Alaska Railroad Corporation

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Alaska Railroad Corporation

327 West Ship Creek Avenue
Anchorage, Alaska 99501
U.S.A.
Telephone: (907) 265-2300
Fax: (907) 265-2312
Web site: http://www.arrc.com

Government-Owned Company
Incorporated: 1914
Employees: 644
Sales: $105.7 million (2002)
NAIC: 482110 Line-Haul Railroads; 487110 Scenic and Sightseeing Transportation, Land

The Alaska Railroad Corporation (ARRC) operates passenger and freight trains from Seward, a major port on the Gulf of Alaska, to Fairbanks. ARRC, which has been owned by the state of Alaska since 1985, played a significant role in the development of Alaska, and the company's fortunes continue to be tied to the economic well-being of the state it serves. A significant portion of ARRC's freight business comes from hauling gravel and coal for export to Asia, as well as oil from the North Pole Refinery. On the passenger side of its business, ARRC has always served as a lifeline to the communities through which it passes. In recent years, the company has stepped up its efforts to draw more tourists. ARRC runs special trains for cruise ship passengers traveling between Seward and Anchorage.

Building the Alaska Railroad: 1902–23

The Alaska Railroad Corporation was the product of a massive federal project that sought to complete what earlier, private railroads in Alaska had failed to do—open up the resource-rich but rugged and isolated Alaskan territory to development and settlement. In the 1890s and early 1900s, gold strikes in the Yukon and at Fairbanks and Nome vindicated the purchase of what was once derisively called "Seward's Folly," as did the discovery of rich coal fields in northern Alaska. However, it was nearly impossible to transport men and equipment from the relatively accessible, ice-free ports of the Gulf of Alaska to the Alaskan heartland.

In 1902, a group of Seattle businessmen invested $30 million to build one of the earliest Alaskan rail routes, the Alaskan Central Railroad, which was to lead to the Klondike, Fairbanks, and Nome gold fields. The Panic of 1907 and the high cost of building and maintaining the railroad forced the Alaskan Central into receivership in 1908. The company reorganized and renamed itself Alaska Northern Railroad Co. and by 1910 had laid 51 miles of track. However, funds ran out again as the Alaska Northern continued to be plagued by construction difficulties and limited market potential.

In 1912, Congress passed the Alaska Territorial Act, which included a provision establishing a commission to survey Alaska's transportation network. The commission concluded that a trans-Alaska railroad would need the full resources of the federal government to be successful. Following the commission's report, Congress passed legislation in 1914 that empowered President Woodrow Wilson to construct and operate a railroad in the Alaska territory. The bill restricted the railroad to 1,000 miles in length and a $35 million budget, and required it to connect a port with the lucrative coal mines of the interior. The Alaska Engineering Commission (AEC) was created to recommend routes, and it offered two to the president. Wilson opted for the so-called western route, which incorporated the defunct Alaska Northern line and extended from Seward to Fairbanks. Construction began in 1915, and AEC soon purchased Alaska Northern's track for $16,000 per mile.

"The Government Railroad," as the endeavor was dubbed, was like no other railroad project that had come before it. It would ultimately take eight years and $60 million to complete. In 1917, at the peak of its construction, over 4,500 workers labored along the lengthening miles of track. The project required an unprecedented amount of logistical oversight and infrastructure development. Some materials were brought on a 2,000-mile journey from the mainland, and equipment was shipped from as far away as Panama (where it had previously been employed in the construction of the Panama Canal). In effect, AEC had to build its operations from the ground up. It logged and processed lumber for railroad ties. It ran barges to transport equipment. It lured hundreds of workers into the Alaskan heartland. It constructed telephone and telegraph lines, built terminal facilities and ocean docks, opened coal mines and smelters to fuel its locomotives, selected town sites to house workers, and operated schools and hospitals in the towns it created. Alaska's largest city of Anchorage was founded in 1915 when AEC selected the site as a construction camp and its headquarters.

In 1923, President Warren Harding drove the final golden spike into the track at Nenana, and the Alaska Railroad was declared complete. The main line was 470 miles long; bridges spanned eight of these miles. In addition to the main line from Seward to Fairbanks, ARRC included numerous branch lines, the longest of which was almost 38 miles. The railroad brought immediate changes to the Alaskan hinterlands. Trains delivered mail to the fledgling communities along the line, transported mining equipment, and allowed the residents of the small towns it served to travel between communities.

Early Years: 1920s to World War II

Even though ARRC revolutionized life along the line, it did not immediately generate profits. A combined population of 54,000 people in Seward, Anchorage, and Fairbanks—the three largest towns along the railbelt—was simply not enough to make the railroad a lucrative operation. Moreover, the railroad took constant and costly maintenance.

Ironically, the stock market crash of 1929 and the ensuing Great Depression brought better economic times to Alaska and new opportunities for ARRC. One of President Franklin Roosevelt's relief projects was the Matanuska Valley colony project, which relocated impoverished midwestern farmers to Alaska. The bulk of these settlers moved along ARRC's railbelt, generating new freight and passenger business for the railway.

The World War II era was another boon to ARRC's fortunes. Fears of Japanese aggression in the Pacific led the U.S. military to build new bases in Fairbanks and Anchorage in the late 1930s. The construction spurred a dramatic increase in ARRC's haulage and led to the company's first profitable year in 1938. The territory's population grew by one-third during the war years, and this influx of military personnel and support services during the war created more business for the railroad.

However, the demand for construction materials to build new bases and for infrastructure to support the population boom created a massive backlog at Seward, ARRC's one deep-water port. To address this problem, the U.S. Army began building a 12.4-mile branch line to Whittier in 1941. The Whittier Cutoff, as the new route was christened, opened in 1943. The Army routed all of its traffic through the new port and the Cutoff for the remainder of the war, while commercial vessels continued to use Seward. (It was not until 1960 that the Army finally relinquished all control of Whittier and turned the port and the Cutoff over to ARRC.)

Challenges in the Postwar Era

The postwar years brought new opportunities and new challenges to ARRC. In the late 1940s, Congress approved and launched a $100 million rehabilitation program that enabled ARRC to upgrade its operations. Despite this sudden influx of funding, ARRC struggled to find its role in a changing Alaska. The cessation of hostilities spelled an end to the era when ARRC could count on military freight to prop up its bottom line.

Just as its business tapered off, the railroad faced new competition. Federal dollars had also flowed to improve the territory's road system. Better highways directly competed with ARRC for Alaska's freight business. Moreover, new air service eroded ARRC's passenger market. By 1953, competition had forced ARRC to discontinue its Seward passenger service. The railroad fought back. To attract more passengers, ARRC began running the streamliner AuRoRa in 1947, which upgraded passenger service between Anchorage and Fairbanks. The company also trimmed its expenses by replacing steam locomotives with more efficient diesel ones and began to establish car-barge and train-ship services, thereby linking ARRC directly with railroads in the continental U.S. The project was ultimately completed in 1962.

Developments in the 1960s–70s

ARRC's adjustment difficulties to the postwar era were insignificant compared with the effects of the Good Friday earthquake of 1964. The largest earthquake recorded in North American history wrought about $30 million of damage to the railroad. The line was shut down for nearly a month, and it took almost two years to fully complete repairs. The deep-water docks were destroyed at Seward, and much of the railroad's equipment was damaged or destroyed. At Anchorage and Whittier, several buildings were so badly damaged they had to be razed.

Buoyed by additional appropriations from Congress, ARRC survived the earthquake. However, in 1967 the railroad's place in the family of federal agencies changed when it was transferred from the Department of the Interior to a bureau of the Federal Railroad Administration in the newly minted Department of Transportation. ARRC was financed through a revolving fund into which the company's earnings were deposited and from which it could draw for capital improvements and general operating expenses. ARRC could also rely on Congress for appropriations and emergency expenditures.

Company Perspectives:

Building a Great Railroad in a Great Land: to be profitable by focusing on safe, high quality service to our freight, passenger, and real estate customers and to foster the development of Alaska's economy by integrating railroad and railbelt community development plans.

Beginning in the 1970s, though, the federal government began looking for ways to shed the financial burden of maintaining ARRC. President Nixon sought to facilitate the transfer of the railroad from federal to state control, but the urgency of the matter fell away in the late 1970s when the construction of the Trans-Alaska Pipeline system boosted ARRC's earnings. The pipeline project, which was designed to move oil from the North Slope of Alaska to Valdez and was completed in 1977, relied heavily on ARRC to transport the construction material, supplies, and crews needed to build the 800-mile tube. It was the biggest bonanza for ARRC since the days of heavy freight hauling during World War II.

State Control and New Challenges: 1985 and Beyond

The Alaskan economy began to weaken in the early and mid-1980s with a precipitous drop in oil prices. As ARRC's profits slumped again, President Reagan acted to end federal responsibility for the railroad. In 1983, he signed legislation that authorized the transfer of ARRC to the state of Alaska. After intense internal debate, the state took ownership of the railroad in a ceremony held in 1985 at Nenana—the site where President Harding had nailed the railroad's final spike into place in 1923.

In its inaugural year under new management and ownership, ARRC had to withstand a series of setbacks. In March 1986, a chemical tank car began leaking formaldehyde in Crown Point and required ARRC to evacuate the local residents and spend about $650,000 in cleanup. One month later, a coal train derailed near Curry, spilling 22 carloads of coal and closing the line for three days. In October, a massive flood destroyed two major bridges and coated the tracks with mud. The line was closed for 13 days.

Although ARRC rebounded from these accidents and natural disasters, the company faced deeper problems. Decades of wavering federal commitment to the railroad had left the line in "deplorable condition," according to the February 10, 1997, Alaska Journal of Commerce. ARRC promptly began to upgrade stretches of decrepit track. In 1985 alone, ARRC replaced more miles of track than it had after the 1965 earthquake. By 1989, ARRC would invest $35.9 million in capital improvements.

ARRC also struggled with fluctuating business. In an effort to make hauling passengers more profitable, it spent $9 million to acquire 45 more efficient locomotives and new railcars. Stagnant freight revenues were more difficult to improve. "The railroad is not in a position to influence business," the company's general manager told the Alaska Journal of Commerce on March 2, 1987. "We react and must follow along with someone else's plan." Nevertheless, ARRC sought to ramp up its involvement with the petroleum industry and to piggyback trailer service by operating overnight priority trains between Anchorage and Fairbanks. The company also reduced both personnel and pay to bring down costs.

Because business was good for ARRC's primary freight customers in the late 1980s and early 1990s, the railroad also performed well. In 1988, freight accounted for nearly 90 percent of ARRC's income. Coal was a particularly lucrative item for the company. Since 1984, ARRC had been hauling coal for the Usibelli Coal Mine from Healy to Seward. Usibelli's main customer was the South Korea-based Hyundai Merchant Marine Co. Ltd. When Asian coal prices were up, Usibelli shipped more coal to Korea—and ARRC benefited. The same business logic held true for petroleum products.

Beginning in the late 1980s, ARRC strove to counterbalance the vicissitudes of its freight business with more predictable revenue from other sectors. The company turned first to its passenger service. ARRC sought to cash in on the booming Alaskan tour business, particularly from cruise ships, which disgorged thousands of visitors at Seward every summer. In an effort to draw passengers from the port onto its line, the railroad constructed a new depot at Denali National Park in 1989. ARRC's strategy paid off. By 1992, ARRC had broken even on its passenger service. The company also leveraged its real estate holdings to encourage tourist business. In 1995, ARRC began building a recreational vehicle park and Comfort Inn on an 80-acre tract it owned in Fairbanks. It also entered into an agreement to convert its original depot in Anchorage into a microbrewery and restaurant. In 1996, the railroad had a record year when over 512,000 passengers rode its trains. In 2000, ARRC launched the Grand-view passenger train specifically to serve cruise ship passengers traveling between Seward and Anchorage.

While ARRC was improving its passenger operations, the company continued to focus on drawing new freight business and maintaining its existing contracts. In 1994, ARRC scored a major victory when it successfully negotiated a 19-year contract with one of its most crucial clients, MAPCO Alaska Petroleum Inc., the largest refinery in Alaska. MAPCO had been threatening to construct its own pipeline rather than pay ARRC. By avoiding this scenario, ARRC could continue to count on MAPCO's business, which accounted for 35 percent of ARRC's revenues in 1994.

ARRC's ongoing efforts to bring more stability to its business were to some extent successful. Nevertheless, in the late 1990s and early 2000s, the railroad continued to be buffeted by the same forces that had demanded federal intervention in Alaska's transportation sector a century earlier. Maintenance costs were high in a land of long and harsh winters, and the company needed constant capital upgrades that eroded its bottom line. ARCC received a $10 million federal grant in 1996, which it used to install new railroad ties and ballast and partially fund the upgrade of its microwave communication system.

Key Dates:

1902:: Alaskan Central Railroad (later Alaska Northern Railroad Co.) is founded.
1914:: President Wilson establishes the Alaska Engineering Commission.
1915:: Construction begins on the Alaska Railroad.
1923:: Alaska Railroad is completed.
1938:: Alaska Railroad has its first profitable year.
1943:: Whittier Cutoff is completed.
1964:: Good Friday earthquake exacts considerable damage on the railroad.
1977:: Construction begins on the Trans-Alaska Pipeline.
1985:: Control of the Alaska Railroad transfers to the State of Alaska.
1994:: Alaska Railroad signs a 19-year contract with MAPCO.
1996:: The company beats back a privatization attempt.
2002:: Alaska Railroad loses its contract with Usibelli Coal Mine.

ARRC's customers—both passenger and freight—were captives of the same market forces that determined the railroad's fortunes. Economic downturns in the early 1990s and the first years of the new century prompted cruise ship tourists to stay home, which in turn adversely affected the railroad's business. Minute fluctuations in global coal, petroleum, timber, and gravel markets undercut the Alaskan companies involved in these industries. When the companies cut back, ARRC paid the price. For example, ARRC was hit hard in 2002 when the Usibelli Coal Mine lost its contract with Hyundai. The mine closed, and ARRC lost a significant customer. ARRC suffered a net loss of nearly $8 million that year.

In the late 1990s, the State of Alaska began to toy with disengaging from ARRC, motivated in no small part by the fact that the railroad did not pay state or local taxes. In 1996, Dennis Washington, the principal owner of Montana Rail Link, expressed some interest in acquiring ARRC, and the state legislature passed a bill to appraise the railroad for sale. Although Alaska's governor vetoed the bill, the threat of privatization remained. For ARRC, the company's role as a vital part of the Alaskan economy and communities was clear. "Privatization has a lot of romance to it, but you should examine what the railroad is really worth to the economy and to Alaska companies," the railroad board chairman stated in the Alaska Journal of Commerce for February 10, 1997. Nevertheless, future ownership of the company's remained murky, and its finances inextricably linked to the fortunes of its customers.