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12 The Dinner Debate with Graham Claytor

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CHAPTER 12

The Dinner Debate with Graham Claytor

ONE FIRST–CLASS PASSAGE

PENN CENTRAL WAS NOT THE ONLY TROUBLED RAILROAD IN the Northeast. Smaller lines there and in the Midwest were ill as well. By late 1972, seven of the Northeast’s eleven largest railroads were in bankruptcy, and two were tottering so badly their creditors were demanding that they be liquidated. They were suffering because trucks were draining their traffic base and they were burdened by too many routes. Worse yet, the regulators in Washington were indifferent when the roads pled to abandon excess tracks and money-losing services or to offset higher costs by raising their rates.

One night I was having dinner in New York with Graham Claytor and several of his top officers. As usual we began tossing ideas back and forth. This evening, as we began our appetizers, Claytor launched into a long spiel about the bankruptcy problem. As he went on laying out the dilemma that faced the industry, his concern became increasingly visible, for some legislators were even talking of nationalizing all the railroads, a prospect that disturbed both of us.

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7 The Locomotive That Sashayed

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CHAPTER 7

The Locomotive That Sashayed

ONE FIRST–CLASS PASSAGE

TO BE SUCCESSFUL, THE N&W-CHESSIE MERGER WOULD HAVE to depend on a new tool, the computer. Until the mid-1960s most railroads used their computer systems almost solely to manage their finances. Although the railroads had been leaders in technological change in the 1800s, most modern railroaders were slow to adapt. One exception was the Southern Railway’s Bill Brosnan. He introduced railroad operations to computers, taking the Southern into a new era.

The first computer I had ever seen had stood in a basement room in one our buildings at Fort Devens. Compared with the machines NSA operates today, that contraption was inconsequential, yet I had been immensely impressed. Now I was about to meet computers far more sophisticated, machines that would do as much to transform railroad operations as early computers had done for code breaking.

Not long after I began to increase our coverage of railroads, our publisher, Tennant Bryan, returned from a directors meeting of the Southern Railway System. For years a representative of Richmond Newspapers had sat on the Southern’s board. Bryan’s predecessor had been Dr. Douglas Southall Freeman, the Pulitzer Prize–winning Civil War historian, who had edited the News-Leader. At their gathering, Brosnan had shown his directors a new computer system, and on his return to Richmond Bryan suggested to my boss, John Leard, that I go down to Atlanta and see it.

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10 “The Greatest Thing Since Sex and Watermelon”

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CHAPTER 10

“The Greatest Thing Since Sex & Watermelon”

ONE FIRST–CLASS PASSAGE

ONCE THE SECURITIES AND EXCHANGE COMMISSION AND THE Interstate Commerce Commission had verified my Penn Central exposé, I was able to take on Gil Burck’s mantle as the magazine’s transportation specialist, and I went at it with exultation. The first piece was about United Air Lines. Six months after Penn Central’s fall, recognizing they should avoid the mistakes of the railroad’s board, United’s directors had staged a coup, replacing the company’s president with the man who ran a hotel chain the airline owned—Edward E. Carlson, who became one of the best chief executives in the air transport industry. Eddie, who started as a bellhop, turned around United in a year.

It was the makings of a magnificent story, and adding to it, I was able to ferret out how the directors had come to this wrenching decision. It was a drama from inside the boardroom, a place where reporters never ventured. The story caused a sensation, stirring the directors of Pan American World Airways to oust their CEO and causing other publications to begin producing boardroom dramas.

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14 “Who Knows Hays Watkins?”

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CHAPTER 14

“Who Knows Hays Watkins?”

ONE FIRST-CLASS PASSAGE

ALL INDUSTRIES AT ONE TIME OR ANOTHER ARE VICTIMS OF changes in technology, and sometimes it can be fatal. Some of my wife’s ancestors were wagon makers. They were said to be one of the South’s largest producers of wagons, turning out 15,000 a year, and, when the public began buying automobiles and trucks, the men running the company thought them a passing fad. Despite their prediction, the market for cars and trucks took off, and in the 1940s Nissen wagons finally succumbed to the new competition.

Newspapers, magazines, and railroads were created by new technology and could die by the same hand. The train had replaced the canal boat and the stagecoach, but by the 1970s it was losing to trucks, automobiles, and airliners. In fact, when the Post Office shut down its mail cars and moved all its intercity mail to trucks and airliners, the railroads’ traditional businesses of express packages and less-than-carload freight were shifting to the highways, and once again it was made possible by another innovation, the interstate highway system.

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18 J. B. Hunt Takes a Ride on the Atchison, Topeka and Santa Fe

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CHAPTER 18

J. B. Hunt Takes a Ride on the Atchison, Topeka & Santa Fe

ONE FIRST–CLASS PASSAGE

WHILE A FEW PEOPLE LIKE SWEENEY AND BILL JOHNSON wanted out of the business, other railroaders were struggling to decrypt the mysteries of the free market. Most still did not understand the key to the industry’s future—the intermodal business—and some did not want to. Many men like CSX’s Jim Hagen had always recognized its potential, if it could be priced high enough to bring in a reasonable profit.

Although intermodal traffic, especially trips combining transportation modes like boats and trains, had been in existence since the infancy of the railroads, mixing rail service with trucking was a late bloomer. Tractor-trailers, or semis, had been traveling America’s highways since the 1920s, and some, delivering new cars to dealers, had been operating since the invention of the automobile, two decades before that. Railroads had experimented with piggyback, or intermodal, as early as the 1930s. Yet, it was not until 1955 that the first batch of highway trailers was placed on regularly scheduled intermodal trains. The Pennsylvania Railroad opened the service with dedicated trains, one each way, each day, between New York and Chicago. The business grew, and other railroads expanded their own services.

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4 Al Perlman Buys a Hill

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CHAPTER 4

Al Perlman Buys a Hill

ONE FIRST–CLASS PASSAGE

SOON AFTER MY ARRIVAL AT THE MUSEUM, JOHN F. KENNEDY was shot, causing me to realize quite abruptly that there was a void in my life. I no longer was where the news was being made. To me this could be the biggest story of my lifetime, and I wasn’t involved, neither as a reporter nor as a desk editor. So wrenching was it that I returned to the Times-Dispatch a year later, at the start of 1965. Frank McDermott had been replaced by a new city editor, my old colleague Ed Swain, and my odyssey through corporate America and the railroads of the land was about to begin.

Another event while I was at the museum was of far less importance, but still a major happening in Virginia and a significant moment in railroad history. The Pennsylvania Railroad announced that Stuart Saunders had resigned as head of the Norfolk and Western Railway in Roanoke to become the Pennsy’s chairman. It was the beginning of a tempestuous saga that I soon would cover. In only a few years I would come to know Saunders and his most notable adversary, Alfred E. Perlman. These two men were to head Penn Central, the railroad they would create when they merged the Pennsylvania and the New York Central.

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9 The Biggest Railroad Story of Them All

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CHAPTER 9

The Biggest Railroad Story of Them All

ONE FIRST–CLASS PASSAGE

I HAD BEEN AT FORTUNE A LITTLE OVER A YEAR AND, although still fascinated by railroads, had not written a single word about the subject. My latest story was about one of the darlings of Wall Street, a young company called National Student Marketing. NSM had been one of the hot stocks of 1969, and my piece had been an exposé of one of the greatest accounting scams Wall Street had seen in recent years.

Even before beginning my research, I could smell possible fraud. The magazine’s Futures Department, which searched for potential stories, had invited NSM’s president and some of his vice presidents to lunch so that some of us could hear their spin on how their company was so successful. During their presentation they passed around copies of the company’s quarterly and annual financial statements, and while they were talking I glanced at the numbers. I saw that the figures in the quarterly statements and the annual report were not comparable. Also, in the year-end balance sheet there was a most unusual item, called “Unbilled Receivables.” Immediately I sensed a grand exposé.

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17 “Hays Must Not Know”

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CHAPTER 17

“Hays Must Not Know”

ONE FIRST–CLASS PASSAGE

FOR THE GREAT, TRANSFORMING EVENT THAT IT WAS, deregulation made a totally innocuous entrance. It tiptoed in. Few railroaders knew what to do with it, but there were some. Among those who did were L. Stanley Crane, the new chairman of Conrail, and his senior vice president for sales and marketing, James A. Hagen.

Once Staggers was passed, Conrail’s profit and loss statements began to improve. Yet deregulation was not the railroad’s total salvation. New legislation by Congress in 1981 freed Conrail from onerous labor costs left over from the Penn Central merger and forced commuter systems to reimburse the railroads for the expense of running their trains. Conrail moved into the black in a matter of months. The key to the turnaround was Stanley Crane, recently retired from the Southern, whom the board had recruited to replace Ed Jordan. Crane had worked at one time in Bill Brosnan’s research lab and was a natural innovator. He also knew how to slash costs, imposing the will of a quiet southern gentleman on the most recalcitrant of subordinates. Quickly Crane took advantage of the new legislation, collecting Conrail’s due from the commuter authorities and cutting costs by slashing the workforce and pulling up superfluous tracks. Meanwhile Hagan was exploring ways to expand the railroad’s market and its yield.

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2 Averell Harriman and His Streamliner

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CHAPTER 2

Averell Harriman & His Streamliner

ONE FIRST–CLASS PASSAGE

ALTHOUGH OUR LIVES REMAINED GLUED TO THE NINETEENTH century, the railroads of America had advanced beyond that time. They been among the leaders of the nation’s technological revolution, perfecting such advances as electric signals and air brakes, and now in the 1930s they were beginning to convert from steam locomotives to diesels. Yet they remained vulnerable to the vagaries of economics.

Just had the crashes of the previous century, the Depression hit the railroads hard. World War I had made the United States one of the world’s undisputed industrial kings. Since 1830, when the first rail service was inaugurated in America, the railroads had been an integral part of the country’s industrialization. Ninety years after their birth, as the nation’s factories churned out their products, the railroads had thrived with them.

Passenger trains had become one of their most important marketing tools, for nothing else could epitomize a railroad’s speed and quality of service more graphically than an overnight express speeding across the countryside. In New York at the turn of the century, the Pennsylvania had tunneled under the Hudson and built Penn Station, an incredible temple to transportation. Its competitor, Grand Central Terminal on East 42nd Street, was equally elegant, and in cities like Cincinnati, Jacksonville, and Kansas City, the railroads put up structures of similar grandeur, many of them resembling ancient monuments. One, in Richmond, was crowned with a dome, causing it to resemble ancient Rome’s Pantheon.

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3 Sin and the Aspiring Reporter

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CHAPTER 3

Sin & the Aspiring Reporter

ONE FIRST–CLASS PASSAGE

THE DOWNWARD SLIDE OF THE RAILROAD INDUSTRY continued as the 1950s progressed. Cloistered at the University of Richmond in a world of history studies and college activities, I rarely noticed what was happening. I did read about trains being discontinued because they lacked riders. Even those that linked Richmond with Washington, where I would go to sit in on the Senate’s proceedings, were only half full.

While those coaches contained a moderate load, many other trains were carrying hardly any passengers. One afternoon I took the train to South Boston, a city on the North Carolina border just east of Danville, to visit a classmate. It was the same train my grandfather had captained, and I found a disturbing change. Instead of a line of passenger cars and a gleaming green steam locomotive, the train consisted of a nondescript diesel and two coaches, both of them nearly empty.

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8 The “Token Yokel” Meanders North

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CHAPTER 8

The “Token Yokel” Meanders North

ONE FIRST–CLASS PASSAGE

ALTHOUGH I HAD WRITTEN ABOUT SUCH EVENTS AS THE N&W-Chessie merger plan and even spent a day on the floor of the New York Stock Exchange doing a piece on a partner who represented a Richmond brokerage house, my reporting at the newspaper had not included the railroad industry as a whole or American business in general. We relied on the wire services for that. Most readers who wanted more detailed coverage received the Wall Street Journal. To sharpen the focus of our pages, I had concentrated coverage on business and economic news that had a direct impact on Virginia. In fact, the Times-Dispatch’s business section was the closest Virginia had to a state business journal. It all worked, too. One of my bosses told me that when I had taken over business coverage only about 27 percent of our subscribers were reading the business pages. But, he said, in three and one-half years readership surveys showed the number had jumped to 70 percent.

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16 The Lawyer’s Son from Buffalo

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CHAPTER 16

The Lawyer’s Son from Buffalo

ONE FIRST-CLASS PASSAGE

MEANWHILE, THE FORTUNES OF TWO MAJOR WESTERN railroads were going through a reversal that was bringing trauma to one and riches to another. Ben Biaggini’s Southern Pacific, which had lorded over the three other major western roads in the 1960s and 1970s, was now the weakest of the four lines. By contrast, the Union Pacific, which had been a dependable but lackluster operation, had moved from fourth place to become the West’s predominant railroad.

The UP’s transformation was due to the son of a Buffalo lawyer. Tall, big-boned, and balding, John Cooper Kenefick loved trains. Other railroad executives like the Claytor brothers and Al Perlman loved them, too, but no one’s devotion exceeded that of Kenefick. He knew his business, all aspects of it. That was the reason I had gone to Omaha to tap John Kenefick’s knowledge when we were putting together the story on western railroads for Fortune’s experimental biweekly. He was smart, a Princeton graduate, a protégé of Perlman, and he had two powerful backers at Union Pacific Corp., the men who ran the road’s parent company, Frank Barnett and Robert Lovett.

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21 Déjà Vu Once More

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CHAPTER 21

Déjà Vu Once More

ONE FIRST–CLASS PASSAGE

THE TURN OF THE TWENTY-FIRST CENTURY WAS LIKE throwing a huge switch that changed almost everything around us. To some of us who had lived in the 1930s it was wrenching. The culture of the land had changed, and one of the leaders of that metamorphosis was my own profession, the media.

Much to my dismay I had watched journalism change in the 1980s and 1990s. Soon after Watergate, I was asked to speak to a group of high school journalism students at the University of Richmond, and I recall warning them not to enter the profession if their sole interest was bringing down presidents. “Exposés are a crucial part of journalism but not its only function,” I said. “The task of journalists is much greater. Do not be lured by the idea you’re only going to win Pulitzers. That’s not the way journalists should think.”

In earlier times voters were left to form their own opinions and make their decisions on the stories journalists produced. Unfortunately after Watergate the profession had been taken over by people who thought their only job was to condemn and topple other people, especially those with whom they disagreed. Many journalists seemed to convey opinions rather than, as had we, report the facts. Especially in television news, reporting had become sloppy, and even top names in TV journalism were delivering erroneous reports. As one Washington news anchor put it, “There are very few fact-checkers these days.” Radio and the Internet had brought more changes. By 2000 the public was receiving much of its information from talk shows, commentators of the ultraright and ultraleft, and websites, many of them churning out rumors and unsubstantiated statements.

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Introduction: A Mix of Love and Luck

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INTRODUCTION

A Mix of Love and Luck

ONE FIRST-CLASS PASSAGE

PROBABLY I WOULD NOT HAVE BECOME A SUCCESSFUL WRITER if my parents had not brought me up on Shakespeare and the King James Version of the Bible. The Bible is a wonderful collection of great stories. And it pictures a lot of chaos, stories of people slaying each other and begetting everybody.

But it also has some parts that inspire order out of the chaos, much like the rulebook of a railroad: the Ten Commandments, for one thing. They can be very useful to anyone who tries to establish any order in a chaotic world. After all, the Ten Commandments have been the mainstay of Western civilization.

My friend Walter Wells recently told me an interesting story about the Ten Commandments. Walter, who retired not too many years ago as executive editor of the International Herald-Tribune to oversee his world-class vineyard in Provence, is a vestryman at an Anglican church in Paris. He said that the senior warden at St. Cuthbert’s, somewhere in England, came across their vicar and found the man to be most distraught. It seems his bicycle had disappeared, and he could only conclude that it had been stolen by someone in his congregation. The vicar had only recently arrived in that parish and felt he was at a disadvantage.

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1 Rumbling up the Horseshoe

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CHAPTER 1

Rumbling up the Horseshoe

ONE FIRST–CLASS PASSAGE

THE TWO BIG BLACK LOCOMOTIVES, WHITE HORSES emblazoned on their noses, sat there growling as they idled. We were in the cab of the lead locomotive, NS9345, a 4,000-horsepower General Electric diesel.

Fred Putt, a road foreman who was riding with us, bent over a little as he opened the mike.

“Everybody cleared, Outbound 21,” he told Rutherford Tower.

“Roger,” came the response.

“Ready to depart,” said Fred.

“Have a good trip. Rutherford out,” said the man in the tower, and 9345 broke into a roar and began edging Norfolk Southern’s train number 21E ever so slowly toward the throat of Harrisburg’s Rutherford Yard. It was 9:40 on a cloudy October morning.

Steve Ostroha, a thin man of medium height who was the train’s conductor, was in his seat in front of the cabin’s front door, watching the track ahead, listening to the radio, and waiting for the dispatcher to clear us for the main line. “OK!” he suddenly announced. “We got railroad!”

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