did not feel the master plan was in their best interest. Transportation Act failed to produce the significant railroad consolidations it had intended The The next major legislation with regard to railroad consolidation was the Transportation Act of 1940. The requirement that consolidations should conform to the Commission's master plan was dropped. Secondly, the requirement that all COLsolidations shall be consistent with the public interest was made more explicit, in that the following factors had to be considered by the Commission: 1. The effect of the transaction upon adequate transportation service to the public. 2. The effect of the inclusion or failure to include other railroads in the territory involved in the proposed transaction. 3. The total fixed charges resulting from the proposed transaction. 4. The interest of the carrier employees involved. Since 1940, the only major legislation concerning railroad consolidations has been the recent 3R and 4R Acts (previously cited). The major purpose of the 3R Act was to deal with the several bankrupt railroads in the northeast by con notably the requirement that merger proceedings before the Commission should be completed within 240 days and that a decision should be reached within 180 days. Observing the 14 years of merger proceedings in the Burlington Northern case, these requirements produced a major improvement in the requlatory process. Leasons propused bem Rits 1o not occur re: Splicate functions •-economies of scale 1.2 cost MOTIVATIONS FOR RAILROAD BERGER to A major part of the merger proceedings before the Commission has been the presentation and discussion of projected savings and revenue increases that are expected accrue to the applicants as a result of merger. Cost savings are often said to result from the elimination of duplicate facilities, predominantly in cases were the applicants serve similar areas. Unit cost savings are also said to accrue from economies of scale as the railroads combine output urder a single corporate unbrella. Despite these claims, an examination of past mergers reveals that elimination of duplicate facilities, (yards, lines, and work forces) does not often occur. Political intervention on behalf of shippers and labor unions is a predominant reason in addition to operational considerations of the merged railroads. In addition very little evidence can be found to support the * railroad mergers is concluded to be the gaining of revenue The basic idea underlying the consolidation move- A few examples serve to illistrate traffic (traffic redistribution) due to railroad mergers. diversions Example 1: Montgomery, Ala. to Miami, Pla. Figure 1 portrays the relation of the Seaboard Air Line (SAL), Atlantic Coast Line (ACL), and the Florida East Coast (FEC) Kailroads previous to the late 1960's in the Montgonery, Ala. to Miami, Fla. market. SAL and ACL were strong (1) See Meyer, Peck, Stenason, and Zwick, The Economics of Competition in the Transportation Industries, Harvard University Press, 1952. ← (2) Julius Grodinsky, Railroad Consolidation. D. Appleton, 1930, p.xv.÷ In this market, the SAL offer single carrier service, since it served competitors throughout the South. was able to both market endpoints. In order for the ACL to compete with the SAL, it cooperated with the PEC (which served Miami) in the establishment of through rates comparable to those of the SAL. Given the merger of of the ACL and SAL, it was evident that the merged carrier would prefer to use the old SAL route in this market. In so doing, most traffic that was originated on the old ACL was, 'subject to diversion from the FEC. result of these traffic diversions, as a result of merger, The merged carrier, as a was able to enjoy more revenue than the combined revenues of the ACL and SAL. Example 2: Chicago to Portland, Ore. Market Two majɔr routes were offered in the Chicago to Portland market prior to the late 1960s. (See Figure 2). The Chi cago, Burlington, and Quincy (CBQ), the Great Northern (GN), and the Spokane, Portland, and Seattle (SPS) providing an efficient northern route. cooperated in The Union Pacific (UP) with the cooperation of several carriers between Chicago and Omaha, notably the Chicago and Northwestern, and the Chicago, Milwaukee, St. Paul, and Pacific (Milwaukee), competed to the south. In 1968, the ICC approved the merger of the CBQ,GN,SPS, and the Northern Pacific. The effect in this market was the establishment of single-carrier service via the northern route, which effectively improved service |