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The battle of the rails
A series of mergers in the rail shipping industry over the past 50 years has led to the creation of four freight rail giants that now control 90% of all business.
Since freight railroads were deregulated in 1980, the number of large, so-called Class I railroads has shrunk from 40 to seven. There are now only four that matter: CSX and Norfolk Southern in the East, Union Pacific and Burlington Northern Santa Fe in the West. These four now take in more than 90% of the market.
6 responses to “The battle of the rails”
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Fascinating. Where did you get the data for this?
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by the infographic at least it looks like a lot more merger activity occurred before the 1980 deregulation than after it. What was the impetus for the activity starting back in 1960?
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Railroads faced two negative trends. Passenger traffic decreased dramatically because the interstate highway system was fairly complete. In addition, air travel was becoming more affordable. Amtrak came about during the 60′s or early 70′s to preserve that mode of transportation, because all the carriers were getting out of it.
Freight traffic also decreased because, with the interstate system significantly done, trucking became a viable long-haul alternative.
With declining passenger and freight volumes, there was an excess of rail capacity and route capacity that needed to be rationalized, and the mergers accomplished this.
Another driver was the increasing amount of imports, so freight needed to get from coast to coast, and mergers drove this as well.
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To add some more to this, everything David K Walz said, I agree with. To add some
bits, however:
Passenger transportation actually rarely, if ever, made money for the
railroads. Post WWII saw
three devastating changes in the nation, as far as railroads were concerned.
1. The interstate highway system turned the passenger rail business from unprofitable to being
a huge money drain
2. At the same time, they lost business to trucking from the interstate highway system
3. The railroads’ equipment was badly battered and in need of replacement and updating after
WWII because during the war, they were only allowed to repair and keep essential equipment
in place. They weren’t upgrading with new locomotives or cars nearly as much as necessary.When the war was over, the railroads found themselves with worn-out equipment (meaning
years of spending and investment to replace), and a declining customer base.I would also add that the large number of mergers that took place from the 1960s to 1980
is not as significant as the winnowing-down that happened after 1980. Remember, in 1960,
these were much smaller companies. There were big mergers like the Pennsylvania + New York Central that formed the Penn Central. But overall, it was nothing compared to the huge
mergers that formed entities like CSX (or more recently, BNSF). These later mergers
caused entire quadrants of the nation to be consumed by a common carrier. The mergers
of the 1960s weren’t that geographically large.Amtrak was formed in 1971. Railroads that wanted to get rid of their money-bleeding passenger services were not allowed to do it. The ICC regulations controlled how railroads were allowed
to discontinue routes to prevent essential transportation lines from being abandoned
just because a railroad couldn’t make money (or enough money) on them.
So the Amtrak “deal” was offered. The railroads could get rid of all their passenger service
if they agreed to GIVE all their passenger equipment to the new Amtrak entity that the
Fed Gov’t was creating. All but 6 railroads opted to do it. The loss from giving up all that
capital equipment was deemed more economical than just losing money on it year after year. -
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5 Trackbacks / Pingbacks
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[...] railroads has gone down from 50 to just 7. Nicolas Rapp, graphics director at Fortune Magazine, explains. The railroad coverage maps are interesting, [...]
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[...] railroads has gone down from 50 to just 7. Nicolas Rapp, graphics director at Fortune Magazine, explains. The railroad coverage maps are interesting, [...]
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[...] has done wonderful work on the evolution of the rail industry in the U.S., with a flow chart showing how mergers have [...]
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[...] Source: Nicolas Rapp, September 13, 2011 The battle of the rails [...]
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[...] talking about railroads or airlines, the trend is unmistakable; the deregulation push of the Reagan era has resulted in [...]
JPV September 15th, 2011 at 18:30