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Re: Would container traffic have saved the Milwaukee Road?
Author: Rob Leachman
Date: 04-08-2013 - 23:49
I normally do not monitor this list, but Matt Farnsworth called my attention to this thread.
Milw Road Lines West was profitable even until 1978, according to documents furnished to the Trustee (after correcting the double-entries!). However the whole of Milwaukee Road was very unprofitable and entered bankruptcy in 1977.
The 1970s Chicago-Milwaukee Corp. Board saw no way to break up or re-organize the railroad and so sought to find someone else to take the railroad off their hands. This after the failed attempt to get C&NW to take it in the late 1960s. At the end of the C&NW effort, Ben Heineman offered the C&NW to Milwaukee but Milwaukee refused to take it because the Chi-Milw Board wanted out of the RR business, not more of it.
Deferred maintenance on the Milw Rd had begun as early as 1956 when new directors bought effective control of the railroad.
The BN Merger Conditions were drafted by the Milwaukee Legal Dept. with no help at all from Milw Rd Operating or Traffic Departments. Access to Portland was highly beneficial (after being delayed for one year after the BN merger by UP legal action). But it suffered from the poor Tacoma Eastern 3.47% graded route. BN trackage rights Renton - Everett also were helpful but sufffered from the 3% graded Maltby Hill. Operating Dept. input might have guided Milw Legal to ask for trackage rights over the water grade BN routes that paralleled these lines.
Nonetheless, during the period 1969-1973 Milw's Lines West traffic levels basically doubled, moving from 2.25 trains each way per day to 4.5. Milw had many profitable traffic accounts, e.g., 85% of the westbound domestic autos to Spokane and Puget Sound, 100% of eastbound Toyotas, 70% of the Port of Seattle imports via rail. (Tacoma was not yet a container port.) Key things working in favor of Milw Road: (1) SP preferred Milw as a Portland interchange partner, because BN and UP were always trying to short-haul SP; (2) 1960s Milw management had done a brilliant job of getting the Spokane and Puget Sound auto ramps located on-line (although UP served them too), and had done the tri-levels clearance project early (1963); (3) Milw had a good reputation among shippers as a rate-cutter (much to the consternation of UP and BN); and (4) Milw's Traffic Dept. had simply done a better job of meeting with the shippers and understanding their needs than had UP and BN done.
The Chi-Milw Board paid no attention to the traffic growth on Lines West and was determined to find a taker for the entire railroad. As noted earlier in this thread, there was minimal investment in Lines West track maintenance despite the strong traffic growth. Running times of time freights started to deteriorate after 1969 and continued to worsen until the end. The assertion earlier in this thread that Milw service was at its peak of competitiveness in 1973 is very wrong. 1969 is more like it.
In the Fall of 1973 CEO Bill Quinn got tentative agreement from BN CEO Menk for BN to take over the entire Milw Road for zero cash and only the assumption of outstanding debt. But the Chi-Milw Board intervened. It noted that the Milw Land Company was a subsidiary of the railroad and could not be retained by Chi-Milw Corp. without some sort of special transaction for BN to sell it back. The Chi-Milww Board directed Quinn to go back to BN and ask for $50 million cash for the Milw Land Company. The BN Board hired a consultant to evaluate Milw Land Company. The consultant came back and said Milw Land Co. was not worth that much. In March, 1974, the BN Board told Quinn thanks, but no thanks. Quinn went back to the Chi-Milw Board and got agreement to return to the original offer of zero cash and just outstanding debt for only the railroad, with BN returning the Milw Land Co. to Chi-Milw Corp. But this time around, the BN Board overruled Menk and in May, 1974 it said no deal and broke off negotiations permanently. In 1981 just the timberlands in WA and ID belonging to Milw Land Co. were sold to ITT-Rayonier and Potlatch for $180 million.
Meanwhile, Milw did terrible damage to itself. Lines West management undertook a project to upgrade the Bitterroots crossing with 5 inches of crushed McQuarry granite, selective new ties and selective rail replacement. The entire crossing was 132lb rail on good ties on good ballast. (I don't know how they got this project past the Chi-Milw Board, probably took some creative accounting to hide it from them.) The project was a disaster. The track couldnot be raised in the tunnels account tight clearances so abrupt breaks in grade were introduced at tunnel portals. Worse, the spiral approach to the sharp curves was inadvertently removed. Worse, at the start of October, 1973, electric operation west of Deer Lodge was suspended, manned helpers were eliminated, and Locotrol operation was increased from one train a day each way to all tonnage trains. This was right at the moment when grain in 100-ton covered hoppers was moving heavily to the West Coast instead of the traditional destinations of Duluth and Twin Cities. The rough train handling associated with poor radio continuity of Locotrol, combined with the track geometry problems and the high center-of-gravity covered hoppers resulted in 33 derailments in 28 days of October. BN executives inspecting the line with Quinn were shocked to find all the ties on the Pass cut by derailments. The great irony is that this derailment melt-down happened on the highest quality track on Milw's entire Pacific Extension.
Service collapsed. The Toyota account was lost to UP. Most of the westbound domestic autos also were lost to UP. The Port of Seattle began using BN. This was the turning point for Lines West.
GE and the power companies had offered to revitalize the electrification and close the Gap. Enough motive power would be provided so that 4.5 trains each way per day could be run west of Harlowton with no main-line diesel power. Voltage would be raised to 3,900V, raising the horsepower of the Joes to 6,000 HP. Substations in the flats would become completely automated using ignitron rectifiers. The MG sets from those substations would be transferred to the mountain substations to boost output. Savings compared to diesel operation would more than cover all costs. With the financing offered, there would be zero cash outlay by Milwaukee.
Considering the tentative agreement for BN to take all of Milw Road, Quinn and the Chi-Milw Board rejected the GE-Power Companies offer and terminated the electrification. (As part of the tentative deal, BN had put in the requirement that there be no new capital investment in Lines West.)
Milw's last Lines West GM, Bing Torpin, initiated the project to build Fife Yard. A primary motivation was to vacate property in Tacoma to allow the container port to develop. Another motivation was to eliminate the back-in, back-out moves by Portland trains.
I think it is very clear that there was plenty of business to/from the PNW to support three transcon RRs with good levels of profits. The relatively minor differences in grades and distances are things at the margin and are beside the point. Nowadays, BNSF, MRL and UP are very busy railroads. Milw could have been one of those three.
We must remember that before de-reg there was no way to break up and re-structure RRs and no way to adjust rates. The Milw Road as it was was a hopeless proposition. The Chi-Milw Board cannot be faulted for trying to get out of the RR business, and, when that failed, for deliberately letting the RR go bankrupt in order to liquidate the valuable assets, especially the Land Company. They could not responsibly gamble the shareholder's monies that someday, maybe, the RRs would be de-regulated and unprofitable short-haul Midwestern networks could be spun off or abandoned and rates on long-haul traffic could be adjusted to secure lots of profitable traffic. Before de-reg, America had got into the position where what was best for the stockholders and what was best for the economy and the public were at odds. Unfortunately, it took the abandonment of a transcontinental RR to spur Congress into action.
There was a sinificant opportunity after the Milw went bankrupt to do something. But it would have required an investment in the hundreds of millions of dollars. The first Trustee was deceived to some extent about the earning power of Lines West (and left with bleeding ulcers once he found out he was deceived), but even without that deception, few in the late 1970s believed that the profitability of railroading would improve to the extent that such large investments could be paid off. Investors did not believe it. Most RR managements did not believe it. The ICC did not believe it. Probably the second Trustee did not believe it.
How wrong they were.
Best regards,
Rob L.
Milw Road Lines West was profitable even until 1978, according to documents furnished to the Trustee (after correcting the double-entries!). However the whole of Milwaukee Road was very unprofitable and entered bankruptcy in 1977.
The 1970s Chicago-Milwaukee Corp. Board saw no way to break up or re-organize the railroad and so sought to find someone else to take the railroad off their hands. This after the failed attempt to get C&NW to take it in the late 1960s. At the end of the C&NW effort, Ben Heineman offered the C&NW to Milwaukee but Milwaukee refused to take it because the Chi-Milw Board wanted out of the RR business, not more of it.
Deferred maintenance on the Milw Rd had begun as early as 1956 when new directors bought effective control of the railroad.
The BN Merger Conditions were drafted by the Milwaukee Legal Dept. with no help at all from Milw Rd Operating or Traffic Departments. Access to Portland was highly beneficial (after being delayed for one year after the BN merger by UP legal action). But it suffered from the poor Tacoma Eastern 3.47% graded route. BN trackage rights Renton - Everett also were helpful but sufffered from the 3% graded Maltby Hill. Operating Dept. input might have guided Milw Legal to ask for trackage rights over the water grade BN routes that paralleled these lines.
Nonetheless, during the period 1969-1973 Milw's Lines West traffic levels basically doubled, moving from 2.25 trains each way per day to 4.5. Milw had many profitable traffic accounts, e.g., 85% of the westbound domestic autos to Spokane and Puget Sound, 100% of eastbound Toyotas, 70% of the Port of Seattle imports via rail. (Tacoma was not yet a container port.) Key things working in favor of Milw Road: (1) SP preferred Milw as a Portland interchange partner, because BN and UP were always trying to short-haul SP; (2) 1960s Milw management had done a brilliant job of getting the Spokane and Puget Sound auto ramps located on-line (although UP served them too), and had done the tri-levels clearance project early (1963); (3) Milw had a good reputation among shippers as a rate-cutter (much to the consternation of UP and BN); and (4) Milw's Traffic Dept. had simply done a better job of meeting with the shippers and understanding their needs than had UP and BN done.
The Chi-Milw Board paid no attention to the traffic growth on Lines West and was determined to find a taker for the entire railroad. As noted earlier in this thread, there was minimal investment in Lines West track maintenance despite the strong traffic growth. Running times of time freights started to deteriorate after 1969 and continued to worsen until the end. The assertion earlier in this thread that Milw service was at its peak of competitiveness in 1973 is very wrong. 1969 is more like it.
In the Fall of 1973 CEO Bill Quinn got tentative agreement from BN CEO Menk for BN to take over the entire Milw Road for zero cash and only the assumption of outstanding debt. But the Chi-Milw Board intervened. It noted that the Milw Land Company was a subsidiary of the railroad and could not be retained by Chi-Milw Corp. without some sort of special transaction for BN to sell it back. The Chi-Milww Board directed Quinn to go back to BN and ask for $50 million cash for the Milw Land Company. The BN Board hired a consultant to evaluate Milw Land Company. The consultant came back and said Milw Land Co. was not worth that much. In March, 1974, the BN Board told Quinn thanks, but no thanks. Quinn went back to the Chi-Milw Board and got agreement to return to the original offer of zero cash and just outstanding debt for only the railroad, with BN returning the Milw Land Co. to Chi-Milw Corp. But this time around, the BN Board overruled Menk and in May, 1974 it said no deal and broke off negotiations permanently. In 1981 just the timberlands in WA and ID belonging to Milw Land Co. were sold to ITT-Rayonier and Potlatch for $180 million.
Meanwhile, Milw did terrible damage to itself. Lines West management undertook a project to upgrade the Bitterroots crossing with 5 inches of crushed McQuarry granite, selective new ties and selective rail replacement. The entire crossing was 132lb rail on good ties on good ballast. (I don't know how they got this project past the Chi-Milw Board, probably took some creative accounting to hide it from them.) The project was a disaster. The track couldnot be raised in the tunnels account tight clearances so abrupt breaks in grade were introduced at tunnel portals. Worse, the spiral approach to the sharp curves was inadvertently removed. Worse, at the start of October, 1973, electric operation west of Deer Lodge was suspended, manned helpers were eliminated, and Locotrol operation was increased from one train a day each way to all tonnage trains. This was right at the moment when grain in 100-ton covered hoppers was moving heavily to the West Coast instead of the traditional destinations of Duluth and Twin Cities. The rough train handling associated with poor radio continuity of Locotrol, combined with the track geometry problems and the high center-of-gravity covered hoppers resulted in 33 derailments in 28 days of October. BN executives inspecting the line with Quinn were shocked to find all the ties on the Pass cut by derailments. The great irony is that this derailment melt-down happened on the highest quality track on Milw's entire Pacific Extension.
Service collapsed. The Toyota account was lost to UP. Most of the westbound domestic autos also were lost to UP. The Port of Seattle began using BN. This was the turning point for Lines West.
GE and the power companies had offered to revitalize the electrification and close the Gap. Enough motive power would be provided so that 4.5 trains each way per day could be run west of Harlowton with no main-line diesel power. Voltage would be raised to 3,900V, raising the horsepower of the Joes to 6,000 HP. Substations in the flats would become completely automated using ignitron rectifiers. The MG sets from those substations would be transferred to the mountain substations to boost output. Savings compared to diesel operation would more than cover all costs. With the financing offered, there would be zero cash outlay by Milwaukee.
Considering the tentative agreement for BN to take all of Milw Road, Quinn and the Chi-Milw Board rejected the GE-Power Companies offer and terminated the electrification. (As part of the tentative deal, BN had put in the requirement that there be no new capital investment in Lines West.)
Milw's last Lines West GM, Bing Torpin, initiated the project to build Fife Yard. A primary motivation was to vacate property in Tacoma to allow the container port to develop. Another motivation was to eliminate the back-in, back-out moves by Portland trains.
I think it is very clear that there was plenty of business to/from the PNW to support three transcon RRs with good levels of profits. The relatively minor differences in grades and distances are things at the margin and are beside the point. Nowadays, BNSF, MRL and UP are very busy railroads. Milw could have been one of those three.
We must remember that before de-reg there was no way to break up and re-structure RRs and no way to adjust rates. The Milw Road as it was was a hopeless proposition. The Chi-Milw Board cannot be faulted for trying to get out of the RR business, and, when that failed, for deliberately letting the RR go bankrupt in order to liquidate the valuable assets, especially the Land Company. They could not responsibly gamble the shareholder's monies that someday, maybe, the RRs would be de-regulated and unprofitable short-haul Midwestern networks could be spun off or abandoned and rates on long-haul traffic could be adjusted to secure lots of profitable traffic. Before de-reg, America had got into the position where what was best for the stockholders and what was best for the economy and the public were at odds. Unfortunately, it took the abandonment of a transcontinental RR to spur Congress into action.
There was a sinificant opportunity after the Milw went bankrupt to do something. But it would have required an investment in the hundreds of millions of dollars. The first Trustee was deceived to some extent about the earning power of Lines West (and left with bleeding ulcers once he found out he was deceived), but even without that deception, few in the late 1970s believed that the profitability of railroading would improve to the extent that such large investments could be paid off. Investors did not believe it. Most RR managements did not believe it. The ICC did not believe it. Probably the second Trustee did not believe it.
How wrong they were.
Best regards,
Rob L.
