Did UP+C&NW cause BN+ATSF?

Trains Magazine General Discussion
41

Fighting among themselves for what? Revenue? It was a regulated system.

Freight rates rose between 1970 and 1980 to the highest rates ever charged for railroad freight. Overall Railroad revenues in the 1970s reached all-time highs. Total industry revenues (adjusted) are still lower today than they were at the time of the passage of the Staggers Act. How were they “fighting for scraps”? The problem was they couldn’t fight for scraps or anything else for that matter. IT WAS REGULATED. So were trucks. And railroads and trucks were regulated in such fashion as to conform to the government’s perception of the proper economic niche and maximum efficiency within certain weight, distance, and service categories. And it wasn’t always wrong in that regard.

Now, since you’ve got this entire picture just about backwards, the effect of Staggers was to restore competition to the system. And THAT’S when you really saw railroads start to scramble over what had been their weakness all along: costs.

And that underscores the danger and damage of a regulated system or a monopoly: if the revenue is guaranteed, and the government is constantly intervening to “protect” collective bargaining contracts no matter how irrational or unproductive, there is little fundamental pressure to lower costs. It was easier to just either b**** and moan – or apply for a rate increase. And it was during th

42

You describe a merger that was poorly implemented – if he has the right of it – in the northwest. Some bad choices made. Gee, we haven’t seen that before or since. You still show no lasting damage except (in an earlier post) loss of jobs and capital investment that were going to go away anyway (see the Milwaukee Road).

The difference 40 years later is that BN salvaged the most useful of the GN and NP instead of a bankruptcy court simply pulling up the GN. (Again, if he has given us an accurate picture of GN’s pre-merger condition.)

The assertion that parallel lines did not compete in the days of the I.C.C. is sheer bunkum. While they might have been constrained from competing on price of identical services, they can and did compete with new services and new products. That’s why there was such excitement surrounding such as the Southern’s Big John jumbo grain hopper.

The point is that, for one reason or another, there wasn’t enough traffic anymore to justify three lines between the Twin Cities and Portland/Seattle.

The Milwaukee went away. The GN and NP were combined. Worked out fine. Not what a railfan would have ordered, perhaps, but at least useful railroading has persisted into the 21st century, which was in doubt for a while.

43

Well, you’ve been following me across a couple or more threads now apparently for the specific purpose of personally insulting me, trolling for responses, and then obfuscating about whatever the topic is at hand.

You have an opinion that attempts to justify events and conditions at a given point in time in history by a pre-arranged imposition on those events, of your opinion regarding outcomes and conditions 40 years later by a company that is not even remotely close in size and scope to the original BN, under economic conditions which are radically different, under a completely different regulatory scheme.

One of the useful aspects of merger proceedings was the requirement that merging companies specifically identify the proposed benefits and detriments if a proposed merger were approved. The ICC required these, under the watchful eye of the Justice Department which was tasked with supervising and analyzing the effect of mergers under anti-trust law, and the SEC required these for the purposes of full disclosure to shareholders since the “New Company,” invariably referred to as Newco in the merger hearings, was in effect issuing a new prospectus for a new company – which it would be if approved. These proposals would then undergo examination by SEC specialists who would examine the underlying assumptions to determine whether or not the promises to shareholders were realistic or, at the extreme, fraudulent.

So, by the time the record got through all the hearings and presentations and examinations and cross examinations, there was a thorough and detailed record of exactly what a merger was designed to achieve. Because, isn’t that the point, to ach

44

I misunderstood. I thought the discussion was about mergers. You appear to want to discuss Milwaukee Road for some reason or the effect of a given merger on somebody else.

Well, I thought the thread related to mergers, not to levels of traffic necessary to sustain profitable operations. “The point is …” wasn’t the point that I could see anywhere on this thread until you made the declaration.

How much “traffic” do you think would justify three lines? What levels make the difference? Why? How would that justify or excuse the intrinsic success or failure of a given merger?

There is an extensive, developed record from that era on the proposed merger. Approximately 500,000 pages of testimony and exhibits, and about 3,000 pages of findings and conclusions. At the time, I read through every single page. There is not a single mention of the assertion you now make.

Considering that the record is composed of studies, argument, and observations from over 15 railroads, and myriad other entities, and nobody saw your contention with the clarity you do, I suppose humility compels me to admit I didn’t see it either. Admittedly, they were encumbered by facts, but sometimes it takes a fresh look to see the truth.

My point, however, was the original BN merger more or less compelled subsequent mergers by that company, and that any given future merger, such as BN/ATSF, was always to some extent captive to decisions made earlier, or as in the case of UP/SP, for reasons internal to the corporate and financial dynamics of the companies invol

45

A reminder- this is from the forum policies section:

No personal attacks or name-calling. Please keep conversations cordial. We understand that there will be differences of opinion. Please don’t let those differences turn ugly. Accept that others might not have your same point of view, don’t sink to personal attacks. Nothing is gained by doing so.

I have edited out some things from a few posts. Let’s try to keep this civil and on track. If you disagree with someone, explain what you disagree about, and why. Childish name-calling, whether blatant or wrapped in snide remarks does nothing to promote discussion. I’m not going to take the time to read each post on this thread and wash out the name calling. From here on, on this thread, if your post violates the wording and/or the spirit of the forum policy reference above, I think I’ll just delete it, and send the author a PM.

-Norris user/moderator

46

ATSF+Conrail+KCS is one that should have happened. It would have been an end to end merger with a long haul.

47

Interesting - would have been kind of a rough ‘mirror-image’ of CN+IC, or maybe a southern version of that [EDIT] upside -down ‘T’ shape.

But it would not have included the Powder River Basin, Pacific Northwest, or the Southeast US, all of which are significant traffic sources and destinations.

  • Paul North.
48

Years ago, when the Main Office of BN was still in St. Paul, I heard this interesting tale regarding the BN-ATSF merger. A BN Computer Operations person was going to a computer systems conference and was asked, to his surprise, by someone from the Legal Dept to find out what computer systems were used by UP, ATSF, and SP. He was asked to do this “quietly” and to report back only to that person. What he found was the BN and ATSF used the same system. UP used a different system and SP used another different system.

Now, remember what happened soon after the merger when UP had all kinds of problems with many unhappy customers that had been served by SP?

RKS

49

What fun! As an insider at the time, here’s my take on it:

No, UP+CNW did not cause BN+ATSF. BN first made overtures to Krebs some time back in '88-89, as ATSF was staggering out of the failed SP-SF attempt and being circled by takeover sharks (Sam Zell et al). Krebs (and presumably the board) agreed BN was a good fit, but decided BN’s offer was too low. They found a white knight (Olympia & York) willing to finance an internal restructuring and Krebs split up the company (spun off land, mining, etc.) and went to work on the railroad. The new ‘pure rail play’ ATSF stock debuted at around $6 a share, was up to $11 a year or so later, and eventually fetched an offer of somewhere in the $30’s from BN. UP deemed this still too low so drove up the price to $45 or so, as others have correctly noted here.

Given this track record I find it interesting that some deem Krebs’ tenure at ATSF a failure. No, he did not have a warm personality nor did he get along with all his people. And, true, ATSF alone could not get its OR below 80%. But I believe that had more to do with the fact that ATSF had virtually no online coal or power plants, a weak chemicals portfolio, and was dependent on intermodal for 50% of its traffic and revenue, than with any significant management failings.

Think about it, 50% intermodal! For just about every other big class 1 at the time, intermodal was barely break-even traffic that was only taken on in order to sop up capacity they couldn’t use for anything else, and never amounted to more than 10-20% of the business. So the bit about BN wanting ATSF management is at least partly true, but it wasn’t just Krebs they were looking at. It was people like Carl Ice, who were figuring out how to make at least a little bit of money from intermodal. Also don’t forget that ATSF’s new computer syste

50

Thanks for those in-sights ! [tup]

  • Paul North.
51

The Jan/Feb 1998 issue of the defunct magazine Vintage Rails has an interview with UP’s past president, John Kenefick. He talks about, among other things, the UP-MP-WP merger and the thinking that led to it.

Jeff

52

A few comments

1: On ATSF being in bad shape. I’m no expert or insider, but as near as I can figure, this is railfan/railroad bias. ATSF was cash poor compared to BN, because a large part of their revenue source was Intermodal, but it was not in finacially tenuous condition. It was a good operation in the 1990s.

2: On Krebs, some would tell you that Krebs had nothing to do with Santa Fe’s success and it was all Haverty’s doing. Haverty was already gone of course by the time the merger came around. His work at KCS should suggest that he knows what he’s doing at least. Krebs was an SP guy and, again this is fan bias, but I have a hard time thinking that anyone that came up in the SP system really knows what they’re doing, at least from a leadership perspective. It’s a bias for sure, I have no idea if it’s true.

3: As I recall, in 2007, the State of Washington started floating the notion of finding SOMEONE to reopen Snoqualmie. The line is as I understand it railbanked. It’s a hiking trail, but banked. BNSF was at capacity on Stevens pass and through the gorge and apparently on stampede pass. So I find the notion that route consolidation was clearly the proper choice to get where we are today a little laughable.

As pure speculation, and I’m not an expert of any type in these matters, so please correct my ignorance, but it seems like end to end mergers or mergers of vastly different regions make more sense to the layman.

For an example. The Western Pacific and C&NW mergers for UP make complete sense to me. Getting from the Bay area to Chicago all on one railroad seems like a good thing. Similarly I can understand why BNSF makes sense. They don’t with the exception of somewhat in Texas and Illinois really provide competing routes.

I don’t however get the BN merger in the first place.

I mean I understand route consolidation and based on the information in this thread, it seems like th

53

A good resource for anyone interested in the history of both the BN and BNSF mergers is the book

“Leaders Count” by Lawrence H. Kaufman; copyright 2005 by BNSF Railway, published by Texas Custom Publishing and distributed by Texas A&M University Press. I don’t know if it’s still available from Texas A&M; in 2005 BNSF sent every employee a copy, I kept mine but it seemed that most of the employees threw their copies away (judging from comments I heard) so I’m not sure how many copies are still extant.

I found it to be worthwhile reading although somewhat biased (obviously) in favor of the carrier. I found a few factual errors also, with the biggest (to me) howler concerning the Minneapolis & St. Louis Railway. The book claimed that “In 1957, after 35 years in reorganization, the M&StL was merged into the CNW” (page 181). Actually, the M&StL completed reorganization in 1943 (20 years after entering receivership), and the railroad assets (only) were sold to the CNW on November 1, 1960.

The book’s biggest strength is that the author was able to interview many former and current railroad officials, and received some solid, candid replies from them. Some of the best information came from the late Robert W. Downing, who started as an Assistant Trainmaster on the GN and retired as BN Vice Chairman.

Mr. Downing was extensively involved with the BN merger studies and is quoted directly many times, other passages suggest they were based on his information.

Regarding the GN, the book states (but doesn’t quote him directly) that "Despite the best efforts of the GN managers and fairly stable volumes of freight as measured by tonnage, financial performance was lackluster at best. The operating ratio, which for a long time had been in the mid-70s, went above 80 in the late 1960s. During this period of declining railroad earnings, the GN was buoyed by non-operating income, mostly dividends and interest in other companies. The GN owned shares in pipeline companies, the

54

Back in action with a full tummy and a cold drink in hand (no Rule G here!):

First, a slight addition to my previous message: The quote about the GN’s finances was from page 138 of “Leaders Count.” Quotations in this message are also from same book.

Until reading the book I don’t think I had realized how far back planning for the present-day BN merger went; here’s a brief timeline to illustrate:

1955: Steering committee established to study potential for consolidation.

July 16, 1960: GN, NP, and CB&Q announce that they would seek federal approval to merge.

1961: Stockholders of all three railroads approve merger, merger application filed with ICC, hearings begin.

August 24, 1964: ICC examiner Robert Murphy approves merger plan subject to certain conditions.

April 27, 1966: Full ICC rejects proposed merger plan; GN & NP petition for reconsideration.

January 1967: ICC grants re-hearing.

November 30, 1967: ICC now approves merger; US Dept. of Justice successfully challenges merger in courts.

February 1970: US Supreme Court rules that merger can proceed.

March 2, 1970: Merger becomes effective; Burlington Northern begins operations.

From the book:

“The extended process wasn’t helpful from a financial standpoint, but “as a matter of getting the thing to work, long planning certainly was helpful,” said Downing. Officials of both railroads had more than enough opportunity to get to know each other, and Downing added: “They also didn’t know who was going to be boss, so they had to be nice to each other”” (page 150).

““There was a joint planning committee of the operating officers of both companies,” Downing noted. “They planned how this thing would work, realizing that they might well be the ones who had to do it after merger”” (page 151).

"Operationally, the new BN was able to implement a pre-merger study that determined the m

55

I have to be careful how I say this since I’m not retired yet … but here goes. I admire Rob Krebs enormously. There are only a handful of CEOs that transformed railroading like he did: Ralph Budd, Downing Jenks … it’s a small list.

RWM

56

YoHo

I was a low level staff guy with SP when Krebs was Vice President Operations. He was obviously very smart and very dedicated to running the railroad right. They one time I dealt with him on a stressful issue he treated me entirely correctly. I continue to hold him in high regard

I can also recommend as men of exceptional quality John Ramsey, C. T. Babers and Rollin Bredenburg. This list does not include all of them by any means. SP had a long established management training program and had more than their share of good, smart operating people.

W.J. Lacy ruled by intimidation. He spread the fear that you seem to be concerned with and frankly he accomplished far less good in my opinion than any of the others I have mentioned.

The worst problem at SP was at the very top, Ben Biagiani, and his hand picked Board of Directors. In the late 1970’s and early 1980’s he tried to feed two capital intensive businesses, the railroad and what became Sprint communications, plus he bought Ticor title insurance just before the depression of 1980-82 destroyed Ticor’s earnings.

He would have been better to have passed Ticor and spun off Sprint to stockholders early to let it access the capital markets directly. Oh to rewrite history with 20-20 hindsight and without the responsibility!

Mac

57

This is pretty much corroborated by the lengthy article that appeared in Trains in the mid-to-late-1990’s or so by a former ATSF marketing guy (whose name I cannot remember). He described how it ‘sliced and diced’ (my term) the InterModal traffic into something like 17 different market segments with regard to service needed in terms of schedule and transit time, priority, consistency/ reliability, rate/ price, etc., and then solicited and priced each so as to maximize the “revenue yield” - an early railroad version of what the airlines do with flight/ seat prices and some other businesses as well today.

  • Paul North.
58

I was a member of that ATSF Intermodal marketing team, though not the individual behind the article. Segmenting the traffic based on service requirements and what it would pay was part of the trick, but the other part was actually using that knowledge to generate operating savings while at the same time doing a better job of meeting customer expectations than our competitors. The fact that our operating department was able to do both of those things simultaneously led me to believe that they were one of, if not THE, best in the industry in the '90’s. Furthermore, both the marketing and operating teams were enabled by a superb costing group which gave us the information to make intelligent decisions - and that’s where Carl Ice came from.

On Krebs v. Haverty, they both have their loyalists and detractors, but personally I feel that the real problem was that they were both good, but had different styles, and in the end, Santa Fe wasn’t big enough for the two of them. Haverty’s decision to bring back the red-and-silver paint scheme galvanized morale at a time when it was probably near an all-time low, and he provided the personal touch needed to seal the J.B. Hunt deal that revolutionized the industry. But Krebs was the visionary who put us into “quality school” not because it was the latest fad, but because he really believed it would make us a better company (and it did), and who launched the “build it and they will come” capacity expansion that also proved to be correct.

I never would have believed anyone could work in marketing/sales in the rail industry and turn away customers, but that’s exactly how it was in the mid-90’s. We had a long line of unhappy SP, Pacer, and UP customers outside our door, and the M&S people’s job was akin to that of a nightclub bouncer, deciding who would get in and who wouldn’t. Krebs, Haverty, and countless others all share in the credit for that.

As for SP, well, I always

59

[quote user=“CNSF”]

What fun! As an insider at the time, here’s my take on it:

No, UP+CNW did not cause BN+ATSF. BN first made overtures to Krebs some time back in '88-89, as ATSF was staggering out of the failed SP-SF attempt and being circled by takeover sharks (Sam Zell et al). Krebs (and presumably the board) agreed BN was a good fit, but decided BN’s offer was too low. They found a white knight (Olympia & York) willing to finance an internal restructuring and Krebs split up the company (spun off land, mining, etc.) and went to work on the railroad. The new ‘pure rail play’ ATSF stock debuted at around $6 a share, was up to $11 a year or so later, and eventually fetched an offer of somewhere in the $30’s from BN. UP deemed this still too low so drove up the price to $45 or so, as others have correctly noted here.

Given this track record I find it interesting that some deem Krebs’ tenure at ATSF a failure. No, he did not have a warm personality nor did he get along with all his people. And, true, ATSF alone could not get its OR below 80%. But I believe that had more to do with the fact that ATSF had virtually no online coal or power plants, a weak chemicals portfolio, and was dependent on intermodal for 50% of its traffic and revenue, than with any significant management failings.

Think about it, 50% intermodal! For just about every other big class 1 at the time, intermodal was barely break-even traffic that was only taken on in order to sop up capacity they couldn’t use for anything else, and never amounted to more than 10-20% of the business. So the bit about BN wanting ATSF management is at least partly true, but it wasn’t just Krebs they were looking at. It was people like Carl Ice, who were figuring out how to make at least a little bit of money from intermodal. Also don’t forget th

60

Just to clarify, I’m quite sure there were many intelligent if not brilliant railroad people at SP, I guess my bias is No money for new units, pulling up Track one at Donner, because they couldn’t afford new rail on the Sunset, etc etc.

SP in the 70s and 80s feels like a railroad on the brink.

I didn’t know about Ticor, knew a bit about Sprint.

Would spinning off Sprint earlier even have worked? Given the way AT&T fell out?

Still, if you look at a Fiberoptic Trunk Map of the Wester United States, where those route go, it looks eerily similar to a railroad route map and for that, you have to credit visionary. Just think, our posts about trains on the internet are probably being bounced around cables that were installed by those railroads.

So, I hate to ask people on the Day before Thanksgiving to devote time to educating little ole me on the internet, but I’m curious to see a bit more debate on the GN vs. NP routing. It seems that in fact the merger team spent the better part of a decade if not longer figuring out which route would result in better efficiencies, but that maybe all of that was based on a false assumption?