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
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.
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.
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."
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.
S. Hadid
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
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
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
Mr Hadid-
The Hepburn Act came in during 1906. Without it, would the turning point have happened later ?
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.
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
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.
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
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