Picking Up the Pieces
The Interstate Commerce Commission’s surprise rejection of a Santa Fe and Southern Pacific merger means only one thing to Wall Street: It can hardly wait to see two of the railroads that won the West carved up and sold off, piece by piece, to free their land-rich holding company of the burden of providing transportation. The rest of the country, including Washington, should be thinking bigger, not smaller.
As Wall Street sees it, the railroads are worth more dead than alive. The holding company, Santa Fe Southern Pacific Corp., made 80% of its profit on real estate and other non-railroad business last year. Smart money says to sell off the tracks and invest the capital in something less noisy, more profitable--and less useful--than locomotives.
That is not exactly how the West was won. Around the clock, Santa Fe sends maybe a dozen trains east from Barstow full of California citrus, containers of electronics from the Far East, cotton, canned goods, cars. In the season, rentire trains carry nothing but wine. Add to those the trains of Union Pacific and Southern Pacific and you have lifelines that California needs to prosper. Trucks could take over some of that traffic, but all of those trailers riding piggy-back on flatcars tell you that the long hauls are cheaper by train. Lower freight costs mean lower prices in stores.
Nobody knows what persuaded the commission to vote, 4 to 1, that the loss of competition in a Southern Pacific-Santa Fe merger would outweigh any benefits. That may not even appear in the full record when it is released. Whatever the reason, the decision should make somebody in Washington wonder whether the time has come for this country to stitch together something that it has never had: true transcontinental railroads.
The company that owns an airliner that heads east from Los Angeles is the same one that owns the plane when it lands in New York. Not so with railroads. A Santa Fe train that heads east with a load of cold oranges is a Conrail train when it arrives in Boston. You can ship cargo with a single railroad north and south, but not east and west.
Wall Street money, railroad managers clinging to the keys to their kingdoms, and regional politics --not to mention the billions of dollars involved--may make it impossible to bring it off. But the robber barons would never have built the railroads in the first place if they had thought small. And there may never be a better time to explore restructuring the nation’s railroads and snapping them into new alignments that would keep them healthy, cut costs, provide competition and improve service.
The Reagan Administration is desperate to sell Conrail--the railroad that the federal government has owned since the mid-1970s, when it put together pieces of a half-dozen bankrupt Eastern railroads. A matchmaker could do worse than to arrange a merger between Santa Fe and Conrail. That would provide a transcontinental road on which one company would be responsible for cargo from coast to coast, without the competitive jostling that often goes on at transfer points to see which railroad can get the bigger share of the shipper’s freight bill. To provide competition, Southern Pacific could merge with Norfolk & Southern or CSX, the largest of the Eastern railroads. A matchmaker could find a partner for Union Pacific. The commerce commission could clear all three railroads to compete in all major cities on both coasts, and they could go at it.
It may sound far-fetched, but it has been on the minds of railroad-system analysts for years. It is no more outlandish than mergers of airlines, and is better by far than encouraging railroads to buy into microchips or department stores. At least it sounds better than chopping up or trimming down two of the railroads that won the West.
