Competition and Regulation
Throughout the 1920's, trucking competition increased, fueled by government built highways under the Interstate Highway System act of 1956. Manufacturing patterns also changed, resulting in a gradual but steady decline in business available to the core group of short lines. At the same time, the larger railroads suffered in a highly regulated environment with subsidized highway competition and significant labor and management problems. Trucking became a cheaper way to transport some material previously shipped via rail. Trucking required minimal capital outlay with the roads funded by the government, while railroads not only had to supply their own diminishing capital for growth and maintenance, but were often subject to punitive taxation on their rights-of-way. In addition, low performing sections of track could not be closed or sold without significant government approval processes.
In 1968, the New York Central and Pennsylvania railroads merged in a last ditch attempt to remain viable. Despite their best intentions they entered bankruptcy, and most of the other major eastern carriers followed. As a result of the ensuing railroading crisis, in 1976, Congress passed the 4R Act which established the United States Railroad Association to oversee the reorganization of the eastern railroads into a new entity to be known as Conrail.
One principal requirement in creating a viable Conrail was the elimination of money-losing and marginal branch lines that its predecessors had been forced to operate. A number of marginal branch lines were turned over to newly formed, entrepreneurial short line companies in a grand and perhaps unintended economic experiment. These short lines were run by hands-on managers who lived and worked in the communities they served. They knew what their customers needed and did all they could to tailor service to those needs. They, and their customers, had a great deal of incentive to make their railroads work and they were able to secure some support from state and local governments. Despite many dire predictions of failure, the experiment worked. Marginal branch lines became viable and valuable feeder lines and demonstrated their value in improving economic opportunities at the community level.