Transportation Act, 1920
AMENDMENT VERSUS
FURTHER TRIAL
Address by
JULIUS KRUTTSCHNITT
Chairman Executive Committee, Southern Pacific Co.,
before the
RAILWAY BUSINESS ASSOCIATION
Manufacturers of Railway Equipment,
Material and Supplies
TD
HOTEL COMMODORE, NEW YORK
NOV. 8, 1923
REQUESTS FOR COPIES
of this pamphlet will be welcome
from all those desiring to place it in
the hands of their representatives or
friends. Copies furnished or sent
direct to lists upon application to
Frank W. Noxon, Secretary Railway
Business Association, Liberty Building,
Philadelphia.
I HAVE been asked to speak on the
subject of "Amendment versus
Further Trial of the Transporta¬
tion Act, 1920." This requires
me to discuss primarily the railroad
situation as it exists today in the light
of those influences from which the
Act developed and with special refer¬
ence to the actual functioning of the
common carriers in response to the
extraordinary demands which have
been and are being made upon them
under the provisions of the Act.
To trace the leading influences of
which the Transportation Act is the
final culmination, it would he neces¬
sary to follow the trail of railroad
development in this country from its
inception. Rather than do this I
shall indicate very briefly the general
phases of the changing public attitude
which have so profoundly affected
the economic welfare of our steam
railroads.
There have been two completed
cycles in the public attitude toward
common carriers. A third cycle, it is
believed, has now begun.
ERA OF ENCOURAGEMENT
The first cycle may be called the
period of encouragement. When the
railroads had demonstrated their prac¬
tical value they were more than wel¬
comed by the public everywhere.
There was a policy, not to be mis¬
taken, which set no limit to the matter
of encouragement, if by any means
railroad facilities could be secured.
Most liberal charters were granted,
subsidies were voted by legislative
bodies, large tracts of land were
granted to railroad enterprises, and
all for the purpose of hastening the
establishment of railroad facilities.
Individuals were induced to provide
money to build the railroads in the
well understood expectation, that met
with no discussion, that they would be
allowed to enjoy the fruits of their
public service provided only reason¬
able rates were charged. A new con¬
tinent was to be developed, with un¬
told material resources. These were
the characteristics of the period of
encouragement.
But railroads did not come into ex¬
istence, as for instance, did the system
of national banks, by the fiat of gov¬
ernment. Railways had to be planned
and promoted by private initiative
and financed for the most part by
private capital. The natural and in¬
evitable result was a conviction on the
part of the individual who invested
his capital in a railroad enterprise
that he was investing it just as he
would in any other private enterprise.
In fact, during this period of encour¬
agement there was practically no other
conception either in the mind of the
investor or in the mind of the public.
It was generally believed honestly and
sincerely, both by railroad investors
and by the public, that railroad busi¬
ness was a private business and that
railroads were built to be operated by
individuals for their private profit and
incidentally for the use of the public.
ERA OF REPRESSION
The second cycle of public attitude
was characterized by a punitive and
repressive policy. This new public
attitude came from a realization on
the part of the public, which had been
3
slow and gradual in its growth, that
the railroads sustained such a relation
to the welfare and fortunes of indi¬
viduals and communities as to clothe
the industry with a public interest and
to subject it to public regulation.
There thus arose a struggle between
the conception of railroads as private
enterprises and the conception of
railroads as engaged primarily in pub¬
lic service. Victory came to the side
of the public conception of the public
character of these instrumentalities of
commerce.
"It was a victory won in anger ;
it was a victory which was the out¬
come of fierce conflict, and the terms
that were imposed were the terms
of the victor upon the vanquished
and reflected merely the purpose to
apply in the principles of the system
of regulation the forces of correc¬
tion and punishment,"
This is the change in public attitude
to which the late President Harding
referred in his Kansas City speech,
when he said :
"It is a curious trait of human
nature that we acclaimed railroads in
the building, and then turned to
hamper them in the operation."
This second period was the period
of the Interstate Commerce Act of
1887, the Elkins Law of 1903, the Hep¬
burn Law of 1906 and the Mann-
Elkins Law of 1910. The system of
regulation which grew out of this
second phase of public opinion was
based upon resentment in the public
mind against conditions and practices
which it condemned. It provided only
for restraint and correction and omitted
entirely provisions which would have
been wise and appropriate for the
protection and adequate development
of this essential agency of commerce
and intercourse. It was taken for
granted that the railroads were suffi¬
ciently powerful to protect themselves
and that the only need was for the
protection of the public interest.
IMPAIRMENT OF CREDIT
The effect of such a punitive and
corrective policy upon the railroads
was disastrous. Tangible evidence of
its unhappy effect can be seen in the
operating and financial record for this
period. The ratio of operating ex¬
penses to operating revenues of steam
railroads in 1900 was 64.65 per cent.
This ratio kept edging upward until
in 1917 it stood at 70.48%. These
were significant effects of punitive and
repressive regulation, the natural
consequence of the feeling that rail¬
roads were built primarily for the use
of the public, and with scant consid¬
eration of the interests of those who
parted with their money with which
to build them. They occurred during
a period of great general prosperity.
Agriculture and industry were thriv-
ing-
Wholesale prices of commodities in
the 17 years rose 120%, but railway
freight rates fell 2%. The credit of
the railroads under such regulation
became financially impaired. Inves¬
tors, as contra-distinguished from
lenders, were no longer willing to em¬
bark in a business with such uncer¬
tainty of return and with no such
offer of reward of success as existed
in other industrial enterprises. A
financial expert in railroad securities
recently testified that no new issue
of capital stock in material amounts
had been made since 1907. The public
is not willing to trust its money in
securities the return on which is not
fixed, but is contingent on rapid fluc¬
tuations in earnings. It became nec¬
essary, therefore, for railroads to
4
secure money by adding to their
burden of debt. The percentage of
funded debt to total capital of the
railroads in 1900 was 49.13%. By
1917 the percentage had risen to
54.5%, and during this period freight
rate levels were actually reduced.
RATE ADJUSTMENT TARDY
A recognition of the condition to
which the railroads had been reduced
may be found in the decisions of the
Interstate Commerce Commission as
early as 1910. In this very year
when, generally speaking, the Mann-
Elkins law may be said to have com¬
pleted the cycle of punitive and re¬
pressive legislation, the Commission
gave consideration to the condition of
the railroads in its reply to the petition
of Eastern roads for increased rates.
Unwilling to grant this increase, the
Commission based its refusal upon
what appeared to be at the time a new
era of prosperity and a stability of
prices. The door was purposely left
open for a review of the case if the
Commission's prophecy of impending
prosperity for the railroads failed.
Its forecasts included the following:
"The cost of supplies will not much
advance. Wages will not increase.
The demands of the public will
continue to grow. Traffic will
increase."
How far astray the Commission
went in its forecast subsequent events
have demonstrated. The case was re¬
opened in 1913 and in its decision in
this review of the case the Commis¬
sion said :
"Treating as one road the 35 rail¬
way systems that have joined in this
application for our approval of a
so-called five per cent, advance in
their freight charges, we have
reached the conclusion that their
operating income is insufficient and
should be increased."
In this 5% Case Commissioner
Daniels, in his dissenting opinion,
stated in forcible language the condi¬
tion of the roads and the need for a
new public attitude. He said :
"This rise in the price level must
eventually be reckoned with in rail¬
roading. For a time its effects may
be marked by adventitious increases
in the volume of traffic, but this
temporary relief in its very nature
is uncertain, and sooner or later the
difficulty is sure to reappear. For a
time it may be circumvented by ex¬
traordinary economies, but in its
very nature it is inexorable. It must
be faced, not trifled with. It is
hardly an adequate remedy to accord
to carriers relief only when their
returns have reached the well-nigh
desperate level now shown in Central
Freight Association territory. Even
before this inadequate return is evi¬
denced, higher rates are warranted.
Such a solution of the present case
would have done no less than justice
to the carriers and would have pro¬
moted the welfare of the communities
they serve."
INCREASING EFFICIENCY
In spite of this punitive and re¬
pressive policy by State and federal
governments, in spite of inadequate
revenues and impaired credit and in
spite of a lack of financial resources
to make substantial additions to facili¬
ties as needed, railroad management
wrote a splendid record of increasing
efficiency.
During the 22 years ending with
1922, the ton mileage of revenue
freight increased 140%. The railways
moved this large increase with only
13% increase in train miles. In the
first 7 months of 1923, the gain over
previous year in ton mileage has been
34%, handled with only 22% more
train miles.
In 1890, for every $1 of capitaliza¬
tion, the railroads carried 13.92 traffic
units (ton miles plus three times pas¬
senger miles, an I. C. C. equation).
In 1920, for every $1 of capitalization,
they carried 32.71 traffic units. In
1923, the record will be even better
than this.
The power of locomotives has been
largely increased. The average capa¬
city per freight car increased from
1903, the first year in which these data
were compiled, to 1922 46%. The
average car load, excluding company
freight, in 1903 was 17.6 tons ; in the
first seven months of 1923 it was 25.4
tons.
Thus it appears that railroad man¬
agement, with all its handicaps, has a
remarkable record of efficiency in so
far as its control extends. Over finan¬
cial credit it has no control. The dark
shadow of anti-railroad legislation
has lain for many years and still lies
upon the credit of the railroads of the
country.
BEST IN THE WORLD
The people of the United States
have reason to be proud of their rail¬
way system and of the results ob¬
tained. With 6% of the world's
population, this country possesses
nearly 40% of the world's railways,
which are capitalized at only from
one-fourth to one-half as much per
mile as those of the principal countries
of Europe and charge the public rates
only half as much per mile of move¬
ment as the European rates. At the
same time they perform twice the
public service per dollar of capital
invested.
Take 1920 as the basis of compari¬
son. The railroads of the United
States in that year handled 32.71
traffic units per dollar of capitalization
and with average receipts per ton mile
of freight of 1.052 cents; in other
words, a ton of freight was handled
more than one mile for a one-cent
postage stamp. The railroads of the
United Kingdom handled 8.24 traffic
units per dollar of capitalization, with
average receipts per ton mile of
freight of 3.029 cents. In South
Australia 10.95 traffic units were
handled per dollar of capitalization,
with average receipts per ton mile of
freight of 3.62 cents. In New South
Wales 15.67 traffic units were handled
per dollar of capitalization, with aver¬
age receipts per ton mile of freight
of 2.49 cents. The foreigpi currencies
in the above statistics have been re¬
duced to American equivalents at the
normal rates of exchange. We have
been unable to find any data conflict¬
ing with the assertions frequently
made that the United States has the
most abundant and cheapest rail trans¬
portation in the world.
NEW ERA OF ENCOURAGEMENT
The third phase, upon which we
have now entered, may be said to have
originated with the representations
made to President Wilson in Septem¬
ber, 1914, by a committee of railroad
executives as to the need of a more
constructive public policy towards the
roads. This was followed by his
message of Dec. 7, 1915, in which he
called the attention of Congress to
the serious and pressing transporta¬
tion problem and expressed the view
that, before further legislation in this
field is attempted, it might be the part
of wisdom to look at the whole prob¬
lem of co-ordination and efficiency in
the full light of a fresh appraisal of
circumstance and opinion as a guide
to dealing with the several parts of it.
By a joint resolution, approved
July 20, 1916, Congress appointed a
committee, of which Senator New-
lands was the chairman, which was
instructed "to investigate the subject
of government control and regulation
of interstate and foreign transporta¬
tion, the efficiency of the existing sys¬
tem in protecting the rights of shippers
and carriers and in promoting the
public interest." (Italics ours). The
interested parties were invited to
appear before this committee, which
began its hearings Nov. 20, 1916, and
ended them in November, 1917. As
these hearings progressed the case was
made to turn upon the interest of the
public in the matter of enlarged and
constantly growing transportation
facilities and the consequent interest
of the public that the carriers should
have adequate revenues as a basis for
adequate credit.
Within a year after the close of
these hearings federal control and
management began and continued for
26 months, from Jan. 1, 1918, to
March 1, 1920.
POST-WAR HANDICAPS
It is not my purpose to discuss the
period of federal control of the rail¬
roads. I shall mention, however, some
of the chief difficulties encountered by
private management upon the return
of the roads by the federal govern¬
ment, on March 1, 1920. Private
management thereupon found itself
faced with the problem of restoring
railroad personnel and property to its
pre-war condition. Conclusive evi¬
dence of depreciation in this property
is found in the fact that the govern¬
ment has acknowledged a bill for
under-maintenance estimated recently
by Senator Cummins at $200,000,000,
but the Railroad Administration has
driven a cruelly hard bargain in these
settlements. Private management
faced an unprecedented demand for
transportation service without ade¬
quate facilities, without the return of
working capital which had been taken
from its treasury by the government,
with 78.1% of its freight cars on
foreign lines deprived of the watchful
care of the owner, with faulty car
distribution, with long-standing un¬
settled demands for numerous wage
increases, with admittedly insufficient
revenues from existing rates, with
tracks which had not yet emerged
from an extremely severe winter
which had caused great wear and tear
upon railroad equipment and per¬
manent way, with national agreements
on rules and regulations affecting rail¬
way employees, entered into by the
Director General and continued by
law into the period of private manage¬
ment, and with the morale of employ¬
ees completely destroyed.
LEGACY OF HIGH COSTS
Mere words cannot convey an ade¬
quate impression of these conditions
at the end of the 26 months of federal
control. The impaired morale of em¬
ployees and neglect of repairs to per¬
manent way and equipment are evi¬
denced by the unimpeachable statistics
of the Interstate Commerce Commis¬
sion ; thus damages to freight, due to
careless handling, adjusted to a com¬
mon basis of index numbers, rose
from $20,000,000 in 1917 to $64,000,-
000 in 1921 as the result of unchecked
laxity of discipline during government
control. After the return of the roads
to private control and the gradual res¬
toration of discipline these payments
fell to $29,000,000 in 1922.
Compared with 1917, wages were
94% higher in May, 1920, prices 55%,
but rates only 32% higher. Accidents
due to defective track were three tixnes
and those due to defective equipment
two and one-half times as great in
1920 as in 1917.
STRAIN OF TRANSITION
As the result of experience in gov¬
ernment control and operation there
was a clearly defined and overwhelm¬
ing demand from the public for a re¬
turn of the roads to private manage¬
ment. On the other hand, it was also
clearly understood that private control
and operation of the carriers was on
trial before tbe public. In April fol¬
lowing the return of the carriers to
private management came the so-called
"outlaw" switchmen's strikes, lasting
well into the summer. It was esti¬
mated by the Commission that these
strikes had the effect, through greatly
increased congestion at many import¬
ant gateways and terminals, of taking
from the carriers for the time being
the use of about 750,000 cars, or one-
third of the available equipment. In
July, 1920, came the first decision of
the Railroad Labor Board, retroactive
to May 1, which increased the wages
of railroad employees by about 21%.
On the basis of the then existing traffic
this meant an increase in annual oper¬
ating expenses of about $650,000,000.
In May, 1920, began the most strik¬
ing economic phenomenon of the year
in the break of prices. The whole¬
sale price index number in that month
stood at 172% above the 1913 basis.
By September of the same year the
index number had fallen to 142%
above the same basis. Railroad equip¬
ment, materials and supplies, however,
continued at extraordinarily high price
levels until the last quarter of the year
and bituminous coal continued at its
peak price through December. Mean¬
while freight and passenger rates were
not increased above the inadequate
levels of federal control until Aug. 26,
1920.
1920 ABNORMAL
Despite these difficulties and handi¬
caps, the railroads, from the stand¬
point both of the quantity and the
quality of the service rendered the
public, have an especially creditable
record since their owners regained
control of them in 1920, in which year
they performed the greatest transpor¬
tation service in their history up to
that time. Efficiency has gradually
increased through performing more
work with less men, less locomotives
and less cars, the volume of business
handled in 1921 and 1922, however,
suffering by reason of the depression
of 1921 and the coal strike of 1922.
Both of these years were far from
normal. In 1923 conditions have more
nearly approached normal, and in the
first seven months of this year the
railroads moved a ton mileage of
freight 34% greater than in the same
months of the previous year.
As the result of these extraordinary
efforts the railroads in 1920 were able
to earn from transportation sources
only one-tenth of 1% on the tentative
valuation by the Commission. The
ratio of debt to total capital rose to
56.1%. The failure to realize better
financial results from railroad opera¬
tion was primarily due to the long-
deferred increase in rates required to
balance the very great increases in
wages and cost of materials, the heavy
decline in traffic which began in
November, labor difficulties and strikes
and a continuation of high prices for
wages and for fuel.
Evidently the year 1920 was far
from normal and does not constitute
a fair test of railroad operation under
the terms of the Transportation Act.
1921 ABNORMAL
The business depression, which
began in the summer of 1920 and
increased in severity through the year,
continued throughout 1921. Both
freight and passenger traffic fell off.
There was a large available surplus
of equipment during the entire year.
The peak of the surplus was reached
in April, with a daily average surplus
of cars of 493,081. In December of
the same year there was a daily aver¬
age of available surplus freight cars
of 396,371. Railroad revenues were
reduced and operating expenses were
drastically cut, with consequent
deferred maintenance of tracks and
equipment repairs.
In this year began the rising tide of
agitation for reduced rates. Such
reductions were numerous, the chief
of which occurred as follows : By the
decision of Aug. 3 all rates on live¬
stock in Western territory, except
horses and mules, which were higher
than 50 cents per hundred weight,
were reduced ; by the decision of
Oct. 20 rates on wheat, hay, coarse
grains and grain products between
points in the Western and Moun¬
tain Pacific groups of railroads
were materially reduced ; by the de¬
cision of Dec. 2 the Commission
issued a special order approving a vol¬
untary reduction of 10% in the
freight rates on agricultural products.
In addition, thousands of minor reduc¬
tions were made, either voluntarilv by
the carriers or by order of the Com¬
mission. The total effect of freight
rate decreases since Aug. 26, 1920,
when rates were advanced, was to
reduce revenues to Class I roads from
the level then established by at least
$500,000,000. The average revenue
of 1.23 cents per ton mile in the
last quarter of 1920 was reduced to
1.12 cents in the same period of 1922,
or about 10%. Passenger rates
remained undisturbed.
Effective July 1, 1921, a decision
of the Railroad Labor Board, based
on a lower living cost, reduced wage
levels about 11%. The effect of this
reduction upon labor costs to the car¬
riers was a saving estimated at $300,-
000,000 per year, only half of which
was actually experienced in 1921.
Other decisions of the Labor Board
during the latter part of 1921 caused
several changes in the working rules
and practices of railway employees,
the money value of which to the rail¬
roads was less than 1% of the total
payroll.
The net railway income of Class I
railroads for 1921 was $600,888,351,
making a return on the Commission's
tentative valuation of 3.29%.
The year 1921, with its profound
business depression, the agitation for
reduced rates and deferred mainte¬
nance of equipment, like 1920, mani¬
festly was not normal and does not
constitute a fair test of the Transpor¬
tation Act.
1922 ABNORMAL
The freight traffic for 1922 showed
a marked upward trend for the first
three months, due largely to the
accumulation of coal in storage in
preparation for the coal strike which
began on April 1. Because of tbis
increased shipment of coal up to April
1 and because of the decline in ship-
9
ments due to the coal strike beginning
at that date, traffic for the first half
of 1922 was unbalanced. In the sec¬
ond half of April and during May and
June the merchandise shipments
began to increase the volume of traffic.
The movement of traffic for the second
half of the year approached the highest
record in the history of the railroads.
Two nation-wide strikes, one by the
hard and soft coal miners, beginning
on April 1 and lasting for five and one-
half months; the other by railroad
shopmen, beginning on July 1, inter¬
fered with the normal flow of business.
Thus, 1922 cannot be said to have
been a year of normal conditions to
give a fair test of the Transportation
Act.
1923 FIRST NORMAL YEAR
Therefore 1923 so far is the only
year since the return of the roads to
their owners which can be called nor¬
mal and in which the Transportation
Act can be said to have functioned as
its framers intended it to do. The
character of the service rendered by
the railroads in these conditions is the
most convincing argument in favor
of continuing the operation of the Act
without change.
FALSE PROPHECIES
Since the passage of the Transporta¬
tion Act, as for many years previous,
the railroads have suffered from poor
business forecasting by tbe Interstate
Commerce Commission. In the rate
case of 1910 the Commission's deci¬
sion was largely affected by the results
of the previous year of a large vol¬
ume of traffic. It was then the Com¬
mission's prophecy that prices of
materials, supplies, fuel and wages
would become stabilized and would
not materially increase operating ex¬
penses. All of tbese prophecies proved
untrue. In the Five Percent Rate
case, decided Dec. 24, 1914, the Com¬
mission again prophesied the continu¬
ance of the increased volume of traffic
which occurred during the months just
prior to its decision. This prophecy
was likewise erroneous. In the
Advanced Rate case of 1920, usually
referred to as Ex Parte 74, the increase
in rates was based upon a continuance
of the extraordinary traffic handled
during that year, and yet within two
months after that decision traffic began
to decline and fell rapidly for the fol¬
lowing six months.
Under the rate levels established by
the Commission the carriers have con¬
tinued to fail in securing the statutory
return provided for in the terms of
the Transportation Act. Therefore,
the transportation bill of the public for
freight and passenger service has been
reduced at the expense of a fair return
to railroad owners on their property
devoted to public use and by amounts
for part of 1920 paid out of the United
States treasury. In the year 1920 the
deficit below the statutory return was
over $1,116,000,000. For 1921 the
deficit was over $533,000,000. In
1922 it was $334,679,000. For the
three years 1920 to 1922 the aggre¬
gate deficit below the statutory return
was $1,984,563,747. Thus for the
period named the public secured their
transportation service at a reduction
substantially $2,000,000,000 below the
statutory return, a large part of which
was at the expense of the railroad
owners. From Sept. 1, 1920, when
the six months' period of guaranteed
earnings during the transition from
government to private control expired,
to August, 1923, or exactly three years,
the average annual rate of return on
the tentative value of railroads estab¬
lo
lished by the Interstate Commerce
Commission has been but 4.0%. For
the present year, when the largest
freight trafhc on record was handled
by the railroads, the return has been
only 5.41%. Is it surprising that the
public is not enthusiastic to invest in
railroad securities and if it does so at
all that it demands prices that will
yield returns of Syífo to 63/2%?
NO GUARANTEE
The Transportation Act, 1920, actu¬
ally contemplated that there would in
many cases be revenues higher than
the statute allowed. This is demon¬
strated by the fact that the Act pro¬
vides f(ir a recapture of excess earn¬
ings. The statutory return under the
provisions of the Act is to be realized
by groups of railroad systems as a
whole, among which are some that
inevitably will earn in excess of this
stipulated return. But the Act does
not provide any guarantee whatsoever
of any sort of a return to the railroads.
This is a widespread and oft-repeated
error. This error persists despite the
fact that the Commission itself has
declared that Section 15-a is not a
guarantee but rather a limitation on
railroad earnings and despite the fact
that Senator Cummins, joint author
of the Act, has declared publicly that
no such guarantee exists. There can
obviously be no guarantee where there
is no provision for redress if the reve¬
nues fall below the statutory return.
In this instance the railroads have no
means of securing a payment of all or
any part of the deficient return in past
years indicated above.
If it still be contended by those who
claim that there is a guaranty that they
use this term, not in its legal or tech¬
nical sense, but merely as a charge that
the statute sets up a standard of earn¬
ings for these carriers which it is
made the duty of the Commission, as
nearly as may be, to realize, then it
seems a sufficient answer to call atten¬
tion to the fact that the standard so
set up is only the standard of a fair
return to satisfy the constitutional
safeguard against confiscation.
REHABILITATION
Under the conditions existing in
1920 and 1921 the railroads were not
able to bring their equipment up to
the desired standard because they had
neither money nor credit with which
to purchase a normal supply. In 1922,
however, there began a marked revival
in railway development. The equip¬
ment orders for this year exceeded
those of any year since 1918 as to
freight cars, of any year since 1916 as
to passenger equipment and of any
year since 1918 as to locomotives. In
1922 the carriers expended $467,000,-
000 for improvements and betterments.
The expenditures for improvements
and betterments by the carriers for
1923, according to announced program,
will amount to something like $1,200,-
000,000. From Jan. 1 to Oct. 1
134,636 freight cars had been put in
service and on Oct. 1 there were
64,601 freight cars on order. From
Jan. 1 to Oct. 1 there were 2,963
locomotives put in service and on
Oct. 1 there were 1,242 locomotives on
order.
Not only has there been this unusual
program for new equipment, but there
has also been a strenuous effort to put
and keep in repair the existing equip¬
ment. As a result of intensive repair
work, on Oct. 1, 1923, there were
140.322 less freight cars in unser¬
viceable condition than Oct. 1 last year,
notwithstanding cars loaded in the nine
months of 1923 were 3,520,326, or
11
10% greater than the previous peak
year 1920.
By Oct. 1 the number of unservice¬
able locomotives was 9,904, or 50%
less than on same date last year, not¬
withstanding extraordinary traffic
handled, the greatest on record.
FULLER USE OF FACILITIES
Higher efficiency also was secured
by means of heavier loading per car
and more miles per car per day. The
average tons per car for the month of
August, 1923, increased 2.3 tons over
a year ago and the average miles per
car per day for the same month was
6.4 higher than a year ago. As one
ton added load in the car is equiva¬
lent to an addition of 90,000 cars to
the available number, and as one extra
mile run per car per day adds 100,000
to the available cars, the increases
referred to are equivalent to adding
847,000 to the car supply as compared
with the car supply of 1922. Adding
to this the 140,322 cars due to reduced
number of cars under repair makes a
grand total of nearly a million more
cars available for traffic in 1923 than
in 1922. Traffic was handled with
20,000 fewer locomotives for an equal
traffic volume. To have purchased the
locomotives and cars thus saved would
have cost some $3,500,000,000, the
interest on which at 5.75%—the statu¬
tory rate—or $300,000,000 was saved
to the public by intensive use of exist¬
ing cars and locomotives. I say saved
advisedly because in the end the public
must provide by adequate rates a fair
return on capital invested for its use.
The largest number of cars loaded in
the history of the railroads was 1,097,-
274 for the week ended Sept. 29. This
explains how the car-loading records
were broken 13 times up to Oct. 13,
1923, date of last report, and answers
the question often asked. How are the
railroads able to show such extraor¬
dinary results?
CAR SERVICE DIVISION
In discussing the improved efficiency
in the operation of the roads attention
should be directed to the work of the
Car Service Division of the American
Railway Association. Some idea of
the work of this organization can be
gained from a brief review of its activi¬
ties.
The Car Service Division in antici¬
pation of the needs in the agricultural
producing sections of the West this
year instituted a program for the
movement and accumulation of empty
cars from Eastern and Southern lines
to Western lines to properly protect
the producers in that territory.
Under its program the Eastern and
Southern lines delivered through the
gateways of Chicago and St. Eouis
alone since the 16th day of April,
107,299 empty cars of Western lines'
ownership, and in addition 24,585 of
their own box cars. This means a
total delivery to Western lines since
the 16th day of April of 131,884'empty
box cars of both Western and Eastern
lines' ownership, with the result that
there has been ample equipment in the
West to fully meet the agricultural
needs, the roads in that district having
as a whole 100% or in excess thereof
of their ownership.
FIELD ORGANIZATION
The Car Service Division has
extended its organization by the ap¬
pointment of District Managers and
Car Service Agents, and through
more intensive supervision of car
handling, both as to respecting the
ownership of the car and also in
the unloading and movement of re-
12
frigerator cars, has brought about a
more equitable distribution and hand¬
ling of cars than has existed for
several years. All of this has been
accomplished while the railroads, par¬
ticularly in the Eastern territory, were
loading the heaviest business ever
handled in their history. Sept. 30
there was a net surplus of 25,904 cars.
To bring about a better understand¬
ing with the shippers the Car Service
Division organized Regional Advisory
Boards of the shippers to study the
problems of greater efficiency in car
handling and with particular reference
to the heavier loading of cars. These
boards served to force a common meet¬
ing ground between the shippers and
the railroads for the better understand¬
ing of transportation questions, to
adjust informally difficulties which may
arise, and to give the shippers more
complete and accurate knowledge of
the car-handling problem, with an
ultimate view to the elimination of
transportation difficulties as related to
car handling.
The results obtained from the work
of the Car Service Division appear
clearly to show the effectiveness of
such an organization in an equitable
distribution of freight cars. It is
certainly clear that by this means car
distribution is flexible and is quickly
responsive to the specific needs of
localities and individual industries. It
is also clear that the excellent results
obtained render unnecessary the for¬
mation of an organization independent
of railroad management for the pur¬
pose of pooling freight cars and of
owning and controlling them inde¬
pendently of railway management
itself.
OFFICIAL SATISFACTION
Chairman C. M. Reed, of the Public
Utilities Commission of Kansas, in a
letter to Mr. Aishton, President of
the American Railway Association,
says of the Car Service Division :
"I feel it is doing an exceedingly
good work, not only in improving
the technical efficiency of car serv¬
ice, but in getting over to the public
what you are trying to do and secur¬
ing its co-operation.
"I think your Car Service Divi¬
sion work is easily the most intelli¬
gent dealing with the public that I
have seen and you and it are to be
congratulated."
Because of my natural bias, it would
not be surprising for many of you to
discount the claims of efficiency I have
advanced, so that unprejudiced opin¬
ions will be illuminating.
Sir W. M. Acworth, a high British
authority on railway operation, said
some years ago :
"It has always been my opinion
that in actual economy of operation
the railways of the United States
are first in the world. In number
of tons per car, cars per train ; in
the fullest utilization of locomotives ;
in the obtaining of the greatest
measure of result for each unit of
expenditure, they are not equalled by
the railways of any other nation."
Interstate Commerce Commissioner
Potter, in the Assigned-Car Case,
June 13, 1923, stated:
"It must be recognized that the
railways are making supreme effort,
with much success, to meet the de¬
mands upon them. They are now
more efficient than at any prior time
in their history. With fewer men,
they have in recent months exceeded
all prior achievements. They have
been handling tonnage in record
volume so efficiently that there has
been scarcely a murmur of complaint
and so smoothly that their marvelous
performance is scarcely noticed.
"Already superior in public serv¬
ice to every other system of trans¬
portation in the world, they are
13
headed for better work in which
there is promise that railway
problems will disappear."
FAVORABLE CONDITION ESSENTIAL
The information herein given de¬
monstrates clearly the progress made
by the railroads in their return to a
high degree of efficient service. It
also indicates the possibility that rail¬
way management may so adjust itself
under the provisions of the Transpor¬
tation Act that railroads may once
again be on an even keel, may secure
and maintain a higher and more effec¬
tive plane of service, and keep step
with the advancing demands for trans¬
portation. But this goal cannot be
reached if the railroads are constantly
to be harassed by attacks of political
agitators, by misrepresentation and by
threats. Neither the railroads nor the
people of this country can know the
full possibility of transportation serv¬
ice under the provisions of this Act
until it has been in operation for a
reasonable length of time under more
stable and particularly under normal
conditions, which we have pointed out
have not prevailed during 1920, 1921
and 1922, the first three years after
return to private control.
Why should further restrictive and
repressive legislation be sought? Are
not the railroads today sufficiently
burdened with legislative regulation?
SHIPPERS FULLY PROTECTED
Certainly there can be no legitimate
interest of the shipping public which
will not be adequately protected dur¬
ing a fair trial of this Act by its pro¬
visions as they now stand. Consider
what the Act provides. It provides
that the rates shall be fixed or con¬
trolled by the government and not
by the carriers ; that all rates shall be
reasonable and shall be fixed by the
government at levels which, while
embracing only rates that are reason¬
able, will satisfy the constitutional
requirement of giving the owners of
the property "as near as may be, a
fair return" on the value of the prop¬
erty used in performing the service ;
that the question of what amounts to
a fair return shall be determined by
the government and not by the car¬
riers ; that the value of the transpor¬
tation property on which the fair
return is to be estimated shall be
fixed by the government and not by
the carriers ; that the question relative
to rates, of whether or not the man¬
agement of the railroads is honest,
efficient and economical and the ex¬
penditures for maintenance of way
and structures are reasonable, shall be
determined by the government and
not by the carriers ; that the question
of whether or not stocks or bonds
shall be issued, and if so, in what
amount and on what terms, shall be
determined by the government and
not by the carriers, and that unjust
discrimination and favoritism against
or in favor of any of the carriers'
patrons shall be unlawful and will
not be permitted by the government.
With such provisions there seems to
be no ground for the fear that, from
the standpoint of the shipping public,
carriers engaged in interstate com¬
merce are not under existing laws
completely regulated.
TIME REQUIRED
The railroads in this country, it is
believed, will be accorded a greater
degree of justice under the new public
attitude than heretofore. The public
wants adequate service. For such
adequate service the railroads must
secure a fair return. This is the hope
which this new public attitude brings
to railway management. But it must
be realized that a restoration of con¬
fidence in the railroads and the
stabilization of their credit must
necessarily be of slow growth. Such
a feeling of confidence and such sta¬
bilization of credit will be the result
of a long period of experience and the
consistent following of a fair, equit¬
able and definite policy.
PUBLIC ON TRIAL
It is often said that private manage¬
ment of railroads in this country is
on trial and is being given its last
chance. I have told you in consider¬
able detail of the record of private
management under the terms of the
Transportation Act. I have shown
you how private management is strug¬
gling back to a tolerable condition.
There is, however, another side to
this problem. Not only is private
management on trial, but also the
public and you, as a part of that
public, are on trial. The public and
you represent government regulation
and you are on trial today to a greater
extent than are the railroads.
The question under consideration is
whether to continue the operation of
the Transportation Act as it now
stands or to amend it. You must
remember that the government, repre¬
senting the public, has so far invaded
the field of management as to be
approaching the condition of actual
government ownership, without, how¬
ever, having paid the purchase price
therefor. The government has the
power of management, but it has not
assumed the risks and responsibilities
of management. The owners of the
railroads have very little more to lose
than what has already been taken from
them, but the public that pronounced
so emphatically in 1919 and 1920
against actual government ownership
and the public that enacted the Trans¬
portation Act as it now stands has
far more to lose if the railroads are
forced into government ownership,
as they inevitably will be unless they
are given an opportunity to function
properly under the terms of the
Transportation Act. These public
losses will appear as inadequate
transportation service, as increased
operating expenses with resulting
deficits to be paid from the United
States Treasury, as the loss of our
$300,000,000 taxes now paid by the
railroads, as decreasing morale of
employees such as was prevalent dur¬
ing the period of government control.
These are losses which the public now
escapes.
WHICH ?
Amendment of the Transportation
Act, therefore, means the probability
of incurring the risks of management
as indicated above. Further trial of
the Transportation Act means an op¬
portunity for private management to
demonstrate its ability to afford ade-
(juate service at lower cost. Which
of these will you choose?
IS