RAILROADS: Racing Toward an Urgent Rescue

ANY Congressman, investor or shipper who might have thought that the Government solved U.S. railroads' financial problems a year ago, when it took over the operation of most passenger trains, has been getting a rude awakening. Congress is now studying six major bills that would extend further help, and industry spokesmen are warning that the legislators must race in order to rescue the nation's rail system from a threatened collapse. They do not seem to be crying wolf; the railroads' plight is bad enough to have won the sympathy of their chief competitors. Truck lines and many barge operators are backing one of the bills because they fear that a final breakdown of the U.S. rail network would force Congress to nationalize the system—and such a move would set an ominous precedent for the whole transportation industry.

Five of the nation's 69 Class I railroads—the major companies that account for 99% of rail traffic—already are bankrupt. The Interstate Commerce Commission last month listed another twelve, including the Chicago and North Western, Erie Lackawanna and Rock Island, as "marginal," meaning that they could go broke at any moment. As a whole, the industry is making money, but pitifully little. Railroad net income in 1971 totaled $355 million, or 2.7% of revenues—and much of that came from non-railroad operations. That is not enough to attract the loan money necessary to repair and modernize the railroads' vastly overbuilt network of tracks, yards and systems. Transportation Secretary John Volpe, a dedicated free-enterpriser, warns that large chunks of the railroads' total mileage must be scrapped immediately to save costs or the whole system will wind up broke and/or nationalized "within three to ten years."

The major railroads have no trouble borrowing to buy new cars: the cars make splendid collateral if a loan goes into default. The result is that the companies operate modern covered hoppers, flatcars and gondolas over roadbeds that are rapidly deteriorating. The roads have been able to show what profits they have largely by deferring maintenance that is essential. For example, rails are being replaced on a schedule that assumes the average rail will last 120 years, although it actually remains serviceable for only half that long.

The results are becoming apparent.

Between 1966 and 1970, derailments doubled to 2,394 a year. Santa Fe President John Reed likens the situation to maintaining a house in good repair: "If you don't do a little every year, it eventually starts coming apart all at once." Volpe estimates that in order to keep up with expected increases in traffic, railroads will have to spend an awesome $36 billion or more on yard and track rebuilding and new rolling stock in the next ten to twelve years. That is roughly double their current annual rate of capital expenditures.

Placing the blame for this mess is not a simple task. Labor unions, rail management and the Government all share the responsibility.