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Cartoon map of Union Pacific-Southern Pacific merger -
Eastbound K-Line in Hood River, Oregon -
1883 poster advertises Oregon Short Line -
East meets West in Promontory, Utah, in 1869 -
Union Pacific-Southern Pacific rail system -
1867 poster offered railroad lands for sale -
Windmill along Laramie, Wyo., railroad tracks in 1868 -
Bicyclist on converted track on Milwaukee RR Corridor -
Coal is loaded into train near Gillette, Wyoming
SALIDA, Colo. – For about 25 years, people around here have observed that “the train doesn’t stop here any more.” Someday soon, we may be saying that the train doesn’t even come through here any more.
“Here” is a town of 5,000 in the middle of Colorado. Like many towns in the West – Cheyenne, Livingston, Ogden, Billings, Flagstaff, to name only a few – Salida is the product of a railroad.
For the past 116 years, trains have rumbled through town, climbing along the Arkansas River and over the Continental Divide. It began with tiny narrow-gauge loads of ore bound for nearby mills and smelters, and it continues with mile-long trains just passing through the Rockies. They carry coal from mountain and desert mines bound for power plants in Texas, iron ore from the Great Lakes to a steel mill in Utah, standardized containers of auto components built in the Orient and headed for assembly plants in the Midwest.
Even though most trains these days just pass through, it isn’t quite true that the train doesn’t stop here any more. Southern Pacific freight trains do stop occasionally to take on a carload of coal for a local limestone processing plant. Or to pick up a tank car of liquid fertilizer, a byproduct from zinc processing, and move it to California. Several small quarries export crushed rock for ornamental use. About 60 miles up the line, the Asarco Black Cloud, Leadville’s last operating mine, ships 30 carloads of zinc and silver concentrates each month to a smelter in Montana.
The railroad makes it possible for this otherwise remote valley to participate in the American industrial system – a part of the Rust Belt, if you will, albeit a part that sits two miles above sea level.
But those jobs – fairly steady blue-collar jobs that pay decent wages – are about to vanish, and there’s no way to blame spotted owls, endangered toads, or even urban environmentalists.
Instead, blame two other traditional Western bogeymen, Wall Street and Washington. To the approval of the stock market, and the further enrichment of a billionaire, the federal government approved the merger of the Union Pacific and Southern Pacific railroads last month. UP says it can handle SP’s long-haul traffic on other routes, and that there isn’t enough local freight to matter.
So the UP wants to rip out these rails – about 170 miles of the old “Royal Gorge Route” that runs west in Colorado from Caûon City to Salida and over Tennessee Pass.
Despite the opposition of wheat farmers on the Great Plains, UP also plans to abandon about 120 miles of track that stretches east from Pueblo.
Here in the mountains, the state government offers to replace rail service with a trail called “the Heart of the Rockies Historic Corridor.” It should be one monster of a tourist draw with steep gorges, scenic trestles, inviting tunnels and mile after mile of steady, gentle grade suitable for $1,800 bicycles that arrive atop $30,000 sport-utility vehicles.
The railroad abandonment will be another step in the cultural and economic transformation that is happening across much of the West, a change from heavy extractive industry to scenic amenity tourism. Steady union-scale jobs will be replaced by seasonal burger-flipping and tourist-smiling.
Wages will drop, but housing costs will rise, as outdoor-experience writers “discover” new trails and towns to exploit.
The West will henceforth labor under a “duopoly” of railroads. More than 90 percent of the rail traffic on the dry side of the 100th meridian will be hauled by UP and Burlington Northern Santa Fe, each the product of mergers and acquisitions: No more Western Pacific, Missouri Pacific, Rock Island, Katy, Great Northern, Northern Pacific, Chicago & Northwestern, Colorado & Southern, Fort Worth & Denver, Frisco, Denver & Rio Grande Western.
The biggest consolidations are recent. In 1995, the Interstate Commerce Commission approved the merger of the Atchison, Topeka & Santa Fe with the Burlington Northern to form the Burlington Northern Santa Fe. That merger provoked little notice or opposition, perhaps because they had few parallel routes. Burlington Northern primarily connected Chicago with Puget Sound and Denver. The Santa Fe essentially ran from Chicago to Los Angeles across New Mexico and Arizona.
But the UP-SP merger contains duplications. A shipper in Ogden or Winnemucca used to get the UP to bid against the SP. After the merger takes effect Sept. 12, there will be only UP tracks in the vast territory west from Denver across Utah and Nevada to the San Francisco Bay.
The Antitrust Division of the U.S. Department of Justice estimates that the merger will cost shippers and consumers, many in the West, more than $800 million a year as a result of lost competition.
So what?
It is tempting, even easy, to think “So what? Railroads may have been important once, but do they matter now?”
Few of us ever deal directly with railroads. When relatives arrive from afar, we fetch them at the airport, not the depot. On shorter trips, we drive or ride a bus. Our “mail orders’ arrive via United Parcel Service or Federal Express; we don’t go see the express agent down at the depot. There probably isn’t even a depot any more – if it wasn’t torn down, it was moved and now serves as a museum or senior citizens’ center.
Railroads often seem like a fading remnant of another age, just hanging on until bankruptcy finally, mercifully carries them off. The crews are overpaid featherbedders, the management is mired in the 19th century and trains are cast-iron nostalgia.
While that might have been generally true in 1970, American railroads have staged a comeback since then. In 1980, Congress deregulated freight rates and allowed railroads to operate more competitively. Railroads now pursue business aggressively, taking it from trucks, barges, oil pipelines and each other.
In order to get competitive, railroads went head-to-head with unions over wages and work rules. The new agreements, combined with improved technology, meant smaller crews and the near-extinction of the caboose. Modern trains roll past computerized trackside sensors which examine each car, and then a synthesized voice announces a message like “overheated bearing on the right rear of the seventh car.” With microwave links, fiber-optic cables and computers, one dispatch center in Fort Worth, Texas, controls all train movements on Burlington Northern’s 31,000 miles of track.
Railroad employees became three times as productive during those 20 years: In 1970, American railroads needed 566,000 employees to move 765 billion ton-miles of freight. In 1990, only 216,000 employees hauled 1,034 billion ton-miles.
Their transformation to competitive, high-tech enterprises is reflected in the railroads’ rising share of the transportation market. In 1940, railroads hauled 63 percent of the nation’s inter-city freight. Their share bottomed around 1985 at 36 percent. Since then, the railroad share has started to climb: 37 percent in 1990, 38 percent in 1993. After all, rails can move the goods cheaper than trucks – shipping a container from Los Angeles to Chicago costs about $1,200 by rail; $1,800 by truck.
In the West, rail traffic has also been stimulated by an increase in freight from Mexico as well as the Pacific Rim, which ships its goods to ports on the West Coast.
Although this traffic makes railroads more profitable, it also makes the Mountain West the rail equivalent of “flyover territory.” The stuff is bound from the West Coast to the Gulf Coast, Mississippi Valley, or Great Lakes, and the train is a steel conveyor belt. The West just happens to be in the way.
There is only one major instance where the West is more than a barrier, and that is coal.
King Coal
There’s plenty of coal in the East and Midwest – West Virginia, Kentucky, Ohio, Illinois. But that coal contains sulfur, and when it burns, it produces chemicals that return to earth as acid rain.
Removing the sulfur after the coal is burned is difficult and expensive; the easy solution is to burn low-sulfur coal, scarce in the East but abundant in the West, where railroads are in place to get it from here to there.
Beyond environmental concerns, there’s politics. Eastern mines are generally unionized, Western mines aren’t. Republicans can support clean air if it means fewer members of the United Mine Workers, and more business for GOP stalwarts like Phil Anschutz, a major contributor to the Republican party and principal owner of the Southern Pacific, and Drew Lewis, CEO of the Union Pacific and a secretary of transportation under Ronald Reagan.
The result is a thriving railroad business in Western coal, called “compliance coal.”
It comes in two forms – bituminous and sub-bituminous. Bituminous produces more heat per pound because it is drier. It comes from mines in central Utah served by the Utah Railway, a short line which connects to the UP and SP; the North Fork and Yampa valleys of Colorado, served by SP; and the Raton area of New Mexico, served by BNSF.
Sub-bituminous coal comes from the Powder River Basin of Montana and Wyoming, initially served only by BN, but since 1984 also served by UP. From a railroad point of view, a route from the Powder River to a distant coal customer is like owning a license to print money because the route doesn’t go over mountain passes or gorges, and because the stripmined coal is very cheap, leaving lots of “room” for high transport costs. Coal that costs $3.50 a ton at the mine near Gillette, Wyo., will go for $30 a ton at a power plant in Illinois, Georgia or Texas.
The difference is the cost of transport – railroad income. Powder River coal accounted for 30 percent of the BN’s income in 1994, and in 1995, the UP hauled nearly 100 million tons out of the Powder River Basin.
But what about a Western railroad that didn’t serve the Powder River?
The UP had been in that position. It had coal along the main line in southern Wyoming, but the coal came from deep underground and couldn’t compete in price with Powder River coal without a lot of help from the railroad on shipping rates.
UP could have cut rates, but instead it went into the Powder River Basin in 1984, a joint line with the Chicago & Northwestern (which it swallowed last year). The mines in southern Wyoming closed soon thereafter because their mining costs, combined with freight rates, made the coal too expensive.
SP also had expensive coal along its routes, but SP couldn’t get into the cheap Powder River Basin. So it got competitive. It started developing markets (Colorado and Utah coal isn’t only burned in the East, but in the Far East: South Korea, Japan, Hong Kong, Singapore, and Taiwan). It also took a big Western customer away from the competition: Geneva Steel in Utah, which gets iron ore from a taconite pellet plant at Mountain Iron, Minn., 2,268 miles away. SP, even though its route was longer and steeper, underbid UP on the taconite, and came out ahead by hauling coal east in the same cars that carried iron ore west. SP’s aggressive marketing kept the Colorado and Utah coal mines in business. Since 1989, SP’s share of Western bituminous coal shipments has risen from 7 percent to 64 percent, while UP’s share fell from 93 percent to 18 percent.
SP’s desire to survive as an independent carrier allowed coal mining in the West to stay dispersed rather than concentrated in the Powder River Basin. But that raises a question: What if SP doesn’t need to compete because it’s part of the UP, with access to the Powder River?
Dismantling a region’s coal industry
That question worries Alex Jordan, director of the Salt Lake City-based Western Shippers Coalition. In the central corridor between Denver and Salt Lake City, UP will have a monopoly that could eventually put the coal mines of Utah and Colorado out of operation.
“We’re not saying that’s going to happen,” said Jordan, “but we do have a concern that it could happen and break the back of the coal industry.”
Indeed, for geographic reasons, UP has always seen Colorado as a place to go around, not through. With the merger on the brink of completion, critics paint a bleak scenario for the future of coal mines in Colorado and Utah: After UP and SP consolidate operations, and after UP abandons the Tennessee Pass line that serves Salida, Colo., UP will have two routes between Denver and Salt Lake City – the old D&RGW route from Denver into the mountains via the Moffat Tunnel (central corridor) and north from Denver to Cheyenne and then west over the prairie and desert (overland route). UP will shift all possible traffic to the cheaper, faster overland route.
Under this scenario, the region’s coal producers will have to pay the full cost of maintaining the tracks, rather than have those costs spread among the numerous customers who now ship between Denver and Salt Lake City. When existing contracts expire, UP will raise the rates to cover the full costs. Coal from Utah and Colorado will no longer be competitive. The mines will close, and production will shift to the Powder River Basin, keeping the railroads whole, but damaging the economies of coal towns in Utah and Colorado.
After the mines close, the other shoe will drop: There won’t be enough traffic to justify keeping the Moffat Tunnel line open. So the UP will abandon it. Colorado will be left without any east-west line across the state, and Utah shippers will lose a connection. An already crowded Interstate 70 will get more heavy truck traffic to further impair mountain transportation.
What’s to keep that from happening?
For one thing, UP professes to be pleased at being able to serve Colorado and Utah coal mines now. “We want to keep their business,” UP spokesman Ed Tramdahl said, “and you have to realize that utilities tailor their generating plants to certain kinds of coal. They can’t just switch overnight from bituminous to sub-bituminous. So there will still be a need for coal from outside the Powder River Basin.”
An open market or a sham?
When UP put together its merger proposal, it attempted to quiet fears of a monopoly by offering trackage rights to the BNSF along routes where shippers had been able to choose between UP and SP – primarily on the Gulf Coast and along the central corridor.
In theory, BNSF will operate its own trains on tracks rented from UP-SP between Denver and Oakland, so that shippers like Geneva Steel will still get the benefits of railroad competition. But none of the nuts-and-bolts infrastructure – locomotive-service terminals, crew-change layover sites, or switching yards – has been arranged, according to UP’s Tramdahl. “BNSF operations are something we’ll work out after the merger,” he said. The BNSF has yet to announce any plans, and if it is soliciting business along the corridor, it is doing so in secret.
There are good reasons to wonder why BNSF would ever want to run trains through the central corridor. To understand why, consider that there are two types of freight. One is local – the stuff that originates or terminates along a given section of track. The other kind neither starts nor ends on that track – it just passes through.
As far as through traffic is concerned, BNSF is in much the same position as UP-SP: It has faster, cheaper ways to get freight from the Midwest to the West Coast, and no real reason to use a route that involves three high mountain crossings – Moffat Tunnel in Colorado, Soldier Summit in Utah and Donner Pass in California.
Would the merged railroad have any incentive to develop local traffic?
Fred Simpson, executive vice-president of Montana Rail Link – a company that has successfully developed local business in Montana, Idaho and Washington – points out that local traffic is often sporadic, which means BNSF would have trouble scheduling crews and equipment to serve a coal mine in Utah, 500 miles away from the nearest BNSF yard in Denver.
Simpson argued that there is no way BNSF can profitably serve traffic along the central corridor, and that UP’s announcement that it is preserving competition is a sham.
To some degree, the Surface Transportation Board – the Department of Transportation body that replaced the Interstate Commerce Commission last year and now oversees railroad mergers – must share that concern about a monopoly across the central West. The details probably won’t come out until Aug. 12, when the board issues its full written opinion to explain its July 3 vote in favor of the merger.
But the board did announce that it planned to monitor the central corridor for at least five years to make sure that there is a competitive environment. Does that mean anything? The board is a new body whose powers are untested. Monitoring traffic along a given route sounds a lot like government regulation, and we’re in deregulatory times.
Playing politics
On the day that the Senate was supposed to vote on which agency would have control of mergers, UP chief executive Drew Lewis visited Utah Sen. Orrin Hatch, who had favored the Department of Justice providing antitrust oversight to the deal. So had Utah’s other Republican senator, William Bennett. After the meeting with Lewis, Hatch changed his mind and persuaded Bennett to go along, and Lewis got what he wanted: the oversight of what was considered a friendlier group, the Surface Transportation Board.
That shouldn’t come as a surprise. Lewis is a GOP stalwart, and Phil Anschutz, SP chairman, is a fund-raising chairman for Robert Dole. The UP contributes heavily to congressional campaigns.
Anschutz will come out quite well. He started with a fortune in oil and gas. Back in 1984, he got into railroads when he bought the Denver and Rio Grande Western Railroad. He used that as collateral to buy the SP in 1988 for $1.7 billion; although he has sold some SP stock since then, he still owns about 25 percent of the corporation.
By selling off $1.5 billion of SP’s extensive California real estate, Anschutz kept the railroad going, even as it lost money: $66 million in 1989, $35 million in 1990, $78 million in 1991, $25 million in 1992. Now, UP is paying $5.4 billion for SP, an SP shorn of many assets that Anschutz got when he bought it eight years ago.
With the merger, Anschutz will come out about $1.6 billion ahead, tax free. If he just sold the SP, he’d have to pay capital gains taxes. Merger into the UP means a tax-free exchange of stock.
Little wonder that he contributes freely to the campaigns of candidates who support the merger. If it hadn’t gone through, he’d have had to make the SP pay on its own (something he hasn’t been able to do yet – it has lost money in 14 of the past 17 years), sell it on the market (and pay capital gains taxes), or break up the SP and sell pieces to interested railroads (more capital gains problems).
That gave Anschutz every reason to be persuasive, and he certainly persuaded Colorado Gov. Roy Romer. Colorado will lose several thousand jobs, as well as hundreds of miles of main-line track. Romer could have supported any of several proposals for another operator to buy the central corridor rail lines and preserve the jobs, trackage and competition. Instead, he went along with his “good friend, Phil.”
One governor who feared the loss of rail competition, George W. Bush of Texas, came out against the merger. Others expressed reservations. Romer settled for a hiking trail.
Why did Romer support a merger that may cut the throat of Colorado’s surviving rural industries? It beats me. And despite several phone calls, Romer wouldn’t talk to me.
Opponents up in arms
Some fairly big guns fired shots against the merger besides the Antitrust Division of the Department of Justice. The Department of Transportation opposed the loss of rail competition along the Gulf Coast and in the central corridor. The Department of Agriculture also came out against it, because as Secretary Dan Glickman explained, “rail rates are likely to increase as competition declines. Higher rates would mean lower prices to farmers.”
The National Industrial Transportation League, a group of about 1,500 big shippers, has talked with some other merger opponents to consider a lawsuit, among other actions, but nothing besides rumors and unattributable statements will appear until Aug. 12, when the STB releases its full written decision on the merger.
After that, there might be a scramble in some federal courthouse to get an injunction since UP and SP plan to start joint operations on Sept. 12, although UP says full consolidation will take at least five years.
All sorts of things could happen in court, and a suit could take years – the UP-SP merger application was itself more than a yard of stacked paper, and when you add opposing arguments, analysis, depositions and the like, there’s a good start on a big library.
But UP is proceeding on the assumption that STB’s authority, and its approval of the merger, will stand up in court, and that its purchase of the SP will pay off.
Take the $800 million a year that the Justice Department says that a UP monopoly will be able to gouge from captive customers in Texas and the Interior West, apply that to the $5.4 billion price of the SP, and it just about covers the payments. Westerners will benefit from the merger – if they own UP stock.
Goodbye to a working West
And so, it appears that some day in the near future, we will gather by the river and watch the last train pass through Salida. Rail fans from across the country are already swarming to this area to get pictures of trains on the steep grades of Tennessee Pass, at 10,282 feet America’s highest through railroad.
Perhaps there won’t be a last train. Eagle County wants to buy at least part of the line, tracks and all, to operate commuter trains between Leadville, Eagle and Vail. Others see potential in tourist operations along the entire corridor. At least one would-be operator is still trying to persuade the UP to sell the tracks it plans to abandon.
If the rails stay in place, we might end up like Silverton, a historic brick downtown that is open for three hours a day so that the passengers on the tourist railroad can buy souvenirs and gee-gaws.
SP has already signed an agreement with East-West Partners, a resort development firm, to develop at least 65 of the 121 acres it owns in Minturn, a railroad town just a few miles east of Vail.
Does Vail need more development? Does Leadville need to lose its last mine and become nothing more than a bedroom community for workers at the nearby ski resorts? Must Salida’s downtown be completely over-run by boutiques, galleries, T-shirt shops and souvenir stands?
There is another, brighter side to this. When it comes to shipments from the Interior West, both the BNSF and UP specialize in bulk commodities for export. They’re not interested in displacing the occasional truckload of lumber from our highways.
The fewer miles of railroad track in the West, the fewer strip mines, clearcuts and sprawling monoculture farms. Shippers might be forced to add value at home, like the farmers in North Dakota who discovered they did better by making their wheat into pasta, rather than shipping their grain off into the world commodity markets.
With transportation costs higher, towns in the West might become more self-sufficient and less reliant on volatile world markets. That is worth some conscious deliberation: What kind of places do we want to live in? How should we get our livelihood in those places?
But that decision won’t be made in the West.
Carey McWilliams, one-time editor of The Nation and a chronicler of California, observed in 1949 that the West’s transportation network was “designed to serve national rather than regional needs.”
This deliberate national policy deprives the region of cohesion and insures that the important decisions are made on Wall Street and in Washington.
So it was with the UP-SP merger. Wall Street can make Phil Anschutz $1.6 billion richer, and Washington can leave the West with only two railroads, competitive between the West Coast and the Mississippi Valley, but monopolistic in between. And some of the working towns of the West will be the losers.
Ed Quillen publishes Colorado Central in Salida, Colorado, “the monthly for people who feel nostalgic for hard labor and unsafe workplaces.”
The following sidebar article accompanies this feature story:
This article appeared in the print edition of the magazine with the headline Disappearing railroad blues.
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