Conrail, the government-sponsored freight railroad, is facing its most serious test -- even before it has a chance to pass its first one. When it began in 1976, Conrail(Consolidated Rail Corporation) was given $3.3 billion by Congress and two primary missions: Improve rail service in the Northeast, and make a profit. So far, it has been more successful at the first task than the second.
On the strenth of the $3.3 billion, the railroad has been able to buy new equipment, rebuild some of the older stock, and upgrade thousands of miles of track. As a result, it has been able to reduce delays, bring in more customers, and put more good equipment in service. To take on example, "bad order cars," or the number of cars rejected by shippers as unfit, dropped from 19,969 in 1977 to 10,386 in 1979.
And although Conrail has lost money throuhout its life, in 1979 it was beginning to show a slower rate of loss. Instead of ending the year $385 million in the hole, as it did in 1978, Conrail finished last year just $178 million in the red.
Then the recession hit.That has brought the second test -- survival. The recession hit first in Conrail's area, the heavily industrialized Northeast, slowing or shutting down auto plants, closing steel mills, and affecting thousands of other companies that depend on these industries. Conrail's traffic dropped 20 percent from a year earlier.
More alarm bells began to ring this year as talk of railroad mergers pushed ahead. First, the Chessie System and Seaboard Coast Lines announced their merger plans. Then the Norfolk & Western Railway and the Southern Railway followed suit. These mergers, taking place where Conrail does most of its business, threaten to take away many of the customers Conrail has fought to win.
"Conrail was born in a recession," said Carl D. Martland, research associate with the Center for Transportation Studies at the Massachusetts Institute of Technology. "And it's facing its toughest test in a recession. Had we not had two recessions in its lifetime, Conrail would be in better shape than it is today."
Apparently agreeing, Conrail has returned to Congress with its palm up, asking for an additional $900 million. And, the railroad said, if Congress did not pass the rail deregulation bill, thus allowing it to raise rates to cover more of its expenses, it would have to ask for $500 million more, a total $1.4 billion over its original $3.3 billion grubstake.
But in making the request, Conrail did more than than give Congress a choice of granting the request or not doing so. It inadvertantly set off a new debate over what kind of future -- if any -- Conrail should have.
Along with its initial funding of $3.3 billion, Conrail was give a 17,000 -mile rail network. Today, Conrail officials claim, and most experts agree, that is too much for the system to manage adequately.
"There is definitely too much track," said Alvin Arnett, and assistant vice-president of Conrail and one of the railroads's legislative liaisons in Washington.
Mr. Arnett suggets there might be a "ballpark figure of somewhere between 3, 000 and 5,000 miles" of track that Conrail could unload, either through abandonment of little-used branch lines or sale of some lines to other railroads.
Others, however, have suggested more drastic alternatives, ranging from cutting Conrail down to about 8,000 miles of its most profitable track and selling off or abandoning the rest. One problem with this, however, is that any railroads interested in buying pieces of Conrail tracks would be more interested in the moneymaking lines Conrail tracks would be more
Another alternative is for the federal government to swallow the fact that to maintain rail freight service in the Northeast, it is going to have toe permanently subsidize at least part of the Conrail system. This would involve isolating the unprofitable part of Conrail east of what is known as the "firewall," a line from Buffalo, New York, to Harrisburg, Pennsylvania. West of this line, Conrail is profitable and this section would be more attractive to prospective buyers. The lines east of the firewall would continue to be run under government subsidy.
By far the most drastic choice would be to abandon Conrail completely, selling its equipment and profitable lines to other railroads -- most likely the two newly merged roads -- and leave shippers on the other lines the choice of moving to another rail line, or using trucks, as many have already done.
This alternative is favored by Barry Nelson, senior rail analyst for Value Line. Giving more cash to Conrail, he says, would be "throwing good money after bad. The best thing would be to break Conrail up now, before we spend billions more. . . . Now would be a good time to do it, too. With all the mergers going on and deregulation, private capital is once again interested in railroading."
When asked about the sizable expense of paying off the rail workers -- who have lifetime financial protection if Conrail slims or shuts down -- Mr. Nelson says, "It's cheaper to pay them a full salsary forever -- certainly cheaper than throwng money into Conrail forever."
Conrail's $900 million request is based on a "based case" scenario of Congress passing the reail deregulation and of an improved economy. But with a slow economic recovery, Conrail estimates the government might have to invest an additional $700 million. However, Conrail's banker, the United States Railway Association (USRA), is not very optimistic about "best cases."
"The chilling fact is," USRA president Donald C. Cole said recently, "that present economic projections have already moved toward Conrail's slower recovery scenario."