Did loose car railroading* ever really make economic sense for the RRs, as in did they actually make a profit on it? Is your answer different depending on the era, say 1950 vs. 1980? Could it have been profitable if RRs had been allowed to merge into mega systems back in the '50s?
Edit: In the 20th Century, with the advent of the trucking industry and interstate highways, did it still make sense.
Of course the system worked. Billions of dollars were made by many an investor as well as employees from 1830 on. Local and regional economies, mining operations, agriculture, and manufacturing efforts all flourished. If it hadn’t happened we wouldn’t have railroads today. And there were always mergers and acquisitions, too. There was the stringing together, end to end, structures like the New York Central across the Empire State in the seminal period pre1850, as a perfect example, and every other railroad since then be it side by side or end to end mergers and buyouts. So many things changed in society and business and technology after 1950 that railroads had to change. Thus: the evolution to what we call railroading today.
Edited my original post for clarity. Sorry for the confusion. I actually meant in the 20th century in competition with trucks. Of course you can make a profit if you don’t have any competition. I would say that it did not make sense once interstate highways and larger improved trucks came on the scene.
I think it says a lot that of the USA’s only 4 surviving Class 1s (KCS is a different animal), 2 were coal haulers and the other 2 were primarily originators of long-haul traffic and bulk commodities. All of the eastern roads that depended on loose car destination traffic were in financial distress by the early 20th century and eventually nationalized.
That’s a bit of an oversimplification, at best.
Carload traffic is profitable. What is changing is that car load traffic is mostly commodity specific, the general service, all purpose box car is just a small piece of the pie now. It wasn’t being carload centric that drove PC under. They were the biggest intermodal carrier on the planet in their day.
BTW, NS is only 25% coal. About the same as Conrail was. CSX is a bit more, but not much.
My answer still stands…by the mid 20th Century railroads were what they had advanced to being based on what happened before. And the changes after the mid 20th Century are as I stated. In reality, trucks invaded single carload and less than carload traffic in the mid to late 1920’s; WWII threw everything upside down; post war expansion included rail cars as TOFC was added. Then larger engines, larger cars, and a whole host of other technoligical advancements for rail, manufacturing changes in industry, etc. led to what we have today. The past has to be incorporated to get to the mid points and then to today. There are a lot of great books out there on tihs subject, check with your local library.
The Eastern US “loose-car” railroads were not in financial distress by the early 20th century. They were generally OK until the Great Depression - did OK during WW II, and some for a while shortly after. They were done in by a combination of factors, mostly the Interstates and trucking, and regulation, together with a declining manufacturing base, short hauls, and a lot of unprofitable passenger service. Once those handicaps were shed, ConRail did OK - it had some coal and intermodal, but it was a loose-car railroad as much as anything - it just got smart and selective about which loose-cars it chose to handle, and at what rates. There are also some New England railroads that were not nationalized, namely the D&H and today’s Pan Am/ Guilford group, though they didn’t miss that by much. Railway Man has pointed out - and others have confirmed - that the supposed ‘long-haul’ of the western US roads was largely a myth until the last half of the 20th century. The carload traffic was largely within or between regions of several hundred miles, not transcontinental - goods such as lumber, coal, various ores, some manufactured goods, etc. - Paul North.
Also, remember that the genius of those loose cars is that you can put a whole lot of them together that are going the same way and haul them pretty cheaply compared to the cost of 100 cab/trailers and 100 drivers. The downside is that to realize the efficiency you have to wait until you have collected your trainload, and this delay is unacceptable to some shippers. That business goes to the truckers and probably always will.
The railroads still make out on loose-car railroading; in fact, I think it comprises the majority of the business.
Marketing. Marketing. Marketing. DELIVER!
For many years the railroads thrived on loose car railroading, or at least those that had enough traffic did. And it helped that there were a lot of cars, since volume is what the railroads need. Today the majors prefer to get volume by the trainload (unit trains, intermodals), and sometimes seem to be demarketing the loose car business. After all, it is more legwork for the sales people and lacks the prestige of a multi-million dollar account. But the regionals and short lines, who are not too proud to make a buck wherever it can be found, seem to find it good business.
Returning to the volume theme, a number of factors have emerged to make loose carloads less popular. First of all, freight cars have become bigger so where a shipper may have been shipping three cars a week, now it will all fit in one car, or of course three trucks. Trucks will become the obvious choice if he is only shipping a partial carload. Now consider the origin/destination points under the old order. Many cities had industrial areas with an extensive maze of tracks. You would find local jobs running around, handling lots of cars in a shift. Today these areas are often almost shells, with lots of track to maintain for a few remaining customers. Terminal switching tends to be one of the biggest costs to the railroad for a given movement, and the cost per car goes up as the number of cars dwindles.
For the majors, hump yards were almost a necessity for the loose car business. They are expensive to build and maintain. As more unit trains bypassed them the costs had to be spread among fewer and fewer cars.
So you can see why what was once the bread & butter for the railroads has become less attractive to them. It is far easier to lift a solid train from a grain elevator or intermodal yard and haul it 900 miles to a single destination. But it is arguable whether turning their back on loose cars is a wise decision.&nbs
Loose car railroading “worked” when it was the best solution. It “worked” in the same way clipper ships or stagecoaches worked. When there was no other way to get tea from India except the clipper ships, they worked fine. When there was no other way to get people/mail from Dodge City to Denver, the stage worked fine. When better systems appeared the clipper ships and stages went under.
The same thing happened with loose car railroading. (Although, it does still have a relatively small niche in the North American freight market.)
The problem with loose car is that it inherently unreliable and slow. Please note that I said “Inherently”. It can not be fixed with better management or more dedicated emloyees.
Loose car systems “Inherently” involve a whole lot of “events”. A local has to pick up the car (expensive) and bring it to a yard. In the yard the car has to be switched into the proper block. The block has to be switched in to the proper train. The car will go through other yards and be switched into other blocks and trains. Finally, another local or switch crew will deliver it to the receiver.
Each event has a probability of success. Each event also has a probablity of failure. The local’s engine is going to break down. There will be a derailment. Snow happens. Cars go bad order. You can work to minimize these bad things, but you can not eliminate them.
String enough events together, which is what has to happen with loose car systems, and the probability of a failure en route increases greatly. If you string 10 events together, and each event has a 95% chance of success, you’ve got a 50% chance of some event failure happening somewhere along the line. If a block is forwarded from a yard once a day and the car doesn’t make
[quote user=“cx500”]
For many years the railroads thrived on loose car railroading, or at least those that had enough traffic did. And it helped that there were a lot of cars, since volume is what the railroads need. Today the majors prefer to get volume by the trainload (unit trains, intermodals), and sometimes seem to be demarketing the loose car business. After all, it is more legwork for the sales people and lacks the prestige of a multi-million dollar account. But the regionals and short lines, who are not too proud to make a buck wherever it can be found, seem to find it good business.
Returning to the volume theme, a number of factors have emerged to make loose carloads less popular. First of all, freight cars have become bigger so where a shipper may have been shipping three cars a week, now it will all fit in one car, or of course three trucks. Trucks will become the obvious choice if he is only shipping a partial carload. Now consider the origin/destination points under the old order. Many cities had industrial areas with an extensive maze of tracks. You would find local jobs running around, handling lots of cars in a shift. Today these areas are often almost shells, with lots of track to maintain for a few remaining customers. Terminal switching tends to be one of the biggest costs to the railroad for a given movement, and the cost per car goes up as the number of cars dwindles.
For the majors, hump yards were almost a necessity for the loose car business. They are expensive to build and maintain. As more unit trains bypassed them the costs had to be spread among fewer and fewer cars.
So you can see why what was once the bread & butter for the railroads has become less attractive to them. It is far easier to lift a solid train from a grain elevator or intermodal yard and haul it 900 miles to a single destination. But it is arguable whether turning their
This point cannot be overstressed! Even the best RRs can’t deliver more than 2/3 of the carload traffic within a day of the plan.
Having to hold inventory to cover this variability means that high value goods tend to go by truck/intermodal and low value goods move by rail. What’s in “loose” cars these days tends to be raw materials more than finished goods.
[quote user=“MJ4562”]
Did loose car railroading* ever really make economic sense for the RRs, as in did they actually make a profit on it?
Yes. Early in the 20th Century, before the rise of highways, and before the ICC flexed its regulatory muscle. Least we forget, the Commission had the power to limit the rates railroads could assess. Under the all-knowing, all seeing, omnipotent eyes of ICC 'crats, the “expensive” (read highly rated) commodities, such as chemicals, were to subsidize the low rated commodities, such as scrap paper, sand and gravel. Supposedly, the ICC-imposed rate scales were based on what the Commission, in its infinite wisdom, determined their relative worth back during the Depression, and even though conditions, and relative costs, of commodities, changes, the rate scales did not. Moreover, because of their common carrier status, railroads were (and remain) obligated to accept for shipment all commodities rtendered, whether the rates they assessed were compensatory or not. Consequently, the carriers were burdened with a great deal of non-compensatory traffic. So…from a revenue standpoint, not all carloads are created equal. Some it pays to haul, some it does not.
There was, of course, one venue open to pricing managers, to offset this. They could, and did, offer pricing incentives to take advantage of a railway’s inherent advantage over trucks: they offered commodity discounts based on increasing the number of cars in a shipment (the unit train carries this concept out to its logical conclusion). Their reasoning: the crew and locomotive costs were but slightly more for a multiple-car shipment than for a single car. So, in this way, they undid some of the damage imposed by ICC regulation. It is germaine to add here that almost all railway managers we
Very well said Mr. Billo.
I will add that some railroads did try to move away from the loose car system and its inherent problems only to be blocked by the government regulators.
The New York Central introduced intermodal container service in the early 1920’s. Other railroads introduced similar service out of competitive necessity. In 1931 the ICC killed that rapidly expanding service by ordering an increase in rates that made container movement non-competitive.
Unit trains are much more efficient than loose car shipments. The ICC would not allow unit train rates until 1957. They only relented when a coal slurry pipeline was built in Ohio. They had to then allow progress or see more such pipelines built. This would have deprived the railroads of coal traffic and destroyed the industry.
As to the rail unions. I don’t know what they were thinking. Their work rules drove freight to trucks. For years the railway unions were close to being the best friends the trucking industry had. It was a toss up between the unions and the regulators as to who could divert the most freight to over the road truck movement.
Rail “Form ‘A’” was a total joke. But you had to use Form ‘A’ costing because the rates were subject to regulatory review.
There’s a huge gap between the size/ scale of an economical and practical unit train, and the typical intermodal shipment - whether it’s a trailer or a container. What if you’re a shipper who doesn’t have trainload quantities - or it doesn’t travel well in hopper-type cars - but way more than just a couple trucks a day ? Consideration of this dilemma has led me to conclude that - despite my admiration for John G. Kneiling’s recommendations otherwise - that there is still a need for carload railroading. As billio said above, it’s not the 1 or 2 cars per day shipments that are profitable - those are truck or intermodal moves anyway - instead, it’s the blocks of 5 to 20 cars or so per day that are worthwhile. I often think of a Procter & Gamble Paper Products plant about 40 miles northeast of Scranton that ships throughout the NorthEast U.S. - it loads from 20 to 40 carloads a day of Pampers, etc. That would never fit in a unit train - but is very expensive to truck. Also, a lot of the Distribution Centers in the Fogelsville, PA area west of Allentown that are rail-served will get from 5 to 10 cars per day, and ‘break bulk’ and ‘mix-and-match’ to transload to trucks for local delivery. - Paul North.
A little more on the Rail Form “A” problem - Kneiling used to say that the railroads should keep 2 sets of books - 1 for the regulators, and 1 to actually run the business with. I’d suggest considering 2 more sets: 1 for the IRS - not to evade or defraud them from taxes, but their rules are so different in some aspects; and 1 per Generally Accepted Accounting Principles, because most railroads are listed on the stock exchanges and need to conform to that system as well. - Paul North.
In my informal study of manifest freight consists, I have noticed a significant trend in recent years. With originating terminal and destination terminal costs being as high as they are, there seems to be an overwhelming interest in something that may be best descibed by the following statement: “We’ll handle the originating end of a revenue move, but we want a connecting carrier to handle the delivery.”
Usually that connecting carrier is another railroad on the other side of the Mississippi River, but it may also me a shortline spinoff as well.
Just a minority of the “loose car moves” I’ve seen recently involve just one carrier handling the entire move from shipper to consignee.
If truth be told the first pick up and final delivery of any car in railroading at any time has almost always been the expensive part. And thus branchlines and enroute siidings have been virtually ignored by Class Ones with the branches sorta sold off to shortlines and the lumber and grain dealer at milepost 50 and 75 getting a once a week rather than daily or on demand switch. Why, too, there is Conrail Shared Assets and various terminal and switching roads in places like Chicago. In a perfect Class One world the railroad would pick up a train of a couple hundred cars from another Class One or short line, take it two or three thousand miles and leave it off someplace for another Class One or shortline and not incur any pick up, switching, yarding, or delivery. That’s why intermodal and unit trains are so popular in Class One operations.
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Not exactly but this is a common myth I hear a lot from clients. You only need and want 1 set of books kept on a GAAP basis. You make your adjustments from there for specific needs—regulatory, IRS, management, etc. Otherwise you end up with a big mess on your hands. When you undergoe your audit or get a visit from the IRS you will need to be able to reconcile between your financials, tax returns and regulatory reports. Maybe from a certain point of view this is keeping separate books, but technically it is one.
Thanks, Billo, Greyhound, Paul et al…good information. Based on my reading and admittedly limited knowledge on the subject, the ICC and government regulators were a big part of the problem.