Chicago and North Western, 70's style

[MP173]

As many of you know, I received my 1972 Moody's Transportation Manual this week.  It contains 1800 pages of dry, boring financial railroad, airline, and trucking data and discussion.  I love it so much I just ordered 1980, 1990, and 1998 editions.

Based on an earlier thread about the 70's and "what happened", I am looking at three railroads in the midwest - Milwaukee, Rock Island, and CNW.  Statistically, the similarities between the three railroads are striking. Route miles were similar (Rock was actually a bit smaller with 7500 miles vs around 10-11000 for the others). 

All three had revenues around $300million per year and all had operating ratios at 80% give or take a point or two.  As far as maintennance expenditures, all three spent about the same percentage of revenue on maintaining equipment and ROW.  The Rock had a lower percentage of revenue in "wage ratio" 42% vs 46-47% for the others.

When I look at the maps of the three, the CNW seems to just blanket the northern midwest with lots of branchlines...Moody's reports only 27% of their route miles were "mainlines".  All three had commuter service in Chicago, hefty investments and expenditures, no doubt, but the CNW indicated they actually made a profit of $1.6 million on $22million revenue in 1971. 

All three had routes from Chicago to Omaha (UP) and to Minneapolis/St Paul.  Looking at the maps, MILW and Rock went longer distances (average hauls were 399 miles for MILW and 417 for ROCK, but only 280 miles for CNW.  Revenue per carload for MILW and Rock were $302 and $288 but only $212 for CNW.

CNW seems to have had a feather in their cap with the superior route to the UP. 

But....what else was a factor in them surviving while the Rock and MILW entered bankruptcies and finally ceased to exist?  On paper, it sure doesnt look like CNW was a superior railroad, yet they survived.

Why?

ed

[CSSHEGEWISCH]

Having attended and graduated from Northern Illinois University in De Kalb in the early 1970's and observing the North Western from that vantage point, I would say that the through traffic on the Chicago-Nebraska main line was a major factor in C&NW's survival.  Traffic was heavy and run-throughs with UP power were not uncommon.

[MichaelSol]

This isn't in Moody's, but consider that by 1977, according to the FRA, C&NW had deferred capital investment and deferred maintenance totaling $990 million -- the highest of any Class I railroad in the country. Perhaps deferring maintenance was a survival strategy that worked ...

[nordique72]

One small yet important factor that allowed the CNW to survive was their ability to interchange runthrough freight with the UP via Fremont, NE- bypassing the Omaha-Council Bluffs terminal. Even though the CNW was deferring maintenance all over their system in the 1970s- the Chicago-Omaha main was one of the places they actually were sinking money- new ballast and welded rail was installed to help promote the new "Falcon Service" which utilized the Fremont connection, as well as other run through freights and Hanna, WY coal trains- these capitol improvements helped secure CNW as the UP's preferred interchange partner (also CNW's later entry into the PRB with UP's help also prolonged it's life- but the Fremont connection was the original catalyst.)

[MP173]

Dont have my 1980 Moody's yet, so I cant really take a look at their MOW expenditures during the 70's, but in 1971 they were spending $3686 per equated mile vs 4636 for Rock and $4106 for MILW. 

You might be correct about the deferred maintenance.  I can check their number vs UP or Southern for comparison.

ed

[fuzzybroken]

This looks like a fascinating topic...

Speaking of, is there any way to "watch a topic" without replying???

[MP173]

Ok, back from lunch and cracked open the book for more facts regarding the deferred maintenance:

As previously stated:

1971   MILW  $4106 per equated mile, 16.6% of Op Rev.

          ROCK $4634/mile, 13.4%

          CNW  $3686/mile  14.0%

Now compare to:

          MoPac $6326/mile, 15%,  8904 miles

          UP       $7061/mile, 12.4% 9474 miles

         SOU      $9519/mile, 16.8%  6023 miles

As a percentage, CNW was pretty much in line with the others, however, the real numbers showed the healthy carriers were spending quite a bit more per mile, particularly Southern.

ed

 

[MStLfan]

Is there also any relation with the ratio of branchlines versus mainlines? UP did not have many branches compared to C&NW.

greetings,

Marc Immeker

[Datafever]

Ok, back from lunch and cracked open the book for more facts regarding the deferred maintenance:

As previously stated:

1971   MILW  $4106 per equated mile, 16.6% of Op Rev.

          ROCK $4634/mile, 13.4%

          CNW  $3686/mile  14.0%

Now compare to:

          MoPac $6326/mile, 15%,  8904 miles

          UP       $7061/mile, 12.4% 9474 miles

         SOU      $9519/mile, 16.8%  6023 miles

As a percentage, CNW was pretty much in line with the others, however, the real numbers showed the healthy carriers were spending quite a bit more per mile, particularly Southern.

ed

 

I notice that while the dollars per mile figure is larger for MoPac, UP and SOU, the percentage of operating revenue is about the same.  What is the significance of that? 

[MichaelSol]

These figures are misleading, and can be very misleading.

Firstly, MOW costs for class 1 branchlines were quite low. Yet, by this use of figures, the underlying assumption is that thousands of miles of that line were clamoring for the full share of maintenance dollars.

Further, railroads spent their money on their mainlines in that era. Many thousands of miles of branch were left to deteriorate with intentional abandonment down the road.

Using your figures this way, a railroad with thousands of miles of branchline will "appear" to be spending very little per mile for maintenance, whereas a road consisting of a low percentage of branchline will look like they are using platinum on the rails. Yet .... they can be spending identically on those lines they both consider necessary for efficient operation.

"Per mile" figures will treat a low branchline railroad quite well, and make a high branchline road appear chintsy -- even if both rr's were maintaining everything exactly to FRA standards for class 1, 2, 3, 4 etc.

 

 

[zardoz]

Dont have my 1980 Moody's yet, so I cant really take a look at their MOW expenditures during the 70's, but in 1971 they were spending $3686 per equated mile vs 4636 for Rock and $4106 for MILW. 

You might be correct about the deferred maintenance.  I can check their number vs UP or Southern for comparison.

ed

You mention the maintenance costs; what also was happening was the locomotives were suffering from an extreme lack of repairs.  We would show up at the diesel ramp and get 5 or 6 units for our train and have only 2 or 3 be working. and if more were running, usually they had other problems (would not make transition, would not load, etc).  I think the ramp gave us all those units just to get them out of their facility for a while because they needed the room.

We had reason to call it the Cheap & Nothing Works. 

[bobwilcox]

Going into the 1970s the C&NW focused on three things. 

1. Build traffic moving between the UP and Chciago interchanges. Everyone knew the CRIP merger was not going to happen and we had icy relationships with the UP.  Larry Provo and John Kennifeck found common interests and this relationship was slowly rebuilt over the next decade.  The Q had been a partner for the UP but that had gone away with the BN merger.
2. Stop the financial drain from the Chicago commuter service.  This was resloved by the end of the decade with the establishment of the RTA.  Many of our Class I peers thought we were crazy for going after government money.  We thought we had to do it or go out of business.
3. Eliminate about 6,000 miles of branchlines.  In 1969 we determined 60% of our track was producing 20% of our revenue.  We went after the biggest losers first while we told shipper which lines we wanted to keep and upgrade if they would build multi-carload grain and fertilizer facilities on those lines. 

This allowed us to survive after a fashion untill we were able to succesfully access the Powder River Basin.  We took a stab at this in the early 70s at the time of the contriversal ICC session re Powder River access.  We were going to upgrade our line across Northern NE but couldn't figure out how to finance the project.  Later, when Ed Burkhardt came into Marketing, he brought the project back from the dead and we found someone in Omaha with a good credit rating.

[Bob-Fryml]

I seem to recall reading in Trains Magazine, sometime during the mid-1970s, that the Federal Government passed a series of legislative acts - the so called "3R" (Railroad Rehabilitation) and "4R" (Railroad Rehabilitation and Revitalization) Acts - that made taxpayer financed, low interest loans available to financially strapped railroads for infrastructure maintenance and upgrades.  The Milwaukee Road and the Chicago & North Western were able to take advantage of this program, but for some reason the Rock Island wasn't.  The transfusion of federal money into the C.& N.W. plant coupled with the ongoing abandonments of little used branchlines was enough to keep this railroad going until they were able to tap into the coal-rich Powder River Basin cash cow. 

[MP173]

Bob:

Thanks for the response.  I was hoping you would jump in and give us your view of things.  I am surprized that things were ICY with UP.  Why was that?  The CNW's move for government money in Chicago was brilliant.  Metra today is a class organization and the foundation obviously was the great commuter service developed by CNW, Burlington, Rock, and others.

The elimination of those branch lines must have been quite a task, with ICC's attitude at the time.

Michael, regarding the "misleading" comment...I am supplying what i have.  I do not have records pertaining to individual lines.  However, each railroad involved had quite a system of branch lines, most of which were not very productive.  I am quite aware of the lack of $$ spent on branchlines as I watched "my line" go from 100 car trains at 35mph to 5mph over a couple of decades and then finally be pulled up.

Capital was concentrated on those line which were critical to survival.  My next question is why didnt the Milw Omaha line get more of the UP's business?

ed

[MichaelSol]

Michael, regarding the "misleading" comment...I am supplying what i have.  I do not have records pertaining to individual lines.  However, each railroad involved had quite a system of branch lines, most of which were not very productive.  I am quite aware of the lack of $$ spent on branchlines as I watched "my line" go from 100 car trains at 35mph to 5mph over a couple of decades and then finally be pulled up.

What I mean is, it is mathematically misleading, because of an erroneous assumption. There was, and is, a considerable difference -- and the figures are contained in Moody's -- as to how much of a given system is "mainline" and how much "branchline."

This is how much difference it makes. Take a hypothetical.

Railroad A is 70% mainline. Railroad B is 30% mainline. Mainline requires $10,000 per mile to continue as Class IV track, branchline requires $2,000 per mile to continue Class I track.

Railroad A is 10,000 miles and Railroad B is 10,000 miles.

Railroad A's normalized maintenance budget should be $76 million annually. [7,000 miles of Class IV track at $10,000/mile + 3,000 miles class I track at $2,000/mile].

Railroad B's normalized maintenance budget should be $44 million annually. [3,000 miles of Class IV track at $10,000/mile + 7,000 miles of track at $2,000/mile].

Railroad A budgets $60 million. Railroad B budgets $44 miilion

Using your methodology, Railroad A is spending $6,000 per mile average, and Railroad B is spending $4,400 per mile, average.

But, Railroad A is the one deferring maintenance, because it should be spending $7,600 per mile to maintain its equivalent track exactly at the same level as Railroad B is. And Railroad B is not deferring maintenance at $4,400/mile.

But, by the simple expediency of using it, your methodology compels you to think, erroneously, that Railroad B -- at $4,400/mile -- is skimping on maintenance, whereas Railroad A -- at $6,000/mile -- is doing some great job.

The methodology of system averages compels exactly the wrong conclusion about each railroad -- a 100% error rate.

BN, for a real world example, had about 70% mainline, MILW had about 30% mainline.

 

[Anonymous]

Why did C&NW survive, and its brothers CMStP&P and CRI&P fold?

I think a case can be made that C&NW simply had better brains in management than the others.

[greyhounds]

Why did C&NW survive, and its brothers CMStP&P and CRI&P fold?

I think a case can be made that C&NW simply had better brains in management than the others.

Well, brains and guts.  It takes both.

They (C&NW) figured it out (brains) and then had the guts to fight it out.

 

 

[gabe]

Ed,

Truly awesome thread.  I love it.  As an aside, I just settled my big case and hope to have more time available.  Next time I go to South Bend, which should be soon, I hope we can take a look at your hill again.

As to your post, no one has mentioned the CNW employee buy out.  How has this changed things? 

I have often stated on here. in all sincerity, that I am a novice.  While I often disagree with those such as Mssrs. Sol and Futuremodal, I have to admit, they know more of the subject than I.  So my concentration on the buyout and "random chance" may be misplaced.

Yet, as an historian, I think you have to consider things such as random chance as evidenced by an employee buy out.  Had coal movements and the employee buyout not happened, don't you think that we would be referring to the CNW in the same breath as our beloved MILW and Rock?

To emphasize this point, I am not sure that CNW had the best Omaho - Chicago route.  I think the Rock was superior in that regard, if for nothing else its location for Chicago interchange traffic.  I think of the three railroads, two were going to fail.  Under similar circumstances, I think it could have been the CNW, were things just a little different.

Gabe

P.S.  Surprisingly, I have some familiarity with CNW in its St. Louis line.  It always did things a little different, which I liked.  It was really fond of LONG trains. 

[greyhounds]

Ed,

Truly awesome thread.  I love it. 

Yes!

 

Yet, as an historian, I think you have to consider things such as random chance as evidenced by an employee buy out.  Had coal movements and the employee buyout not happened, don't you think that we would be referring to the CNW in the same breath as our beloved MILW and Rock?

To emphasize this point, I am not sure that CNW had the best Omaho - Chicago route.  I think the Rock was superior in that regard, if for nothing else its location for Chicago interchange traffic.  I think of the three railroads, two were going to fail.  Under similar circumstances, I think it could have been the CNW, were things just a little different.

Gabe

Oh, the C&NW "Issue" was in doubt.  When the UP decided it needed to get direct access to Chicago from Omaha it looked around and decided the best access was VIA the Rock Island.

The C&NW knew this was a dagger drawn at its heart.  It fought knowing that.  Every damn way it could.  And it won.  Big Time.  There was only room for one in the lifeboat.

And the C&NW employees who bought into the "Employee Ownership" have some "really good money" in their pockets.  Victory often goes to the one who dares.  'Course you gotta' be a little bit reckless and willing to roll the dice, all the while calculating the odds without making foolish bets.  C&NW did it and won.   

[MichaelSol]

CNW seems to have had a feather in their cap with the superior route to the UP. 

CNW and MILW agreed, during their merger proceedings, that MILW had the superior route by the acknowledgement, in the proceedings, that MILW ran an hour faster, freight, Omaha to Chicago.

What, exactly, constitutes a "feather"?

 

[greyhounds]

CNW seems to have had a feather in their cap with the superior route to the UP. 

CNW and MILW agreed, during their merger proceedings, that MILW had the superior route by the acknowledgement, in the proceedings, that MILW ran an hour faster, freight, Omaha to Chcago.

What constitutes a "feather"?

 

Well vis a vis the Milwuakee the "feather" was the Fremont cutoff that bypassed Omaha on the C&NW.  Getting between Chicago and Omaha, in and of itself, without the added benifits provided by the Rock Island route, meant nothing.

Saving an hour to Omaha was nothing compared to the benifits of the Fremont cutoff. Rock Island was first choice, Milwaukee Road obviously wasn't second.

 

[MichaelSol]

CNW seems to have had a feather in their cap with the superior route to the UP. 

CNW and MILW agreed, during their merger proceedings, that MILW had the superior route by the acknowledgement, in the proceedings, that MILW ran an hour faster, freight, Omaha to Chcago.

What constitutes a "feather"?

 

Well vis a vis the Milwuakee the "feather" was the Fremont cutoff that bypassed Omaha on the C&NW.  Getting between Chicago and Omaha, in and of itself, without the added benifits provided by the Rock Island route, meant nothing.

Saving an hour to Omaha was nothing compared to the benifits of the Fremont cutoff. Rock Island was first choice, Milwaukee Road obviously wasn't second.

Odd that neither company saw that as a particular advantage accruing to the proposed merger.  Perhaps they didn't understand the situation as well as you did.

 

[snagletooth]

Didnt UP court the MLWK for awhile? If so, that make CNW the third choice

[nanaimo73]

Ed, thanks for starting this thread.

SOU      $9519/mile, 16.8%  6023 miles

As a percentage, CNW was pretty much in line with the others, however, the real numbers showed the healthy carriers were spending quite a bit more per mile, particularly Southern.

 

If the Southern had a major project underway, like the rebuilding of the Rathole Division, would it show up in these numbers, or somewhere else ?

[bobwilcox]

CNW seems to have had a feather in their cap with the superior route to the UP. 

CNW and MILW agreed, during their merger proceedings, that MILW had the superior route by the acknowledgement, in the proceedings, that MILW ran an hour faster, freight, Omaha to Chcago.

What constitutes a "feather"?

 

Well vis a vis the Milwuakee the "feather" was the Fremont cutoff that bypassed Omaha on the C&NW.  Getting between Chicago and Omaha, in and of itself, without the added benifits provided by the Rock Island route, meant nothing.

Saving an hour to Omaha was nothing compared to the benifits of the Fremont cutoff. Rock Island was first choice, Milwaukee Road obviously wasn't second.

 

You are right about Fremont.  The point was to set up an through route between the UP's hump yard at N. Platte and hump yards east of Chicgo on CR (Elkhart), NW and CO/BO (Willard).  What the lawyers said to win their then dead merger case did not come up. Lawyers say a lot of things defending their clients interests.

[bobwilcox]

My next question is why didnt the Milw Omaha line get more of the UP's business?

 

It was my impression they never asked for the traffic.  I was working with the Green River soda ash shippers over a 13 year period.  I knew my two significant competitors were the BN and IC. As I recall the MILW's service or car supply into Green River was never a factor.  I also was working on SK potash off the DWP at Duluth going to Chicago connections.  The traffic was handeled by us and the SOO.  The BN was out of the picture because of their truck/rail train and the MILW just never got the customers interested in what they had to offer.

[MP173]

Lets take a look at the terminal facilities in the Chicago area. 

Proviso Yard and Bensenville Yard seem to be pretty similar yards.  I realize quite a bit of traffic today is run thru.  When did that practice begin?  Both CNW (Proviso) and Milw (B'ville) had a severe disadvantage by being so far north in the Chicago mess.  Both had to get down to the south side to connect with Conrail, NS, or CSX.

Not exactly sure how that worked, with the trackage rights over the IHB or BOCT.  Of course CSX owned BOCT and Milw owned part of IHB (correct me if I am wrong).

Perhaps someone can shed some light on the IHB routing or other routings used thru Chicago.

Gabe...glad your case is over.  Hope you did well.  Come on up and fill me in on the details.  I will differ with you regarding Rock having the best routing.  Sure, the South Chicago issue would have been huge, but the routing thru the Quad Cities was brutal.  Did you read the issue in Trains called "The Big Train".  Author really covers the problems with the Rock line well.

Of course UP's cash could have made the Rock line work.  That is the issue we will never know.

I am starting to dig deeper into Moody's and take a look at the other carriers, particularly the well run lines such as Southern and MoPac.  The line that really surprized me was the Rio Grande.  After this thread runs its course, perhaps we will turn our attention there.

Gotta get to work.

ed

[MichaelSol]

  What the lawyers said to win their then dead merger case did not come up. Lawyers say a lot of things defending their clients interests.

A merger case is not an adversarial proceeding, it is an effort to combine the best features of the applicant companies. The developed record in that case is thorough, and based on actual numbers which both companies jointly developed to present a best case scenario.

[gabe]

Rio Grande?  Where are we going to find someone on here who knows something about the Rio Grande?

[wjstix]

Well for the Rock Island...a Civil War general once said that a big part of winning a battle was "get there first with the most" (men, supplies etc.). Rock Island tended to get there last with the least - they'd be the 3rd or 4th railroad to enter a city, and usually had to try to squeeze in their yards and pick up business wherever they could, and then being a latecomer their mainline routes tended to be slower and less direct. If there was a big profit in moving freight from Iowa to Oklahoma the Rock probably would have been in great shape!! Plus the "last straw" for the Rock was the strike that started in I think 1978 or 79. Employees really didn't believe the railroad would just fold rather than give in, but I guess they were wrong.

MILW had been in and out of bankruptcy quite often over the years. Some people would argue their pacific extension wasn't really a great idea. They were the third or fourth transcontinental to go thru basically the same area of the northwest, so they picked up very little business between say eastern Montana and the coast.  

As mentioned by someone earlier, the fact that CNW/CMO's remote "Cowboy Line" in the west ended up being near the Powder River coal, and that they were able to tap into coal shipping, probably was a huge huge plus for them.