Conrail running on new confidence
Boston — Amid the traction squeal of steel wheels against steel rails and the hydraulic roar of yellow flat-car-loading cranes, Conrail's Beacon Park switching station, in Boston's Allston section, comes to life for the evening.
Ray Lehman, the soft-spoken trainmaster and Conrail employee of 42 years, is proud of this yard's safety record: A signpost at eye level on the bright blue four-story tower reads, ''Safety rule of the day is...? Know this rule. You will be asked. It's for your benefit.'' (When asked, the trainmaster replied, Rule 1602: Keep the flare away from your body when lighting it.)
There's a confident feeling around the yard nowadays, a feeling that Conrail is going somewhere.
This was not always so. Until four years ago the railroad, consolidated from bits and pieces of seven bankrupt roads, had been losing between $2 million and its massive task of rehabilitating 30,000 miles of tracks - some of which were in such bad shape that cars derailed by themselves while standing still - and of overhauling 100,000 cars and 70 percent of its 4,000 locomotives.
Sidetracked by wage guarantees to labor, miles of abandoned or underused tracks, and a losing commuter line, CR rolled up losses of $244 million in 1980. Today, as Conrail's profit tops an expected $450 million this year, 14 separate bidders have offered amounts ranging up to $7.6 billion for the line. Profits in the first half of '84 climbed 146 percent over the same period in 1983, CR's president, Stanley Crane, announced last Wednesday.
Furthermore, ''the $39 million profit shown in 1981 and the $174 million in 1982 was made during the deepest recession in 50 years,'' says Robert Lieb, a professor of transportation at Northeastern University in Boston. ''It was a bad time for the nation and a particularly bad time for freight railroads, but Conrail turned a profit.''
And now, as the government sale of Conrail to private industry chugs through the decision process and the congressional stamp of approval, will the same success factors be working for Conrail's new owners? Will CR be able to keep the competitive advantage it has pried from its years of red ink?
John Riley thinks so. He should be in a position to know: He's head of the Federal Railway Administration, an agency of the Department of Transportation, which will help to evaluate the bids for Tranportation Secretary Elizabeth H. Dole.
''The three big factors that affected the turnaround will still be there,'' says Mr. Riley, as he snatches a moment to talk to a reporter.
* Before railway deregulation in 1980, ''22 percent of the industry was in bankruptcy courts,'' Mr. Riley notes. The Staggers Act in 1980 partly deregulated rail pricing and service, allowing railroads more freedom to offer what the marketplace demanded.
* The Northeast Rail Service Act (NERSA), passed by Congress in 1981, let Conrail compete on a more equal basis with other railroads in the free market. It let CR abandon unprofitable rail lines ahead of schedule. It also bought out wage guarantees that promised payment even if workers weren't actually needed, giving Conrail the ''incentive and ability to restructure,'' he observed.
* Good management was another decisive element in the turnaround. A veteran railroad manager when he took over the CR's throttle in 1976, Mr. Crane, a believer in ''hands on'' management, averages at least one day a week out on the rails. Although insisting on tough cost-cutting programs, he realized that the programs alone would not be enough to turn the rail road around. He successfully lobbied Congress for NERSA, getting backing from 15 of 16 of CR's largest railway unions.
Conrail's unusual solutions to customers' problems have not only swept profits into its coffers from unexpected sources but have also won the company three awards for innovative marketing in the last five years. The latest, bestowed this year, is for CR's ''short-line program.'' Instead of just cutting losses by abandoning unused or underused lines, CR sold the lines to railway entrepreneurs at a fraction of their value.
The local-based operator-owners drum up so much business for the short line, retaining $12 million freight revenue for connecting CR lines in 1983, that Conrail is starting to look at selling off the marginally profitable lines that it had originally planned to keep. State governments, interested in keeping railway service going over rarely used routes, have been very active in giving short-line entrepreneurs funds for rehabilitation.
Kelvin MacKavanagh, marketing manager at Conrail, attributes the short-line success to helping the short lines ''get through the bureaucratic maze of a large corporation (CR).''
Conrail was the first railroad to offer ''just-in-time'' delivery of parts and components to auto assembly plants, among other marketing innovations.
Most potential buyers would not be put off by the $7 billion spent by the government in Conrail's behalf ($3.28 billion for updating facilities and the rest as settlements to the original bankrupt railroads and to labor). The heavy costs to rehab locomotives, cars, and tracks are in the past, and are to be forgiven a private buyer ''until liquidation'' of the railway, says Mr. Riley. So these costs will not come back to haunt a buyer that consequently sells Conrail, but could disconcert someone planning to break it up.
Henry H. Livingston, a railroad analyst for Kidder, Peabody & Co., points to another plus for Conrail. It has inherited the ability to run over high-speed tracks built for passenger service, building in a time advantage over other rail freight companies.
But for Conrail, the tracks ahead are not crystal clear. Although it has come a long way from behind, some questions remain. Will the economic recovery and its increased traffic volume continue into '85? When talks on the employee wage concessions negotiated in 1981 reopen this year, will upward spiraling labor costs eat away profits?
''No,'' says Saul Resnick, a Conrail spokesman. Even with wage concessions and state taxes added back into 1983 costs, CR would pull a $168 million profit, he says. And 1984 preliminary projections of a $450 million profit (not counting still-healthy $305 million after concessions and taxes are factored in.
The fellows at the Beacon Park switching station are curious about Conrail's sale: One asked this reporter whether she had any inside information on who was going to buy Conrail. (The answer was no.)
As the bright afternoon sunlight glinted off the Conrail-blue locomotive, the tower, and the tank cars lined up on the tracks, Conrail's comeback hinted that in a ''high tech'' age the railroad is still an integral part of the economy.