In the recent FreightWaves Classics article “FreightWaves Classics: Railway Express Agency was THE express package delivery service,” information about the nationalization of the nation’s railroad express services and railroads was included.
This article expands on the information, presenting an overview of the nationalization of most of America’s railroads during World War I.
Railroad problems prior to World War I
Congress and the Wilson administration had tried to intervene in the railroad industry’s economic struggles for several years. By 1916, there were severe problems within the nation’s railroad system. Many of the problems stemmed from the expanded powers given to the Interstate Commerce Commission (ICC) when the Hepburn Rate Act of 1906 was passed by Congress.
President Theodore Roosevelt had advocated for the Hepburn Act, which gave the ICC power to regulate “fair, just and reasonable” passenger and shipping rates of the railroads. The rate caps led to some railroads becoming unprofitable, forcing them into receivership (bankruptcy).
Railroads found themselves in an increasingly challenging landscape after 1910; many laws had been passed which significantly expanded federal oversight and the impact of the new trucking industry was being felt.
World War I
World War I began in August 1914. The outbreak of war had coincided with a time when most of the nation’s railroads were suffering financially. Although the railroads had made large investments in their systems during the first 15 years of the 20th century, there was still a great deal of capital expenditures needed to fix inadequacies in terminals, track and rolling stock.
The countries fighting in World War I purchased $3 billion of munitions from United States factories. Once manufactured, the munitions were primarily routed through a few port cities on the Atlantic Ocean. Existing terminal facilities were incapable of handling the export tonnage; therefore, thousands of loaded railroad cars sat on sidings, waiting transfer of their contents to ships. As the railcars sat, the result was a shortage of railcars to move normal freight traffic.
The ICC had been setting the railroads’ maximum shipping rates for about a decade. With the war, inflation became a problem for the American economy, and the railroads weren’t able to generate enough revenue to keep pace with rising costs. The railroads also were hampered by rising taxes and operational costs. As noted above, many railroads were operating while bankrupt.
In addition, the railroad unions threatened to strike for shorter working days and better pay during the second half of 1916. To avert a strike, President Woodrow Wilson advocated on behalf of Congressional passage of the Adamson Act, which set an eight-hour work day as the standard for the industry. The legislation was ruled constitutional by the U.S. Supreme Court, so the railroads had no choice but to comply.
However, despite their victory, many skilled railroad workers were leaving their cash-poor employers to work in the fast-growing armaments industry or to enlist in the war effort.
Concurrently, Congress had passed the Army Appropriations Act of 1916, which granted the president the power to take over the nation’s transportation systems, if needed, during war.
When the United States’ declared war on April 6th, 1917, rail congestion further increased because soldiers needed to be moved from their home towns to induction points, then to training facilities and then to embarkation points.
The railroads tried to coordinate their war-related efforts by creating the Railroads’ War Board. However, there were antitrust issues as well as regulatory barriers to this attempt. In addition, various government departments/agencies asked for priority status for their shipments; this led to significant congestion in freight yards, terminals and port facilities.
By 1917, the railroad system could not hold up under the heavy demands of a wartime economy. By December 1917, it was clear that the existing railroad system was not capable of supporting the war effort; therefore the ICC recommended that federal control of the railroads was necessary to ensure their efficient operation. Moreover, it was hoped that a government takeover of the railroads would bring railroad management, labor, investors and shippers together on behalf of the national war effort.
Following the ICC recommendation, President Wilson issued a nationalization order on December 26, 1917. He ordered Secretary of War Newton Baker to take possession of the railroads on December 28, 1917. President Wilson appointed William McAdoo, Secretary of the U.S. Treasury Department, to be Director General of Railroads. McAdoo had previous railroad experience.
Federal control would extend over the steam- and electric-powered railroads, as well as their “owned or controlled systems of coastal and inland water transportation, terminals, terminal companies, terminal associations, sleeping and parlor cars, private cars, private car lines, elevators, warehouses, and telephone and telegraph lines.”
In “The American Freight Train,” author Jim Boyd wrote that the railroads were not technically nationalized. Under the broad powers of the United States Railroad Administration (USRA), each railroad was rented and provided fair compensation for its cooperation.
But in his book, “The Routledge Historical Atlas Of The American Railroads,” John Stover noted that the railroads were paid via “the average of the net operating income for the three years between June 30, 1914, and June 10, 1917.” Unfortunately for the railroads, those particular years had been especially difficult for the industry.
Under the USRA, competition was essentially eliminated and the nearly 260,000-mile network of railroad track was operated as a single entity.
Numerous changes and new equipment
The railroads were divided into three divisions – East, West and South. Uniform passenger ticketing was begun, while more than 250 duplicative passenger trains on different railroads were eliminated from eastern railroads. To further discourage civilian travel, sleeping car services were reduced and extra fares were applied to them to discourage their use.
The inventory of railroad rolling stock under USRA control was 61,000 locomotives, 2.25 million freight cars and 58,000 passenger cars. In a positive long-term move for the railroads, the federal government spent $380 million on over 100,000 new railroad cars and 1,930 steam-powered locomotives. USRA-mandated standard designs were used for the new locomotives and railcars.
On March 21, 1918, the Railway Administration Act became law, and Wilson’s 1917 nationalization order was affirmed. The law guaranteed the return of the railroads to their former owners within 21 months of a peace treaty. It also guaranteed that the seized properties would be returned in at least as good a condition as when they were taken. It also guaranteed compensation for the use of the assets at the average operational income of the railroads in the three years previous to nationalization.
Among other actions, the USRA raised rates for passenger and freight traffic in 1918. It also increased wages for railway employees. When the Armistice was signed on November 11, 1918, McAdoo resigned. Walker Hines became the Director General of USRA.
The railways remained under federal control until March 1920. The USRA has been heavily criticized for its stringent methods; profits and general maintenance were ignored in an effort to keep the trains rolling. The USRA’s measures severely strained track and equipment, and by war’s end many railroads were completely worn out.
However, the agency did oversee improvements in the area of standardization, particularly with locomotives and rolling stock. Prior to USRA control, railroads had only standardized when required in such areas as track gauge, coupling and brakes (automatic air brake system).
Moving back to private ownership
The railroad labor unions advocated for the continuation of the railroads’ nationalization. However, neither President Wilson nor the general public supported this position. The U.S. Senate did not ratify the Treaty of Versailles ending the war in 1919; this would have been the legal basis to return the railroads to private ownership under the Railway Administration Act. Therefore, separate legislation was written to legalize the railroads’ return to private ownership.
Congress passed the Railroad Transportation Act in February 1920. This legislation substantially increased the ICC’s powers over the railroads, while the USRA’s authority over the railroads ended on March 1, 1920. Unfortunately for the railroads, the ICC was authorized to approve or reject railroad mergers, to set rates and to approve or reject railroads’ abandonment of service or track. In addition, the law established collective bargaining systems for the railroads and their unions. On the positive side for railroads, the government also made financial guarantees to the railroads to ensure their financial survival after the restoration of control.
This action allowed more freight trains to use the crowded tracks. Trains hauling coal were given priority, which reduced locomotive fuel shortages. The USRA ordered empty box cars to be sent to the nation’s wheat-producing areas; this action improved the flow of food to European allies. In addition, USRA pooled all rolling stock, terminals, port facilities and repair shops to reduce congestion in Chicago and New York City.
During the time that the railroads were controlled by the USRA more than 100,000 railcars and nearly 2,000 locomotives were built using standardized designs. Overall, an estimated $1 billion was invested by the government in transportation systems.
The USRA’s standardization efforts benefited the industry in the long run. Stover highlighted that between 1921 and 1940 the railroad industry incurred a 17% increase in freight car capacity, a 50% increase in serviceable freight cars, a 30% increase in ton miles, and a 45% increase in train speeds. Moreover, these achievements occurred while requiring 31% less coal per 1,000 tons of freight handled.
Put simply, USRA actions taken during World War I helped prevent a federal takeover of the railroads during World War II.
Author’s note: This article would not have been possible without the resources made available by Adam Burns of American-Rails.com. Those interested in learning more about the railroads operating now in North America – and those that are now “fallen flags” – should explore the American-Rails site.