Railroads of the 1990s

Thanks to deregulation, gains in productivity, and the use of cutting-edge technology, the nation's railroads are moving more goods than ever before. As the numbe­r of railroads has dwindled because of mergers, the industry has become more profitable, even while slashing rates and employing fewer workers. With more mergers and technological breakthroughs on the horizon, railroads seem poised to become the nation's arteries of commerce.

Turning points in history are often hidden and difficult to distinguish, but this was not the case in the rebirth of the American railroad industry. It happened on October 14, 1980. That's the day that President Jimmy Carter signed the Staggers Rail Act into law.

The legislation gave the railroads a freedom they'd not had in 75 years-that is, the right to adjust their prices in response to market conditions. The transformation literally took an act of Congress, but it would spawn thousands of mini-revolutions within the industry, creating an era of the railroad reborn.

After years of strangling the industry with regulation, Congress took the action partly because deregulation was popular, but also because Conrail had by this time already gone through approximately $3 billion in federal assistance, with no end in sight. Giving Conrail-and the rest of the nation's railroads-the freedom to run their businesses without cumbersome government agencies second-guessing them breathed new life into America's iron horse.

The Interstate Commerce Commission was given limited authority to hear complaints from shippers about railroad rates, while overseeing abandonments and mergers. The Federal Railway Administration, meanwhile, took on the job of policing railroad safety.

L. Stanley Crane, Conrail's CEO, later recalled the era. "We lived out 100 years of railroad history-moving from the restrictive regulation and capital-starvation of the past into the market-driven, innovative, and successful company of today and tomorrow," he said.

Few could have foreseen the thousands of changes that would take place as railroads exercised their freedom to operate as a free-market business instead of a regulated utility. The change that began with the Staggers Act came full circle in 1987, when a profitable Conrail became a publicly traded company on the New York Stock Exchange. Starting at $28 a share, the stock rose to more than $84 within a few years.

Conrail's experience was similar to that of many railroads in the 1990s. The road focused more on customer expectations. It trimmed expenses and abandoned or sold off unprofitable lines. The focus on reliability even led the company to paint its buzz phrase-"Conrail Quality"-in huge letters on all of its locomotives.

The railroads of the 1990s look almost nothing like they did a few years ago, and changes anticipated over the next 15 years will probably make for even more dramatic contrasts.