At the start of the Civil War, Cornelius Vanderbilt realized that the transcontinental railroad would slash travel time from coast-to-coast by months (compare that to Elon Musk’s ambition to transport people from LA to NY in 45 minutes via “vacuum tube”, see http://www.cnn.com/2013/07/16/tech/innovation/elon-musk-tube-transport). Jack Welch once said about Vanderbilt and all great executives: “They have the ability to see around corners.” As a result of his vision of what the railroad would mean to the post-Civil War US, he sold virtually all of his shipping interests to invest in railroads. The end result was a railroad empire that was worth the equivalent of $75 billion in today’s dollars by war’s end.

After the war, when pushed by rival rail companies in tough negotiations, Vanderbilt was challenged for being soft. As a result, Vanderbilt fought back, looking for a key strategic control point to leverage against his rivals. Owning the only rail bridge in and out of New York City, the Hudson River Bridge, he owned the gateway to the country’s largest port. So, he decided to cut off the bridge to rival traffic. Without the bridge, every other railroad was shut out of NYC, essentially single-handedly creating a blockade between the nation’s busiest port and the rest of the country (long before many of today’s antitrust laws were created of course).

albbrdgVanderbilt, like many after him, realized that he owned a crucial Strategic Control Point, a point where all rail traffic flows between the crucial port of NY and the rest of the country.[1] The Hudson River Bridge was that Strategic Control Point. “We’re going to watch them bleed …” he was known to have said as he cut off rival traffic.

Brilliant. Absolutely brilliant.

But it didn’t end there … when the rival railroad, New York Central, started to “bleed” and shares fell precipitously on the New York Stock Exchange, Vanderbilt bought up every share he could and in just a few days, he took control of the rival railroad. He eventually went on to own 40% of the nation’s rail lines and built Grand Central Depot (then the largest building in NY, now known as Grand Central Station) in New York to bring together his three new lines, the Harlem, the Hudson and the NY Central and the rest, as they say, was history.

Contrast this with the strategic maneuvers of John D. Rockefeller a few decades later. Faced with a coordinated effort to raise passage rates for shipping oil out of Standard Oil refineries in and around Cleveland, Rockefeller knew that he needed leverage – the railroad companies owned the lines he needed to transport his oil, a classic strategic control point. Consequently, he decided he needed an alternative – and built a network of oil pipelines to circumvent the need to transport via rail. Rockefeller knew that he would be squeezed for higher rates by the railroads that owned the only viable way to transport oil – unless he could break the control point. The pipeline was just that device. Once again, this was absolutely brilliant.


[1] Taken from Episode #1 of the History Channel’s The Men Who Built America. Picture source: http://www.catskillarchive.com/rrextra/albbrdg.Html (public domain).

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