20th century AD

Railway Age, Dec, 1999 by Frank N. Wilner

The railroad's decline was persistent and painful. Between the end of World War II and the mid-1970s, the federal government spent more than $81 billion on highways and another $10 billion on inland waterways. Not surprisingly, rail freight market share tumbled from more than 60% to 44% and the rails' passenger market share of more than 70% in 1947 evaporated to less than 8% by 1970. Excess capacity was so pervasive that 33% of the nation's rail route-miles carried only 1% of the freight.

Desperate for economies of scale, railroads were propelled to use every cost-cutting tool available and began a stampede to the marriage altar beginning in the late 1950s. By 1970 each of the nation's 25 largest rail carriers was involved in at least one significant unification. Almost 60 merger applications involving two or more Class I railroads were filed between 1957 and 1970 and the ICC denied only six. Where 110 Class I railroads operated in 1957 there were 71 in operation in 1970. It was believed that railroad consolidation was essential to achieving greater efficiency of equipment utilization, routing of long-haul traffic away from congested terminals, concentration of traffic over fewer route-miles, modernization of maintenance practices, and reduction of duplicate facilities.

Railroads also sought to eliminate money-losing passenger trains. With the industry fast approaching financial ruin, Congress passed the Rail Passenger Service Act of 1970, which created the federally-owned and subsidized Amtrak, to which railroads transferred their passenger trains on May 1, 1971. In exchange, they were required to give Amtrak access to their track--at reasonable fees to be arbitrated by the ICC in the event of dispute--and dispatching priority.

Freight operations continued to falter as subsidized truckers cherry- picked the most valuable freight by offering premium service. In desperation, the New York Central and the Pennsylvania merged in 1969, but this largest rail marriage in history soon became the nation's largest corporate bankruptcy. Failures of the Milwaukee Road and the Rock Island followed and it appeared nationalization was the only light at the end of the tunnel.

DEREGULATION PROMPTS A RENAISSANCE

With 21% of the nation's rail route-miles being operated in bankruptcy, the industry's deferred maintenance at more than $4 billion, a capital shortfall estimated at more than $16 billion, and freight rates rising in double digits, Congress reacted with loans even though railroads insisted that only regulatory relief was necessary.

The 1973 Regional Rail Reorganization (3-R) Act set the stage for the creation of Conrail from the ashes of Penn Central and other bankrupts. It provided $1 billion in new loan guarantees, $558 million in direct grants, and $85 million in operating subsidies for routes deemed essential. The U.S. Railway Association was formed to oversee the transfer of federal aid to Conrail. It was viewed, however, as too little too late and served only to bandage over a systemic problem of huge subsidies to trucks and barges coupled with excessive regulation of railroads.