Railroaders' Nostalgia > Mad Dog Chronicle #178 Deregulation and the Western Div

Mad Dog Chronicle # 178 Rail Deregulation and its Impact on the Western Division.

In the responses to Mad Dog Chronicle #177, questions were asked about the impact of the Staggers Act on the SP’s Western Division. I will start to address that here. However we are dealing with the 1980 – 1981 time frame and most of the true impact of the Staggers Act did not occur until 1982 and on through the late 1980s and early 1990s.

Perishable Traffic as a commodity group had been deregulated for railroads in 1979, prior to the passage of Staggers. As a direct result, SP again went after the Salinas Valley perishable market very aggressively. The most obvious manifestation of this was the salad bowl express campaign. On the Western Division we were again running full or nearly full perishable trains of mechanical reefers via Ogden six days a week. There was an excellent article on this subject by Elrond Lawrence published in Trains Magazine several years ago. ( perhaps one of you remember the month and year of that article)

Actually, the impact of deregulation was largely covered up by the economic downturn of 1981 and deep recession of 1982. Yards which were full in 1980 were being closed by 1982. We shut down the Dumbarton line in 1982 to save the costs of a bridge operator around the clock. Two days after we took this step, my Regional Engineer appeared in my office with what he thought would be very bad news. Because of the deterioration of the wooden pilings on the trestle portions, he was taking the bridge out of service. I think that he expected the full mad dog roar. Instead I calmly said “that’s OK we quit operating over that route two days ago.”

The Western Division Study and the following NWP study clearly pointed out loosing traffic segments. The SP’s marketing department then took steps to alter the rates or to withdraw equipment from these services. This clearly led to some of the decline in local traffic. However, this was largely overshadowed by the impact of the 1981/1982 economic downturn in the business cycle.

The closing of the auto plants at Warm Springs and Milpitas by GM and Ford had nothing to do with rail deregulation. Neither did the movement of warehousing away from San Francisco. Container traffic first moved away from SF to Oakland and to a certain extent LA/Long Beach. Real estate values and therefore rental rates went sky high in San Francisco. You can afford to run a warehouse and pay around $2 per square foot, I am told. But if the rates per square foot go to $10 or more, you move your warehouse to the East Bay or to Tracy.

Deregulation of piggyback rates and services allowed for the closure of the intermodal ramps at both San Jose and at Mission Bay in San Francisco. This was an excellent outcome and actually improved intermodal service to the end users.

The real impact of Staggers deregulation came with the approval of the merger of the UP with the MP and the accompanying acquisition of the WP. That was also in 1982.

How ironic. Ben Biaggini had been one of the most vocal advocates for railroad deregulation around Washington DC. And yet, he did less than perhaps any other railroad leader of his time to make the SP the low cost producer in the west. For you see, in a regulated environment, rates are set so that all carriers can survive. But in a deregulated environment, it is the low cost producer that sets the rates. SP was the Penn Central of the west in 1980.

Now, the hand writing was on the wall. Rail dereguation was the beginning of the end of the SP. We did not have a clue in 1980.

9/23/06
mdo

Excellent analysis. I suspect that all of the Class 1's had the same situation in varying degrees. People who achieved high management status under the regulated scenario had little to go on with the deregulated scenario.

Deregulation of TOFC rates was also in 1979 and I want to say it was before the perishable dereg.
The Motor Carrier Act for deregulation too, was in 1979. This I want to say was later in the year.
John West beats himself up over his less than clear rememberance of events in the past... John, here is mine... Needs some help.. Mike, do you have to time line for this, which came when. 1979 was clearly a turning point in transportation.

I don't think anybody, including the US Government, had any clue just how rapidly the economy was changing in the late 1970's, mostly due to the increasing price of oil (declining workforce productivity was secondary). That led directly to the "oil price shock" recession of 1980 and then to the "high interest rate shock" recession of late 1981-early 1983.

Of course SP was probably the most vulnerable RR to such economic changes and SP's route structure prevented SP from taking advantage of Staggers.

AM

When Firestone closed in Salinas, that took a big chunk too. Many times on the Zipper, we would pick up a "Just In Time" box car full of tires for Gemco.

By the way, did you ever see those T-Shirts around Oakland? They said, "Penn-Central West". I still have mine but for some reason it just doesn't fit like it used to.

Glad to see you back on here.


Nudge

Wasn't most of the traffic on the Peninsula destined to fade away anyway? Libby's CCG, S&W all had canneries in Sunnyvale/Santa Clara & Redwood City into the 80's. They're gone. There were 100 car aggregate trains coming into Bayshore from East Pleasanton every day, most of the building material plants are gone. There were other big industrial complexes that no longer exist all along from SF, SSF, Redwood City and into the Santa Clara districts. I don't know about all of the box car switching we used to do for companies like GE, Amana and Sears, I wonder how deregulation and the ever increasing size of truck trailers came into play in those markets. The Peninsula doesn't resemble the Peninsula of my youth. Anyone else remember the tannery in Redwood City? I remember talking to old timers that switched the place. That was a long time ago!

sphogger

In 1961, I was working for SP as a trainman - and when I was laid off at Fresno, I "borrowed" out to San Francisco. At first, I worked all sorts of freight jobs such as locals at San Jose and Sunnyvale and Redwood City. At Sunnyvale, there was a National Can plant on the East side of the main line that had about 6 double-ended tracks that were used to spot cars for loading empty cans. The cars were loaded all day and then in the evening, we switched this plant and pulled the loaded boxcars out, and took nearly all of them across the main lines to the Schukl cannery, where we spotted them for unloading. Just before dawn, we would switch the can plant again doing the same move. I don't know how much the SP got for each carload of empty cans, but I'll bet this traffic went away quickly with derugulation, if it lasted that long.....There was a great deal of this very local, low revenue, high expense traffic everywhere, and it all dried up quickly in the 1970 and 80's.

TIOGA PASS

Well, think about it. A 50 foot boxcar carries about 50,000 lbs if fully loaded. The 45 foot trailer which was coming in at that time carried about 40,000 or so. The early eighties saw a big boom in TOFC. Just In Time inventory was now part of the US distriution manager's game plane. With this you didn't need lots of warehouses... Connect the dots

Didn't those 50 ft boxcars cars carry 150,000 lbs ( 75 tons ) instead of only 50,000 lbs. 50,000 lbs is only 25 tons.

If you had been the head guy over at HQ, what would you have done in a post-Staggers world? Not trying to pick a fight, rather, just curious what, if anything, the SP could have done differently had some other folks been looking at the problems, and opportunities, that Stagggers generated.

john1082 Wrote:
-------------------------------------------------------
> If you had been the head guy over at HQ, what
> would you have done in a post-Staggers world? Not
> trying to pick a fight, rather, just curious what,
> if anything, the SP could have done differently
> had some other folks been looking at the problems,
> and opportunities, that Stagggers generated.

Actually the right time to have done something was before Staggers. And, in fact, Biaggini did do something. He hired Pete Viajta and created the SP's Marketing Department over the vigorous oposition of his Vice President of Traffic, Bill Kreball. However, then there was no significant follow through. BFB was still in the mode of investment in the RR was bad for the stockholders. On the other hand, UP was spending big bucks to improve their franchise.

It really takes capital investment to lower your operating ratio; more efficient locomotives, better track facilities to lower congestion, improvements to yard infrastructure to improve traffic flow.

mdo

mdo Wrote:
-------------------------------------------------------
> Actually the right time to have done something was
> before Staggers. And, in fact, Biaggini did do
> something. He hired Pete Viajta and created the
> SP's Marketing Department over the vigorous
> oposition of his Vice President of Traffic, Bill
> Kreball. However, then there was no significant
> follow through. BFB was still in the mode of
> investment in the RR was bad for the stockholders.
> On the other hand, UP was spending big bucks to
> improve their franchise.
>
> It really takes capital investment to lower your
> operating ratio; more efficient locomotives,
> better track facilities to lower congestion,
> improvements to yard infrastructure to improve
> traffic flow.
>
> mdo

My oh my have times changed. Now it seems it takes acts of the ghods to get infrastructure maintained or improved on the UP.

It has been my observation that the UP prior to the last ten or so years was one of the best maintained railroads. How the mighty have fallen.

J.

How many millions did Biaggini siphon out of the right-of-way for the communications company? It was also about this time he said, "We have to find a home for our railroad".

ExEspee Wrote:
-------------------------------------------------------
> How many millions did Biaggini siphon out of the
> right-of-way for the communications company? It
> was also about this time he said, "We have to find
> a home for our railroad".

Nothing, nada, zero!!!

This is a common fallacy. SP, under Biaggini, took nothing away from the value of the ROW of the railroad. What he did was to stop reinvesting capital in the railroad.

It was under PFA that we started to take money out of the railroad plant. All of the right of way sales were under Anschutz, not under Biaggini, However, large portions of SP Company land did go to the merged SP SF Corporation in 1985, but these were non operating properties and not "railroad land"

mdo

mdo Wrote:
-------------------------------------------------------
>
> Nothing, nada, zero!!!
>
> This is a common fallacy. SP , under Biaggini,
> took nothing away from the value of the ROW of the
> railroad. What he did was to stop reinvesting
> capital in the railroad.
>
> It was under PFA that we started to take money out
> of the railroad plant. All of the right of way
> sales were under Anschutz, not under Biaggini,
> However, large portions of SP Company land did go
> to the merged SP SF Corporation in 1985, but these
> were non operating properties and not "railroad
> land"
>
> mdo

Mike,

A quick question, which I understand if you can not answer. What if the "non-operational" land had stayed with the SP and not gone away with Catellus. Would that have been a large enough "dowry" to have helped keep the SP alive.

J.

I wish that I could give you an answer. However I can not.

Could all of that timber and mineral rights and real property been poured into capital improvements of the railroad? I doubt that it could have been sold without significant tax consequences and that any auditor would have approved that use of the proceeds, I am sure that the share holders would have objected. In that time frame, why pour stock holder assets into a demonstrably bad investment??

In any case, those assets had gone to the SP (holding) Company long before. with a tax rationale which made it very difficult and costly to unwind. When the SP and the ATSF Companies merged in 1984 all of the non railroad assets went to the merged company. Only the SP railroad remained in trust pending the outcome of the ICC merger proceedings. We all know what the outcome of those proceedings was. The ICC turned the proposed merger down in 1986. SPSF re-applied and was turned down again in 1987. SPSF: shouldn't paint so fast, was the conventional wisdom in 1987 with the insiders of the railroad industry

Asleep when doing the math.. 150,000 minus tare of 40,000 is 110,000 actual payload which was about 2 1/2 trailer loads

By the way...All of you who are following this thread should also follow this thread over on the Western Discussion Forum:
http://www.trainorders.com/discussion/read.php?1,1247810
mdo

Wasn't the Ticor fiasco a big money pit?

you bet.