Bill,
Again your hindsight and forethought bring an interesting perspective to the table. I think in general the railroads would have suffered if it weren't for the cuts made.
In part this has to do with the way we handle raw materials today. Railroads have proven their worth for longhaul and bulk materials, where as trucks are good for shorthaul, as you said. the shorthaul - point-to-point, and point-to-customer for quick turnaround is great for trucking.
Today's manufacturing and inventory models play a big part in this too. With Just In Time Manufacturing (JITM), and Just In Time Inventory (JITI), manufacturers no longer want to wait for goods, nor do they stock up on supplies. The accounting models made a big change in the valutation of inventory as well as work in progress (WIP), and finished goods. Today inventory is considered a liability most of the time, therefore manufacturers want to ditch it as fast as possible, meaning sell off finished goods, and keep supplies to the minimum.
In this scenario, there's no way railroads could handle this type of freight service. In part it's their high cost of infrastructure and labor to run very short trains with LTL services. This is why we see very little of this today, and why many branchlines have been abandoned.
In the USA, passengers were the first to be dumped before the freight on many lines. The railroads felt the big fancy varnish was costing too much money to run, and did what they could to discourage passengers including canceling schedules in mid-route, and running poorly maintained equipment. The dirty old trains that Amtrak picked up in the early 1970s shows what the railroads were doing to ditch passengers. They covered the passenger schedules only because th government said they had to. It didn't matter if the passengers couldn't see out a window, or froze in the winter, as long as the train ran.
Finally, when the short LTL traffic went, so did many of the branchlines unless they were saved by the local states or shortlines stepping in. This really didn't happen until 1980, or after the Staggers Act, which helped the railroads compete better with not only each other, but also with truckers. There were a few state agencies that had forethought, such as mine. The local transit agency, changed from just serving the metro-Boston area, to handling the core surrounding cities and towns, and now owns virtually all of the rights of way in the state. The MBTA maintains and owns the active commuter lines, and leases them back to the freight companies. This is more a less a win-win situation for both. This prevents the tracks from going to crud, and the freight companies have less maintenance costs. They only pay a rentel or lease fee for running the freight.
Today, we have a mess, no bones about it. There are many lines in many areas that should have remained. The Harlem Line, made famous in Trainz Classics 1, was cut short north of Wassaic in the 1950s or a bit later. Sadly the line is now a bike trail, and there's no way for rails to go in again particularly with the local opposition, which is just like I said in my previous post about Lincoln and Weston, MA. If the line had remained active, the commute into the city from this far north would have been easier. Many people from the area, now kick themselves for allowing the NYC to pull up the track, and the state for not stepping in to help. The main reason for the abandonment had to do with taxes. New York, like New Jersey, invoked very high taxes on the railroads, therefore the railroads abandoned their property when their business dropped enough to do so.
In our hindsight, we look back at what we had, but we have to remember that the heavy-hauling was done by horses on bad muddy roads. Today we have smoother (note the clarifyer - er) roads than were available during the Industrial Revolution and Steel Age. Our smoother roads allow for better freight handling, in particular of time-sensitive consumer goods, which was impossible less than a century ago.
John
