Like many railroads in the northeast already financially vulnerable from the expanding U.S. Interstate Highway System, the line was severely weakened fiscally by the extent, duration and record flood levels due to Hurricane Agnes in 1972.

The two railroads that created it were steadily losing passengers, freight traffic and money, and were heavily-burdened by years of accumulated debt and extensive, money-losing commuter operations.

These two historic lines, the Erie and the DL&W, started to consolidate facilities on the Hudson River waterfront and across southern New York State in 1956, four years before formal corporate merger.

Both lines were also 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 Great Lakes, such as Buffalo, Cleveland, Detroit, Duluth, Chicago, etc.

Also, due to government regulation policy formulated in the late 19th century, the EL and other railroads could not immediately abandon long-distance passenger runs, despite the fact that competition from airlines, bus lines and the private automobile made them unprofitable.

As to its money-losing suburban passenger train services in the New York City metropolitan region, the EL had come to terms with the state of New Jersey during the late 1960s for adequate subsidy and for the purchase of new engines and coaches.

Dereco also owned the Delaware & Hudson Railway at the time.In 1972, Hurricane Agnes destroyed many miles of track and related assets, especially in northeastern Pennsylvania and New York State's Southern Tier.

[2] The completion of the Interstate 80 highway across Pennsylvania and New Jersey by 1971 added to the Erie Lackawanna's financial problems, as it diverted piggyback traffic previously garnered from less than truckload shipping companies such as Navajo and Cooper-Jarrett.

Also, by 1975, the economy in the eastern United States was gravely affected by the 1973 oil crisis, quashing any hopes of the EL being able to independently compete with government-rehabilitated Conrail lines.