ICG's Iowa Division

Trains Magazine General Discussion
1

I just re-read an old back issue of Trains, specifically the very nice article they did about the Chicago Central & Pacific (one of my favorites to photograph - too bad they were only around for 10 years). I finally got around to replacing a bad worm assembly in the N scale GP30 I custom-painted in ICG colors, so I was in the mood for their history.

The article mentions the poor condition of the former IC’s Iowa Div. trackage that the CC&P inherited. My question is: Why did the IC/ICG allow that line’s condition to deteriorate so badly? Was the IC/ICG so bad-off financially? Was there too much competition with the CNW, MILW, ROCK and BN for Council Bluffs/Omaha business heading to Chicago? Mis-management? I can’t believe grain shipments over that line were a problem.

Ideas?

[?]

2

Since I “grew up” along that ICG line, I do remember a few derailments back when I was a kid. I also remember, especially after the CC took over, trains came through town at no more than 20 miles an hour, and it was explained to me that it was due to the poor track conditions. Back in the mid 70’s when I first started to hang around the ICG tracks, the trains came through at a decent speed, probably 40mph or better. Most of the trains I remember were grain drags, along with manifest freights. I don’t ever remember seeing any TOFC trains back then, at least on that line. If I remember correctly, that line had a decent amount of traffic, because I remember quite a few summer days, hanging around and watching trains, and seeing quite a few.

I do remember hearing about the bad condition of the line, especially after the CC took over, and the Chicago Central did some improvments to the line, but their trains would poke along through Hillside at 20mph or less. I remember after the CN took over, all that I ever saw, on the occasions I was around there, was MOW equipment out doing work, replacing ties, ballast, and even in some cases, rails. Now, trains go through the town I grew pretty fast, in fact, I was surprised one day, probably about 7 years ago, when a CN freight came through town, 4 locomotives, (at least 2 of them were Dash 9’s) and over 100 cars, doing, by my estimation, at least 50mph. (that was a big change from the usual ICG GP20 and GP30’s, or the CC’s 4 axle units)

3

Having grown up close to the ICG’s Iowa Division (my hometown is 15 miles north of Manchester, IA.) and knowing quite a few ICG employees in the late 70’s into the mid-80’s AND remembering what the mainline was like when I was a little kid I can’t begin to tell you how incredibly frustrating it was for me not only being a railfan but a hopeful future railroad employee to watch the Iowa Division slowly go to hell. First, remember that, during the Illinois Central days this mainline was one hot piece of railroad with the meat trains (trust me, if you were an employee of the IC then you did everything you could to keep THOSE babies on time) and the “Land O’ Corn” and the “Hawkeye” passenger trains. But then, in 1972 with the subsequent merger with the Gulf, Mobile and Ohio that formed the Illinois Central Gulf AND created a new holding company called IC Industries things started to change for the worse. I really didn’t grasp myself how bad things were becoming until I got into High School in the la

4

[quote user=“Los Angeles Rams Guy”]

Having grown up close to the ICG’s Iowa Division (my hometown is 15 miles north of Manchester, IA.) and knowing quite a few ICG employees in the late 70’s into the mid-80’s AND remembering what the mainline was like when I was a little kid I can’t begin to tell you how incredibly frustrating it was for me not only being a railfan but a hopeful future railroad employee to watch the Iowa Division slowly go to hell. First, remember that, during the Illinois Central days this mainline was one hot piece of railroad with the meat trains (trust me, if you were an employee of the IC then you did everything you could to keep THOSE babies on time) and the “Land O’ Corn” and the “Hawkeye” passenger trains. But then, in 1972 with the subsequent merger with the Gulf, Mobile and Ohio that formed the Illinois Central Gulf AND created a new holding company called IC Industries things started to change for the worse. I really didn’t grasp myself how bad things were becoming unt

5

I didnt grow up on the Iowa Division, but instead on the Illinois Division in Southern Illinois. The branch line thru town was from Mattoon to Evansville. While I cant speak directly to what happened to the Iowa Division, there was a general decline of the IC during the 70’s that ultimately led it to the brink of bankruptcy.

There was a very large shift in traffic in the 60’s and 70’s away from the IC and into trucking. I worked at the AMF bicycle plant in the summer of '74 in the shipping department and loaded trucks and boxcars…quite a bit went by rail. A couple of years later that business was gone to the trucks. Maintennace on the entire system was deferred. Authorized speeds were reduced on both branch lines and mainlines (the Illinois Division was a 100mph territory in the early 70’s for passenger trains).

There are others here that can testify to what occured on the Iowa Division, but as I understand it the “meat trains” dried up as Chicago lost the slaughter house business (it was shifted closer to the source of the meat in Iowa). Union Pacific also placed most of it’s interchange business with the CNW in the 70’s. Just how much local business existed between Chicago and the Iowa Division is a question which I cannot answer.

ed

6

[quote user=“Los Angeles Rams Guy”]

Having grown up close to the ICG’s Iowa Division (my hometown is 15 miles north of Manchester, IA.) and knowing quite a few ICG employees in the late 70’s into the mid-80’s AND remembering what the mainline was like when I was a little kid I can’t begin to tell you how incredibly frustrating it was for me not only being a railfan but a hopeful future railroad employee to watch the Iowa Division slowly go to hell. First, remember that, during the Illinois Central days this mainline was one hot piece of railroad with the meat trains (trust me, if you were an employee of the IC then you did everything you could to keep THOSE babies on time) and the “Land O’ Corn” and the “Hawkeye” passenger trains. But then, in 1972 with the subsequent merger with the Gulf, Mobile and Ohio that formed the Illinois Central Gulf AND created a new holding company called IC Industries things started to change for the worse. I really didn’t grasp myself how bad things were becoming until I got into High School in the late 70’s. I heard horror (and I mean HORROR) stories about how ICG was running off business that it had for decades. A mainline that was once good for 90 M.P.H. passenger trains and 70 M.P.H. meat trains had deteriorated. Employee morale was non-existant. I went to Waterloo on more than one occasion to fill out an application and the lousy attitude I encountered among MANAGERS truly shocked even a neophyte like myself. One very good friend, a former signal maintainer for the IC/ICG (and also the old CGW at one time) and master rail photographer told me “that’s just how it is now”.

Needless to say, the Iowa Division got a much, much shot of fresh air when Jack Haley came on the scene. I still wonder to this day if the CC would have avoided some of its troubles back in ''87 had he not cleaned house entirely of former ICG managers and

7

Greyhounds -

You describe a micro-Penn Central scenario (sort of) in northern Iowa: Declining long-haul revenues compounded by governmental over-regulation and interference. That’s how it sounds to me, anyway. How did grain shipments perform over this same period on the Iowa Division? Was there also a down-turn in that business? With the apparent collapse of meat shipments over the IC/ICG, I’m curious to know if the railroad tried to compensate with increasing grain revenues (i.e. was there any kind of marketing “push” to get more grain loadings)?

Also, fast-forwarding to the present, there appears to be a fair amount of BNSF coal travelling over the Iowa Div. (which explains why, when I was in Manchester, IA last summer, I was excited to see a green aspect on the eastbound signal, and then disappointed to see an all BNSF lash-up hauling coal). I wonder if this business provides CN with roughly the same revenue that IC/ICG got from the meat packers?

Finally, is there any truth to the belief that the IC bought-back the Iowa Div. from the CC&P to prevent their being bought by UP or BNSF (so as to provide the STB with cause to deny the acquisition based on anti-competition concerns)?

8

I don’t know why the IC bought its Iowa line back. I’d guess it’s because it’s a profitable railroad now that the regulators and unions have been dealt with. (Disclaimer: I’m not, despite what some of you must be convinced, anti-union. I believe a worker deserves good pay, a safe, decent working environment, health care, retirement benifits, etc. I am opposed to unions forcing a company to use workers that literally have no work. That’s one thing that was bleeding the ICG to the tune of $80 million/year and lead to the differed maintenance. You can’t spend money you don’t have.)

Before he passed away I was talking to Doug Hagesta

9

One story that I read was that IC bought back the Iowa Division as part of a last-ditch effort to remain independent. By then, IC was almost entirely a north-south Chicago-New Orleans railroad and the Iowa Division would be an excess asset that presumably make IC a less enticing target for another road.

10

[quote user=“greyhounds”]

[quote user=“Los Angeles Rams Guy”]

Having grown up close to the ICG’s Iowa Division (my hometown is 15 miles north of Manchester, IA.) and knowing quite a few ICG employees in the late 70’s into the mid-80’s AND remembering what the mainline was like when I was a little kid I can’t begin to tell you how incredibly frustrating it was for me not only being a railfan but a hopeful future railroad employee to watch the Iowa Division slowly go to hell. First, remember that, during the Illinois Central days this mainline was one hot piece of railroad with the meat trains (trust me, if you were an employee of the IC then you did everything you could to keep THOSE babies on time) and the “Land O’ Corn” and the “Hawkeye” passenger trains. But then, in 1972 with the subsequent merger with the Gulf, Mobile and Ohio that formed the Illinois Central Gulf AND created a new holding company called IC Industries things started to change for the worse. I really didn’t grasp myself how bad things were becoming until I got into High School in the late 70’s. I heard horror (and I mean HORROR) stories about how ICG was running off business that it had for decades. A mainline that was once good for 90 M.P.H. passenger trains and 70 M.P.H. meat trains had deteriorated. Employee morale was non-existant. I went to Waterloo on more than one occasion to fill out an application and the lousy attitude I encountered among MANAGERS truly shocked even a neophyte like myself. One very good friend, a former signal maintainer for the IC/ICG (and also the old CGW at one time) and master rail photographer told me “that’s just how it is now”.

Needless to say, the Iowa Division got a much, much shot of fresh air when Jack Haley came on the scene. I still wonder to this day if the CC would have avoided some of its troubles back in ''87 had he not cleaned house entirely o

11

So how successful was the CC? I should know more about it, but I don’t.

Greyhounds,

To the extent the CC was successful, what was different for the CC compared to the ICG?

Thanks,

Gabe

12

CCP under Jack Haley had financial difficulties and GE Capital forced Haley out.

In 1995, IC purchased the CCP for $138 million cash and assumption of $18 of cap leases obligations. It didnt make much sense at the time as to why IC purchased CCP, but looking back it is a bit clearer now:

In 1994 KCS and IC were planning to merge, but it was called off. IC was thus wanting to get bigger. In 1995 to increase “shareholder value” IC increased the dividend by roughly 20% and announced a $60 stock buyback. These were defensive moves to use the cash they were generating by their low 60% operating ratio and generation of cash. Cash flow per share in 1994 was $3.15. Dividend payouts were $.88 per share and cap ex was $1.50 per share. Thus they were generating a ton of cash.

In 1995 there were several things occuring on the grain side. Barge rates were increasing due to a smaller number of barges available and a strong export to Pacific Rim nations. Much of this export was via New Orleans and Mobile. IC had strong grain loadings and possibly looked at the CCP to generate even more long haul grain for export.

In 1996 IC purchased CCP for the above mentioned $156 million. What did they receive in return? The Chicago - CB and Sioux City lines plus the Cedar Rapids line totaling 850 miles. They paid $183,529 per mile…not including power and rolling stock (granted the old Geep10’s werent much by that time). In addition to the line, they “bought” revenue of $70 million per year with a 70% operating ratio. Thus, operating income was roughly $21million with net of perhaps $11million. IC’s PE at the time was around 13, so perhaps they paid a bit too much for the CCP (PE of 14), but all in all it makes sense at this time.

I always thought after the CN merger of IC that CN would run auto rack trains and manifests to CB to interchange with UP, but that didnt happen. It seems the

13

[quote user=“MP173”]

CCP under Jack Haley had financial difficulties and GE Capital forced Haley out.

In 1995, IC purchased the CCP for $138 million cash and assumption of $18 of cap leases obligations. It didnt make much sense at the time as to why IC purchased CCP, but looking back it is a bit clearer now:

In 1994 KCS and IC were planning to merge, but it was called off. IC was thus wanting to get bigger. In 1995 to increase “shareholder value” IC increased the dividend by roughly 20% and announced a $60 stock buyback. These were defensive moves to use the cash they were generating by their low 60% operating ratio and generation of cash. Cash flow per share in 1994 was $3.15. Dividend payouts were $.88 per share and cap ex was $1.50 per share. Thus they were generating a ton of cash.

In 1995 there were several things occuring on the grain side. Barge rates were increasing due to a smaller number of barges available and a strong export to Pacific Rim nations. Much of this export was via New Orleans and Mobile. IC had strong grain loadings and possibly looked at the CCP to generate even more long haul grain for export.

In 1996 IC purchased CCP for the above mentioned $156 million. What did they receive in return? The Chicago - CB and Sioux City lines plus the Cedar Rapids line totaling 850 miles. They paid $183,529 per mile…not including power and rolling stock (granted the old Geep10’s werent much by that time). In addition to the line, they “bought” revenue of $70 million per year with a 70% operating ratio. Thus, operating income was roughly $21million with net of perhaps $11million. IC’s PE at the time was around 13, so perhaps they paid a bit too much for the CCP (PE of 14), but all in all it makes sense at this time.

I always thought after the CN merger of IC that CN would run auto rack trains and manifests to CB to interchange with UP, but that didnt happe

14

Again, I am NOT an expert on the Iowa Division, so no doubt there are more knowledgeable members out there that can comment…that disclaimer stated I will comment that it doesnt appear to be very much coal traffic on the Iowa Division.

Business used to take me to Dubuque several times yearly and seldom did I see a train on that line from Freeport to Dubuque. It was always a treat to see something on such a scenic (for Illinois) line.

The Iowa Division probably didnt impact CN’s decision to purchase the IC too much. There was a much more valuable line and that was the north-south line from Chicago to New Orleans. It has really turned into a nice lane for CN. Today several trains use the EJE to connect the IC and the GTW mains. Manifests 396/397 are truly steroid in nature…with car counts of 150 cars not uncommon (a high percentage of those being chemicals carrying high rates and revenues). A second pair of manifests 398/399 turn on the J and proceed to Kinmundy for interchange with the UP. Also there are a couple of rack trains. In addition Chicago generates a considerable amount of business from former IC yards such as Markham and Glenn.

What seems interesting is that CN hasnt developed intermodal from Eastern Canada to Memphis and beyond. The only intermodal trains running on the GTW into Chicago are the 148/149 between Halifax and Markham. That’s it. A quick survey on I80-94 sees considerable Canadian truck traffic.

Perhaps the Iowa Division was attractive for the purpose of removing the CN trains off of the BNSF at East Dubuque and running them on the former IC. Recall that before the WC buyout, CN ran several trains daily from Minneapolis and possibly Superior to Chicago.

By purchasing the IC and then WC, CN really put together an outstanding railroading franchise. Lets not forget that in addition to the IC, CN also picked up HH in the deal. The perform

15

As Ed pointed out, the financial backer rather quckly forced Haley out. After that it became a reasonably profitable regional and did well enough to get itself bought.

I’d say three things helped the CCP turn the Iowa line around.

  1. Being a smaller company helped mitigate the “Descrepancy of Size” problem. Big companies often (not always) have trouble dealing with small customers. They’re not set up to deal with the “onesies twosies”. People sometimes fault railroads for this claiming that the carriers are “Not Interested” in serving the small shippers. It’s not that. It’s just that large companies deal in large scale and their corporate culture and structure are often not set up to handle small customers.

The “Descrepancy of Size” problem is effectively dealt with by many large firms by the use of middlemen that batch the smaller orders into sizes that the larger companies are set up to deal with. An example is an auto dealership. People don’t buy cars from Ford, they buy cars from a middleman, a Ford dealer. Ford sells to dealers not individual customers. Middlemen have an underserved bad name. They wouldn’t be in the marketing/distribtion channel unless they made it more efficient and reduced overall costs.

Railroads have only been able to do this to a limited extent. i.e. CSX owns majority interest in the Indiana Rail Road and the Paducah & Louisville. It uses them as middlemen that can focus on the local shippers better than the large CSX ever could. Other, independent, regionals and short lines serve the same function. They focus on the smaller

16

Regarding the coal traffic, back in the early 80’s I had heard rumors from ICG employees that the BN was looking hard at the Iowa Division as a short-cut for coal traffic coming out of Montana but, of course, that never materialized. Then there was also a rumor going on in 1983 that the Soo Line was interested after losing out on the “Spine Line” but, again, that never materialized. I do wonder, though, when the Southern was taking a serious look at the ICG back in 1978, had that actually gone through, what that would have meant for ICG as a whole and for the Iowa Division as well.

I remember feeling pretty disappointed when G.E. Capital forced Jack Haley out back in mid-late '87. I think Haley had some very good ideas and he was a shot of fresh air not only to the Iowa Division but to the industry as well. Still, the CC was eventually able to get itself on solid enough footing under Donald R. Wood and eventually made itself an attractive partner for its old owner, the IC.

I hope the lack of auto/auto parts traffic to Council Bluffs by the CN today isn’t a forgone conclusion; even though I’m an employee of rival CPRS I think that there’s a helluva lot of potential on the Iowa Division and my gut tells me that CN will do a good job with it.

Now, if they could just hammer out a paired track arrangement with the UP between Denison and Council Bluffs…[;)]

17

Granted, I know far too little about traffic paterns to make this observation, but something that has not come up in this conversation is the effect on the Iowa Division of the axing of the Freeport Extension (Freeport, Il to Centralia, IL). I wonder how this has affected the Iowa Division?

The Iowa Division was, afterall, originally just a longer version of the Freeport Extension. Also, to the extent IC/CN wanted to take advantage of its Chicago/New Orleans main to funnel some Iowa Division traffic to Memphis/New Orleans, the benefit of the Freeport extension seems obvious. It would have to cut several hundred miles off the trip. Finally, IC’s utilization of BNSF for grain movements over the CB&Q Paducha extension kind of serves the same purpose as that served by the Freeport extension.

Obviously, in its then-maintained state, the Freeport extension could not survive. But, I wonder if some of the efficiencies discussed by Greyhounds could have saved it, had they been actualized in time. I also wonder if the Freeport extension would be viable today–at least to Decatur, where the IC could use its Peoria - Matoon (Ed’s line) to reach the Chicago - New Orleans Main.

Of course, the $64,000,000 question that answers most of these quandries is, how much New Orleands, Memphis, etc. traffic would the Iowa Division produce? As a further aside, in the many segments of the line that are still there, there seems to have been a lot of smaller local and grain traffic on the Freeport sub. Perhaps this also could have further helped the bottom line.

Also, someone recently told me that NS holds its Bloomington/Champain P&E/NYC branch imbargoed to keep the IC from reaching Bloomington. Naturally, I do not know the details, but to the extent true, the IC would have retained its desired access to Bloomington.

Finally, I wonder if saving of the Freeport sub would have made the Madison, Wisconsin branch viable f

18

A few years ago, I met a guy who was volunteering at the Boone & Scenic Valley. He did some railroad consulting work. He told me that small shipper on the CC&P/IC was a client of his. When the line was under CC&P management they had no problem getting cars. Once the IC had bought the line back, the IC wasn’t too interested in their business and getting cars became a problem. Take that for what it’s worth as I am just writing what he said and can’t confirm it.

The Sioux City line is the dominant one in western Iowa. The Council Bluffs line, from the latest I’ve heard is handled by a local that runs out one day and returns the next. A few years ago when we detoured, they were running a local out and back three days a week. These trains run at night. For a while, they were getting BNSF grain trains, cars and power, out of CB for some of the elevators, but it’s been a while since I’ve seen them. They still have some business in Council Bluffs/Omaha and run a tranfer/switch job over the UP to the BNSF to reach their trackage. The old IC swing bridge is still up, but out of service.

The city of Ames gets coal for it’s municipal power plant from the CN. The BNSF delivers the coal to the CN at Sioux City and the CN takes it to an unloading facility at Williams, IA. From here it’s trucked to Ames.

There are a couple of ethanol plants that are sited where they have access to either the UP or the CN. One of them bought out their UP contract and uses the CN exclusively. The other still uses the UP, but the lion’s share normally goes to the CN.

Jeff

19

I believe BNSF uses the CN Iowa division for a short cut for coal trains traveling to a utility in East Dubuque. I don’t know for sure nor do I know if they are coming from CB or Souix City. Having grown up about 7 miles from this line, I often wondered why you never see autoracks or intermodal on this line. I do think there might be some clearance issues at Dubuque. Autoracks and double stacks may not fit through swing bridge and tunnel at East Dubuque.

20

Gabe:

You make a great point of 1978 failures which would be successes (or at least operations) in 2008. I have always thought my IC branch to Evansville was doomed. Today I am reconsidering that.

My earlier post about the barge conditions in the mid 80’s is probably not applicable today, except in times of Mississippi turmoil. It has been discussed on this forum and possibly this thread that the Mississippi River is a line in the sand which grain does not cross by rail.

Do you recall in 1987 when the drought nearly ended barge traffic and ADM considered the purchase of Illinois Central?

How much traffic moves from Iowa south to NO/Gulf other than grain? Probably not too much. Which wouldnt justify the Freeport Extention. The trackage rights between East Dubuque and Peoria probably work out well for CN now. Remember that IC used to own the joint line from East Dubuque south to where the IC and BN split. No doubt that sale (and control to BN) allowed pretty good terms for movements by IC and possibly even the trackage or haulage rights were negotiated then.

ed