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

[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 …

You quoted me as saying: Lumber from Idaho could not penetrate markets east of North Dakota until the 1970s.

What's up with that??"


Mark, very sorry to abridge your statement. But I find the full statement no less incredulous.

Shipments of lumber and plywood from Idaho to Eastern US points were very strong in the 1960s. Pack River Lumber generated lots of loads in the Sandpoint - Bonners Ferry area to go east on GN, UP, and NP; a number of large mills in the Coeur D'Alene area generated strong traffic for those three roads plus Milwaukee; St. Maries Plywood and Bennett Lumber generated strong traffic for Milw; and Potlatch generated strong traffic for Milw, NP and UP. While these mills generated substantial traffic to the booming housing markets in Southern California, Arizona and Texas, my impression is that the their total tonnage shipped east of the Missouri River was larger.

In 1965, Potlatch opened the world's largest plywood mill in Jaype, ID. I have a very hard time believing this investment was made for products that "could not penetrate markets east of North Dakota on a consistently profitable basis." Both the UP and BN enjoyed long trains of Long East loads coming out of Lewiston, ID 6 nights a week. These trains were full of unprofitable products?

My dad was a lumber and plywood broker, selling to large wholesale consumers across the US and buying and finding supply from the PNW mills. As such, he was a very large rail shipper. Before de-reg, rail rates for these commodities were proportional to weight (all lumber and plywood loads had to be weighed) and rougly proportional to mileage.

Intermountain lumber and plywood was much less green than the stuff from West of the Cascades. Hence it had an economic advantage - it weighed a lot less, it was less mileage to Eastern markets, so its transportation costs were cheaper. It did not need to be kiln-dried. For many of his major customers, my dad would negotiate general, average-weight-basis freight rates paid by his customers, then proceed to scounge up as much supply as he could from Idaho and other Intermountain mils to arbitrage the difference between the rates he charged and the rates the RRs charged him. Through the 50s, 60s and 70s, he made a pretty good living doing this. He supplied all the plywood to Star-Craft mobile homes in Indiana, to Evans Products rail car assembly (also in Indiana or maybe Michigan) and folks like that. With plywood from Idaho. (As a side note, my dad also sold to the RRs - for example, the plywood extensions on all of SP's beet gons.)

Best regards,

Rob L.

[rob_l]

Mark said:

"We now know 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."

Well , this thread has covered the important points pretty well, I think:

(1) In the 1960s the Crowley management deferred maintenance on the PCE and used these funds to prop up up dividends. This was done in order to secure more favorable terms of merger with the CN&W. Management figured they could plow savings and new revenues resulting from merger back into the property after this friendly merger was consummated. But this backfired -- the ICC ordered the terms of the merger changed, and then the merger was off. (I guess the ICC was duped like the Milw stockholders into believing the overall Milwaukee was a stronger property than it really was.)

(2) The conditions of the BN merger, exploited by very good Milw middle management, resulted in the Milw PCE traffic taking off, growing 2X. Maintenance budgets for the PCE were increased under the Crippen management (despite opposition from many of the stockholders and from some of Milw management). But it was too little, too late. The increased traffic accelerated the death of the track, the trains slowed down or went into the ditch, traffic levels started back down. The slide was exacerbated by bad decisions like dumping the electrification and replacing it with too few Locotrol units (that didn't work all that well anyway). Milw entered bankruptcy.

(3) The BAH consultants to the Trustee recommend Milw re-organize as a basically transcon RR Louisville - Chicago - PNW, shedding the Bridge-line main lines to Council Bluffs and KC and shedding the Midwest grain-gathering lines, but keeping the PCE branches and certain Midwest branches generating long-haul traffic (e.g., Janesville autos, Columbia coal plant). Of all alternatives, this is found to be the most profitable configuration for a re-organized company (maybe the only profitable configuration). Middle management from the Milw Planning and Transportation depts. recommend the same. But the Trustee and Milw upper management had already made up their minds to abandon the PCE and were far down that path.

A side note you might enjoy - Chicago Milwaukee Corp. had a number of wealthy investors holding their stock (was it preferred stock?). IIRC, their lawyer successfully argued a case with the IRS that the dividends paid to them were non-taxable because the company made no money, hence the dividends were not from profits, their investment was being liquidated. This group of stockholders fought strongly against any captial improvements in the property and strongly for continued payout of the dividends.

Another side note - a number of Milw's very-good middle managers in Transportation and Planning became very frustrated at the incredibly incompetent executive leadership. First Valentine left to ATSF, became GST there. Later, Torpin (Valentine's protoge) left to ATSF, rose to GM - Coast Lines. Then Brodsky (Torpin's protoge) left, ended up Pres. of MRL.

As to the question of the political feasibility in 1979-1980 of withdrawing from the Midwestern network, I can't say. They were able to abandon a lot of it to create Milw II, e.g., Savanna - CoB and Sioux City, the Rapid City Line, etc.

Best regards,

Rob L.

[Anonymous]

Rob,

Regarding point #2, as much as Milwaukee management earned some praise for getting into new markets as conditions of the BN merger, they maybe could have, should have demanded much more. As a grade schooler at the time of the BN merger, it was my observation that in order for Milwaukee to compete on an even keel with the newly created BN, they would need to:

A. Access the entire I-5 (nee U.S. 99) corridor all the way from Portland to Vancouver BC over the BN mainline.

B. Get additional access into Portland via rights over the SP&S from Spokane.

C. Get rights into the "Inside Gateway" via Bend and Kalamath Falls OR into California.

This would have resulted in equal access to the same West Coast termini as BN, and also could have absolved some of the track maintenance issues by using BN tracks where possible west of Spokane. If maintenance funds became scarce (as it appears they did), Milwaukee could have consolidated that work to trackage east of Spokane, exploiting the use of BN tracks in Washington state to keep traffic moving upright.

[arbfbe]

So just who were the members of the Board of Directors in the 1960 to 1980 time period? What was their personal financial stake in the railroad or who's interests did they represent? Were they an active board or just a rubber stamp for the CEO? Why didn't they look at the BAH reports themselves and trashcan the managers who didn't seem to be able to read English? Why were the major stockholders interested in liquidating the railroad for short term gain instead of working for the long term income stream from continuing operations? Where did the stockholders take their newfound income for further investment?

[rob_l]

QUOTE: Originally posted by futuremodal

Rob,

Regarding point #2, as much as Milwaukee management earned some praise for getting into new markets as conditions of the BN merger, they maybe could have, should have demanded much more. As a grade schooler at the time of the BN merger, it was my observation that in order for Milwaukee to compete on an even keel with the newly created BN, they would need to:

A. Access the entire I-5 (nee U.S. 99) corridor all the way from Portland to Vancouver BC over the BN mainline.

B. Get additional access into Portland via rights over the SP&S from Spokane.

C. Get rights into the "Inside Gateway" via Bend and Kalamath Falls OR into California.

This would have resulted in equal access to the same West Coast termini as BN, and also could have absolved some of the track maintenance issues by using BN tracks where possible west of Spokane. If maintenance funds became scarce (as it appears they did), Milwaukee could have consolidated that work to trackage east of Spokane, exploiting the use of BN tracks in Washington state to keep traffic moving upright.

Dave,

My understanding is that the "11 western gateways" merger conditions were drawn up by the Milw Legal Dept. with essentially no direction from the Executive Dept. and minimal support from the Transportation Dept. That they did as well as they did is remarkable.

The idea was to protect Milw's ability to compete in the territory they served but not to expand their service territory. I generally agree that Milw should have asked for more, but it is of course a pretty gray area as to what constitutes protecting competitive ability in current service territory vs. expanding the service territory. I bet the Milw lawyers thought they were being pretty bold asking for access to Portland. I suppose they argued that they had traffic share moving Milw - Marengo - UP but that this market share would erode in the face of another single-line competitor serving Portland.

The Portland gateway is interesting. Before the BN merger, NP was SP's preferred interchange partner, and so NP got the lion's share of the traffic to/from the SP. The GN wanted the long-haul to Chemult (or better yet, use the WP/ATSF instead of SP and interchange at Bieber), so they were a hostile partner in SP's eyes. The UP wanted the PNW - So Cal haul for itself via Utah, so they were a hostile partner too.

After the BN merger, the BN wanted the interchange with SP moved to Klamath Falls, and indeed, most of the BN/SP interchange moved to Klamath Falls. This made BN an undesirable interchange partner in SP's eyes. UP remained undesirable. But Milw's entry into Portland was a godsend for SP. So SP strongly promoted Milw as its preferred interchange partner to/from the PNW, and Milw traffic to/from Portland built up from nothing to two trains each way.

So I think Milw rights to K Falls or Bieber would be a questionable idea. It would weaken the great relationship they had with the SP.

What I think Milw should have asked for is rights on UP/BN Tacoma Jct. - Reservation - Chehalis Jct. (to get them out off Tacoma Hill), and rights on BN Everett - Argo via Interbay (to get them off Maltby Hill). This would have lowered their costs significantly. (I suppose the lawyers didn't know those details, this is where guidance from the Transportation Dept. would have really helped.)

The Milw's market share of the lucrative BC-originated transcon lumber traffic was just fine, since the PGE and BCE were under common ownership, and they could get the traffic at the BC Rail's preferred gateway - Sumas (same place BN got it). So maybe rights to Vancouver weren't justifiable.

Best regards,

Rob L.

[MichaelSol]

QUOTE: [i]Another side note - a number of Milw's very-good middle managers in Transportation and Planning became very frustrated at the incredibly incompetent executive leadership. First Valentine left to ATSF, became GST there. Later, Torpin (Valentine's protoge) left to ATSF, rose to GM - Coast Lines. Then Brodsky (Torpin's protoge) left, ended up Pres. of MRL.

And, VPO Marty Garelick left for exactly those reasons at a crucial time, the loss of a very key, upper level, highly experienced executive, going to Amtrak. And it wasn't because he wanted to go to Amtrak.

Incidentally, I modified my post of October 18, reflecting on the "long decline" of the NP, which conflicts with what is apparently a prevailing opinion that Milwaukee Road was the weakest of the three Northern Tier transcontinentals. It has always appeared to me that the NP was an odd duck -- a high cost, highly staffed, short haul transcontinental and therefore suffering badly as the progressive completion of the Interstate Highway system continued to corrode its profitability during the 1960s, while Milwaukee continued to take the long haul and premium freight. Despite carrying over twice the tonnage of Milwaukee's PCE,

"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."

Best regards, Michael Sol

[CSSHEGEWISCH]

An issue that seems to be have been avoided is the cost of upgrading and extending the electrification. The existing electrification at 3000 volts DC was obsolete and an upgrade would probably have involved a conversion to 25000 volts 60-cycle AC. As a result, new motive power, substations and overhead would be required.

With the higher voltage involved, tunnel clearances would have to be improved to allow for a sufficient gap between the overhead and tall cars such as tri-level auto racks, high-cube box cars and double stack containers. Third rail in the tunnels would not be practicable since it creates its own clearance problems, especially at the higher voltages involved.

NJ Transit converted its ex-EL suburban electrification from 3000 volts DC to 50000 volts 60-cycle AC in the 1980's and it took two or three years to accomplish.

[arbfbe]

The Lawrence Wylie plan for the electrification upgrade in the 1960's was to keep the 3000 vdc system. Heavy motor generators from flat land substations would be moved into mountain areas to increase capacity there. The low land substations would be upgraded with solid state components to replace the capacity of the motor generators removed there. This would make up for the ability of the AC to move current further distances with less loss campared to DC. The additional air distance for insulation between 100,000 vac vs 3300 vdc is about 2" so that was not a factor if an AC conversion had been decided upon.

This information is from Mr Wylie directly though relayed to me from the interviewer.

[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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