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Reactor Janitor
DP Veteran
Jun 11, 2006
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West Coast USA
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This month is the 38th anniversary of the beginning of operation of the Consolidated Rail Corporation, or "Conrail" as it was called. The railroad was created by the Federal Government when it realized that the freight railroads in the Northeast US may never be profitable ever again, and that if they were allowed to disappear then industry in the northeast would be severely curtailed. Despite the creation of Amtrak in 1971, thereby allowing the railroads to dump their horribly unprofitable passenger service onto the public, the railroads in the northeast were disintegrating and where close to being gone completely. The bankruptcy of the Penn Central Railroad was the largest in the US (and would be until Enron) but just about all other railroads in the region (Ann Arbor, Erie Lackawanna, Lehigh Valley, Reading, Jersey Central, and Lehigh & Hudson River) were broke as well, and most had no realistic plan on ever returning to black ink.

As the abandonment of rail service in the northeast appeared imminent, the federal government came in and nationalized the bankrupt roads, and after deciding what the final system would be, began operations this month in 1976. The federal government believed, initially, that short term investors were scared of making the necessary investments to return the railroads to profitablity....

...and then reality sunk in. At the time, the railroads were still subjected to the regulations which had been made in the late 19th century to protect against the "robber barons" and giant trusts which used their rail interests as tools to gain control of all industry. The regulations created through the Sherman Anti-Trust Act and the creation of the Interstate Commerce Commission, for example, ensured that railroads could no longer be the snake that would "choke off" any competition from reaching the market, or doing so at a much higher rate ("captive shippers"). The federal government realized, once one member of Conrail's management after another made the case before them, that railroads, especially in the northeast, were never going to be profitable if they faced regulations that were written when the airline and trucking industries were science fiction. Conrail was losing almost as much money as its non-consolidated predecessors, with losses often exceeding $1m/day (in the 1970s). After seeing firsthand how federal regulation was strangling the industry, Congress, in 1980, de-regulated the railroads with passage of The Staggers Act.

The big pieces of the act I will quote from wiki:
  • A rail carrier could establish any rate for a rail service unless the ICC were to determine that there was no effective competition for rail services.
  • Rail shippers and rail carriers would be allowed to establish contracts subject to no effective ICC review, unless the Commission were to determine that the contract service would interfere with the rail carrier's ability to provide common carrier service (a finding rarely if ever made, and not apparent in the history of the rail industry thereafter).
  • The scope of authority to control rates to prevent "discrimination" among shippers was substantially curtailed.
  • Across-the-board industry wide rate increases were phased out.
  • The dismantling of the collective rate making machinery among railroads begun in 1976 was reaffirmed, with railroads not allowed to agree as to rates they, respectively, could perform on their own systems, and were not allowed to participate in the determination of the rates on traffic in which they did not effectively participate.

After deregulation, Conrail become profitable the next year, 1981. As an example to how much the regulation was strangling the industry, Conrail abandoned 4,400 miles of rail lines after deregulation--and that 4400 miles made up for only 1% of all rail traffic! In 1983, Conrail was further aided by the assumption of commuter services by their respective states/cities (MetroNorth, NJ Transit, The "T", SEPTA, MARC) which were necessary yet unprofitable. President Reagan oversaw the IPO of the now profitable Conrail in 1986, and at, according to wikipedia, $1.65bn Conrail was the largest IPO in US history at that time as Conrail became a private company.

34 years since de-regulation, and the freight rail system in the USA puts every other one in the world to shame (well, Canada does well for itself but it's basically the same system just further north lol). Unlike Airlines, Truckers, and Waterborne shippers, Railroads must make all capital investments themselves. Though the feds will help with some funding when the need exists, compared to what is spent on highways (or, better yet, the amount spent to make highways last with 18-wheelers pounding them) and airports it is negligible.

If you commute into or out of a major Northeastern city, or you work in one of the Oil Refineries in New Jersey that is now processing North Dakota crude, or are a medium sized shipper who would like better intermodal options to more major markets, you can thank Conrail.

Conrail. Perhaps the only time that one could claim nationalization and deregulation saved an industry and be completely right.

Staggers Rail Act - Wikipedia, the free encyclopedia
Conrail - Wikipedia, the free encyclopedia
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