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.
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.
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.
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, two things, first the railroads don’t operate in a vacuum, and second they are a network industry. If any significant part isn’t working well the whole industry eventually gets sick. Its like a football team with a star quarterback and top receivers, and an offensive line that couldn’t keep your grandmother out of their backfield. The rot really got bad right after the end of the Korean War. The steel industry started to decline, there were major strikes in the coal mining industry and in the steel industry. Inflation which began during WW2 was slowly strangling the railroads, those with operations requiring a large number of people (passenger trains and switching operations) were hit first and hardest. Slow reaction by the ICC for rate increases eroded assets from the railroads that had been acquired long ago. Both the Mighty PRR and NYC were near death, surviving only because of all their non-rail assets. The ability of stockholders to put their railroads into non-railroad holding companies, may have been the final straw, the stockholders were abandoning ship in the only way they could keep much of their assets. When the Penn Central went down the problem finally got the attention it required.
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).
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.
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!)
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The criticism of pre-Staggers rail regulation seems fairly justified to me. Yet, this regulation was with the industry wel
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!)
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The criticism of pre-Staggers rail regulation seems fairly justified to me. Yet, this regulation was with the indu
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 Mar
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.”
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 Ci
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:
Too much ROW due to build ups in earlier eras.
Movement of freight from the rail systems to much more efficient truck transportation.
Loss of revenue in passenger service.
Inability to rapidly discontinue the passenger service. The end of the mail contracts was th
e final bullet.
Full crews which gained significant wage increases during the 60’s/70’s which were not recovered in the rate making process.
Inability to reduce fixed costs, which coupled with a rising variable cost factor and flat revenue led to squeezed margins.
Inflationary era of the 70’s.
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.
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.
One thing that hasn’t been mentioned is Inflation at better than 10-15% a year, which hit many regulated industries hard during the 70s since they couldn’t raise prices to keep up. Along with inflation came very high interest rates for both loans and savings and I seem to recall that part of the ‘deal’ for taking us off the gold standard was allowing Americans to save funds in foreign-owned U.S. banks in foreign currency accounts. Investors could get much higher returns on CD’s or foreign currencies with very little risk. Regulated Industry’s returns were well below the cost of borrowing money. Another sector hit hard was public education. State Universities were giving faculty and staff rasies of 3% a year while non-regulated service sector raises were running at 13%. As a result they lost a lot of their best people. Something similar may have been occurring in non-union & management positions in the steel and railroad sectors.
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 co
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.
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 ?
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 dur