Consolidated Rail Corp.: An American Transportation Success Story

Taking Control Of All Penn Central Et Al. Assets, The Government At Once Found Itself The Owner Of A Railroad

The modifier that most accurately describes Consolidated Rail Corporation or Conrail for short, is success.

Not one to turn a blind eye toward opportunity, American railroading is and has always been open to the possibility of joining forces with others for the betterment of all concerned parties. And with Conrail, it was no different.

This is the story of Consolidated Rail Corporation, the corporate behemoth that made a go of it, doing what no fewer than a half-dozen Northeastern pikes could not, that is, to turn a profit, thus turning a corner and positioning itself as a prime merger candidate, such stature leading to two rail-industry giants — Norfolk Southern and CSX Transportation — gladly taking “Big Blue” off the public’s hands. NS and CSX acquired 58% and 42%, respectively, of the once proud and prosperous railroad empire known more familiarly as Conrail.

In the early 1970s, Central of New Jersey, Erie-Lackawanna, Lehigh & Hudson River, Lehigh Valley, Penn Central and Reading, one by one, entered bankruptcy. These six railroads were destined to fail due to declining freight revenues, deferred maintenance and a general deterioration of freight-service levels, which ultimately meant more and more cargo was finding its way to road-based trucking and aviation interests. Requirements to operate money-losing passenger trains added to the railroads’ seemingly, irreversible plummeting spiral. Then, in 1976, along came the Railroad Revitalization and Regulatory Reform (or 4-R) Act which not only turned the tide, but was responsible for helping to save each of those six moribund rail enterprises. It was there and then that Conrail was born.

“Though the Penn Central was already bankrupt by 1973, it somehow managed to stick it out till 1976 when PC along with a number of other bankrupt northeast railroad companies together became the locus of the then government-controlled Consolidated Railroad Corporation or Conrail for short. Conrail was, in effect, the knight in shining armor for a plethora of failing or failed railroads operating both in the northeast and upper Midwest,” I wrote in “Penn Central: An Ephemeral ‘Road That Gave It The ‘Old College Try’”.[1]

Furthermore, in 1980, the Staggers Rail Act, the next significant piece of rail legislation to pass, deregulated the domestic rail industry, which afforded rail carriers more freedom to set their own rates, abandon or sell unprofitable lines and to offer service enhancements designed to reduce costs and attract business. This permitted the nation’s rail carriers to become more competitive with their trucking counterparts. It was at this juncture that Conrail was paving the way toward fiscal recovery and financial well-being. During the second half of 1981, meanwhile, the company would no longer require federal assistance, Conrail becoming profitable by the end of the year, the first time in its history to do so.

On March 26, 1987, the federal government sold its stake in the company to private investors; the rail-freight endeavor was then returned to the private sector as a “for-profit” corporation. At the time it was the largest initial public stock offering in the history of the U.S.

On October 15, 1996, an announcement was made by CSX Transportation of its intent to merge with Conrail. Shortly thereafter, Norfolk Southern Corporation entered the picture by offering Conrail shareholders more bang for their buck. Like in a high-stakes card game, with the ante now raised, in response, CSX made a counter-offer.

With neither side appearing to hold a winning hand, the CEOs of both NS and CSX in a 14,810-page joint application filed with the Surface Transportation Board on Jun. 23, 1997, the STB verbally approved a split-up of Conrail between NS and CSX; Norfolk Southern getting 58% of Conrail assets and CSX acquiring 42%.

One For The History Books

Conrail, in coming to the rescue as it did in the 1970s, is both foundational and transformative. It’s a story that should be so-documented in history as one of the greatest American Transportation successes!

Notes

1. Alan Kandel, All About Trains, Apr. 14, 2024 entry

Updated: Oct. 29, 2024 at 3:54 p.m. PDT.

Image credit: Roger Puta via Wikimedia Commons

All material copyrighted 2024, Alan Kandel. All Rights Reserved.