Between 1929 and 1930, a lengthy industrial dispute known as the 'lockout' occurred which effectively shut all of the collieries on the South Maitland Coalfield. The railway was soon involved in this dispute with both coal and passenger services being stopped during the dispute. During the dispute, the majority of SMR's passenger carriages were destroyed on 1 March 1930 when the carriage shed at East Greta Junction was burnt down. Negotiations were then entered into with the Department of Railways, New South Wales, for the government railways to take over the passenger service, which occurred on 13 April 1930. In February 1940, a direct Sydney to Cessnock express service was introduced.