Milwaukee Road: What happened in 1969?

Trains Magazine General Discussion
1

I purchased a Moody’s Transportation Manual from Abebooks and it arrived today. It is a 1972 edition. For all of you rail historians or “economic railfans” I would strongly encourage the purchase of these volumes. This one is over 1800 pages and at $33 it is quite a reference.

Ok, so I open the book and the Milwaukee Road is the first listing. I dove right into the details.

So, Michael Sol, what happened specifically to the Milwaukee Road in 1969? The revenue from 68 to 69 was basically the same, the the OR jumped from 81.71% to 85.70% in one year. Maintenance costs jumped $5million and Transportation costs nearly $4 million. That year seems to be the year that MILW went from being above water (barely) to running net losses.

What happened? and why?

ed

2

Aggregate labor costs increased by nearly $10 million in 1969 This was the largest such jump in the entire decade, and in fact, 1966-1967, MILW had reduced its aggregate labor costs. MILW employment decreased from 20,229 in 1960 to 15,363 in 1969. While dramatic, this was slightly slower than the U.S. rail industry as a whole during that same period, and so in 1969 in the face of significant industry wage increases, MILW suffered in proportion to its less favorable employment trend during that time. MILW had done better at productivity improvements through attrition than other railroads at some points, worse at other points. The year 1969 happened to catch this trend at this point in time at a poor spot for Milwaukee.

The winter of 1969 was the worst on record, followed by spring floods that were nearly the worst on record. Revenue would have grown substantially, otherwise, but more importantly, because of extended extreme, and disruptive weather conditions, “maintenance costs” increased as did overtime for “transportation.” Equipment disruptions due to damage caused the Milwaukee losses of $7.5 million.

There were some intentional aspects as well. Curtis Crippen was a civil engineer by education and training, and determined to reverse the declining physical plant investment at the MILW, endemic among American railroads during the 1960s.

When he became president in 1966, the budget year 1967 had already been set, but you can see what happened in 1968 and 1969 – the second highest annual expenditure since WWII.

Maintenance $ available per mainline mile of track

MILW

1950 9,580
1951 11,050
1952 12,411
1953 13,031
1954 11,614
1955 13,509
1956 13,007
1957 12,175
1958 11,408
1959 11,069
1960 9,770
1961 8,600
1962 9,019
1963 8,455
1964 8,641
1965 9,135
1966 10,922
1967 9,575
1968 11,656
1969 13,451

3

Thanks for the analysis.

Looking deeper into the Moody’s numbers, it is apparent that labor costs really jumped in 1969, as did the MOW costs. No doubt much of the increased labor costs were embedded in the MOW budget, as you indicate. The number of crossties replaced in 1969 was more than triple that in 1967 (795,092 vs 239,155).

1Q 1969 was indeed was a disaster for MILW. The Net Railway Operating income for the quarter was a deficit of $3.781 million vs a 1968 $2.212 million profit. MILW bleed nearly $18million in NROI during 1969 and 1970 but returned to profitability in 1971 with NROI of $2.5 million (not much, but at least the bleeding had stopped).

MOW and MofEquip expenditures dramatically increased in 1970/1971. Obviously the management of MILW was investing for the future…or perhaps trying to get the railroad back in shape again.

From previous posts, I seem to recall MILW did little investing in itself during the 60’s. What was the attitude in the company at this time (late 60’s/early 70’s) as investment was again made?

Where was the money spent geographically? Midwest or west?

Thanks for the reply.

ed

4

Milwaukee was typical, except Curtis Crippen tried to break the cycle. GN, by comparison, did not:

Maintenance $ available per mile of mainline

MILW------- GN
1950 9,580–7,963
1951 11,050-- 9,048
1952 12,411-- 9,763
1953 13,031-- 10,351
1954 11,614-- 10,092
1955 13,509–10,448
1956 13,007–10,936
1957 12,175–11,092
1958 11,408–8,228
1959 11,069-- 8,560
1960 9,770–8,364
1961 8,600–7,633
1962 9,019–7,973
1963 8,455–7,889
1964 8,641–8,249
1965 9,135–7,543
1966 10,922–7,928
1967 9,575-- 8,300
1968 11,656-- 8,266

Why did investment in line go down on all railroads? Notwithstanding strong feelings about the issue, investment in motive power went up, and up and up. It bled the railroads during the 1960s. It was the single largest diversion of investment away from the physical plant.

Crippen was not just an experienced civil engineer, he was the former VP-Finance at Milwaukee. He was absolutely convinced that Milwaukee’s future was as a transcon (he was also former General Manager, Lines West). But, W.J. Quinn returned in 1970 as Chairman of the Board. I don’t think they agreed on how to proceed. Quinn was not a railroader; Crippen was a consummate railroad civil engineer, strong in finance. Quinn was not. Crippen knew the company inside and out. Quinn did not. Crippen made his own decisions. Quinn looked to the advice of others. Quinn pushed the holding company idea, CMC, in 1971. Crippen retired in 1972.

Enter BN’s W.L. Smith.

Crippen’s push for increased investment in the railroad was the right direction – MILW was able to handle the huge success of the BN merger – by 1972, it carried more ton miles of freight than any time in its history. The traffic was there – it was growing – it was exploding. Lack of success is not the same thing as lack of good, profitable business.

5

It really wasn’t a “diversion” from investment in the physical plant.

The railroads could borrow money for investment in equipment. They couldn’t do that for physical plant investment. A lender could repo the equipment and recover his money by sending it elsewhere. If it went into the track it was “sunk”, and much more difficult to recover if the railroad failed. The only thing the railroads could get money for was equipment. They couldn’t beg, borrow, or generate it for track.

Short term fixes were tried. Find some way to free up money to fix the damn track. Crippen at the MILW, Barringer at the Katy. Can’t fight reality. Long term, the money for the track just wasn’t there.

And that’s why the Katy got new GP40’s while its rails turned over under standing trains.

6

That’s also, for the most part, why MLWK ordered SD40’s with small fuel tanks. Less fuel equals less weight.

7

When a company spends 18% of its revenue in 1950 on Motive Power, and finds that, because of its choices, it is spending 24% of its revenue on motive power in 1969, there are inevitable economic consequences. Maintenance was one of them. I call it a diversion, you can call it something else.

8

I see some merit in this train of thought. An investor might be more willing to loan money for SD 40, than for say, electrical equipment or locomotives for the PCE. Maybe there’s relationship there, concerning the decision to drop the wires?

9

Well, this is one of those theoretical explanations that “seems” to make sense, so people go with it. Then it becomes “the” explanation because it so nice and neat and clean. Reality is usually not so simple. Sometimes it’s the opposite.

In the case of the locomotives, GE and EMD were practically begging to supply the specialized motive power equipment under identical terms as the SD-40 sales being negotiated at the time, at the same price per rail hp, with GEC, GMAC financing.

For the physical plant, Washington Water Power Co., Puget Sound Power & Light, and the Montana Power Company formed an informal consortium, assigned engineers to a consolidated engineering team, reviewed the system in detail, and proposed substantial upgrades to the system which they would finance.

At the same time, General Electric Co proposed its own fixed plant upgrade, and proposed that it would offer the financing that the Milwaukee needed. This alone undercuts any proposition that money was not available for fixed plant investment.

The Legal Department, in the meantime, developed to final approval an FRA grant, not loan, of $250,000,000 to replace the existing system with an AC system – as a demonstrator for state-of-the-art electrification for American railroads. All it needed was Board approval.

10

They didn’t seem to spend too much on Motive Power maintenance either. They spent money to rebuild three batches of GP9s into “GP20s” and the SD7s and SD9s into “SD10s”, but went the Soo acquired the MILW they quickly diposed of the SD40-2s and many of the other locomotives. The lease agreements on the GP20s and the first 10 SD10s were the reason for those models disappearing, but I remember the SD40-2s and most of the GP40s having higher failure rates than the Soo’s locomotives of the same model. I know the MILW borrowed money under either the 3-R or 4-R to overhaul some of their SD40-2s and GP40s. The surviving ex-MILW GP40s still on the Soo Line roster are ones upgraded to near GP40-2 standards under this program.

11

I happened to see that I made some notes specifically about the weather:

"In December, 1968, severe winter storms blocked many of the Company’s lines, and storms continued for the next three months. President Crippen stated that the winter was the worst on his more than 40 years on the railroad. Between December 13 and March 30, there had not been a single day when major snow removal machinery was not operating somewhere on the railroad.

In Washington and Idaho, many lumber mills shut down for as long as four months, and the Company lost much-needed revenue from these traditional sources. Overall, the Railroad estimated that it lost approximately $5 million in traffic losses and increased operating costs.

Then, as soon as the snow-removal machinery was stowed away, spring floods from an angry Mississippi River inundated the St. Paul yard, as well as causing disruptions along the Yellowstone River in Montana, the Big Sioux in South Dakota, and several tributaries of the Mississippi. Direct damages were $1.5 million."

I recall that the “Avery Rotary” went back East during that winter – a very unusual move – and stayed there working hard for a couple of months.

12

I’m not saying, or implying that this is what happened. I just saw a possible connection there. That’s why I asked the question. Thank you for the answer.

13

The key here though is the part “same price per rail hp” since both builders would be supplying 6000 hp diesel equivalent locomotives costing twice as much. whether these would have worked out in practice is questionable, notice that the 6000hp diesels turned out to be not practical even thirty years later. With the poorer wheelslip systems available in the 1970s they would have been less useful then.

These were special cases, when the Milwaukee replaced the drawbridge at Hastings, MN did either source

14

John, I don’t understand the point here.

GE’s proposal was for a 5,400 hp model, EMD/ASEA’s model was at 6,000 hp. Both were offered at about $90 per rail horsepower. That’s how much SD-40s were running at the time. GE lowered its price to $53 per rail horsepower, with locotrol equipment, and then to $47 per rail horsepower without the locotrol. GE in particular wanted to make this work for the MILW.

The EMD/AEA proposal “would be very similar to modern Thyristor units in that each traction motor would be individually controlled and thus provide the advantages of the so-called modern AC “Chopper” locomotives.” [Letter, Frank Upton, Superintendent of Motive Power, to Gaye Kellow, VP – Management Services, 10/06/72].

The Little Joes had been operating for two decades at between 5,500 and 7,000 hp without being deemed “impractical”. Rather, they were considered a roaring success. They were arguably the best motive power Milwaukee Road ever had. Essentially, that was what Milwaukee was trying to order up – something “as good as” the Joes.

How would a similar or better design be “less useful”?

Best regards, Michael Sol

15

Well, the original question was to the “decision to drop the wires”. It was a specific answer to a specific point upon which I have a detailed historical record available – avoiding the generalized speculations I referred to as the basis for broad conclusions.

The “decision to drop the wires” offers an evidentiary counterpoint to the general proposition regarding fixed plant investment. It may have been a special case, but I did not initiate the question about it, I only offered the evidence available on the point.

I concede that when Murph asked about the decision to drop the wires, I did not immediately think about the bridge at Hastings.

Is there a detailed historical record available for the bridge at Hastings to offer a similar analysis? I don’t know.

16

OK, your quote of the letter pins the timeframe down more precisely. I expected that both builders would be quoting 6000 hp electrics. Both builders came out with 6000hp locomotives by mid-decade. GE had their E60Cs for the BM&LP and Amtrak, and EMD/ASEA built the GM6C which tested on Conrail, and the GF6C for BC Rail. Both locomotives would have been Tap-changing rectifiers with DC motors and Thyristor Choppers, which was the current world-wide standard at the time. What I assumed was what you state first, that the MILW could buy either a SD40-2 or U30C, or a GM6C or E60C and the cost would be $90 per hp. Stated another way you could buy either two diesels or one electric, aggregate horsepower would be the same. The problem comes with the idea of using them on the mountain lines of the MILW. Could one electric replace two of the diesels. I say I don’t think so, two replacing three might work, but not two replace four in a situation were TE is more important than horsepower. The SD40-2 can reliably produce an 18 percent factor of adhesion, a DC motored electric even with individual axle control can not produce 36 percent adhesion. Now at the very low price of $47 per ho

17

I doubt if there would be any similar information for the bridge project. What I meant by special case, is that Electric Power Cos. have a history of agreeing to provide supply infrastructure at their own expense for large customers in exchange for a long term purchase contract. Within the last few

18

Again, thanks for the replies to the original questions.

When did MILW start seeing increased traffic from the BN merger? Freight revenue increased from $239m in 1969 to $248/1970 and $273/1971. That is a pretty healthy 10% jump in 1971. What is really interesting is that the while the freight revenue jumped from 1970 to 1971, both the tonnage and the carloadings FELL during the same period.

1970 $248million, 44,459,000 tons, 1,028,000 cars, $241 per carload

1971 $273million, 41,307,000 tons, 968,000 cars, $282 per carload

It appears that the shift in traffic was underway in 1971 with increased revenue and per carload revenue no doubt based on longer hauls.

While the carloadings fell from year to year, the carloads of lumber went from 129,000 to 141,000 (was this due to the BN merger or economic conditions) and “transportation equipment” from 43,000 to 58,000 (automobiles?). All other categories fell.

Interesting data.

ed

19

Also, what was the point of the holding company?

ed

20

Well, that was the purpose of the Gateways Condition. An extraordinary success. The westbound traffic Milwaukee had been turning over at Twin Cities to the NP and GN, it was now hauling all the way to Great Falls, Billings, Seattle, Tacoma and Portland.

That, by itself, didn’t change the carloading numbers, but it sure changed the haul length. At the same time, MILW lost tonnage and carloadings at Twin Cities eastbound – all shorthaul. It was exactly what Milwaukee Western General Counsel Warren Ploeger said would happen – we will lose carloadings but make more money.