Monday, October 16, 2017

Uncrossable Desert




In January 1978, G.A. Kellow offered this report on the Milwaukee's plant rationalization efforts as it moved into its final bankruptcy [1]:
Traffic patterns over the past 30 years, and probably longer, show that the total transcontinental rail market is not a strong growth market; that the Milwaukee Road's share has always been small; and that the share of the market is in fact diminishing.

Given the small present market share, the strong rail competition and the apparent limited total market, the Milwaukee Road cannot expect to increase its share of the traffic enough in the future to justify maintaining transcontinental service.

On the basis of this study and analysis, the following conclusions are drawn:
  • The railroad probably should not have extended its line to the Pacific Northwest at the time it was done. 
  • There is no economic justification in continuing transcontinental service to the West Coast.
  • A long-range objective should be to phase out most, if not all, operations west of Miles City (a difficult assignment).
Now with the advantage of hindsight, it's interesting to note that though the long range objective was achieved and the track removed, some of the predictions were not [2 with data from AAR]:


Many have noted that the line planted by the Milwaukee Road over 100 years ago avoided many of the population centers of the day.  Perhaps, in some final irony, that reduced congestion would play even better with the long haul intermodal traffic that has sprung to life so distinctly in the decades since the railroad's departure.

In the image above, the Milwaukee's mainline is taking dead aim at Vendome, MT and the pass over the Rocky Mountains.  In the rain shadow of this high desert area, an impending storm gives the promise of rain for these barren heights.  But as the years accumulate and the memories of what was slide faithfully away like a mist in the morning sun, this high desert becomes one that no one can cross.  And as with all great mysteries, who can explain this?



References:
1)Kellow, "Rationalization of the Plant: Study of the Line between Miles City, MT and Portland, OR" 1978.  https://www.milwaukeeroadarchives.com/EconomicStudies/EconomicStudies.htm

2)"Freight Railroad Traffic & Intermodal Volumes (1890 - Present) 
https://www.railserve.com/stats_records/freight_railroad_traffic_volumes.html




3 comments:

icland100 said...

Gay Kellow's conclusion was the opposite of what he had reached just a year before when, under different management, the Milwaukee was attempting to reorganize the system. The transcontinental line was then included in the proposed reorganization as "what we need and intend to keep." The Western Lines had been growing since the BN merger at a rate of approximately 8% per year, as Trains Magazine noted, "one of the fastest growing railroads in the country," while Lines East, consistent with all Midwestern roads, was rapidly losing traffic. Indeed, the Planning Staff warned, when the notion of abandoning Lines West was raised, that not only because of the loss of the part of the railroad that was actually profitable (see, Application to Abandon, http://www.milwaukeeroadarchives.com/Bankruptcy/ApplicationtoAbandonLinesWestFullDocument.pdf), but that the cost of shutting it down -- unremembered costs -- would likely sink the company.

icland100 said...

The Milwaukee Trustee hired the consulting firm of Booz, Allen Hamilton, a well known consulting firm, to look at the alternatives for reorganization. It was typical of someone like Stanley Hillman to seek an outside opinion. Smith and Cruikshank had convinced Hillman that "Lines West" was the problem and had to go -- hence, the Kellow opinion. But, the Booz Allen study really lit up the sky. Of the eight alternative configurations, four structured around preserving the railroad with all or part of Lines West, and four structured around a complete abandonment of Lines West, BAH could only project a positive outcome of the reorganization if one of the first four (Lines West) proposals were adopted, and no positive outcome from abandonment and retreat to various configurations of just Lines East. The report was like a bomb dropped. Cruikshank told me that "Hillman became very difficult to work with" and soon resigned, ostensibly due to "ill health" although he spent several years after that actively involved in the Conrail reorganization as a board member.

The combination of the BAH Report and Recommendations, and Hillman's reaction, clearly show that Hillman had been misled about the status of the railroad, and was none too happy about it, and none too happy with Cruikshank, who had been energetically participating in the reorganization planning, while Smith struggled with the day-to-day challenges of keeping the railroad running. Cruikshank was such a strong personality, and overbearing in his opinions, that Marty Garelick quit the Milwaukee, one of its most talented executive officers (VP Operations at that point) rather than continue to work with Paul Cruikshank. "You don't treat people the way he did," Marty told me.

With Hillman gone, the new Trustee, former Trustee Counsel Richard Ogilvee became Trustee. Ogilvie knew nothing of railroading, and was dependent on Cruiskhank (and Smith) for guidance. That was the end of Lines West as Cruikshank, for whatever reasons, had a deep personal animosity to Lines West. The BAH study was ignored and the viable options discounted in favor of near certain failure or at least extreme difficulty.

The most likely proposed successful configuration of a reorganized Milwaukee Road was the one chosen by NewMil as the proposed reorganization plan. That plan was rejected by the ICC based on the ICC's brand new criteria that a reorganization proposal needed to show a rate of return of at least 10% or so, something that only one solvent railroad in the country was meeting at the time.

Ironically, then, the Trustee's plan was also rejected, but since the Trustee was already in charge, he won by default. A system configuration judged by the outside professionals to be among the least successful probabilities of survival won. By default.

http://www.milwaukeeroadarchives.com/Bankruptcy/StrategicPlanningStudiesVol2.pdf

LinesWest said...

It's an incredible back story - hard to fathom how many things had to work against the railroad to end up like it did. It's shocking even today, thank you for the posts and further links. Most welcome.