The Decline of the American Railroads

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The Decline of the American Railroads
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The Streamliner
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• Bureau of Public Roads, 1915 USDA
• Gasoline Taxes
• Oregon, 1919
• Revenue Act of 1932
• Pennsylvania Turnpike, 1940

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• National Interstate and Defense Highways Act,
  1956
  
• Federal Highway Administration, 1966

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Rail Passenger Service Act, 1970 National
Railroad Passenger Corporation (Amtrak), 1971
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• The Regulatory Climate
• Transportation Act of 1958
• The Big John Case, 1960s
• ICC slow to authorize mergers and abandonments

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• Low Rates of Return
• 1.0 ROR, vs. 10.8 cost of capital
• Overcapacity, esp. in the Northeast
• Declining Traffic
• The Death Spiral
• Bankruptcies
• New York, Ontario Western, 1957
• Penn Central, 1970
• Rock Island, 1975
• Milwaukee Road, 1977

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What Happened to the Penn Central?

• The Merger
• The Pennsylvania Railroad
• The New York Central System
• February 1, 1968

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What Happened to the Penn Central?

• Reasons for Failure Paul Shrivastrava,
  Postmerger Integration
  
• Procedural Integration
• Physical Integration

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What Happened to the Penn Central?

• Managerial Cultural Integration
• Corporate culture
• The Red Team and the Green Team
• Mismanagement
• Alfred Perlman, President
• Stuart Saunders, CEO
• David C. Bevin, CFO
• Financial manipulation (a.k.a., Cooking the
  Books)
  

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What Happened to the Penn Central?

• Reasons for Failure
• Public policy and regulation
• The Metroliner
• The New York, New Haven Hartford
• Organized labor

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What Happened to the Penn Central?

• Really bad luck
• June 21, 1970
• The fallout
• Shippers
• Labor
• Congressional
• Regulatory

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Rebirth

• Regional Rail Reorganization (3-R) Act, 1973
• Emergency funding
• Established the Consolidated Rail Corporation
  (Conrail)
  
• Railroad Revitalization and Regulatory Reform
  (4-R) Act, 1976
  
• Limited deregulation
• Certain commodities exempt
• Required presence of market dominance
• Capital-investment subsidies for financially
  troubled railroads
  

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Rebirth

• The Staggers Act, 1980
• Mandates adequate revenues
• Most rates do not have to be just and
  reasonable
  
• Assumes that railroads do not have market
  dominance, unless the shipper can prove
  otherwise
  
• Allowed for confidential transportation contracts
  (i.e., without posted rates)
  
• Facilitated mergers time limits
• Intermodal traffic exempted from regulation

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Rebirth

• Northeast Rail Service Act, 1991
• Transfer of commuter services
• ICC abolished, 1995 replaced by Surface
  Transportation Board
  

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Recent Changes in the Industry

• Large (Class-1) railroads shed unprofitable
  routes
  
• Abandonment
• 140,800 miles to 97,500, 1980 - 1995
• Shortlines and regional railroads
• Increased traffic
• Up 57, 1990-2005
• Intermodal
• TOFC and COFC
• Coal Powder River Basin

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Recent Changes in the Industry

• Mergers and merger meltdowns
• Conrail privatized, 1987
• Burlington Northern Santa Fe, 1995
• Union Pacific Southern Pacific, 1997
• Conrail split, 1999
• Congestion
• STB rejects BNSF Canadian National merger,
  2000
  
• Captive shippers
• Continuing capital shortages short-term vs.
  long-term returns

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