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10 ANOTHER RENAISSANCE
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141 1 0 ANOTHER RENAISSANCE • Changing Climate Congressional passage of the Staggers Rail Act of October 1980 was the most extensive overhaul of the nation’s railroads in over half a century. At once it redefined the rules by which railroad commerce was carried out by erasing many of the restrictions that remained from the early twentieth-century era of railroad dominance in interstate transport, a period characterized by the involvement of the Interstate Commerce Commission in virtually every strategic move by a railroad company. In the wake of this deregulation, rigid ICC control was replaced by the less restrictive policies of the Surface Transportation Board. The Staggers Act also allowed more aggressive marketing by railroads and redefined the playing field with respect to consolidations. One of its overall benefits was to transform rail investment into a more attractive market. An anticipated effect of this loosened federal control was an acceleration of mergers by the nation’s largest companies, themselves formed from an earlier round of mergers during the 1970s. The first of these mega-mergers was the 1980 formation of CSX, which combined lines of the Chessie and Seaboard systems. The former was composed of Chesapeake & Ohio, Baltimore & Ohio, and Western Maryland, whilethelatterincludedtheSeaboardCoastLineand affiliated lines such as L&N, Clinchfield, and the West Point route. Arrayed against this eastern conglomerate was the Norfolk Southern system, formed in 1982 by a consolidation of the Southern Railway and the Norfolk & Western. By the early 1990s the first round of postStaggersconsolidationshadproducedsevenlargesys tems across America. In the East there were three giants (CSX and Norfolk Southern plus Conrail), while Atchison, Topeka & Santa Fe, Burlington Northern, Southern Pacific, and Union Pacific ruled the West. But the nation’s consolidation climate was still able to muster energy for a final round of mergers during the lastfiveyearsofthetwentiethcentury.Theseincluded formation of Burlington Northern Santa Fe in 1995, followed by Union Pacific’s absorption of Southern Pacific in 1996, and the frenzied cleaving of Conrail by CSX and Norfolk Southern in 1999. For southerners , 1999 also brought a most unimaginable move, the disappearance of a once Mississippi rail giant. This occurred when the IC was subsumed into the growing Canadian National network. It was difficult for 142 R AILROADS OF MERIDIAN longtime observers to accommodate the presence of CN’s red-nosed locomotives along the Gulf Coast, of all places. Absentfromthemega-systemsweremidsizedroads such as Kansas City Southern and Canadian Pacific. The1,500-mileKCS,whoseoperatinghubwasShreveport , featured a high-density north–south line from itsnamesakecitytotheGulfthatwasheavywithcoal, grain, and chemical traffic. Its primary east–west corridor was a New Orleans–Dallas line acquired in its 1939takeoveroftheLouisiana&Arkansas.Moreover, from KCS’searliest years as theKansas City, Pittsburg & Gulf, road had interchanged traffic in Shreveport with the line’s various owners, Vicksburg, Shreveport & Pacific, Yazoo & Mississippi Valley, and MidSouth. The latter line provided a daily swap of over sixty cars. In the early 1990s KCS was headed by George Ed wards, a former public utility executive. His vice president for marketing was Michael McClain, who had many contacts throughout the industry and was skilled at visualizing future traffic trends. When Edwards mentioned that he wanted to expand the KCS, McClain immediately began touting the many advantages that a MidSouth acquisition would provide for the constrained service region of KCS, which was surrounded by corporate giants on all sides. These new possibilities revolved around increased access to junctions throughout Mississippi, from the Gulf Coast to its Tennessee border, as well as directly into the Birmingham hub (Lamb, “New Direction”). In1992EdwardsacceptedMcClain’sentreatiesand decided to examine seriously a potential MidSouth acquisition, even though Illinois Central was also making a move to reacquire the lines, as it had done with its onetime Iowa network. One of the early steps for a purchasing line, before such a formal decision is made, is a detailed economic feasibility study. Considerable detail about the KCS’s study has come from a participant on McClain’s study committee, which consisted of a dozen members of the vice president’s marketing and sales staff. Due to the high level of security needed, committee members were asked to report , in an unobtrusive manner, to an executive conferenceroomonthetopflooroftheroad ’sKansasCity headquarters building early on a Monday morning. After being organized into teams and sworn to absolute secrecy until there was a final announcement by the railroad, they began scouring through stacks of computer records. These printouts displayed every carloadoffreighthandledbyboth KCS andMidSouth forthetwelve-monthperiodbeginningonJune1,1991. The goals of the study committee were first to discoverandthentoanalyzeeveryoriginanddestination pair, noting the routing and traffic volume (carloads andtons).Atthatpoint...