* Brent Glass

** Thomas Hoback

 

BG*: We’re at the home of Tom Hoback, and it’s wonderful to be here in Indianapolis. I just want to talk a little bit about your growing up in Peoria and whether there was anything in your childhood that got you interested in trains.

TH*: Well, that’s a great way to lead off. My dad spent his whole career in the railroad business. So, when I grew up, we had a home that was half-way between Peoria and Chillicothe. On one side we had the Rock Island Railroad main line to Peoria, and on the other side was the Illinois River with the barges. I got exposed to a lot of transportation at an early age. When Dad was home from work, he would take me out to wave at the engineers of the Rock Island trains going by, which was always a big thrill. My dad worked with Santa Fe, which was a major transcontinental railroad based in Chicago. He was a train dispatcher for them and controlled train movements between Chicago and Kansas City, essentially. On weekends when he was off, often he would take me up to the office. We’d go out and watch the railroad operations and see what he did as a dispatcher to control train movements.

It was pretty cool growing up as a kid because I was surrounded by trains. I had a dad that loved the industry, and one of the things I like to tell people about my dad is not only was he a really important influence on me, but he looked at railroads as transportation, as a business. He didn’t look at them aesthetically. What I mean by that is, he liked and appreciated steam locomotives, he liked passenger trains (we rode a lot of passenger trains when I was growing up), but did he miss them? He did not. Diesels were more efficient.

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Freight trains were a lot easier to handle than passenger trains. That’s where the money was made and so, he always looked at the railroads from a business side; but he really did love the business.
We were able to take a lot of travels all over the country. He had a railroad pass, so we would go out to Arizona or California just about every year on the train for family vacation. By the time I got to college, I’d already ridden close to a hundred thousand miles on the Santa Fe using my railroad pass, which was really, pretty cool.

BG: What memories stand out? Any childhood memories of a train adventure that influenced you or that you just like to remember?

TH: A couple of things. One is that we lived, as I told you, earlier in my life, in a house that was next to the Rock Island main line going to Peoria. There was a highway that paralleled it from Chillicothe. It was about ten miles away, and I remember one night we were coming back from eating out, and there was a steam-powered freight train going through town. I probably wasn’t even in first grade yet, but I remember Dad paced that steam locomotive, and you could watch the fireman shoveling the coal in the firebox. You could see the orange glow, that fire, every time the firebox door would open -- and it was magical. It was just, magical!

Then about twenty years later or so, when I was in college, we had a similar experience with a diesel-powered train. Of course, there wasn’t any firebox, but it still reminded me of that time twenty or so years before, when we’d seen the steam engine out there.

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One thing about my high school graduation -- by this time we were living in Southeastern Iowa. Dad was Chief Dispatcher for the Santa Fe in Fort Madison, Iowa. What we did for my high school graduation was that my dad took me on a special trip on the Rio Grande narrow gauge from Alamosa, Colorado, over to Durango, which was 200 miles. Then we took a side trip up to Silverton and back to Alamosa. I missed my high school graduation. I was the only student out of 239 people to miss my graduation, and I never looked back. It was a great experience to be on the train, but those are the kinds of things that Dad and I did. It was a great way to learn a lot about the business because he knew a lot about it, and he knew a lot of people, and it was always interesting to meet other people that were involved in the business.

BG: Well, what was his name?

TH: My dad?

BG: Yea.

TH: Glenn. G-L-E-N-N. Glenn Hoback.

BG: You know, sometimes I think kids rebel against what their parents are doing, and they say, “I’m never gonna wanna do that”. But you didn’t have that experience.

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TH: No.

BG: Did you always know you’d want to follow his career?

TH: Yes.

BG: “This is the career”?

TH: Yea. One thing about Dad is that most people, at least in that era, really liked passenger trains. Santa Fe ran lots of passenger trains. They were high-quality trains right up until the time of Amtrak, but what I really enjoyed were the freight trains. Dad knew where the freight was coming from and where it was going to, the types of freight in different cars, the perishables coming out of the Salt River Valley or the San Joaquim Valley going to markets in Chicago or New York City or New Jersey. Those were the things that really turned me on in railroading because what it taught me was that railroads move everything, and they tie everything together. They really do. They still do.

BG: They still do. I marvel still. I often stay in Harrisburg, Pennsylvania, visiting family, and where I stay is right on Susquehanna River. There’s a freight line, and I just see back and forth all day long. It’s just fascinating to see the double-stacked sometimes, and everything that’s going and trying to guess what’s in some of the cars…it’s amazing.

TH: It is amazing. It’s always been a turn-on to me.

BG: So, you missed your high school graduation, but where’d you go from there?

TH: I went to Golden Gate University in San Francisco. It’s a small, private school, but I had looked around for schools that would allow me to major in transportation, and they had a great transportation program. They also had a really strong economics program, so I had a minor in economics. It was a great way to meet a lot of people from the industry because San Francisco was, and is, such a transportation hub.

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After I graduated I had worked for an international food products company in distribution and did that for about two years. I was fortunate enough to get hired by the Western Pacific to become an economic analyst for them. So, I was an economic analyst for WP. I started there right after Howard Newman became chairman and his family had -- he was a New York investor -- just acquired control of the Western Pacific. He’d brought Al Pearlman in, who had been with New York Central.

Al Pearlman was a very experienced and wise railroad executive even at a time where there weren’t very many good or bright leaders in the railroad industry, right? He came into the WP and brought in his own people from New York Central: Mike Flannery, who subsequently went on to become the president of the Union Pacific, and others…Harry Bruce, who became chairman of Illinois Central, who I subsequently worked for; a number of other really bright people.

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What Mr. Pearlman did that I think he should get a lot of credit for is, not only did he turn the operating department around, but he put a lot of money into marketing. Before he came in, everything was a traffic department. It was quoting rates. It was “guys in the green eye shades”. (I don’t mean that to sound sexist, but I mean, that’s just kind of the way it was.) He brought in some really bright marketing people and, at that point, I was fortunate enough to get into the marketing department from economics, and I never looked back.

I was involved in developing new business for the Western Pacific. I did that for about five or six years – a little over five years. It was a great experience for a young person right out of college because they gave me a lot of latitude. I didn’t, fortunately, make too many mistakes, so I did get a series of promotions in a short amount of time there. I took on more responsibility, but I loved it! It was such a turn-on to go out and find new business opportunities, and I remember that on weekends I would go out riding freight trains. It wasn’t long before there was a significant amount of freight out there that I had some part in putting on the railroad.

BG: Were you still living in San Francisco?

TH: Yes.

BG: Yea, and that’s such a great city. Not to digress but, did you have much contact with the army base there at the Presidio? Golden Gate University is not far from there, I know.

TH: It’s right downtown. Actually, it was next door to the Western Pacific general offices at 536 Mission Street, and it was 526 Mission Street. There were a couple transportation organizations that I was involved with, and every now and then, we would have an event out at the Presidio. So, I had also interacted with some of the Army Corp of Engineers that were involved with logistics for the military.

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BG: They had quite a railroad connection.

TH: They did. Yes, yes.

BG: They also had a great golf course that the army….one of the main reasons the army wouldn’t give up that base for a long time was the officers loved that golf course so much. Now it’s a part of the national park system. It’s quite impressive.

TH: Right, right. They did quite a nice job with that, and the nice thing is that it’s right there overlooking San Francisco Bay. It’s just a stunning view from there.

BG: Yea, it really is. So how long were you in San Francisco?

TH: I lived there 12 years, and then in late 1977, there was an entrepreneur that had been involved with starting some of the short lines. The part that I never told you earlier is that I’d always had a desire to start my own railroad; do something on my own nickel. I thought ---- at that time, the railroads were heavily regulated. They were heavily unionized, and they just had a lot of baggage. I thought, if you could start a railroad on your own nickel and do something with a clean sheet of paper -- start without all of the other baggage -- that you could do pretty well if you ran it like a business instead of like an oligopoly, which most railroads were and, some would say, they continue to be. This fellow named Craig Rose had started a couple little railroads, including the Columbus in Greenville and Mississippi, which was a spinoff. He was able to lease the western-most part of the Erie Lackawanna main line from Chicago down to Huntington, Indiana, almost to Lima, Ohio. The railroad was in excellent physical condition and did not have very much online traffic, but there were several pockets of traffic that were going to be left without rail service if that railroad was abandoned.

We got this lease in place, and under one of the federal acts in the late 1970’s, these essential lines -- "designated operators” they were called -- were able to get leases that were administered by the State Department of Transportation with a federal subsidy. In about two years we did amazing things with that railroad in terms of developing new business. The online business was primarily grain products, but we also moved set-up fireplaces that were made in Huntington, Indiana, by a subsidiary of The American Standard, the company that makes all the bathroom fixtures, that kind of thing.

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We started to move in with boxcars going out to Southern California, big business for us, and then I found…In the days when there was a big company, a retailer called K-Mart, they had a huge warehouse near Huntington where they brought in all their shoes from overseas. They had all been trucked in. We started our own intermodal service from Chicago and connected with the rest of the western railroads, including Santa Fe.

We were handling thousands of containers almost overnight, conversion containers from the West Coast. Then we found loads from companies like International Harvester in Fort Wayne going back toward the West Coast, so we were able to back-haul most of those. We were able to make a good connection with the Santa Fe at Joliet, and it was a great deal.

There were several problems, but the main problem was the federal subsidy program was going to run out. The Erie Lackawanna trustees that owned the underlying real estate wanted to get the salvage value out of that track. In 1979, the average value was around seventy-seven thousand dollars per track rail. The rail was in very good condition. The Erie had just laid that a few years before their bankruptcy, and there was no way in the world we were going to be able to get a bank loan to finance that.

What ended up happening was the railroad was re-organized, since I was the president, and we found short-line operators to pick up a couple of the pieces of the railroad. The Norfolk Southern took over part of it, in and around where there was a lot of traffic, and most of it was abandoned.

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In that time period, it was ironic that the fellow who had been the marketing vice president at Western Pacific (who I had worked for in my time in San Francisco) had become the senior vice president of marketing for the Illinois Central Gulf in Chicago. He found out that I was out of a job, and he took pity on me, and so he asked to go --

BG: Now, I’m sorry, so you said you were out of a job because…?

TH: Well, the railroad was…I had essentially put the railroad out of business.

BG: I see.

TH: I just basically liquidated the remaining assets of the railroad after we found other railroad operators.

BG: Which railroad operator was this?

TH: I’m sorry, it’s called the Erie Western.

BG: -- but it was a part of the Erie Lackawanna? Or was it --

TH: Yea, it was a successor to the Erie Lackawanna in Indiana.

BG: Okay, I want to make sure we connect the dots there. By selling off the assets, you essentially liquidated off the line.

TH: That’s right. So, it had a very short life, but it was a great experience for me. Then Harry Bruce had gone to the Illinois Central while I was in Indiana, and he became their Senior Vice President of Marketing. He had asked me to become the head of their whole marketing department, and at the time, coal was the single most important commodity for Illinois Central Gulf. At the time, they were moving about 33 million tons of coal, most of which came from Illinois mines or mines from Indiana or Kentucky.

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This is where it really gets interesting to me, because about the time I had moved to Indiana – 1977 -- the Illinois Central (before I had anything to do with it) had tried to abandon its line into Indianapolis. I thought -- and I’d never been to Indianapolis when I read this -- it was odd that here you have a large railroad that’s abandoning its line into Indianapolis. At the time, Indianapolis was the tenth largest city in the country and a HUGE manufacturing distribution center, which it still is. I thought, “This just doesn’t seem right. Why would they want to abandon this line?”

BG: Why did they?

TH: The line was in terrible physical condition. The ICG was a product of the 1972 merger of Illinois Central and the Gulf Mobile in Ohio, neither of which were really strong carriers. Together they had about ten thousand miles of track running, essentially, between the Great Lakes and the Gulf of Mexico with three redundant lines through Mississippi and a couple of redundant lines through Illinois. They had a lot of excess capacity, and they didn’t

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have the resources to maintain everything. Indianapolis was just a branch line that they didn’t have much business on. They under-invested in it, and they ended up trying to abandon it.

The event that triggered the abandonment, though, was the Federal Railroad Administration (which oversees track maintenance and railroad safety) got called in because Illinois Central had so many derailments on the line into Indianapolis. It wasn’t just a safety hazard, it was really dangerous, and almost every month they had unit trains of coal or grain that would derail. There was a LOT of property damage. The FRA embargoed the line between Morgantown and Bloomington -- about thirty miles -- and the railroad was out of service for a year and a half.

The Illinois Central didn’t have enough money to fix the track, and all of the traffic that was going to go to Indianapolis from Southern Illinois had to be re-routed on another line coming into Indianapolis, and the Illinois Central had to pay for that. It cost them a couple million dollars to pay other railroads to handle this traffic because, as a common carrier, they just couldn’t say “No, we’re not going to do that anymore”. They were obligated to do that under federal law.

So, I talked to the Illinois Central about buying the line, and they were willing to talk to me, but what happened was they ended up getting a federal grant of about $3 million that allowed them to put some new ties into the railroad. They put the railroad back in service, but it became obvious in the early ‘70’s that the Illinois Central was going to have to sell off or abandon large sections of its railroad to survive.

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I talked to management there about buying the line into Indianapolis. So, I came to a handshake agreement with Harry Bruce, who said, “You know, if you can get the financing, we’ll go ahead and sell the line to you”. And to his credit, even though there were a couple of other buyers that came in subsequent to that and offered more money, Harry was willing to stay with me on that. We got the financing put together in late ’85, and March of ’86 was when Indiana Rail Road started. It was just kind of coincidental how all that just came together; having a partner like Mr. Bruce that was good to his word. It turned out really well for us.

BG: You had known him back in your San Francisco days?

TH: Yes. He had been Vice President of Marketing for Western Pacific.

BG: Who would be offering financing for something like this? Where would you go?

TH: Well, that’s a real good question. In the mid-1980’s, the railroads had just been de-regulated by the Stagger’s Act of 1980. There were a lot of failures, and around 1980, Rock Island and Milwaukee had both been liquidated. There were a lot of wholesale abandonments at railroad lines. The railroads had the problem that they just had too muchcapacity and not enough revenue to support all of the trackage they had. The railroads did not have a very good reputation in the financial community, especially small railroads.

It was really difficult to put financing together, but I found a guy in Chicago. I had a friend who was the vice president of real estate for Old Ben Coal Company, which was an affiliate of Stan Gruelle of Ohio. He introduced me to a man named Rich Lasar in Chicago who ran a Small Business Investment Company (an SBIC), and Rich was just an extraordinary guy. He was an older gentleman. He had a soft spot for railroads, but he really liked investing in bricks-and-mortar kinds of businesses, so a railroad was right up his alley. He brought in two venture capitalists, one from Indianapolis and one from Cedar Rapids, Iowa. The one in Cedar Rapids was R.W. Ulsa. They had also made a business for themselves investing in bricks-and-mortar kinds of businesses.

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Then CID, which was more of a tech innovator in Indianapolis, liked our deal and one of our big customers happened to be on their board. That customer was one of their investors, from Indianapolis Power and Light. So, between Rich Lasar, these two venture capital firms, and myself, we were able to get the equity together to go to banks and start getting debt financing.
We found Lincoln National Life in Fort Wayne and First Source Bank in South Bend. They were the two secured lenders. It was a difficult transaction to put together because it wasn’t a very large deal. It was $6 million-dollar financing -- which was all the money in the world to me, of course. Because we didn’t have a track record and because we needed so much capital to put back into track, we probably didn’t get the best interest rates that we might have. But going out seven, eight, or ten years, after a lot of small railroads like mine had really done well, all of a sudden, railroad financing was a hot ticket. It was not as difficult to go out and get financing then, as long as you had good cash flow, and your customers were stable. The world had turned in about a decade there.

BG: Was the Stagger’s Act one reason that that there was a more favorable environment for the…

TH: Indirectly, and the reason is, and that’s a really good question, the reason is…Let me give you an example. One of the things I did when I was at the Illinois Central Gulf was I signed a long-term take-or-pay contract with an electric utility to move coal for them from a mine in Illinois to an electric power plant in Indiana -- which is served by Indiana Rail Road, ironically. The contract was signed in 1980, and that was the first contract ever signed between a railroad and…anybody.

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The reason is that contracts were patently illegal under the Commerce Act. Under the Interstate Commerce Act, railroads had to treat everybody the same. So, if I give you a rate of a dollar and I give someone else a rate of two dollars, then they would say, “Well, that’s not fair”. It was all about fairness and equity, even though moving a million tons a year is so much more economical than moving five or 10 cars here, and five or 10 cars there, right?

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By allowing contracts and allowing railroads to price to the market, it drove the development of more and more unit trains, the unit train loading elevators. I mean, it changed the landscape of how, not only railroads did business, but how coal mines and utilities did business and how the agricultural side did business. Not only did it drive business to more efficient unit trains, but it gave the customers much lower pricing, too. It took a long time for the contracts to really take hold. What the Stagger’s Act did is, it allowed railroads to start rationalizing their asset base. They didn’t have to go through that long abandonment process that they did under the Interstate Commerce Act, and it made the railroads become more like professional managers.

This was also what led to the spinoff of a lot of railroad lines. The railroads were able to get railroads sold off and abandoned much easier without having to go through that labyrinth process that they had before. As a result, we were one of the first spinoffs.

But one of the things about Harry Bruce that I always admired, besides being one of the most brilliant railroad marketers I’ve ever been around, was that he was an extraordinary guy who was very visionary. I was really lucky to work for him, and he and I still stay in touch. I’m really proud of that, because he’s quite elderly now. I’ve got a lot of respect for him.

Anyway, in the late 1980s he had become Chairman of the Illinois Central Gulf. They were going to go private, and he told his board that he wanted to sell off or abandon two-thirds of the route structure. Railroads didn’t behave like that! They would carve off a line here, they would carve off a line there, but Harry was astute enough to know that if he didn’t do a serious rationalization of that railroad, it wasn’t going to survive. The railroad was weighed down by too much debt. It was weighed down by too many miles of light-density trackage.

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So, when he got finished with that process he had taken what had been a 9,000-mile system and carved it down to a 3,000-mile system: mainline from Chicago and St. Louis to Memphis, New Orleans, and Mobile; and a few branch lines. He really streamlined that railroad, and within a few years, it was getting the highest return on invested capital of any of the Class I railroads. That is what led to Canadian National acquiring Illinois Central and really merging it into CN, but it was a remarkable success story.

BG: Sounds like he, if he’s up to it, is someone we should interview and someone who really shaped the industry in many ways.

TH: Yes. Yes.

BG: These are names that are another biproduct of talking to you.

TH: [Showing Brent a book] This is his memoir. it was privately published, and he was good enough to give me a copy of that. If you’d be interested, he’s very difficult to get hold of and I don’t want to say he’s reclusive, but he’s very reclusive.

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BG: Where does he live now?

TH: Uh, he spends half his time in Chicago and half his time in Florida. But I could try to…

BG: Yea, that sounds great. He sounds like a fascinating individual.

TH: He is.

BG: I don’t think people automatically think of railroads as needing to market. It sounds like there was a generational gap between the people in your age group -- and maybe a little bit older -- and the much older group. But, without naming names, what was the difference in the approach, in the understanding of the industry that you saw that needed to take a new look at how to do business and what it was all about?

TH: Well, that is really an important question; it’s an extremely important question. I’ll tell you, even today, you’re probably familiar with the name Hunter Harrison, who has been brought in to run the CSX, Canadian Pacific, and the Canadian National. He’s very controversial, and he is all about operating efficiency; and though he says it’s about giving the customer better service, what it really is about is cutting expenses, making your operation very lean, not putting much money into IT or technological improvement. It’s about generating cash for your shareholders.

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I’m not making judgements here, I’m just saying that there has been a trend that Hunter Harrison started with CN that has driven all the railroads to look to get their operating ratios down as low as they can. As a result of that marketing, which was never a strong suit in the Class I railroads anyway -- and I’m speaking from experience here -- it’s gotten much worse. What we see in the railroad business are “order-takers”. They sit by their phones and computers. They’re ready to answer the phone, they’re ready to try to quote a rate, but they’re not out there marketing. They’re not out there looking for new business opportunities, and the railroads have been very fortunate in the last few years in that some huge pieces of business fell in their laps. “Crude by Rail” is one. The railroads didn’t do anything to get that. They were in the right place at the right time. So, it’s not only the unit trains of crude by railroads; it’s also the fracking sand and the pipe that comes in, the machinery that goes to the fields. That’s another example. Ethanol is an example of where it wasn’t really marketing. It was somebody answering the phone and being in the right place at the right time.

What I saw in the railroad business, when I was starting out, was the railroads generally were order-takers. They didn’t have marketing departments. They had what was called “traffic departments”. What they would do is they would quote rates out of tariffs. All the rates were controlled by the Interstate Commerce Commission. They had oversight over everything the railroads did. It was burdensome, and it was onerous, and here’s the problem it set up; the railroads were so risk-averse. They didn’t want to be challenged, they didn’t want to have their rates challenged before the ICC.

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The Southern Railway was one of the most advanced railroads in the ‘60s and ‘70s and had extraordinary leadership, but it was in a part of the country that didn’t have the labor problems that you did in, say, the Eastern states -- or even in the Chicago area. They were pretty innovative, and they tried to introduce these big, hundred-ton, covered hopper cars for grain. They thought that they could load 100 tons of grain to be more efficient. There were a number of entities that sued the Southern Railway before the Commerce Commission, saying “Oh my gosh, this isn’t fair! Small mom-and-pop elevators can’t load a car like this.” They could only load the older smaller cars, and many tracks couldn’t accommodate the larger cars because they were so heavy the rails would break. And, so the Southern Railways went through years of legal wrangling in order to get the opportunity to move larger volumes of grain. They were an exception.

Most of the railroads would send out sales people and, although there were some that were very good, there were some that were very hit or miss. The Western Pacific, for instance, competed for north-south traffic in the Pacific Northwest and Vancouver, BC, going to Southern California. There were three railroads on the route; it was the Great Northern, the Western Pacific, and then Santa Fe to Los Angeles. There’s a very important part of our business. It wasn’t as lucrative as the transcontinental business that would move from, say, Sacramento to San Francisco, to our connections in Salt Lake City-Ogden with the Rio Grande or the Union Pacific Railroad, but it was still important. North of San Francisco, our arch rival was Southern Pacific. They had 33 salespeople, and we had 3; and the fact that we were able to capture as much of that market with our sales people out in the field and some really creative marketers that we had in San Francisco -- it was really pretty extraordinary.

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What we did is we just went out, and we would drive around to different businesses and look at what was going on, either in their rail spurs or their truck docks, and we’d go in and just start asking questions. To the extent we could find any data commercially about their business, we would find that also; sometimes looking at annual reports, things like that. Of course, those were the days before the internet, and sometimes it’s hard to search out these things, but it was extremely rewarding to be able to go out and identify new business opportunities, match up customer needs with the equipment and the rates that they needed.

This was before Stagger’s Act even, and you had to get approval from the different rate committees. This is too arcane to really use up the limited time we’ve got here, but understand that the railroads at that point before Stagger’s had anti-trust immunity. So, basically, everybody charged the same rate for the movement. To get a rate changed, you had to go to a rate bureau that covered rates for a certain geographic part of the country. If not all the railroads would agree, you had the right to take what was called “independent action”. The railroads didn’t like to do that for fear of being criticized by their competitors. It was the most awful environment, but the railroads were used to working in this collaborative environment, and they were used to getting this by trucks and barges.

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So, we were able to make some really nice gains in our bargain shares; some at the expense of trucks, some at the expense of Southern Pacific, and we worked really hard to do that. But some of the railroads were not aggressive like we were, but that was the idea of the railroad bringing Al Pearlman in and his marketing staff to the WP, because he didn’t care about that stuff. He had been around the industry a long time, and no one was going to tell him what to do, so it set up a perfect environment for me as a young guy coming in to really see the value of what real marketing was about.

So, you got the Stagger’s Act, and the railroads really, really went through a long teething process getting to understand what it meant to be competing in the open market place instead of being under, what I would say is essentially, legalized collusion under the Commerce Act. It would take about 10 years for the railroads to really start to get familiar with pricing freedom, signing contracts, as I was talking about earlier, where that became the name of the game, getting contracts.

One of the things that hurt the railroads, in my view, were all of the major railroad mergers. Of course, it’s the same thing with Hunter Harrison talking about more efficiency with fewer resources, “We’re going to get by with less”. It’s great for the investors, but it’s not good for the customers or the employees, necessarily. The mergers took some fairly strong, regional carriers like the Burlington Northern, the Santa Fe, Union Pacific, and the Chicago Northwestern and made huge mega-carriers out of them. It opened up more routes, it did create a lot of efficiency, but these carriers are so large, and they’re so far removed from their markets, that they are not at all responsive to changing market conditions.

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It’s a problem for a small railroad like Indiana Rail Road that even as the twelfth or thirteenth largest railroad in the country measured by revenue -- you have seven Class 1’s, the Montana Railway and a few other large regionals -- but even for us to go out and get the large railroads to agree on what it takes to get new traffic to the railroad is very, very hard. And here you have customers, railroad customers…a paper company is an example. They have these huge paper mills. They’re moving paper all over North America. They’ve got apps for truck lines. They can get real-time quotes on their phones, and they can also get real-time information on where their product is because these trucks and many containers have GPS tracking units on them, so they know where their stuff is.

With Hunter Harrison at CSX, you’ll have freight cars with a hundred tons in them that’ll be lost for days, and nobody can tell you where they are. In some of these terminals, they’ve had to send some of their employees out in company cars to see if they could physically locate freight. I’m thinking, on my phone I get alerts from UPS once I get a package here. Days in advance, they can tell me within a two-hour window. So railroads, they invest in technology for themselves, but they don’t invest in technology to make their customers lives better, and it’s a serious problem in this industry.

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BG: There were so many things that you mentioned that bring up questions in my mind, but one of the things I’m always interested in is related to the RSI [Railway Supply Institute] convention, which is just amazing to see all of the different companies. But looking back in your career, can you pick out a couple of technological changes that really impressed you, that really made your business more successful, that you just said, “Wow, I’ve been waiting for something like this!”?

TH: There are a lot, but two things that come to mind are the huge 4300 horsepower AC locomotives, where you can move enormous amounts of freight. They have low emissions, and they are incredibly powerful. I’ve been a certified locomotive engineer for almost my whole career, so I didn’t do it a lot, but I would go out several times a year and run these big trains, and when you can feel the acceleration of a 15- or 20,000-ton train behind you, and how you can stop on a hill or get up again -- the efficiency of these new class locomotives is extraordinary.

BG: Where are they made?

TH: Well, the world has changed a lot in the last few years. Some used to be made up in Erie, Pennsylvania, by GE, and now they’re only made in Fort Worth, and EMD -- the GM company before it was sold to Progress Rail -- is making them up here in Muncy, Indiana, and they were making them up in Windsor, Ontario. I’m not even sure if that plant is around anymore, but those were the two primary manufacturers.

The other thing that is kind of under the radar screen that people don’t think about, and this was actually really just starting to be adopted by the railroads nationwide when I started my career – welded rail. So, you think, “Well, what difference does that make?” Well, you have welded rail in quarter-mile sections. You don’t have to have the joints being pounded every thirty-nine feet like they used to be. It’s a much better ride. It’s easier to keep the track and surface. It’s much less expensive to maintain. It was kind of one of those things that was below the radar screen that was invisible to most people.

One thing I didn’t say earlier: two summers in college I worked on track for the Santa Fe in the Midwest. So, I worked my way through school, and learning the railroad literally from the ground up was a great experience for me, especially coming to Indiana Rail Road where we had to rebuild the track literally from the ground up.

When I started Indiana Rail Road, the rail was old, the ties were old, the ballast was limestone which crushed under the weight of the trains, and instead of cushioning the load and providing drainage for water to flow away from the track, it had just become almost like concrete. It exacerbated rail breaks, and from the time I started Indiana Rail Road in 1986 until last year, we spent about $250 million dollars in either upgrading our track and facilities and capacity. That’s almost all from retained earnings because there’s hardly any public money in there. We had a TIGER Grant for a bridge. I think we had about $8 million dollars in that. There was some federal money for grade crossing improvements, but almost all of that was our own nickel. Where we had a ten-mile-an-hour railroad with occasional derailments, we got a forty-mile-an-hour line with almost all welded rail; almost thirty miles of centralized traffic control, signaling. It’s been remarkable to see how we’ve been able to reinvest in a business.

BG: You started in 1986, and now that’s thirty years. What can you tell me about the workforce? How many people were working for you, approximately?

TH: We started out with seventeen employees, including me. I think we had seven people that were actually running trains. We started out running a round trip three days a week between Linton, Indiana, and Indianapolis, and then we had a switch engine that switched the industries around here. That was two crew starts on any given day, and now we have roughly 30 to 35 crew starts a day.

We’ve got a work force that has been as high as a hundred and seventy, a hundred and seventy-five people. We’ve had some attrition. Because of the all the investment we’ve made in track, new locomotives, we don’t need to have all the people in the maintenance of way or the mechanical person that we did before. But we still need to have the folks that run the trains out there and the office staff, of course.

BG: What do you say to a young person to get them interested in the field? Where’s the opportunity now?

TH: There are two really good opportunities, and I’ve done a lot to try to encourage young people to come into the business. One is for somebody that doesn’t go to college or maybe wants to go to a couple years of trade school. Railroads are a great place to start for a couple reasons. The pay is very good, the benefits are very good, the working conditions are -- if you don’t mind being on-call 24-7 like the train operators -- it’s a pretty good life. You’re outdoors, and a lot of people like that. But you know, starting out, you can earn $50,000 a year. For someone with a high school degree living in Southern Indiana, it’s not a bad career. If you’ve got technical skills and you wanted to be an electrician or mechanic in a locomotive shop, you can earn quite a bit more than that. Again, all you’d need is a one- or two-year technical or vocational college degree there. So, there are a lot of different options there, and again, for people who’d want to go into IT or marketing, there are a lot of opportunities there, as well.

What’s happened is, because of all the mergers I talked about twenty years ago, the railroads did not do a very good job at trying to get young people or college graduates into the business. We lost about a generation of bringing in bright, young people into the industry, and now we’re facing a lot of retirements. We’re going to be falling off the cliff, and it’s a great time for bright, young people to come into the industry. I’m glad we’ve been able to encourage some folks to do it, who’ve done really well for themselves.

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BG: In terms of the kind of business, are you pretty much carrying the same freight that you’ve carried thirty years ago? How has that changed?

TH: No, it’s changed a lot. We started out moving 12,000 car loads a year. Ninety-two percent of that was coal for Indianapolis Power and Light. So, talk about customer concentration -- it was real! Now, we’ll move a hundred seventy-five, a hundred eighty thousand car loads this year, and we handle hardly anything for Indianapolis Power and Light.

One of the big new projects that we worked on was intermodal. We’d tried that several times before, but we weren’t able to find the right partners. I’d done a study six or eight years ago. You know, I said earlier, Indianapolis is a major distribution center. For instance, I won’t have the exact number right, but somewhere around seventy-five or eighty percent of all the cellphones sold in the U.S. go through customs at the Indianapolis airport. Even though rail doesn’t touch that, the fact that it is so important as a cellphone hub is pretty amazing. Well, I did a study to see exactly what kinds of things were being imported from Asia -- China, Korea, Japan, Vietnam -- and it looked like about 150,000, forty-foot boxes were being landed within a sixty-mile radius of Indianapolis every year. That’s a lot. That’s a lot of trucks on Interstate 65 between here and Chicago, believe me.

So, we started talking with some of the customers to find out what their concerns were about using intermodal. It was a situation where the steamship lines would route containers from Los Angeles-Long Beach or Seattle through Chicago. They’d go into these huge terminals up there, and then the containers may wait for days or even a week before a drayman could be made available to dray down to Indianapolis. The average transit time from the time they were landed here and available to go on the shelves in Indianapolis was around 28 to 30 days. EVERYBODY we talked to said, “If you can get us a more consistent, more reliable transit time, we’re with ya!”.

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So, we went to our friends at Canadian National in Toronto and Montreal and had a high-level strategic meeting. They not only serve the Port at Vancouver, but they also support the Port at Prince Rupert’s. Prince Rupert is about 500 miles north of Vancouver, and you say, “Why in the world would anybody want to move containers through Prince Rupert?” It’s an icey port, but if you’re flying from here to China or Tokyo, you go over the great polar route, it’s a lot shorter, right? It’s seventy hours shorter sailing time from Shanghai to Price Rupert than it is Los Angeles-Long Beach. That’s a lot of fuel savings, time savings on a huge ship that costs you $100,000 per day to be on a ship. So, we work out a deal with our customers and CN to start moving containers into Indianapolis. CN would move it from either Prince Rupert or Vancouver to an interchange near us in Central Illinois, near Effingham. Then, we would bring the container up here on trains.

We built a brand-new container facility on the south side of downtown. CN was a joint investor in that, and just a week before last there was a ribbon-cutting up in Port Rupert

where they just doubled the size of the container holding. There are more steamship lines that are going to be coming in there, but we have so much business from CN now that we have dedicated blocks of Indiana Rail Road in Prince Rupert several times a week…at least three days a week. That, plus the other business still comes through Vancouver, and this is our fourth year of handling intermodal and our year-to-year growth has been 37% a year. We expect to continue to see substantial growth in that.
The other thing is, I know world trade is kind of frowned upon by certain entities, but what’s interesting is that we have found hardwood logs and veneer logs that go into making hardwood furniture in the Far East, so we’re loading those into containers going back to Asia. We’re loading animal feed and specialty grains going back to Asia. So, we’re backhauling a lot of those containers, and these are customers that would have never had an opportunity to sell their stuff to Asia if it wasn’t for our service.

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Then take something like Noor Beer; it’s a big miller brewery over in Cincinnati. We’re backhauling a lot of the beer for them going into Jasper or Caliber or Vancouver, after which they’re offloaded. The containers closer to the port go back to Asia and get loaded again.
BG: This is really fascinating. I love hearing this stuff. I’m an industrial historian, and I think when we first met, I told you about that but, uh…and I did some work when I first started my career in North Carolina. The Southern Railway at that time was giving their former repair shop in Spencer to the state of North Carolina, and they had some beautiful turntables and roundhouse, and what they call the “back shop”, which was this enormous repair shop.

We did oral histories with some old timers who would go to the little coffee shop there and talk about the different work stations that they had, and we did a survey of that “back shop”. We would love talking to these guys who worked on engines, and they had nicknames for each part of the engine or each work station, and it was just sort of a language, a whole different vocabulary. Some of those old characters who really worked for railroads, I’m sure you’ve met a lot of them. Some of them appreciate the innovation and some of them like things the way they always were. I remember, at the Smithsonian, meeting the gentleman who was involved in Wabtech, inventing the end-of-line device that was a warning system --

TH: Oh, the end-of-train device?

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BG: The end-of-train, yea. That was interesting. It had a lot of resistance to it. I’m sure you’ve seen your share of resistance in the industry to change, in general, whether it’s on the business side or…I was interested also when you said that the federal regulation was helpful when Central Illinois couldn’t abandon their service. What role do the public regulators have, that you think is a good one? We know the down side; I think you made a great point of how antiquated the system was and how that really prevented you from being competitive.

TH: The regulatory burden was really overbearing. I mean, it was hard for railroads to get branch lines. Even though they were losing money, it was hard for them to get rid of passenger trains, which is one of the reasons that Amtrak was formed. Can I think of a good thing? I would say probably not.

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You talked about the end-of-train device that allowed railroads to eliminate cabooses. That was a huge technological advance. Trains are safer with the end-of-train device than they were with cabooses. The Indiana Rail Road was the first railroad to use one person, over-the-road crews extensively in the US, and we were about the first to use remote control switch engines, too. We worked with the Federal Railroad Administration to authorize our use of that, and even today probably a third of our trains start out over the road with only one person in the cab of the locomotive.

We worked with Wabtech and Cedar Rapids to develop an override where, if our engineer ran into any kind of problem out on the road, we had what you called a dead-man control where the train would come to a safe, controlled stop. But if the dispatcher saw something that was amiss, he could actually stop the train remotely. We were the first railroad in the US to make use of that. The irony is, here we have regulators in Washington that are trying to encourage autonomous trucks out on the roads, which makes me very nervous. But, we’ve got one-person crews on railroads, which is a fixed guideway, right? The Federal Railroad Administration is saying, “Oh no, we don’t want that. We need to have at least two people in the cab of a locomotive”, and you’re saying, “The whole world is going the other direction!” The legislators, in the railroad, are moving in the opposite direction, and that’s driven in large part by the influence of organized labor. It’s not driven by science or facts, and nobody has more data on the safety of one-person crane operations than we do.

BG: You ever envision self-driving, trains?

TH: Yes. Well, you know, very rapid transit -- which started in the early ‘70s, those trains were designed to be perfectly automated. Even now, the person that’s in the cab of the rapid transit cars is there just as a backstop. Washington Metro, although they run into some really serious problems, unfortunately, they’re designed to be automated. There is a coal road that is dedicated to one coal mine in Mesa and Lake Powell in Northern Arizona, that was run with a driverless electric locomotive for many years and then, for some reasons lost in time, they decided to put an engineer on there. I don’t know why they decided to do that. There are plenty of transit lines around the world that don’t have any operator on them at all. Going from long-term parking into the main terminal at O’Hare Airport is an example of that.

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BG: You talk about marketing as far as building the customers and all that, but I often wonder about marketing to the public as a whole; about how little the public knows about what rail does. The only time you read about railroads is if there was an accident, or if there’s a derailment, or if there’s a catastrophe. But it seems like there’s such a good story
to tell, and that’s one of the things we’re going to be doing at the Hall of Fame. It’s not just going to be based in Galesburg. Our goal is to be virtual and all over the country -- all over the world.

I’d like your opinion about the 150th anniversary of the Golden Spike, which is coming up in two years. I know you’re a history buff, and I see the map behind you, and I know you’re very active in the Indiana Historical Society. Do you see the 150th as a significant opportunity to talk about what rail does, and what it has done for the country, and what it continues to do?
TH: The railroads used to be pretty good at marketing themselves and how integral they were to the economic interests of America. They’ve gotten away from that as they’ve gotten more introspective, and that’s really unfortunate, but I think you’re onto something there. I think the 150th anniversary is a great tie in. I know Union Pacific is going to be rolling out some major events, which I think is a very good thing, and it’s going be a good thing for the railroads.

I’ll tell you one thing that really disturbed me, Frank Wilner wrote a poem, a blog, in today’s Railway Age edition where the American Trucking Association…Here in Washington we have a push for infrastructure spending. The American Trucking Association, instead of going out and saying, “We need to change the basis for how gas taxes are allocated. We need to have more dedicated funding for bridge upgrading and repair” -- and on and on and on -- they’re coming out with an ad campaign to talk about what robber barons the railroads are, and how we got all these land grants and the land grants paid for themselves many times over. I had a report on that right after WWII that basically confirmed all of that and now, the American Trucking Association is drudging all of this up because, why? I don’t know. It’s a really dirty, one-sided, slanted campaign that’s going to go out in a lot of public advertising that they’re doing.

BG: Well, are they going to tell about the Interstate Highway Act or any of that?

TH: Frank didn’t write about that, but your guess is probably as good as mine. They’re not going to talk about that. But the trucking companies today get huge subsidies, and I’ve been involved in lobbying the rail industry for many years on this very subject, trying to get a level playing field here for the railroads. And I don’t want to get off on a tangent here…

BG: This goes off back to doing a big transportation hall at the [Smithsonian Institution’s] American History Museum, and I applaud Union Pacific for taking the lead. I think it is more of a national story rather than just one railroad. I think it’s really an opportunity to just talk about this history, which is just incredible, even going before the Golden Spike. The Golden Spike is one of those iconic images that people have, and photography was just coming into its own at that point, so you have those images of that moment. But, I just think it’s something that goes beyond one carrier and really extends. Something that Bill Greenwood [retired Chief Operating Officer of the Burlington Northern] told me that sticks with me is, “Steel wheel on a steel rail is still the most efficient way to move goods and people”. I think that that’s something everyone can understand.

TH: Well, I think it is too, and you think about fuel economy and our diminishing resources, I mean, those are important points, and the railroads have the upper hand here, and it takes somebody to tell the story.

I had John Vanausdall here this morning. He is the President of the Eitlejorg Museum of American Indian and Western Art, where I’m board chair. We’re talking about doing a program on railroads in the West. One of John’s lifelong goals has been to tell the story of western movement in the US. We became a state in 1815, and when Indiana became a state, the population centers were down around New Albany and Jeffersonville, Indiana, on the Ohio River. It was only the advent of the railroad that really made the impetus to make the capital of the state in Indianapolis, which is the geographic center of the state. That wouldn’t have happened if it weren’t for railroads.

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This is a country that wouldn’t be where it is if it wasn’t for us allowing and facilitating the mobility of goods to move through this country. The railroads have been at the epicenter of that. You talk about the Interstate Highway Act, which was certainly important, but the railroads are the backbone of our transport system. It’s really unfortunate that the railroads don’t get more credit for all they do to take the millions of trucks off the roads every year. And it’s a story the railroads, for some reason, don’t want to tell. That they have you or someone else tell that, I think is brilliant.

BG: I think we’re on that track, not to belabor. I do want to talk a little about some of your avocations which are connected to railroad. We will not leave here without seeing your model train collection. When did you start?

TH: When did I start? Well, my dad actually helped me get started when I was about one or two with my own Lionel train, and I still have the original Santa Fe War Bonnet Diesels that he bought me. I think my mom wondered if it was really for me or if it was really for him, but we both had joint use, so I’ve been at it virtually my whole life. It’s only been the last few years where I’ve really had the time to devote to doing something special with it. In addition to recreating scenes that I remember from my childhood, it’s a great way to get me to do things I don’t normally do. I build trains from scratch, I do electrical work, I do scenery work, I build buildings, and it’s very therapeutic to me, and to be able to learn different skills has been pretty rewarding to me. I really enjoy it a lot, and I meet some really neat people in the hobby also.

BG: Yes. Now, despite all of the different changes in collecting and hobbies, it remains still one of the most popular. I know we had a railroad museum in Strasberg, Pennsylvania, I was involved with when I was in Pennsylvania. There was a major model railroad museum in Strasberg. I don’t know if you’ve ever been down that way, but if you haven’t, it’s worth visiting.

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TH: I have been, actually. I think Strasburg Railroad is one of the neatest tourist railroads around.

BG: I also know that you’ve been involved in the Indiana Historical Society. Can you talk about that a little bit?

TH: Well, I’ve been deeply involved with them. I co-founded what we call the Midwest Railroad Research Center with Dick Simons, who was a writer and used to be an editor for the Indianapolis Star. He wrote a book called Railroads of Indiana, which was an excellent thumbnail sketch of all the railroads that have operated in this state. Dick and I grew to become very good friends, and he had a very large collection of railroad timetables, official guides, and books. So, we worked with the historical society to start this center, and over the years we have been able to add a lot of material. We’ve got tens of thousands of employee readings and public timetables. I don’t know how many thousand books, manuscripts, and we’ve got a lot of photographs. It’s a very large collection, and one of the great things about the society is it’s in its own, stand-alone building in downtown Indianapolis. It’s got a state-of-the-art temperature and humidity-controlled environment for protection of the collection. They’ve got, aside from what we’ve been able to put in there, the Bass Photo Company negatives, a lot of old negatives of trains, and inter-urbans from around Indiana in the early part of the last century. It’s an extraordinary collection that we’ve got there.

BG: That’s great! That’s great. We’re going to close in just a couple of minutes, but you mentioned before we started that you enjoy travel now and travel in all different parts of the world and all different types of places. Can you tell us about some of your most memorable train excursions, not just in the US, but anywhere? I know you said you took the Trans-Siberian. That must’ve been amazing.

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TH: That was an interesting trip. When I travel, I take just the regular trains. I’m not one of these people that like luxury trains, because, well one thing, you meet a lot of interesting people that way. That was a great trip. One of the most memorable trips I had was riding the Darjeeling Himalayan Railway in India going up to Darjeeling, and I was on the footplate of the locomotive with the engine driver when the train derailed. You’re looking down the steep ravine. That was an amazing trip!

It’s hard to distill it down into just a few trips because I’d ridden well over half a million miles in six continents on trains. I had a friend that runs the freight network for the French national railways, and he was able to get a pass for me to be able to ride in the cab of one of their TGBs from Paris to Avignon and back, which was pretty amazing. I’ve ridden in the cab of the high-speed trains in Spain, which is pretty amazing because of all the engineering work: the huge bridges, the tunnel. If I were to rate countries based on their train system, I would say Japan is right at the top of the list. They’re right at the top of the list. They’re clean, they’re on time, as are the Swiss.

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