The Erie Lackawanna Railway (EL) formed on September 13, 1960 when the Interstate Commerce Commission approved the merger of the Erie Railroad and the Delaware, Lackawanna and Western Railroad (DL&W) as a means to cut costs and better streamline operations.
The Erie and DL&W had been steadily losing passengers, freight traffic and money, and they were heavily burdened by years of accumulated debt. These railroads also had very extensive commuter operations, which were steadily losing money. Due to the accumulating debt, the Erie and DL&W had been combining facilities and operations in the mid 1950s, mostly along the eastern end of their systems, along the Hudson River waterfront and across southern New York state. The DL&W route was severely affected by the decline of anthracite and cement traffic from Pennsylvania in the 1940s. The Erie was burdened by the continuing loss of high-tariff fruit and vegetable traffic from the western United States in to the New York City region as highways improved in the 1950s. Both lines were affected by the opening of the Saint Lawrence Seaway in 1959, which allowed ocean-going cargo ships to travel between European, African and South American ports and cities on the US Great Lakes. The DL&W had previously carried much traffic to and from ocean ships, having its own port facilities to Hoboken Terminal on the Hudson River.
In general, the northeast United States railroads, including the EL, were beginning to decline due to over-regulation, subsidized highway and waterway completion, commuter operations, and market saturation. Many factories in the eastern cities closed during the 1960s, followed by the decline of the domestic automobile and steel industries in the 1970s, which further eroded the northeast United States rail industry. At the same time, government regulations came into effect, which prohibited railroads from abandoning long distance passenger service, even though fewer passengers were traveling by rail due to competition from airlines, bus lines, and private automobiles.
Even with heavy competition and over-regulation, the EL did turn profits in the mid and late 1960s through heavy cost-cutting, reduction of parallel services, equipment modernization, suburban industrial development, increased piggy-back trailer traffic, and steady reduction of long-distance passenger train service, which ended on January 6, 1970. The EL was also benefitted by addition rail traffic diverted to the EL due to problems with Penn Central lines. The EL was able to build a state of the art diesel engine repair facility in Marion, Ohio, and they upgraded a large car repair shop in Meadville, Pennsylvania. The EL gained a contract with the United Parcel Service in 1970, which led to the operation of five dedicated intermodal trains daily between New Jersey and Chicago.
On March 1, 1968 the Erie Lackawanna Railroad was renamed the Erie Lackawanna Railway, and was placed under control of Dereco, Inc., which was jointly owned by the Norfolk & Western Railway and Delaware & Hudson Railroads. The N&W intended to maintain control of the EL and potentially include it into its own merged system. At the time, the N&W was debating a merger with the Chesapeake & Ohio Railway, and if that merger went through, the EL would have likely become part of the new system.
All plans with the EL were destroyed by Hurricane Agnes in 1972, along with most of the EL system. Severe flooding hit its southern lines pushing the EL into bankruptcy, and it filed for reorganization in June of that year. Shortly after the bankruptcy the N&W sold off its interests in the company, which was again independent. The EL operated under bankruptcy protection through the mid 1970s. In the spring of 1976, the government created the Consolidated Rail Corporation (Conrail) in order to bring together the several bankrupt and struggling railroads in the region. Erie Lackawanna opted out of the Conrail system, hoping to merge with the Chessie System, but that merger failed due to negotiation breakdown with the labor unions. After the merger talks with Chessie ended, the EL opted to join Conrail in 1976, where much of the original system was abandoned in favor of similar routes, already controlled by Conrail.