20th century AD

Railway Age, Dec, 1999 by Frank N. Wilner

When the U.S. entered World War I in 1917, troops and all combat supplies moved to ports almost exclusively by rail. But disruption of Atlantic shipping by German submarines caused massive congestion at East Coast ports, leading to unprecedented gridlock in Eastern and Midwestern rail yards and intolerable empty-car shortages nationwide.

Railroads were nationalized under the Army Appropriations Act of 1916--still in effect--which permits the President, during time of war, to take control of any transportation system. The United States Railroad Administration, under the direction of a director general appointed by the president, took centralized operational control of the nation's railroads.

Nationalization lasted for 26 months through March 1, 1920--more than a year after the Nov. 11, 1918 armistice. Congress gave thought to nationalizing the railroads permanently, but shippers began clamoring for a return of competition and its attendant efficiency. Railroads had lost $2 million a day during the war and government overseers failed to invest in sufficient maintenance during the period of federal control.

The Transportation Act of 1920 restored railroads to private ownership with congressional encouragement to merge. Actually, the ICC was instructed to help plan orderly mergers. To prevent the Justice Department from meddling by invoking the Sherman and Clayton Acts, ICC-approved mergers were exempted from antitrust laws.

Alas, healthy railroads were unwilling to absorb unprofitable carriers and their debts. So Congress considered compulsory mergers--but retreated.

DEPRESSION-ERA REFORMS

When the Great Depression commenced during the 1930s, weak railroads failed by the dozens as carloadings and passenger boardings declined by some 40%. The percentage of railroad mileage being operated in bankruptcy reached a record 31% by 1938. Exacerbating the railroads' earnings decline was federal promotion of highways and waterways. As freight and passengers were siphoned off by competing and subsidized modes, railroads endured financially-crippling excess capacity.

The ICC, which gained regulatory authority over line abandonments in 1920, authorized the scrapping of more than 21,000 miles of track during the 1930s--a record that would hold until the 1970s when more than 30,000 miles were abandoned. The nation's rail route mileage, which reached a record 254,037 in 1916, commenced a shrinkage that would continue to the end of the 20th Century.

In the midst of the Great Depression, Congress crafted the 1933 Emergency Railroad Transportation Act, which scrapped central planning of rail mergers. It also created a federal coordinator of transportation with broad powers to order equipment and traffic pooling and track sharing--all aimed at cost-saving efficiencies and shielded from antitrust laws. President Roosevelt recommended greater voluntary coordination among railroads--and so was born in 1934 the Association of American Railroads.

But the hope for voluntary mergers still failed to materialize because of another provision of the 1933 law--job protection for rail workers. The incentive to consolidate was removed when carriers were prohibited from eliminating redundant tasks.