I think the business case of the EP&SW was more to retain the profit on Phelps-Dodge’s intraplant traffic, not interline traffic: coking coal from company mines in the Raton Field to the Douglas Smelter, copper concentrates from Bisbee to Douglas, etc. It was an intraplant railway of very large size. As a bridge line between Tucson and Tucumcari it could have been nothing but a flop as the SP would not have offered through rates for traffic moving through Tucson to points served by SP or to points at common rate gateways, only local rates. The ICC did not force railways to short-haul themselves.
About the time the EP&NW was completed, I think if I recall correctly, P-D had lost enthusiasm for being in the railway business and was already asking SP if they wanted to buy it out.
If the point of the EP&SW was to obtain access to another railway (Santa Fe at Deming would be the first possible connection point, and the best one as it had led toward the copper consumption points of the industrial states), why would P-D think it had a business case to build it, and then no longer needed the business case and sold it? Who knows – I don’t! Perhaps they were in error to build it or in error to sell it. I guess I should find their annual reports and see if they offer any clues. My unsupported speculation is that the railway was an example of Dr. Douglas’s grandiosity and that once he was retired the corporation quietly undid some of his schemes that no one had the guts or the power to deny while he was in his prime.
No. (I think this question is a variant of “begging the question” called “see how much RWM will do anything to avoid working tonight.”)
It is almost impossible to build an additional facility in any non-expanding market for an undifferentiated commodity such as railroad transportation when demand in that market is already fully met by existing facilities, and successfully compete for a share of the market, unless one is offering some sort of new value the existing facilities cannot. The new value could be lower cost, faster service, volume discounts pushed downward to smaller volumes. The owners of previously established facilities will fight to the death to avoid loss of market share as it will probably erase their profits, the previously established facilities had first pick of scarce resources such as location, expertise, or contracts with vendors and customers, and any technological novelty introduced by the new facility can usually be emulated promptly by the old.
Suppose another lumberyard identical in all respects to your lumberyard including price, service, timeliness of delivery, inventory, and friendliness of the lumber salesman appeared tomorrow morning in Sioux Falls. Do you suppose the owners of yours would welcome them? The customers would have one reason to divert some signif
Writing my previous post prompted my getting Myrick’s Railroads of Arizona, vol 1 off the shelf and browsing through it. The EP&SW made good money for P-D, and for the most part was a large scale intraplant RR. The EP&SW did buy a good chunk of CRI&P stock, with some thought that they could form yet another transcon - possibly linking up with Spreckel’s San Diego & Arizona line.
The thoughts of getting out of the RR business started after the extension to Tucson was completed (1910) and the line was sold to the SP in 1923.
As for Deming, the Santa Fe connection was an important motivation for the line from Douglas to Deming.
Changing course slightly - Myrick stated that the construction of the SP was financed from several sources, one being cash flow. Another source of funding was sale of CP stock. It also didn’t hurt that there was a pretty fair amount of traffic being generated in Arizona, one source being the Copper Queen mine that led to the EP&SW.
Yes, that might explain the reasoning to run the line as far as Butte. That was the (reletively) easy part to build. But, it wouldn’t, on it’s own, seem like justification for the line extending to the coast
I know I’ve been over this before, but I think it’s one of those things that can not be said enough.
Economic regulation of transportation did not serve “The Public Interest”. It can not serve “The Public Interest”.
The agency to economically regulate transportation, the Interstate Commerce Commission, was established to stabilize railroad cartels. The railroads had tried to establish the cartels among themselves but were generally uncessful. They didn’t like competition, but they couldn’t stop competition. So they turned to the Federal Government for help. The Interstate Commerce Act was written by a lawyer in the pay of the Phildelphia and Reading Railroad. Now, do you think he wrote the law so as to be unfavorable to the railroad companies?
The cartels set prices so that all members could make money. They could set prices the same all around, but they couldn’t equalize costs of operation over various routes. This meant they had to artificially set the collective prices high enough so that the least efficient railroad could make a buck. It was a sweet deal for the investors in inefficient railroads. They were protected from price competition through the Federal Government. Of course, it screwed up the national economy big time. But those investors in the inefficient carriers didn’t have to worry.</
Seriously, this is wonderful, fun, and informative thread. I’m having way too much fun with it ! But I’m over my self-imposed limit for the Forum today with my lengthy post to the “FRA Inspection” thread, so I’ll have to be brief here.
Last night I took a look at Charles & Dorothy Wood’s The Milwaukee Road - West (Superior Publishing, 1972) [a few of those details are more correct than in my earlier post, so that’s why I’m repeating it here]. Their recounting of the PSE decision by the MILW in the early years of the 20th century is a lot better than I’d expected. Short version:
No, I personally doubt if there was enough such traffic. But yes, apparently they did expect that much traffic to materialize out of the developing and expanding territory;
This was likely an outgrowth of their view of the “natural expansion” or “natural territory” doctri
Murphy Siding - “When they [the ICC] started believing their own press releases !” (as John G. Kneiling often said).
The actual answer may well be in one of the lengthier posts above; if not, it is in the depths of the history of transportation regulation in the U.S. It was sometime after the original ICC Act of 1887, through the Mann-Elkins Act of 1906 (?), another Act of 1914 (?), the Transportation Act of 1920, and maybe a few others as well.
If you can, you (we) really need to get and read the George W. Hilton articles from Trains of the 1960s and 1970s. He covers all this at a pretty sophisticated (post-graduate level ?) of detail. It’s heavy going at places, but its the best and clearest explanation of this esoteric subject that I’ve seen. He said: “I write about this not because I enjoy it, but because I think it’s important.” (He went on to say that he’d rather write about oddball switching in Baltimore. Sadly, I don’t think that ever happened, at least not in Trains.) Below is the list, from my search of the Trains magazine index a few minutes ago for “Hilton” and “ICC”. Note that the sub-title for the 3rd one is "transportation is a carte
This is a fascinating thread and I appreciate everyone’s input. Today we are seeing very similar instances of companies (and BOD) not correctly assessing the risk involved in major decisions. The financial industry’s missteps the past 10 years are very well apparent and have affected almost all of us in a major way. No doubt there was a healthy amount of arrogance involved in these decisions.
Murphy while you question the shareholders allowing the PCE, we repeatedly see the same mistakes being made again and again. Do you think Jimmy Cayne of Bear Stearns or Richard Fuld of Lehman Brothers (I can go on and on) considered the magnitude of risk they took?
Rob Krebs (BNSF) looks pretty good right now for his “if you build it they will come” attitude regarding expanding the Transcon 10 years ago. It gave BNSF a huge head start on the UP. At the time, BNSF’s shareholders spoke out questioning the expansion. What did Krebs know that UP didnt?
These lessons from 100 years ago are still important.
greyhounds - You’re quite right; thanks for bringing that up. Frankly, I’d overlooked that line - I was focussing on the branch-line network instead, though looking back now on what I wrote, you wouldn’t have known that either. But it doesn’t affect my main point, because I’d taken it for granted that the CB&Q had a great line and was an effective eastern link for both the NP and the GN, paralleling and competing with the MILW’s main line. You’ve reinforced and detailed that presumption.
What I intended to say was that the CB&Q didn’t have enough of a branch-line network in the MILW’s home territory to seriously threaten the MILW’s originated traffic base (albeit mostly granger-type tra
Looking back over the posts on this thread re the MILW and the PSE / PCE, it seems that early on you neatly summarized most of the important points. However, in reviewing the Charles & Dorothy Wood The Milwaukee Road - West book (Superior, 1972) last night, I did note that they claimed that the MILW was financially sound and not heavily indebted before the PSE, contrary to your 1st point above. I forgot the exact numbers - I could retrieve the book and post them tonight or tomorrow if you’re interested.
As to the effects of the Panama Canal on the MILW, I’ve seen claims both ways in the past 2 days. It cer
The cartel organization always cross-subsidized rail lines that were not otherwise economically viable. It had to. Benifits of this cross-subsidy went to rail customers located on those lines. These customers litterally had someone else paying part of their freight bills. Once someone starts getting a subsidy it’s like an adictive drug. They get so they can’t imagin life without it and will go to great lengths to continue their adiction. Abandonment of uneconomical lines removed the subsidy drug and, as a result, was fought politically.
Government control over railroads (and other commerce) was increased greatly in the first two decades of the 20th Century. This increase culminated in the outright siezure of the railroads by the Federal Government in 1918. The Feds also siezed Western Union and AT&T. So they had complete control of all non-local transportation and communication. Gulp! (This was a very dangerous period in American History that doesn’t seem to get a lot of study.)
There was a debate about returning the railroads to private ownership. Prominent socialists, such as Eastman, thought they were gurus who had the wisdom and knowledge to produc
This anology with todays bankers and investment companies must also include the very substantial influence, in some cases blackmail, by the Federal Government to make loans which were not secure.
Times have changed and government now influences private and corporate investments through tax policy and because “they know better than we what is good for us”. I have very little confidance in our Congress and it is not limited to the presently constituted Congress. This has been ongoing for 40 + years.
UP may have known it then, too (I have no inside knowledge, though). But back then UP was still dealing with the results and fallout of:
" . . . the railroad’s meltdown of1997- 98that followed Union Pacific’s $5.4 billion merger with the Southern Pacific Rail Corp. in 1996" from “Union Pacific Finally Appears to Be Out of Financial Danger”, Knight Ridder/Tribune Business News, dated November 21, 1999 [emphasis added - PDN], at:
So even if UP saw the opportunity that could be gained by adding capacity, and even if it wanted to, it probably couldn’t - it was still too busy and tied up with untangling the merger fiasco. In contrast, the BN-SF merger went much smoother - it was more of an “end-to-end” merger, anyway - and so BNSF got past that and was able to look to the future that much sooner.
“History doesn’t repeat itself - [but] it sometimes rhymes”- Mark Twain.
You are correct Paul. Sometimes you are too distracted by what you need to do that you cannot do what should do.
Not to hijack the thread…but why did certain mergers in the 90’s, primarily UP/CNW, UP/SP and Conrail/NS/CSX have so much difficulty when compared to BN/ATSF and CN/IC/WC?
Just a thought here on the successful and non-successful mergers. I’d credit the success of the mergers at CN-etc. and BN-SF to the quality of management at the those companies, and, in the latter case, perhaps to it being more of a merger of equals in financial strength, with quality leadership in both companies. That may be a simplistic explanation, but those companies showed that it could be done well.
By contrast, UP did NOT learn from its mistakes in the should-have-been-easy CNW merger, and, after failing to do its homework on just how desperate SP’s situation was, jumped into that huge merger and proceeded to throw out the baby with the bath water. It’s easy for me to sit here and be critical a decade later, but UP’s merger work in the 1990s (which reeked of arrogance) looks like a textbook case of how not to do it. It should become good material for some B-school case studies.
So sorry - I wasn’t endorsing the views of that website, nor did I intend to give that impression. I was merely giving credit for my source of that collection of quotes, responding to diningcar’s comments.
But I did just look at it briefly, if only to “see what I’d gotten myself into this time” (albeit inadvertently). Actually, it seems to me to be more of a “rant” promoting a form of anarchy rather than despotism.
It’s also something of a truism among the American populace that “All Congress-critters are crooks” - except, of course, for the 3 that represent me (2 Senators and a Representaive).
garyla’s reply (above) sums up a lot of the conventional wisdom on this, and I don’t have a huge amount to offer in addition, though I will submit the following for consideration:
Configuration: BN & ATSF was essentially an end-to-end merger, as was CN & IC, and then CN & WC. UP & C&NW was also, but UP & SP had a lot of overlap and divestiture and grants of rights, mainly to the then-also-new BNSF and also to KCS. ConRail to NS & CSX was much different - a “split the baby” kind of thing. For all of the time that the latter had to plan, it should have gone off much better.
Financial Condition: The railroad being acquired was pretty good shape physically & financially in the case of ATSF, IC, WC, and ConRail, but not so much with C&NW, and not at all for SP.
Corporate Culture: Supposedly UP really threw its weight around in the SP merger with the take-over of the SP’s facilities and people, and did not consider anything that the SP people had to say or tell them. I can’t think of a worse business to do that in than railroading - it’s way too easy then to just keep your head down, say nothing more than the required minimum, do exactly what you are told, and no more or no less - and stand back and watch the resulting non-operation self-destruct (melt-down) all over the territory. At least in military combat situations, the primal need for physical survival will usually overcome the natural human impulse to just let some arrogant jerk - at whatever level - get what’s coming to him. Out on the railroad, aside from rules violations, there’s no such self-preservation imperative to offset that urge for