Something I’ve never quite fully understood about SSW (Cotton Belt): It was owned by, and for the most part run by Southern Pacific. Their motive power seemed to be interchangeable. Why didn’t SP just merge the Cotton Belt? Wouldn’t that have made life simpler?
I am not really sure, but I’d bet it had something (and perhaps everything) to do with corporate tax burden.
Keeping the Cotton Belt separate from the Espee had twofold advantages.
- The so-called “Ogden Gateway” issue that forced Southern Pacific to solicit and route the San Joaquin Valley, northern California, and Oregon traffic via SP - Ogden - UP. If the Cotton Belt solicited and the shippers rewarded them with this traffic, the provisions of “Ogden Gateway” would not apply. As a result of the latter, the combined SP-SSW route got a bigger share of the revenue covering the entire move.
- For traffic orginating on the west coast and not subject to the “Ogden Gateway” issue, having two separate companies handling the traffic between the Pacific states and the Mississippi River meant that they combined got a bigger share of the revenue division than one company alone. In other words SP-Corsicana-SSW-East Saint Louis-B&O/NYC/PRR earns SP + SSW maybe 65% of the total revenue whereas SP-East Saint Louis-B&O/NYC/PRR would have earned Espee only 58% of the revenue.
Bob- can you explain the Ogden Gateway issue a little further please?
“Ogden Gateway” has been discussed on another thread in this forum. I started to write something about it, but my knowledge is altogether too vague.
Appearing below is my weak understanding of the issue.
Edward Henry Harriman’s Union Pacific was the largest holder of Southern Pacific + Central Pacific securities at the time of his death in 1909. The Federal Government was in a trust busting mood then and set its sights on loosening U.P.'s grip on the Central and Southern Pacific railroads. In the ensuing litigation, the parties came to an agreement (1922?) that would allow U.P. to retain its traffic solicitation rights in central and northern California plus western Oregon - rights that would maintain the heavy tonnage flows to The Overland Route via the Ogden Gateway. Of course this arrangement somewhat short-hauled the Espee lessening their division of revenues for each revenue carload. For example, between Sacramento and East Saint Louis an SP - Santa Rosa - RI, or SP - El Paso - T&P - Texarkana - MP, or SP - Corsicana - SSW routing would have yielded a greater share of the revenue move to the Southern Pacific than SP - Ogden - UP - Kansas City - Wabash.
Although the Staggers Act of 1980 may have nullified the “Ogden Gateway” issue, Union Pacific continued to enjoy a brisk interchange with the Espee at Ogden until the close of 1982. Upon consumating the UP-WP-MP merger during December of that year, the volume of SP-to-UP traffic dropped sharply. 65 Market St. was not at all happy that their traditional eastern partner now had a direct line right
I have generally heard this refered to as the Santa Margarita agreement. Santa Margarita was the dividing point on the Coast Line if I remember correctly.
I’m not sure if I’m getting this yet. By an agreement, SP couldn’t solicit a carload from northern CA, for a trip down to southern CA, then east on SP tracks? But SSW could do that?
From Utah Rails:
In return for supporting Southern Pacific’s control of Central Pacific, UP in 1923 won an agreement with SP to send traffic via the Overland Route through Ogden. This pact became known as the “Santa Margarita Agreement.” It stated that all eastbound traffic originating north of Santa Margarita, at the south end of California’s Salinas Valley, would travel by way of Ogden. With the agreement in place, SP was forced to furnish a dependable amount of rail traffic to Union Pacific at the Ogden Gateway, with a small bit going to D&RGW to satisfy the ICC government regulators. The ICC decided in Southern Pacific’s favor in 1923, giving it control of CP but insisting that Southern Pacific solicit traffic for the Overland Route, via Ogden, for interchange with Union Pacific there.
In using such specific language, the ICC unwittingly shut Rio Grande out of sharing any meaningful amount of SP traffic at Ogden. This decision effectively forced D&RGW to depend even more on its connection with Western Pacific at Salt Lake City.
If I remember correctly, yes. Mark Hemphill’s article (“And then the Golden Empire Came Crashing Down”) in the March 2005 issue of Trains covered that.
SSW was not a party to the Santa Margarita Agreement. It seems like Mark wrote that SP acquired SSW specifically to get around this agreement.
Good answers to the question, guys.
SP owned (I think) over 99% of SSW’s stock and could have merged the Cotton Belt any ol’ time it wished to do so. Obviously, it had its reasons for refraining.
Yes, that is correct.
"Santa Margarita Agreement and “Ogden Gateway Conditions” are both shorthand for what is formally known as the “Central Pacific Order” of 06 February 1923, under which the SP by ICC order had to solicit preferentially for UP in the former Central Pacific territory, and in territory deemed tributary to the UP. The intent of the order was to prevent SP from soliciting traffic in favor of itself by way of El Paso, Texas, on the Sunset or Golden State routes. The rationale for the decision is difficult to describe and stems from law that created the charter for the Union Pacific-Central Pacific transcontinental route.
The limits of this territory were defined as Santa Margarita, Calif., on the Coast Line; Caliente, Calif., on the Valley Line; Kirk, Oregon, on the Cascade Line; and north of the Oklahoma-Texas border to the Ohio River and Buffalo, New York.
This did not mean that traffic absolutely had to go that way; it only meant that if the shipper did not specify routing the SP had to enter an SP-UP routing for traffic in that territory. The shipper had 100% freedom to specify SP-D&RGW-CB&Q or SP-D&RGW-MP, or SP-SSW, or SP-MKT, or whatever the shipper felt like. But few shippers were going to do so because the rate was identical either way – rate competition having been legislated out of existence by the Hepburn Act and Elkins Act, and equalized among parallel routes between rate-making gateways – and the service by any route other than SP (Central Pacific)-UP was vastly inferior. The predominant exception was some of the lumber movements where the shipper, usually a lumber broker, desired to actually retard transit ti
Interesting situation for the Rio Grande. I am taking a look at their financials in the 70’s and they were a very profitable carrier.
It appears they had a couple of advantages…on one hand they were a bridge carrier, receiving traffic from the western carriers such as WP or SP and then handing off to other carriers at Denver or Pueblo. Is that a correct assessment? If so, they were essentially a “division” of the haul without considerable costs for pickup or delivery.
On the other hand, they appeared to originate some coal traffic, usually profitable traffic.
How much traffic did they lose as a result of Staggers? \
What is their current status as a part of the UP? Was Tennessee Pass closed mainly due to the lack of interchange to the Mopac in Pueblo, or due to the nasty grades?
thanks,
ed
Calling the Rio Grande very profitable is actually an understatement. When purchased by Anschutz Industries the D&RGW owned most of its locomotives and freight car fleet outright – no leases (how many other railroads can you say that about in the 1970s?); a large new office building occupying an entire block in downtown Denver’s financial district, of which D&RGW occupied maybe 10% and leased the rest to bankers and lawyers; substantial industrial land; and had about $400 million in cash in the bank. Anschutz bought the property for less than its ready cash assets, which shows how wrong the free market can be, at least in the short term.
I hope you don’t take this wrong, but you have it completely backward, and for that I blame Lucius Beebe for his mythology and romanticism, and Robert Athearn for his partisan agenda of western regionalism and the Rocky Mountain West’s inferiority complex post WWII. Neither author wanted to report reality how it was but only how they wished it would be – Beebe wanted to live in the past and Athearn wanted Eastern respect. Unfortunately what they wrote stuck like glue probably because it conformed so perfectly to railfans’ internal biases, and everything David P. Morgan and his successors wrote to the contrary continues to be ignored!
The D&RGW was enriched by its local traffic, not its bridge traffic. Interchange wasn
Mr. Hadid:
That was quite a report. I really appreciate it. Time to go back and digest it and then no doubt come back with a few more questions.
Rio Grande was one of those roads that always fascinated me. As a kid, we went to Pueblo on vacation in 1964, riding the Colorado Eagle from St. Louis and then in 1966 returned for a family funeral, riding the NW/UP City of Portland, I believe to Denver and then down to Pueblo on the RG. In 1964 we went took the obligatory trip to the Royal Gorge…oh what an incredible place!
I had very little knowledge of the RG. I certainly appreciate you correcting me on my assumptions. Got a couple of Moody’s from 1972 and 1980 here, guess I will dive in.
Thanks,
ed
Rio Grande’s tonnage from connecting carriers in 1962 was greater than what it originated (9.5 million tons vs 8.6 million tons originated). By 1979 the numbers were 22.2 million tons originated and 11.9 millions from connecting carriers.
Further, coal went from 136,000 carloads in 1962 to 201,000 in 1979. Total carloadings for the system was 491,000 in 1979, so coal was HUGE, as previously stated by Mr. Hadid.
Their balance sheet was sterling.
Quite a bargain.
ed
Connecting carriers aren’t just the SP, MoPac, etc. Buried in the details on those numbers of tonnage from connecting carriers in 1962 are the following:
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Amost all the coal for USS-Geneva originated on Carbon County Railway.
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All of the coal for CF&I Steel originated on the Colorado & Wyoming Railway.
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All of the outbound business from CF&I Minnequa Works originated on C&W Railway.
In sum they probably amounted to more than 2 million tons in 1962, and Rio Grande got most of the line haul.
Good on ya looking those up – I appreciate it.
The 1964 trip to Pueblo was highlighted by the Royal Gorge trip. Second best event (other than the ride on the Colorado Eagle) was a trip to the CF&I steel mill. My great uncle was a foreman there and we got a little tour.
I forgot about the C&W. Looking it up in Moody’s, it appears to be a subsidiary of the CF&I, much like the EJE was for USSteel. Looks like they had a tidy little operation in 1979 with $11.5 million in revenue bringing $3.2 million down to net.
I assume the Minnequa Works was in Pueblo…correct me if I am assuming wrong. Is the Pueblo CF&E mill gone? I believe it is.
Mr. Hadid, earlier you mentioned “steam coal”. Would you mind defining, in layman’s terms of course, what that is, as compared to other coal. Or perhaps a internet reference.
It appears Mr. Anschultz (sp) did quite well with his purchase of the DRGW. Based on your earlier assessment, he pretty much go the railroad for nothing, when applying assets and cash to the purchase price. What about his purchase of the SP? Was that done primarily to provide an outlet for DRGW, or was that also an asset play?
Did I not read recently that he resigned as a director of UP? Obviously he parlaid his purchase of DRGW into quite a stake into today’s railroading structure. Isnt his holdings about 10 - 15% of UP stock?
He seems to fly a bit under the radar. I havent read too much about him. Is that intentional on his behalf, or have I simply not found anything on him?
ed
Correct, C&W was a CF&I subsidiary, and Minnequa was CF&I’s company town on the south side of Pueblo where the mill was located (just like Gary). As you know most steel mills had a common-carrier rail operation in order to obtain the originating carrier’s participation in the through rate, to achieve direct interchange with all or most of the trunk lines serving that city, and secondarily to switch the plant. The CF&I mill is not gone but is no longer an integrated mill, only a mini mill. The blast furnaces were permanently blown out in 1983 and subsequently demolished. CF&I went bankrupt and emerged as Rocky Mountain Steel Mills, which was subsequently purchased by Oregon Steel Mills, and a few weeks ago OSM was purchased by a Russian steel company. Minnequa was always a “western” steel mill rolling products needed in the west: rail, barb wire, oilfield pipe and drill stem, light structural shapes, as opposed to a plate and sheet mill typical of eastern steel mills. It still rolls rail, drill stem and oilfield pipe, wire products, and merchant bar. Minnequa does not have the capability of producing the high-quality head-hardened rail now used by high MGT main lines, and rolls 136# control-cooled rail used for secondary tracks, y
You are correct that Mr. Anschutz is no longer on the board of directors at UP. He does not hold his stock directly, but through Anschutz Investment Company, which currently owns 4.12% of UP, valued at a bit over 1.2 billion dollars.
After 1980, the Ogden Gateway Conditions appear to not have mattered anymore? Was there no merger at that point, simply because there was no advantage to a merger between them?