Debating Conrail, need help

[gprimr1]

I am having a debate with someone over rather or not Conrail was a blessing or a curse. I maintain that Conrail was a successful government company that made a profit and saved railroading in the Northeast.

The person I'm talking to made this argument:

That's an excellent example of goverment intervention limiting competition and distorting the market. Norfolk Southern Railway was two profitable railroads that operated in some of the same markets as Conrail and was forced to merge into one company after the formation of CSX. Now the three companies share infrastructure and compete in name only.


I don't know a lot about Conrail so I am hoping for some experts here to help, but I didn't think Norfolk and Western and Southern were operating north of Virginia. There where locked up in their own battle with Chessie and Seaboard. Now I have seen pictures of Chessie system power in Baltimore, but I've never seen anything to indicate that NW and Southern were forced to merge because of Conrail or that either company had realistic aspirations to buy the entire Conrail system.

[kevikens]

I'm hesitant to wade in on this arguement except to say that Conrail was formed out of the collapse of the railroads in the Northeast. Yes, they had operations in the Mid-West but while NW would have picked off some of these routes in the ensuing collapse it seems difficult to imagine Southern or NW being much of a buyer of redundant rail lines in the Northeast. Why would either of those lines show an interest in the PRSL or Central of NJ even at bargain basement fire sales out of bankruptcy. Chessie might have as they had connections in the Northeast not just to Philly but by agreement with Reading and CNJ into the NYC market. I don't know, though, because when NS and CSX did pick up those lines it was only because Conrail had made them profitable again. Back in the mid 1970's Northeastern railroading was in bad shape. Would NW or Southern have wanted to acquire the Penn Central? Would ANYBODY other than the US Government want the PC? I really don't think there was a viable option circa 1976 to a government takeover and I think it wishful thinking to imagine NW and Southern anxious to get into the Northeast at that time. Sorry if this does not help you in your debate but again, if you go back to 1976 in the Northeast, it was a world of leisure suits, Chevy Novas, a peanut farmer for president and every day de-railments on deferred maintenance tracks. Perspective is an excellent reality check.

[gprimr1]

Yeah, it didn't sound like a very believable argument. If anything, it sounds like Chessie could theoretically pick up the lines, but they didn't.

I've been thinking about the last line, maybe his argument is related to Conrail being divided up, and conrail killing off redundant lines reducing competition, but the redundant lines were a big part of the problem.

Thanks for the information.

[ExCon90]

gprimr1, prior to Conrail, N&W and Southern were indeed two profitable railroads, but not operating in the Northeast--that's one of the reasons they were profitable. The N&W at the time proclaimed loudly and vehemently that it wanted no part of any railroads east of Buffalo and Pittsburgh; their chairman spoke of a "firewall"--his word--that would protect profitable railroads against the Northeast. As I recall, the USRA was created to make something out of the railroad network in the Northeast precisely because none of the existing profitable railroads would touch it. Chessie, after taking a look at the EL, decided not to play. After the Staggers Act, which arguably could not have been passed without the previous collapse of the Penn Central, things changed greatly for the better and made it possible for all railroads, not just in the Northeast, to operate like profitable businesses.

[XBNSFer]

Actually the reason for the Chessie takeover of the EL falling through was the refusal of the labor unions to grant any concessions on work rules, without which the railroad had "negative value." Five man crews (and more in some states with so-called "full crew" laws) and 100-mile "days," combined with government regulation that continued to treat railroads like they were a transportation monopoly decades and decades after they ceased to be any such thing, are the reasons for the northeast railroads' collapse to begin with.

[charlie6017]

To me, it's kind of hard to debate because Conrail was formed before de-regulation (Staggers, as ExCon90 pointed out). If de-regulation happened say, ten years earlier, it may have been different.

Also, before May 1971, carriers were forced to haul passengers as well.

Charlie

[Jtgshu]

But don't forget the money loosing commuter operations up and down the Northeast Corridor that the fallen flag railroads were obligated to keep (due to state infusions of cash, equipment purchases, tax breaks, whatever) running. The splitting of the commuter rail ops to the states in 1983 helped Conrail TREMENDOUSLY and I believe was a key component which allowed it to become "profitable" and have such a wildly successful public opening in 1987. That time frame (early 80s) was a turning point from absolute chaos to more controlled chaos for several different reasons, one of which was the commuter ops, the other was the end of another round of branch line trimming and a huge amount of track sell offs and abandonments, and of course, deregulation.......

[Engineer Spike]

I think that there are many thoughtful answers to this thread. Conrail via the government first went through the growing pains of the deindustrialization of the Northeast. They also dumped tons of money in the most viable lines, and made them second to none. They had the deep pockets, and the political clout to get deregulation.
Fourty years ago, Chessie wanted nothing to do with the NYC. Now it has the would Waterlevel Route, from Cleveland east. NS/N&W once owned the Delaware and Hudson. They put a minimal effort toward its well being. They didn't want the B&M because of its debt. Now these lines are the keys to NS's market expansion.

[NellieBly]

I was with USRA (the government corporation that planned and funded Conrail) from 1978 through 1980. The story is long and complex, but I'll try to boil it down to the main points here.

1) In the 1960s, the entire rail industry was struggling because of changes in the US economy and the inability, because of regulation, to quickly re-orient to serve new markets. But railroads in the Northeast were in the worst shape, for several reasons that included short average length of haul, high terminal costs, and deficits on passenger service. The Interstate Commerce Commision after 1958 began permitting parallel mergers that would in theory allow railroads to merge and reduce capacity, but in practice abandonment approvals were difficult to get. In the Northeast, where rail market share was shrinking more quickly than elsewhere, this was a major problem.

2) The biggest parallel merger of all was Penn Central, and of course it failed. It was at the time the largest railroad in the US by mileage and revenue, so expecting some other railroad to merge with it was a fantasy. Sales of individual lines were generally made very difficult by the need for ICC permission, which meant that other railroads would try to block any line sales that they perceived to be bad for them. The Rock Island tried to sell the Golden State Route to the SP in the mid-1970s. The sale finally happened after the Rock went bankrupt in 1981.

3) So with Penn Central threatening to cease operations and leave major cities without rail service, the government stepped in. The 3R Act (1973) established USRA to plan for a new railroad to take over parts of the six bankrupts. The 4R Act of 1976 made some limited reductions in rail regulation. Conrail debuted with lines from L&HR, CNJ, E-L, RDG, and of course PC. But much trackage was left with the bankrupt estates, and was eventually sold or abandoned, sometimes after a period of operation as "subsudized light density lines".

4) Conrail received about $2.5 billion in Federal assistance to overcome many years of deferred maintenance on track and equipment. Nevertheless, the company struggled to make money until two important things happened -- the Staggers Act that largely deregulated railroads in 1980, and the Northeast Rail Services Act of 1981 (NERSA), which required states to set up authorities to operate commuter service rather than contract with Conrail. This, and the limitation on so-called "flowback" provisions that allowed train crews to move between freight and passenger service, finally enabled Conrail to make some meaningful cuts in its employment roster.

5) By 1998, when NS and CSX acquired it, Conrail had 20,000 employees and 12,000 route miles, down from 100,000 employees and 25,000 route miles in 1976. It is fair to say that Conrail shrank its way to success, leaving a lot less rail service in the Northeast.

6) The US Government eventualled settled a suit by the bankrupt estates over the value of their assets by paying out $7 billion. So the Conrail experiment cost about $9.5 billion. That cost was high enough that Congress realized that nationalization of the rail industry would be very expensive, and they opted for deregulation instead. That has worked very well.