James A. Hagen
Chairman, President, and CEO (retired)
March 2, 2021
Brooks Bentz: I want to welcome you to our Spirit of the Railroaders program. Today I’m here with Jim Hagen, former chairman and CEO of Conrail (Consolidated Railroad Corporation) in his adopted home of Wilmington, North Carolina. Jim's had a long and storied career in railroading, which we will delve into during this discussion. Thanks, Jim, for agreeing to be with us, and we'll get started, I guess, at the beginning. I understand you grew up in Iowa, born in Forest City -- population 2,000 in 1930 -- and then moved to Tipton where you spent most of your time. Can you just talk about, you know, how you ended up in Iowa and what your parents did and what the transition was like to Tipton and growing up there?
James Hagen: Alright, we lived in the little, as you say, this little town of Forest City, Iowa, and we lived in town. This was during the Depression and my aunts owned a house there, and so we lived with them. My dad worked on road construction when he could find work, and then as things kind of improved along toward the start of World War II, my dad and my uncles had an opportunity to buy a kind of a rundown farm in southern Iowa -- southeastern Iowa I should say -- and that had a rock quarry on it. And so, they bought this farm with the idea that my dad could farm it part time, because he'd grown up on a farm, and then we'd work in a rock quarry in the winter, and then in road construction we'd run road equipment during the summer, and so that's how I kind of grew up. Kind of semi-farming, semi-construction.
BB: Did your dad grow up in Iowa?
JH: He did. He’s of Norwegian descent, about one generation off the boat. He had an eighth- grade education but was hell-bent on education. He was well-read. He read all the time. He was one of the library's biggest users, and so then my mother had gone to -- what's it called? -- a normal school in those days, which was a kind of a semi-teacher school. And then she taught eighth grade, one-room school grades.
BB: So, what got you to move from Forest City to Tipton?
JH: Buying that farm.
BB: Okay so the farm was in Tipton.
JH: Yeah, the farm was in Tipton. Sorry, I didn't say that. So, this was like three miles outside of town. It was another major metropolitan area of about, I don't know, 2,000 people, I suppose.
BB: 2,145 in 1930.
JH: [Laughs] Okay, that's a little more precise than I remember, but...
BB: So, what was it like going to school there? You know, was it probably a relatively small school, high school?
JH: Yep, it was. It was probably maybe 40 in the class, which for the surrounding territories was big. They called it a consolidated school, and it… But they had good instruction and everything. Well, the uh… I was, I'd have to say, kind of an indifferent student. I was interested in football. I was interested in all sports, but football happened to be before the buses left, so that you could play football and still get home. If you played basketball, you had a three-mile walk, so I didn't do that. Anyway, growing up, it was a nice surrounding. Good people.
BB: And you have sisters?
JH: I had two sisters, both of them younger. One of them two years younger, and the other one, like, eight years younger or so. And they -- we always had a good time. We always, over the years, we stayed in touch, and we would, after we retired, we would all travel together with their husbands and so forth. And so, we had a nice relationship.
BB: So, is there anybody that stands out as an early influencer? Obviously, your dad sounds like he was, and your mom. What about in school or in the town, anybody that was, you know?
JH: Well, we had a couple teachers who thought I underperformed, let's put it that way. They were on my case about, you know, Do this, and do that, and--
BB: Reach your potential.
JH: Yeah, right. So yeah, and so I give them a lot of credit. And the other problem with that was because my mother had been a teacher, she knew all the teachers, and any misstep at school immediately got reported back to my mother. So that was…
BB: Living under the microscope.
JH: Yeah, that's right.
BB: So how did you choose where you were going to go to college?
JH: Basically two things. One of them is, I was -- like I say I was interested in football and the St. Ambrose College down there had a good football team, and I thought Well, gee, maybe I could play football. Well, I tore up a shoulder at work, working on construction, and so that meant I wasn't going to play football, but after I got down there and watched those guys in practice in this small school, I thought, Oh, well I'm saved. I didn't have to be embarrassed by getting cut, because I was not that good a football player.
BB: Yeah, interesting. Yeah, well, I noted in just looking through the notes that the motto for the city where you grew up, or the town is Where dreams happen. And I thought that was interesting for a small town, and obviously you started out in a way you had some kind of vision of where you were headed. What did you focus on in school? What caught your interest?
JH: Well, what happened really for my first year, I was not a real good student, and I have a little bit of a learning problem. It's hard for me to spell, for example, and so my first year was tough because I was taking English and French and [laughs].
BB: Spelling counts.
JH: Yeah. So, I thought, Boy, I'm not destined to be a scholar. I think I’ll go into something else here, go back to road construction. But then the next few years, once I got by that first year, I got into Economics and History and Ethics, and, you know, it was a full-rounded school. You weren't just taking one set of courses. I found it fun. I really enjoyed it, so I thought, Gee, this is good. I really enjoy this, I like school, after that. So anyway, it went pretty well then. And I had an old priest who was an advisor. They assigned an advisor to you when you came in. Well, I said, when he said What do you want to do? I said, Well, I'd like to be in business. He said, Oh no, that's too easy. He said, You need to take Economics. Well, come to find out he taught Economics, and they only had about 10 students in Economics. They had about 400 in Business. And but...
BB: So, you were being drafted.
JH: I was drafted, but it worked well because there was no place to hide. If he said, Read this entire book between now and next week, immediately could finger you and say, Did you read the book? [Laughs]
JH: And so, I was forced into being a better student than I thought I wanted to be, I think.
BB: [Laughs] So you ended up in the army in 1953. It was -- that interrupted school?
JH: Yeah, what happened was, when you're in a farm community -- and you didn't go through ROTC (Reserve Officers’ Training Corps) or anything -- you were going to get drafted when your number came up because they weren't going to draft farm guys who were running their farms, or they're working for their dad's farm, ahead of some college kid. That's not going to happen in a small town. So, when your number came up you were going, and then so you went. It's okay.
BB: So, you got drafted.
JH: I got drafted.
BB: How--what was that like? Did you go overseas?
JH: Yeah, I was. It turned out okay in the sense that I put my two years in, that’s all I wanted to do. They had an offer to say, Do you want to go to officer training school? when they saw your academic background. And I said No because it would have extended your time. What they did is they sent me to a heavy equipment school, well because of my background. Thought, well alright if I knew how to run this stuff, so it was just kind of vacation. And then, well, I got ready to get out of this training and they said, Well, okay, we can have you stay here and you can be an instructor. Well, being at Fort Leonard Wood for another year and a half was not exactly what I had in mind. I said, No, I want to go somewhere. They said, Well, you may get sent to Korea, which was not good at that time, Or you may get sent to Europe. I said, Oh, okay, I’ll take my chances. Got sent to Europe. It was wonderful.
BB: Where did you go in Europe?
JH: Oh, I went to, first place I was was in Frankfurt, and next place I was was in Munich, and last place I was was Schweinfurt, so kind of toured the nice spots of the country.
BB: Now Frankfurt got pretty-well blasted during the war.
JH: Oh, it was actually, this was in fifty-three, I guess.
BB: Yeah, not long after the end of the--
JH: Yeah, the town was destroyed.
BB: Yeah, Schweinfurt as well, right? That was the ball-bearing center.
JH: Ball-bearing plants and so forth. And even Munich had got zapped some, but not as bad. But they had big what they called DP camps -- displaced person camps -- in these areas, and they had a terrible time keeping these people corralled in there. So, you were exposed to a lot of different people, which I found interesting. I enjoyed it.
BB: So, then you come back and re-enroll in school.
JH: To finish up at St. Ambrose.
BB: Right. And then did you go, you went on to graduate school. Did you do that immediately after?
JH: Yeah. I had the GI Bill. I had an Economics degree, and in fact I talked to a couple companies, and they said, Well, we’d like to hire you but economists don’t want to do anything but teach, and so you’re just getting some experience so you can go back and teach. I said, No! [laughs] So I don’t know, so then I went to Iowa and got a degree.
BB: And you met Mary during that time?
JH: I did. Just toward the end of the second year, I guess. And so we started -- she was a teacher in a little town where she lived. And we started--
BB: So how did you meet, if she’s teaching in a little town and you’re in--
JH: This friend of mine was a farmer in Tipton, and he married a girl who was a teacher from Wilton, where Mary grew up -- and Mary had gone to high school -- so they, it was one of those things where you’re invited to dinner.
BB: Uh huh.
JH: And, Oh, by the way, would you mind taking Mary home?
JH: So, okay, don’t mind if I do. So, but, it was an interesting trip back because she got in the car and I had an old car that my dad had around there, and the heater didn’t work, but it ran full tilt so you were warm in there. It was the middle of winter. So, I’d rolled the windows down so -- cool it off a little bit -- and she said, Let me take a look at this. I drive Fords. And she gets down, this is all dressed up, gets down under the dashboard and starts messing with the heater wires. And I said Oh, okay. It was… And so, she didn’t fix it, but she was giving it a try.
BB: That was an impressive first start.
JH: It was. I said, No, that was--
BB: Keep her around.
JH: Yeah, [laughs] that’s right. If you need a good mechanic, well here’s one.
BB: So how long from then ‘till you got married?
JH: Probably a year and a half or so. Yeah.
BB: And so, the big leap forward is going from school to the Missouri Pacific.
BB: Where in 1958... How did that happen? You’re in graduate school in Iowa and the Missouri Pacific is all the way over in St. Louis.
JH: Yeah. One of the professors that I had, somehow was interested in transportation. He basically taught, like, Business courses, but he had offered a transportation course. And I took it and got interested in the subject. And then the… Iowa was wondering about whether the St. Lawrence Seaway was going to affect Iowa, and so they had asked me to… They needed somebody to study it, and I was recommended by these college professors to go do that for the state of Iowa.
BB: What raised that question, if you’re out in the middle of the Great Plains?
JH: Yeah, what happened was that all of a sudden the government of the US and the government of Canada put together a huge amount of money to rebuild the St. Lawrence Seaway, to get bigger ships in there -- open it up. And so, the whole idea was that there was going to be this transition of cargo that was going down through the Gulf or going through New York, had to go through the St. Lawrence Seaway. When you’re in Montreal, you’re a thousand miles closer to Europe than you are to New York. So, the feeling was it was going to be a big change. And several of the states around there had studies done and said, Oh, it’s going to be a big time effect. I studied it and said it wasn’t going to have any effect, but it was good training in the sense that it was the first analytical job that I ever did. And, so, then I learned another lesson: You have to be able to defend a position that’s different than popular opinion. So…
BB: Could you talk about that a little? As you’re going in and saying this was basically -- there’s nothing, there’s no there there?
JH: Yeah. It’s hard to do in the sense that you’re disproving a lot of conventional wisdom. And the only way to do that is to have your facts in order and properly put together. And -- you know -- in my case there’s learning this on the go because I’ve never done it before, but I’m paranoid enough to know that if I didn’t do it right, then you wouldn’t win the day. And, so, that’s the reason I just overworked the problem, really, and got it down to where it really -- we ended up in the governor’s office, and the governor said, Well, it looks like the facts are all here. We’ll publish it and say it’s not going to have any effect. So, just -- kind of interesting.
BB: When they published it, did you get -- I mean, today anything that gets published ends up, no matter what it is, creating a bit of a response from all -- and of course there’s multiple media forums to respond -- did anything come out of that?
JH: Oh, yeah, there was some blowback from some strange things. Like a guy that was exporting eggs to South America, he claimed he was going to use the St. Lawrence Seaway. Well, if you’re talking about being out of position from a transportation standpoint, when you’re in Montreal and you’re going to go clear down the coast with fresh eggs -- I guess they were going to be fresh. I’ve forgotten now --
JH: They weren’t going to be fresh when they got there. That was kind of a… there was no big deal that... I had interviewed a lot of the major customers -- or major businessmen in Iowa -- and they all came to the same conclusion I did.
BB: So, what made the connection to the Missouri Pacific?
JH: Oh, okay, so then after that, this professor was a friend of a fellow named Ronnie Croffman, who was doing analytical work for the Missouri Pacific, kind of a -- we used to call it skunk work -- started out with a little group that was against the prevailing wisdom of the company. But they tolerated it because they figured they had to do something because things were not going well. And so, he was kind of a maverick. He was a friend of this college professor. I don’t know how they knew each other, but that’s how -- but so, he recommended me, and because of that I was studied, and thought I would fit what they wanted.
BB: And so off you go to St. Louis.
BB: And you had no notion of going into railroading before that?
BB: And how did you find it when you got there?
JH: It was a little scary in the sense that because I knew enough about the business, and it really -- kind of a -- through the time after I’d been approached, I’d looked into the economics of railroading, and I thought, Really, if we do it right -- if they do it right -- this is a good way to move freight in a very economical way. And you can make a lot of money doing it. Now, I didn’t go back and really study about all the bankruptcies that had taken place over the years, [laughs] which I should have done, but I didn’t. So, then when you get there and you find out that there didn’t seem to be a lot of big interest in change. It was, Well, we’re doing okay, and That’s the way we’ve always done it, and besides the regulatory body won’t allow you to do that. And so that -- I’d get caught in that argument, so I’d go to night school and study Interstate Commerce Commission Law and take a test. They had a test that you take even though you weren’t a lawyer.
BB: To be an ICC Practitioner?
JH: To be an ICC Practitioner. So, then after I passed that I had a little extra gun I could carry by saying, Well wait a minute [laughs]. Because most of those guys were telling me that I hadn’t done that.
BB: So, was the work analyzing the profitability on the traffic and creating changes in the rate-making process?
JH: Yeah, deciding what businesses we wanted to be in. For example, way back when we would move groceries -- canned goods and things like that -- they’d put together carloads of stuff -- paper, canned goods, everything -- for the different little market like Tipton, Iowa, or some place. There wasn’t any business -- there wasn’t any money in that. That was crazy. So, what this organization that I was working with, we started in with the big bundles, and all of the big canned good guys putting together heavy loads, which were -- in those days a heavy load was eighty thousand pounds, forty tons -- a big load of canned goods. Nobody had done that, so then we were getting, slowly but surely, getting some of that business back doing that. And then I take a look at something like the fruits and vegetables out of the Rio Grande Valley, which Missouri Pacific served, and there, I couldn’t figure out a way to make it work. If you used ice cars -- which you dump ice in the --
BB: Bunker. Reefer cars.
JH: Reefer cars. The ice costs more than the freight by the time you got it to St. Louis. If you bought a mechanical car, the way we were doing it, we were only using them once a month, and you couldn’t afford to move it in mechanical cars. So, the recommendation was: the way we’re going about this, let’s stop going about it. Don’t do it.
BB: And the reaction was… what?
JH: We’ve always done it [laughs].
BB: …that way.
JH: We’ve always done it that way. But they finally figured it out when the... When you come up with the numbers, like in those ice cars, and can show them on a piece of paper, that the cost of the ice exceeded the freight rate, and therefore you weren’t getting paid anything for moving it from far down in Texas to St. Louis, for example… you didn’t have to over-prove that. People could see that.
BB: So, what did they do then? Did they get out of that business?
JH: They started getting out. And as those cars, some of the times they would -- we’d make a deal, let’s say for example, some of the vegetables didn’t use up much ice and -- like potatoes or something like that didn’t require that much ice -- so we stayed in those lines of business and got out of the stuff that took a lot of ice.
BB: So, you looked at it by commodity, not just if it was reefer or not.
JH: Yeah, by commodity.
BB: That’s good. So, how do you transition then from the Missouri Pacific over to the Southern in 1963?
JH: Basically, as usual in my life it was just happenstance in the sense that Paul Banner had been working for --they called it -- Southwest Transportation Bureau or something in St. Louis, and he went to Southern on a marketing job. And so --
BB: How did you know him?
JH: Well, the people that they hired to be in his group in St. Louis, were really MoPac guys because they were locally in town, Frisco guys and MoPac guys. Then he -- so when he -- when they would do anything, they would work with us. We all worked on the same kind of stuff. So, then he moved up to Washington, D.C., and he invited me to come up there, and I talked to Bob Hamilton. He was the VP --
BB: Of Marketing.
JH: Of Marketing. And it sounded like a good job, and he made me a good offer, so I went up there. So, when I get up there, I thought I’d gotten a big raise, Oh, I’m in Fat City, it’s going well here. So, I went out to look for a house in the Washington, D.C., area living in St. Louis, and so… The guy said, What are you willing to pay? I said, Well, let’s see, my house in St. Louis cost this, and I got a raise, so I could pay this. And he said, What part of the Midwest are you from?
JH: This real estate guy said to me. So, I said, Oh, okay. But it was a good transition. I’m glad I did it.
BB: So, the Southern at that time, who was the president?
JH: Brosnan was president. D. W. Brosnan. Tough guy. Good, hard, railroader. Overdid it on the command-and-control side a little bit. Not a little bit -- a lot. For example, one time he said, Cut ten percent of the switch engines. And they said, Well, where do you want to cut them? Everywhere! he said. Then he went off fishing to Alaska. Well, the whole railroad came to an absolute stop. But he also said, And the first guy that puts them back on gets fired. So, all the officers -- operating officers -- got together and said, Let’s all put them back on, the ones we need, at the same time, and we’ll see how that works. He came back and says, Oh, good job. And away he went.
BB: So, he was one of the instigators of rate reform, right? With the big John Hopper?
JH: Yeah, he didn’t know anything about rates and all that stuff, and he didn’t care, particularly. But it really offended his sense that there -- if we could put together a way to compete with these barges, let’s do it. And so they used the big cars, which were a big change in those days, to compete against the water carriers. And strangely enough, the opposition was, as you would know, from the water carriers, but it was also from the grain companies. Because they were making money on the difference between the freight rate, the higher freight rate on the old cars. They would bring it in by water, and then a short haul by truck, and they pocketed the difference, and they charged it… the companies that received the rail rate.
BB: So this was a… you know, feeding at the trough?
JH: Yeah, that’s right. You know it’s -- everybody has their [laughs], has their thing.
BB: So, what’s most memorable about the time at the Southern. You were there for -- what? -- eight, nine years?
JH: Yeah. A couple interesting things. One of them was, I got assigned to be on various committees, like there was a Tank Car committee and things at the AAR (Association of American . And because of Southern’s volatile nature, if I said, Well, I think this is going to -- we ought to do it this way, they would complain back to my boss. My boss would say, He worked for us. We sent him over there -- He’s doing the right thing, and if you don’t like it, we’re going to pull out of the AAR (Association of American Railroads). Oh, okay. Then they called me in and say, Well what’d you tell them? [Laughs] So they were backing me no matter what.
And that was… the other thing was, that for example, railroads had these general rate increases that they would take. And inflation started cranking up. You’d get a rate increase, but it would be significantly later than the wage rate that you paid. So you’d have this time period -- and it was about half usually that you’d paid out – so, and the other problem was that it was applied to everything. Things needed to be -- some things needed to be charged more, and some things needed to be charged less. What was -- for example, like generators. Big generators moved on big flat cars, low slung flat cars. They also moved five or six of them on a flatbed truck because there were different sizes. Well, the charges were the same on both of those. And so, what we did was, Southern Railway said, Oh, okay, on this one we’re going to take a five percent increase, on this one we’re going to take zero. And boy that was not a popular thing with the other railroads. But Southern beat up the rate bureaus in the South and got it passed, and so then the PRR (Pennsylvania Railroad) had a fit, but they had to go along.
BB: Was there retribution from, you know, the Pennsy or the Central, or…
JH: No, nothing that amounted to anything. [Laughs] They really couldn’t do anything.
BB: So, you were doing basically analytical work in the marketing department for the entire time you were there?
BB: Okay, and then you end up going to the FRA (Federal Railroad Administration) in 1972. How did that come about?
JH: John Ingram, who had worked at Southern, went over there at the Federal Railroad Administration, so he called me and wanted me to come over. So, then I went over there and they, I said, Well, what’s the job title here? What am I going to do? They said, You’re in charge of policy and plans. I said, Well I might know something about plans, but policy, what are we talking about here? Oh, well, deal with Congress and New York. I said, Woah! [Laughs] Well, come to find out that’s what it was. It was an interesting transition, but that’s how I got that.
BB: So, can you talk a little bit about what the job was? What are the things you worked on, and what stuck out in your memory? He was -- John Ingram was a fairly intense and volatile individual.
JH: Yeah, he was, and sometimes he’d be real interested in what needed to be done and sometimes he didn’t seem to be connected to it all. I mean, he was strange. So anyway, you didn’t have to worry about it, because if he wasn’t involved in it, you did it, and you did it your way, and if it didn’t go right you were going to get blamed. So that was [laughs] that was okay with him. Anyway, you could do it.
Some interesting things were going on. For example, the Russians had a big grain buy, and all of a sudden all the grain companies put these orders out for these elevators and things for the grain, and of course it didn’t take long for them to use the car supply up. And the Congress was just absolutely wild about the fact that they didn’t have cars. And so it was a railroad matter, so it descended down there, so there I was and I had to figure out what to do. And here again, finally convinced people with some of this analytical work, I finally was able to put together a presentation to show you that the problem was not rail cars -- because we had every yard between Kansas and the Gulf Port completely full -- the problem was the throughput of the elevator. So, I put together a presentation that showed little ships -- it was really hokey -- little ships out here in the Gulf, and then little cars at all these yards, and then these elevators only being able to put so much through. And so, when the railroads embargoed the…
JH: And the Congress is having a fit about embargoing: Oh, you embargoed my business here and I can’t sell my grain and therefore you’ve ruined my business. So anyway, that’s the kind of crazy things we worked on until… simultaneously the Penn Center is blowing up and all the littler railroads are blowing up as well, and all the eastern railroads are just finally just disintegrating. And I could see it before I ever went over there, you could see it at Southern, that it wasn’t going to work, what they were doing.
BB: So the FRA’s role, I mean, people, if you think about it now, is largely related to safety issues and mergers, and things like that. This almost sounds like it overlapped with the work that the ICC would be doing, too.
JH: Yeah, what happened was, basically, the ICC was fairly rigid and the administration -- which the ICC didn’t report to, ICC was an independent agency -- the administration wanted to know what to do. Because they could see the ICC wasn’t going to come up with the money. And guess who? It was going to be the Federal government. So, how are we going to solve this problem without spending any money? So they -- we looked at this, and looked at this, and I tell you, we had a couple meetings and finally we got in this one meeting and the Undersecretary of Transportation says, Well, Jim, you’re the guy that studied this, what should we do? And I said, Given the circumstances, not spending any money, we’re not going to do anything. [Laughs] He had his feet up on the desk. He put his feet down on the floor and said, I’m going home and have a drink. That was the end of the conversation. But anyway, that’s how it got started. The administration wanted to figure out what to do, and we had about, I don’t know, six or eight people down there working on that.
BB: In the group you were in?
BB: Who was running that group? Were you running it?
JH: I was.
BB: You were.
BB: So, you said that Penn Central was coming unglued, and I remember that because I was working there at the time.
JH: [Laughs] Right.
BB: [Laughs] It was pretty awful. The incoming DOT Secretary in 1973 is Claude Brinegar, who was not an industry guy, transportation guy. He was an oil guy. Did that have any impact on policy?
JH: He was a smart guy and an analytical guy and not a political guy at all. So he was really trying to figure out what to do given the constraints of the Nixon Administration, who he was working for. So, he really thought -- was trying to think it through. For example, he called me up there one time when Ingram was out of town and so forth. He called me up there and said, So, Jim, how many people you have working on this? I said, Well, probably ten, counting the Secretary. Well first I told him how many people was in the FRA, including the Safety and the Alaskan Railroad. He said, No, no, I mean working on this project. Oh, I said, Ten. He said, We’re sitting here in a building that’s a block square, ten stories high. The biggest problem that you have, and you have ten people working on it? I said, Well, that’s all we got. He said he was going to try to change that. He really couldn’t change it.
JH: Well, you know, a few other guys in the Secretary’s office jumped in and helped us, but not much.
BB: In my notes, I saw that in April of seventy-five, Frank Barnett from the UP (Union Pacific) spoke at a meeting in D.C., and the proposition was for a solution to the Northeast rail crisis by combining the government and privately run companies of the best pieces of the six bankrupt railroads. I hadn’t heard that before and I -- were you familiar with that?
JH: Oh, yeah. Sure. That was kind of one of those pivotal points in the game, in the sense that the railroads basically were avoiding the issue, and they were just hoping it was going to go away. There was a certain undertone from various places that the best way to do this is just nationalize those railroads and deliver the freight out to the real railroads, and that’s what’ll happen. That particular talk, plus the intervention of some of the big business companies at the time -- General Motors, Ford --
BB: Big shippers.
JH: Yeah. US Steel, Bethlehem, all came to town on the same day when Fullham had said, I am going to shut it down.
BB: This is the judge overseeing --
JH: Yeah, overseeing the bankruptcy. The administration said, Okay. Well, whatever. Boy, those four companies descended on Washington and two of them went to the White House and two of them went to the Congress, and that night a piece of legislation starting the study about what to do about railroads was en route to Clementi for the signature of the president.
BB: So that really is the germ of what became Conrail in one sense.
JH: Yeah, and just the idea was -- it didn’t jump out of the ground, just at the time say, Oh, well, I think we’ll create Conrail.
JH: It said, What do we do about this? Can we break it up and sell it off? Can we run part of it -- for example, Jack Fishwick suggested that there be a firewall. And his firewall was, I think, from Buffalo to Harrisburg to Washington, and everything east of there would be nationalized and run by the government. And then the real railroads would take the freight and run it past there.
BB: Barnett is the guy that instigated this. Do you know how he came to be sort of the spokesperson for this? Did he create the idea for this?
JH: I don’t really know. Really came out of the blue, as far as I was concerned. We in the Federal Railroad Administration didn’t really say, Here’s a good idea. You ought to do this. Because as part of the administration we couldn’t very well say, We’ve gotta have a government-railroad partnership here. At that time we were saying Hands off.
BB: Jim McClellan’s working with you at the time?
BB: And Bill Loftus, was he at the AAR at that time?
JH: No, Bill was at the FRA.
BB: He was at the FRA.
BB: And I should -- I neglected to point out that we’re sitting in front of a painting of a Missouri Pacific passenger train that Jim McClellan painted and is now in your possession.
JH: Oh, yeah, Jim gave that to me in remembrance of my Missouri Pacific days, and so I’ve always treasured it.
BB: It’s a great painting. And it was a revelation to me that Jim was such a good oil painter because I’ve known him -- knew him a long time, but mainly as a photographer.
JH: But he really was a good painter.
BB: Clearly. So how did you guys connect? Did you know him from -- had he been at the Southern with you?
JH: Yes, he’d been at the Southern. And he had worked for me, and an interesting story about Jim was he was one of those guys that you could just send him off to do most anything. And in fact, Bob Hamilton used to send down notes and say, Hey, have someone look into this, and have someone go to Atlanta to see about this, and so forth, and I’d always pass those off to Jim. And so he said, I think I’m going to change my name to Someone McClellan, cause I get all these assignments of these unnamed person.
JH: But he was good. Intelligent guy and he… so, he left, and he went to the New York Central. And of course, that fell apart. And then he went to work for Amtrak. I don’t think it’s any secret he got fired there for telling the chairman at Amtrak how to run his business. Then he was looking for work, and so then Loftis and I hired him over at the Federal Railroad Administration.
BB: It’s interesting, in one of the notes, it said that Jim remembered an old ICC formula that a branch line -- or the line segment’s -- viability was, the baseline was about 34 cars per day, and that that was something that you got to use as a bellwether or benchmark. And I guess, one of the questions, having been involved in those kinds of analytics during my time in the business, was the data was often -- good data was always a challenge to get. Timely, accurate… how did you -- you know, these were the days before widespread usage of computers. So how did you guys manage to sort through all of that and come up with reliable --
JH: Well, leaning on the railroads to provide us information about what was out there. It was a case of -- my thought, or theory on it was -- don’t let the perfect drive out the good. If you can find enough data to make it fairly plausible, use that. Don’t wait around and say, Well, we don’t have the data. Or you never do anything. So, we got enough information that -- where did we? Part of a waybill sample or something, I’ve forgotten exactly how we determined that, but we found it out.
BB: You identified almost 16,000 miles of track that was really not viable any longer?
BB: I presume that would have been a shock, if not to the railroads operating it, to the regulators and the government people--
JH: Oh, it was.
BB: -- And maybe the shippers.
JH: And the shippers, and the communities. Because there’d be places where there’d be two railroads, three railroads in town, and we’d have it boiled down to one. Or there were places where we would say, You’re not shipping anything; you’re not going to have a railroad. And that -- in those days it was quite a shift in thinking, not only for the railroads, but for the customers and for the regulators, and local communities. I mean, that was the whole smear of things that people would say, That’s not fair. Well, you know, losing millions and millions of dollars a day is not fair, so that’s how that happened.
BB: And was some of this mileage -- were there calculations or estimates done to say, Okay, if we change the rate structure on this it becomes viable, or was it basically, Look, this is sort of a hopeless case in these --
JH: No, in fact that was probably one of the ‘cart before the horses’ things here. We didn’t have the ability, or the time, or the proper regulatory place to be able to figure out what should be done with the pricing structure, even though a lot of us had grown up with that pricing structure problem, like myself… worked on it over the years. We didn’t tackle that. It would have been interesting if we would have. I don’t think we’d have come to any conclusion, or I don’t think it would have helped the problem any. It couldn’t have been done in a timely way anyway, so therefore you don’t do it.
BB: The Three R Act gets passed in seventy-four, and USRA (United States Railroad Administration) gets created quickly, it seems, for government. They acted fast after you released your report.
JH: Yeah, what happened was this report gets released and the ICC said, It’s all wrong. And they said to the ICC, Well what are you going to do about it? And they said, Well, you know, it’s just wrong. Shouldn’t be done.
JH: And then Congress is disturbed, and so… When in doubt, in government, we’ll just create a new organization to look at this problem. We can’t trust the Federal Railroad Administration because they’re going to destroy all these railroads. You can’t trust the ICC because they’ve been bumbling along here. They were getting tagged big time for the delay on the Rock Island-UP merger, which went on ten years or something. Congress and the administration said, They can’t handle it. We don’t trust these guys at the Federal Railroad Administration because they’re a bunch of gunslingers and they’re going to destroy the structure. So, we’ll create a new organization. So that’s what they did.
BB: And USRA was basically a revival of the USRA -- at least in name -- from World War I --
BB: --Period. Interesting how that evolved. Do you know who came up with that name?
JH: I really don’t.
BB: And there was a different function, obviously, in this iteration of it. You moved over to USRA from the FRA.
JH: Yeah, the way that worked is this. They set up this organization, and then they went out and hired Ed Jordan, but simultaneously they said, How’re we going to staff it?
BB: And how did they pick him? He’s an insurance executive from California.
JH: I don’t know. He was a friend of a recruiter-type guy from the DOT. And I think this friendship -- the guy knew him, because he didn’t -- it wasn’t a case of He knew the business or anything. It’s just he was an insurance guy. Then the obvious question was, How are we going to staff this thing? They never think about this thing in total. They always think about it in pieces. They think, Well, okay, here we’re going to do it this way, and then we’re going to do it that way. Anyway, then they said to me, Okay, we’re hiring you and you staff it. So then, I did it. I picked the --
BB: So, the gunslingers just basically moved offices.
JH: Right. We had to swear that we were not going to be involved in policy. We were just going to do the analytical work.
BB: So, you went and interviewed with Ed Jordan for this? Or did he --
JH: No. [Laughs.]
BB: You just --
JH: He inherited me. When he got there, I’m there.
BB: Okay. So, who made the decision for you? I mean, obviously you got asked to go there. Who did the asking, if it wasn’t --
BB: Oh, he did?
BB: So, you went. McClellan went. Who else went?
JH: A fellow named Jim Deats. A couple other guys -- I can’t quite come up with their names.
BB: And so, did that shift that function out of FRA into USRA, or was it duplicated, it sounds like?
JH: What it did is it took that whole function and moved it over. Basically, kept doing the same thing. And we said, Put together a group that was dealing with slimming the railroads down. Then we had to put together another group that was dealing with the, how to run the railroads. And another group: how to fix the equipment. And another group: how to fix the right-of-way. So,
we had a lot of things going on, so McClellan took over the getting rid of the railroads and that type of stuff. Chuck Hoppe and Hugh Randall came in and they were in charge of putting together the operational side.
BB: Now did you find them? Did you find Hugh and Chuck?
JH: They were in the consulting business. They came looking for consulting work, and I had dealt with them over the years, and I said, No I don’t want you to do consulting work. If you want to really work on this problem, come to work here. And it was interesting hiring people because you had to tell them, In 1976 on the first of April, this job goes away. Secondly, there’s no vacation and there’s no pensions. There’s no anything. There were a lot of people that said, Oh, okay, that sounds like fun. I’m going to do it. There were other people that were saying, Oh, not me. I’m out of here.
BB: Yeah, it wasn’t a career move.
JH: No. And then John Terry came in as the Vice President of Finance… where was John?
BB: PepsiCo., I believe.
JH: Yeah, right.
BB: You know you had a fairly high level of talent in USRA.
JH: We did. Just like I say, from picking up people who were willing to take that kind of risk, because who had ever heard of this organization? And it wasn’t going to last a long time, and it was… you’re doing something that wasn’t very popular. You had to attract a different kind of person to do that.
BB: Well, and people like Jim McClellan, and Chuck Hoppe, Hugh Randall, and certainly John Terry is not… run of the mill people. It’s interesting because John’s history is trucking, and he always sort of disparaged the rail industry, it’s interesting that he came into a rail environment.
JH: [Laughs] Well, he continued to disparage [laughter]
BB: [Laughs] From the inside.
JH: He would say, Well, look, set this thing up so that it hauls the coal and the iron ore and stuff like that, and the trucking industry will take care of the rest of it. Don’t worry about it. So, okay.
BB: So how was it working for Jordan?
JH: He was an interesting guy to work for in the sense that he was very analytical so he’d -- you’d take him analytical studies and things and he’d --
BB: He’d actually read it.
JH: He’d read it and he’d relate to it, and he’d go, Oh, well how about this? And, How about that? And so forth, and he’d pick through it. And he was so… very intense in that way. I think that when he got in there and saw what he got into, I think it scared him, probably. Maybe an overstatement. But anyway, he figured, Okay, let’s go at it, and he’d go at it. And we’d drive him crazy in the sense that he’d ask some question, and somebody like McClellan would say, Gee, I don’t know how you’d find out about something like that. He’s talking to his boss and telling his boss, Forget it, that’s not interesting. [Laughs.]
BB: There was a comment, reportedly, that you’d made that he was a very smart guy, but he didn’t come down hard enough, didn’t drive hard enough. Is that a fair statement?
JH: Yeah, I would say -- that relates more to the railroad when he was up at Conrail. I thought he could have been a little more forceful in demanding what things to be done. I think, probably, the proof of that is Crane came in and started in on it right away and it made a big difference.
BB: Right. We need to get over to that period at some point here. With the… in seventy-four, Arthur Lewis comes in to head USRA. How did that --
JH: Who’s that?
BB: Arthur Lewis.
JH: Oh, Art Lewis? Yeah, he’d been at Eastern Airlines, and -- very smart guy, very politically attuned -- and so if… he handled the political side, and he did his best to kind of shield us from being terrorized by Congress [laughs] and people while you were trying to work. That was just his role. That’s what he did.
BB: So you have the role, maybe enviable or un-enviable depending on your point of view, of creating the final system plan, as it was called. How did that -- who said, Okay, it’s time. We gotta put the final plan together? Or was that part of the charter when you started?
JH: That was part of the Three R Act, was that you only have X amount of time -- so many days -- to study this problem, and we decided to put out a preliminary plan to start with to let… Kind of take the heat off and then come up with a final plan. The piece of legislation, Brooks, was really well done from this standpoint. This was due to the Undersecretary of Transportation, John Barnham, at DOT. The piece of legislation that created said that Congress can disapprove this, you can vote it down, or you can approve it, but you can’t change it. You can’t fix it here, and fix it there, and go --
BB: You’d never get there.
JH: You’d never get there.
JH: And that’s the way they wrote it. And so, we used to go over to Congress when they -- some Congressman would have a problem, and I’d go over there. And they would beat me up something terrible about some branch line or something. Then I got all through and he said, Well thanks for coming, but we’re going to vote for it anyway.
BB: So they got the emotional release of --
JH: Well, and their constituents wanted them to go to bat for them.
BB: Right. So how long did it take to get the final system plan…
JH: It was like 300 days or something like that. It was a relatively short period of time. Once we got there, we weren’t there, in the sense that -- well, it’s kind of strange, but -- what was in the Act was that you should have competition at major places. So we were working on a thing about, Oh, well, maybe we’ll have this railroad come in here and take over for this part, and then this will -- Chessie come in and take this part, and so forth. And then N&W (Norfolk & Western), and they said, Don’t even think about that for us. We’re not coming. Chessie said, Yeah, possibly. Southern said, Yeah, you can come up through Delmarva, and so forth.
So, we were working that problem. This really complicated it because we had to try to figure out who had come in, where they would come in, what would be transferred to them, and what would be the labor arrangements and so forth. Well, so as we got down toward the end, we said, Well, okay, here’s how it’s going to be. Chessie’s going to come in here and, so and so. But if that doesn’t work, we’ll have to have what is called Big Conrail. We’ll have to have Conrail take over almost everything. And that was kind of like, well, people don’t think that’s really such a good idea. So what were doing was putting together two or three plans simultaneously, driving a guy like John Terry, who was a very focused financial guy, crazy. Because he’d say to us, Well, now, if it’s like this and this, then we’d say, Well, we’d do this this study and we’d do this study, and we’d hand him all this stuff. It was pretty scary.
JH: But it was pretty -- that’s the reason it was so complicated.
BB: So there’s a story about Jim and Gerald Davies coming up with a cocktail napkin map -- or plan -- is it, do you remember that?
JH: To do what?
BB: It was to map out the routes on three different potential systems.
JH: Oh, yeah. Right, right. We’d have these seances at work, and then it would extend on to the bar [laughs]. They were standing there, and I said, Well, okay, do I have this one go here and go here? I said, Guys, this is like a big Monopoly game. Like a bunch of kids playing with these roadmaps and you’re just saying, “Well, this could go here, and this could go here.” And the problem with it, as I was thinking about it, I was kind of the guy in the middle on this, was: How are we going to make it work? That was always my concern.
So then, as time went along, as we got toward the end of the process, DOT thought that they could cut the money amount by having other railroads in. And they ended up not having many, but adding Chessie was basically -- would come in. So they just were saying, This is the way it’s gotta be. Well, okay. Then of course, unfortunately, the Chessie couldn’t get a deal together with the unions to --
BB: Make it work.
JH: Make it work. We ended up with the fallback position of what was called Big Conrail in those days.
BB: It’s interesting that, when Jim Fishwick ran Norfolk and Western, he didn’t really have much interest in the Northeast at all. I think he referred to the B & M as a bunch of shoe clerks.
BB: And very little interest in Erie, Lackawanna, and you know, they created Dereco (holding company for E-L, D&H and potentially B&M) to sort of…
JH: Spin it off.
BB: Yeah. And it’s kind of ironic now that NS (Norfolk Southern) is now a player in New England.
JH: Oh, yeah.
BB: But, you know, times do change. So Conrail gets -- it all gets sorted out eventually and distilled down to what you refer to as Big Conrail, and that gets incorporated as an entity. And that was -- the notes I have say that was October 25th of seventy-four that it got incorporated, but it didn't go live until seventy-six.
JH: Yeah, April first. April Fool’s Day we always --
JH: -- Thought it was very ironic that [laughs].
BB: So what was going on during that period of time between incorporation and starting? Obviously, you’re at USRA, you guys are helping prepare for this launch?
JH: Yeah. Part of it was also that… what was it -- it hadn’t really been sorted down quite what was going to be included. We still had some pieces of whether Chessie was going to participate or not, as I said to you a little while… Anyway, finally got over that. Then the biggest problem we had was a conveyance problem. And the way the law read, and the way that the estates wanted it -- the bankrupt estates -- was piece by piece. So we had two things: used and useful by the railroad, and then other. And we actually had to go through milepost by milepost, yard by yard, and distinguish what was going to be in Conrail and what was not going to be in Conrail. That took -- a guy by the name of Victor Hand headed that up -- it was the damnedest job I’ve ever seen. We had guys working twenty-four hours a day.
BB: How many people did you have on that? Because it had to be a big team to do that, didn’t it?
JH: It wasn’t. It was a small group of people, probably fifteen, maybe? But they did it. I just -- I’d go down and say, Can I help you? And they’d say, Yeah, make some of these copies. Take them down around through the copy machine. [Laughs] Well, okay. We all do what we understand.
BB: So, with the advent of Conrail looming on the horizon, I was working in Penn Central and Operations Planning in New York at the time and ended up going to the Delaware & Hudson because, through the magic of what you worked out at USRA, the Delaware & Hudson doubled in size virtually overnight, and they needed more people. Can you take us back, then, to how that came about? Where the D&H got the expansion of trackage rights to Buffalo and Potomac Yard, and to Philadelphia? And the notion of competition that that was introducing into the Conrail territory.
JH: Because of the desire to have competition -- and then the Chessie all of a sudden pulls out. Labor unions and the Chessie cannot agree to a deal. So, therefore, all of a sudden, one of the premises of the plan was, you were going to have some competition. Well, that was now all of a sudden going to be a big sticking point. Would we go back and start over again on this whole plan, or what are we going to do?
My thought on the subject was, Well, some -- better than nothing, so I worked up a deal with D&H to expand where they wanted to expand. Because they’d come to us and said, Well, you’ve gotta protect us. We want to be in the business, but if you own everything – if Conrail owns everything in sight, we don’t have any outlet to the rest of the world. So, I said, Well, okay, where do you want to go? So they talked about where they wanted to go. And so, I said, Alright.
BB: Now who are you dealing with and the D&H at that time? Do you remember?
BB: Well, Bruce Sterzing (Carl B. Sterzing, Jr) was the president, and --
JH: Bruce! Yeah, I think so.
BB: And Bernie Phillips was the planning guy.
JH: Bruce Sterzing, yeah. That’s who it was. But it was -- yeah, they were ready to go and wanted to do it. Well, my famous planners, [Bob] Gallamore and McClellan, were saying, Aw, that’s so feeble. It won’t pass muster. I said, Well, look, my theory about business is: don’t let the good get driven out by the perfect. I think you heard me say that before. This is what we got. This is what we gotta go with, so I’m going to pitch that. So, I pitched it to the board of the USRA, the DOT, and then Congress. It went through.
BB: And you personally did the testimony in each of those cases?
BB: How did it go? Was it smooth? Was there a lot of argument about it?
JH: Oh, it was a bit… there was some argument, I mean, in the sense that DOT was a little bit aggravated about -- that they didn’t plan it. I just made that part up. But I had a feeling that they didn’t want to be told what the answer was. And so, that’s what we did. And Coleman was, you know, a very forceful guy. He was really -- boy he could, he came down… when he wanted to do something, he wanted to do it, and that was going to be that.
BB: But you got around his notion of not having government involvement when Conrail was a government corporation.
JH: We did. We had this board at USRA that was made up of a shipper representative, a grain representative -- I mean a rural representative, a small-town rep -- all this stuff. But it also had a representative of the Secretary of the Treasury and DOT and ICC. So there were three bodies. Well, the ICC didn’t help much, but at least they didn’t harm us when they -- when they were on the board, they were a pretty good board member. So that was not bad. But the other two government guys were on there… having the Treasury guy on there was good because at one point, the White House called me, personally, and said, Come over here and talk to Phil Buchen -- who was Ford’s personal lawyer. So I said to our liaison with the government people, I said, What do you think I should do? He said, Don’t give him a bunch of static. Don’t give him your usual “Let me tell you what the answer is” story. Just listen politely. Well, what he wanted to tell me was, You’re going to get your deal put through. Don’t beat up on the Secretary of Transportation any more than you have to. So that’s the reason it worked. And Coleman understood the game, because apparently, they talked to him too.
BB: It would seem so.
BB: Right. So I recall, at the D&H, I ended up working for Tom Eagan who was the President of Finance, and one of the things that -- speaking of having an analytical career -- I got to do was analyze the profitability of our businesses, particularly the intermodal business from Oak Island, the interchange with N&W at Buffalo. And very little of the traffic that we could move made any money. In fact, we were losing money on the intermodal business, which Bruce, our president, didn’t want to hear, but was the reality at the time. And it really was a difficult challenge in the D&H. I think it was one of those cases where the company was failing but people didn’t want to, you know -- it a had a long, long history, one of the oldest transportation companies in the country. But we were down to originating something like three hundred cars a day on the whole railroad, and so it was really, really difficult. Looking back, do you think there’s any other way that that could have been structured to have strengthened the alternative competition?
JH: Yeah, probably you could have given D&H, or maybe some other railroads -- there was like, Marc-EL was proposed. [‘Marc-EL’ was the acronym for a proposed merger between Mid-Atlantic Rail and the Erie Lackawanna.]
JH: I could have looked at some of these other guys do it. There was a certain amount of danger, though, to give these people a whole bunch of trackage, or give them actual pieces of the plant, because looking at the mergers over the years, and how well they’ve done… the idea when Chessie and NS took over Conrail, they thought, Well, we know everything and this is a piece of cake… It was a disaster!
JH: Union Pacific takes over the SP… was a disaster. That’s one of the things that I was afraid of, and -- well, just going back to your time. New York Central, Pennsylvania Railroad... That was a disaster. So, I really was concerned about splitting this property up into a whole bunch of pieces so that: one, you’d have competition and two, they would be financially viable.
BB: So you talked about the task that Victor Hand with his crew and evaluating the assets and what’s in the tent and what’s outside the tent. And that sounds really challenging given the scope of all of that, but then you also have on the other hand, on the other side of that, you have all the employees are, you know… Erie Lackawanna or New Jersey Central, or Lehigh Valley, I mean there’s a -- and they’re oftentimes proud of their heritage and their progress.
JH: Oh, absolutely.
BB: How did you contemplate integrating? There’s a lot of duplicate positions in those companies, and so forth. So how did you -- you had to have discussed that at USRA.
JH: Yeah, one of the things that we kind of told Ed Jordan when he was going up there, Look, you’re going to have a real problem here, on that basis, because these people come from all over everything. And probably what not to do is what they did on the Penn Central was a have a red guy and then a black guy, a red guy and then a black guy, a red… or a green guy, I guess I should say. You just have to kind of mix them all together and just kind of do the best you can. I think I… you know, it seems like -- I wasn’t there at the creation -- but by the time I got there in ‘77, I really had the feeling they all worked for Conrail.
BB: Really? That’s remarkable.
JH: Transition was… yeah.
BB: Railroads are slow to move and that, you know, heritage counts.
JH: Oh, yeah.
BB: Right, I mean, and the --
JH: I think it had gone so badly in the last years when everybody was bankrupt and they’re not fixing anything, and they don’t know whether you’ll meet the payroll or not, that really… I think there was a certain amount of relief that, Hey, we got a --
BB: A solution.
JH: A fresh start. Let’s see what we’re going to do with it.
BB: In 1976 with Conrail becoming a reality, Ed Jordan then moves up to Conrail as the CEO.
BB: And how did that -- how did he get picked to go do that?
JH: I don’t know. Good question.
BB: And who did it? Who picked him?
JH: I would say probably DOT, whether it would be the Secretary, I don’t -- I really don’t know. Good question. I hadn’t really thought about that.
BB: Okay, fair enough. But when you left, you didn’t go to Conrail. You went back to the Southern.
JH: Yeah, as soon as the report came out, I kind of let it be known in the railroad industry that I was looking for work come April 1st, 1976. And so, the first offer I had was from the Secretary, who called me up and wanted me to be the FRA administrator, and I said, Well, no, I’ve had enough government for now. I think I’m gonna… I think I’ll pass.
JH: And then the next one was the Southern Railroad called.
BB: And who was that?
JH: And that was the … Claytor had set it up, but it was Bob Hamilton that laid the pitch. I was going to report to Hamilton.
JH: Which I did.
BB: So, it was going back home.
JH: Yeah, going back home.
BB: And Southern was still headquartered in D.C. at this time?
JH: Yes, right.
BB: So, you weren’t moving or anything.
JH: Yeah, we weren’t moving so it was fine. It was good.
BB: But you didn’t stay very long.
JH: Well, I -- one of the things I worked on there was an interesting deal was that, come to find out that Downing Jenks had made it known to Graham Claytor that he would like to talk about a merger. And of course, it may be one of the reasons they hired me back there, I don’t know, but it wasn’t long after I got there that they said, Okay, we got this inkling of a merger. We need somebody to study it, and decide what our role would be, and how we’re going to interface with them. And so, that’s what I did.
And that’s interesting because that would have changed the structure of the railroad industry quickly. It would have been very bad for Conrail because all that petrochemical stuff coming off the Gulf Coast would have been long-hauled clear to Pot Yard or Cincinnati or someplace by Southern Railway. And the divisions were such that, boy, they really would have penalized this new Conrail. But you work for who you work for, and so that’s what we were putting together.
And then it didn’t go through. Jenks was agreeable, Claytor was agreeable, financial guys were agreeable, and they went back to the Conrail management -- or, not Conrail, the Southern Railway management guys and they turned it down. It was too risky, so…
BB: The people under Claytor just didn’t want to have any part of it.
BB: They figured that they would be out marched by the MoPac people, or… ?
JH: I don’t think so, really. Southern had such a strong marketing team that they… But they, over the years, had not wanted to do much of anything. They -- like, the Monon came up. They didn’t want to do that. They didn’t want to go to Chicago. All these various opportunities had come up over the years, and they said, No, we do what we do, and we like it. We’re doing it well and so this is what we’re going to do. And then, of course, that put Crane in a bind when he took over. Because people were merging around him. CSX…
BB: When he took over at Southern?
BB: When he took over at Southern.
JH: At Southern. Yeah, right. He took over various places, but he took over Southern. Yeah. So, then, that’s when he put McClellan to work looking for -- so we look at the IC or, what should we do?
BB: So Jim went back to Southern with you, or at about the same time?
JH: Yeah, as soon as I left, then Jim came back there and took that job.
BB: And you were working together there at Southern? Or, when you left the Southern, he came?
JH: As soon as he heard that I was going to leave, he immediately marched over and said to Mr. Crane, I hear Hagen’s leaving. He said, Where did you hear that? He said, Well, I heard it from Hagen. And I’d like to apply for that job. Mr. Crane said to him, Well, you can be considered, but if you think you’re going to get paid what Hagen got paid, you’re not going to -- that’s not going to happen. He said, I’m not talking about the pay. I’m talking about the job. Crane said, You’re hired.
BB: On the spot.
JH: On the spot.
BB: So, McClellan, Jim McClellan, had stayed at USRA until --
JH: No, he went -- as soon as the thing was over, he went to -- Jeff Lang was a friend of his, was running a financial -- or, an analytical group at the AAR.
BB: Oh, okay.
JH: And it was kind of just a waystation for Jim to…$
BB: Park himself.
JH: To park himself until… the Secretary of Transportation was mad enough at McClellan and myself and several others, that he didn’t want any of those people
going to Conrail.
BB: This is Coleman?
BB: So he was -- you guys came up with a solution, he didn’t like the solution, I guess, so he’s mad at you guys for …
BB: Okay. That’s how it works, I guess. So, when the deal with the Missouri Pacific doesn’t go through, how did you make the transition from there to Conrail?
JH: I was -- Now I’m just a planning guy. Well, Bob Hamilton, Mr. Hamilton said, had kind of implied that he was going to retire in a few years, and that would be my path. Well, I’m not big on sitting around waiting for things to happen, so Conrail called up and said they wanted somebody to run the marketing and sales job. I thought about it because it was a hell of a transition. My family was settled in Washington area, Arlington, so -- but I thought, Well, what the heck, let’s go.
BB: Who called from Conrail? Jordan?
JH: Jordan, yeah.
BB: So you moved up to greater Philadelphia.
JH: I did.
BB: And what was it like when you got there?
JH: Scary. Got there and we’d just had a huge snowstorm. The whole New York/Pennsylvania area was shut down.
BB: This was --
JH: We’re losing a million dollars a day.
BB: This was the blizzard of ‘78? In February?
JH: Right. Yeah. Just got there in ‘77, and in ‘78 this blizzard took place. Losing a million dollars a day. Trying to find out information on what to do and how to do it and so forth was about impossible. So, I figured, I went home and told Mary, I said, Well, maybe we’ve moved one time too many. [Laughs]
BB: I’m sure she was delighted to hear that.
JH: Yeah, especially because she said, Now, don’t agree to go up there until you come home and talk to me. I said, Well, okay. I came home and said, Get packed. We’re moving.
BB: Yeah. I’m talking to you.
JH: I’m talking to you, so. But anyway, it was really a… going from a place like Southern Railway, which was really buttoned up, very straight up and down, and you wanted to know this, that’s the guy that would know that, and he could find it out or he would talk to so and so and find it out and instantly you’d get your information back and you could start on your thought process. It didn’t work that way when they don’t… when you didn’t have any organization that worked very well.
BB: One aside, I noticed you referred to Mr. Crane and Mr. Hamilton, and I recall from my days at N&W, everybody above you was Mr., and you wouldn’t think about going to somebody’s office without putting your coat on.
JH: [Laughs] Right.
BB: And it was pretty formal. Was that your recollection?
JH: Yeah, that’s right. That’s right.
BB: And Conrail was never like that?
JH: No. They -- and when Mr. Crane came up there, I called him Mr. Crane. I think I was probably the only guy up there who called him Mr. Crane, but I just -- out of force of habit, that’s what I did.
BB: Did you always do that? Or did he ever get to the point where --
JH: Oh, no, I finally got around [Laughs]
BB: Well, I look at… Derek Jeter always referred to George Steinbrenner as Mr. Steinbrenner. You know, I mean there are certain things that just feel natural to you, in the way you conduct yourself. I just thought it was an interesting culture difference between the railroads, particularly in the South, versus the ones up in the North, at least. And the whole industry is much less formal and rigid culturally than it was.
JH: Yeah, culturally.
BB: And I guess you guys started that at Conrail. [Laughs] So the talent pool at Conrail was pretty good. Stanley Crane made a comment one time that, The only thing I took to Conrail was my briefcase, that, you know, the people in place were really pretty good. Was that largely Jordan’s doing?
JH: Yeah, I think so. They were out looking for the right kind of people, and they -- they didn’t do much with the operational side, because that was already pretty much in place. Well, not in place, I mean it had to be put in place when Conrail started, but once it got set up, Dick Hassleman had that, and that was his baby. And then Jordan could probably make decisions about all the other stuff, but Dick was going to run the operational side. Other than that, he went out and really got the best guys.
BB: And Dick Steiner was in the marketing department when you got there?
BB: Or you brought him in.
JH: Yeah. Dick was, I think, a candidate for the job I had. And so when I heard that he would move, I went and hunted him up and talked him into coming to Conrail, working with me.
BB: So did you know him before?
BB: From... how?
JH: He was one of the good guys in the Penn Central at one time, like on those rate increases I was talking to you about? He would -- he and I would, after we had the formal meeting with the big powers that be, he and I would get together and figure out what the real answer was and then because of -- as I told you about Southern’s strength, then we’d just push it through their organization whether they wanted it or not.
BB: [Laughs] So you were the one that talked him into coming down to Philadelphia.
BB: Can you talk a little bit about the other key players on the team?
JH: Yeah. It was like, Charlie Marshall was a legal counsel that the -- the commercial side, I don’t know what the exact title would be. Anyway, he handled it. Great stuff at the ICC and things. And so then there were some other guys, like the -- when I got there, the car distribution was really messing up the marketing side, because, for example, Bethlehem Steel wasn’t getting gondolas and they had all this business that they were going to ship out. Well, I went around to some of these yards, and it would be acres of gondolas sitting around, and said, Are they bad order or something? They said, Well, no they just [muttering]. Got kind of a mumbling answer.
And so, what I did is I took the -- some of the sales guys off the street, put them in motels at all of the major yards, and then have them check all of the empties that came in, and all of the empties that went out, and then how many were left over and how come they were all sitting there. And then worked up a big report and turned that over to Dick Spence. So then he changed it -- so then I ran the -- I had the car distribution guys. So to get -- I had Emmet Posey run that, he did a good job.
BB: So Dick Spence was the President Chief Operating Officer come over from the SP, and he wasn’t there a terribly long time.
JH: Well, he got kind of cross with -- I think -- well, this is a hard problem, because he was such a good guy and a good friend, but the problem was he really wasn’t in charge of the operational side where he wanted to be in charge. That’s the part he wanted to change. And he couldn’t get through at -- and Jordan wouldn’t push it. So, he finally just got frustrated and left.
BB: Okay. So it was Hasselman’s railroad and he didn’t want two people in the chair, I guess.
JH: Yeah, well, that’s right. And, you know, you don’t blame Dick, I don’t need any help. I’m doing just fine. [Laughs] Just never mind.
BB: So, the railroad bled money for quite a while, and you and Charlie and Dick Steiner and others came up with ways to improve the profitability of traffic and shed unwanted business. Can you talk a little bit about the marketing strategy?
JH: I did a couple things. One of them is to set up an organization to shed some more branch lines and pieces of railroad. Could be main line or whatever, but just get rid of railroads that we don’t need. We still had way too many. So, set that group up, and that’s what they did. They studied those things and talked about it. It was kind of like the branch line analysis at -- that we’d done at USRA. So then we started that.
So, then we got looking at what made money and what didn't make money and ran all of these rough and ready studies. They weren’t very sophisticated, but, here again, don’t let the perfect drive out the good. Do what you can. So we studied it, and we said, Well, we got business that makes money. We got business that would make money if we had the right structure. We have business we’re not handling because we don’t have the right structure. We’ve got business that we shouldn't be in. We got services that we’re providing we shouldn’t provide, like transit, special switchings, and so forth. So let’s tackle that. Well, then, of course Congress guys said, Hey, we might have a real problem here getting this through. So we thought, You know, we really don’t care. When you’re losing a million dollars a day, you’re feeling about change is much different than if you were making money.
JH: So, we said, Well, let’s tackle it. So we started putting together different scenarios of different plans, and trying different things. Interstate Commerce Commission wouldn’t go for any of them. They blocked everything we were doing. And so, we just kept pushing it. In fact, Dan O’Neil was the chairman of the… came up to Philadelphia, got on the train and come up and says, You guys gotta stop. You’re not going to get anything done. Why don’t you sit down and work with us, and we’ll work this out, and we’ll get the rate structure? I said, Well okay, here’s ten of them, why don’t you try these. Well, No we can’t do those.
JH: I said, Okay. So, the war continued. That was just the way it was going. So then, that led to Jordan saying, Well, if they won’t agree to this stuff, let’s take them to Congress. And so, you go to Congress, and you say, We’re losing a million dollars a day --
BB: Of your money.
JH: Of your money. [Laughs] Yeah, right -- of your money. Well put. And we’ve tried to change it, and these people won’t let us, and the law is the reason. So let’s change the law. And he and the people he had working with him on that subject did a good job --
BB: Was it outside counsel?
JH: Yeah, right. Outside counsel. And Washington… we had a couple Washington guys. And they pushed it.
BB: So, Dan left the ICC job around -- somewhere around then because Darius Gaskins came in to help drive through deregulation, and did that change the process when he was there? Did things get a little easier?
JH: Well, at first he couldn’t do much. He was just kind of like -- even though you’re the boss he was kind of like hollering up the rain pipe. He just, he’d have to ask -- well, I think we did ask him about that, but basically, he needed that law as much as we did. Because he agreed with what we wanted to do. So then we got it. And then the thing is, once you get a piece of legislation passed, it’s not one of these, Well, we got that fixed, it was, Now what are you going to do with it?
BB: Yeah, right.
JH: What things can you implement out of that piece of legislation that you couldn’t do before that you can now do? So, we started with the easy ones. Took some of the places where we were losing big amounts of money, and places where we could sign contracts with big customers and tie down the volume for a price. We did those fairly quickly. Then it came down to the divisions on the inner line.
BB: Always a fun topic.
JH: Yeah. And so -- and I had been, at one time, in charge of the division department of Missouri Pacific Railroad, so I knew all the ins and outs of all that business. So, Dick Steiner and Charlie and myself and a few others said, The only way to do it is to blow up the whole system. And we’ll charge proportional rates. If you’re moving soda ash from Wyoming to Pittsburgh, you charge what you want to Chicago, I’ll charge what I want from Chicago to Pittsburgh, and that’ll be the price. There will be no division. And nobody else can participate in the business except you and I, because we connect directly. So that cuts out a lot of little carriers. It cuts out a lot of points out of the rail system that we were -- traffic was being delivered to us.
So, boy, all hell breaks loose, because it blows up the division, and it blows up the rate deals. And that’s the way the railroads had always made rates all of their lives. And all of a sudden, we said, We’re out. We won’t come to those meetings anymore. We won’t talk to you, and if you want to talk to us, call us directly and we’ll make a price with you, and that’s it.
BB: And how long -- I mean, I can -- I remember when this was going on. How long do you think it took before people sort of got acclimated to the new reality?
JH: It took a good little while. But I tell you, once they got it going, got it in their head that that made sense --
BB: Yeah, that’s much easier.
BB: It’s much easier, when you get down to it.
JH: Right, it’s much easier, and the railroads’ starting to say, Well, that’s pretty cool, then. And because at first it was just viewed as a Beggar thy neighbor theory -- Conrail’s extracting money out of our pockets. And Crane, when he came up to Conrail, had told me, later, that his first inclination was that he was going to fire Dick Steiner because he’d treated Southern Railway so badly. [Laughs]
JH: He didn’t blame me. [Laughing] Said, Well, okay. But then after he went up there and Dick Steiner came in and made a few of these presentations about how good it was, boy, then he became Crane’s favorite [laughs] guy, because he really knew it.
BB: I think the other thing that I’d be interested to hear what you have to say about it was, I think Conrail led the charge to go away from hundredweight rates to per-car rates. Got rid of all of the fights over, you know, billing irregularities.
BB: And I think you guys started that. Was that your --
JH: Yeah, that was another social problem in the sense that, you can only carry that about so far because there were some commodities they had to -- for some unknown reason they wanted to do it just with the weights. And so -- but it made so much sense to just say, See that car out there? We’re going to charge you X number of dollars. Now, part of the railroad people were saying, Well, everybody’s going to overload the car. You’ll have too much weight in the car. Well, you know, probably. [Laughs]
BB: But you do sample checking to see if that’s the case. And weighing cars leads to service delays. The other thing that I’d be interested in your comment about, is you segmented the marketing department into groups of commodity-related, like, business units. You know, I remember the intermodal group and the -- you know, the automotive and so forth. Was that the first time that had been done? I don’t remember any other carrier -- now everybody does it.
JH: Yeah, [indistinguishable] it just made common sense. You wanted to have a group of people that were going to focus on a certain set of problems. And not every problem was the same. I mean, in the sense that lumber was different from iron ore.
BB: In ’78, Stew Reed came in to become president of Conrail.
BB: What -- how did that transpire? Why did they pick an automotive guy?
JH: I have no idea. He just magically appeared, as far as I was concerned.
BB: Did you know that Jordan was stepping down?
JH: Well, I knew that Spence was leaving.
BB: And -- oh, okay, he replaced Spence, that’s right.
JH: Yeah, he replaced Spence.
BB: But he just appeared. You weren’t involved in the --
BB: Oh, okay. So, he stayed quite a long time, as I recall. Like ten years.
JH: He did, right.
BB: And it’s an unusual background, being from American Motors, to come into the railroad business.
JH: Yeah, I didn’t -- I think he was a little bit of a fish out of water for part of the time -- well, most of the time. He really -- his hearing was okay. I mean, you could explain stuff to him and he’d kind of go along, just… probably part of it is a bias on my part from being a railroad guy and then having this guy come in and not --
BB: Not know the business.
JH: Not know the business and really didn’t seem to me to be offering, to me, much of what we should be doing.
BB: So when Reagan became President we got a new Secretary of DOT -- Bob Blanchett’s the administrator of the FRA, who I think had been a trustee of the New Haven --
JH: He was.
BB: And had been -- so was well versed in the difficulties of railroading in the Northeast. And then Stanley Crane comes in as CEO. Was that a -- did you see that coming?
JH: I knew it probably more before anybody else. Crane got word, I think, that that job was going to be -- that Jordan wanted to go back to insurance or wherever he was. So, he called me up and said, Do you think this is doable? Do you think Conrail… do you think we can make Conrail work? And so, my contribution to Conrail’s wellbeing was, I lied to the new chairman. I said, Yeah, oh yeah, it’s going to work. You know, here’s a bunch of reasons why we can make this thing work. And so he came. And so he did. And he started making a difference the day he got there.
BB: Mark Twain made a distinction between the liars and the truth stretchers…
BB: And I think you were more stretching the truth.
JH: [Laughs] That’s right.
BB: So, yeah, can you talk about his arrival on the scene, and, you know?
JH: Yeah, he arrived on the scene, and typical railroad guy, he wants to go out and see the properties. So he’s out there on the property and so he looks over there and sees a bunch of buildings and yards and says, What’s all that? / Oh, well, just some extra buildings and so forth. / Well, what are they used for? / Well we haven’t used them for quite a while. / Well what are they doing there? And this kind of thing. He went through the whole -- up and down the property, and just made them -- because, what was happening, is they didn’t want to spend the money to clean up the yards. Well, as you know from being a brakeman, unclean yards are a dangerous place to work.
BB: Oh, yeah, sure.
JH: And so, he wanted everything cleaned up. He wanted the junk out of there. He wanted the piles of ties gone. He wanted everything out of there. So that’s kind of the start. And then, he would help us, from a standpoint of service problems, and so forth, he was really working with us.
BB: Yeah, he’s got a different management style than Ed Jordan had.
JH: Yes. Yeah, right.
BB: How did that go over at Conrail?
JH: They -- because of his assertiveness, they were a little bit afraid of him at first. But he came across as saying, I want to hear from you, and I want to know what’s going on, and I want you to come up with stuff. So, I told the people that worked for me, Look, after long years of working around Stanley Crane, here’s what to do. If he asks you for your idea, come up with the best you can and give him your idea. But if it doesn’t work, don’t sweep it under the rug, or deny it ever happened. Go back to Mr. Crane and say, “Well, that one didn’t work, but maybe we could do this.” And he would work with you. He would appreciate that. So that -- that’s what his style was.
BB: Pretty demanding.
JH: Demanding, but still fair.
BB: Yeah. Did he make any management changes that you thought were appropriate, or not appropriate?
JH: He didn’t make a lot of changes. He just took over what he had and took over with the guys that were there. And he would do a lot of digging and pushing, but he wouldn’t -- he didn’t take the people. He didn’t take the people out.
BB: Yeah. So it’s interesting, in the notes that I have for this, the -- it wasn’t until ‘81 that Conrail got relieved of the burden of having commuter traffic? I didn’t realize it was that long. Or I’d forgotten it.
JH: Oh, it was awful.
BB: And, I mean, you’re losing a million dollars a day, well a lot of that could have been attributed to…
JH: Oh, yeah.
BB: That had to be a huge relief.
JH: Well, it was. And, you know, you’re from the eastern part of the United States, you realize the size of the commuter operation in New York, New Jersey, and in Philadelphia. I mean, you’re talking about big systems.
BB: So, when -- at the time of my departure on April 1st of ‘76, I think I recall there were about 105,000 employees all in for Conrail. At the time of the -- of it being filleted by NS and CSX it was down to 24,000, 25,000.
JH: Mmhmm, twenty-something, yeah.
BB: That’s a big change. You know, shedding branch lines is a political football, certainly, but shedding labor is certainly -- had to be a major challenge, at that magnitude. Can you talk a little bit about how you managed to go --
JH: Yeah, that -- it was an interesting process. One of the things is we got rid of a lot of them where they --- well, were the commuters. That helped. Then it -- the various unions were probably finally coming around to realizing that, Hey, this operation’s going to be our bed and breakfast so let’s use it. Then the -- I think it was the 4R Act had some money in to buy out slots. So we could buy out a position, and we didn’t have to refill it. I think it was 25,000 dollars. It seemed like a lot of money at the time, but we used that totally. We used up all the money every year. There was, I don’t know, maybe three or four years where we had that money. So we would get these slots covered so that we didn’t have to refill them. [Laughs] And this is as tedious as you can imagine, man by man.
BB: Right, yeah. But it made a huge difference overall in the overhead of running the company.
JH: And then the other thing, too, is once you change that rate structure we were talking about, to the proportional rates, a lot of small yards and small operations were closed out because we didn’t go there any more for our major… we went there for local traffic, but we didn’t go there for interchange. So you had less engines and less people working there. So you’ve concentrated on your major routes.
BB: The ax. The Conrail Ax.
JH: There you go.
BB: So, in ‘84, the government says, Okay, we’re going to sell it. And Mrs. Dole announced that NS is going to -- was going to buy it. My recollection was she and
Mr. Crane had a fairly tense relationship --
BB: -- for a period of time. What can you comment about that?
JH: [Laughs] Oh, well it was -- it was just one of those things where they said they were going to sell it, and that’s that. And Crane was trying to be reasonable, talk some sense into… pretty soon it wasn’t a chance to be reasonable, just was… she just threw him out of the office, virtually, and he stormed out of there. And so then they went – Conrail went to Congress and said, Hey, wait, we can make this work. And they got the labor unions in, and they agreed to participate, and in fact they took a wage cut, temporary wage cut, so that Conrail would have more money. And finally, Conrail -- er, Crane prevailed. It was a tour de force by any means.
BB: I recall a lot of that because it made the press. So, you then go off to CSX. Can you talk about that? That’s a big change of…
JH: Yeah, it was a big change. You know, from there, got everything running with -- got the thing going, and then I’m looking around and… Stuart Reed’s the same age I am... [Laughs] Looking at him I’m saying, Oh, okay. So then Hays Watkins came and said that he wanted to consolidate the L&N and the Seaboard Coastline and the B&O, C&O, all those people together. And he wanted to start with the marketing side. And he wanted me to do that. And I thought, Well, you know, that sounds interesting. So I agreed to go there. And Mr. Crane got mad --
BB: I was going to say, how’d it go over with him?
JH: Oh, god. I’ve never seen him that upset with me. We’d -- he and I have had -- we had our arguments over the years about how to do something, but it was all based on the facts.
JH: [Laughs] His facts are different than my facts, so we can’t agree. Boy, that was personal. So -- and it stayed that way for a couple of years.
BB: Oh, really?
JH: He didn’t talk to me.
BB: Oh, my god.
JH: At the industry meetings I’d walk up to him, and he’d just walk away. Finally, I cornered him and said, Boss, we gotta have this out. He said, Well, you left. I said, Look, what I’m doing -- what I like to do. I’m just sitting there. He said, Well, you know I wasn’t going to… Well, I’m going to do something. I said, Oh, well okay. So, we settled it.
BB: Got back to a semblance of normality.
JH: Yeah, we’d be -- at least be friends.
BB: Okay. So, can you talk about the CSX times?
JH: Yeah, well we started out -- we started pulling stuff together. I moved to Jacksonville because that’s where they were thinking about putting the operational stuff. I said, Well, you want to have your Marketing & Sales guys in the same place as your operational people because we need to talk about what we’re selling here. And so, that’s agreeable to them, so I moved down there, and we got started. I just get started getting acclimated and then about that time they came up with -- McKenzie came up with a study and said, Well, the way to run this is with three different units: a Marketing & Sales unit, a Car Distribution unit, and an Operations unit. And I thought [laughs] that was the dumbest idea I ever heard, so… but that’s what they were going to do.
BB: So, I’m sure you expressed that opinion to the chief.
JH: I did. I got called in. Dick Sanborn called me in when I was in New Orleans with some customers, and he said, You gotta come up to Richmond right away. I said -- I just thought it was another one of their normal meetings, I said, No, you gotta take care of it. I’ve got customers down there. They said, No, Hays wants to talk to you personally. I said, Oh, okay. So, I got on a plane or something and got up there, and he said, Everybody in the company agrees to do this and thinks it’s a good idea except you. I said, Oh, really? He said, But, tell me what you -- why you think that why? That’s what I liked about Hays, he would kind of listen to you. And so, I told him that I thought it was a goofy idea, and had all these reasons, and so he said, Well, tell you what. We’re committed and we’re going to do it, and I’d like to have you be part of it. And I want you to stay here and see if we can’t make this work. So I agreed. I’ve always admired him for at least sitting down with me and --
JH: Telling me what the deal was.
BB: Yeah. Sometimes you just get voted off the island.
JH: [Laughs] That’s right!
BB: So how long did that last, from him saying, I’d like you to give it a try, to you moving back up to Philadelphia?
JH: They had that system, and we slowly but surely -- all the participants were starting to merge it back together, just surreptitiously I guess would be the word.
BB: Or just practically speaking.
JH: In practice, we were doing the right things.
BB: So how did it come about that you ended up getting asked back to Conrail?
JH: Well, Dick Sanborn went up there, Crane hired Sanborn -- or, the board hired Sanborn, to take over the Presidency of the railroad. He hadn’t been there too long, but Crane had just left. So now he’s the Chairman and the Operating Officer. And then he died. He had a heart problem, I think.
JH: And so now they’re back on the market looking for somebody.
BB: Do you think that Crane’s hiring Sanborn, rather than you, had anything to do with your past?
BB: Yeah. Was he involved in you -- he had retired, right?
BB: Was he involved in you being selected again?
JH: Sure, yeah. Going back.
BB: That had to be a pretty gratifying move?
JH: It was. And I was gratified to have it happen. And I was very appreciative of all the people that were involved. Just one quick story, Dick Hassleman, who was the operating guy, was under consideration -- he asked to be under consideration. And then, well they said, You’re not going to get it. He said, Well, if I don’t get it, you gotta hire Hagen. So they thought, Well, okay, that’s a good recommendation.
BB: Well, plus probably no resentment of you taking, quote, His job, in those circumstances, which is always a good thing. Was Mary happy to go back to Philadelphia area?
JH: Uh… I think she was glad to have me be away from that CSX problem that bothered me. I didn’t work well there. So I think she was glad to see that.
BB: I think you described it as a rejection of antibodies, or something like that.
BB: And they were the organism.
JH: And the other thing too is that Mary was a stockholder in Conrail. When the stock came out, we were at some friends’ house, and they said to me, Hey, do you think this stock is a good buy, and do you think we ought to buy it? And, before I could say anything, Mary said, Well, yes, I bought some. And I think it’s a good buy. Well, I didn’t know she had any money, and I didn’t know she knew a stockbroker, but it --
BB: You learn something new every day.
JH: Yeah, right, but she did. Buy anyway, she had the right thing to say. She said, they said to her, Mary, why did you buy? She said, Well, I know the people. And I know they’ll do well.
BB: And, boy that’s a good --
JH: I said, That was good.
BB: Good thing to say. So how did it come about that you’re running the organization, it’s starting to do better, it’s starting to make money, things seem to be looking up? Congress gets rid of USRA -- it took them a little longer than to do --
JH: Should have done that on April 2nd [laughs] ‘76.
BB: And they did it in ‘87. What was USRA doing in the meantime?
JH: Well, they were supposed to be overseeing Conrail. So they were getting reports in and studying them and stuff, and making commentary, and they were wasting their time and they were wasting our time. We were -- you know, we were nice to them.
BB: So, you started to change the culture at Conrail, right? What are the things that you wanted to do? What are the things that you -- were uppermost in your mind that you wanted to change for the better?
JH: What were they?
JH: Yeah, okay. One of the things was -- one of the things that always bothered me was the rigid hierarchy of railroads. It was like being in the military, to a certain degree. And so, you might tell the boss something, but he was going to decide it. And then, all down the line it was, Yes Boss, yes boss, yes boss. And so, it finally had this hierarchical running the -- running the thing. Well, when you’re out walking around on the property, and you’re one of the junior guys out there, you could see, Hey, things could be a lot different here if you let me change it! / No, you can’t change it because that’s the way we’ve always done it. So, I just wanted to boil this down so that we had less of a hierarchical thing and, yes, you’re still the boss. You still make the decisions, but you gotta listen to people and what they say and ask their opinion on how to do it. So that was kind of one of the major --
BB: And you did town hall meetings across the system, right?
JH: Yeah, right.
BB: I think you were the first one to do that. Matt Rose did a lot at BN after this, but I don’t think I ever heard anybody in the railroad business do it until after you did it.
JH: Well, and it was -- made a certain amount of sense, when you think about it. People need to see you. They need to know who you are. They need to know why we’re doing things the way we’re doing them. You don’t go out there -- but you don’t go out there completely and give them a lecture. You go out there to say, What are you guys doing? How are you doing it? What’s this for? Why are you doing it? And they can -- they would relate to that. One time I was in the office and these two guys from the mechanical department come into my office and they -- union guys -- and they said -- I said, Oh, guys, how you doing? And I showed them around the office and we chit chatted a little bit, and I said, Well, okay, now why are you -- what’s the problem? Why are you here? / Oh, nothing. You’d said at one of those meetings to come out and see you if we wanted to, and so here we are. And that’s the only reason they were there. Just to see if I was [Laughs]
BB: If you really meant it. Could you get in?
JH: I really meant it. So anyway, that was kind of a fun thing.
BB: Oh, that’s -- probably a little surprised they weren’t there with a complaint about something.
JH: That -- well, that’s one of the things that goes with your job is, most of the time people come to see you not to say, Have a nice day.
JH: Whether it’s a shipper or another railroad or a union guy, or somebody, they come to tell you they -- you know --
BB: Have an issue. And you need to --
JH: I’ve got this issue and you need to fix it.
BB: Right. One of your former colleagues -- I don’t remember who -- said or described you as the Dwight Eisenhower of the railroad industry.
BB: And when I think back to, you know, his mission of trying to hold a coalition together and make it function together as a team, you know there is some truth in that. And I think your style seems to be more of that collaborative than it is, I’m the boss. Do it this way.
JH: Yeah, sure. And I think also it helps you from a management standpoint. I -- when you propose to do something different, and you want to have a deadline and you’re going to do it by this time. I -- one of the management guys would say, I’m gonna have this done by June 1st, and we’ll put it in operation. And I’d look down the table at some of the junior guys and I got like [makes scared face] [laughs]. I’d call them up later and say, What do you think about that date? Is that date okay? / Oh, my god, we’re dragging -- we can’t make that date! You know, and so forth. So you can -- and then you can go back to the guy that told you the date and say,
Hey, I’ve been thinking about that. Let’s move that date. You don’t need to insult him by saying --
JH: It’s stupid. You just say, Can we move that a week or month? or whatever. Oh, okay.
BB: So, were you -- when did you start thinking about alternatives for Conrail, either mergers or sale, or --
JH: Well, basically, this -- that was always coming up, because everybody was -- in the industry was kind of weighing things about where it would go. And one of
the things that was -- Conrail was, we had pretty good-sized markets, but we were in a declining market. We were not a growth industry. And stuff was moving south and moving to the Southwest, and various things. So where do we go from here? Can we just stay in place? And the Southern reached out and merged with the NS.
CSX was consolidating all their lines down there. So when the NS came around and were interested, then we -- I talked to them. Said, Well, we’ll see. Part of the problem is the old game of who’s going to be left out?
BB: Right. When the music stops.
JH: Yeah. When the music stops, who doesn’t have a chair? So -- well, we’ll listen to it and see what we can come up with. Not very serious conversations, but price-per-share conversations.
BB: So, NS was the first one to express interest.
JH: Yeah, and you can imagine who instigated that.
BB: I -- I can.
JH: Jim McClellan [laughs].
BB: Of course. Well, I mean, it was sort of a natural thing to explore, I guess.
JH: Oh, sure, yeah.
BB: You said it was a fairly casual conversation. It wasn’t serious. Why do you think that was?
JH: Well, I think what -- it was pretty casual in that -- conversation -- it would -- because we -- nobody had a whole bunch of facts like, Here’s my balance sheet, and here’s my income statement, because everybody had that because it’s public information. But nobody was giving each other any traffic flows or anything about what might take place.
JH: It was more theoretical discussion about, Should we do something?
BB: And then it just quieted down for a while?
BB: Because, according to my notes, that was in ‘92, and then in ‘94 you met with David Goode from NS, and it got more serious.
BB: How did that transpire?
JH: That was -- here again, they came to us, and they came to me and said, We’re going to be a the Greenbrier or someplace and let’s talk about this. And I said, Oh, okay. Sounds interesting to have Conrail and Norfolk Southern having a merger discussion at --
BB: [Laughs] at the Greenbrier.
JH: At the Greenbrier, which is owned by CSX. So, anyway. And so, we talked about it a little bit. Their view of where Conrail was going was, your earnings and pricing are going to be static, and we’re going to grow. And so therefore we can’t -- I’m putting words in their mouth.
JH: Trying to analyze what they were thinking. Anyway, they could only come up with X amount of money.
BB: Okay, so it was a financial nonstarter at the time. It’s interesting, in what actually transpired the money didn’t seem to be the issue anymore.
JH: Well, that’s it. The -- once they figured out CSX was going to do something to them… CSX and Conrail figured, well, NS is not going to go big on this. They’re going to be satisfied with whatever we give them. And they’ll argue about it, but we can satisfy them. Boy, they went completely the other way and said, We’re going to win this thing, and we’re going to win it big.
BB: Maybe CSX bugged those rooms at the Greenbrier, and they knew what was coming.
JH: [Laughs] Yeah, right.
BB: So, you go to the point where you said, It’s time for me to retire. And this is still up in the air about what’s going to happen.
JH: Right, well, it was. And Conrail was going along fine. Everything’s okay. And CSX hadn’t started their conversation quite yet, and NS had gone away because it -- I told them that if they couldn’t come up with the money, don’t come back here. So we were just kind of sitting. And then CSX came and wanted to talk, and by that time I’m retired. So I said, Well, and they talked to me about -- I said, Well, talk to David. Well, okay. Would I come to a meeting? So I went to the first meeting and I was like -- kind of the fifth wheel. I was sitting there, and I thought, I don’t have any --
BB: No dog in the hunt?
JH: I don’t have any dog in this fight. I’m just sitting here. So that was kind of the end of my participation up ‘til Conrail and CSX made a formal deal, and then the board of directors did ask me what I thought about it.
BB: And what did you tell them?
JH: I thought -- this shows you how much I knew -- I told them, I said, I think it’s doable. And they were willing to give Levan control of the railroad. Of the CSX-Conrail railroad. So, if Conrail could use its style in what it does to help CSX be different than it was -- which they wouldn’t appreciate, but that was it. And we could satisfy NS without major disruption. I said you could probably do it. And Claude Brinegar -- was on the Conrail board by that time -- said, Well, if we do, there’s no going back. Once you’re in play…
JH: You’re going. I said, Well, that’s a risk and I can’t tell you about that.
BB: So, how did Dave Levan get picked to succeed you? He was in the organization, right…
JH: Yeah, he -- I was part and parcel to that in the sense that -- he was a financial guy, and he’d had various jobs. Finance, in charge of the computers, and so forth. And Don Swanson, who was running the operation at that time, said, Hey, I want to take Levan in here and make a real railroader out of him by putting him in the operating department. So he brought him in and he toured around the railroad, and he…
BB: What did he do in the operating department?
JH: He was a -- probably Vice President at the time. Second in command to Swanson. It was kind of a learning job, and I think he did a good job. So anyway, that was --
BB: I remember you taking me in to meet him, and you introduced me to him, and your comment was, I’m here, forgotten but not gone. [Laughs] I’ve always remembered that as a…
BB: So, this thing got a little bit crazy, then, between the two suitors, in terms of bidding on price, which was all to the benefit of the Conrail shareholders.
JH: Oh, yeah. Right.
BB: In looking back over it now, you made the comment a minute ago, Shows you what I know about the doability of it -- do you have a view of what it might have been -- you know, what should have happened at Conrail? You know, wipe the slate clean. It’s a whiteboard. You could draw anything you want and have it magically occur. What do you think would have been a good outcome?
JH: Well, it sounds disloyal to the Conrail guys that made it work, and -- but probably ended up with the best scheme, in the sense that, if you would have continued on, there would have always been this tension about who’s going to do what to whom. If one would have bought it, then you’d have had the other one feeling like, Uh oh, I’m left out. I’m going to do something different. So, I think probably, well it didn’t do the Conrail people good service, I think it probably was the best solution for the eastern railroad problem. You’ve got competition, you’ve got good strong companies who can afford to fix track, fix cars, do all this kind of stuff.
BB: Have you -- do you stay in touch with Dave Levan at all?
JH: No. I really -- he went back to where he was from, and he started his motorcycle shop.
BB: Yeah, he’s running a --
JH: He just kind of dropped off the system.
BB: Went completely out.
JH: And I’ve -- you know, he got tagged as being kind of a bad guy in this process -- the merger thing, but he was a good guy. He should have been -- fared better.
BB: So, right now I’d like to go back to the two questions I said I really wanted to ask toward the end, which was: Are there things that you would do differently now, looking back over it all, or are there things where you said, Boy, I wish I’d really done that instead of that, or anything that comes to mind?
JH: Well, any time you look back on the career, you always say, Whoop [laughs]. And one of the -- some of the things that I thought were going to be problems -- like going to USRA was really a hard, hard job. My wife said my hair went from black to -- or brown, or whatever -- to totally gray there in a -- about two years. Because we didn’t work Christmas day, but we worked on Christmas Eve up until about six o’clock. And took the day off, and then went back at it. It was just -- that was just, that was hard. But I don’t regret doing it. Probably the one that I do regret is making the move to CSX. I didn’t -- I liked -- when I go places, I like to say, Well, I did something. I fixed this. I did that. There, I totally, I was just there. And I think I helped some, but I couldn’t --
BB: You can’t plant a flag and say, I really made a change here.
JH: I changed that. And I didn’t change it.
BB: And then the other key question, of course, is what are you most proud of? And it doesn’t have to be one thing. It can be a dozen. It can -- when you look back and say, Boy, I’m really glad I did that, or, This really worked out well.
JH: Well, basically, it has to do with being at Conrail in the -- that marketing job with Dick Steiner and Charlie and everybody, where we were -- we were able to say, Here’s a problem, and let’s solve it. And I was proud of doing that. It didn’t -- wasn’t perfect, but it was, given the times and everything, it was -- I thought it was a good job. And I was also proud of being the boss. I got a certain satisfaction of saying, Well, I was there. Everything improved, even though it got -- We had a couple downturns in the business, and it was scary. But we were able to overcome them and do the work and get things done. And I just enjoyed, on all these jobs I enjoyed working with the people.
BB: Yeah. Yeah, you were fortunate to have really good ones to work with.
JH: Well, that’s it. And you -- something about, you know, having people that are smart and dedicated and a little bit adventurous when they tackle things, really makes work fun. You can -- theoretically, I wasn’t the grand strategist of all time. I was more of the, Let’s think this [Laughs] Now that we’ve got these great ideas, let’s boil them down and do something about them. And I thought that mixed well as I went through life.
BB: It’s -- it had to be, if you were standing on a football field at -- in high school, looking into the future, it would be a hard one to predict.
JH: No, I probably envisioned myself running the scraper for the rest of my life. [Laughs]
JH: I figured, well, I can do what I can do and I’m smart enough to know that I know how to do that, so maybe that’s what I’ll do.
BB: Well, it would have given you more nights at home.
JH: Probably would have.
BB: Well, thank you for sitting through this with us. If there’s anything else you want to add to it…?
JH: Well, I enjoyed this. It was one of those things that, when you talk about it in terms of my own recollection, I enjoy that. And that’s how I always say, I’m good
at this if I’m unencumbered by the facts. I can talk about anything you want to talk about -- [laughs]
BB: Right. Well, that’s really what we’re looking at is more -- not so much the history, as the person themselves.
JH: Yeah. Well that’s true, because we got all the great books by Gallimore and --
JH: McClellan, and everybody that says, Here’s the history.
BB: It is a fascinating business. I asked Rob Krebs a question about his -- he has a fairly encyclopedic knowledge of the business. And, you know, got it from coming up the way a lot of us did starting in the yards and working his way up and so forth, even though he was a trainee and not the union card carrying trainman. And I asked him, I said, would you have -- did it get in your blood, or would this job have been -- the level of intensity that you had -- would that have been the same if you, I think I said, were making toaster ovens at Sunbeam? And his answer was pretty much, you know, it would have been the same wherever I was. That’s the way I approach things. He didn’t really feel that the industry got in his blood. I’m curious, for you, did it -- it’s an interesting industry. I never found a dull day in it, particularly -- did it get in your blood? Do you feel --
JH: Yeah. I’m afraid it did. I was so interested in it as it went along that I thought it could be different and I could do something about it. And I always wanted to do that. Now, I might have got as interested in making toaster ovens, I don’t know, but basically, it’s so big and it had such an impact on the United States, that really was interesting to me to be involved.
BB: Yeah, and it’s so diverse from the commodities it hauls and the customers that it serves. You learn a lot about geography and history and tradition, and you do things --
JH: Oh, you do.
BB: -- That go along with it.
JH: I went to -- I was some place in the -- I was talking with some guy from Oklahoma, and he said, since I always ask people where they’re from, the guy said, Well, you don’t -- you won’t know where I live. I said, Well, I know the names of towns, I mean, I haven’t been there but I know the names of a lot of towns. Tell me the town. Well, it happened to be a town I’d been to. So I said to him, Well, now, do you live -- when you come into town do you live toward the green house on the left, or toward the creamy house on the right? Well, this guy was like [shocked face] [Laughs]
BB: [Laughs] How do you know that?
JH: Yeah. Well, it was just happenstance, but it was fun.
BB: You know, some of those are amusing occurrences if you get to go through. Well, thank you again.
JH: You’re quite welcome.