under the rug under the guise of it being simply economics at work. Politics maybe, but not economics. The Milwaukee case is the poster child for STB incompetence and dereliction of duty.

4. Do not underestimate the potential for a new line being formed by a consolidation of Northern Tier regionals such as MRL and DM&E, along with state-sponsored or even private ressurection of parts of the original Milwaukee corridor into a new Northern Transcontinental. Unless one can beg to differ, we've already established the fact of UP and BNSF having more business than they can handle, so there is new business to be had both now and in the future. Couple that with the disgust the region's politicians and shippers have for the current duopoly, and you have a case for new entry into the market. It is still a long shot, but the fundamentals are in place at this time to make it a reality.

[gabe]

What is meant by faith-based railroaders? I have never heard this term before. Though I am able to extrapolate some meaning from the context of Mark's comments, I am unsure that I am completely aware of what it refers to?

Are they a group of people who paradigmatically follow a set of beliefs?

Perhaps I am missing something?

Gabe

[MichaelSol]

QUOTE: Originally posted by M.W. Hemphill

The "what-ifs," entertaining as they might be, are now pointless. They didn't happen, and even if one posits that they had, they lead to what Samuel Eliot Morison called "the Strategic Fallacy," to paraphrase, the assumption that if the Milwaukee Road had done something different, the other railroads would have done the same (as they actually did) and not met it with something different and possibly devastating.

Studying the failures and successes of the past is hardly pointless. The sum of human knowledge is useless without a measure of human experience. Whether it passes for war gaming at the Army War College, case studies at Harvard Law, or case studies at the London School of Economics, or any other business school for that matter, a thorough understanding of complex business events, in this case, coupled with applications of different strategic models generating different outcomes based on the available data is a part of the process by which economists and business strategists educate themselves and provide better management decisions for the future. Pointless? There is a fine line between Morrison's concept of the strategic fallacy and a belief in predestination. The Milwaukee happens to present an extremely interesting case study.

In another line of work, historians routinely dissect the facts underlying decisions to examine the process of decision-making itself. People and organizations often make mistakes in assessing facts and making decisions and sometimes roaring successes. Unless one has a belief in pure randomness of the decision making process itself, Historians succeed when they are able to illuminate the decision making process by reference to the context of those decisions.

The interesting thing about The Strategic Fallacy theory is that it "presumes" the fallacy, based upon the speculation that alternative courses of action "might" be met with alternative reactions by other players. That's a very shaky presumption upon which to build the edifice of a strategy. Since the alternative event did not occur, the Strategic Fallacy theory cannot be tested, can never be tested. A theory based upon an untestable presumption, a presumption which itself is speculative in the extreme, while interesting perhaps to philosophers, provides little guidance or incentive in modern management problems and solutions.

Fortunately, the Trustee hired an able consulting firm and several different models were in fact proposed in 1979 for the reorganization of the Milwaukee, not based on hindsight, but on information available at the time including an interesting traffic study. The Washington Division numbers played an important role in several of the recommended outcomes of that study.

Best regards, Michael Sol

[Anonymous]

QUOTE: Originally posted by M.W. Hemphill


The "what-ifs," entertaining as they might be, are now pointless. They didn't happen, and even if one posits that they had, they lead to what Samuel Eliot Morison called "the Strategic Fallacy," to paraphrase, the assumption that if the Milwaukee Road had done something different, the other railroads would have done the same (as they actually did) and not met it with something different and possibly devastating. Just how, for instance, was the Milwaukee Road to split itself into a Chicago-Seattle main line and a granger network in the Midwest? Just whom was to be saddled with the country-mouse half?

We know now how it all turned out, but our information was not available in the past. To even know if the Milwaukee Road's management erred, it would be helpful to cite the specific error made at each decision point in the Milwaukee Road's path, and why the correct alternative, obvious in hindsight, was either opaque or intentionally dismissed at the time of the decision.

You're correct, and Morison is someone for whom I have immense regard (I read the first six volumes of his 15-volume set "History of U.S. Naval Operations in World War II"; then I graduated college and have no access to the CWU library or another set). His Strategic Fallacy yardstick works for the topic of "What if the MILW. . . " almost as well as it addresses the argument of using the atomic bomb or any other controversial decision in warfare.

I speculate out of nostalgia and affection. . .and it's kind of fun to step back from the reality of what happened for a moment.

[Anonymous]

Operating ratio of 92 percent for SP in 1977 and trending badly?! I knew SP's outlook was horrific then, but I would have guessed high 80s. That it survived almost another 20 years is testament to something. Providence? Deregulation? Combination of both?

[Anonymous]

QUOTE: Originally posted by MichaelSol

Milwaukee Road's system-wide gross freight revenue per mile was $48,000 per mile. Rock Isand's was $56,900 per mile. I don't have BN figures right in front of me right now, but I recall they were approximately $70-75,000 per mile.

Milwaukee lines, Washington Division (Idaho, Washington, Oregon), in 1977 were generating $100,427 gross revenue per mile of line.

Pretty good stuff for a broken down railroad.

Holy flyin' boxcabs! I had heard at about that time, in 1977, the Olympic Branch was generating most of the revenue for the railroad. I'm sure the person meant, or I should have understood, that it was really the Coast Division and Idaho Division. He was associated with the railroad, IIRC.

Also, how did the Rocky Mountain Division compare to the rest of the railroad in terms of revenue generation?

QUOTE:
That was the strength of Milwaukee's historic long-haul position on the Pacific Coast Extension. As one assistant VP--Planning remarked: "“Milwaukee Road had in excess of 76% of the Port of Seattle’s business. It had mail, it had Toyotas, it had almost all the domestic auto business westbound. It had the long ticket items we needed to build on that today are what railroads are all about." William Brodsky, President, Montana Rail Link. Interview by Jim Scribbins, “S.O.R.E.” Milwaukee Railroader, First Quarter, 1994, p. 11.

It is notable that, without Lines West, Milwaukee Road system [that is, Lines East] average dropped to $39,763 revenue per mile of line, significantly below that of the Rock Island. About one-third that of the Washington Division.

All the more reason for me to grind my teeth at its demise.[:(!] The Coast and Idaho divisions were the money-makers of the railroad (not to mention, IMHO, the most interesting, along with the western half of the Rocky Mountain Division)!

Dare I say that the wrong half of the railroad was truncated? Could MILW have terminated in Minneapolis, dumped most of its granger personality, and formed in essence a transcon partnership with the Soo or C&NW? Would it have been feasible, Michael?

[MichaelSol]

QUOTE: Originally posted by martin.knoepfel

Michael Sol mentioned the cost of rebuilding the PCE to class IV standards. the question - in my opinion - is, whether the MILW would have been competitive again with such a modest rebuilding-program.

In 1977, the Milwaukee company as a whole lost $55,171,000 (as reported in Railway Age and to the SEC) or $36,246,980 (as reported to the ICC), or made a profit of $10,628,393 after fiddling with depreciation and federal taxes (Annual Report). You might gather from the disparity of those figures why the investing public long ago gave up on railroads.

In any case, the general consensus was that the Company lost a boatload of money in 1977. This was due in large part to December winter weather, particularly back East severely impacting Conrail. Bensenville was chock full of high value freight, waiting to deliver to Conrail, which could not accept anything as it was a complete mess. At the same time, freight from other Eastern roads continued to arrive. I was just told a few weeks ago by the VPO of that era -- and I hadn't realized at the time just how bad it was -- "we had to run trains through Bensenville and Milwaukee clear to St. Paul just to find room to get the boxcars off the mainline."

In any case, the Company was earning very little revenue, and expenses soared at the same time. After the Receivership which was specifically caused by winter conditions on Lines East, for whatever reasons the new Trustee was confronted with enormous losses and blamed ... Lines West!

After the ICC demanded his specific figures, he was understandably embarassed to admit to the ICC that Lines West, however, had earned $8 million in net profit that year, if he allocated $48 million in off-line expenses to Lines West, or it earned $56 million net if no off-line costs were attributed to it. He preferred the $8 million net profit figure since he was trying to argue he needed to abandon the line to preserve that part of the railroad that lost $63 million in 1977 (using the Railway Age figures, $55 million plus $8 million).

Milwaukee Road's system-wide gross freight revenue per mile was $48,000 per mile. Rock Island's was $56,900 per mile. I don't have BN figures right in front of me right now, but I recall they were approximately $70-75,000 per mile.

Milwaukee lines, Washington Division (Idaho, Washington, Oregon), in 1977 were generating $100,427 gross revenue per mile of line.

Pretty good stuff for a broken down railroad.

That was the strength of Milwaukee's historic long-haul position on the Pacific Coast Extension. As one assistant VP--Planning remarked: "“Milwaukee Road had in excess of 76% of the Port of Seattle’s business. It had mail, it had Toyotas, it had almost all the domestic auto business westbound. It had the long ticket items we needed to build on that today are what railroads are all about." William Brodsky, President, Montana Rail Link. Interview by Jim Scribbins, “S.O.R.E.” Milwaukee Railroader, First Quarter, 1994, p. 11.

It is notable that, without Lines West, Milwaukee Road system [that is, Lines East] average dropped to $39,763 revenue per mile of line, significantly below that of the Rock Island. About one-third that of the Washington Division.

Best regards, Michael Sol

[Anonymous]

QUOTE: Originally posted by M.W. Hemphill

Paul: I believe Rob is referring to the segregation of coal on the NP eastward from the Powder River Basin. Theoretically the coal destined for Superior could be brought up to the GN at Snowden, Mont., and then due east to Superior. It's unlikely that PRB coal will ever be exported in quantity off the Pacific Coast.

Ah, I am further enlightened.[:)] In the back of my mind, and what I should added to the relevant post to being with, is: "There are so few coal trains headed for the Northwest, why segregate them?"

[martin.knoepfel]

Michael Sol mentioned the cost of rebuilding the PCE to class IV standards. the question - in my opinion - is, whether the MILW would have been competitive again with such a modest rebuilding-programm.

on the other side, the advantage of having different lines to the PNW is obvious, one for slow drags, on for faster trains. it would greatly encrease capacity. the problem is however in corporate politics. every railroad wants to have the high-profit margin on its line. open access would be a solution to the problem.

I thing the ports on the PNW should be most interested in adequate capacity to the east. If capacity is insufficent, the traffic will move elsewhere, most probly to Canada. Note that CN and CP have aquired tracks down into the US.

to finish a little self-praise: the MILW operation to mixe "Joes" with diesels is not far from what I proposed to increase capacity in the Casacades-Tunnel.

[MichaelSol]

QUOTE: Originally posted by futuremodal

BTW, do either of you have information on the cost per track mile of both constructing and maintaining the catenery?

The estimate for electrifying the "Gap" between Avery and Othello, made by Coverale & Colpitts in 1925, was $5 million, about $22,000 per track mile including power conversion substations. In 1974, the estimate was about the same, accounting for the fact that power conversion substations were no longer the fancy structures with rotating machinery, but rather, small, inconspicuous buildings housing simple DC rectifiers without a need for inverters on that section. Costs of AC installations at that time were about $50-70,000 per track mile.

I may have company maintenance figures somewhere, but in lieu of looking for them, I am thinking they were in the order of $1,200 per mile or so based on the number of crews, and that most of the cost of maintenance was in salaries. Best regards, Michael Sol

[Anonymous]

Rob and Michael,

Almost thou persuadest me that electrification was (is?) the way to go. Thanks for the insight.

[MichaelSol]

The Milwaukee lowered the floors of its Chicago-Seattle mainline tunnels during the summer of 1961, in order to achieve clearances for the tri-level autorack cars then coming into service. The project required lowering the track under an overpass in LaCrosse and in Minneapolis as well. The tunnel floors were lowered in 31 of the 46 tunnels west of Ringling, Montana, and the trolley raised in 36 of the tunnels. All together, a total of 7.54 miles of mainline were lowered between 6 inches and two feet.

The Milwaukee leased a Swiss-Made Matisa ballast cleaner and undercutter which utilized a digging chain that operated at high speed under the ties and at a right angle to the track center, automatically loading the waste onto conveyor belts carrying the materials back to standard side dump air dump cars. It was quite an operation. The whole project started in May and ended October 1, costing a little over $800,000 total. Freight schedules were adjusted to run trains through during 12 hours of each 24 hour period. Over 25,350 cubic yards of new ballast were applied, and 28,100 feet of new drain pipe were installed in the affected tunnels.

Trilevel autoracks are 19 feet 4 inches, and a high cube double stack is just about 20' exactly. My understanding was that Milwaukee was attempting to achieve a minimum of two feet of clearance over the autoracks below the catenary, with two feet or more remaining for catenary and clearance. Best regards, Michael Sol

[Anonymous]

Thanks Rob and Michael.

One other question arises: If Milwaukee had both stayed alive into the doublestack era AND kept (and/or expanded) its electrification, would there have been any clearance problems with the overhead wires and the 20' height of double stacks, autoracks, et al? I expect that tunnel clearances as built would not have been able to handle both the wires and high clearance rolling stock without further modification.

BTW, do either of you have information on the cost per track mile of both constructing and maintaining the catenery?

[MichaelSol]

The Milwaukee Electrification was installed on top of the existing steam terminals in the period 1914-1919. That was the reason that the electrified zone began at Harlowton, as the next terminal was Three Forks, the next one Deer Lodge and so forth. The plan was for a continuous electrification zone to the west coast. Harlowton represented the first terminal before the railroad entered, literally, the Rocky Mountain West. This enabled the electrification operation to take advantage of existing steam facilities, shops, turntables, etc. , without developing redundant facilities elsewhere.

Similarly, Othello had existing facilities. The next mountain grade was up the Saddle Mountains. It would have made no sense to put an electrification terminal anywhere but Othello. Crews already changed there. The turntable was there. Shops were there. Where else would you put an electrification terminal for the Coast division but at the first existing terminal prior to the first real mountain grade?

Unfortunately, for whatever reasons, Milwaukee did not take the advice of its expensive consulting engineers hired in 1925 to recommend directions for the railroad to take economically and operationally in advance of filing for Receivership. Of all the things they looked at on the Milwaukee, Coverdale & Colpitts were most impressed by the operating economies obtained through electrification. It had doubled track capacity, it had lowered operating costs significantly, it decreased running times significantly, reliability was much greater than for steam, and it had a very positive impact on ancillary considerations, drawbar damage, rail wear, brake shoes, and crop and forest fires. They recommended immediate electrification into Seattle, and of the "Gap" between Avery and Othello, during the budget years 1926 and 1927, to make a continous electrified zone from Harlowton to Tacoma.

Only the Seattle section was actually completed, in 1927.

As Rob points out, over the years studies were done, and always came out in favor of retaining -- and extending -- the electrification. There were those on the railroad that argued that the company needed to "standardize" its motive power and that was always an argument that cut both ways. Standardize on what? Ten-Wheelers? Mikado's? Northerns? FTs? GP-40s? SD-40s? The only "standard" the Milwaukee ever had that could deserve the word were the electric locomotives built by GE.

In today's business terminology, the Milwaukee made an interesting choice. It selected the single most reliable component of transportation technology, the electric motor, and put it out on the rails. It outsourced power generation to specialists, and let them invest in dams, transmission systems, and evolving combustion technologies.

In the meantime, its competitors were attempting to operate out West -- and everywhere else -- by carrying their own combustion systems of varying efficiencies, providing the transportation of the fuel to operate those combustion systems, constantly acquiring "new and improved" technologies at increasingly expensive prices, employing vast herds of specialists to keep the various technologies running and, because of the high wear and high number of moving parts, quickly encountered with each subsequent generation of such equipment maintenance cost curves which at some point virtually compelled acquisition of a new generation of such power.

All the while, these companies were dependent on single source fuel supplies, and entirely at the mercy of price. This resonates today as it did in 1974 with the cost of electric power considerably lower than the equivalent cost of diesel fuel.

The investment cost alone, of the changes in road motive power during the period 1914-1974, on American railroads would, I am sure, be a staggering sum. On an "avoided cost" basis alone, the Milwaukee Road electrification stands as one of railroading's greatest economic success stories.

Best regards, Michael Sol

[Anonymous]

QUOTE: Originally posted by rob_l

To/from the PNW on the BNSF and UP east-west transcons, we now have Z trains, stack trains, heavy lumber trains and very heavy grain trains. This is a difficult mix. Capacity is tight because of it. And adding capacity is expensive because of it.

I believe there is a total volume level at which it would be cheaper to handle the Z train and stack train traffic on one line and the grain and lumber traffic on a separate line rather than to put them on the same line.

If the Milw line had not been trashed, this now would be possible and practical. (And we already have the coal segregated on a third line, the ex-NP.)

Hence, perhaps, BNSF's dogged persistence at maintaining Stampede Pass even though for the present few trains use it? Clearances through Stampede allow only loose car and unit grain/coal traffic, though. (Which brings us back to the "Why didn't BN keep Snoqualmie Pass?" discussion. The operating department would probably prefer the better grade and routing of Snoqualmie because of the added flexibility and ability for routing all kinds traffic through it, including intermodal and autos, if conditions demanded.)

Why segregate coal to the ex-NP, though, by which I assume you mean Stampede, in the Northwest, rather than using Stampede for other non-intermodal traffic? I think I'm missing your point.

Could not Stampede continue to handle eastbound MTY grainers and coal, as well as baretables, and MTY westbound manifests (primarily lumber cars destined for interchange with CN/BC Rail, some chemical traffic, and lead ore) as it does now, and theoretically then route westbound manifest loads and auto trains, as well as eastbound auto MTYs, over Snoqualmie?

Then that begs the question: Will BNSF ever increase tunnel clearances through Stampede Pass (Stampede Tunnel and Tunnel 4) to accommodate intermodal and reinstitute the two main tracks between Easton and Lester, or beyond? And would doing so negate any significant capacity advantage that Snoqualmie Pass/MILW might provide?

[rob_l]

Dave wrote:

"I will slightly disagree with you on the point regarding the "ideal" time for Milwaukee to have terminated it's electrification. True, most of the electric locomotives were paid for and still running in excellent condition in the 1950's, but there is something to be said for standardization, and when it became apparent that diesels were the way to go, it seems the wiser railroads jumped at this opportunity. One of the problems with Milwaukee's electrification was the location of its intermediate terminals. "

Milw's costs studies over the years all took careful account of the resulting power pools (both diesel and electric), and the conclusion was always the same: keeping the electrification came out ahead (until the time it had to be replaced).

Dave continues:

"Going west to east, you had one electrified section running from Seattle/Tacoma (a logical terminal) to Othello (not a logical terminal) where Milwaukee had to turn over to diesels. Then you had another illogical terminal at Avery, where again Milwaukee electrification ran all the way to Harlowtown. At Avery, Milwaukee could either change over completely to electrics or add electrics as helpers to the incoming diesels, or they could just run the diesels through without the electrics. Same situation westbound at Harlowtown. If diesels ran through, it begs the question as to why have a redundant physical plant that needs to be maintained."

Actually, it worked out pretty well and without significant redundancy. The transcon trains could run with 3 diesel units over their entire Chi - Tac runs, with a Joe added to the point at Harlow WB and Avery EB. The extra power was not needed Chi - Harlow and Avery - Othello, and the Joe added to the point got the HPT way up exactly when and where it was needed - for a fast run across the Montana and Idaho mountains. Diesel utilization was great, electric utilization wasn't bad. (Before the track went to hell, the cycle went like this: the Joe arriving Harlow late am on 262 would be dispatched west on 261 that same evening. The Joes arriving Avery in the am on 263 and 261 could be dispatched back east on 262 and 264 later that same afternoon. The Joe arriving Harlow in the evening on 264 would take 263 west the next am.)

The biggest flaw was that there were not enough Joes to run Joe+diesel trains on the Coast Divn, so Milw was facing 1.74% EB and 2.2% WB grades and a need for extra power. The Box Motors were frustratingly slow for time freight schedules (athough they were regulars on 263/264 leading GP9s until 1969, and they even got used on 261/262 on occasion). The Coast Divn electrics were banished from the time freights by 1970, and Milw started adding an extra diesel unit to its time freights between Tacoma and Othello. But this also worked out reasonably well, because the EB fleet would leave Tacoma during the night, get to Othello by mid-day, and the WB fleet woud leave Othello starting in the afternoon, working the same extra units back west.

After the end of the electrification, the Avery terminal was moved 50 miles or so downriver to St. Maries (and the Malden crew change was abolished), Cle Elum was run through, but nothing else changed. Given the mountain grades, it was not practical or feasible to pu***he first crew change any further east than Othello. And it was not practical to tinker with Alberton, Three Forks or Harlowton.

On a 2,000 mile transcon run, whether one terminal is located plus or minus 50 miles just can't add up to much financial impact in the larger scheme of things.

Dave continues:

"If electrics were added at these points, then Milwaukee missed the opportunity to move its crew change/refueling points to more logical sites, such as Missoula or Deer Lodge."

Actually, Deer Lodge was the crew change point (and the division HQ). And the diesels behind the Joe were re-fueled there.

Dave continues:

"I'll admit, I'm at a loss to determine where the first logical terminal location eastbound out of Puget Sound should be. Othello was too soon."

As I asserted above, I think they couldn't have done much better. Even the BNSF of today changes in Wenatchee, for the same reason.

"The point I'm trying to make is that the location of the changeover points from the electrified portions to the non-electrified portions restricted Milwaukee's ability to extend terminal points to a day's haul, as well as forced crew change points at far out of the way locations."

In general, this is a very valid point. But by killing the electrics all Milw was able to get in this regard was moving the Avery crew change to St. Maries and eliminating Malden. And if the track had been brought up to snuff, I think they could have made an Othello - Avery crew district work anyway.

Dave continues:

"Whether this added unnecessary costs to the point of making the electrification less profitable than complete dieselization back in the 1950's I do not know, but I suspect it did. Since some diesels did start running through as early as 1947 with the new FM-powered Olympian Hiawatha, it had to have occured to management that such could also be done for through freights."

When 261/262 were inagurated in 1963, they were indeed all-diesel trains. But management soon found that they could make much better running time by putting a Joe on the point ahead of the diesels. The Joe would keep the diesels wound up above the transition point, so every grade was conquered at track speed. Moreover, they found that they could eliminate one diesel unit Chicago - Othello and back.

In Milw's case, the electric/diesel mix beat all-diesel and all-electric operation hands down. Any of the old hogheads will tell you this was by far the best way to make time.

And that is the big, big difference between Milw and the other electrifications - the other guys were not "wiser". They didn't have a Laurence Wylie, they never figured out how to mix electrics and diesels, so they scrapped their electrifications. Since Milw could mix and match as required, it never paid to get rid of the Milw electrification. Even when they actually did get rid of it in 1974.

Best regards,

Rob L.