The Rise (and Fall) of the western Class II

[mtuandrew]

I'm tired of seeing no discussion in this forum, and thought this would be an appropriate topic.

In the 1980s, the United States saw the rise of all sorts of Class II railroads from the ashes of CRI&P and CMStP&P, as well as secondary Class I mains. They were more nimble than the remaining Class Is and able to actually develop business on their "played-out" branchlines. Foremost in my mind are the Dakota, Minnesota and Eastern, the Wisconsin Central, and the Washington Group's lines (Montana RailLink and Iowa-Minnesota RailLink.) They built up little empires in their regions, and there was even some discussion about those lines providing an alternative to BNSF and UP from Chicago to the Pacific, using abandoned MILW right-of-way.

Today, that's reversed. Aside from MRL, all of the above lines are part of Class Is, and MRL may as well be BNSF's line again. There's no more talk about reopening the Milwaukee from Spokane to the Pacific, nor of attempting to get trackage rights to lines like the Kyle (to Denver) or the TP&W (to the east.) The northeastern Class IIs are still relatively independent, but the west is essentially a BNSF or UP game, dictating their whims to their subservient Class III lines.

Why did they falter so much? Was their rise directly due to the weak state of the Class I industry, and their fall due to the Class I mergers and unwillingness to tolerate competition, or were other factors at play?

[ICGinSD]

I am certainly not an expert in this area, but I do have a few observations. I formerly worked for the DM&E, and although they did work hard to build a good base of traffic, their future longevity was always in doubt because of poor track conditions. The increase in traffic, along with the corresponding rise in tonnage ravaged a marginal mainline to the point that revenues alone would never cover the cost of upgrading. Hence, government loans and the questionable PRB ploy.
As to some of the other lines, an increase of business for class 1's and their limited ability to increase capacity made some of these routes look more attractive as through routes to help maintain the class 1's service. The WC and MRL are good examples of once excess capacity becoming important to class 1's again. The UP and BNSF have also used their pricing power to limit the amount of growth that any independent regional or short line can expect to gain. In the upper midwest (I'm from MN) many grain companies have turned away from using elevators on non mainline railroads and have consolidated loading at a central terminal on a mainline railroad. Better service and better pricing for the elevators. They truck grain from smaller facilities and consolidate loading into large unit or shuttle trains.
Matt

[Paulus Magnus]

Can't help but feel that DM&E would have remained independent had they either successfully managed access to the Powder River Basin or had no opportunity for it at all. Isn't their purchase (and lack of action with them) one of the major shareholder complaints against CP right now actually?

[ICGinSD]

mtuandrew, I wrote a reply to your posting, but it never appeared. I will try to remember my comments and see if I can get it to post.
This is just a test.
Matt

[mtuandrew]

Good luck!

Paulus Magnus, I'm not sure what actions have been taken by the CP shareholders. See the CP forum for some of my other thoughts on their properties.

[Engineer Spike]

The WC purchase was a no brainer for CN. They had no route to western Canada, which CP HAS. First they used haulage rights on BN to bridge between Chicago and DW&P. Later they switched to independent WC. Notice how CN stepped in during the tumultuous time on WC, when Burkhardt was ousted.
The CP-DME deal is different. I think the bulk trains from DME were a lure. I don't know if the ICE connection to KCS was a large factor or not. I feel that the Powder River deal is too good. It would cost billions. I'm sure that BNSF and UP would cut the rates in order to make CP go away.

[Jeff Smith]

I'd ask a question on this topic. Is it a lack of "spur" lines? Is it "grand trunk railroad" syndrome? The west, with its wide expanses, seems like it would be ripe for Class II's. Is it the definition of Class II propogated by regulatory authorities, i.e. revenue and not mileage?

Is it grand trunk syndrome in the East? I.e. it seems the eastern railroads like NS and CSX, rather than deliver to customers would rather deliver via interchange unless it's on their main line. I.e. I can think of one customer in Mamaroneck, Marval, that is delivered by CSX on the NH line.

[JayBee]

I'd ask a question on this topic. Is it a lack of "spur" lines? Is it "grand trunk railroad" syndrome? The west, with its wide expanses, seems like it would be ripe for Class II's. Is it the definition of Class II propogated by regulatory authorities, i.e. revenue and not mileage?

High mileage low revenue is a recipe for failure. You have railroads like the SKOL (Southeast Kansas & Oklahoma) with mileage like your Class II railroads, but with revenues of a Class III. Without state assistance they wouldn't survive. Last year a wildfire swept across their "mainline" destroying their wooden bridges across many small creeks, without state assistance they could not afford to replace them. The State of Kansas rightly recognized that without the railroad many thousands more grain hauling trucks would be plying and destroying State and County Highways. The State judged that it was cheaper to repair the railroad than the Highways.

Is it grand trunk syndrome in the East? I.e. it seems the eastern railroads like NS and CSX, rather than deliver to customers would rather deliver via interchange unless it's on their main line. I.e. I can think of one customer in Mamaroneck, Marval, that is delivered by CSX on the NH line.

That isn't just in the East. At some point in time carload freight will die, that date isn't imminent, but the fact is that it is coming. What will replace it is Intermodal with tighter integration between the rail and highway modes. The forces are driving things that way. What is needed is a few more strategically placed Intermodal terminals. The State of North Dakota subsidized the startup of a terminal at Minot in the early days, now with increased business, both from the Oil business and Agriculture it has been weaned from the subsidy, and is being developed into a full multi-modal center (bulk transload is operating, and auto distribution is being discussed). The site was chosen with good highway access and plenty of room to expand.

[Jeff Smith]

^This analysis is why our members on railroad.net rule! Thanks JayBee. Want to write an article on this and have it put on the home page here? Send it to info@railroad.net.

[Desertdweller]

I worked for the DM&E from two weeks before startup in 1986 until January 1994. Part of that time I worked with ICGinSD.

I've also worked for another regional, NKC in Nebraska, and an "almost regional", NEC in Nebraska.

It appears to me that the C&NW shifted its corporate strategy from buying up and dismantling its competitors to wholesale abandonment of its secondary main lines. This change happened with the passage of the Staggers Act.

A case had to be made to the ICC for abandonment. The C&NW tried to build its case that its shippers had abandoned its services by re-routing freight on the west end of the system from the PRC (Pierre-Rapid City) Line to the Cowboy Line (Columbus-Chadron NE with connection to Rapid City and Black Hills).

This move was foiled by the West River Shippers' Association who, by observing traffic patterns backed by car numbers, was able to prove this diversion.
The West River Shippers' Association was opposed by their competitor in Pierre, who thought the railroad would maintain service on a 500-mile line west from Winona, MN to serve their terminal elevator. They hoped grain shippers from at least as far west as Philip would truck their grain to Pierre.

When the abandonment was blocked by the ICC, the C&NW put the entire Winona-Rapid City Line on the block. It was purchased by a group of investors and became the DM&E.

I attempted to build traffic on this line by approaching small customers who had been discouraged by the C&NW. They were shocked that a railroad would actually solicit their business!

In those early years, the biggest problem DM&E faced was under-capitalization. The road had to maintain its connection with Rapid City and the Chadron NE-Colony WY line to originate traffic. This line was later purchased by DM&E.
But the line between Pierre and Rapid City was in abysmal condition. There were places where trains could not be left standing, for fear the track would collapse. There were also almost 200 wooden bridges between Pierre and Rapid City, many of which were 30 years beyond their service life. This was a huge drain on the railroad, but was necessary for its survival.

We had two major bridge commodities: bentonite clay and wood chips. Both originated on the C&NW. The clay came from mines in eastern Wyoming and was processed in a facility at Belle Fourche. The wood chips came from Whitewood. These two commodities we received from the C&NW at Rapid City. The clay came off at interchanges at Mankato and Winona. The wood chips were given to the GB&W at Winona and were taken to a Consolidated Paper mill at Wisconsin Rapids.

By the time I left the DM&E, we had lost the wood chip traffic. Maybe the supply ran out. Maybe they were trucked to Edgemont and given to the BN. The cars they had been carried in were owned by Consolidated Paper. They were 40' box cars with loading hatches cut into the roof. They were equipped with journal bearings and were too old to be interchanged.

The refined clay was carried in differential-style centerflow covered hoppers that were leased to the clay shippers from leasing companies. The unrefined clay was shipped in little old covered hoppers that are usually used for cement.

The grain traffic came in three waves: winter wheat; spring wheat; and corn. There was always a chronic shortage of cars in harvest season. By contract, we had to get our grain cars from the C&NW unless they could not fill an order in less than two weeks from the date they were ordered for. Two weeks is forever in grain season. Our other source, BN, were pre-selling their cars in unit train lots through a system they called "COTS". DM&E later was able to alleviate the problem by owning their own grain hopper fleet.

The DM&E was an example of a regional making good of an unwanted Class One secondary main. After the DM&E was established, the C&NW abandoned their Cowboy Line. Segments of it survive as parts of short lines.

Apparently, DM&E's success was its undoing. It brought back a line that a Class One no longer wanted, and turned it into something another Class One desired.

Les

[Engineer Spike]

I still wonder exactly what CP's motives were. The DME did originate lots of traffic, but was the IcE the crown jewel? The sale to IMRL might have been seen as a big mistake. The ability to serve KC-CHI, and KC-Twins might have been more important, especially the KCS connection. Having a second TC-CHI route isn't a bad idea either.

CP had a hostile takeover scare, and might have wanted to not look as rich. A major purchase may have used up lots of the cash which the raiders wanted to get their hands on.