Railway Age magazine and The Washington Post have teamed up to finally put Conrail in the black.
And they did it by defeating representatives of United Press International and Traffic World who tried every gimmick they could find to keep the big railroad operating with huge losses and government subsidies.
Of course, it was only a game. A "railroad deregulation game/simulation," the sort of interpersonal game theory and application of business practices conducted by business schools and the military for many years, all designed to show what might happen in the real world if certain courses of action are followed.
Consolidated Rail Corp. (Conrail) of Philadelphia needs all the help it can get. As successor to the bankrupt Penn Central and other rail lines in the Midwest and Northeast, Conrail represents an attempt to restore profitable rail business to the most densely-populated region of the nation.
One of the courses of action Conrail management has endorsed to accomplish this goal is virtual elimination of railroad regulation by the federal government - which subsidizes Conrail operations, mainly through loan gurantees.
And one very unusual method of promoting economic deregulation - a goal not totally shared throughout the rail industry - is a series of management game simulations that Conrail has been conducting for Capitol Hill staff members, officials of the Department of Transportation, the U.S. Railway Association (its federal banking and monitoring agency) and state and local transportation planning groups.
The modern-age lobbying formula also was tried out this week on a group of Washington reporters, who gathered early on Tuesday morningfor a four-hour round of game-playing at a Capitol Hill hotel. Helping to establish the tone of the session was the site, called the "Judicial" room.
The reporter from The Post and John Armstrong of Railway Age ran Conrail, in reality the largest U.S. transporter of freight with 17,000 route miles in 16 states, D.C. and two provinces of Canada. Ellie Hamm of Traffic World was with a Conrail competitor called "OR" rail for "other rail," although some of its operating facilities bore a remarkable similarity to Chessie System.And Don Phillips of UPI was a competing trucker.
Conrail's game was designed by Dick Duke, a University of Michigan professor who also attended the Washington performance. A batch of Conrail planners and other officials helped out - providing strategy tips for all sides about an arcane world called tariff setting. Translated, that means shipping prices.
Each player was given a special manual of duplicated material on Conrail and federal regulations, plus mock tariff sheets to draw up charges that might be proposed under the current system and during an era when controls have been eliminated in the way Conrail prefers.
The purpose of the game is stated quite bluntly: to show that regulation impedes response to economic change and corporate survival and that benefits will flow if the Interstate Commerce Commission has less of a say in rail management.
And that's what the game-playing indicated. Using an admittedly small batch of theoretical communities and freight commodities, the game started with a status quo of Conrail and OR fighting with "C.B. Truck Co." for business. Although hypothetical, the simulated fight for transport business roughly parallels problems that Conrail faces. There was plenty of unprofitable business in hauling fertilizer and feed grains, and an ICC totally unwilling to allow freight rates to rise sharply enough to cover costs.
Using all sorts of brilliant marketing strategies, the new media managers at Conrail were able to bring that railroad to a breakeven point. From a 12 percent annual loss, they produced a profit of 0.1 percent in one year - by cutting prices on shipments carried at above-average profitability in some cases. Business was taken from OR rail and truck firm, despite their protests to the ICC. The role of the federal agency was performed just as adamantly as any regulator by Gery williams, head of state and local government relations for Conrail.
The message was clear: Conrail only could make gains under the current environment by robbing business and profits from its competitors. OR rail profits slumped from 25 percent to 12 percent; the truckers's revenues plummeted but profit margains were higher.
In the second game stage - deregulation, with railroads and truckers free to set their own rates and to bargain with shippers - all benefitted.Conrail's revenues were down sharply but profits were up 151/2 percent! The trucker regained short-haul traffic and higher earnings, while OR rail revenues were up substantially and the profit rate was back to 20 percent.
Moreover, overall transportation costs to the mythical region declined. According to John Sweeney of Conrail's Washington staff, all of the game sessions have produced similar results. About the only objection came from a Washington official who objected vehemently to an ICC decision in the game he played, a decision on coal rates.
Williams said Conrail is about ready to some aggressive marketing this summer of the type that turned up in the game session. "But under ICC regulation, you don't catch up with inflation on goods now carried at prices way below costs," he noted. Having to follow requirements of the Interstate Commerce Act prevents Conrail from recovering, said Sweeney, seeking to emphasize that current ICC members were not where the problem exists.
Conrail already has made such arguments in testimony before congressional hearings on various proposals to elimate ICC regulation, which continued yesterday. Most other railroads have not gone nearly so far in embracing deregulation, however, and this split opinion may delay passage of any rail legislation in the near future.
Conrail, meanwhile, has improved its real-world financial condition:
The U.S. Railway Association reported this week that Conrail's 1978 losses of $385 million closely matched projections and said that Conrail's losses this year probably will be $80 million to $115 million lower than the $350 million level projected in planning. However, the current rate of improvement is "inadequate" to permit self-sustaining operations in the foreseeable future within limites of authorized federal aid, now $3.3 billion.
April financial results were the best in the history of Conrail, which started on April 1, 1976. The railroad expects the April-June quarter to be "far better" than a $60.9 million loss in the 1978 period.