US Freight Railroads - Another Capitalist Success Story

If you want to see where the American left wants to take us, just look at the history they want us to ignore.

One of the most egregious examples of failed socialist policy is in the area of transportation.

In the post-World War II period you would have expected America’s freight railroads to have been thriving in a booming economy. But the opposite happened.

By 1972 many major freight railroads had gone into bankruptcy including the venerable New York Central and the behemoth Pennsylvania. Other failures included the Boston & Maine, Lehigh Valley and Reading.

CEO Benjamin Biaggini of the Southern Pacific, the “railroad that built California”, a company long considered an invincible goliath, was expecting by that time that the freight railroads would collapse and would be nationalized. Even his mighty empire was suffering.

What caused all this to happen in this period of unparalleled prosperity?

The answer is twofold – ‘government’ and ‘labor unions’. You know, the two forces from the political left that are supposed to represent “the people” and “the workers” against big business interests.

For starters, the federal government started in the 1950s to supervise and finance the construction of a massive new interstate highway system that left the railroads at a distinct competitive disadvantage with their self-financed track systems. This harmed Northeastern railroads most because their shorter hauls suddenly became uncompetitive with trucks.

OK, fair enough. The interstate system was a natural outgrowth of our growing automobile culture.

Yet today America has more interstate highways than ever while the freight railroads have rebounded and are a fiscal juggernaut making healthy profits with an ultra-modern and very competitive alternative to trucks on the highways (22,000 locomotives, 140,000 miles of track and 1.5 million cars moving 1.9 TRILLION ton-miles of freight annually). And the railroads are expected to make big economic gains over the next 10 years as more new laws regulate trucking and a driver shortage plagues the industry.

Why have the freight railroads rebounded?

Because they were de-regulated, that’s why…

The original crisis was caused by a socialist view that such an industry needed to be tightly regulated, and so the government virtually took control of the freight railroads as a public utility in the following ways:

*Government told the post-World War II freight railroads that they must maintain passenger trains even though Americans were traveling by car, passenger train ridership was shrinking rapidly every year and freight railroads were losing tons of money on passenger service.

*Government set the rates that railroads could charge for shipping in order to “protect” customers.

*Government bureaucrats told the railroads which routes they had to maintain and which routes could be abandoned. Decisions on abandonments often took years to be decided by a sluggish Washington bureaucracy.

*Meanwhile organized labor – allied with the government – was gouging the railroads with exorbitant wage demands and outrageous work rules. Strikes harmed, crippled or killed many railroads and the industries they served. And conversely strikes in various industries harmed, crippled or killed the railroads that served them.

Thus incrementally the railroads were having their capital drained away. Tracks fell into disrepair while locomotives and rolling stock deteriorated. Service fell off, giving businesses more reason to shift to trucks. It was a death spiral.

Then came the Staggers Act of 1980 which deregulated the railroads, restrained the unions and allowed the free market to rule the tracks.

The left typically argued that such deregulation would allow the evil railroad CEOs to charge whatever they wanted, abandon crucial tracks and run rings around their employees and their customers.

Of course the opposite happened. The freight railroads were allowed to set their own rates, which helped them to conserve and build capital. Amtrak took over passenger service and the losses now are foisted onto the taxpayer rather than being zeroed out as they should be. Unions were restrained. And railroads were allowed to abandon track corridors as they saw fit.

And American freight railroads today are prosperous, efficient and make profits even in a difficult economic environment.

The major lines – Union Pacific, BNSF, Norfolk Southern, CSX and Kansas City Southern along with Canadian Pacific and Canadian National (now private companies operating in both countries) – have developed operating strategies that have shifted dramatically to long-haul, city-to-city ‘intermodal’ freight (truck trailers and shipping containers on railroad cars) that competes directly with trucks on the highways; heavy coal traffic to feed American power plants; and long ‘unit trains’ carrying one single commodity like grain; while focusing less and less on what is called “loose car” railroading which ruled for more than a century (single car loads).

And what happened to all the tracks that the Big, Evil Railroads were allowed to abandon under Staggers? Certainly many parts of the nation were left without railroad service! argues socialist theory.

No, the opposite happened. Regional and local entrepreneurs took over unprofitable lines and made them profitable. Because these lines came to be managed on a local and regional level by people who were interested in making a profit where the big railroads could not.

So the big railroads now are able to focus on their core business – high-speed trunk lines for moving freight quickly over long distances – while local and regional carriers collect cars and then deliver them to or from their origin or destinations on non-trunk lines.

In socialist theory, this never should have worked. No, that theory says that you must force the big, rich railroads to spend their ill-gotten wealth on the whole system so as to make it work no matter the circumstances.

Nonsense. The whole system today is working superbly just as capitalism says it will, i.e., when people have a vested interest in their company, they will make a profit by operating it with great efficiency. The big guys are thriving making the long hauls, regionals are thriving in their niche, while branch lines once left to seed by big railroads now are flourishing as local operators cultivate business town by town, siding by siding, something the big guys could never do, or did not have the time or the personnel to do.

Today’s newly-revitalized railroads are moving much more freight with a fraction of the employees of 100 years ago. Old union rules were tossed out, modern diesel-electric locomotives run with great efficiency, trains cover more ground at higher speeds and require fewer crews, and other practices like remote-control operation of yard switchers have streamlined the entire process.

Today, the big railroads are focusing on what they do best – making their long-haul corridors as efficient as they can be with computerized traffic control systems; welded ‘ribbon rail’ in super-smooth quarter-mile sections; and double-tracking and triple-tracking in crucial corridors making these routes virtual expressways for cargo hauling. Meanwhile your local or regional railroad company is maintaining its tracks at just the right level so as to be able to accommodate their end of the deal.

Today’s American freight railroads are far and away the best rail system of any type in the world, using zero government subsidies (except for occasional public-private partnerships) and grossing about $35 billion in annual revenues moving all that freight at three to five times the energy efficiency of trucks.

Please visit my website at www.nikitas3.com for more conservative insights.