First was the decline of freight traffic when the Panama Canal opened in 1914. The railroads seemed to think it was not going change matters that much. Ooops.
With the drastic decline of traffic from overseas the railroads were more dependent on traffic going to or from their own branch-lines and sidings (the "roots" that feed a railway system). Here the Milwaukee Road was at a disadvantage: the Northern Pacific and Great Northern had arrived here first, had more extensive branch lines and more sidings, and were generally better positioned to connect to new customers.
But even worse, the Northern Pacific and Great Northern managed to short-haul the Milwaukee, by depriving it of long-haul traffic--where a railroad makes the most money, and where the Milwaukee could compete best--by controlling where long-haul traffic was interchanged.
When the Great Northern and Northern Pacific merged in 1970 to form the Burlington Northern the Milwaukee was given more interchange access to other railroads to give the BN a semblance of competition. But this access was not always exploited, in some cases because of bad track (see below). Lack of motive power also limited how much traffic they could handle.
Deferred maintenance was definitely a big factor in the Milwaukee's failure. From the mid-sixties the Milwaukee was deferring maintenance to boost earnings. This is an incredibly bad practice, but highly seductive in that the benefits are immediate and tangible, while the consequences, though deadly in the end, are, well, deferred. This was the main cause of the collapse of the Penn Central in 1970, but Milwaukee's management did not take warning. (Or were already in too deep to back out.) As Todd James says ("What Really Happened?"):
1977 would be the year in which everything caught up with the Milwaukee. Deferred maintenance had 4,000 miles of the railroad under slow orders. The mainline through Montana was averaging a derailment a day. Shippers routed their freight over rival lines as schedules became non-existent and transit times soared. Trains that once took 55 hours to get to Chicago from the Coast were now taking 140 or more. Damaged freight totaled just under $10 million for the year, compared to $3.6 million for the much larger BN. Derailment costs approached $4 million per month.
One the Milwaukee's more curious self-destructive behaviors was the practice of discouraging traffic, begun in 1974, supposedly due to a lack of cars. While many cars were laid up for repairs (see above), and getting new cars was expensive (see below), the discouraging of traffic may have gone beyond what these excuses warranted.
There were also financial shenanigans, such as generating cash by selling its rolling stock--which then had to be leased back, at greater total cost. Todd James calls this "likely the biggest single downfall of the company". To settle the SEC's charges of fraud the Milwaukee agreed to pay the bondholders $3.9 million in damages. (Which they never paid, because they went out of business.)
The benefits of electrification were so substantial that it is hard to see what benefits management saw in de-electrification. Improvements were certainly necessary, and it would have helped greatly to complete electrification across "The Gap". Management claimed it would cost too much to upgrade. Then they spent just as much for diesel locomotives, which did not work quite as well as the electrics. De-electrification probably contributed to the Milwaukee's downfall by increasing the costs of operation, but I don't believe anyone has worked out how much of a factor it was. It would seem that as much as anything else, at a time when they supposedly had no money to spend, management was bedazzled by the prospect of actually getting an expected ten million dollars for the copper in their overhead catenary.
The flip side of de-electrification was dieselization. While replacing steam locomotives with diesels was undeniably good, this was not the case for electric locomotives. It would seem that management was bedazzled (again!) by a spirited sales pitch, and by all the other railroads switching to diesel power, and never considered that these arguments did not apply to electric traction. In the end it was estimated that diesel traction cost twice as much to operate as electric, and was not quite as reliable.
(In the same period the City of Seattle scrapped its electric trolley system--which was then rebuilt a few years later when Metro took over the system. On the basis of other similar instances some have alleged a conspiracy by the automotive "interests" to increase their markets. I don't know about that. Perhaps it was nothing more than a kind of mass enthusiasm and uncritical acceptance of a bad idea.)
These questionable decisions may have been driven by merger monomania
(see
The final act of the Milwaukee's failure was the abandonment
of its western lines in 1980. It seems that the western lines were
actually making money, but eastern lines were not. So they abandoned
the western lines, and, gee, they still lost money! Incredible!
Through all of these factors there is a general theme: questionable
decisions made by the Milwaukee's leadership. But why that
happened is hard to explain. It could be argued that ultimately it
came from from either extreme near-sightedness, or sheer ineptness, of
the owners (the banks). But such a theory would also have to explain
why the bankruptcy trustees were similarly inept. Some would argue
collusion, even conspiracy. Looking around at other instances, I
wonder if it is simply that America's ruling class is just as inept as
Britain's.
Or perhaps it was simply greed and peculation and conflicts
of interest of the owners (the banks), and even of the Directors
charged with governance of the company. As just one example, read how
Director John Ryan
feathered
his own nest at company expense, such as charging exorbitantly for
the electricity his power company sold to the Milwaukee.
And finally there is the conspiracy theory: that the Hill
"interests" (i.e., the Burlington Northern's owners) subverted both
the Milwaukee and the bankruptcy trustees to destroy their principal
competition.
So why did the Milwaukee fail? There are so many possible reasons:
I do not know what the proper answer should be. (All of them?) Nor
quite what lesson should drawn, though the collapse of a company that
had so many advantages is so contrary to expectations that there ought
to be a major lesson here. This warrants serious study (the forgoing
is just a teaser), and I would encourage anyone that is interested to
study it.
For futher study:
The Milwaukee Road is a popular topic of study, both in print and on
the Internet, though the most accessible materials tend towards the
photographs, personal histories, and equipment lists favored by
railfans. Regarding the failure there is very little readily
available. Good starting points on the Internet are Todd Jone's essay
"Milwaukee
Road in the 70's: What Really Happend?", and Michael Sol's piece
"The end of the Milwaukee electrification" (towards the bottom
of the document).
Note that many of the books about the Milwaukee Road, even those
published before the failure, have information relating to some of the
possible causes. Frederick Hyde, in his The Milwaukee Road
(Hyrail, 1990), has some trenchant comments (and beautiful pictures).
If anyone comes up with more material on this topic, or even just a
bibliography, I'd like to hear about it. Send comments to jj@scn.org.
Back to The Milwaukee Road at Cedar Falls.