Crisis, response, rebirth
Problems that had plagued America’s railroads for decades came to a head in the 1970s. Though sometimes painful, the remedies set the stage for a new era of prosperity.
By H. Roger Grant
There may be truth in the saying that “the darkest hour is just before the dawn,” and in some ways that characterizes the American railroad industry in the 1970s.
This would be a decade of struggle — in fact, a decade of crisis. Gregory Maxwell, who as Erie Lackawanna president saw his railroad succumb to bankruptcy, later reflected about the 1970s: “It was one thing after another — the Penn Central failure, the real threat of nationalization, unreasonable state and federal regulation, rising fuel costs, runaway inflation, labor problems, that commuter train drain, deferred maintenance, increasing truck competition, the erosion of heavy industries, especially in steel, and even bad weather. Remember Hurricane Agnes in June of 1972? I really can’t list them all…”
Erie Lackawanna, once a bright spot in the increasingly gloomy Northeast, was dealt a death blow by Hurricane Agnes in 1972. EMD E7A No. 812 leads eastbound crossing the B&O. Hammond, Indiana, August, 1974. Mike Woodruff
No informed observer would challenge Maxwell’s assessment. Jervis Langdon Jr., who in 1970 became president of Penn Central Transportation Co. and later senior trustee for the giant bankrupt road, succinctly summed up the decade this way: “Bad things just kept happening.”
Maxwell, Langdon, and others were correct. Bad news dominated the railroad industry. The decade began with some unfavorable reports. The rate of return on investments was a disheartening 1.73 percent, the lowest since the Great Depression. Even the “profitables” suffered. The big coalcarrying Norfolk & Western — which had been bolstered by its acquisition of competitor Virginian in 1959 and then by more traffic diversity and expansion in the 1964 merger of Nickel Plate, Wabash, and two smaller Class 1s — saw its operating ratio (costs to revenues) in 1970 stand approximately 10 points above the impressive 58 percent it had achieved in 1960. There was also a growing fear that nationalization might be in the offing, a topic that was repeatedly discussed in boardrooms and in the financial and industry trade press.
Then came the shocker. On June 8, 1970, Penn Central — created only 28 months earlier by the touted merger of two historic rivals, New York Central and Pennsylvania (with the troubled New Haven added at the beginning of 1969) — filed for bankruptcy. Here was a 19,459mile railroad that was not only one of the largest corporations in America but also the primary freight carrier for more than half the people in the country, serving a dozen of the 20 largest metropolitan areas.
A combination of excessive regulation, modal competition, poor (even dishonest) management, limited premerger planning, and other factors led to this largest business failure in American history. Almost immediately the wreck of the Penn Central symbolized the descent of the railroad industry from wealth into poverty. There was more. The East was fast becoming a railroad graveyard: Central Railroad of New Jersey had failed in 1967; Boston & Maine and Lehigh Valley entered court protection in 1970; Reading slipped into bankruptcy in 1971; and Erie Lackawanna had a similar fate a year later after being devastated by Hurricane Agnes.
The Northeast in crisis
An early and positive response to the crisis came on October 30, 1970, when President Richard Nixon signed a bill that created the quasi-public National Railroad Passenger Corp., referred to initially as Railpax. On May 1, 1971, this entity, having chosen “Amtrak” as its brand name, made its debut — but running trains on only 13 Class 1s that had operated intercity passenger service the day before. (Three major roads — Rio Grande, Rock Island, and Southern — did not join Amtrak and continued to run their few remaining trains.) Outside the Northeast Corridor, which it owned after 1976, Amtrak operated over a skeleton network of lines and inherited a hodge-podge of mostly weary and ill-maintained equipment.
The Denver & Rio Grande Western attempted to discontinue service of its Rio Grande Zephyr passenger trains between Grand Junction and Salt Lake City many times. One of the ‘close calls’ happened in the spring of 1979 when they attempted to drop Utah from the schedule west of Denver. Thankfully, it didn’t happen this time. Passengers await boarding as train No. 18 slows to a stop at Provo, Utah on April 13, 1979. James Belmont
Here was a federal government response that was largely intended to relieve passenger-carrying roads, especially Penn Central, of a large chunk of their mounting deficits. “The assumption at that time was that Amtrak would go away in a few years and intercity passenger trains could simply die a natural death,” concluded veteran railroad journalist Don Phillips. “The great problem for government was to prevent passenger rail losses from dragging freight railroads into bankruptcy.” The advent of Amtrak would help the balance sheets of those roads that exited the business, but not enough to offset the other forces buffeting the industry.
Even in bankruptcy, Penn Central remained a financial basket case. Still largely a ramshackle property, PC bled red ink and would lose about a half-billion dollars. By 1973, trustees and the court concluded that a conventional reorganization was not viable; PC could not be restructured on an income basis. While most Americans thought little about an impending catastrophe in the railroad industry, a coalition of railroaders, union people, shippers, and bankers spent much of 1973 preparing rescue legislation. These activists lobbied politicians in Washington with the message that the economy would be seriously damaged if Penn Central, most of all, were shut down and liquidated, causing serious disruptions in manufacturing, mining, and other sectors of the nation’s business and commercial life.
On its inaugural run, Amtrak’s San Joaquin has E9A No. 417 and an ex-SP FP7 for power. No. 417 is ex-UP No. 912. There’s a big crowd on hand at the ex-Santa Fe depot to see this significant event. It had been approximately three years since the last regularly scheduled passenger train ran from Stockton to Bakersfield. Stockton, California, March, 1974. Steve Schmollinger
Action followed. Congress and the White House agreed that the federal government must protect the public interest. Although outright nationalization of the bankrupts would not be an option, what came about was the Regional Rail Reorganization Act of 1973, the “3R Act.” This monumental piece of legislation created the U.S. Railway Association (USRA), a government corporation designed to plan the restructuring of the Northeast rail network. The statutory instructions for the USRA included submission of a Preliminary System Plan within a year to the Interstate Commerce Commission, which would hold hearings and evaluate proposals.
In the plan’s initial phase, Consolidated Rail Corp., (“ConRail”) a new railroad with government funding, would take over Penn Central plus portions of the smaller bankrupts. The new corporation, which some critics called “special interest socialism,” would receive up to $1.5 billion of federally guaranteed loans for improvements. In September 1975 the projected funding was set at slightly more than $2 billion.
There are GM automobiles as far as the eye can see in the open racks of a train approaching Tunnelhill, Pennsylvania at Bennington Curve. On the next track, Santa Fe trailers promote a term that hasn’t been commonly used in railroading since containers and then stack trains appeared. July 09, 1977. Doug Lilly
Then, with completion of the Final System Plan and additional adjustments, “Conveyance Day” came on April 1, 1976. Overnight, PC, EL, Reading, LV, Jersey Central, Lehigh & Hudson River, and a handful of subsidiaries vanished from the railroad landscape. Despite federal backing, the new carrier struggled, racking up a deficit of about $2 billion between 1976 and 1980.
Penn Central and the other Northeast bankrupts were not the only railroads that desperately needed financial help. In the Midwest, Rock Island and Missouri-Kansas-Texas (Katy) sought aid under the 3R Act, but only the Katy received assistance, mostly because it seemed to have a reasonable chance for survival. These requests led Congress to pass the Railroad Revitalization and Regulatory Reform Act (“4R Act”), a measure that President Gerald Ford signed into law in February 1976. This legislative response, which allowed carriers to apply for loans to rehabilitate track and equipment, stabilized the industry, although Rock Island had already collapsed, having filed for bankruptcy in March 1975.
Rock Island’s bicentennial E8 652 debutes on the 20th Century Railroad Club’s Railfair ’76 special from Chicago to Bureau, shown here departing Chicago. Chicago, Illinois, May 16, 1976. John Dziobko
Mergers and more
Notwithstanding the Penn Central debacle, mergers continued, albeit at a reduced pace. History seemed to repeat itself in 1972 with the long-envisioned union of Illinois Central and Gulf, Mobile & Ohio — two largely parallel roads, as PC’s main components had been. By the late ’70s the new Illinois Central Gulf had deteriorated. Said one industry analyst, “Merging two relatively weak roads can result in a bigger weak road.” Despite its rocky start, some hopeful signs for ICG developed by the early 1980s, and ultimately it would slim down and thrive.
Although the creation of Conrail and the federal relief legislation grabbed headlines, less glamorous moves to “save” freight railroads occurred. Take what happened with Chicago & North Western. Led by its brilliant board chairman Ben W. Heineman, C&NW had been heavily involved in the “merger madness” of the 1960s with acquisition of Minneapolis & St. Louis and Chicago Great Western, and it had become the thorn in the side of the proposed merger of the Rock Island and Union Pacific. But as the 1960s ended, North Western was becoming more decrepit, feeling the effects of an eroding freight market, deferred maintenance, and other problems. “During the late 1960s and early 1970s, C&NW was a pretty pathetic operation,” commented one observer. “[UP] felt so wronged by C&NW service that a preferred routing was formed via Grand Island [Nebr.] and CB&Q, obviously short-hauling [UP] but saving its customers.”
Business as usual for UP in 1975, with GP30s working the yard and GP30s and GP9Bs on a potash train. Green River, Wyoming, August 04, 1975. Mike Woodruff
But a sea change was about to take place at C&NW. Heineman and Larry Provo, who recently had become president, hammered out an arrangement whereby the railroad would be sold to its employees. In October 1970, Northwest Industries, the conglomerate Heineman headed and which controlled the railroad, entered into an agreement with an employee group to sell its rail assets for a modest sum and to have that successor company assume its debt. Northwest Industries would receive some cash and, more significantly, a large amount of tax credits that could be used to offset profits from its subsidiaries. The ICC endorsed this creative proposal, and on June 1, 1972, the North Western Employee Transportation Co., renamed the Chicago & North Western Transportation Co., emerged. Later the Provo management did well at the federal trough, receiving substantial loans under the 4R Act that allowed it to bring about a rebirth of sorts, especially upgrades to its main line between Chicago and its connection with the UP at Fremont, Nebr. The exit of Northwest Industries from the life of the C&NW was positive; the railroad no longer operated in the shadow of a giant holding company. Yet for some time, C&NW struggled.
Other corporate changes and good leadership offered hope in this final decade before the Staggers Rail Act of 1980 sparked a renaissance in the industry, ending the long dark night of regulation.
The best example of a merger that worked came in 1970 when the so-called “Hill Lines” — Burlington Route; Great Northern; Northern Pacific; and Spokane, Portland & Seattle — united. They had been affiliated for decades but collectively were in decline. The combined road, Burlington Northern, began operations on March 2, 1970. BN was a giant that operated an impressive 26,000 route-miles, was truly inter-regional, and seemed likely to please customers. Admittedly this well-planned consolidation, which benefitted from good corporate cultures, got off to a lackluster start. “For a period of six or eight years after the merger, we simply did not have enough money to do everything we would like to do,” recalled BN executive Robert Downing. But the management skills that came from Downing and Louis Menk led to better days. BN would not be the “red team vs. green team” that had been Penn Central.
BN 5700 East (GE U33C) meets a westbound in the hole at Merritt. Note the SDP45 in the westbound’s consist. Merritt, Washington, July, 1973. Steve Schmollinger
Another railroad that experienced an impressive turnaround in the 1970s was the Western Pacific. New management, led by one of the foremost railroaders of the 20th century, former NYC and PC executive Alfred Perlman, worked wonders for this small Class 1. Better motive power, rolling stock, track structure, marketing, and an altered corporate culture made WP profitable, seeing its earnings more than double between 1972 and ’76. WP, along with Missouri Pacific, would enter the Union Pacific fold in 1982.
Enter Powder River coal
The unforeseen and remarkable expansion of coal production in the West was another positive of 1970s railroading. This would become a bonanza for several carriers, notably BN, C&NW, and UP. Although geologists had long known about the billions of tons of sub-bituminous coal that lay in thick seams near the surface in southeastern Montana and especially in the South Powder River Basin of Wyoming, these “black diamonds” seemingly had little value. The deposits contained relatively low heat content and were long distances from potential customers. By the 1970s, though, these shortcomings had become less important because in the previous decade, the modern environmental movement had begun to gain traction. Lawmakers responded with several landmark measures, including the Clean Air Act of 1970. Soon demand grew for Western coal; its low ash and sulphur content and the ability to blend it with Eastern coal permitted power companies to cope with clean-air legislation.
CNW 8501 (GE C40-8) leads the coal train. There are now 4 tracks at this location to handle all the coal traffic. Bill, Wyoming, May, 1973. Greg Mross
BN took the lead in developing the largest of these fields. In 1972 the company requested permission from the ICC to build a new 113-mile line from near Gillette, Wyo., south to Orin, Wyo. C&NW also saw the potential, and in spring 1973 asked the ICC for permission to construct 76 miles of line northward from its decrepit “Cowboy Line” that ran from eastern Nebraska to Lander, Wyo. Conflict soon erupted between the two roads, but the contentious issue of who would build where was resolved. With the ICC’s blessing, both roads gained access to the coalfields through the construction of a 116-mile joint line. But C&NW was poor and had trouble finding financing. Fortunately, UP came to its rescue. Since C&NW could not afford to upgrade the long Cowboy Line, it and UP agreed to a package of construction and upgrades to existing UP trackage. The joint BN-C&NW line would tie in with a rebuilt UP branch at Joyce, Nebr., and involve C&NW improving a section of the Cowboy and building a 56-mile link to the Joyce connection. Yet coal movements over C&NW-UP would not begin until 1984. BN tapped this traffic somewhat earlier, and it rapidly became a significant part of BN’s revenues. By the 1980s there would be a growing parade of coal trains rumbling east and south from the Powder River basin, benefiting the participating roads, the industry, and the nation.
New cars, locomotives
Continuing a trend from the previous decade, the 1970s witnessed the development of specialized equipment designed for specific users. Not only did increased coal movements create a good market for state-of-the-art open hopper cars, but covered hoppers also represented this trend. These cars became increasingly diverse in design and capacity, a response to the desire to accommodate the needs of a variety of bulk cargoes. In 1971, for example, ACF Industries built 56 three-compartment Center Flow covered hoppers with pneumatic outlets for the special requirements of the Northern Petrochemical Co., and eight years later it constructed a prototype four-compartment Center Flow Pressure aid covered hopper car to serve the baking industry.
A Great Lakes Carbon covered hopper in the Conrail train passing through DeKalb Junction, New York. These cars hauled calcined petroleum coke, used for manufacturing carbon anodes for aluminum smelting. DeKalb Junction, New York, July 27, 1979. Doug Lilly
Then, as car fleets wore out, there came a need for replacements. By the mid-1970s orders spiked for traditional, albeit modern, boxcars. Industry groups pressured the ICC to approve a higher per-diem (daily rental) rate for this equipment as an incentive to build. One response involved several new leasing companies that provided the capital for these cars and then arranged with a railroad for a lease rate and an agreement to return a portion of the per-diem revenues. It did not take long for various short lines, from McCloud River Railroad in California to Pickens Railroad in South Carolina, to place their new, brightly painted boxcars in regular interchange service. Unfortunately for the car-leasing business, though, changes in public policy soon led to the collapse of this market.
GE U18B Providence & Worcester 1801. The only one on the roster. Worcester, Massachusetts, May 29, 1979. TC Caughman
For locomotives in the 1970s, the trend was for better performance. This was the time of rapid advances in electronic technology. Both of the nation’s leading builders, Electro-Motive Division of General Motors and General Electric, continued to make these improvements. In 1972 EMD launched its Dash 2 series, which incorporated improved control and electrical systems; this series included the well-received GP38-2 and SD40-2. Likewise, GE’s Dash 7 line of 1977 introduced a host of improvements over the builder’s previous U-series diesels.
Part of the modernization process in the 1970s involved recycling fleets of 20-plus-year-old power. At mid-decade more than one-third of the 26,000 or so diesel locomotives in service were vintage “first-generation” products. The two big builders responded. EMD sought to take GP7s and 9s, which had reached retirement age, and remanufacture them into locomotives that would feature a combination of recycled and new parts. The company met with modest success; only about 350 of these upgrade locomotives — GP15s — entered service. About the same time GE introduced a comparable product, the 1,800 h.p. U18B, but it, too, was not a big seller. Many roads rebuilt older power themselves, or engaged contract shops to do the work.
America’s network of rail lines decreased by 20 percent during the 1970s. This shrinkage mostly involved light-density lines that may have had few or even no customers. Understandably, Class 1 roads were anxious to abandon these money-losing appendages. Nevertheless, it was thought that some trackage might become profitable with a smaller, non-unionized workforce and relaxed work rules. A new wave of railroads appeared, including a major “regional” carrier, New England’s Providence & Worcester, in 1973, and various short lines that operated pieces of former Class 1 trackage. A sampling included the Central Iowa (ex-Rock Island), Erie Western (ex-EL), Great Plains (ex-C&NW), and Prairie Trunk (ex-B&O). Most of these roads were financially fragile, and many — including those four — failed. It would not be until the 1980s that an explosion took place with scores of new regional and shortline carriers, the majority of which have survived and thrived or have been sold back, in whole or in part, to today’s giant Class 1s.
A C&NW commuter train rolls through Deval Tower which protects C&NW and Soo Line’s crossing on the northwest side of Chicago. This train is coming into Des Plaines from Harvard, Il. Des Plaines, Illinois, June 11, 1979. Bill Edgar
Most Americans paid little notice to the emergence of new operating companies, but those who relied daily on commuter trains more likely did. Another trend in the 1970s was Class 1s surrendering their money-draining suburban operations to metropolitan transportation authorities. These bodies either subsidized existing operators or acquired all or part of their commuter assets. Take Chicagoland. In 1974 voters in a six-county region approved a referendum to create the Regional Transportation Authority, and soon C&NW, Milwaukee Road, Rock Island, and other carriers no longer served as independent providers of these essential trains.
Meanwhile, something unexpected happened: under Amtrak, the decades-long slide in rail travel was reversed. The quasi-public company’s corps of true believers battled chronic underfunding from Congress and indifference on the part of the host railroads to improve service and even expand the skeletal network. Initially reliant on worn-out equipment, Amtrak commissioned the first new intercity rolling stock in a generation, receiving more than 1,000 modern, standardized cars and locomotives between 1973 and the early 1980s. Passengers also benefitted from hundreds of completely refurbished “Heritage fleet” cars. Ridership grew marginally during the 1970s, then dipped when several routes lost their trains to a round of federal budget cuts in 1979 under President Jimmy Carter. Nevertheless, Amtrak ended the decade as an established entity.
In late 1973, Amtrak ordered the first of 492 single-level cars, known as Amfleet I, that were based on the design of the popular Metroliner. With tubular bodies and ridged stainless steel fluting, they could reach speeds of up to 125 mph. history.amtrak.com
Every decade experiences change, and the 1970s was no exception. Unfortunately, the bad news outweighed the good. For the man and woman on the street this might mean loss of rail service, local property taxes, and railroad employment. As mileage declined, so did the industry’s workforce, falling 15 percent between 1970 and 1980, and this downward trend would accelerate in the ’80s. Moreover, the country itself faced years of struggle during the 1970s: “stagflation,” high interest rates, the Arab oil embargo, and domestic political and foreign policy events all were unnerving.
Yet the railroad industry was moving toward a repositioning. A stronger restructured American economy and rail-industry deregulation would help in creating a better, even glorious future for the nation’s railroads.
- Roger Grant is a professor of history at South Carolina’s Clemson University. He has written or edited 29 books, mostly about railroads, and has had five articles in Classic Trains publications. Grant was president of the Lexington Group in Transportation History.
- Roger Grant. Classic Trains, Special 2015, p. 8-15.
Ukrainian and Russian version: Alexey Krasnov
Photo: www.railpictures.net, history.amtrak.com
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