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.
Railroads of the modern era jumped at the chance to become bigger and more efficient. For years, the largest of the railroads were referred to as the Super Seven. Today, that number has been whittled down even further. The stage is set for a day in the near future when there will be two major rail systems in the West; three in the East; a few regional railroads running secondary rail lines unwanted by their larger cousins; and hundreds of shortlines taking over smaller branch lines.
Through a series of mergers, several super-railroads have been created. These giant railroads take several forms. Some are the creation of a marriage of equals-such as Chessie System and Family Lines, or Norfolk & Western and Southern, or the combination of Burlington Northern and Santa Fe in the mid-1990s.
The Burlington Northern-Santa Fe merger created the nation's largest railroad, with almost 30,000 miles of track. Even before the merger, Burlington was the nation's biggest coal hauler. Thanks to the demand for low-sulphur coal from Wyoming's Powder River Basin, BN hauls more coal for utilities than any other railroad in the nation. Santa Fe's specialty was the high-speed piggyback train, toting truck trailers and containers across the nation. From Chicago to Los Angeles, Santa Fe's silver and red "war bonnet" paint scheme led some of the country's fastest TOFC (Trailer On Flat Car) runs.
Taking a different approach, Union Pacific has grown by purchasing railroads. Over the last 15 years, the UP has acquired the Western Pacific, Missouri Pacific, Missouri-Kansas-Texas, and Chicago & North Western, Southern Pacific, and Denver & Rio Grande Western lines, creating a blanket across the West and the Midwest.
At the end of 1995, Union Pacific sought to bring Southern Pacific-itself a combination of the SP and Rio Grande-under its control to counterbalance the BN-Santa Fe combination. That made the UP the nation's largest railroad with slightly more than 30,000 miles. The move came more than a decade after an early 1980s attempt to merge the Santa Fe and Southern Pacific. That deal went awry when the I.C.C. failed to give its approval.
Ironically, the dream of a true transcontinental railroad remains just that-a dream. In all of the mergers of recent years, none has dared unsettle the balance of trading partners on either side of the Mississippi River. That is likely to change some time in the twenty-first century. Industry experts point out that it is only a matter of time before mergers between the remaining East Coast and West Coast railroads take place. The U.S. railroad map may eventually show three, or perhaps two, major rail systems crisscrossing the mighty Mississippi.
1990s Railroad Mergers
The super-railroads of today are a reflection of other U.S. mergers and mega-companies of the modern era. As railroad companies merge, they are able to concentrate more authority in fewer managers, dictating orders across a wider area.
As is often the case, unproductive parallel rail lines and antiquated equipment typically become surplus after a merger. In the case of many mergers, these surplus lines quickly become fodder for regional railroads, shortlines, and railroad museums. Regionals and shortlines often succeeded where the super-railroads failed, due to lower costs and less restrictive work rules.
Several of these lines have found a niche. Montana Rail Link, for example, began operating Burlington Northern's former Northern Pacific line, no longer needed because of plenty of capacity on the paralleling Great Northern line. Today, Montana Rail Link is a healthy company, with almost 1,000 miles of track and almost 100 diesel locomotives moving paper, forest products, grain, and other commodities. Other companies, such as RailTex, of San Antonio, Texas, operate several shortlines of less than 100 miles each from one central headquarters.
The efficiency of the super-railroad is a stunning example of American business at work. Railroad stocks have outperformed the overall U.S. stock market since 1991. At the same time, freight rates have fallen in inflation-adjusted dollars. The industry has begun to take back traffic it lost to trucks and barges in the years since World War II. Freight shipments reached record levels for seven years in a row through 1994. The railroads' share of intercity freight rose to 39.2 percent in 1994, up from 38.1 percent in 1993 and 37.5 percent in 1992.
Even before they adopted a new paint scheme on their locomotives, the Burlington Northern and Santa Fe went to work immediately after their merger in 1995 to streamline their operations and launch an intermodal train service between California and the Southeast. The new service bypassed the Burlington, whose lines were packed with coal trains bound from the Powder River Basin in Wyoming to utility plants in the South, in favor of the higher-speed Santa Fe lines across the West. The improvement sliced 24 hours from the scheduled run between San Bernardino, California, and Atlanta, Georgia.
The 1990s Railroad Business Boom
On some railroads where the norm has been to reduce costs and eliminate rail lines, old shops, and unused equipment, a reverse trend has taken hold. Many rail lines have struggled to keep up with all of the traffic.
At Union Pacific, business was so good in 1995 that the company leased 75 diesel locomotives from Norfolk Southern. The three-track Union Pacific mainline across Nebraska, a venerable funnel of American commerce connecting the West, Midwest, and East, is so packed that the line plans to add a fourth track. Likewise, Norfolk Southern plans to install a second track on much of its busily traveled route between Atlanta, Georgia, and Chattanooga, Tennessee.
Conrail, which had laid off employees for a number of years, hired 800 new workers in 1994. Southern Pacific, which had one of the oldest diesel locomotive fleets in the nation, spent more than $750 million on new power in the early 1990s, renewing almost half of its fleet.
Even General Motors, which quietly closed its LaGrange, Illinois, locomotive manufacturing shop in the late 1980s and considered selling its once-lucrative diesel business, took a second look. Although most diesels are still built at General Motors' Electro-Motive subsidiary in London, Ontario, production capacity was at such a high level in the 1990s that some engines had to be shipped unpainted for the railroads to finish in their own shops. Conrail even took diesel locomotive kits and finished them in the company's shops in Altoona, Pennsylvania, where steam locomotives were once constructed.
Earnings for the nation's railroads reached $3.3 billion in 1994. That's up from $2.5 billion the previous year. Railroad industry executives even credited deregulation with helping them become more safe. After the American Association of Railroads announced the safest year ever in 1994, association CEO Edwin Harper remarked that, since the enactment of the Staggers Act and the resulting increase in railroad cash flow, "freight railroads have made capital expenditures in excess of $50 billion to improve track, signals, equipment, and information systems." Technological advancements, better freight car designs, and better operating practices all led to the improved safety record.
The railroad industry's robust health has come as a result of an improving U.S. economy, computerization of everything from dispatching to waybills, increased research and development, and breakthroughs in labor agreements.
Two of the most exciting technological developments have come with the introduction of double-stack containers and RoadRailers. Double-stacks rely on a flatcar with a sunken floor that allows two intermodal containers to rest one atop the other, doubling the capacity of a flatcar. Southern Pacific was the first major railroad to build these cars, in conjunction with ACF Industries.
Double-stack containers often arrive by ship, then continue their journey by train, with final delivery by truck. Double-stack trains have necessitated the rebuilding of many routes on the nation's mainline railroads to accommodate these ultra-high loads. The clearance of bridges and tunnels were raised in Pennsylvania in a multimillion-dollar project to get double-stack service to the port of Philadelphia. In Virginia, Norfolk Southern eliminated or renovated several tunnels on its hilly line into West Virginia to allow double-stacks to pass between Chicago and the port of Norfolk.
Double-stacks have won back much of the profitable perishable-goods business for the railroads. Replacing the traditional refrigerated boxcar is the 40-foot-long double-stack container, powered by a generator with an automatic backup in case the main generator fails. With double-stack trains running between Seattle and New York in only five days, everything from Alaskan king crab to photographic film can be shipped in temperature-controlled boxes.
In 1977, according to data from the Association of American Railroads, railroads carried only 0.2 percent of produce shipments. After deregulation, perishable traffic jumped to 15 percent. A container, which can make several trips in one month's time, easily outperforms refrigerated boxcars, which by comparison average only one trip a month.
On other railroads, particularly Norfolk Southern, RoadRailers are the current rage. Basically a truck trailer that can ride the rails or the highways, these lightweight, versatile containers operate in dedicated trains of 100 cars or more, moving everything from beer to cat litter. Detachable rail wheels make them easy to put on the tracks, while retractable wheels make them easy to put on the road. Both have meant big gains in productivity.
The railroads redesigned everything. They built new hopper cars to carry the nation's coal for electric power plants, switching to lighter and more durable aluminium designs, and they revamped the traditional wood-hauling car to make it easier to load and unload. They even replaced the wooden tie and spike with concrete ties and metal clamps.
Communications technology has also revolutionized some aspects of railroading. Throughout the industry's history, train crews have left their terminals with a manifest of pre-assigned duties, pickups, and set-offs. On the Union Pacific, the railroad started using a direct-link computer system between the crews and the marketing department. That means reporting immediately when cars are distributed or collected. It also means flexibility in sending service orders to a train on the road.
In Roanoke, Virginia, Norfolk Southern's giant freight yard resembles a big remote-controlled model railroad. Computers set the brakes on the cars being sorted in the railroad's hump yard. They also align the switches. Operators sitting in a strategically positioned tower even manipulate the pace of locomotives shoving cars through the yard.
New freight-car wheel designs have reduced the number of accidents resulting from wheel failure by 80 percent. By changing the shape of the wheel and subjecting the steel to heat treatment, professional engineers have literally reinvented the railroad wheel.
Advances in technology have had their price, however. Railroad employment has been particularly hard hit. Today's railroads haul more freight than they did at the beginning of the 1980s, but they do so with 40 percent fewer employees.
From 1979 through 1992, the output per hour in the railroad industry rose 8.1 percent, according to the Bureau of Labor Statistics. That made U.S. railroads the most productive in the world. Railroad productivity increased 157 percent from 1983 to 1992.
In addition, many sweeping labor agreements have changed the face of the industry. A 1982 agreement reduced the number of crew members on a freight train from four or five to two or three. Early 1980s agreements also spelled the end for the caboose-from then on, the conductor would ride in the locomotive with the rest of the crew.
After a strike in 1991, the Brotherhood of Locomotive Engineers won a wage hike that hasn't kept up with the rate of inflation. The union also gave up some health benefits and agreed to work more hours before getting overtime pay. As a result, an Amtrak passenger train that once required four crews to complete the trip from Washington, D.C., to Atlanta, Georgia, now operates with only two.
Such changes resulted in drastic reductions in employment at the nation's major railroads, whose work forces dipped from 475,000 at the dawn of the new era to some 191,000 at the end of 1993. The trend is expected to continue, as technology and computers make railroading safer and more efficient with fewer workers. Someday, through-trains may run by radio signal from remote-controlled dispatching centers, trimming the crew to a single person.
The railroad industry is taking a second look at virtually everything it does to squeeze more profit and efficiency from its operations. Freight cars once tracked by human clerks as trains entered yards now respond to radio signals that can beam their codes directly into a computer.
Amtrak, the nation's federally subsidized passenger railroad, has likewise begun moving toward a new era. With its budget tied directly to federal subsidies, however, it has weathered a difficult era in which money to buy new equipment has been tight.
The purchase of millions of dollars worth of new Super-liner passenger cars at the beginning of the 1990s and a newly designed car known as the Viewliner spelled the end for the streamlined passenger-car fleet of the 1950s. The first of some 140 new Superliners resulted in entirely new versions of popular Amtrak trains such as the Cardinal and the Capitol Limited.
Steps to improve Amtrak service between Washington, D.C., and New York City have seen travel times trimmed, with steps being taken to increase speeds from the 120-miles-per-hour range into the 140s. Congress allocated millions of dollars to increase speeds through computer-aided dispatching, higher-speed track, and new electric locomotives.
Perhaps the most encouraging signs that Amtrak was ready to make a leap forward came in 1993. Amtrak tested the Swedish X2000, German ICE, and Spanish Talgo-all advanced trains. These new trains operate with special devices that allow them to travel at higher speeds on curves. Computer-controlled devices actually tilt the X2000 to give it the ability to flash through curves at speeds much higher than normal. Such trains are envisioned as the next step toward faster service between cities. In the extreme Northeast, they're seen as the key toward extending high-speed service from New York City into highly congested New England.
If successful, high-speed rail lines will spread from the Northeast into other sections of the nation. Modern trains will glide along banked turns and fenced-off right-of-ways to move passengers from city to city in record time.
The University of Texas Center of Electromechanics, for example, has been awarded $2.9 million to develop an advanced passenger locomotive that can accelerate faster. If super-railroads, big technological changes, and sweeping labor reforms were unexpected at the beginning of the 1980s, the next few years could be even more surprising.
Railroads of the Future
More and more powerful locomotives aided by computers that track everything from the adhesion of the wheels on the rail to the performance of the motors will be pulling trains in the near future. Dedicated trains in which each rail car is powered, thus providing for smooth starting, stopping, and operation, is one possibility.
Intermodal traffic, which has grown more than 60 percent in the last decade, is expected to jump another 60 percent in the next few years. Fast intermodal trains roll across the Colorado high plains on the Santa Fe line as Q-trains and on the nearby Union Pacific line as Z-trains or "Zippers."
Railroads will become better utilized thanks to satellite tracking and computerized signaling and safety devices. As the nation continues to wrestle with environmental problems, the railroads will continue to be an important resource, moving the same amount of freight with only a tenth of the pollution.
The first reviews on deregulation seem to be positive. A shippers group called CURE (Customers United for Rail Equity) sought to partially re-regulate the industry beginning in 1986, but made little progress. In vindication of the 1980 Staggers Act, the federal government in late 1995 dismantled the Interstate Commerce Commission. Debate focused on which remaining federal agencies would assume the I.C.C.'s duties to hear rate disputes and merger cases. The future of the railroad as a free-market industry looked secure.
Throughout their more than 170-year history, American railroads have reflected the development of this diverse and changing country. They grew up with the nation in the 1830s and spearheaded the drive West. They turned ever more complex and, by the turn of the century, became the province of wealthy speculators. They went to war twice in this century. And facing the new world after World War II, they struggled with old ways of doing things.
Today, they're obsessed with technology and productivity, as our society demands newer, faster, and better ways of doing things. In that sense, the railroad is a mirror of American culture. Never before has it been involved in so many new ways of doing what it does best-carrying freight and passengers. As many American industries are busy trying to "re-engineer" their companies, the railroads are well into almost one generation's worth of experimentation and change.
Need proof? Watch what happens south of Seattle late on a springtime afternoon. At a mainline crossing where both Union Pacific and Burlington Northern are within feet of each other, the gates flash and come down. The headlight of a southbound Burlington Northern train appears. Quickly, its two diesels and string of double-stack containers whizz by. The sound of the engines is a deep roar, like a baritone clearing his throat. The tracks sing as the cars pass beneath them. In the distance, a small beacon, the conductor of the twenty-first century, flashes red, sending out an electronic greeting.
Or watch on a sunny Sunday afternoon as a giant CSX coal train rolls through Marietta, Georgia, on its way from a Kentucky coal mine to a Florida power plant. Two AC-powered engines roll the 13,000-ton train south almost effortlessly. Gone forever are the laboring steamers, stopping regularly for water and coal.
Gone, too, are many of the doubts about railroading's future. The industry is headed full throttle toward the twenty-first century, and it's not looking back.
Modern Railroads Timeline
The Staggers Rail Act becomes law on October 14, beginning deregulation and giving railroads the right to set rates.
Chessie System and Seaboard Coast Line Industries merge to form CSX.
Burlington Northern acquires Frisco, connecting Pensacola, Florida, and Seattle, Washington.
Union Pacific merges with Missouri Pacific and Western Pacific, tapping new markets in Texas, Louisiana, and the San Francisco Bay area.
Southern and Norfolk & Western merge to create Norfolk Southern. The innovative NS establishes itself as a major coal hauler and freight line.
The Soo Line purchases the remnants of the once mighty Milwaukee Road.
Norfolk Southern begins regular operation of its RoadRailer units-versatile containers that can ride the rails or the highways.
Conrail goes public in the largest stock offering in U.S. history.
Rio Grande and Southern Pacific unite as Southern Pacific Lines.
The Missouri-Kansas-Texas line becomes part of Union Pacific.
Canadian Pacific buys Delaware & Hudson, increasing its presence in the northeastern United States.
Amtrak begins operating Virginia Railway Express commuter trains around Washington, D.C.
The first diesel locomotives powered by AC (alternating current) enter service on Burlington Northern.
Burlington and Santa Fe merge.
Union Pacific acquires Chicago & North Western, then announces plans to merge with Southern Pacific.