A short history of the IRCA

INTERNATIONAL RAILWAYS OF CENTRAL AMERICA (“IRCA”)

FERROCARRILES DE GUATEMALA (“FEGUA”)

FERROVIAS GUATEMALA (“FVG”)

My interest in the IRCA began in 1968. A friend and I rode the NdeM from Mexico City with the goal of riding the rails all the way to Guatemala City and perhaps further. But when we crossed into Guatemala we found the IRCA system on strike, and ended up riding a bus to Guatemala City. But that visit kindled my interest in the IRCA, and led to a series of visits to the IRCA's successor in Guatemala, FEGUA. A short time later while living and working in Washington, D.C. I discovered the Association of American Railroads' library there had a reasonably complete set of IRCA annual reports. Most of what is written here is taken from those annual reports (which perhaps explains the financial orientation of much of this discussion, and is the limit of any original research I can claim). The information in the annual reports was supplemented with information from a variety of previously published books and articles about IRCA, Minor Keith, United Fruit Company, as well as general Guatemalan histories.

Predecessor Roads. The first railroad construction in Guatemala began in 1879 at Puerto San Jose on the Pacific Coast by the Guatemala Central Railroad Company. The meter gauge Guatemala Central was chartered in California, and backers included Collis P. Huntington and Timothy Hopkins of Central Pacific fame. Experienced Central Pacific engineers supervised construction, locomotives came from Baldwin, and cars were built by Kimball Manufacturing Company in San Francisco and Central Pacific's shops in Sacramento. The line from San Jose reached Escuintla in 1880 and Guatemala City in 1884.

In 1888 an advertisement in the U.S. described the Guatemala Central as the "best appointed railway" in Central America, with "fine rock and gravel ballast, 50 lb. steel rails, and all rolling stock supplied with Westinghouse automatic air brakes." It listed as officers C.P. Huntington, president, and Timothy Hopkins, vice president, and among the principal stockholders Leland Stanford, Charles Crocker, and William Vanderbilt.

The line was changed from meter to three foot gauge in 1890.

In 1883 a decree was issued by President Justo Rufino Barrios of Guatemala creating the Northern Railway of Guatemala to build from the Caribbean to Guatemala City. But the difficulty of building through dense jungle and rugged mountains, combined with inadequate financing, delayed completion of the Atlantic line until 1908. As some point its name was changed to the Guatemala Railway Company.

Between Escuintla and the Mexican frontier, railroad construction was centered on the ports of Champerico and Ocos by independent companies. The Champerico and Northern was chartered in 1881, and later became the Guatemala Western with lines from Champerico to Retalhuleu. The Ocos Railway was organized in 1895, and built from Ocos to Tecun Uman and south to Vado Ancho.

IRCA and the Pan American Dream. Starting about 1904 interests associated with Minor C. Keith, who had built other railroads in Central America and was a founder of the United Fruit Company, began obtaining control of various railroad companies in Guatemala and El Salvador, including the Guatemala Central and Guatemala railways. In 1904 the International Railways of Central American (IRCA) was incorporated in the state of New Jersey, but the various railways continued to operate independently.

The 1912 IRCA annual report describes the consolidation of the various lines as follows:

"The Guatemala Railway assumed control of the Central R. R., the Occidental R. R. and the Ocos R. R. in April, 1912, when the forces of the general offices and the station and mechanical forces at Guatemala and Zacapa were consolidated in the Central Railroad Company's buildings at Guatemala; and the merger was given the name of the International Railways of Central America., thenceforward the Guatemala railroad being known as the Atlantic District and the Central, Occidental, Pan-American (constructing by the Central R. R. Co.) and Ocos railroads being known as the Pacific District.

"The Occidental railroad, working under a local charter, is still maintained as a separate property but under the jurisdiction of the general organization of the merger. "

That annual report also reported the construction of a line from La Union to San Miguel in El Salvador.

While names like Huntington, Hopkins, Stanford, and Vanderbilt seem to have faded from the scene, the 1912 IRCA annual report lists William C. Van Horne of Canadian Pacific fame as a director.

Keith envisioned a "Pan American" railroad through the Central American republics, connecting Mexico to Panama and ultimately South America. The IRCA pushed construction of connecting lines along the Pacific slope, connecting the various lines there, as well as providing a connection to Mexico at Tecun Uman. The connection at Tecun Uman not only involved a change of gauges (the connecting Mexican railway was standard gauge), but also a ferry ride across the river marking the border. It was not until World War II that the German and Japanese submarine menace to coastal shipping caused a bridge to be built, allowing the Mexican line to enter Guatemala to facilitate cross platform transloading between the gauges.

Maps from this period show a proposed Guatemala Central line from Santa Maria in Guatemala, to Santa Ana in El Salvador, where it would have connected with the El Salvador Railway This line would have provided a direct route from Mexico but was never built. The IRCA did reach El Salvador, but via Zacapa, Guatemala, which provided only a circuitous and mountainous route for any traffic from Mexico.

The link between Zacapa and San Salvador was completed in 1929. It connected the previously built IRCA lines in the two countries, reaching in El Salvador as far south a La Union, on the Gulf of Fonseca, a ferry ride away from Nicaragua. It also connected in San Salvador with the independent El Salvador Railway. The direct route from El Salvador to the Caribbean port of Barrios justified the expensive construction through the mountains. At the Ipala Loops four levels of track are visible on the mountainside as the railroad looped around to reach the summit.

With the completion of the link to El Salvador the IRCA had created a narrow gauge empire stretching from Mexico to the Gulf of Fonseca, and from the Atlantic to the Pacific, a system of over 800 miles of line.

In January 1930 United Press observed over its news wire that with the completion of the IRCA connection between Guatemala and El Salvador, the longest all-rail journey in North America was "to ride from Hudson Bay, Canada, to La Union, El Salvador--just a little jaunt of some 5,000 miles."

But Keith's dream got no farther.

United Fruit to the Rescue. By 1933 the IRCA was in crisis. Although the line had been consistently profitable, the Great Depression made it suddenly impossible for the IRCA to obtain long term financing for the high cost of the Salvador extension. A liquidity crisis ensued with not enough cash to pay its short term debts. The IRCA was headed for bankruptcy.

Further trouble appeared in the form of an agreement between United Fruit and the Guatemala government for United Fruit to build a modern port at Concepcion del Mar on the Pacific coast, in return for United Fruit's right to develop a very large banana plantation at nearby Tiquisate. The expectation was that the bananas would be shipped via the Panama Canal. Moreover, the modern new port facilities would attract much of the profitable long haul coffee, sugar and banana traffic which IRCA heretofore had handled to the Atlantic port of Barrios. The outlook was not good.

Then a dramatic reversal of fortune occurred with far reaching consequences for the railroad. The railroad convinced United Fruit that transcontinental rail movement via the IRCA to Barrios would be more efficient than ocean movement via the canal. Pending disaster turned into new opportunity. IRCA gained not only a major new source of long haul traffic, but United Fruit became a financial patron with deep pockets.

United Fruit undertook a variety of steps, not only to save the railroad from bankruptcy, but also to re-equip it for its new task. The agreement with the government was renegotiated, eliminating the construction of a port as a condition. In 1936 the IRCA and United Fruit signed an agreement under which United Fruit paid off $2.6 million of IRCA's most pressing financial obligations in return for a 3-1/2 percent note for $1.75 million plus 186,000 shares of IRCA stock.

Major Improvements. Bananas are a perishable commodity, and moving them from plantation to consumer requires a rapid and dependable transportation system. The IRCA would carry the fruit 295 mountainous miles from Tiquisate to Puerto Barrios, where they would be loaded onto refrigerated ships for further movement to the U.S. and Europe for distribution to consumers.

United Fruit began a program of purchasing equipment and leasing it to the railroad at bargain rates. Between 1936 and 1960 United Fruit invested $5 million in cars and locomotives for the IRCA; for the use of this equipment IRCA paid United Fruit an annual rental equal to only four percent of book value (five percent for diesel locomotives), an amount estimated to be less than half the cost had IRCA financed the purchases itself. The railroad was free to use this leased equipment as needed, not just for United Fruit traffic. In order to expedite heavy trains of bananas ("fruteros") over the heavy up and down grades between Escuintla, Guatemala City and El Rancho, IRCA acquired, with United Fruit's help, 50 additional modern 2-8-2 steam locomotives (road numbers 157-206) between 1936 and 1948. To help trains up the 3.7 percent Palin Hill, in 1947 IRCA also acquired the two ex-Uintah, ex-Sumpter Valley 2-6-6-2's (the only narrow gauge articulated locomotives built for service in the U.S.). And in 1952, for the same purpose, the IRCA reportedly considered buying the even heavier narrow gauge 2-6-6-2's formerly used by the National Railways of Mexico on its narrow gauge lines, but by then it is likely that IRCA was focused on dieselization.

In return for its financial support, the 1936 agreement provided United Fruit with preferential rates for movement of bananas from Tiquisate to Barrios. United Fruit paid $60 per car (later raised to $90) while competitors paid $130 for the same service. Further, the 186,000 shares of stock acquired in 1936, combined with a lesser stock position previously held, gave United Fruit a commanding 42.6 percent ownership position in IRCA.

It should be noted at this juncture that the IRCA never was a "banana" railroad. Unlike many Central American rail lines that were built to carry bananas, the IRCA and predecessor companies were built to serve the general transportation needs of the region. Bananas generally produced 15 to 20 percent of revenues. Revenues from other exports such as coffee and sugar exceeded the revenue from bananas. And the largest single commodity group was imported goods. However, the long haul and trainload nature of banana traffic from Tiquisate gave it a uniquely important position in the generation of net profit while the traffic lasted.

It is also useful to observe that the IRCA's ownership and management was largely North American. Until 1965 the company was listed on the New York Stock Exchange. The railroad's operating and maintenance practices were adapted from North American practice. When the railroad was profitable, maintenance standards were high. The backshops in Guatemala City (and San Salvador) were large, well equipped, and modern by steam standards, dating from the late 1920's. The Baldwin Locomotive Works itself designed and supervised the construction of the San Salvador shops, and the Guatemala City shops were comparable in design and even larger.

Political and Legal Problems. The 1936 alliance with United Fruit saved the IRCA from almost certain bankruptcy, and virtually ensured its continuing profitability. But this alliance also was the IRCA's eventual undoing. United Fruit Company was the original corporate "Ugly American". Because of its size, foreign ownership, heavy-handed ways, and inept public relations, United Fruit was infamous throughout Latin America as "El Pulpo" (the Octopus). In 1951, when Jacobo Arbens Guzman, a leftist, became President of Guatemala, he specifically pressed construction of the parallel Atlantic highway "to put United Fruit's railway out of business." Ironically, that highway was built largely with financial aid from the United States.

But United Fruit's (and IRCA's) public relations problems were not limited to Latin America. In 1949 dissident minority shareholders successfully filed suit in a U.S. court charging that IRCA's management and United Fruit were operating the railroad for the benefit of United Fruit, not all the shareholders of the railroad. When the case was concluded ten years later United Fruit was ordered by the U.S. court to pay the IRCA $9 million in damages, and the IRCA to charge United Fruit higher rates. After lawyers fees and other expenses the IRCA actually received about $7 million from United Fruit.

Then in 1954 the U.S. Department of Justice filed an anti-trust suit against United Fruit, again in a U. S. court, alleging United Fruit engaged in anti-competitive practices in the growing, transport and distribution of bananas. In a 1958 consent decree United Fruit agreed among other things to divest itself of any ownership interest in the IRCA.

Things began going downhill rapidly for the railroad. The last year the IRCA reported profit was 1957. In 1959 the Atlantic Highway from Guatemala City to Puerto Barrios was opened, and the resulting truck competition both eroded the railroad's traffic and forced it to lower rates. In 1964 United Fruit, due to winds damage and banana tree disease, shut down the vast Tiquisate plantation, costing IRCA about ten percent of its revenue.

At a time when increasing truck competition demanded that the railroad become more efficient, IRCA was hamstrung by a lack of funds to buy diesels, and a political inability to reduce what had become an inflated work force for the reduced amount of traffic. The first diesels (road numbers 600-605) had been delivered by General Electric in 1950 with United Fruit help. They were something of a technological triumph since GE had managed to put 1200 horsepower into three-foot gauge units, at a time when Class I standard gauge units were struggling to get 1500 horsepower. But the new units sat idle until 1954 because the politically influential union initially refused to let the railroad use them.

Once in service the new diesels quickly proved their worth. In 1956 six additional GE road units (606-611) were added, and seven 400 horsepower GE switchers (700-706).

In April 1960 the railroad announced plans to raise $14 million for approximately sixty diesel units to complete dieselization. Both U.S. builders (GE and General Motors) delivered competing demonstrator units. In August 1961 the IRCA placed an order of about $6.3 million with GM for 44 900 horsepower model GA8 units. But the deteriorating financial situation intervened and only 18 of the units were delivered (800-801, 851-866), and used primarily to dieselize the Salvador division. IRCA also purchased the two GE demonstrator units (802-803).

Between 1958 and 1967 the IRCA lost a cumulative $12 million. What for years had been a very prosperous operation rapidly became insolvent. Toward the end there was not enough cash to meet the payroll, and strikes ensued.

O. Roy Chalk. In October 1962 the Transportation Corporation of America (TCA) purchased a majority stock ownership (50.6% of the voting shares) in IRCA. Most of the shares were those previously divested by United Fruit pursuant to its 1958 consent decree with the Justice Department. TCA was controlled by O. Roy Chalk, a controversial lawyer and financier who reputedly made millions in New York real estate and Trans Caribbean Airlines (later sold to American Airlines). He also owned DC Transit, the transit system in Washington, D. C. A District of Columbia councilman described him as a "spoiler". It is reasonable to assume that TCA's interest in the IRCA had more to do with the cash from law suites, the railroad itself continued its downward spiral.

Chalk controlled IRCA from 1962 until April 1966. During his tenure four notable things happened: the IRCA passenger equipment ended up in the same ("flamingo") livery as DC Transit buses, TCA tendered an offer to other shareholders in an (unsuccessful) attempt to gain greater ownership, the approximately $7 million paid to IRCA by United Fruit as a result of the shareholders suit disappeared, and in 1965 the Chalk controlled IRCA instituted its own law suit against United Fruit alleging breach of contract and violation of anti-trust laws, and seeking triple damages totaling $507 million. The next annual report indicated Chalk had sold his interests and made no further mention of the new suit against United Fruit.

The final Years of IRCA. Business went downhill very rapidly after 1958. Operating revenues dropped from $16.8 million in 1957, to $5.4 million in 1967, the last year reported. In addition to the loss of much of the United Fruit business and intense highway competition, the politically powerful unions and hostile government in Guatemala made it impossible for the company to reduce labor costs in line with reduced traffic. The brief narrative in the 1966 annual report (written in 1967) read as follows:

"To the Shareholders of International Railways of Central America

"It is with deep regret that Management must apprise shareholders of the fact that, despite vigorous efforts by the Company during 1966 to secure relief from oppressive labor and other practices in Guatemala, and to cope with the ruinous effect upon traffic resulting from government regulations favoring the trucking industry and the free ports in that country, IRCA has not been successful in either area. The loss for the year, all of it attributable to operations in the Guatemala Division, amounted to approximately three million dollars.

"Management is continuing its efforts in Guatemala to obtain relief from present intolerable conditions. "

By the end of 1967 the railroad had insufficient funds to meet its payroll in Guatemala. Reluctantly (VERY reluctantly because of the railroad's political legacy), the Guatemalan government became a lender of last resort to keep the railroad running (and preserve its jobs). But the railroad was unable to repay its loans from the government. The last annual report for the year 1967 showed a December 31, 1967 balance sheet with only $110,942 in the bank, and accrued wages payable of $804,310.

Return of steam. In 1968 it is fair to say that the railroad was "steamizing". The 37 diesels (19 in Guatemala, 18 in El Salvador) had allowed the IRCA to run many of their principal trains with diesels. But diesels required imported spare parts that had to be paid for with cash that the railroad no longer had. Diesels were sidelined as the spare parts inventory was depleted. IRCA used their new EMD diesels to fully dieselize the Salvador Division, which remained profitable. But the large and well equipped Guatemala City shop and its skilled labor force could manufacture or rebuild almost everything required for a steam engine. As the older diesels in Guatemala failed, first IRCA and then Fegua returned steam engines to service. Retired steamers were pulled off the dead line, run through the shops, and returned to service. By early 1971 the Fegua motive power roster included about 50 active steam engines, only three mainline (GE) diesels, and several diesel switchers. The steamers (like the diesels) were by and large worn out, trains ran hours late, and road failures were common.

Nationalization. The Guatemalan government foreclosed on December 27, 1968. The IRCA was in default on its loans from the government, employees had not been paid, and the railroad again idled by a strike. The Guatemala division of the IRCA became the Ferrocarriles de Guatemala (Fegua). Unlike the Guatemala Division, the Salvador Division had been consistently profitable. The IRCA had taken most of the diesels to El Salvador, and following expropriation in Guatemala IRCA continued to run the lines there for several years, until they too were nationalized as part of Ferrocarriles Nacionales de El Salvador (Fenadesal).

The Guatemalan government had limited resources, and even after nationalization there was little desire to put money into the railroad. The downward spiral (and steam) continued.

While the Guatemalan government remained reluctant to spend money on the railroad, with the hated IRCA gone and the railroad falling apart, by 1971 action became not only necessary, but politically expedient. The unions were abolished, money appropriated to provide severance pay to 2,500 excess employees, and 18 new 950 horsepower diesels (900-917) ordered from GE and built under license in Spain. The new diesels did not fully dieselize Fegua, but they relegated steam again to secondary roles. Eight additional big six axle 2000 horsepower diesels came from Montreal Locomotive Words in 1982 to complete dieselization (1001-1008).

But dieselization was too little too late. By the early 1990's the track was sadly deteriorated, and service severely curtailed. Highway competition was intense. Despite an abortive attempt at a privatization process in 1995, Fegua ceased regular operation in 1996.

Ferrovias Guatemala. An American consultant is recorded as observing that "in 1974 the railroad handled 900,000 tons of freight ... but ... could have handled 2,000,000 tons if they had the engines and cars." There is frequently a chicken or egg argument as to whether a railroad failed because there was inadequate demand, or whether the demand would have been there if the railroad had been able to offer competitive service.

Railroad Development Corporation (www.rrdc.com), a Pittsburgh (USA) based company, has focused on revitalizing moribund railroads in Third World countries. RDC's chairman, Henry Posner III, is an entrepreneur who believes that many of these railroads have failed due to poor management and/or lack of investment in the future. He felt that Fegua might be rebuilt into a viable competitor. In particular the parallel, mountainous, mostly two lane highway from Puerto Barrios to Guatemala City was both arguably reaching its capacity, dangerous, and very expensive to widen.

In 1997 the Guatemala government awarded a 50-year concession to the only bidder, Ferrovias Guatemala (FVG), an RDC affiliate, to restore and operate the former IRCA lines. The new company inherited an abandoned 497-mile system that extended from Tecun Uman on the Mexican border to Puerto Barrios on the Atlantic, with a branch to the El Salvador border. The condition of the line was terrible with washouts, rail and ties expropriated for other use, and earthquake damage on the branch to El Salvador. Squatters had encroached on the right of way, creating a social issue for the new railway to contend with. And even before they could begin operating Hurricane Mitch caused further destruction.

But FVG was determined, and invested significant money to repair the line between Puerto Barrios and Guatemala City, including major washed out sections. Commercial rail service in Guatemala was resumed starting in April 1999. The initial operation was a short haul cement movement between El Chile and Guatemala City. In December 1999 the line was reopened between the Atlantic ports of Barrios and Santo Tomas and Guatemala City.

FVG reported the major commodities hauled are containers, steel, cement, paper and bananas. In 2004, the last year reported, they had 15 locomotives and 200 cars hauling 157,000 tons of freight. The lines from Zacapa to the El Salvador border, and from Guatemala City to the Pacific ports and to the Mexican border, remained closed due to the cost of rehabilitation and the lack of sufficient traffic potential. There were some long range proposals discussed for potentially standard gauging some of the lines to haul sugar to Puerto Quetzal on the Pacific Coast, but nothing came of those ideas.

A notable exception to the above was a small “island” of standard gauge trackage at Tecun Uman, used by Mexico's Ferrocarril Chiapas Mayab (FCM) as a transload operation for the Central American market. This had originally been a partly dual gauge yard where IRCA and Fegua transloaded freight between standard gauge cars from the Mexican railways and narrow gauge cars. When Mexico’s railroads privatized FCM took over the operation of the Mexican line to the Guatemala border, and tried to develop transload (rail/truck) traffic to Central America via Tecun Uman.

In a 2003 presentation to the Railway Study Association in the U.K., Posner indicated that FVG was his company's most economically "challenging" undertaking, with "marginal" economics. He suggested that the long term viability of the line may depend on the exploitation of the railroad's right of way for such things as pipelines and fiber optic cables. But at the same time he gave no indication that RDC was abandoning his vision for the continued operation of at least a portion of the former IRCA.

In 2005 the FCM line to Tecun Uman was damaged by Tropical Storm Stan. Service to Tecun Uman was suspended while FCM and the Mexican government argued over who would pay for repairs. Ultimately FCM terminated their franchise, ceased service, and the current status of the line is unknown. This was a financial blow to FVG because they received substantial revenue from this isolated operation.

In 2005 and 2006 conflicts developed between FVG and the Guatemala government. The following is from the Ferrovias website:

"After the successful revival and operation of the railway for seven years, the Government of Guatemala issued a Presidential decree in August 2006 which declared the rolling stock contract of FVG's concession "lesivo" or "harmful to the interests of the State". The decree was issued by the Government after RDC refused to give into the Government's extortionate demands to renegotiate and surrender its key economic rights under the concession contracts. The lesivo decree caused FVG's railway business to collapse due to the environment of commercial uncertainty and political maneuvering. Ultimately, RDC was forced to shut down FVG's operations. The last train ran in September 2007 and since then the railway has literally disappeared, with even steel bridges being stolen for scrap in broad daylight. After five years of arbitration, on June 29, 2012, a Tribunal of the International Centre for Settlement of Investment Disputes (ICSID) unanimously ruled that Guatemala had violated the minimum standard of treatment set forth in Article 10.5 of CAFTA by engaging in conduct that was "arbitrary, grossly unfair, [and] unjust" towards RDC and awarded RDC full reparations. RDC's ICSID claim was the first to use the investor-state dispute resolution mechanism under Chapter 10 of CAFTA. As of December 1, 2013, the majority shareholder of FVG is the Government of Guatemala after RDC received full payment of the award and surrendered its 82% interest. RDC and FVG Chairman Henry Posner III comments, "The loss of the railway for a second time was a national tragedy, and it can truly be said that there were no winners in this case. But this now offers Guatemala the opportunity to once again look to the international railway investment community to develop the urban train, dry canal, Mexican rail link and other projects that the country aspires to. In this regard we pledge our full cooperation and support."

Fragmentary recent reports indicate that since operations ceased, not surprisingly the disappearance of rail and ties, including bridge parts on the high bridges, has accelerated. But the Fegua government bureaucracy contines to exist, and there is some evidence of operation within Guatemala City (museum, commuters?) and apparently the standard gauge into Tecun Uman from Mexico has been resumed some level of service. Fegua assumed ownership of the Ferrovias Guatemala operating company and that name has appeared on some recent promotional videos. Study apparently continues of a standard guage link north from Tecun Uman to Puerto Quetzal. Hard to tell what the future holds.

Bibliography to follow.

Prepared by:

John B. West

December 1993/updated to March 2021