Regulating Transportation of Hazardous Substances: Railroads and Reform, 1883-1930 - Explosives and Safety on the Railroad

On November 1, 1903, a freight car loaded with dynamite exploded in the yards of the Pennsylvania Railroad in Crestline, Ohio. The cause of the blast was unclear; probably it was the result of a shock during switching. The explosion injured scores of people, two seriously, set fire to about 500 freight cars, derailed locomotives hundreds of yards away, and blew a crater forty feet deep. It also set in motion a sequence of events that led to sweeping institutional innovations in the regulations and procedures for shipping hazardous substances."1

Led by the Pennsylvania Railroad, the American Railway Association (ARA) developed rules governing the shipping of explosives, to be enforced by the newly formed ARA Bureau of Explosives. The ARA also lobbied successfully for new federal controls, and in 1908 Congress granted the Interstate Commerce Commission (ICC) power to regulate the transportation of explosives. The commission promptly adopted ARA rules and left enforcement to the Bureau of Explosives. These procedures remained in force until the 1960s and they sharply reduced accidents despite rapid growth in shipments of hazardous substances.

The regulation of explosives does not fit easily in most of the accepted stories about why businesses pursue regulation."2 It was not an effort to achieve market power, as was the case with petroleum or railroad rate regulation, or to limit consumer or health and safety regulations, as Christian Warren has depicted with lead paint."3 Nor did the carriers support regulation of explosives because they thought it inevitable or because it provided competitive advantage, as occurred with meat inspection, the Food and Drug Act of 1906, and the campaign to regulate phosphorous matches."4 And whereas much regulation reflected the interplay of consumer and labor as well as business interests, only the railroads and the explosives makers shaped laws governing explosives transport."5

The dominant motive for regulating explosives was the carriers' desire to internalize and reduce social costs, which makes the story similar to the efforts of the California Fruit Growers to enlist the state in pest control or the campaign of the life insurance industry to achieve regulation.6 However, neither fruit growers nor life insurance evolved the sort of federally supported system of private governance that the carriers developed to regulate the shipment first of explosives and then of other hazardous substances.

The railroads' response most closely resembles the associationalism promoted by Herbert Hoover during the 1920s. In Hoover's vision, trade associations, "staffed by men of expertise and vision," would function much like a private government, rationalizing industry yet eschewing the coercive inflexibility of government bureaucracies. A decade before Hoover's efforts, the railroads evolved the idea of associations joining together to solve the difficulties of regulating the transport of hazardous substances."7 The carriers innovated the Bureau of Explosives—an industry-wide private organization that both rationalized and administered rules for shipping dangerous goods and provided the scientific and technical expertise to improve practices."8 However, whereas Hoover's concept downplayed coercion, the carriers' need to prevent free riders (companies that could benefit by ignoring the new rules while others obeyed them) led them to support legislation giving the ICC power to transform the bureau's rules into federal regulations.

In the post-Civil War years, the explosives industry grew rapidly, reflecting the expansion of mining and heavy construction. In the quarter-century before 1905, the value of output increased five times. From 1899 to 1904, dynamite production rose 53 percent—from about 43,000 tons to 65,000 tons—a bit more than half of which was used in railroad and other construction, with the remainder going to coal and hard-rock mining. Black-powder production more than doubled from 1899 to 1904, increasing from 46,000 to 108,000 tons, and 80 percent of it was used to mine coal."9

Inevitably, some shipments blew up. In 1866 several explosions, including one involving nitroglycerine at the Wells Fargo building in San Francisco that killed fourteen people, led to passage of a federal law that year forbidding shipment of explosives on passenger vessels and otherwise governing their transportation. But the law failed to specify an effective enforcement mechanism and was therefore widely ignored. In 1871 a freight car full of dynamite on the Boston & Albany Railroad went off in Worcester, Massachusetts, causing about $50,000 of damage but—miraculously—killing no one. Seven years later, a carload of nitroglycerine exploded in Michigan, killing seven. In 1883 an explosion of 400 kegs of "giant powder" on a freight train in Kentucky killed three people."10 By the twentieth century, one expert for the railroads calculated that on any given day there were about 3,300 freight cars carrying explosives, and accidents like the one at Crestline had therefore become common. Indeed, almost precisely one month after Crestline, on December 2, 1903, another carload of dynamite went up, killing one person and injuring thirty-three, and causing about $25,000 of property damage."11

By the end of the nineteenth century, executives of the Pennsylvania Railroad had begun to call the company "the standard railroad of the world." It was the largest American carrier, accounting for over 8 percent of the nation's freight-ton miles and nearly 6 percent of passenger miles in 1900. As Alfred Chandler has shown, the company explored new techniques in management and was an early pioneer in the application of technical expertise to business problems, setting up the first chemical laboratory about 1875."12

The Pennsylvania Railroad had long grappled with the dangers of shipping explosives. Until 1883 the company had refused to accept them. In that year, the superintendent of the Repauno chemical works urged the railroad to reconsider this long-standing policy. The company turned for assistance to the director of its Altoona research laboratory, chemist Charles B. Dudley. Born in 1842, Dudley had attended Yale, receiving his Ph.D. in chemistry in 1874. At the request of the superintendent of motive power, Theodore Ely, Dudley came to the Pennsylvania Railroad in 1875 to head up the company's newly formed testing laboratory. There he pioneered in developing scientific standards, which the company employed in its purchasing, and he carried out pathbreaking research in the chemistry of steel rails."13

In 1883 Dudley visited Repauno, where he was given a demonstration on dynamite safety. As he later recounted the story, the company superintendent sent a boy with a box of 50 percent nitroglycerine dynamite to the top of a thirty-foot tower. He was to drop the box, along with individual sticks, on a pile of rocks as Dudley and the superintendent stood close by and watched. Although the superintendent assured him that "there [was] no danger," a guarantee that was confirmed when none of the dynamite went off, Dudley nevertheless took refuge behind a pile of rails."14

Charles B. Dudley

These events led him to formulate in that year the company's first regulations for transporting explosives. One rule that provides a microcosm of the problems companies faced concerned the placing of signs warning "Explosives" on freight cars. They were to be four-and-a-half feet above the floor, the reasons being that dynamite was rarely packed that high and the signs were often used for target practice.15 The company's rules were widely publicized and formed the basis for most of the regulations adopted by other large carriers. Despite the existence of the rules, the Pennsylvania began to be plagued by explosions. In Ohio alone, company records reveal disasters at Forest in 1887, Kings Mills in 1890, and Lawrence in 1893 that collectively killed twelve and injured twenty-four people and resulted in about $200,000 of property damage."16

In 1895, these events led management again to focus on ways to improve the safety of transporting explosives. For guidance, Dudley turned to Britain, which had regulated explosives since 1875. He corresponded with the British inspectors and obtained copies of their annual reports. British experience, and his own investigations of the physical properties of black-powder containers, led him to develop company regulations similar to those in force in Britain."17

The Pennsylvania also met several times with manufacturers, but nothing concrete seems to have been accomplished. One company report summarized matters: "[T]he high explosives people thought high explosives safer to transport than black powder...[and] the black powder people thought that the great trouble was due to the carelessness of the railroad employees."18

Expansion of the chemical and petroleum industries forced the carriers to contend with the transport of a host of other hazardous substances in addition to explosives. Breakage of the glass jars (carboys) in which nitric acid was shipped was a constant source of fires. On May 12, 1902, a switching crew punctured a tank car of naphtha in the Pennsylvania's Sheridan Yard, just outside of Pittsburgh. A switch light then ignited the naphtha, which in turn set fire to a number of oil cars, two of which blew up, rupturing other cars and sending a stream of oil into the sewer, which also exploded. Twenty-nine people were killed and ninety-four injured."19

The explosion at Crestline was therefore one in a long line of disasters that were raising the cost of transporting explosives and other dangerous articles, but it proved to be the last straw, finally provoking the carriers to innovate an institutional solution. Other railroads were also beset by these dangers, but the Pennsylvania was uniquely sensitive to the problem. As noted, it was the largest carrier in the country, and a 1905 survey revealed that forty-eight manufacturers of explosives were located along its lines—more than any other railroad."20 In addition, the Pennsylvania was a major trunk line that received in interchange large numbers of cars containing other hazardous materials. Men with scientific training dominated the Pennsylvania, and thanks in part to Dudley, management was alert to the dangers of such substances. The company's size also gave it considerable influence both in the ARA and in Congress. As a result, the Pennsylvania sought both a political and an industry-wide solution to the problems of transporting hazardous cargo. This decision, and the ability of the company to enlist the ARA, was also shaped by the nature of private liability for damages resulting from explosion, by agency problems and transaction costs, and by competitive pressures.

The safe transport of explosives has some of the qualities of a public good—for example, no one can be excluded from the benefits. Since Ronald Coase's famous article demonstrating that such apparently public goods as lighthouses could be supplied by private firms, economists have noted that private companies will provide public goods when they can capture some of the benefits."21 Such was the case with explosives transport. When a carload of explosives blew up, determining the actual cause of the disaster was nearly always impossible, and liability for the damage usually fell on the carrier, thereby internalizing to the railroad the benefits of handling explosives with care. The difficulty, from the point of view of the Pennsylvania and other large carriers, was that manufacturing and packaging also influenced the dangers of transportation. Yet manufacturers would be unlikely to face liability from a transportation disaster and therefore behaved like free riders. Similarly, feeder lines might accept explosives in dangerous condition, or place them in poorly constructed cars, transport them for only a few miles, and then hand them off to one of the trunk lines. Thus the cost shifting associated with explosions occurred not between business and bystanders but between businesses.

Of course, the Pennsylvania might have dealt with these unilaterally. It could have inspected and refused cars in interchange, but that would have been unduly expensive. And, as the Pennsylvania's 1895 report observed, it could have refused to accept black powder that was not packed in double-jacketed containers or accepted them only at a premium rate but did not do so, "as of course it would drive traffic to other lines." Competitive rivalry was worsened by agency problems, for while the Pennsylvania had developed detailed rules governing shipments of explosives, the company freely acknowledged that they were routinely violated by its own agents to get business. Stricter enforcement might also lead to "surreptitious shipping of powder."22 In short, individual private action was likely to be expensive and ineffective, and so the Pennsylvania turned to regulation to enforce a cheaper, more efficient alternative.

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Excerpted with permission from "Regulating Transportation of Hazardous Substances: Railroads and Reform, 1883-1930," Business History Review, Vol. 76, No. 2, Summer 2002.

Mark Aldrich is Marilyn Carlson Nelson Professor of Economics at Smith College.

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