Conrail

Consolidated Rail Corporation--best known as Conrail--was formed by the U.S. government out of six bankrupt railroads serving the northeastern United States. Conrail began operations in 1976. It was returned to the private sector through a public stock offering in 1987, after establishing a record of steady profits. Between the 1930s and the 1960s, U.S. railroads, once the country's primary source of freight transportation, were undermined by the growth of air and road transportation. Trucking had usurped so much of the freight transportation business that many railroads merged or went under in the 1960s and 1970s. The eastern railroads were hit additionally with the collapse of coal traffic during the 1960s, as emphasis shifted to oil as an energy source. Between 1967 and 1972, six significant northeastern railroads went bankrupt: Central Railroad of New Jersey; Penn Central Transportation Company--created from the 1968 merger of Pennsylvania Railroad and New York Central Railroad; Lehigh Valley Railroad Company; Reading Company; Lehigh & Hudson River Railway Company; and Erie Lackawanna Railway Company. The roots of these companies stretched back as far as 1826. By 1975 railroads had lost so much business to the trucking industry--which could offer door-to-door service and was not subject to the same price restrictions--that railroads handled only 36% of the nation's freight. As a result, bankruptcies and mergers left the country with only six major freight railroads. The government reacted with the 1974 Regional Rail Reorganization Act, which in turn gave birth to the United States Railway Association (USRA). A plan was devised by USRA for the consolidation of the six bankrupt lines into a single system, with the backing of federal funds. The initial investment was $2.1 billion. Conrail officially began operations in 1976, with Edward G. Jordan as chairman and CEO, and Richard C. Spence as president. The company's mandate was to revitalize rail service in the Northeast and Midwest and to operate as a for-profit company. Conrail at its inception had about 17,700 track miles, 100,000 employees, and operated in 16 states and in Washington, D.C., and Canada. It handled both freight and passenger services. The government held 85% of the stock, with employees holding the remainder. In 1980 the Staggers Rail Act was signed, with huge repercussions for the industry. This act essentially deregulated the railroads, whose pricings had been fixed since the turn of the century when railroads represented virtually the only mode of transcontinental transportation. The Staggers Act made railroads more competitive with trucks by allowing them to reprice services, adjust rail rates, react to market conditions, and provide special contracts. This marked the start of Conrail's recovery. The Staggers Act permitted Conrail to cancel and reassess joint rates with connecting railroads. It was losing money on many of these arrangements as revenues were divided according to distance not costs. As much of Conrail's lines included old terminals and yard operations--with costly upkeep and overhead--it was losing money on crucial business. The chance to offer contract rates to shippers who could guarantee a certain volume of traffic enabled Conrail to plan ahead, spending the assured revenues on equipment and maintenance. Above all, the Staggers Act allowed railroads to regain business lost to the trucking industry. Conrail again made a modest profit in 1982--$174 million--doubly notable as the recession was rocking Conrail's major customers in Pittsburgh and Detroit. Crane's streamlining continued. The work force, once at 100,000, was cut to 60,000 by 1982, and route miles were reduced from 17,700 to 15,000 as excess track was torn up to save maintenance costs. Moneylosing branch lines were abandoned. Taking advantage of the Staggers Act, Conrail went after piggyback business--carrying trailers on flatbed rail cars. In 1982 Conrail was profitable