I look around at contemporary railroads today and see literally hundreds of stored diesels. If they're stored, they're not earning money.
Several Frisco 4500 class 4-8-4s sat for a long time with trust plates on them. They were less than 10 years old.

About twenty years ago, I started looking for what I thought would plentiful objective, intricately detailed financial analyses of the merits of diesel vs. steam.

I have a copy of the Kiefer study done by the NYC was the closest thing to what I had in mind but its objectivity has been questioned. I think initially most of the time, diesels solved particular problems. Examples: better economy in yard operations and how EMD ended the need for water in the desert for the ATSF. The CNJ was able to abandon Penobscot yard (where 425 left from the other day) and the Ashley Planes that fed it. I think after a while, it just became obvious that diesels had only one disadvantage initial cost, but had advantages that no steam engine could meet. In some ways the two forms of power defy comparison-it's like comparing film and digital photography. Film has advantages, but the advantages of digital outweigh film. Ask Eastman Kodak (EK) once a chip so blue it was indigo, that became traded on the pink sheets because it couldn't comprehend the threat of "disruptive innovation".

With regard to the question of depreciation and ownership, I haven't looked into whether equipment trust certificates (I should but) meant that the certificate owner owned the locomotive or merely had an exclusive claim on the locomotive. Either way, I assume there was some tax or regulatory incentive for their use, because it really doesn't make sense to have a claim on something that you can't repossess and then sell or lease to others. Remember steam was an incredibly special purpose animal, often not built just for one railroad, but on grade on one division of one railroad. The Erie Triplex's come to mind.

Depreciation, while necessary to provide for what we call the "matching principle"-that matches actual economic expense by recognizing the cost over the time of the useful life of the asset, rather than just when purchased isn't terribly useful as a decision making barometer. Instead "opportunity cost" is useful.

Let's assume a very simplified hypothetical example. It's the early 1950's. Let's assume that the Dead Horse Gulch and Western Railroad owns a fleet of steam locomotives that they own outright. The initial cost was $5 M and they are collectively depreciated $3M, meaning the "book value" is $2M. Let's assume operating costs are $2.5M/annually and the salvage value is $500K

If EMD or Alco made a pitch to sell a fleet of GP-7's or RS-3's that had an initial cost of $15M with annual operating costs of $1M over 10 years, and they will have a residual sale value of $1M in 15 years.


The calculation would be:

Initial Cost: $14.5M ($15M less $500K for steam scrap value)
Savings-Years 1-15 $1.5M annually
Sale of Units Year 15: $1M

Whether or not this makes economic sense depends on the relevant cost of capital. Excel says as long as the cost of capital is less than 6.5%, there's a "positive net present value" for this set of hypothetical cash flows.

You will note neither the acquisition cost of steam, its accumulated depreciation or book value are included in my calculation-because they are historic "sunk" costs. Managerial accounting and finance courses spend a good deal of time disabusing students of the often reflexive instinct to include them as factors in these sorts of decisions-the ones that don't grasp it tend to need to find another major.

I read somewhere that when Cecil Major assumed the Presidency of the Lehigh Valley, he said something about getting rid of every last steam locomotive as a primary objective-and that's exactly what happened. In 1948, the last steam passenger train ran, and by 1951, the last fire was put out, a lowly, obsolescent 2-10-2 drag engine. There was an aerial shot of Wyomings in a deadline @ Sayre, not even ten years old.

Ironically, counterfactually hanging on steam, when there was a diesel alternative would have been the bigger waste, our peculiar affinity for the iron horse not withstanding.

What's your opinion of the Brown study from 1961?

There are, I think, 'waves' of scrapping. The tipping point seems to be sometime between 1946 and 1947, with an example being the direct steam turbine of the PRR S2 type. Recdrds at the Hagley indicate this was being promoted actively well past the time of the initial staybolt fiesta... then, suddenly, all they heard about were problems, and the engine was taken out of service. (I was there only to research the V1, but a historian could probably extract a more precise time and back it up with company decision dates...)

Meanwhile, we have Westinghouse brochures as late as 1948 that some a (somewhat crudely redacted in their picture) 4-8-4 version of the turbine locomotive. Which would have had the two-speed planetary transmission with inherent reverse that solved many of the operational issues. Went precisely the way of Col. Townsend's 4-8-6.

Contemporary sources indicate the principal factor, as perceived at the time, was the postwar boom requiring labor. It simply made no sense to go through a long British-style apprenticeship program to learn how to do hard work in a dirty environment for relative pennies... let alone spend 20-30 years working yourself up to that point.

The mighty New York Central, somewhat illustratively, made a big point of their "Dieseliner" passenger service. This from the railroad whose own motive power survey compared a Niagara to E7s and found steam still had a place, albeit only in fast, confirmed, repetitive service like heavy passenger trains over long distances. Note that we never saw the 64T tender for the C1a ever applied to a Niagara; by the time it was appreciated that a 4-8-4 might have the water rate of a 4-4-4-4 and promise Harmon-Chicago on one bunker... the E8 had replaced the E7 and all bets were off.

The second great 'whack' was said to be the remarkable ease of accessing capital in the wake of wartime profitability. That certainly facilitated the early adoption of sensitive, fragile, high-priced first-generation diesels in place of even advanced steam. We note that one of PRR's observations in its initial F-unit testing was that the locomotives could run across several divisions on one tank of fuel... while the large PRR steam power had the need of stopping for a refill at far shorter intervals, and 'scooping water' works poorly with the requisite water treatment for expensively-cared-for high-pressure boilers.

I am firmly convinced that much of the woe concerning the PRR T1s was tantamount to conspiracy to get out of the enormous stranded liability in their equipment trust(s). By 1948 there was a fairly comprehensive laundry list of fixes needed to let the engines achieve their potential... flawed as it might have been. Instead, you see a scramble to dieselize so great that it involved buying dubious product because it could be made available in time...

The second big factor was the Korean War, and its demand for scrap steel. This went hand-in-hand with the point made above about all the support infrastructure even small steam required... once you had scrapped off all the 'kettles', maintaining the big steam was less and less sensible, especially when locomotives were assembled out of 'units' that were rightsized for local and branch services. PRR didn't buy all that many RS3s, but they sure did buy Geeps (and Baldwin lost out on a similarly enormous contract for comparable engines, which I believe was a stated factor in their departure from domestic locomotive building).

The later wave of die-offs occured more or less contemporarily with the development of second-generation locomotives of higher horsepower. It is difficult to imagine N&W dieselizing everything with Geeps -- Redbirds aside -- and this may well be a factor in Saunders' infamous decision.

Accompanying all this was the mentioned dieoff in supply of the many, many complicated and specialized components that made big steam practical at all. It's instructive to follow the corporate history of companies like American Arch, and watch them either vote to shut down and dissolve or go into other lines of business. Usually, and irritatingly, being 'dog in the manger' about patent protection for the things they no longer made. That alone would be a death sentence for anyone not a preservation organization that had to maimtain big power in an uncertain financial world with traffic upturns and downturns, but outsixed needs to service and store power. (There was an article in Trains in the early '50s that noted corrosion ate through the entire thickness of boiler plate on stored Q2s in about a year... this might well have been facilitated by the sort of atmosphere that produced Donora, and might well be 'helped along' some to get out of the aforementioned equipment-trust pickle (as the Qs were wartime engines, perfect at moving heavy wartime consists on expedited schedules, but had little place on a 50mph freight service...)

Just remember this about the diesel service needed between runs. It was this simple check the oil and water fill both if needed refill the fuel tank and sand and then clean and resupply the cab if needed. For a steam engine it was refill the tender then take it into the roundhouse normally to check for leaks after dumping the ashes if coal fired if it was required by time dump the fire and cool it down to do the monthly boiler washout. Then refill the sand and get it back on the ready track. The labor savings for diesels in terms of labor costs when it came to maintaining them were huge let alone the productivity gains from them. It was like having 2 engines for each one basically in terms of usage per month. Labor costs on crews were lower also no more double heading trains if the train was too heavy for the engine add another to get the power needed but no extra crew needed.

I worked in a Burlington diesel shop for 13 years. There is more to it than that: Oil and water are called "tops". Crater and brake shoes are called "bottoms". In a given consist, usually you will spot for these separately, then respot if necessary. Fuel and sand may also require respots. This just covers your 203, or daily inspections. Any motors requiring monthly, semiannual, or annual inspections need to be cut out of consist and switched into the house. Maybe these motors will be inspected and cut back into consist, maybe they will be replaced with another, maybe the consist will be broken up, maybe a new consist will be made up, depending on traffic requirements, which on a busy RR are determined by "power control". Engines due for longer term inspections have to be switched out or into consists as required to get them back to their home shop before that inspection is due. Then, bad orders must be cut out/repaired/replaced, depending on what you have ON HAND, and what is CALLED. Any outbound consist must be air tested and setup properly for MU operation, and the same any time a unit is either added or cut out. Besides freight and coal power, we also had local jobs, switch engines, and pushers. Yes, PUSHERS. This business about "eliminating doubleheading" is not what it's cracked up to be, either. The different crafts, electricians, machinists, pipefitters, cab carpenters, and laborers all work under individual blue flag protection, which must be checked for the entire consist before moving anything for any reason. Doing these operations for a large number of different power requirements can get pretty involved, with plenty of different things going on at once, and dodging the actual traffic which will in most cases take place all around the shop, depending on the track layout of a given terminal.

In conclusion, I'll just say with all due respect that it's not as simple as the previous post said it was. Just finding all the stuff to resupply the cab can take way longer than it should in a big roundhouse, and don't forget a radio check on the controlling cab, plus any trailing cab which might be needed for reverse moves, and on any locomotive which may need to be set out at outlying terminals. I could go on, but you should be getting the idea by now.

Well, as an EK alumni who hired on at EK way back in 1981 and latter left for "greener pastures" I think your "observation" is greatly over simplified.

Way back in 1978 or so some folks at EK demonstrated a "digital camera". That work was done by a Mr. Steve Sasson, I had the pleasure to work with him personally.

Many folks at high management levels at EK KNEW that film would be replaced by disruptive technologies some time in the future.

It was not an unexpected surprise inside EK management that digital imaging would some day surpass film.

The problem was that film was so obscenely profitable (after all your capital expenditures where behind you) that no one could figure out how to make any "big money" off of "digital imaging".

Once you buy a digital camera every "pixel" is free... With film the camera is "free" and every pixel costs $0.01 in chemicals...

Very Easy to look back and throw stones at those "Stupid Kodak People", but first consider that they (George Eastman) created (from scratch) a business model that lasted for a century...

Alco and Baldwin Locomotive did not last very much longer... The Current "Leaders of the Pack" like Microsoft, Intel, Google, Amazon, etc have barely reached 50 years.

As an aside, "way back when" (late 1970's) Intel was a small startup company. With limited capital they had problems scaling up their production volumes of microprocessors. Eastman Kodak ( of all stupid people ) recognized the value of microprocessors (EK was using lots of them in photocopiers) and invested EK Dollars into Intel... Without those investments Intel may have gone "belly up" back in the 1970's.

Once all you "Extra Smart" folks create a business with a global footprint and keep it profitable for a century I might take your "wisdom" seriously...

It's been a long time since I read it in depth, but my reaction when I did was along the lines of FDR said to Frances Perkins upon meeting the British economist John Maynard Keynes:

"I saw your friend Keynes. He left a whole rigmarole of figures. He must be a mathematician rather than a political economist.”

In all seriousness, I could go over it point by point, but it's at times, impressive but irrelevant. In some cases, the data and inferences are glaringly incoherent. For example, on page 271, he concedes that the four plus fold thermal efficiency of diesels produces an advantage in fuel costs, but then claims on page 272 "There can be no question that the diesel is saving almost the entire cost of water." (as if that doesn't matter)

The multivariate graphs are difficult to follow and don't always clearly support his thesis, summarized at the end as follows:

"This study simply states that the all-embracing economies claimed for diesel motive power on the class I railways of the United States, as a whole, do not appear in the statistical record."

On one hand, he's correct that over the decades in question, multiple factors affected railroad operating results, and imputing improved results (although he doesn't explicitly state this) solely to the widespread replacement of steam by diesel is a logical error (ceteris paribus). I think he had a valid concern about the true economic life of those early diesels as well.

On the other hand he takes this fact and makes no effort to quantify the effects of changes in operating practices he assumes to have played such a significant role in improved results, so to assume that they are a significant, if not the major factor isn't supported by quantitative data or inference. Whether that's due to oversight, infeasibility or impossibility, I don't know.

I'm also confused by the inclusion of decades old data included that was already unreliable and irrelevant by the beginning of the early 1950's when railroads were cutting the AFE's for EMD and ALCO.

His references to depreciation are an example of not understanding its limited use in managerial accounting that I mentioned in my previous post.

With regard to his assertion about rates of return, even if EMD (in particular) locomotives were sold with all of the worst techniques learned selling cars, the fact is they would not have continued to sell, if early adopters went to AAR or other industry gatherings and the executives said "stay away". We know that these sorts of conversations occurred because, for example, The Union Pacific never took delivery of Baldwin Centipedes after hearing of the Pennsy's experience. I have a paint diagram for the never acquired UPRR Centipedes.

Thank you. I particularly value your insight because of your distinctive competence in these matters.

I think I touched a hypersensitive nerve.

Your emotional nostalgia and reflexive indignity aside, I didn't say EK was stupid. I said it couldn't comprehend the threat of digital. In actuality, many long established industries fail to perceive epistemic threats from nascent, emerging technologies. No glorious history, no investments in Intel can change the fact that KODK isn't EK, but it's always on shaky ground.

Kodak did almost exactly what Baldwin did-it thought the emergent technology was a niche product, destined to limited use-and a threat to its existing products not to be embraced, lest it cannibalize the existing product lines.

https://web.archive.org/web/20120315132 ... ys-1.42251


Of course there's always excuses.

"I do think it's often overly simplified" to say that Kodak's troubles are the result of it missing the digital boat, says John Ward, a former director of new product development at Kodak, who left the company in 2005 after more than 20 years and is now a lecturer at Rochester Institute of Technology's Saunders College of Business. "The digital business was not going to be nearly as profitable as the film business in any respect. The film and chemical business was one of the all-time great business models. A lot of the change was going to come whether Kodak aggressively embraced digital business or not."

https://abcnews.go.com/Technology/eastm ... d=15141343

He's right, there were more issues as the incident with the late Rolf Szabo illustrated.


Quite ironically, you echo their error.

"As for this The problem was that film was so obscenely profitable (after all your capital expenditures where behind you) that no one could figure out how to make any "big money" off of "digital imaging".

Once you buy a digital camera every "pixel" is free... With film the camera is "free" and every pixel costs $0.01 in chemicals..."

First, if you aren't periodically renewing your capital assets, you are liquidating the company. Second the key word about obscenely profitable is "was'.

And while "pixels" are free, storage media is not. Millions of cards of ever increasing speed and capacity have been sold since then.

The facts speak for themselves; EK failed. Sorry.

I aim to be useful, it's good to know I hit the target once in a while thanks.

BTW, your analysis about 'waves" was astute, as well.

One subject not mentioned in all of this was the impact on track maintenance. I once read (somewhere?) that N&W calculated that they would save enough on maintenance costs to buy the Virginian. A big part of those savings would be on track since diesels are much easier on track than steam, but probably also includes the costs of maintaining the locomotives themselves. Wish I could find that article again!

You are quite mistaken, EK FULLY understood the threat of digital imaging.

There where internal studies that predicted when film would be replaced by digital.

In the 1980's they thought it would disappear by maybe 2020.

The history of EK and it's eventual bankruptcy is quite a bit more complicated than you make out.

They fully understood that digital imaging would replace film imaging, no doubt about that at all.

The question was how do you transition from a product with obscene profit margins to a product with razor thin profits. The answer is "you can't easily do that when you have an existing business / facilities / debt obligations / etc".

Perhaps if EK sold all the specialized buildings (including an in plant railroad and dedicated electrical power plants) and put up "digital camera" factories then maybe the onslaught of cheap digital cameras would have hurt the bottom line less. Doubtful. Also EK did introduce a line of consumer oriented digital camera's circa 2005.

Or the shareholders might have screamed bloody murder for EK management killing a profitable business model before it's time. Dang shareholders, so pesky, they refused to commit suicide before the business model died from old age.

Also the transition from storing pixels in silver molecules to digital storage was not lost on EK, they had a project to "write" digital data onto optical discs.

Alas and alack if only the Board of Directors at Eastman Kodak back in the 1980's had the foresight to hire you then 100,000 EK employees and millions of share holders would have benefited from your brilliance... Your hindsight is deeply valued by all the Brilliant and Hardworking Folks I had the pleasure of working with at EK (not).....

Aren't you the fellow that knows exactly how the Non Profit NPS Steamtown operation "should be run"... Easy to criticize others with skin in the game when you are spending Other Peoples Money...

"In the 1980's they thought it would disappear by maybe 2020."

Thanks for telling us the nature of the failure to understand the disruptive technology.

Again, read my posts slowly.....

Eastman Kodak FULLY UNDERSTOOD the disruptive nature of digital imaging......

The thing you neglect to consider is that EK already had an obligation to make the most profits possible for the shareholders....

If in 1990 (without your clear benefit of miraculous hindsight) the management of EK declared they where going to tear down all of the film factory and pour all of the profits of the company into a brand new "Mega Digital Camera Factory" they would have been sacked.

They would have left billions of dollars in profits "on the table".

Very convenient to second guess things decades after the fact....

I was there and saw the results of the decisions made, I doubt you could have done any better.

Interestingly, E.K.Co. resumed production of Ektachrome slide film ASA 100 only. Fuji had never stopped.

So I there are still $$ to be made. Now to find a good E-6 lab.

Phil Mulligan