Railroads: Highballing on New Wheels

To satisfy thirsty Americans, huge quantities of Beefeater gin are shipped across the Atlantic from Britain each year—in railroad cars. The British load their spirits onto a new kind of U.S. freight car called the Flexi-Van, which is hauled to port by truck, loaded onto a ship, fitted with train wheels in the U.S. and sped to its destination over the rails. Thanks to such innovations, U.S. railroads are not only hauling merchandise directly from such countries as Japan, Egypt and Italy, but also carrying a broad range of domestic goods—from candy to sewing machines—that they lost many years ago to other forms of transportation. Result: the railroads have just had their most profitable year since 1956. Last week reported that in 1964 the industry’s after-tax profits jumped 7% to $835 million while operating revenues rose by 4% to $9.9 billion.

Out with Boxcars. The best gains were made by the long-troubled Eastern railroads, largely because they made the most noteworthy improvements in equipment. The Pennsylvania, whose net rose 115% to $50 million, now has “unitized trains” that carry only one commodity between two fixed points (coal from mine to utility) and make 156 round trips a year, v. 18 under the old boxcar system. The New York Central’s profits soared 150% to $35 million, largely because of gains from its Flexi-Vans and triple-tiered auto-hauling carriages, which enabled the line to carry 900,000 autos last year, as against none at all in 1961. Altogether, railroad men increased their outlays for new equipment by 39% last year, saw freight traffic increase 6.9%—faster than the rise in U.S. industrial production. Last week they got a psychological fillip from President Johnson’s plan for what would surely be the most dramatic improvement in equipment in many years: a superspeed train to lead a technological revolution on the rails.

The rails have benefited from cutting back work forces, freight rates and passenger service. Labor contracts signed last year will gradually eliminate some 30,000 firemen’s jobs, although at a cost of $80 million in wage increases and severance pay this year. With permission from the Government, which is gradually loosening its rigid regulation of the rails, the companies are also granting volume discounts to attract big shippers and are canceling lightly traveled passenger runs.

Last week the Boston & Maine dropped 33 runs, thus eliminating all interstate passenger service in Maine. A far sharper curtailment may be in the making at the bankrupt New Haven, whose prime problem is that 42% of its revenues come from passenger service, v. a 7% average for other lines. Its trustees last week announced their intention to sharply cut back close-in commuter service, stranding 7,500 daily passengers, and eventually to discontinue all passenger trains—but they have many legal obstacles to overcome before they can do either. To bail out the New Haven, a group of U.S. Senators and Congressmen from New England and New York called for creation of a multistate agency subsidized by the Federal Government.

In with Mergers. The best prospect for saving sickly lines is merger with more prosperous, freight-heavy carriers. Lately the Interstate Commerce Commission has taken a more lenient attitude toward mergers, approving in July one of the greatest rail linkups in U.S. history—the Norfolk & Western’s absorption of five other lines. Now the ICC is considering 13 railroad mergers. The biggest deal by far would tie the

Pennsy and the New York Central. Federal officials have been dropping hints that the long-sought merger will get approval if the two lines agree to take in the New Haven as well. An ICC examiner is expected to hand down a preliminary ruling on the merger this month, and railroaders expect the ruling to give the green light to the Pennsy-Central tie-up.