Penn Central Transportation Company

The Penn Central was created as a response to challenges faced by all three railroads in the late 1960s. The Northeast United States is the most densely populated region of the U.S. While railroads elsewhere in North America drew a sizable percentage of revenues from the long-distance shipment of commodities such as coal, lumber, paper and iron ore, northeastern railroads traditionally depended on a more heterogeneous mix of services, including:

• commuter rail/passenger rail service
• Railway Express Agency freight service
• Break-bulk freight service via boxcars
• Consumer goods and perishables (produce and dairy products)

These labor-intensive, short-haul services were vulnerable to competition from automobiles, buses, and trucks, particularly where facilitated by four-lane highways. In 1956, the U.S. Congress passed the Federal-Aid Highway Act of 1956. This law authorized construction of the Interstate Highway System, which provided an economic boost to the trucking industry.

Another problem was the inability to respond to market conditions. At the time, U.S. railroads were regulated by the Interstate Commerce Commission (ICC), which did not allow railroads to change rates it charged both shippers and passengers. Reducing costs was the only way to survive and become profitable, but the ICC restricted what cost-cutting could take place. A merger seemed to be a promising way out of a difficult situation.

The Pennsylvania Railroad (PRR) and New York Central Railroad (NYC) had been significant rivals for most of the 20th century. Both railroads had physical plant not being utilized to capacity (though the NYC was in better shape); both had a heavy passenger business; neither was earning much money. Talks of a merger had been announced as early as 1957. The initial reaction in the industry was utter surprise. Every merger proposal for decades had tried to balance the two giant railroads against each other and create two, three, or four more-or-less equal systems in the east. Traditionally, the PRR had been allied with the Norfolk & Western (N&W) and Wabash railroads; the NYC with the Baltimore & Ohio (B&O), Reading (RDG) and Delaware, Lackawanna & Western (DL&W) railroads. Any remaining players were swept up with the Erie Railroad and the Nickel Plate.^[2] In addition, tradition favored end-to-end mergers rather than those of parallel railroads.

Planning and justifying the merger took nearly a decade, during which time the eastern railroad scene changed dramatically, in large measure because of the impending merger of the NYC and PRR. The Erie merged with the DL&W to create the Erie Lackawanna Railway (EL) in 1960, the Chesapeake & Ohio Railway (C&O) acquired control of the B&O, and the N&W took in several railroads, including the Nickel Plate and Wabash.