The problems actually began in the 50's.Poor or non existant passenger train patronage because of auto sales,interstate highways,and airlines connected with the inability to discontinue money losing passenger services.Poor management decisions,a lazy ICC,mergers such as the 1967 Penn Central merger that didn't work because of opposing management teams,saddled with too many restrictions,debt and unwanted property and/or operations.Inability to meet shippers needs (ICC induced) or interchange between railroads to get shipments to receivers in a timely manner(managements of opposing railroads).
Have a good one.
Bill B
Remember too, that not all of the mergers were exchanges of stock, many involved cash as well. That money promptly left the industry.
Also don't view the 50's as a time of prosperity for everyone. Where I was born on the Mesabi Iron Range of Minnesota, 1954 was the last good year. By 1958, for many families, how well fed you were depended on how good a gardener and hunter you were, . Venison was on the menu two to three times per week in the winter and venison sausage in the summer. The arrival of the first freezers were a godsend. The bleakness of the outlook finally drove my parents to leave the area for better prospects elsewhere.
gabe wrote: Sorry, but now that I have renewed my posting for two days, I have to ask a question that I am sure will have a readily apparent answer to most readers who are far more knowledgeable than I when it comes to rail matters. But, what changes hit the rail industry from the 1960s to the 1970s to make things go so horribly wrong? Granted my pool of knowledge is small, but my knowledge of the Illinois Central, Nickle Platte, Southern Pacific, and a few other railroads indicate that--although I would not describe the 1960s as a boom of rail traffic--rail lines seemed healthy and sustainable. But, by the 1970s, it looked like every rail line was heading for a two mile run off a one mile pier.
However because railroad physical plant has a very long lifetime, the railroad industry was able to persist for nearly 50 years, slowly cannibalizing itself. By 1970 there was nothing left to cannibalize; many roads were finished. The 1906 date is very sharply scribed in railroad history. After that date railroad expansion and heavy reconstruction nosedived. (This is old hat, my friend. A.C. Kalmbach and D.P. Morgan co-authored the article “The Golden Age of Railroad Construction”: in the February 1949 issue of Trains that described and analyzed this watershed quite sufficiently. Well, at least I thought they had!)
The criticism of pre-Staggers rail regulation seems fairly justified to me. Yet, this regulation was with the industry well before 1960; yet it wasn't killing the industry in 1960. Why was pre-staggers regulation killing the industry in 1970?
Some may blame the interstate highway system. Yet, at worst, the interstate system strikes me as a two-edge sword, as it allows for increased business in areas that are served by both rail and the interstate.
Consider meat processing, which was formerly concentrated in large cities or in terminal markets, which the truck enabled to scatter into the cattle-growing regions. According to Kansas Board of Agriculture statistics, the percentage of cattle fed in large Kansas feedlots (1,000 head capacity or more) went from 26.7% in 1960 to 87.6% in 1975. The number of large-capacity feedlots grew from seven in 1952 to 140 by 1974, and grain-fed cattle increased from less than half a million in 1955 to around two million by the 1970s. This was matched by equal growth in red meat packed in Kansas (which historically had not been a major packing state).
Moreover, many mergers started during this time, which you would think would bring more health to the industry. Yet, things got horribly worse after these mergers, not better.
Saunders “Merging Lines” does the best job to date describing why mergers didn’t work. What I don’t think you’re acknowledging is that mergers were the only trick left to play; railroads had no other options open to them – not even just quitting business.
What happened at 12:00 on December 31, 1969 that caused such a decline in railroading? (realize that this statement is in jest, but I am interested in understanding why railroads could survive in the 1960s, but not the 1970s) Gabe
S. Hadid
Mr Hadid-
The Hepburn Act came in during 1906. Without it, would the turning point have happened later ?
1435mm wrote: gabe wrote: Sorry, but now that I have renewed my posting for two days, I have to ask a question that I am sure will have a readily apparent answer to most readers who are far more knowledgeable than I when it comes to rail matters. But, what changes hit the rail industry from the 1960s to the 1970s to make things go so horribly wrong? Granted my pool of knowledge is small, but my knowledge of the Illinois Central, Nickle Platte, Southern Pacific, and a few other railroads indicate that--although I would not describe the 1960s as a boom of rail traffic--rail lines seemed healthy and sustainable. But, by the 1970s, it looked like every rail line was heading for a two mile run off a one mile pier. Your premise is truly 66 years out of date. It really should be, "What happened to railroads after 1906?" What you think only happened in the 1970s was merely the end-game of the rapid erosion of pricing power and market share caused by the appearance of inexpensive autos and trucks in the the early 1900s coupled with the decision of the public that highways should be publically financed and toll-free, coupled with a refusal by the same public to allow railroads to abandon unprofitable business lines. However because railroad physical plant has a very long lifetime, the railroad industry was able to persist for nearly 50 years, slowly cannibalizing itself. By 1970 there was nothing left to cannibalize; many roads were finished. The 1906 date is very sharply scribed in railroad history. After that date railroad expansion and heavy reconstruction nosedived. (This is old hat, my friend. A.C. Kalmbach and D.P. Morgan co-authored the article “The Golden Age of Railroad Construction”: in the February 1949 issue of Trains that described and analyzed this watershed quite sufficiently. Well, at least I thought they had!) The criticism of pre-Staggers rail regulation seems fairly justified to me. Yet, this regulation was with the industry well before 1960; yet it wasn't killing the industry in 1960. Why was pre-staggers regulation killing the industry in 1970? Oh yes it was! It just took 50 years for the effects to reach the bitter end, again, because railroads had an immense legacy investment. You are imagining that cause goes to effect quickly, whereas when you’re dealing with something that lasts as long as railroad investment the pig passes through the python slowly. Review the annual reports in the 1945-1955 era of railroads that did not inhabit growth areas, such as the grangers and Official Territory roads, and see how their results after 1952 show their cash position steadily march from positive to zero to negative. Some may blame the interstate highway system. Yet, at worst, the interstate system strikes me as a two-edge sword, as it allows for increased business in areas that are served by both rail and the interstate. What the highway system (of all types, not just the Interstate) permitted was a dissemination and decentralization of manufacturing and distribution of all types, which enabled large amounts of freight to move in short hauls from producer to manufacturer to distributor to consumer and never need to pay the price of consolidation to gain the large-volume, long-distance capability of railroads. That stranded immense swaths of railroad infrastructure which could no longer pay their way. Consider meat processing, which was formerly concentrated in large cities or in terminal markets, which the truck enabled to scatter into the cattle-growing regions. According to Kansas Board of Agriculture statistics, the percentage of cattle fed in large Kansas feedlots (1,000 head capacity or more) went from 26.7% in 1960 to 87.6% in 1975. The number of large-capacity feedlots grew from seven in 1952 to 140 by 1974, and grain-fed cattle increased from less than half a million in 1955 to around two million by the 1970s. This was matched by equal growth in red meat packed in Kansas (which historically had not been a major packing state). Moreover, many mergers started during this time, which you would think would bring more health to the industry. Yet, things got horribly worse after these mergers, not better. Saunders “Merging Lines” does the best job to date describing why mergers didn’t work. What I don’t think you’re acknowledging is that mergers were the only trick left to play; railroads had no other options open to them – not even just quitting business. What happened at 12:00 on December 31, 1969 that caused such a decline in railroading? (realize that this statement is in jest, but I am interested in understanding why railroads could survive in the 1960s, but not the 1970s) Gabe Quite simply it took that long to run out of assets. S. Hadid
There seems to be a contradiction between your hypothesis of decentralization (brought about by improved highways) and your example of the Kansas feedlot growth. If meat packing grew in Kansas at the expense of the big city meat packing industry, that would suggest an increase in long haul freight prospects, not the opposite.
Oh, it's a good example, but not as you framed it. And it typified the lost opportunities for railroads as time sensitivity became a more pronounced characteristic of intercity freight.
If anything, the advent of viable intercity highway travel made possible the economic growth machine that should have played right into the rail industry's hands. Freeways and airlines aided in shifting passenger transportation away from railroads, thus a big money loser was erradicated. It was all set up for a more optimized freight rail system.
So what happened?
In one word - speed, or more precisely the lack thereof in terms of theoretical rail speeds. Freight movement on highways has always been limited to the 60 - 70 mph max range both for practicality and safety reasons. Meanwhile, back in the 1930's railroads were approaching 100 mph speeds as a practical max norm, and one would presume a continued evolution of speed into the triple digit range as an average norm. At this same time top road speeds were still down in the under 50 mph range even with blacktop.
Instead, the railroads began slipping back into a comfort zone of 25 mph average speeds for longer and heavier consists. Once that happened it was all but over for railroads, since now their main items of haulage were mostly non time sensitive bulk goods. They lost the value-added component of time sensitive cargo, settling for the low margin stuff.
Remember John Kneiling's banana trade example? Same thing - it all went to trucks by default as railroad
Dale: Yes, it was the beginning of the end, along with the Panic of 1906-07.
(The Wikipedia article linked above is not inaccurate but it is very incomplete. A much better description is pages 52-59, "A History of the ICC, From Panacea to Palliative," Ari and Olive Hoogenboom, W.W. Norton & Company, 1976)
In brief, the Hepburn Act gave the ICC big teeth. It enjoined railroads to comply with its orders or sue in court, greatly enlarged the scope of its regulation into allied transportation businesses such as express and sleeping car companies and oil pipelines, and empowered the ICC to greatly enlarge its staff. The Hepburn Act also prohibited railroads from hauling, except for their own use and excepting lumber, any product of their own production or manufacture, such as coal. This was a focused attack on the anthracite roads which were actually arms of coal mining companies that used high railroad rates to drive from the field competing mining companies, in essence selling their coal at a loss and making their profit from the railroad.
The effects were large and swift. Rail rates were effectively frozen at 1906 levels, which were only slightly higher than the artificially low rates of 1899. Net investment plummeted from $1.5 billion in 1906 to $100 million in 1912. 1910 earnings failed to equal 1907 earnings, even though gross ton-miles had increased 10%. The operating ratio for the industry climbed from 66 in 1910 to 72.2 in 1914.
In 1910 the Supreme Court upheld rate reductions the ICC had imposed on the Rock Island and Burlington, in effect proving the validity of the Hepburn Act. Railroad stock prices collapsed.
In 1913 the Newlands Act gave the ICC enforcement over railroad labor relations originally contemplated under the Erdman Act of 1898, and thus began a pattern of squeezing the industry between higher costs and lower revenues.
As a parenthetical comment, I'm not a fan of Albro Martin and his screeds, and I take no side in this battle.
1435mm wrote: Your premise is truly 66 years out of date. It really should be, "What happened to railroads after 1906?" ....The 1906 date is very sharply scribed in railroad history. After that date railroad expansion and heavy reconstruction nosedived. (This is old hat, my friend. A.C. Kalmbach and D.P. Morgan co-authored the article “The Golden Age of Railroad Construction”: in the February 1949 issue of Trains that described and analyzed this watershed quite sufficiently. Well, at least I thought they had!)
Your premise is truly 66 years out of date. It really should be, "What happened to railroads after 1906?" ....The 1906 date is very sharply scribed in railroad history. After that date railroad expansion and heavy reconstruction nosedived. (This is old hat, my friend. A.C. Kalmbach and D.P. Morgan co-authored the article “The Golden Age of Railroad Construction”: in the February 1949 issue of Trains that described and analyzed this watershed quite sufficiently. Well, at least I thought they had!)
A review of relevant peer railroads, NP, MILW, GN, CBQ and CNW shows that by 1925, the average investment in property was 72% greater than that of 1906 as the result of heavy rebuilding programs and, in the case of MILW, extension. The North Western for instance, increased its physical plant investment 1906 to 1923 from $276 million to $489 million, an increase of 77%.
This enormous increase in investment occured notwithstanding the 1907 Depression -- considered one of the worst in American history -- and the collapse of the European Bond Market, the historical source of American railroad construction capital, during the leadup to WWI -- a bond market that did not recover. And the 1914 opening of the Panama Canal.
Too, consider that the largest percentage historically of railway mileage in receivership was during the period 1893-1903 as a result of the 1893 Depression which took out most of the transcontinentals as well as many more established companies. Miraculously, this occured without the heavy hand of ICC intervention through the Hepburn Act.
By the standards of actual collapse and bankruptcy, the rail industry was in worse shape 1893-1900 than 1970-1977 -- that is, during some "Golden Age."
futuremodal wrote:There seems to be a contradiction between your hypothesis of decentralization (brought about by improved highways) and your example of the Kansas feedlot growth. If meat packing grew in Kansas at the expense of the big city meat packing industry, that would suggest an increase in long haul freight prospects, not the opposite.Oh, it's a good example, but not as you framed it. And it typified the lost opportunities for railroads as time sensitivity became a more pronounced characteristic of intercity freight.
What's left out here is that the ICC regulators effectively prohibited the railroads from competing for the business from the new meat production facilities.
A trucker could sign a contract with a producer that guranteed a certain level of business provided the trucker met certain price and service coditions. A railroad couldn't legally do that. To compete the railroad would have to invest megabucks in specialized refrigerated equipment, put on the expidited, expensive service, and just hope the traffic would really materialize. (as, of course, the shipper promised it would. A promise kept untill it was in the shipper's best interest to forget the promise.) A trucker would have the traffic guarntee in a signed contract before he went to the bank for money to buy the equipment. Again, the railroad couldn't legally do that.
And when the railroads went ahead and tried, betting "on the come", and they did do that, and when a contract trucker responded by cutting the rate, the railroads couldn't match it without the regulators' blessing. Their rate actions could be challenged by the truckers and things would drag on before the ICC while the expensive equipment sat idle.
Classic example. IBP, one of the "new breed" meat processors located near the cattle raising areas had its own contract carrier truck line; "Processed Beef Express". The IC actually got PBX to put its trailers on flatcars out of Sioux City. So far, so good.
But NO! said the ICC. You see PBX was a "contract" carrier and the IC was a "common" carrier. The two simply could not mix. It's dumber than Hell, but that was regulation for you. The meat went back to highway movement. As I said, the regulators prohibited the railroads from competing for the new meat business. No rail contracts were allowed and the railroads couldn't haul the contract truckers' trailers. It don't get no dumber.
And it bothers me to this day. Meat production isn't really decentralized. In fact, it's very centralized. People eat more chicken than beef these days and Tyson supplies its share to the entire California population from one distribution center in Russelville, Arkansas. This WB move would produce an empty refrigerated trailer in California. That's an opportunity, not a problem. But once the business gets forced off the rails by government interferance, it's Hell to get back.
I could go on, but there's some cirtters on the roof and some fat guy is trying to get down the chimney. Got to go. This could be trouble.
I am not an economist, nor am I consider myself a railroad historian, but as I have read there were a number of factors which lead to the great meltdown in the 70's:
1. Too much ROW due to build ups in earlier eras.
2. Movement of freight from the rail systems to much more efficient truck transportation.
3. Loss of revenue in passenger service.
4. Inability to rapidly discontinue the passenger service. The end of the mail contracts was th
e final bullet.
5. Full crews which gained significant wage increases during the 60's/70's which were not recovered in the rate making process.
6. Inability to reduce fixed costs, which coupled with a rising variable cost factor and flat revenue led to squeezed margins.
7. Inflationary era of the 70's.
8. Migration of manufacturing from the Northeast to other regions. This led to a rapidly reduced Northeastern rail system (NYC and PRR plus many others). Once the dominos began falling, others fell.
9. Paradoxically, even tho railroads could not easily abandon assets (light density lines), they could not maintain the heavily used lines, thus leading to slow orders and reduced service.
It was an ugly time for railroading. I became "aware" of railroading in 1972 with the purchase of the May issue of Trains Magazine. I watched the industry reach rock bottom, never witnessing it at full or even partial strength until the revolution began in the 80's.
ed
gabe wrote:What happened at 12:00 on December 31, 1969 that caused such a decline in railroading? (realize that this statement is in jest, but I am interested in understanding why railroads could survive in the 1960s, but not the 1970s)Gabe
What happened at 12:00 on December 31, 1969 that caused such a decline in railroading? (realize that this statement is in jest, but I am interested in understanding why railroads could survive in the 1960s, but not the 1970s)
Gabe
MP173 wrote: I am not an economist, nor am I consider myself a railroad historian, but as I have read there were a number of factors which lead to the great meltdown in the 70's:
Okay, I'll bite!
Yes, and no. Too many branchlines in granger country, yes. But to say that there was too much mainline capacity flies in the face of normal economic growth, which on average has consistently risen during the same time that railroads were retrenching. The business was there, but for whatever reason the railroads didn't grow with it. Blame it on the ICC, blame it on the integrated model, blame it on the Panama Canal, whatever.
Fuel efficiency of OTR trucks - 60 ton/miles per gallon.
Fuel efficiency of carload rail - 200 ton/miles per gallon*
Fuel efficiency of unit trains - up to 800 ton/miles per gallon
It is that carload vs OTR truckload where the efficiency arguement is pronounced. It is true that OTR trucks are more efficient in the short haul than carload due to dock to dock flexibility. It is also true that OTR trucks are more efficient than carload in the less than boxload catagory, regardless of length of haul. Beyond that, rails beat highways hands down due to the efficiencies of bulk movements, aka aggregation. And also note that normally OTR LTL trucks can and do move much more efficiently by rail where the service is provided.
And unit train efficiency beats OTR truckload hands down, even in the shorthaul lanes.
As I pointed out, the highways and airlines did the railroads a favor by taking up most of the passenger carrying duties. Even in the heyday of passenger rail, the concept did not make money for the most part, or only marginally so. The loss of dedicated passenger rail was a godsend to railroads, allowing them to focus on the more lucrative freight markets.
4. Inability to rapidly discontinue the passenger service. The end of the mail contracts was the final bullet.
Agreed. Once passengers went by road and air, there was no reason for the railroads to have to maintain the passenger fleets. Perhaps some entreprenuers somewhere saw a market potential for hauling passengers, but since the rail system was of the closed integrated type, those opportunities to serve the niche markets were lost as well.
The loss of the mail contracts was a direct result of faster air service. It is possible that higher rail speeds might have allowed the railroads to maintain some of the mail contracts, but not likely. However, it is interesting that when the US Post Office was ditching the railroads, companies like UPS were just starting out utilizing railroads from some of their package delivery. The private sector saw the opportunity of moving parcels by rail while the government sector didn't. Ironic.
Agreed.
?? Can you clarify?
7. Inflationary era of the 70's.8. Migration of manufacturing from the Northeast to other regions. This led to a rapidly reduced Northeastern rail system (NYC and PRR plus many others). Once the dominos began falling, others fell.
There is a correlation between your #5 and your #8. The unions miscalculated the ability of capital to migrate to lower labor cost areas in both instances.
9. Paradoxically, even tho railroads could not easily abandon assets (light density lines), they could not maintain the heavily used lines, thus leading to slow orders and reduced service. It was an ugly time for railroading. I became "aware" of railroading in 1972 with the purchase of the May issue of Trains Magazine. I watched the industry reach rock bottom, never witnessing it at full or even partial strength until the revolution began in the 80's.
Remember that this was also the advent of heavier axle loads, you know, to make the railroads *more efficient*. It is interesting how the introduction of the HAL's corresponded with the increased degradation of the tracks.
Objectively, the "70's" happened to the railroads, just like it happened to everybody else.
High capital industries got clobbered -- legacy physical plants? Change in business climate? Inflation? Unions? Wage and price controls? Soaring taxes? "Japan, Inc."? Skyrocketing fuel costs? Yes, yes, yes, yes, yes, yes, yes, and yes.
Given that list, what would you honestly expect?
GM and Ford suffered huge losses. LTV Steel. International Harvester. The Anaconda Company. Chrysler and Lockheed had to be "bailed out." The list of failures and near failures is lengthy for that decade.
Mysteriously, none of them blamed the Hepburn Act of 1906.
Ironically, the industry that survived those particular circumstances the most intact was the electric power industry -- the most highly regulated of them all.
MichaelSol wrote: Mysteriously, none of them blamed the Hepburn Act of 1906.
Michael-
Would you say the Hepburn Act had little or no effect on the Chicago, Milwaukee and St. Paul ?
If it had come into effect during 1904, do you believe the Directors would have gone ahead with the PCE ?
futuremodal wrote: Fuel efficiency of OTR trucks - 60 ton/miles per gallon.Fuel efficiency of carload rail - 200 ton/miles per gallon*Fuel efficiency of unit trains - up to 800 ton/miles per gallonIt is that carload vs OTR truckload where the efficiency arguement is pronounced. It is true that OTR trucks are more efficient in the short haul than carload due to dock to dock flexibility. It is also true that OTR trucks are more efficient than carload in the less than boxload catagory, regardless of length of haul. Beyond that, rails beat highways hands down due to the efficiencies of bulk movements, aka aggregation. And also note that normally OTR LTL trucks can and do move much more efficiently by rail where the service is provided.And unit train efficiency beats OTR truckload hands down, even in the shorthaul lanes.
Dave-
What about interchange and differences in mileage ?
If you were shipping lentils from Moscow to Pocatello, a truck could go straight south down to Boise, and the east on I84/I86. By train the PCC would have to go west to the UP interchange, then UP would classify the cars at Hinkle, before they headed east. Even with open access, could rail compete ?
MichaelSol wrote: 1435mm wrote: Your premise is truly 66 years out of date. It really should be, "What happened to railroads after 1906?" ....The 1906 date is very sharply scribed in railroad history. After that date railroad expansion and heavy reconstruction nosedived. (This is old hat, my friend. A.C. Kalmbach and D.P. Morgan co-authored the article “The Golden Age of Railroad Construction”: in the February 1949 issue of Trains that described and analyzed this watershed quite sufficiently. Well, at least I thought they had!) A review of relevant peer railroads, NP, MILW, GN, CBQ and CNW shows that by 1925, the average investment in property was 72% greater than that of 1906 as the result of heavy rebuilding programs and, in the case of MILW, extension. The North Western for instance, increased its physical plant investment 1906 to 1923 from $276 million to $489 million, an increase of 77%.This enormous increase in investment occured notwithstanding the 1907 Depression -- considered one of the worst in American history -- and the collapse of the European Bond Market, the historical source of American railroad construction capital, during the leadup to WWI -- a bond market that did not recover. And the 1914 opening of the Panama Canal. Too, consider that the largest percentage historically of railway mileage in receivership was during the period 1893-1903 as a result of the 1893 Depression which took out most of the transcontinentals as well as many more established companies. Miraculously, this occured without the heavy hand of ICC intervention through the Hepburn Act.By the standards of actual collapse and bankruptcy, the rail industry was in worse shape 1893-1900 than 1970-1977 -- that is, during some "Golden Age."
MichaelSol wrote: Objectively, the "70's" happened to the railroads, just like it happened to everybody else. High capital industries got clobbered -- legacy physical plants? Change in business climate? Inflation? Unions? Wage and price controls? Soaring taxes? "Japan, Inc."? Skyrocketing fuel costs? Yes, yes, yes, yes, yes, yes, yes, and yes.Given that list, what would you honestly expect?GM and Ford suffered huge losses. LTV Steel. International Harvester. The Anaconda Company. Chrysler and Lockheed had to be "bailed out." The list of failures and near failures is lengthy for that decade. Mysteriously, none of them blamed the Hepburn Act of 1906.Ironically, the industry that survived those particular circumstances the most intact was the electric power industry -- the most highly regulated of them all.
I admit, I am over my head here in my knowledge of this subject--hense my reason for asking. I could give some pedantic rambling as to my view of causation, but it just does not compare to the more learned view of others that have already been posted, such as Mssrs. Hadid and Mosser.
And, to my discredit, though a coxcomb, Mr. Sol knows more far about the rail industry than I--although some of his polemic but droll uses of law lead me to believe his knowledge of the rail industry is less than what is reflected in his above-stated bombastic ranting.
But, I mean really, despite my inferior knowledge of the industry, I can spot when someone is hopelessly over his head.
Even assuming Mr. Sol's premise is accurate--that no one mentioned the Hepburn Act during the 1970s--I can name four American "panics," to say nothing of a depression, that would meet or exceed the economic downturn of the 70s. Yet, the rail industry did not experience the collapse it faced during the 70s. Assuming no one blamed the Hepburn Act, the absence of such during the 70s downtrun is more likely attributable to myopia on the part of the industry as it is the absence of causation.
However, as to Mr. Sol's premise that no one was blaming the Hepburn Act, when Staggers was proposed--during the 70s no less--I would be willing to bet any amount of money that there was more than one reference to the Hepburn Act in the Congressional sessions that led to the signing of Staggers. So, as an initial matter, I suspect Mr. Sol's argument is flawed in its nascent stages.
My understanding of the Hepburn Act is the "tip of the iceberg". There were enough other things that went wrong, too, no doubt. The Hepburn Act slowed (pratically froze) rates in the middle of a time of huge capital investments. The growth of auto/truck traffic in the 1920's caused problems with short haul and/or high value traffic, the depression-followed by the traffic levels of WWII-then the expansion of air travel and long haul truck traffic picked up where the problems let off. Inflation (postwar and 1970's) in a capital intensive industry with inflated labor costs on top of it and the decline of manufacturing in the NE US (which became the epicenter of the troubles) all added to it. It wasn't so much that things went good in 60's to bad in the 70's as those were just the last two chapters of the sad saga: 1) Slowing the expansion [say, 1906-1929], 2) The contraction of short haul traffic but overall expansion of traffic making up for it [say, post WWI-1929], 3) The economic dislocations of the Depression and WWII [1930-1945], 4) The loss of long distance traffic [post WWII]. First the profits dropped, then there were various economies to try and stay ahead of the game, then the losses began...then the money ran out.
Vastly oversimplified, I know.
Michael -
To quote gabe
nanaimo73 wrote: futuremodal wrote: Fuel efficiency of OTR trucks - 60 ton/miles per gallon.Fuel efficiency of carload rail - 200 ton/miles per gallon*Fuel efficiency of unit trains - up to 800 ton/miles per gallonIt is that carload vs OTR truckload where the efficiency arguement is pronounced. It is true that OTR trucks are more efficient in the short haul than carload due to dock to dock flexibility. It is also true that OTR trucks are more efficient than carload in the less than boxload catagory, regardless of length of haul. Beyond that, rails beat highways hands down due to the efficiencies of bulk movements, aka aggregation. And also note that normally OTR LTL trucks can and do move much more efficiently by rail where the service is provided.And unit train efficiency beats OTR truckload hands down, even in the shorthaul lanes. Dave-What about interchange and differences in mileage ?If you were shipping lentils from Moscow to Pocatello, a truck could go straight south down to Boise, and the east on I84/I86. By train the PCC would have to go west to the UP interchange, then UP would classify the cars at Hinkle, before they headed east. Even with open access, could rail compete ?
You're not going to ship lentils to Pocatello from anywhere because no one there would know what a lentil is, but for the sake of discussion we'll let it pass.
A cargo load of lentils from Moscow to Pocatello by road will go east to Missoula (either via US 12 or north on US95 then east on I-90), continue east on I-90 to Butte, then south on I-15. Most truckers bound for SE Idaho from North Central Idaho tend to avoid US 95 through Riggins at all costs.
A cargo load of lentils from Moscow to Pocatello by rail will go west via the PCC to Hooper Junction and the UP Washy line, then via UP to Hinkle, where the car is reclassified, then on down to Pokey via the OSL. There are two lentil processors in Moscow, one on ex-UP and the other on ex-BNSF. If the latter wanted that move, they'd truck the load a few blocks to the nearest reload onto UP bound hoppers. BNSF would not provide a rate from Moscow to Silver Bow for interchange with UP.
Whether the load would go by truck or rail depends on the willingness of the railroads to provide the service. If they are of the affirmative, it'd go by rail.
bobwilcox wrote: MichaelSol wrote: 1435mm wrote: Your premise is truly 66 years out of date. It really should be, "What happened to railroads after 1906?" ....The 1906 date is very sharply scribed in railroad history. After that date railroad expansion and heavy reconstruction nosedived. (This is old hat, my friend. A.C. Kalmbach and D.P. Morgan co-authored the article “The Golden Age of Railroad Construction”: in the February 1949 issue of Trains that described and analyzed this watershed quite sufficiently. Well, at least I thought they had!) A review of relevant peer railroads, NP, MILW, GN, CBQ and CNW shows that by 1925, the average investment in property was 72% greater than that of 1906 as the result of heavy rebuilding programs and, in the case of MILW, extension. The North Western for instance, increased its physical plant investment 1906 to 1923 from $276 million to $489 million, an increase of 77%.This enormous increase in investment occured notwithstanding the 1907 Depression -- considered one of the worst in American history -- and the collapse of the European Bond Market, the historical source of American railroad construction capital, during the leadup to WWI -- a bond market that did not recover. And the 1914 opening of the Panama Canal. Too, consider that the largest percentage historically of railway mileage in receivership was during the period 1893-1903 as a result of the 1893 Depression which took out most of the transcontinentals as well as many more established companies. Miraculously, this occured without the heavy hand of ICC intervention through the Hepburn Act.By the standards of actual collapse and bankruptcy, the rail industry was in worse shape 1893-1900 than 1970-1977 -- that is, during some "Golden Age." Michael -To quote gabe "But, what changes hit the rail industry from the 1960s to the 1970s to make things go so horribly wrong?" Do you have an opinion you would like to share with the list?
"But, what changes hit the rail industry from the 1960s to the 1970s to make things go so horribly wrong?" Do you have an opinion you would like to share with the list?
I'll take an educated guess: 1960 - 1970 corresponded with heavier axle loads = more track damage.
Dave:I will respond to your comments to my posting...again, from a noneconomist and very casual railroad historian view.
My comment about being overbuilt which you agreed and disagreed on is based on the root of that 70's problem, the eastern roads and the granger roads. As I look at my Desk Map Systems "Railroads of the Continental United States", which I have referenced in previous threads, it is so obvious that east of the Colorado-Kansas line there was considerably more lines built than east of that line. And oh so many more abandoned. There just simply was too much track at that time for the traffic carried. Oh, one can make the piont that TODAY some of those rationalized lines could be utilized, but that is simply after the fact. During the 70's and earlier those lines were underutilized, for whatever reason.
I believe we have differing opinions regarding the "efficiencies" of trucks v rails. Sure, the cost of transporting via rail is considerably lower, but the efficiencies of trucking was (is) the flexibility it offered. LTL trucking ate into REA business, it was much more efficient and quicker. Truckload offered the ability to ship from door to door via a single carrier. Often railroad boxcar freight had to move thru several carriers...plus one had to fill a boxcar to get the rate. Trucking offered rate structures which rewarded the movement of partial truckloads or "header rates". Interchange between railroads was painfully slow, interlining between LTL carriers was much more efficient. LTL terminals "cross docked" freight in hours, rail terminals took much more time.
Passenger service ended in 1971 but the dedication of assets to that service in the 50's and 60's was a waste of money. How many depots were kept open in small towns to handle a handful of daily passengers? How many passenger cars were kept and maintained? How many ticket agents, porters, etc?
I believe that the railroads either had too many assets or those asset dollars were not deployed efficiently. Thus, when I comment about the inability to shed fixed assets such as the aforementioned passenger assets, low revenue branchlines, plus the equipment needed for the operation of those services, I am suggesting there was a very large percentage of assets which produced a very small amount of revenue. Those assets could not be disposed of during the 60's/70's and not until the wholesale abandonments began in the 80's were those finally jetisoned. One of the key measurements of a company is the return on capital. Railroad's returns have always been low, assets were very large and the margins very low.
So, as the inflationary pressures were mounting during the era and labor costs were rapidly escalating (read any good historical book on the era) and the ICC was holding back rate increases, the assets were horribly deployed. Could liquidation of certain assets helped? Dont know. I do know that Mr. Moyers of Illinois Central converted the double main to single main CTC by selling off the 136 pound rail to finance the CTC installation. Could that have happened 20 years earlier? No, lines could not be abandoned easily so the liquidation value could not been used to rebuild the mainlines that were sinking in the mud, or the communication/computer systems which were so woefully out of date.
What were the strong railroads of the 60's? Most people agree that there were a few:
1. MoPac may have been the strongest, yet it was very regional.
2. Southern (ditto).
3. Coal carriers NW and C&O
4. Transcon carriers such as UP and Santa Fe which were capable of "stretching out" and had a much longer haul.
The problem of the industry began in the east and made it's way west to the Missouri River and beyond. No one was isolated, they were all completely in bed with each other. UP depended on Rock Island and Penn Central to handle shipments. One stumbles and the system starts to fall apart.
Finally...I am not sure if the HAL's was the main factor in the deterioriation of the ROW's or simply along for the ride. Was it HAL's or the inability to maintain the track due to the deployment of assets in uncompensated endeavors such as branch lines with five member crews and 4 car trains?
It would be interesting to see what the assets were for Conrail at startup date and then 10 years later when Mr. Crane had it rolling. I dont have those numbers.
bobwilcox wrote:To quote gabe "But, what changes hit the rail industry from the 1960s to the 1970s to make things go so horribly wrong?" Do you have an opinion you would like to share with the list?
No changes hit the rail industry in 1960; rather, it was the status quo that hit the rail industry around 1960.
The following quote is from, A History of the ICC, Hoogenboom, pp. 159-160.
“[In December, 1960], John P. Doyle, staff director of the Transportation Study Group (created earlier by the Senate) submitted his draft report to the Senate Committee on Interstate and foreign Commerce. … Regulatory policy, the Doyle report concluded, ‘has produced a general program of preserving the status quo which is in direct opposition to the overall objective of a dynamic transportation system which can best serve the economy and defense of the country.’ Predicting that the nation was headed for a transportation crisis, the report cited … the absolute decline in railroad traffic and revenue from 1956 to 1959. Railroads suffered, the report continued, from the great technological developments in competing modes; from enormous public investment in highways, airports, and waterways at a time when railroads had difficulty raising private capital; … and common carriers were subject to ‘inequitable and destructive ICC regulation.’ ”
futuremodal wrote: As I pointed out, the highways and airlines did the railroads a favor by taking up most of the passenger carrying duties. Even in the heyday of passenger rail, the concept did not make money for the most part, or only marginally so. The loss of dedicated passenger rail was a godsend to railroads, allowing them to focus on the more lucrative freight markets.Agreed. Once passengers went by road and air, there was no reason for the railroads to have to maintain the passenger fleets. Perhaps some entreprenuers somewhere saw a market potential for hauling passengers, but since the rail system was of the closed integrated type, those opportunities to serve the niche markets were lost as well.The loss of the mail contracts was a direct result of faster air service. It is possible that higher rail speeds might have allowed the railroads to maintain some of the mail contracts, but not likely. However, it is interesting that when the US Post Office was ditching the railroads, companies like UPS were just starting out utilizing railroads from some of their package delivery. The private sector saw the opportunity of moving parcels by rail while the government sector didn't. Ironic.
Actually, passenger service was one of the big things that changed in the 60's.
Going in to that decade the industry's loss on passenger service was $485 million/year calculated on a fully allocated basis. That's a stagering number of 1960 dollars.But because it was a "fully allocated" number assigning fixed costs to specific business, the number was totally meaningless. Nobody paid any attention to it. Railroad executives and regulators alike both dealt with the direct cost of passenger trains when making decisiions. "In making decisions, railroad executives uterly ignored fully allocated costs." (Fred Frailey, "Twilight of the Great Trains", p 9. )
Instead, they based their decisions on direct costs, what could be saved by not running the passenger service. Overall, things were at about break even. Of course, some railroads had a passenger financial disaster on their hands, while others actually made a buck.
An internal study at the CB&Q produced a result that showed their intercity trains put $4.5 on the bottom line in 1964.
For the railroad industry as a whole, intercity passengers were just no big deal in the early 60's. Didn't make a lot, didn't loose a lot.
Then the Post Office diverted the mail from the passenger trains. First Class Mail pretty much went to air or truck movement. Parcel Post followed UPS and went into trailers. The USPS used high priority intermodal trains just like UPS. (There wasn't really a divergence in practice as Dave said. UPS just did it better.) "And when the mail was taken away in late 1967 and early 1968, the economics of passenger trains collapsed like a castle made of postcards." (Ibid. p 190)
Any other business could simply discontinue operations that drained their resources. But NO!. We had the ICC which could, and did, force the railroads to pour money down the passenger ratholes.
So that's one big thing that changed in the 60's.
bobwilcox wrote: Michael -To quote gabe "But, what changes hit the rail industry from the 1960s to the 1970s to make things go so horribly wrong?" Do you have an opinion you would like to share with the list?
Well the question, as I saw it phrased, was what went wrong during the 60s that caused the collapse during the 1970s?
Well, what went wrong with Big Steel? What went wrong with aircraft? What went wrong with big equipment manufacturers? What went wrong with Lockheed? With GM? With Chrysler?
If ignoring the elephant in the living room justifies Gabe's accusations of "pedantic" I suppose the Clinton administration offered the appropriate response for those who think it was the Hepburn Act of 1906: "it's the economy ...". He can have his insult contest. I don't need it. The facts have to speak for themselves.
The fact is that the number of miles of American railroads in receivership had always numbered in the many thousands ever since the Civil War, and in the years following the financial panic of 1893 the miles of line in receivership soared to nearly 40,000 miles, representing nearly 200 railroads.
How that managed to occur before the passage of the Hepburn Act is left a mystery.
But, how did that compare with the 1970s?
Railroads did, in fact, have their own special problem.
It wasn't the Hepburn Act of 1906.
greyhounds wrote:Bingo! The ICC would not allow the railroads to change to meet changing market conditions. That was its main evil.
Several railroads were playing with cargo continers and "piggybacking" in the 1920's and early 30's. The ICC basically said "No way, Jose" and the container idea had to wait until Malcolm McLean decided to try his hand at domestic shipping. Just think how different freight transport would be in the US had containerization taken off ca 1930.
tiskilwa wrote: bobwilcox wrote:To quote gabe "But, what changes hit the rail industry from the 1960s to the 1970s to make things go so horribly wrong?" Do you have an opinion you would like to share with the list?No changes hit the rail industry in 1960; rather, it was the status quo that hit the rail industry around 1960. [The following quote is from, A History of the ICC, Hoogenboom, pp. 159-160] “[In December, 1960] John P. Doyle, staff director of the Transportation Study Group (created earlier by the Senate) submitted his draft report to the Senate Committee on Interstate and foreign Commerce. … Regulatory policy, the Doyle report concluded, ‘has produced a general program of preserving the status quo which is in direct opposition to the overall objective of a dynamic transportation system which can best serve the economy and defense of the country.’ Predicting that the nation was headed for a transportation crisis, the report cited … the absolute decline in railroad traffic and revenue from 1956 to 1959. Railroads suffered, the report continued, from the great technological developments in competing modes; from enormous public investment in highways, airports, and waterways at a time when railroads had difficulty raising private capital; … and common carriers were subject to ‘inequitable and destructive ICC regulation.’ ”
[The following quote is from, A History of the ICC, Hoogenboom, pp. 159-160]
“[In December, 1960] John P. Doyle, staff director of the Transportation Study Group (created earlier by the Senate) submitted his draft report to the Senate Committee on Interstate and foreign Commerce. … Regulatory policy, the Doyle report concluded, ‘has produced a general program of preserving the status quo which is in direct opposition to the overall objective of a dynamic transportation system which can best serve the economy and defense of the country.’ Predicting that the nation was headed for a transportation crisis, the report cited … the absolute decline in railroad traffic and revenue from 1956 to 1959. Railroads suffered, the report continued, from the great technological developments in competing modes; from enormous public investment in highways, airports, and waterways at a time when railroads had difficulty raising private capital; … and common carriers were subject to ‘inequitable and destructive ICC regulation.’ ”
Put another way, regulation held railroads in place while the world moved out from under them.
The fundamental change to which railroads were made helpless by regulation to adapt was technological in origin, the development of practical autos and trucks circa 1910. These became vastly more economical on a total-cost basis for small-volume, short-to-medium-length movements following the decision by the public to finance the construction of roads through the public treasury and the decision by the public to not tax highway users on either a cost-of-use or value-of-use basis, only a loose fuel-consumption basis which greatly underpriced the value of the highway to trucking, and made fixed plant almost entirely a variable cost.
Blaming the ICC is superficial. The ICC did what Congress told it to do, who did what the voters told it to do. There was no independent thought on the part of either the ICC or Congress for which I am thankful.
MichaelSol wrote:The fact is that the number of miles of American railroads in receivership had always numbered in the many thousands ever since the Civil War, and in the years following the financial panic of 1893 the miles of line in receivership soared to nearly 40,000 miles, representing nearly 200 railroads. How that managed to occur before the passage of the Hepburn Act is left a mystery.But, how did that compare with the 1970s?Railroads did, in fact, have their own special problem.It wasn't the Hepburn Act of 1906.
Well, how many miles are in receivership now? Getting rid of the suffocating, restrictive, counter productive, economic regulation seems to have gotten rid of the problem.
Kevin C. Smith wrote:My understanding of the Hepburn Act is the "tip of the iceberg". There were enough other things that went wrong, too, no doubt. The Hepburn Act slowed (pratically froze) rates in the middle of a time of huge capital investments. The growth of auto/truck traffic in the 1920's caused problems with short haul and/or high value traffic, the depression-followed by the traffic levels of WWII-then the expansion of air travel and long haul truck traffic picked up where the problems let off. Inflation (postwar and 1970's) in a capital intensive industry with inflated labor costs on top of it and the decline of manufacturing in the NE US (which became the epicenter of the troubles) all added to it. It wasn't so much that things went good in 60's to bad in the 70's as those were just the last two chapters of the sad saga: 1) Slowing the expansion [say, 1906-1929], 2) The contraction of short haul traffic but overall expansion of traffic making up for it [say, post WWI-1929], 3) The economic dislocations of the Depression and WWII [1930-1945], 4) The loss of long distance traffic [post WWII]. First the profits dropped, then there were various economies to try and stay ahead of the game, then the losses began...then the money ran out.
I would add WW1 to your list for three reasons. One was that the regulation froze rates during the time of rapid inflation (1917 - 1920). The second was the USRA that managed to mess up a bunch of railroads, put a temporary halt to new construction (one exception being the San Diego & Arizona) and basically give trucking a big boost. The third being the experience of using trucks in Europe for supplying the US forces.
The 1906 earthquake in San Francisco didn't help either - one is that the depression of 1907 was caused by the huge losses sustained by the insurance companies and the other was that he initial relief supplies arrived by truck - the first demonstration of the feasibility of long distance trucking.
nanaimo73 wrote: MichaelSol wrote: Mysteriously, none of them blamed the Hepburn Act of 1906. Michael-Would you say the Hepburn Act had little or no effect on the Chicago, Milwaukee and St. Paul ?If it had come into effect during 1904, do you believe the Directors would have gone ahead with the PCE ?
Well, do you suppose the Great Northern and Northern Pacific misread it when the elected at the same time as the Milwaukee to build the Spokane, Portland & Seattle? George Gould misunderstood it when the Western Pacific began building? William Rockefeller didn't understand it when undertaking the Milwaukee extension? E.H. Harriman didn't fathom the effect when building north into Seattle in 1906 and 1907?
Saying that people like Hill, Rockefeller, Van Horne, Gould and Harriman were too d*** dumb to understand the Hepburn Act is too much of a stretch.
For those actually familiar with the literature, the amount of railroad surveying done, 1910-1914 was breathtaking. Everyone was in the field. The anticipated construction era promised to be one of the greatest on record. You only need to access the old newspapers. It was no secret: it was front page stuff. None of that literature mentions the Hepburn Act. However, the European bond market dried up. Interest rates began to escalate after the 1907 Panic and then more so as war loomed in Europe. Profits fell as railroads began to upgrade for heavier trains and heavier motive power, which shows in the substantial investment figures shown for key railroads after 1906.
Watch out for the politics on this stuff. Agendas with regard to regulation intentionally obscure the normal operating implications of general economic conditions.
1435mm wrote:Blaming the ICC is superficial. The ICC did what Congress told it to do, who did what the voters told it to do. There was no independent thought on the part of either the ICC or Congress for which I am thankful.S. Hadid
I don't agree.
I don't see the intent of Congess or The Public as what the ICC did. It was never their intent to stop inovation and productivity improvement (which were certainly the result of ICC actions.) Nor was it their intent to financially destroy much of the railroad system. Which is what the actions of the ICC helped do.
When the ICC stopped the development of an intermodal container system in the early 30's it did tremendous harm to the US economy. That was not the Will of The People or The Congress. It was a bunch of government lawyers who thought they knew more than anybody else. Unfortunatly, they had the power but not the ability to use it wisely. They may have been given the power, but the expectation was that they would use it well. They didn't.
greyhounds wrote: MichaelSol wrote: The fact is that the number of miles of American railroads in receivership had always numbered in the many thousands ever since the Civil War, and in the years following the financial panic of 1893 the miles of line in receivership soared to nearly 40,000 miles, representing nearly 200 railroads. How that managed to occur before the passage of the Hepburn Act is left a mystery.But, how did that compare with the 1970s?Railroads did, in fact, have their own special problem.It wasn't the Hepburn Act of 1906. Well, how many miles are in receivership now? Getting rid of the suffocating, restrictive, counter productive, economic regulation seems to have gotten rid of the problem.
MichaelSol wrote: The fact is that the number of miles of American railroads in receivership had always numbered in the many thousands ever since the Civil War, and in the years following the financial panic of 1893 the miles of line in receivership soared to nearly 40,000 miles, representing nearly 200 railroads. How that managed to occur before the passage of the Hepburn Act is left a mystery.But, how did that compare with the 1970s?Railroads did, in fact, have their own special problem.It wasn't the Hepburn Act of 1906.
Except for airlines. Apparently deregulation is not a panacea ... oh gosh, Ford's in trouble too ... to this idea that regulation explains every failure, and deregulation explains every success: baloney. It's more complicated in both directions.
MichaelSol wrote:Except for airlines. Apparently deregulation is not a panacea ... oh gosh, Ford's in trouble too ... to this idea that regulation explains every failure, and deregulation explains every success: baloney. It's more complicated in both directions.
Well, deregulation does explain every success.
It gives management the opportunity to actually manage. Try things. See if they work. Abandon them if they don't. Try something else. It's called inovation.
Very important for success in any enterprise. Very difficult, if not impossible, under economic regulation.
greyhounds wrote: Well, deregulation does explain every success. It gives management the opportunity to actually manage. Try things. See if they work. Abandon them if they don't. Try something else. It's called inovation.Very important for success in any enterprise. Very difficult, if not impossible, under economic regulation.
Well, that certainly explains fully and completely the enormous technological innovations brought forth by Bell Laboratories, as part of the most singularly regulated industry in our history, as well as the electric power industry, not only regulated, but regulated at the state level -- the ostensibly most pernicious and politically leveraged level of regulation.
How did those electric utilities always -- always -- earn better and more consistently than their railroad sistern and bretheren?
Oh, and electric dereg was certainly a positive experience for all of us.
greyhounds wrote: 1435mm wrote:Blaming the ICC is superficial. The ICC did what Congress told it to do, who did what the voters told it to do. There was no independent thought on the part of either the ICC or Congress for which I am thankful.S. Hadid I don't agree. I don't see the intent of Congess or The Public as what the ICC did. It was never their intent to stop inovation and productivity improvement (which were certainly the result of ICC actions.) Nor was it their intent to financially destroy much of the railroad system. Which is what the actions of the ICC helped do. When the ICC stopped the development of an intermodal container system in the early 30's it did tremendous harm to the US economy. That was not the Will of The People or The Congress. It was a bunch of government lawyers who thought they knew more than anybody else. Unfortunatly, they had the power but not the ability to use it wisely. They may have been given the power, but the expectation was that they would use it well. They didn't.
You would want a country where the government and Congress not only act independently of the voters, but do so effectively? I blanch to think where that could lead.
In a democracy, at the end of the day, the people hold the power and bear the ultimate responsibility for whatever their government does. Yes, the government makes lots of small decisions that would be contrary to the wishes of the public, if they were put to the public, but that's the nature of the system we freely chose.
I think you're asking questions that are far too narrow. The decisions by government lawyers were not "Let's stifle productivity" but, "How do we deliver the mandate that public has given us, which is riven with conflicts and pretty much impossible to deliver?"
What does the public care about? Not promoting innovation per se or productivity per se. I dare you to find even one national-level election this November or November 1906 where those themes made a real difference in the race. The public cares about the amount of money in their paychecks and the amount in the check to the taxman. Groups of like employment or like location care about preserving investment in careers and locations and have no qualms about expecting America to pay for it, e.g., dairy farmers and milk price supports. Congress and the ICC delivered to the public exactly what they specified: cheap transportation, subsidies for small shippers and rural shippers, and wages marching steadily upward. This was all had to be paid for, and conveniently it didn't even require taxes, there was value in the existing investment in railroads that could be sucked out. Even if the public had been aware of the fact that its decisions were steadily grinding the railroad infrastructure and equipment into the ground, and understood it, and even cared, they'd in all likelihood have done it anyway as it would become a problem of a future generation, not theirs. And that fits very neatly with a profoundly American ethos that believes technological breakthroughs, unfolding bounty of nature, and endless economic growth, will always appear at the climax of the film and save the day.
As it turns out the public was pretty clever. They got what they wanted in the 1910s, 20s, 30s, 40s, 50s, and 60s, and they still have a railroad system! Granted they had to cough up a few billion for Conrail but that's chump change in the whole scheme of federal money. The two bad outcomes were that irresponsibility was rewarded and as a result, 100 years later, we don't have a national freight transportation policy. I keep thinking we'll pay the price for that in lost competitiveness to other countries but fortunately for us they continue to be even more short-sighted and confused than we are.
MichaelSol wrote: greyhounds wrote: Well, how many miles are in receivership now? Getting rid of the suffocating, restrictive, counter productive, economic regulation seems to have gotten rid of the problem. Except for airlines. Apparently deregulation is not a panacea ... oh gosh, Ford's in trouble too ... to this idea that regulation explains every failure, and deregulation explains every success: baloney. It's more complicated in both directions.
greyhounds wrote: Well, how many miles are in receivership now? Getting rid of the suffocating, restrictive, counter productive, economic regulation seems to have gotten rid of the problem.
Well he confined his comments to railroads ("how many miles are in receivership now"). And he does have a point, which is the health of the railroads today.
MichaelSol wrote: greyhounds wrote: Well, deregulation does explain every success. It gives management the opportunity to actually manage. Try things. See if they work. Abandon them if they don't. Try something else. It's called inovation.Very important for success in any enterprise. Very difficult, if not impossible, under economic regulation.Well, that certainly explains fully and completely the enormous technological innovations brought forth by Bell Laboratories, as part of the most singularly regulated industry in our history, as well as the electric power industry, not only regulated, but regulated at the state level -- the ostensibly most pernicious and politically leveraged level of regulation.How did those electric utilities always -- always -- earn better and more consistently than their railroad sistern and bretheren?Oh, and electric dereg was certainly a positive experience for all of us.
Great thread. Glad to see everyone back. There sure was a flurry of activity late yesterday. I guess we all had enough Christmas and was ready to resume the great discussion.
Now, I am going to add this to the "what went wrong list"...the forced inclusion of the New Haven into the Penn Central merger. Looking back, PC had a very slim chance of success, but that chance was completely whisked away with the addition of the New Haven.
I have read several books on this topic including Saunder's two "Merging" volumes. Also I read "The Men Who Loved Trains."
What other books would you suggest as the required reading of this topic?
tiskilwa wrote: MichaelSol wrote: greyhounds wrote: Well, how many miles are in receivership now? Getting rid of the suffocating, restrictive, counter productive, economic regulation seems to have gotten rid of the problem. Except for airlines. Apparently deregulation is not a panacea ... oh gosh, Ford's in trouble too ... to this idea that regulation explains every failure, and deregulation explains every success: baloney. It's more complicated in both directions.Well he confined his comments to railroads ("how many miles are in receivership now"). And he does have a point, which is the health of the railroads today.
A point made in a vacuum. And that's the only way that point can be made.
Look around. Is nearly all American business healthier than in the 1970s? Do you really, really think that when businesses failed in all directions -- and it included railroads -- and that when businesses enjoyed record success in all directions -- and it also included railroads -- that regulation/deregulation is a better explanation than documented general economic conditions?
Did Mr Derleth cover the Hepburn Act in much detail in his 1948 book ? Were his views of its effect on the CM&StP similar to yours ?
Kevin C. Smith wrote: My understanding of the Hepburn Act is the "tip of the iceberg". There were enough other things that went wrong, too, no doubt. The Hepburn Act slowed (pratically froze) rates in the middle of a time of huge capital investments. ....Vastly oversimplified, I know.
My understanding of the Hepburn Act is the "tip of the iceberg". There were enough other things that went wrong, too, no doubt. The Hepburn Act slowed (pratically froze) rates in the middle of a time of huge capital investments.
....
Not just oversimplified. This is dead wrong.
Where do you read that railroad rates were rising during that era? The answer is fundamental to your entire proposition.
We are not used to the idea in our current lifetimes, but the American economy, post-Civil War was a deflationary economy. Rates declined all during that period. Historian Gabriel Kolko documented how the origins of the ICC Act lay with the railroads themselves asking the government to regulate "destructive competition" and plummeting rates. The Panic of 1893 brought down more railway mileage than any time before or since -- an occurence related more to general economic conditions than regulation or deregulation but due in part to the corrosive effects of deflation on organizations that required substantial capitalization.
But, what does a "Panic" do to price pressure? It pushes them down. Even for railroads.
Now, what happened after the passage of the Hepburn Act? Well, the Panic of 1907, the most severe in some estimations of any aside from the Great Depression itself.
What happened to railroad rates after the passage of the Hepburn Act?
They continued a decline that had been occuring for a half century. And they also did what prices do when economic depressions occur. There is absolutely nothing remarkable about what happened. To the contrary -- what happened should have happened based on economic principles, not a regulatory event.
You say the Hepburn Act "froze" rates. If actually true, that would have been a huge plus. If true, railroads should have bowed in homage to the Hepburn Act. Railoads would have loved to have the rates "frozen" for the first time in their history.
Indeed, the only thing that should cause anyone to sit up and take notice is if somehow the Hepburn Act had repealed the general rate conditions which had always been one of decline.
What is remarkable is the effort, entirely misleading I think, to attribute prices that were clearly and manifestly the result of general economic conditions to some favorite "evil" regulatory boogeyman. To believe that, however, requires the complete suspension of general economic principles, or to adopt a belief that railroads operate independently of them.
nanaimo73 wrote: Michael-Did Mr Derleth cover the Hepburn Act in much detail in his 1948 book ? Were his views of its effect on the CM&StP similar to yours ?
August Derleth was a Poet and a writer of Gothic Mysteries. Apparently he felt well prepared to write about the Milwaukee Road.
From his notes, Company notes, and the records of his publisher, Creative Age Press, I see that "his views" were primarily those of F. H. Johnson, Milwaukee Director of Public Relations.
In turn, Johnson's views were no doubt strongly influenced by his background at the Burlington, from whence he came, and by Charlie Buford, a Milwaukee VP who at the time was President of the American Association of Railroads.
Without going back to read Derleth, I can bet we don't agree.
Is this book informative ?
"A History of the ICC, From Panacea to Palliative," Ari and Olive Hoogenboom, W.W. Norton & Company, 1976
MichaelSol wrote: tiskilwa wrote: MichaelSol wrote: greyhounds wrote: Well, how many miles are in receivership now? Getting rid of the suffocating, restrictive, counter productive, economic regulation seems to have gotten rid of the problem. Except for airlines. Apparently deregulation is not a panacea ... oh gosh, Ford's in trouble too ... to this idea that regulation explains every failure, and deregulation explains every success: baloney. It's more complicated in both directions.Well he confined his comments to railroads ("how many miles are in receivership now"). And he does have a point, which is the health of the railroads today. A point made in a vacuum. And that's the only way that point can be made.Look around. Is nearly all American business healthier than in the 1970s? Do you really, really think that when businesses failed in all directions -- and it included railroads -- and that when businesses enjoyed record success in all directions -- and it also included railroads -- that regulation/deregulation is a better explanation than documented general economic conditions?
Yes, very much so, and I think that is Greyhounds' point.
When the economy has natural crests and nadirs, the ability of unchackeled management to make decisions in reaction to the natural ebb and flow of the economy--which by no means was limited to the rise of economic activity surrounding the Korean War or the decline of economic activity during the 70s--is essential for an industry to both survive and prosper. This is especially true when that industry is competing with another industry that does have such freedoms and is being indirectly subsidized out of the general fund.
P.S. How many lines went under in the most recent recession?
gabe wrote: MichaelSol wrote: tiskilwa wrote: MichaelSol wrote: greyhounds wrote: Well, how many miles are in receivership now? Getting rid of the suffocating, restrictive, counter productive, economic regulation seems to have gotten rid of the problem. Except for airlines. Apparently deregulation is not a panacea ... oh gosh, Ford's in trouble too ... to this idea that regulation explains every failure, and deregulation explains every success: baloney. It's more complicated in both directions.Well he confined his comments to railroads ("how many miles are in receivership now"). And he does have a point, which is the health of the railroads today. A point made in a vacuum. And that's the only way that point can be made.Look around. Is nearly all American business healthier than in the 1970s? Do you really, really think that when businesses failed in all directions -- and it included railroads -- and that when businesses enjoyed record success in all directions -- and it also included railroads -- that regulation/deregulation is a better explanation than documented general economic conditions? Yes, very much so, and I think that is Greyhounds' point.When the economy has natural crests and nadirs, the ability of unchackeled management to make decisions in reaction to the natural ebb and flow of the economy--which by no means was limited to the rise of economic activity surrounding the Korean War or the decline of economic activity during the 70s--is essential for an industry to both survive and prosper. This is especially true when that industry is competing with another industry that does have such freedoms and is being indirectly subsidized out of the general fund.GabeP.S. How many lines went under in the most recent recession?
Well, how many other Fortune 500s went under?
Interesting how this is viewed -- through a prism of preordained conclusions.
Railroads respond as other industries do to general economic conditions -- and regulation is blamed in one instance, and deregulation cheered in the other -- even though the results track almost identically the performance of capital-intensive deregulated industries under both circumstances.
To suggest that the reason that regulated railroads suffered the same fate as other capital intensive but deregulated industries under identical economic conditions was because railroads were regulated is simply a non-sequitur. It does not, cannot, follow from the premise.
This to me represents a "Belief System," not a genuine analysis of either regulation or deregulation.
nanaimo73 wrote: Is this book informative ?"A History of the ICC, From Panacea to Palliative," Ari and Olive Hoogenboom, W.W. Norton & Company, 1976
Yes.
Better yet, but hard to find, is the ICC's own 2-volume history of itself, as it delineates all the key dates of decisions, authorities, etc.
I can think of at least three Fortune 500 Companies--not counting asbestos-related companies and airlines--that filed for bankruptcy during this time, and I am a long way from being knowledgeable about such things. I can think of several more that were on the ropes and taking serious hits.
By the way are you suggesting that the less regulated trucking industry suffered during the last recession!?!
But, most importantly, you have yet to answer the initial question of this thread. Why did the rail industry collapse in the 70s when it did not during other recessions, panics, or economic slow downs? Yes, lines failed during such times in the past, but the sky was not falling in the past like it was during the 70s?
MichaelSol wrote: Kevin C. Smith wrote: My understanding of the Hepburn Act is the "tip of the iceberg". There were enough other things that went wrong, too, no doubt. The Hepburn Act slowed (pratically froze) rates in the middle of a time of huge capital investments. ....Vastly oversimplified, I know. Not just oversimplified. This is dead wrong.Where do you read that railroad rates were rising during that era? The answer is fundamental to your entire proposition.
You're right. I was thinking along the lines of the difficulties that were encountered in the 1910 (date?) rate hearings. Good point-even though they couldn't increase rate the way that was asked for just removing the volatility and general downward pressure on rates (in real terms) must have been helpful. Thanks for clarifying.
gabe wrote:By the way are you suggesting that the less regulated trucking industry suffered during the last recession!?!
I didn't say anything about trucking. Make your own conclusions, but please don't put words in my mouth.
But, most importantly, you have yet to answer the initial question of this thread. Why did the rail industry collapse in the 70s when it did not during other recessions, panics, or economic slow downs?
Well, you have stated your own premise -- that similar "collapses" have never occured.
When you posit a controlled condition that presupposes your desired conclusion, I guess that conclusion is inevitable and you are unlikely to recognize the alternative that more miles of railroad were in receivership in 1895 than in 1975. More miles of railroad were in receivership in 1935 than in 1975. Oh wait, that's not an alternative -- that's actually true! But, since you have already determined that similar collapses have never happened, relevant history is simply irrelevant to what you wish to conclude.
Your ahistorical approach also begs the question -- why did the auto industry collapse in the 1970s when it did not during other recessions, panics, or economic slowdowns? Why did key players in aircraft manufacturing collapse in the 1970s when they did not during other recessions, panics, or economic slowdowns? What happened to the steel industry that literally muscled its way through earlier recessions?
I haven't answered your question? Please read the earlier comment: "High capital industries got clobbered -- legacy physical plants? Change in business climate? Inflation? Unions? Wage and price controls? Soaring taxes? "Japan, Inc."? Skyrocketing fuel costs? Yes, yes, yes, yes, yes, yes, yes, and yes."
But, you propose that regulation was, instead, the culprit.
I think that represents an incurable optimism about the impact of general economic conditions.
I propose that the economy was the problem. Regulation may or may not have been a burden -- but your question was not the general proposition but rather, what happened to railroads in the 1970s.
Admittedly, you imposed a premise on your question -- a pre-arranged and I think erroneous set of facts -- proposing that such a collapse never happened before. Dramatic, but the assumption is insupportable. However, if that particular assumption is necessary to support some observation or conclusion about regulation and deregulation, I can only assume you will make the conclusion your assumptions have made inevitable.
Rates, if you wish to be confused on the matter, were at historic highs by 1979; substantially higher we are enthusiastically reminded, than post-Staggers.
Railroad revenue, if you wish a context, was the greatest in industry history in 1979, substantially higher, we are not so loudly told, than post-Staggers.
MichaelSol wrote: A point made in a vacuum. And that's the only way that point can be made.Look around. Is nearly all American business healthier than in the 1970s? Do you really, really think that when businesses failed in all directions -- and it included railroads -- and that when businesses enjoyed record success in all directions -- and it also included railroads -- that regulation/deregulation is a better explanation than documented general economic conditions?
You seem to be off topic here. The subject is not the 70's. (read the thread title) It's the decade preceeding that lead to the financial collapse of much of the US railroad network.
When Ford, GM, etc. were doing just fine in the 60's, a large part of the railroad industry was being strangled by economic regulation.
The absense of economic regulation does not gurantee success, but its presence sure prevented the railroads from adapting to rapidly changing market condiditons. Since they were not allowed to adapt, they died.
greyhounds wrote:You seem to be off topic here. The subject is not the 70's. (read the thread title) It's the decade preceeding that lead to the financial collapse of much of the US railroad network.
Ouch. Kind of a backwards point there, greyhounds. Gabe makes it very clear in his initial post that he is saying that the 60's were a time that the railroads "made it", while they failed in the 70's. While the groundwork for failure may have been set up in the 60's (or not), it was the 70's that the failures occurred.
greyhounds wrote:The absense of economic regulation does not gurantee success, but its presence sure prevented the railroads from adapting to rapidly changing market condiditons. Since they were not allowed to adapt, they died.
I will agree that the lack of ability to adapt (regardless of regulatory restrictions) was a large contributor to the industry meltdown. The same would also apply to many of the other mega-corporations that failed. Large corporations are just not able to adapt as quickly as the smaller ones are. And sometimes it just happens to be entire industries (regardless of size of individual companies) that get caught up in the inability to adapt.
Datafever wrote: greyhounds wrote: You seem to be off topic here. The subject is not the 70's. (read the thread title) It's the decade preceeding that lead to the financial collapse of much of the US railroad network.Ouch. Kind of a backwards point there, greyhounds. Gabe makes it very clear in his initial post that he is saying that the 60's were a time that the railroads "made it", while they failed in the 70's. While the groundwork for failure may have been set up in the 60's (or not), it was the 70's that the failures occurred.
greyhounds wrote: You seem to be off topic here. The subject is not the 70's. (read the thread title) It's the decade preceeding that lead to the financial collapse of much of the US railroad network.
Nope, Penn Central (aka, "The Big One") went under in the 60's and its predicessors had been going downhill for a long time before that. As others have said, it took a long time to destroy the New York Central and Pennsylvania. They were financially sick in economically good times. Edit: Missed it by six months - PC filed bankruptcy in June 1970.
Most industries and companies go through lean times - but then they get good times. The regulators never let the railroads prosper.
And the title of the thread is "1960 to 1970".
greyhounds wrote: MichaelSol wrote: A point made in a vacuum. And that's the only way that point can be made.Look around. Is nearly all American business healthier than in the 1970s? Do you really, really think that when businesses failed in all directions -- and it included railroads -- and that when businesses enjoyed record success in all directions -- and it also included railroads -- that regulation/deregulation is a better explanation than documented general economic conditions? You seem to be off topic here. The subject is not the 70's. (read the thread title) It's the decade preceeding that lead to the financial collapse of much of the US railroad network.
Had the 70s not occured, and instead prosperity had ensued, most likely the dire results for railroading would not have occured. That is my contribution -- the premise is insupportable that anything that happened during the 1960s to railroading led to unique and independent results during the 1970s that were different than the economy as a whole -- because it wasn't.
The problem with the "regulation" argument is that it absolves the industry of responsibility for its own mistakes. Something GM, Ford, Chrysler, Lockheed, IH and others did not have the luxury of doing when they suffered the identical results financially during the 1970s.
Identical results -- completely different premises. Doesn't fly. The "reality" is that the railroads' "collapse" in the 1970s was because the railroads collapsed in the 1970s.
The point of the "70s" shows, clearly, that both regulated and deregulated industries respond to economic conditions, and that regulation had little to do with the "collapse" because the identical circumstances enveloped non-regulated industries which were free to innovate, invest, buy trucking companies, and do whatever they **** well pleased. And they collapsed just the same as railroads. Therefore, regulation was not the cause of collapse. QED.
Railroads made some mistakes. Big ones. Regulation has always been the foil. Why not? It's the standard refuge of the irresponsible to blame something else.
greyhounds wrote: Datafever wrote: greyhounds wrote: You seem to be off topic here. The subject is not the 70's. (read the thread title) It's the decade preceeding that lead to the financial collapse of much of the US railroad network.Ouch. Kind of a backwards point there, greyhounds. Gabe makes it very clear in his initial post that he is saying that the 60's were a time that the railroads "made it", while they failed in the 70's. While the groundwork for failure may have been set up in the 60's (or not), it was the 70's that the failures occurred.Nope, Penn Central (aka, "The Big One") went under in the 60's and its predicessors had been going downhill for a long time before that.
Nope, Penn Central (aka, "The Big One") went under in the 60's and its predicessors had been going downhill for a long time before that.
I'm not disagreeing with you on that. I was taking objection to your statement that Mr. Sol's response was off-topic.
gabe wrote:Granted my pool of knowledge is small, but my knowledge of the Illinois Central, Nickle Platte, Southern Pacific, and a few other railroads indicate that--although I would not describe the 1960s as a boom of rail traffic--rail lines seemed healthy and sustainable. But, by the 1970s, it looked like every rail line was heading for a two mile run off a one mile pier.
Granted my pool of knowledge is small, but my knowledge of the Illinois Central, Nickle Platte, Southern Pacific, and a few other railroads indicate that--although I would not describe the 1960s as a boom of rail traffic--rail lines seemed healthy and sustainable. But, by the 1970s, it looked like every rail line was heading for a two mile run off a one mile pier.
greyhounds wrote: Datafever wrote: greyhounds wrote: You seem to be off topic here. The subject is not the 70's. (read the thread title) It's the decade preceeding that lead to the financial collapse of much of the US railroad network.Ouch. Kind of a backwards point there, greyhounds. Gabe makes it very clear in his initial post that he is saying that the 60's were a time that the railroads "made it", while they failed in the 70's. While the groundwork for failure may have been set up in the 60's (or not), it was the 70's that the failures occurred.Nope, Penn Central (aka, "The Big One") went under in the 60's ...
Nope, Penn Central (aka, "The Big One") went under in the 60's ...
June 21, 1970
MichaelSol wrote: greyhounds wrote:Nope, Penn Central (aka, "The Big One") went under in the 60's ... June 21, 1970
greyhounds wrote:Nope, Penn Central (aka, "The Big One") went under in the 60's ...
Well, greyhounds does have a point there. If PC hadn't been taking in water during the 60's, it wouldn't have gone under when it did.
greyhounds wrote: Datafever wrote: greyhounds wrote: You seem to be off topic here. The subject is not the 70's. (read the thread title) It's the decade preceeding that lead to the financial collapse of much of the US railroad network.Ouch. Kind of a backwards point there, greyhounds. Gabe makes it very clear in his initial post that he is saying that the 60's were a time that the railroads "made it", while they failed in the 70's. While the groundwork for failure may have been set up in the 60's (or not), it was the 70's that the failures occurred.Nope, Penn Central (aka, "The Big One") went under in the 60's and its predicessors had been going downhill for a long time before that. As others have said, it took a long time to destroy the New York Central and Pennsylvania. They were financially sick in economically good times. Most industries and companies go through lean times - but then they get good times. The regulators never let the railroads prosper. And the title of the thread is "1960 to 1970".
Nope, Penn Central (aka, "The Big One") went under in the 60's and its predicessors had been going downhill for a long time before that. As others have said, it took a long time to destroy the New York Central and Pennsylvania. They were financially sick in economically good times.
And Gabe clearly stated:
Datafever wrote: MichaelSol wrote: greyhounds wrote: Nope, Penn Central (aka, "The Big One") went under in the 60's ...June 21, 1970Well, greyhounds does have a point there. If PC hadn't been taking in water during the 60's, it wouldn't have gone under when it did.
MichaelSol wrote: greyhounds wrote: Nope, Penn Central (aka, "The Big One") went under in the 60's ...June 21, 1970
greyhounds wrote: Nope, Penn Central (aka, "The Big One") went under in the 60's ...
Neither regulation nor deregulation is insurance against poor management, changing industrial patterns, nor a dumb idea writ large.
GN, NP and CBQ were taking on water during the 1960s as well. Their merger saved their bacon.
The moral of their stories: probably didn't have much to do with regulation, since that common element cannot explain diametrically opposed outcomes.
MichaelSol wrote:GN, NP and CBQ were taking on water during the 1960s as well. Their merger saved their bacon.
Along those lines -
I know that you have mentioned many times the "diseconomies of scale" that have resulted from railroad mergers. In what way was the BN merger a boon for the railroads involved?
gabe wrote:I can think of at least three Fortune 500 Companies--not counting asbestos-related companies and airlines--that filed for bankruptcy during this time, and I am a long way from being knowledgeable about such things.
I can think of at least three Fortune 500 Companies--not counting asbestos-related companies and airlines--that filed for bankruptcy during this time, and I am a long way from being knowledgeable about such things.
Yes, outside of the heavy industries we have been discussing, there was a "bubble" and it burst -- especially upon the telecom and energy companies -- ironically, newly deregulated.
MichaelSol wrote:Railroads respond as other industries do to general economic conditions -- and regulation is blamed in one instance, and deregulation cheered in the other -- even though the results track almost identically the performance of capital-intensive deregulated industries under both circumstances.To suggest that the reason that regulated railroads suffered the same fate as other capital intensive but deregulated industries under identical economic conditions was because railroads were regulated is simply a non-sequitur. It does not, cannot, follow from the premise. This to me represents a "Belief System," not a genuine analysis of either regulation or deregulation.
One problem with your thesis is its premise that railroad performance tracks the performance of the nationwide economy. I think railroads are so large and have so much inertia that an economic shock like a nation-wide recession won't really be noticable on the railroad until maybe ten years down the road when the deferred maintenance that took place during the recession finally catches up to them. Thus, there is a response lag.
Another problem with your thesis is its premise that one business is like any other. How can you compare the Burlington Northern with Toyota and come to any meaningful conclusion? A railroad mainline is not an auto assembly line.
I think you're arguing extreme views to test them out, to mine the knowlege available here on the forum to proof them. I don't think you really believe most of what you argue.
tiskilwa wrote: Your thesis is on the verge of saying that deregulation was completely irrelevant to how railroads fared financially. It's an extreme thesis you're arguing, and you know it.
Sol: "... to this idea that regulation explains every failure, and deregulation explains every success: baloney. It's more complicated in both directions."
You mischaracterize my comments.
And I don't see Toyota mentioned on this thread at all.
MichaelSol wrote:We are not used to the idea in our current lifetimes, but the American economy, post-Civil War was a deflationary economy. Rates declined all during that period. Historian Gabriel Kolko documented how the origins of the ICC Act lay with the railroads themselves asking the government to regulate "destructive competition" and plummeting rates. The Panic of 1893 brought down more railway mileage than any time before or since -- an occurence related more to general economic conditions than regulation or deregulation but due in part to the corrosive effects of deflation on organizations that required substantial capitalization.
If you're talking about a geneal deflationary period, then you're right in that the American economy hasn't experienced anything like it in the ast 100 years. On the other hand the electronics industry has been in a prolonged deflationary period for several decades. The reasons for this are very similar to what was behind the post Civil war deflationary period, a prolonged period of dramatically improving labor productivity. Railroad labor producitvity was increasing from larger locomotives, standard guage, air brakes and automatic couplers. In addition, the rapid axpansion of the economy was increasing utilization of the lines that had been built.
I remember George Hilton asserting in the late 1960's that the ICC was originally set up as a cartelizing agency to prevent destructive competition. It wasn't till later (e.g the Hepburn Act) that the ICC's mission was amended to include regulating rates. The adverse effect of state and federal regulation wasn't really felt until WW1, where fares and rates were often kept at pre-war levels despite labor costs being twice pre-war levels - and this pretty much killed off the traction industry in the US.
The major construction projects after the finish of the WP and the CM&StP's PCE were for areas with developed traffic and were dramatic cost reductions could be obtianed (e.g. GN's Cascade tunnel). It would have been interesting to have seen what other projects would have been built if money wasn't so tight ca 1910 (e.g the Cadotte Pass line).
Datafever wrote: MichaelSol wrote: GN, NP and CBQ were taking on water during the 1960s as well. Their merger saved their bacon. Along those lines -I know that you have mentioned many times the "diseconomies of scale" that have resulted from railroad mergers. In what way was the BN merger a boon for the railroads involved?
MichaelSol wrote: GN, NP and CBQ were taking on water during the 1960s as well. Their merger saved their bacon.
GN,NP,and CB&Q were doing ok during the late 1960's.They struggled thru the early and mid 60's due to a recession.The BN merger allowed all three to eliminate duplicate facilities in the Twin Cities area and eliminate the interchange hassle there and in the Billings-Laurel area as well.Another advantage for the merged system was that the coal companies were knocking on BN's door the day after the merger was consumated.CB&Q would have in no way been able to handle that boom on it's own.Yes BN struggled thru the 1970's with the coal boom and need to replace locomotives and freight cars and rebuild track structure(especially along the CB&Q).Great Northern was in good shape at the time of the merger,having no Federally funded land grants to pay back(remember that what land grants GN had were from the state of Minnesota included in the original charter of the Minnesota & Pacific in 1852).Northern Pacific was doing well in spite of it's land grants and poor,meandering route.Chicago,Burlington & Quincy would have been in trouble along with the other granger roads had the merger not intervened.Coal was the CB&Q's only savior.The big problem that all three had to deal with was the same problem all the railroads had at that time:Passenger Service and the inability to be rid of it.Now I will say that GN's management failed to follow thru on Jim Hill's practice of growing the territory served by the railroad as did all railroads in spite of the claims about the ICC.I believe GN would have been in better shape had Hill's philosiphies(sp?) been followed no matter the time period.
Penn Central was in trouble from the start with opposing management teams and then being saddled with the New Haven(in trouble itself long before PC due to passenger service).The PC failure came at a bad time,just 4 months after the BN merger which made investors take a step back from railroad stocks at that time.Then you had the CRI&P failure due to bad management and ICC's failure to make a timely decision about the UP and SP breaking it up between them.
So that's what I see as the railroad's problems in the 70's.Passenger service,Bad management,and too much regulation by an inefficient government entity(ICC).
So, I think we've established that the economy of the 1970's had nothing to do with the Penn Central collapse or the other Northeast railroad bankruptices that brought on the much needed and benificial deregulation.
greyhounds wrote:So, I think we've established that the economy of the 1970's had nothing to do with the Penn Central collapse or the other Northeast railroad bankruptices that brought on the much needed and benificial deregulation.
As a side note, you bring up an interesting point. I don't know for sure, but it appears that it was the eastern railroads that had the majority of the problems in the 70's (60's) as far as bankruptcies were concerned. If that is so, why were the eastern railroads more heavily impacted than the western railroads?
erikem wrote: MichaelSol wrote: We are not used to the idea in our current lifetimes, but the American economy, post-Civil War was a deflationary economy. Rates declined all during that period. Historian Gabriel Kolko documented how the origins of the ICC Act lay with the railroads themselves asking the government to regulate "destructive competition" and plummeting rates. The Panic of 1893 brought down more railway mileage than any time before or since -- an occurence related more to general economic conditions than regulation or deregulation but due in part to the corrosive effects of deflation on organizations that required substantial capitalization. If you're talking about a geneal deflationary period, then you're right in that the American economy hasn't experienced anything like it in the ast 100 years. On the other hand the electronics industry has been in a prolonged deflationary period for several decades. The reasons for this are very similar to what was behind the post Civil war deflationary period, a prolonged period of dramatically improving labor productivity. Railroad labor producitvity was increasing from larger locomotives, standard guage, air brakes and automatic couplers. In addition, the rapid axpansion of the economy was increasing utilization of the lines that had been built.
MichaelSol wrote: We are not used to the idea in our current lifetimes, but the American economy, post-Civil War was a deflationary economy. Rates declined all during that period. Historian Gabriel Kolko documented how the origins of the ICC Act lay with the railroads themselves asking the government to regulate "destructive competition" and plummeting rates. The Panic of 1893 brought down more railway mileage than any time before or since -- an occurence related more to general economic conditions than regulation or deregulation but due in part to the corrosive effects of deflation on organizations that required substantial capitalization.
Labor productivity and inflation/deflation are two different things. The U.S. economy continually deflated 1873-1890, yet labor productivity increased by more than 2.5% per year -- a boom period for productivity. The next boom period was 1917-1927, when productivity rose nearly 4% per year, but opposite of the earlier period, this was a period of high inflation.
What deflation does is drive down the market. What the steel mill paid for to ship steel last year, the railroad can only charge 90% this year, and less in subsequent years as the value of each dollar increases. The problem for capital intensive industries -- and it is a big, big problem -- is that bonds sold to finance construction and improvements are paid in current, more valuable, dollars -- not the value of the dollars that purchased the original construction. Each passing year brings lower revenues to pay debt, but the debt becomes relatively more burdensome. The solution: expansion and hope that new traffic and current debt stays ahead of deflation and old debt. This is why railroads "overbuilt" in those two decades prior to 1893 -- they were on a horse they couldn't stop in a horserace that wouldn't end. Over the long run, something breaks, and it broke for railroads in 1893.
"Morganization" was the process designed to break that cycle.
This is the opposite of the 1960s and 1970s, as inflation reduced the burden of existing debt and debt payments relative to income with each passing year. This is one of the conundrums of the 1970s -- bankrupt railroads had "monstrous debt loads" only in rail fan magazines.
In real life, by and large bankrupt railroads in the 1970s had the lowest debt service ratios in their histories at the times of their bankruptcies and better, for the ones I am familiar with, than their un-bankrupt peers. The paradox was that companies that had large debt saw the effect of that debt quickly inflated away -- but for those companies with small debt, that only meant that those companies hadn't invested in their physical plants and, ultimately, those companies could no longer compete effectively because of the inefficiency of their physical facilities.
Again, to me that underscores a philosophy of capital investment, not regulation. Those companies that had holding companies -- a sure signal that capital investment in railroad plant was not a priority -- did more poorly when the 1970s arrived than those companies which were independent railroads -- and which had to invest in the railroad as their number one priority.
What happened during the 1950s? The largest single capital investment in railroad history in the motive power change-over. By 1961, costs associated with motive power -- labor, maintenance, fuel, finance charges -- consumed on a sample Class I railroad 24% of revenues compared with 18% of revenues only a decade earlier. What went down in order to compensate for that substantial rise in that particular area of operating costs?
Maintenance-of-Way.
Railroads were consuming just as much capital -- they were just spending it differently -- and debt instead of long-tem became short term.
This process was something part smoke, something part mirror.
In the early 1950s, the motive power changeover promised 1-2% interest rates on 20 year depreciation property. By 1957, the depreciation period was revised downward to 14 years, at 5% interest rates. Further actual experience lowered the depreciation period to eight years, at 8% interest.
The economic consequences were substantial, but also showed up in lowered railroad earnings as the result of accelerated depreciation of machines, rather than of investment in railroad track. Railroads appeared less profitable on paper, as more of their revenue was spent on a certain class of capital equipment, and the effect on the bottom line was even more significant than that simply because of accelerated paper depreciation deductions compared to both the former equipment class and for actual investment in the track.
What that process obscured was the undercapitalization of the physical plant. Well, that could only last so long, and the advent of the 100 ton car no doubt considerably shortened whatever period that might have been otherwise.
Were railroads unique? No, during the 1960s, Big Steel was coasting on merger savings -- substituting merger for investment. Rich, prosperous, they thought they could. American Motors was trying to make it on one or two car lines. Studebaker and Kaiser met their fates. Chrysler was already in trouble -- and began looking at AMC. GM was coasting on market share acquisition from consolidation of the industry -- then tried to catch up on investment at exactly the wrong time in the 1970s.
Recall that during the 50s and 60s, these were companies that thought they had everything figured out. Only the Japanese were hiring Edward Deming. The Penn Central stood for an announcement that diversification was the key -- and weren't those guys the leaders of the industry?
But for the most part, Companies willing to invest, generally made it.
Companies that did not invest, generally did not make it.
Managements that invested wisely generally made it. Managements that did not -- and that could include entire industries -- had a harder time of it.
There does seem to be a moral to the story.
Datafever wrote: greyhounds wrote: So, I think we've established that the economy of the 1970's had nothing to do with the Penn Central collapse or the other Northeast railroad bankruptices that brought on the much needed and benificial deregulation. As a side note, you bring up an interesting point. I don't know for sure, but it appears that it was the eastern railroads that had the majority of the problems in the 70's (60's) as far as bankruptcies were concerned. If that is so, why were the eastern railroads more heavily impacted than the western railroads?
greyhounds wrote: So, I think we've established that the economy of the 1970's had nothing to do with the Penn Central collapse or the other Northeast railroad bankruptices that brought on the much needed and benificial deregulation.
For one there were a lot more of them in the Official Territory, so you first have to zero out for sheer percentage of the total.
Second, they were compacted into a lot smaller space, so the traffic cannibalism was very high.
Third, much of the traffic base these roads were built to handle had evaporated, notably passengers, anthracite, and New England textiles, brassware and shoes, whereas outside the Official Territory traffic was actually up as traditional resource bases for lumber, minerals, etc., shifted west and south following exhaustion in the East as well as population shift to the sunbelt.
Fourth, western roads inherently had longer hauls due to widely separated and highly concentrated urbanization, whereas eastern urbanization is not widely separated and not highly concentrated, but worse from a railroad's point of view, is of sufficient mass to afford industrial economy of scale without requiring concentration. Western geographic factors were very much in a railroad's favor whereas eastern population geography was very much in trucking's favor. Ironically the long distances that made western roads such an iffy proposition in the mid-1800s turned out to be their greatest advantage by the mid-1900s.
Fifth, prior to WWII there was a substantial coastwise and intercoastal shipping business (more than 1,000 vessels) that ceased during the war (the ships were requisitioned) and did not restart after the War because its costs climbed so much faster than rail costs it was soon priced it out of the market for just about everything except crude oil and refined petroleum products. The decline of coastwise shipping was highly beneficial to southern and western roads but actually hurt eastern roads because of the traffic shift away from traditional hinterland-to-port routes toward gateway routes where they had little investment.
Mr. Sol,
If I can try to recap what you have said:
Part of the problem that some railroads had (in the 60's/70's) was a lack of debt - debt that in a period of high inflation is paid back with cheaper dollars. Those railroads that had encumbered themselves with debt in order to rebuild infrastructure found themselves in a cozier position than those railroads that had delayed infrastructure expense and had cash instead.
So if the 70's had not been a time of high inflation, one could posit that the results would have been significantly different. In that case, capital investment in infrastructure may have been an undesirable use of monies.
Were there indications that inflation was going to be as bad at it ended up? Could a savvy management team have foreseen that inflation was going to go "out of control" and acted accordingly?
MP173 wrote: I believe we have differing opinions regarding the "efficiencies" of trucks v rails. Sure, the cost of transporting via rail is considerably lower, but the efficiencies of trucking was (is) the flexibility it offered. LTL trucking ate into REA business, it was much more efficient and quicker. Truckload offered the ability to ship from door to door via a single carrier. Often railroad boxcar freight had to move thru several carriers...plus one had to fill a boxcar to get the rate. Trucking offered rate structures which rewarded the movement of partial truckloads or "header rates". Interchange between railroads was painfully slow, interlining between LTL carriers was much more efficient. LTL terminals "cross docked" freight in hours, rail terminals took much more time.
What I look at is the relative running speeds of the fastest highway vehicles vs those of the railroads. 1930's - 50 mph highways were still the exception, not the rule, but railroads were in seeming competition to break the 100 mph barrier with dedicated trains. Granted, those were mostly passenger trains, but the standard was still set. Thinking about it now, can you imagine what things would look like today if those 100 mph railroads had offered TOFC service in tandem with those passenger hotshots to haul those new fangled truck trailers? The whole dock to dock dynamic changes in terms of transit time for OTR vs TOFC.
Fast forward to the 1950's - highway speeds are now up in the 60 mph range, but railroads have decreased their top speeds!
Again, the theoretical advantage in flexibility still favors rail transit over highway transit for all but the shortest hauls in the dock to dock race, but with what is offered/allowed today TOFC is only advantageous in the longer haul lanes, and that's only because of the new truck driver rules.
Well, it does correlate. The 264k car with 100 ton trucks came into it's own during the 1960's, so you have the efficiency gains over the 220k car with 70 ton trucks which correlate with the relative financial health of the railroads during this period. Then by the advent of the 1970's tracks were starting to fall apart - could it be the move from 70 ton truck (55,000 lbs per axle) to the 100 ton truck (65,750 lbs per axle) was finally taking it's toll? It may be the move to the 100 ton truck was seen as a short term gain for investors, with the usual tendency to bail before the longer term consequences came about.
Datafever wrote:Mr. Hadid, thank you for your analysis. It appears that the railroad industry has gone through several shifts over the past 150 years, some successfully, some fitfully, and some not very well at all.
The pleasure is all mine. Your posts are always a good read -- precise, measured, and collegial.
It was an interesting summary that put change, success and failure, squarely in the context of economic circumstances, not some generalized and ambiguous regulatory wrong.
Datafever wrote: Mr. Sol,If I can try to recap what you have said:Part of the problem that some railroads had (in the 60's/70's) was a lack of debt - debt that in a period of high inflation is paid back with cheaper dollars. Those railroads that had encumbered themselves with debt in order to rebuild infrastructure found themselves in a cozier position than those railroads that had delayed infrastructure expense and had cash instead.
Well, the "cash" mght have gone out the door to dividends. Every railroad in serious trouble 1965-1980 had been engaged in very serious merger efforts during the 1960s. While I would agree that by and large the ICC's efforts to "get it right" backfired into time-consuming, time-wasting, proceedings, I also note that the rail industry itself bore a large burden for time-consuming objections, appeals, and argument, often based purely on obstructive litigation tactics rather than honest participation in the process.
But, your point is, I think, accurate.
I think railroads would have benefitted from infrastructure investment no matter what. High inflation was a boon to discounting debt, but an enormous obstacle to railroads genuinely growing during the 1970s, such as Milwaukee. Recall, railroads themselves were "investing" heavily in merger efforts during the 1960s. Infrastructure had to wait until the merger was resolved.
Econometric studies -- Kent Healy -- suggested that mergers would harm the industry, rather than help it. Penn Central proved it. Burlington Northern threaded the eye of a needle with a camel. It was close. Had it not been for the extraordinary planning by Robert Downing and Worthington Smith, the outcome could have been considerably different and almost was.
The argument about "Guns and Butter" starting with the Great Society and Viet Nam War of Lyndon Johnson in 1965 brought about exactly such predictions from the Chicago School Monetarists. The accuracy of their predictions -- shown conclusively with a vengeance during the 1970s -- fundamentally changed American political and economic thinking. Railroads, however, did not employ "economists" -- not a useful tool in that industry's mindset at that time.
But, what does any of that suggest about "regulation" during that time?
In 1981, it gained its "freedom." It merged, it gained market share, it created captive shippers, it abandoned useless lines, it consolidated traffic into high utilization corridors. It did everything that deregulation permitted.
Union Pacific Railroad earned a 12.2% operating profit in 1965 in an anemic economy operating underutilized track with multiple inefficient interchanges and running a large transcontinental passenger train service.
Forty years later (2005), after deregulation and historic productivity achievements, it earned a 7.6% operating profit in a booming economy.
Progress?
GN in 1968 -- 12.38%, operating at about half capacity, running a transcontinental passenger train service.
BN in 2005: 12.27%.
It is simply stunning what these companies achieved when the artificial burden of regulation was removed and they were finally unshackled to permit their creative management abilities to soar to new heights of corporate profitability.
Michael:Regarding the operating margins of UP and GN, points well taken.
What were the margins on lets say Illinois Central in 1966 and CN in 2006?
As I stated previously, great thread.
Dave:
Regarding your discussion of infrastructure speed limits, for the most part those speed limitation have less effect on the overall transit time than the terminal times involved in the operations.
Just for fun...what were the strong railroads of that era (1960's -70's)?
And where are they now? Are their franchises as solid as before? I will start out with NW. Lets see in the early 1960's they made their $$ hauling coal, some have argued mainly downhill. They had the foresite to expand beyond Appalachia and created one of the truly great mergers (IMO) with NKP and Wabash in 1964. With that merger they gained access to Detroit and the automakers, Chicago and the western railroads, Northwest Indiana and another market for coal, St Louis and more western railroads, Kansas City and a longer haul. Ok, the line to Omaha really didnt do much and the NKP line to St. Louis didnt really add much, nor did the Wabash Chicago - Toledo line, but overall they got pretty good jump on the merger wave. Let's not forget the Virginian merger in the 50's.
It seemed they used their base of coal to expand and diversify.
That merger with Southern in the early 1980's didnt turn out too badly either did it.
Sometimes the best deals are the ones you dont do...and that certainly was the case for not pulling the trigger on Dereco (EL and D&H) in the mid 70's meltdown. They let the deep pockets sort out the problems of the day. Their obligation was not to the industry, but to their shareholders.
MP173 wrote: Dave:Regarding your discussion of infrastructure speed limits, for the most part those speed limitation have less effect on the overall transit time than the terminal times involved in the operations.ed
Thank you. For a minute, I was fearful to point out the 2000 lbs, in this case pink, elephant in the room that I thought I was seeing. I really do not understand the relationship between an 80 mph speed limit and the collapse of the rail industry that I seem to observe in the 70s.
Whether a steamship is hauling intermodal containers for a three week voyage that then sits in a dock for a few days, whether it is grain that might take as much as a month to transport from a farmer's silo through grain bins and what not, or merchandise freight that dwells in a yard three days regardless of transit, I never saw how the 7 hour-benefit of an increased speed limit might rescue the industry.
Added speed might help capacity. But, the issue of the 70s was getting rid of excess capacity, not making room for more.
MP173 wrote: Michael:Regarding the operating margins of UP and GN, points well taken.What were the margins on lets say Illinois Central in 1966 and CN in 2006?As I stated previously, great thread.Dave:Regarding your discussion of infrastructure speed limits, for the most part those speed limitation have less effect on the overall transit time than the terminal times involved in the operations.ed
Wellll, IC was not a railroad I ever had any reason to follow, but the annual report for 1966 in my file is, for some reason, the strangest annual report I have ever seen. It tells me nothing, except a big feature on the new "IC" logo. It has to be a defective mailing. The 1970 IC annual report for the railroad, separated out from IC Industries, shows a 12.31% operating profit -- railway operating income --
MP173 wrote: Just for fun...what were the strong railroads of that era (1960's -70's)?And where are they now? Are their franchises as solid as before? I will start out with NW. Lets see in the early 1960's they made their $$ hauling coal, some have argued mainly downhill. They had the foresite to expand beyond Appalachia and created one of the truly great mergers (IMO) with NKP and Wabash in 1964. With that merger they gained access to Detroit and the automakers, Chicago and the western railroads, Northwest Indiana and another market for coal, St Louis and more western railroads, Kansas City and a longer haul. Ok, the line to Omaha really didnt do much and the NKP line to St. Louis didnt really add much, nor did the Wabash Chicago - Toledo line, but overall they got pretty good jump on the merger wave. Let's not forget the Virginian merger in the 50's.It seemed they used their base of coal to expand and diversify. That merger with Southern in the early 1980's didnt turn out too badly either did it.Sometimes the best deals are the ones you dont do...and that certainly was the case for not pulling the trigger on Dereco (EL and D&H) in the mid 70's meltdown. They let the deep pockets sort out the problems of the day. Their obligation was not to the industry, but to their shareholders. ed
As an aside, the premier railroads--at least in the early 70s--in my opinion were the SP and the Southern. The Southern did quite well, the SP did not. There was a pretty informative article that I read about the SP covering its decline . . . .
I think a great example of railroading in the 60s and 70s is the IC. From everything I read about the IC, it was very stable during the 60s and was actually retiring debt. In the 70s, things got pretty ugly fast.
MichaelSol wrote:Well, the "cash" mght have gone out the door to dividends. Every railroad in serious trouble 1965-1980 had been engaged in very serious merger efforts during the 1960s. While I would agree that by and large the ICC's efforts to "get it right" backfired into time-consuming, time-wasting, proceedings, I also note that the rail industry itself bore a large burden for time-consuming objections, appeals, and argument, often based purely on obstructive litigation tactics rather than honest participation in the process.
Using the BN merger as an example (merely because I am a little more familiar with that one, which isn't saying much) --
NP and GN announced in 1960 of their plans to merge. They filed in 1961. The merger was completed in 1970. That seems like an incredibly long process, even for a highly regulated environment. Could you (or anyone else) elaborate on why that merger (or mergers in general) took so long back then?
MichaelSol wrote: I think railroads would have benefitted from infrastructure investment no matter what. High inflation was a boon to discounting debt, but an enormous obstacle to railroads genuinely growing during the 1970s, such as Milwaukee. Recall, railroads themselves were "investing" heavily in merger efforts during the 1960s. Infrastructure had to wait until the merger was resolved.Econometric studies -- Kent Healy -- suggested that mergers would harm the industry, rather than help it. Penn Central proved it. Burlington Northern threaded the eye of a needle with a camel. It was close. Had it not been for the extraordinary planning by Robert Downing and Worthington Smith, the outcome could have been considerably different and almost was.
Did those studies pinpoint where the diseconomies of scale were likely to occur? And under what circumstances that they would occur?
If so, would it not be possible to organize the merged company in such a way as to overcome the diseconomies of scale while still benefitting from economies of scale in other areas?
Datafever wrote: Using the BN merger as an example (merely because I am a little more familiar with that one, which isn't saying much) --NP and GN announced in 1960 of their plans to merge. They filed in 1961. The merger was completed in 1970. That seems like an incredibly long process, even for a highly regulated environment. Could you (or anyone else) elaborate on why that merger (or mergers in general) took so long back then?
Well, your timeline combines two proceedings.
A formal application was made to the ICC February 17, 1961.
A hearing examiner approved the proposed merger in a report issued August 24, 1964.
On April 27, 1966, the ICC rejected the proposed merger, stating that it was not "consistent with the public interest." This was based primarily on opposition from within the rail industry -- the process consumed five years.
On July 26, 1966 the Northern Lines asked the ICC to reconsider its decision; but at the same time they assiduously cultivated the managers of the Chicago and Northwestern and the Milwaukee Road -- the primary opponents of the orignal merger application. Essentially, this was the beginning of a second proceeding.
Given that the Northern Lines used tactics of negotiation rather than confrontation, the approval process of the resubmitted application moved much faster. Both MILW and CNW consented to the merger based on conditions accepted by the applicants. On November 30, 1967, the ICC approved, 8-2, the creation of the Burlington Northern Railroad. A little more than a year from reapplication to approval -- pretty fast for a big merger. A formal merger date of May 10, 1968 was approved.
However, during that time, Department of Transportation economists had been studying railroad mergers, and concluded that "the economic evidence is that the cost savings arguments for large railroad mergers have to be very largely discounted, and must be applied to individual cases with very great circumspection." United States Government Department of Transportation, Western Rail Mergers (Washington, D.C.: U.S. Government Printing Office, 1969) p.13.
Based on the existing econometric studies, the US Department of Justice appealed the ICC 1967 decision through the federal court system. The United States Supreme Court approved the Northern Lines merger February 2, 1970, in a 7-0 vote. On March 3, 1970, the Burlington Northern Railroad formally came into existence.
Datafever wrote:Thank you, Mr. Sol. That was quite enlightening.
Enlightenment --
"Ignorance means the absence of enlightenment, that is delusion. ...[W]e speak of fifty-two stages, of which one [the first] is a stage where the mind attaches itself to any object it encounters.
"When I look at a tree, I perceive one of the leaves is red, and my mind 'stops' with this leaf. When this happens, I see just one leaf and fail to take cognizance of the innumerable other leaves of the tree. If instead of this I look at the tree without any preconceived ideas, I shall see all the leaves. One leaf effectively 'stops' my mind from seeing all the rest. But when the mind moves on without 'stopping,' it takes up hundreds of thousands of leaves without fail."
[Suzuki, Daisetz T., Zen and Japanese Culture, 1959, pp. 95-96]
It was a good thread.
gabe wrote: MP173 wrote: Dave:Regarding your discussion of infrastructure speed limits, for the most part those speed limitation have less effect on the overall transit time than the terminal times involved in the operations.edThank you. For a minute, I was fearful to point out the 2000 lbs, in this case pink, elephant in the room that I thought I was seeing. I really do not understand the relationship between an 80 mph speed limit and the collapse of the rail industry that I seem to observe in the 70s. Whether a steamship is hauling intermodal containers for a three week voyage that then sits in a dock for a few days, whether it is grain that might take as much as a month to transport from a farmer's silo through grain bins and what not, or merchandise freight that dwells in a yard three days regardless of transit, I never saw how the 7 hour-benefit of an increased speed limit might rescue the industry.Added speed might help capacity. But, the issue of the 70s was getting rid of excess capacity, not making room for more.Gabe
Well yes, this was pre 1960, but there was that *other* spector that haunted the rail industry - the loss of market share to OTR truckers. Instead of nipping this unnatural economic weed in the bud, the railroads bungled it by characterizing trucking companies as the "enemy" rather than as a made-for-order customer. Mastermiding an intramodel switch of freight from boxcars to TOFC trailers would have alleviated the railroads from the more mundane aspects of moving freight - consignment, dock loading and unloading, aka containerization before containerization became a buzz word - and would have allowed them to focus on the simplest and most lucrative aspects of transport.
In order for the railroads to keep the majority of trailerload traffic off highways, they'd of had to beat the between terminal transit times of OTR's to conpensate for the intermodal terminal delays.
Didn't the original Zephyr average around 80 mph between Chicago and Denver? The average trucking time was probably more around 50 mph during the same period. Thus, there seems to be more than enough of a rail speed advantage to make up for terminal transloading of trailers and still beat the OTR's dock to dock.
I'm not sure that the railroads have ever had much to gain by trying to keep every single transportation dollar. Some of those dollars come with just too high a price tag.
Let's look at a Chicago to Denver haul. That's about 1000 miles. Dock to dock, a truck that averages 50 mph would take 20 hours. Throw in some sleep and eat time, and maybe it would take 30 hours or so.
How about a TOFC attached to a passenger train? First there is the time from the dock to the RR loading platform and the time to load the trailer onto the flatcar and secure it - probably at least an hour. Then there is the wait for the scheduled train departure - another six hours? Then comes the 12+ hour trip at an average of 80 mph. At Denver, the flatcar has to get switched out and moved to an unloading platform - another couple of hours. And then the trip from there to the receiving dock. Even at optimum, maybe there have been 8 to 10 hours saved.
But at what cost? What would the RR's gain be to keep this traffic?
Datafever wrote: I'm not sure that the railroads have ever had much to gain by trying to keep every single transportation dollar. Some of those dollars come with just too high a price tag.Let's look at a Chicago to Denver haul. That's about 1000 miles. Dock to dock, a truck that averages 50 mph would take 20 hours. Throw in some sleep and eat time, and maybe it would take 30 hours or so.How about a TOFC attached to a passenger train? First there is the time from the dock to the RR loading platform and the time to load the trailer onto the flatcar and secure it - probably at least an hour. Then there is the wait for the scheduled train departure - another six hours? Then comes the 12+ hour trip at an average of 80 mph. At Denver, the flatcar has to get switched out and moved to an unloading platform - another couple of hours. And then the trip from there to the receiving dock. Even at optimum, maybe there have been 8 to 10 hours saved.
This is an example of what the railroads might have done in terms of wasting time and efficiency, but of course they wouldn't have had to do it in such a convaluted way. First, who says the TOFC had to be attached to the passenger consist? Run it as a second section of the passenger consist, aka a dedicated run. If you have to run both in a single consist, use the TOFC terminals as the point to point reference, and let the passenger portion be switched in and out.
In other words, someone with some brain cells could have figured it out to make it work.
Market share, increased revenues, increased dividends.........
Hello everyone!
In one of his previous post, Gabe mentions the Southern Railway as, in his opinion, one of the premier railroads. This is a company that I have followed through the years also. It always seemed to be one of the more successful companies, yet, one that you didn't hear much of, a "quiet" company. It never stood out like a New York Central or Union Pacific. And if you look at it's route structure, it didn't seem to serve an industrial region, but one that was rather rural. I once read that it was "the biggest railroad that went from nowhere to nowhere".
Any thoughts on this? I hope I'm not intruding onto the thread, but this is a question that has been in the back of my mind for some time and this thread brought it to the forefront when Gabe mentioned his observation.
G Mack
From the August 1972 Trains-
Last year these railroads lost money: Ann Arbor, Boston and Maine, CP Rail (International of Maine), Jersey Central, Fort Worth and Denver, Grand Trunk Western, Lehigh Valley, Long Island, Penn Central, Pennsylvania-Reading Seashore Lines, Reading, and Rock Island. On the other hand, Southern Railway posted record figures for revenue and net income after taxes, split its preferred and common stock 2 for 1, and reported more upward trends in the first quarter of 1972.
futuremodal wrote: Datafever wrote: I'm not sure that the railroads have ever had much to gain by trying to keep every single transportation dollar. Some of those dollars come with just too high a price tag.Let's look at a Chicago to Denver haul. That's about 1000 miles. Dock to dock, a truck that averages 50 mph would take 20 hours. Throw in some sleep and eat time, and maybe it would take 30 hours or so.How about a TOFC attached to a passenger train? First there is the time from the dock to the RR loading platform and the time to load the trailer onto the flatcar and secure it - probably at least an hour. Then there is the wait for the scheduled train departure - another six hours? Then comes the 12+ hour trip at an average of 80 mph. At Denver, the flatcar has to get switched out and moved to an unloading platform - another couple of hours. And then the trip from there to the receiving dock. Even at optimum, maybe there have been 8 to 10 hours saved.This is an example of what the railroads might have done in terms of wasting time and efficiency, but of course they wouldn't have had to do it in such a convaluted way. First, who says the TOFC had to be attached to the passenger consist? Run it as a second section of the passenger consist, aka a dedicated run. If you have to run both in a single consist, use the TOFC terminals as the point to point reference, and let the passenger portion be switched in and out.In other words, someone with some brain cells could have figured it out to make it work.But at what cost? What would the RR's gain be to keep this traffic? Market share, increased revenues, increased dividends.........
As I alluded to in my previous post, ATSF did this with the Super C, although there wasn't any 90 MPH running, I believe that there was a lot of 70+ MPH speed involved. Until they got the mail contracts, the Super C was an operating success and a marketing flop. Not too many customers were willing to pay a premium rate for the extra speed. Any increased revenues were offset by the increased costs and the the operation was discontinued shortly after the mail contracts were cancelled.
Increased market share sounds nice on paper, but a lot of airlines have put a lot of red ink on their balance sheets trying to maintain or increase market share.
futuremodal wrote: As I have pointed out time and again, coal and grain can move at 125 mph along with more time sensitive items...
As I have pointed out time and again, coal and grain can move at 125 mph along with more time sensitive items...
Gee, I wonder how far from a signal I would have to apply the brakes to safely stop an 18,000 ton coal train, much less a mixed manifest train?
Even with cab signals, EP brakes, and full dynamics, the entire signal system would have to be redone to accomodate such speeds, along with huge investments in track structure and perhaps even redesigning the basic freight car.
futuremodal wrote:Market share, increased revenues, increased dividends.........
Let's just say that I have yet to see anything that would convince me that there would be much profit in such an operation.
Without wading through all of everyone else's theories....I'll present my personal observations....
The regulation provided by the ICC prevented the carriers from running their operations as a business...The carriers did not have pricing power as the ICC had to approve any rate changes and the carriers could not eliminate money losing operations (both passenger and freight) without ICC and other regulators approvals, which when granted took several years of continued mondy losing operations from request to approval.
The second strike against the carriers was the relative downturn in basic industry within the US with the eventual virtual demise of the US steel industry....the raw materials and finished products of the steel industry were a floor of steady business that the rail industry counted on and the floor was continually sinking.
Strike three was the building of the Interstate highway system that was conceived by the Eisenhower administration in the middle 50's but hit full construction stride in the 60's. The Interstate system made long haul trucking a vialable alterative to rail for the high value cream of rail traffic, thus skiming the most profitable of rail traffic.
Put all three strike pitches together in the same plate apperance and you have the rail industry striking out.
Never too old to have a happy childhood!
Have fun with your trains
BaltACD wrote: Strike three was the building of the Interstate highway system that was conceived by the Eisenhower administration in the middle 50's but hit full construction stride in the 60's. The Interstate system made long haul trucking a vialable alterative to rail for the high value cream of rail traffic, thus skiming the most profitable of rail traffic.
If you have some data to support this, I would like to see it.
I don't have enough data to make a definitive conclusion, but at least some data. The Sixth (later, Fourth) largest RR in the country was virtually enveloped along its profitable routes by I-90 and I-94. Absolutely, it lost traffic to the Interstates. I testified before the ICC on carloading losses during that era. I recall that I used the word "hemorrhage."
What I hadn't looked at, and didn't know, was that as it did so, its Operating Ratio continually improved.
Now, how about that?
Apparently, it lost expensive short haul traffic in a greater proportion than it lost long haul traffic. There was a lot of expensive short haul stuff to haul around. Good riddance.
For long haul, admittedly, the Company had a Hotshot that beat the long haul trucks on time and price, and so perhaps it did not suffer the losses that other companies did. I can't extend the analysis any further than that observation for that particular Company except to note that my control railroad, the CBQ, suffered a declining OR during the same period, 1956-1969, but I am unaware of whether or not it had something comparable to Milwaukee's #261/262 to go against the long haul truckers.
MP173 wrote:Operating ratio improved?
Well, one of those things that happens when a person actually sits down and examines data in Excel and does a linear regression analysis: discovery. I ran that one past three Business School colleagues -- all PhDs -- including a member of the GN Historical Society. Indeed, I presented these results in a graduate seminar -- seemed like a good example of the seminar series, "The Strategic Value of Mergers" -- "OK, I am seeing that GN, NP and CBQ had deteriorating Operating Ratios during this period, and MILW's was improving.
"This isn't what I've heard."
Warning: you can kill Graduate Students with lectures about Railroad Operating Ratios. I was charged with three negligent homicides.
Double checked the data against Moody's, Transport Statistics of the United States, and company Annual Reports. I can post a Power Point presentation on the lecture -- it was actually on the proposed MILW-CNW merger -- the OR was an accidental discovery when I tried to make an exhibit showing that MILW's position was deteriorating, necessitating the merger.
On that basis, I long ago gave up believing a word coming from "conventional wisdoms".
MichaelSol wrote: Datafever wrote: Mr. Sol,If I can try to recap what you have said:Part of the problem that some railroads had (in the 60's/70's) was a lack of debt - debt that in a period of high inflation is paid back with cheaper dollars. Those railroads that had encumbered themselves with debt in order to rebuild infrastructure found themselves in a cozier position than those railroads that had delayed infrastructure expense and had cash instead.Well, the "cash" mght have gone out the door to dividends. Every railroad in serious trouble 1965-1980 had been engaged in very serious merger efforts during the 1960s. While I would agree that by and large the ICC's efforts to "get it right" backfired into time-consuming, time-wasting, proceedings, I also note that the rail industry itself bore a large burden for time-consuming objections, appeals, and argument, often based purely on obstructive litigation tactics rather than honest participation in the process.But, your point is, I think, accurate.So if the 70's had not been a time of high inflation, one could posit that the results would have been significantly different. In that case, capital investment in infrastructure may have been an undesirable use of monies.I think railroads would have benefitted from infrastructure investment no matter what. High inflation was a boon to discounting debt, but an enormous obstacle to railroads genuinely growing during the 1970s, such as Milwaukee. Recall, railroads themselves were "investing" heavily in merger efforts during the 1960s. Infrastructure had to wait until the merger was resolved.Econometric studies -- Kent Healy -- suggested that mergers would harm the industry, rather than help it. Penn Central proved it. Burlington Northern threaded the eye of a needle with a camel. It was close. Had it not been for the extraordinary planning by Robert Downing and Worthington Smith, the outcome could have been considerably different and almost was.Were there indications that inflation was going to be as bad at it ended up? Could a savvy management team have foreseen that inflation was going to go "out of control" and acted accordingly? The argument about "Guns and Butter" starting with the Great Society and Viet Nam War of Lyndon Johnson in 1965 brought about exactly such predictions from the Chicago School Monetarists. The accuracy of their predictions -- shown conclusively with a vengeance during the 1970s -- fundamentally changed American political and economic thinking. Railroads, however, did not employ "economists" -- not a useful tool in that industry's mindset at that time.But, what does any of that suggest about "regulation" during that time? In 1981, it gained its "freedom." It merged, it gained market share, it created captive shippers, it abandoned useless lines, it consolidated traffic into high utilization corridors. It did everything that deregulation permitted.Union Pacific Railroad earned a 12.2% operating profit in 1965 in an anemic economy operating underutilized track with multiple inefficient interchanges and running a large transcontinental passenger train service.Forty years later (2005), after deregulation and historic productivity achievements, it earned a 7.6% operating profit in a booming economy.
Your comparing Dick Davidson to John Kenefick? Give me a break Dick Davidson never met a merger he couldn't screw up. In 1965 UP was using the slogan Dependable Transportation, and they meant it. The City of Everywhere didn't often get in the way of fast freights. I suspect that the UP had the longest or second longest average haul in 1965. Try comparing the PRR in 1965 vs. the NS in 2005!
Progress?GN in 1968 -- 12.38%, operating at about half capacity, running a transcontinental passenger train service.BN in 2005: 12.27%.
Note that BNSF still has 3 Transcontinental Passenger trains to avoid.
I thought you were saying that the GN doing wasn't very good. What were the MILW's numbers over the same time periods.
MichaelSol wrote: MP173 wrote:Operating ratio improved? Well, one of those things that happens when a person actually sits down and examines data in Excel and does a linear regression analysis: discovery. I ran that one past three Business School colleagues -- all PhDs -- including a member of the GN Historical Society. Indeed, I presented these results in a graduate seminar -- seemed like a good example of the seminar series, "The Strategic Value of Mergers" -- "OK, I am seeing that GN, NP and CBQ had deteriorating Operating Ratios during this period, and MILW's was improving."This isn't what I've heard." Warning: you can kill Graduate Students with lectures about Railroad Operating Ratios. I was charged with three negligent homicides.Double checked the data against Moody's, Transport Statistics of the United States, and company Annual Reports. I can post a Power Point presentation on the lecture -- it was actually on the proposed MILW-CNW merger -- the OR was an accidental discovery when I tried to make an exhibit showing that MILW's position was deteriorating, necessitating the merger.On that basis, I long ago gave up believing a word coming from "conventional wisdoms".
I assume that in all your comparisons of then and now you take into consideration the intracies of betterment accounting vs. depreciation accounting.
"We have met the enemy and he is us." Pogo Possum "We have met the anemone... and he is Russ." Bucky Katt "Prediction is very difficult, especially if it's about the future." Niels Bohr, Nobel laureate in physics
MichaelSol wrote: Warning: you can kill Graduate Students with lectures about Railroad Operating Ratios. I was charged with three negligent homicides.
ROFLMAO!!!!
I'd carry a copy of that just for self defense on a college campus.
You ever think of letting people take out contract "hits"? (An Ivy League version of "The Sopranos".)
Dont know if I want to sit thru a Power Point, but it would be interesting to see the operating ratio data. Also, what time frame are you referring to?
BTW, anyone know where one can pickuup old Moody's? I have checked a couple of times at EBAy...nothing. Or, is there a database of railroad financials?
MP173 wrote: Dont know if I want to sit thru a Power Point, but it would be interesting to see the operating ratio data. Also, what time frame are you referring to? BTW, anyone know where one can pickuup old Moody's? I have checked a couple of times at EBAy...nothing. Or, is there a database of railroad financials? ed
A little pricey, but considering the size of these bound volumes:
MOODY'S STEAM RAILROADS/TRANSPORTATION MANUAL - Moody's Investors Service, HD: (ask about other dates)
.1915, 1666p, interior complete but spine plate missing and covers separated, $165.
.1916, 1602p, good, $150.
.1931, 2006p, good, $120.
.1933, 2148p, good, $120.
.1935, 2161p, good, $120.
.1937, 2326p, good, $110.
.1940, 1922p, good, $110.
.1942, 1766p, good, $100.
.1944, 1590p, good, $100.
.1946, 1546p, good, $95.
.1948, 1491p, good, $95.
.1950, 1448p, good, $95.
MOODY'S MANUAL OF INVESTMENTS, TRANSPORTATION: RAILROADS-AIRLINES-SHIPPING,TRACTION,BUS AND TRUCK LINES - HD:
(ask about other dates)
.1951, 1436p, good, $90.
.1955, 1523p, vg(ex lib.), $90.
.1958, 1472p, good, $90.
.1960, 1462p, good, $90.
.1962, 1405p, good, $90.
.1964, 1374p, good, $90.
.1966, 1386p, good, $65.
At http://railpub.com/
pp. 42-43 of the current catalog.
I've purchased historical materials from this source over a number of years, and he's very high quality.
The 1960s were quite the paradox for railroads. On one hand you had technological improvements in the way freight was transported, to advances in bookkeeping through use of computers, to early ways of tracking a railcar's whereabouts (remember the ACI lables?), and of course, the advancements made by EMD and GE in diesel locomotives. And on the other hand the was all the federal regulations, state property tax issues, railroad employee wage hikes, unprofitable passenger train routes, and competition from other modes of transportation, that bled the railroads.
For some railroads, it was the begining of the end, while others held their own in that decade. I don't have access to company records or such, but it seemed to me, that two railroads that actually did well (or at least gave the impression of doing so) were Santa Fe and Southern Pacific. Granted, Santa Fe had one thing that no other western railroad ever had: its own line from Chicago to the Pacific Coast giving it the long haul without having to worry about a second railroad forwarding its freight to Chicago. Perhaps that helped Santa Fe's fortune during the '60s. In the coming decade, I know SP's fortunes took a turn for the worst, but I do not know how Santa Fe fared, other than I think it did all right, when compared to other railroads.
MichaelSol wrote:A little pricey, but considering the size of these bound volumes:At http://railpub.com/pp. 42-43 of the current catalog.
Another source is abebooks.com. They have several of the years that railpub.com was missing (and they are missing several of the years that railpub.com has), and the prices are consistently lower.
G Mack wrote: Hello everyone!In one of his previous post, Gabe mentions the Southern Railway as, in his opinion, one of the premier railroads. This is a company that I have followed through the years also. It always seemed to be one of the more successful companies, yet, one that you didn't hear much of, a "quiet" company. It never stood out like a New York Central or Union Pacific. And if you look at it's route structure, it didn't seem to serve an industrial region, but one that was rather rural. I once read that it was "the biggest railroad that went from nowhere to nowhere". Any thoughts on this? I hope I'm not intruding onto the thread, but this is a question that has been in the back of my mind for some time and this thread brought it to the forefront when Gabe mentioned his observation.G Mack
Southern Rwy had a couple of advantages over the Northeastern railroads, at least in my opinion. Don't claim to be a great expert, but here goes.
1. Management Quality: D. W. Brosnan, IMHO, is one of the most under-appreciated RR presidents this country has produced since 1900. Someone once said "There was no status quo with Brosnan. You either moved up or moved out." He and his management team were great innovators and they ran a very tight ship. Southern was also small enough to be managed more easily than PRR or NYC.
2. Location/Operating Environment: Southern in the 1960's ran basically between Washington, DC, New Orleans and Jacksonville, FL. South of Richmond, their main competitors were ACL (double track along the Atlantic Coast with a line west to Birmingham) and SAL (weak, and single-track thru inferior country, with basically a long branch to Montgomery, AL). ACL was too far east of the Southern to be much competition except for Atlanta traffic, and SAL wasn't a strong competitor. Southern's territory wasn't as overbuilt with railroads as the Northeast, the road system wasn't as good (which hurt the truck competition), and Southern wasn't burdened with a huge amount of shorthaul or passenger traffic.
Comments or corrections are welcomed.
Some points that have yet to be mentioned in this thread
1) Saying that while railroads were regulated in the 1960s and 1970s while other competitive industries (trucking, airlines) were unregulated is simply not true. Since the 1930s every industry in the U.S. has been regulated to a certain extent. All industries have to follow minimum wage/maximum hours laws, for example. All public companies have to follow SEC regulations. Plus, both those "competitive industries" were in fact regulated. While regulation of the trucking industry started later than regulation of the railroads, they were regulated starting in the 1930s (which marked the origins of the interstate trucking industry). In fact, the ICC also had jurisdiction over interstate trucking and busing during that time period (the Surface Transportation Board retains limited jurisdiction over trucking and busing). Thus blaming regulation and the ICC is simply not the full story. Perhaps the rail regulations were more stringent than the airline or trucking regulations, but to pretend that only the railroads were regulated is to ignore history. Don't forget that interstate trucking and the airlines were in fact deregulated at the same time that the railroads were deregulated.
2) In the period from the 1950s to 1970s there was really no such thing as coordinated transportation planning. While today, the federal and state governments have Departments of Transportation, at that period, you'd have a Bureau of Public Roads in charge of roads, the ICC and railroad departments with jurisdiction over railroads, and the Civil Aviation Authority with authority over air. Most of these agencies were under the Department of Commerce which meant that they were often run by economists or lawyers and not transportation planners. In other cases, the "regulatory/planning" agencies were run by representatives of the regulated industry - so the Bureau of Public Roads, for example, was composed of people from the automotive, construction, and oil industries. There was no attempt at reaching a rational transportation policy across the industries to use the stregths of rail, barge, ship, highway, and air.
3) While railroads were no longer directly or indirectly subsidized by the government by the 1950s, highway and air transportation were at least indirectly subsidized by the government. While pay as you go plans funded by tolls or the gas tax were rejected by Congress, the government instead decided to fund the construction of highways through a highway trust fund from the general treasury and a very low gas tax. Additionally, the oil prices in the United States have effectively been subsidized and artificially low. The U.S. government has never charged the oil companies anything close to market rate for drilling rights on federal land - effectively subsidizing the use of oil because that holds down the market price for oil in the United States. The United States also has refused to follow European practice and use the gas tax to reflect the true cost of driving. In economics, gas prices have long been used as the example of a price that is too low in that the cost of driving is less than the social cost of driving and thus results in over consumption. Aviation also was subsidized in the sense that the government paid for air traffic control, airport construction, and other necessary expenditures through the general revenue. Of course, it helps to remember that many of the raillines were constructed using direct government subsidies - at the very least they were given eminent domain power where they could take private land for public use (railroad construction) which lowers land acquisition costs. But those subsidies had stopped. Going back to the Romans, its hard to find any self sufficient transportation system/means that exists without some sort of government subsidy.
4) Don't forget the reason why the airline bankruptcies occurred after deregulation, not before. Because the airline regulations were largely designed to prevent competition by limiting which airlines could fly on what routes. Airlines prior to the 1980s generally had very high fares because they had little competition due to the requirement to get government approval before serving a route. Also, the airlines had to make multiple stops - a flight from Chicago to Washington in that period might make 2-3 intermediate stops - to satisfy the regulations. There were fewer centralized airports - prior to deregulations for example, both Greensboro and Winston-Salem had airports served by commercial airlines. The airlines when exposed to competition after the deregulation saw many legacy carriers (Pan Am, TWA, Eastern, etc.) go bankrupt. Airline fares have decreased, but many smaller cities have less extensive air service than they did under deregulation because the airlines are no longer forced to follow their licensed routes.
5) Road building declined after the 1970s dawned as well - for around that period, the Federal Highway Administration decided to build I-40 through Overton Park in Memphis, TN. The resulted Supreme Court decision (Committee to Save Overton Park v. Volpe) led to having many urban interstates to get blocked because it required the FWHA to actually follow their regulations in siting interstates and enabled community opposition groups to sue in federal court to block construction. Very few new interstates/interstate quality highways have been approved since the 1970s (and not just due to environmental concerns since the EPA was formed in 1970 leading to the requirement of an environmental impact statement for new roads) - by that point, many of the original interstates had already reached capacity (in fact, original design capacity for the interstates was based on woefully inadequate estimates for traffic in 1975). Many of the interstates were obsolete before they were even completed in that they were overcapacity. This actually led to a return towards mass transit rail projects like the Washington Metro system (today badly over capacity itself) and to more comprehensive transportation planning to finally appear.
So this is really about like asking what caused the Civil War. You have a simple answer which is too simplictic and you have a complex answer which if you ask 10 people about it, you'll get 12 different opinions.
jeaton wrote:I assume that in all your comparisons of then and now you take into consideration the intracies of betterment accounting vs. depreciation accounting.
Michael did you?
Answer the question.
GP40-2 wrote: jeaton wrote: I assume that in all your comparisons of then and now you take into consideration the intracies of betterment accounting vs. depreciation accounting.Michael did you? Answer the question.
jeaton wrote: I assume that in all your comparisons of then and now you take into consideration the intracies of betterment accounting vs. depreciation accounting.
Yes, GAAP dictates the result, including the "intracies".
I do expect, in the event I similarly command an answer from you in the future, that you will respond just as appropriately.
Thanks to Chris / CopCarSS for my avatar.
Murphy Siding wrote: What effect did the effect of the drying up of business on branchlines in the 60's have on railroad profits? That seems to be about the time that most railroads were trying (unsuccesfully, mostly) to shed unprofitable branch lines.
Two points:
1. Did traffic "dry up"?
2) Did the 60s really represent a "movement" about branchlines?
You created several presumptions in your comment. Is there a basis for them?
MichaelSol wrote: Murphy Siding wrote: What effect did the effect of the drying up of business on branchlines in the 60's have on railroad profits? That seems to be about the time that most railroads were trying (unsuccesfully, mostly) to shed unprofitable branch lines.Two points:1. Did traffic "dry up"?2) Did the 60s really represent a "movement" about branchlines?You created several presumptions in your comment. Is there a basis for them?
I read that more as a question than comment - and read "drying up" as refering to a general reduction in branchline traffic (which had been going on well before the 60's.
erikem wrote: MichaelSol wrote: Murphy Siding wrote: What effect did the effect of the drying up of business on branchlines in the 60's have on railroad profits? That seems to be about the time that most railroads were trying (unsuccesfully, mostly) to shed unprofitable branch lines.Two points:1. Did traffic "dry up"?2) Did the 60s really represent a "movement" about branchlines?You created several presumptions in your comment. Is there a basis for them?I read that more as a question than comment - and read "drying up" as refering to a general reduction in branchline traffic (which had been going on well before the 60's.
Michael: I think erikem perceived this more the way it was intended-as a question, not a definitive statement by any means.
To be more general: It seems the railroads had been trying to thin out their unprofitable branch lines from about WW II on. The shippers involved, and the ICC seemed to resist this. Did this greatly effect the fortunes of railroads in general,during the period we are discussing in this thread?
Murphy Siding wrote: erikem wrote: MichaelSol wrote: Murphy Siding wrote: What effect did the effect of the drying up of business on branchlines in the 60's have on railroad profits? That seems to be about the time that most railroads were trying (unsuccesfully, mostly) to shed unprofitable branch lines.Two points:1. Did traffic "dry up"?2) Did the 60s really represent a "movement" about branchlines?You created several presumptions in your comment. Is there a basis for them?I read that more as a question than comment - and read "drying up" as refering to a general reduction in branchline traffic (which had been going on well before the 60's. Michael: I think erikem perceived this more the way it was intended-as a question, not a definitive statement by any means. To be more general: It seems the railroads had been trying to thin out their unprofitable branch lines from about WW II on. The shippers involved, and the ICC seemed to resist this. Did this greatly effect the fortunes of railroads in general,during the period we are discussing in this thread?
Well, the reason for my post was that railroads began the abandonment process in the 1920s, by my reading of the statistics. And, rather than anything necessarily negative about branchlines per se, the process appeared -- to me -- to represent a normal flexibility of a large network adjusting itself.
Certainly, as trucks replaced branchlines, this represented a change of technology that didn't hurt railroads, necessarily, but I'm reluctant to agree that it represented a "1960s" phenomenon.
Line segment analysis at MILW, for instance, during that period showed that several formerly "sleepy" branch lines suddenly became big revenue generators in the 1960s. Others went back to sleep. What I saw over a 27 year period was more of an "ebb and flow" rather than a decline of the financial contributions of branch lines per se.
Not done with that analysis yet, but that was a preliminary survey -- another 250,000 data points and I can offer a stronger opinion on the subject.
MichaelSol wrote: What I saw over a 27 year period was more of an "ebb and flow" rather than a decline of the financial contributions of branch lines per se.
In that case, I would wonder if that "ebb and flow" of rail traffic turn all into ebb between 1960 and 1970? That is a period when a lot of new highways, especially interstates, came on line. They moved a lot of traffic and mail off the railroads.
Murphy Siding wrote: MichaelSol wrote: What I saw over a 27 year period was more of an "ebb and flow" rather than a decline of the financial contributions of branch lines per se. In that case, I would wonder if that "ebb and flow" of rail traffic turn all into ebb between 1960 and 1970? That is a period when a lot of new highways, especially interstates, came on line. They moved a lot of traffic and mail off the railroads.
Well, like I say, I've looked at that for one large Midwestern/transcontinental road, and that shift just isn't there. Maybe it was everywhere else but ....
The Rail industry is so full of "conventional wisdoms" and "received truths" -- baloney in new packages --I am simply skeptical.
In many cases, railroads intentionally hung on to little used branchlines. Like a tree farm -- maybe of little value right now, but it could provide our bread and butter in the future. BNSF is hanging onto a couple of such lines nearby.
Branchline abandonment proceedings did represent that question at all times, and it wasn't an easy answer for railroads or for the ICC. The ICC was charged with protecting the overall integrity of the US Rail System from individualized cannibalization under a given management regime at a given railroad company. There was, and remains today under the STB, regulatory oversight to protect the future needs of the nation from cannibalization or destruction of what is becoming an irreplaceable resource, much like water, air, coal, and oil.
The process was somewhat perplexing. From one perspective, it makes sense. From another, it seems irrational.
The railroad needed to show that the branchline represented a financial drain on the resources of the company. Herein was the problem. Most of the time, they actually didn't -- or it was at least negligble in the broad scheme of things. That's the problem with gravel, steel, creosoted wood, and steel spikes -- they are fairly robust and particularly if they are not being stressed by use. Oh yes, eventually ... but that was a long time.
So, in order to show a "loss" which justified abandonment, the railroad had to go and spend some good dollars on some piddling work, fix a fence, or replace some ties -- then they could show expenses exceeding revenue. Until they did that, however, any kind of traffic at all on those lines showed them to be profitable -- and they were.
And there was a time frame involved in that. Many railroads had spent prodigously on maintenance, including branchlines, during WWII, since an "excess profits" tax was in place, and they might as well spend the money on something instead of to taxes. These branchlines, even in the post WWII losses to trucking, maintained their integrity for 20, 25, 30 years without needing much real maintenance.
Well, the timing of that of course put it right about when all sorts of other problems started to afflict the rail industry -- 1965-1980 -- and the "railbank" of branchlines began to require reinvestment if they were going to be used, or abandonment if they weren't. Too, that was the beginning of the point at which the write downs of remaining depreciation wouldn't kill the bottom line, and abandonments made more sense -- gradually -- from an accounting standpoint. Kind of a "fish-or-cut-bait" point in time.
The ICC still required the "loss" to be shown to meet the regulatory requirements for abandonment -- just the wrong time to ask managers to go out and waste some money installing new rail just so they could get permission to tear it out.
There was a logic to the system, and logic to the management frustration with that system, and, in each of their respective worlds, their logics seemed irrefutable and the other position ridiculous.
MichaelSol wrote: In many cases, railroads intentionally hung on to little used branchlines. Like a tree farm -- maybe of little value right now, but it could provide our bread and butter in the future. BNSF is hanging onto a couple of such lines nearby.
I'm curious now which of the BNSF lines are you thinking of?
Murphy Siding wrote: I'm curious now which of the BNSF lines are you thinking of?
Well, this isn't something I keep track of at all. In my neck of the woods, I "understand" -- that's a big qualification -- that four "lines" are unused, but not abandoned. One near Great Falls. Helena to Butte. Drummond to Phillipsburg. Homestake to Butte. On the last two, I notice that the rail and ties remain in place even though they have been unused for 20 years or more -- which suggests to me that there are original deeds out there with reverter clauses -- meaning salvage isn't an option unless they really want to lose the line completely.
1435mm wrote: The 1906 date is very sharply scribed in railroad history. After that date railroad expansion and heavy reconstruction nosedived. (This is old hat, my friend. A.C. Kalmbach and D.P. Morgan co-authored the article “The Golden Age of Railroad Construction”: in the February 1949 issue of Trains that described and analyzed this watershed quite sufficiently. Well, at least I thought they had!)
The 1906 date is very sharply scribed in railroad history. After that date railroad expansion and heavy reconstruction nosedived. (This is old hat, my friend. A.C. Kalmbach and D.P. Morgan co-authored the article “The Golden Age of Railroad Construction”: in the February 1949 issue of Trains that described and analyzed this watershed quite sufficiently. Well, at least I thought they had!)
They hadn't.
After recovery from the Panic of 1907, 1909, most railroads began a period of extensive renovation and improvement. There was an explosion of investment in rebuilding and construction. The Milwaukee made improvements totaling approximately $318 million. The Great Northern made improvements of approximately $122 million. The Northern Pacific spent approximately $180 million, The North Western spent $212 million. The Burlington spent $192 million.The Milwaukee laid approximately 2200 miles of additional track, compared to 507 for the NP, 1,264 for the GN, 363 for the "Q" and 802 for the North Western. The rate of return on the "new" investment average was .5% among the five railroads for this time period. The Northern Pacific suffered a negative rate of return of 4.2% on the money invested during this time; the Great Northern enjoyed a positive rate of return of 4.6%. The Milwaukee was just slightly better than the average of the five railroads, at .6%. This was during the period of government control, drought, and severe and sustained agricultural depression.
If the Hepburn Act had an effect on railroad investment, someone forgot to tell the railroads.
MichaelSol wrote: If the Hepburn Act had an effect on railroad investment, someone forgot to tell the railroads.
I have a feeling, with no proof whatsoever, that without the Hepburn Act the railroads would have built more than they did. I don't believe you could show what their investment would have been without the Act.
nanaimo73 wrote: MichaelSol wrote: If the Hepburn Act had an effect on railroad investment, someone forgot to tell the railroads. I have a feeling, with no proof whatsoever, that without the Hepburn Act the railroads would have built more than they did. I don't believe you could show what their investment would have been without the Act.
As I mentioned above, the contemporary literature for the period 1910-1914 shows railroads preparing to expand in all directions. Too, the additional investment in the period 1909-1924 shown for the roads above exceeds their investment, 1893-1906, by a considerable amount.
It may be true that no one can "prove" they wouldn't have spent more but for the Hepburn Act. But that's not an evidentiary question, because no one can prove a negative. The proposition is that the Hepburn Act caused a "nosedive" and yet it is the proof for that, not that even more may have been done, that is lacking in the statistical record.
I am sure you will see the logic that several railroads which invested heavily after 1908, and spent more than they did prior to the Hepburn Act, is a proof. And the "nosedive" went the wrong way for a nosedive.
Perhaps you meant to ask for proof of the nosedive and how it was connected to the Hepburn Act rather than the more obvious influences of the Panic of 1907 and the destruction of the European bond market, let alone the traffic losses to the Panama Canal after 1914?
MichaelSol wrote: Murphy Siding wrote: I'm curious now which of the BNSF lines are you thinking of?Well, this isn't something I keep track of at all. In my neck of the woods, I "understand" -- that's a big qualification -- that four "lines" are unused, but not abandoned. One near Great Falls. Helena to Butte. Drummond to Phillipsburg. Homestake to Butte. On the last two, I notice that the rail and ties remain in place even though they have been unused for 20 years or more -- which suggests to me that there are original deeds out there with reverter clauses -- meaning salvage isn't an option unless they really want to lose the line completely.
Another item is that BNSF doesn't want MRL to reach Butte, or more specifically Silver Bow and the UP. I think that if they abandon a line they have to remove bridges and perhaps seal tunnels too. This could eat up money frome the salvage of rail and ties.
BTW - Thank you Michael for the idea of purchasing older Moody's Transportation Manuals. I bought a 1968 Edition as the result of our dicussion and there is a fascinating amount of information in there. The price for recent issues put me off, but used older copies are quite reasonable.
beaulieu wrote: BTW - Thank you Michael for the idea of purchasing older Moody's Transportation Manuals. I bought a 1968 Edition as the result of our dicussion and there is a fascinating amount of information in there. The price for recent issues put me off, but used older copies are quite reasonable.
Those things are addictive. There is so much good information all in one place.
I love this thread.
A couple of thoughts to ponder. The question was raised as to why the eastern roads were more impacted by the economy of the 60's and 70's than the western roads. A possible factor was the traffic mix. As was pointed out, manufacturing in the east headed south and west during this time frame. Part of it was to avoid the highly unionized work force and partly to reduce other costs. Another factor was the disappearance of coal as the primary heating fuel. Up through WWII, coal was a major source of traffic for many eastern roads -- CNJ, LV, Erie, Lackawanna, PRR, CNE and the NH. Transport of coal for heating is different than transport for power plants or heavy manufacturing -- it lends itself to support what otherwise would be marginal or unprofitable branch lines.
Another factor mentioned but not fully appreciated was the cumulative impact of more than a decade of high inflation. Partly due to the oil price hikes in the 70s but mostly due to the way the Vietnam war was financed, inflation ran into double digits for a long time. A fascinating study is how the government caused the inflation on one hand while seeming to fight it on the other. I think this is where the impact of the ICC was most strongly felt. The government was being pressured, through the political process, to hold the line on costs using the regulatory process as a weapon. When costs in nominal dollars rise due to inflation, but a business cannot respond by commensurately raising its prices, it is losing real money. If nothing else, the process required to raise rates (documenting higher costs and requesting approvals that took months if not years to obtain) guaranteed the regulated industries would fall behind. It wasn't just the railroads. The electric power and telephone industries faced a constant cycle of rate hearings where one filing would finally be approved with the next either already pending or waiting to be filed. The public perception was that inflation was out of control. Rather than attacking the true cause (deficit government spending) the political process responded with either half baked or truly detrimental responses. Witness Nixon's implementation of wage and price controls or Ford's WIN (whip inflation now). At the same time, labor used their allies in goverment to attempt to keep pace with rising prices. For the railroads, and other heavy industries, it was a disaster. A previous poster mentioned that basically the railroads started eating the seed corn. By not maintaining the right of way and cutting back in investing (in real dollars) to replace the equipment acquired after WWII, it is not suprising that reliability went way down. That gave the trucks an opening to start winning over shippers who may have been more economically served by rail but were spooked by the real problems. And, just for fun, add in the post merger issues that many of the roads experieinced in that same time period.
A third factor is the quality of management. If you assume 1906 as a starting point, by the 50s there would have been no one in management at any of the railroads who had operated in a non regulated environment. Many of the managers would have, in fact, learned the ropes from managers who had only experienced regulation. A previous poster noted that regulation tends to be blamed for what are primarily failures of management. I could not agree more. While regulation imposes significant obstacles to innovation, strong managers can thrive. Weak managers build kingdoms complete with castles and moats to preserve the status quo.
My bottom line: an economic situation that was unprecedented in the managerial lifetimes of a marginal management force damn near wrecked a premier industry. The fact that the government created the economic situation and was partly responsible for the regualtory framework through which management had to operate, made everything worse.
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