Cornell University Library HE2705 1921.C1 v.1 Railroad revenues and expenses. Hearings 3 1924 002 760 142 Qicrosoftd CORNELL UNIVERSITY LIBRARY NEW YORK STATE SCHOOL OF INDUSTRIAL AND LABOR RELATIONS THE GIFT OF THE UNITED TRANSPORTATION UNION Digitized by Microsoft® This book was digitized by Microsoft Corporation in cooperation with Cornell University Library, 2008. You may use and print this copy in limited quantity for your personal purposes, but may not distribute or provide access to it (or modified or partial versions of it) for revenue-generating or other commercial purposes. Digitized by Microsoft® Digitized by Microsoft® RAILROAD REVENUES AND EXPENSES HEARINGS BEFORE THE COMMITTEE ON INTERSTATE COMMERCE UNITED STATES SENATE SIXTY-SEVENTH CONGRESS FIRST SESSION PURSUANT TO ; • Senate Resolution 23 DIRECTING THE COMMITTEE ON INTERSTATE COMMERCE TO HOLD HEARINGS UPON MATTERS RELATING TO REVENUES AND EXPENSES OF RAILROADS ^ W'HICH REPORT TO THE INTERSTATE ^ COMMERCE COMMISSION ^S . Volume I ** V / MAY 10 TO JUNE 1, 1921 -A? ^ — ^ Printed for the use of th« Committee on Intestate Commerce WASHINGTON GOVERNMENT PRINTING OFFICE 83553 . 1921 Duplicate Copie* DiamzecTbv. Micrasoft® .^.- '*"" Digitized by Microsoft® RAILROAD REVENUES AND EXPENSES HEARINGS BEFORE THE COMMITTEE ON INTERSTATE COMMERCE UNITED STATES SENATE. % SIXTY-SEVENTH CONGEESS. in FIRST SESSION PURSUANT TO Senate Resolution 23 DIRECTING THE COMMITTEE ON INTERSTATE COMMERCE TO HOLD HEARINGS UPON MATTERS RELATING TO REVENUES AND EXPENSES OF RAILROADS WHICH REPORT TO THE INTERSTATE COMMERCE COMMISSION Volume I MAY 10 TO JUNE 1, 1921 Printed for the use of the Committee on Interstate Commerce rf* <& WASHINGTON GOVERNMENT PRINTING OFFICE i;3553 1921 Digitized by Microsoft® COMMITTEE ON INTERSTATE COMMERCE ALBERT B. CUMMINS, Iowa, Chairman. CHARLES E. TOWNSEND, Michigan. ELLISON D. SMITH, South Carolina. ROBERT M. LA FOLLETTE, Wisconsin. ATLEE POMERENE, Ohio. MILES POJ.NDEXTER, Washington. HENRY L. MYERS, Montana. GEORGE P. McLEAN, Connecticut. OSCAR W. UNDERWOOD, Alabama. JAMES E. WATSON, Indiana. JOSIAH O. WOLCOTT, Delaware. FRANK B. KELLOGG, Minnesota. A. OWSLEY STANLEY, Kentucky. BERT M. FERNALD, Maine. JOSEPH S. FRELINGHUYSEN, New Jersey. DAVIS ELKINS, West Virginia. Paul Moore, Clerk. Digitized by Microsoft® RAILROAD REVENUES AND EXPENSES. TUESDAY, MAY 10, 1921. United States Senate, Committee on Inteestate Commerce, Washington, D. CC The committee met, pursuant to call, at 10 o'clock a. m., in the committee room, 410 Senate Office Building, Senator Albert B. Cum- mins presiding. Present: Senators Albert B. Cummins (chairman), Townsend, La Follette, Poindexter, Kellogg, Fernald, Frelinghuysen, Elkins, Smith; Pomerene, Myers, Wolcott, and Stanley. The Chairman. The committee has met this morning in open in- quiry pursuant to Senate resolution 23, which resolution I give to the reporter and ask that it may be incorporated in the record. Senate resolution 23. Resolved, That the Committee on Interstate Commerce is hereby authorized and directed to inquire into and report to the Senate as speedily as practicable upon the following matters, to wit: First. The operating revenues and expenses of the railroads of the country which under the law make reporfs to the Interstate Commerce Commission, comparing these revenues and expenses with like revenues arid expenses (including the period of Federal control) since 1912. Second. The reasons which led to the extraordinary cost of maintenance and opera- tion from March 1, 1920, to March 1, 1921. Third. The reasons which induced the diminished volume of traffic in the latter part of the year 1920 and the first two months of 1921, and in that connection the in- fluence of tile increased freight and passenger rates prevailing during that period. Fourth. The efficiency or inefficiency of railroad management during Federal con- trol, during the year beginning March 1, 1920, and the efficiency or inefficiency of labor employed by the management during the same periods. Fifth. The best means of bringing about a condition that will warrant the Inter- state Commerce Commission in reducing freight and passenger rates. The committee is authorized to act under, this resolution either as a whole or through any subcommittee appointed for the purpose; to subpoena witnesses, administer oaths, send for persons and papers, and to employ counsel, experts, and stenographers. The expense incurred shall be paid from the contingent fund of the Senate, upon vouchers approved by the chairman of the committee. The chairman of the committee desires to make a brief statement to indicate the reasons which have moved him to make the arrange- ments which have been made concerning the introduction of testimony and the order in which it is expected mat it will be adduced. I desire to put in the record certain items from reports which have been furnished to me by the Interstate Commerce Commission and which will form, in a way, the basis for the inquiry we are about to' make. The operating revenues of class I railroads — and the class I rail- roads, as I understand it, carry about 95 per cent of the traffic of the country— for the year ending June 30, 1913, were $3,043,324,782. PROPERTY OF LIBRARY 3 hip.7. YO^ .STATE SCHOOL CORNELL UNIVERSITY 4 RAILROAD REVENUES AND EXPENSES. Operating expenses for the same period were $2,109,634,212. The railway operating income for that period was $816,510,793. What we have been in the habit of calling net railway operating income for that year was $787,610,435. The ratio of operating expenses as compared with the operating revenues for the year was 69 per cent. I am omitting the decimals. For the year ending June 30, 1914, the operating revenues of the same class of railroads were $2,969,898,838. The operating ex- penses for that year were $2,139,755,988. The net railway operating income — and I am using net operating income to indicate the surplus available for the payment of interest upon obligations and dividends upon stock — for that period was $661,118,147. And the ratio to which I have already referred was 72 per cent. For the year ending June 30, 1915, the operating revenues were $2,871,563,047. The operating expenses were $2,021,160,614. The net railway operating income was $683,104,833. The ratio of expenses to revenues was 70 per cent. For the year ending June 30, 1916, operating revenues were $3,381,597,866, The operating expenses were $2,210,892,786. The net operating income was $984,872,959. The ratio of operating expenses to operating revenues was 65 per cent. The next year the fiscal year for reporting was changed from June 30 to December 31. I am reading now the items for the year ending December 31, 1916. The revenues were $3,596,865,766. The expenses of operation were $2,357,398,412. The net operating income was $l,040,084,517. t The ratio of expenses to revenues was 65 per cent. For the year ending December 31, 1917, and that was the last year of private operation prior to Federal control, the revenues were $4,014,142,748. The expenses were $2,829,325,123. The net rail- way operating income was $934,068,772. The ratio of expenses to revenues was 70 per cent. For the year ending December 31, 1918, that being the first year of Federal control, the operating revenues were $4,059,025,017. The operating expenses were $2,966,268,207. The net railway operating income was $874,759,738. The ratio was 73 per cent. I should explain that the figures I have just given are for the first year beginning March 1, 1918, and ending February 28, 1919. Senator Kellogg. Why was that made March 1 ? The Chairman. I have the computation made for the year begin- ning March 1 and ending with February 28 in order that we might compare the results of two years and two months of Government operation with the one year since the railroads were returned to their owners. For the year beginning March 1, 1919, railway operating revenues were $5,099,958,741. The operating expenses were $4,169,387,637. The not railway operating income, as shown by this report, was $714,171,900. The ratio was 82 per cent. For the year beginning March 1, 1919, and ending with March 1, 1920, the operating revenues were $5,360,195,790. The operating expenses were $4,562,941,662. The net railway operating income was $540,018,236. The ratio of expenses to revenues was 85 per cent. Digitized by Microsoft® RAILROAD SEVENTIES AND EXPENSES. 5 For the year beginning on the 1st of March, 1920, and ending with the 1st of March, 1921 — that is, the year during which the railroads have been in private operation since Federal control — - — ■ Senator Kellogg (interposing). For the first six months of the year they were not really under private operation because operating expenses were practically fixed by statute. The Chairman. I am not commenting upon the explanation but am simply giving the figures here. Senator Kellogg. All right. The Chairman. The operating revenues for the year ending March 1, 1921, were $6, 175,962,718. The operating expenses were $5,825,- 388,510. The net railway operating income was $2,578,922. The ratio of operating expenses, to operating revenues was 94 per cent. The railroads received during the year, up to March 1, 1921, as I have stated, $6,175,962,718 as operating revenues. I think it can be said without very much doubt that that is a larger revenue than the railroads will over receive again for the same volume of business. The operating expenses, together with taxes and the adjustment of equip- ment rents and joint facility rents, consumed all of that sum except $2,578,923. So we have before us the problem, I think, of trying to ascertain whether the $6,000,000,000 and more received as operating revenues were wisely, economically and efficiently expended. If we can not increase the revenues, and I think we have reached our limit in that respect for the same volume of business, it is apparent that expenses must be reduced in some way or other if the railroads of the country are to be successful in their operations. That situation has led me to ask the railway executives to appear, in the first instance, and give the committee the benefit of their knowledge and their observation with regard especially to the. enor- mous expenses of 1920, so that we might find out, possibly, some way to assist in the operation of these railroads that would enable them to continue in operation, for it is perfectly obvious that if this condition is to be a permanent one a very grave situation confronts the people of the United States. I have therefore asked Mr. Thorn, who repre- sents the railway executives, or has represented them heretofore and does now I am quite sure, to present the showing which the railroad companies desire to make with regard to this very Vital matter. Mr. Alfred P. Thom. Mr. Chairman and gentlemen of the com- mittee, without any opening statement of counsel at this time, I will at once introduce the railway executives to give you the facts which the committee needs, and I will ask Mr. Kruttschnitt to take the stand. But first, Mr. Chairman, let me say that you did not mention when you read the operating ratio, as shown by the figures that you gave for the year beginning March 1, 1918, and ending March 1, 1919. ■ The Chairman. That ratio was 73 per cent. Mr. Thom, How about the next year ? The Chairman. For the year 1919 the ratio was 82 per cent. For 1920 — that is, the year ending March 1, 1920 — the ratio was 85 per cent. Mr. Thom. I have that. The Chairman. In 1921 the ratio was 94 per cent. Mr. Thom. I also missed the operating revenues for the year beginning March 1, 1919, and ending March 1, 1920. Digitized by Microsoft® 4 RAILROAD SEVENTIES AND EXPENSES. Operating expenses for the same period were $2,109,634,212. The railway operating income for that period was $816,510,793. What we have been in the habit of calling net railway operating income for that year was $787,610,435. The ratio of operating expenses as compared with the operating revenues for the year was 69 per cent. I am omitting the decimals. For the year ending June 30, 1914, the operating revenues of the same class of railroads were $2,969,898,838. The operating ex- penses for that year were $2,139,755,988. The net railway operating income — and I am using net operating income to indicate the surplus available for the payment of interest upon obligations and dividends upon stock — for that period was $661,118,147. And the ratio to which I have already referred was 72 per cent. For the year ending June 30, 1915, the operating revenues were $2,871,563,047. The operating expenses were $2,021,160,614. The net railway operating income was $683,104,833. The ratio of expenses to revenues was 70 per cent. For the year ending June 30, 1916, operating revenues were $3,381,597,866. The operating expenses were $2,210,892,786. The net operating income was $984,872,959. The ratio of operating expenses to operating revenues was 65 per cent. The next year the fiscal year for reporting was changed from June 30 to December 31. I am reading now the items for the year ending December 31, 1916. The revenues were $3,596,865,766. The expenses of operation were $2,357,398,412. The net operating income was $1,040,084,517.1 The ratio of expenses to revenues was 65 per cent. For the year ending December 31, 1917, and that was the last year of private operation prior to Federal control, the revenues were $4,014,142,748. The expenses were $2,829,325,123. The net rail- way operating income was $934,068,772. The ratio of expenses to revenues was 70 per cent. For the year ending December 31, 1918, that being the first year of Federal control, the operating revenues were $4,059,025,017. The operating expenses were $2,966,268,207. The net railway operating income was $874,759,738. The ratio was 73 per cent. I should explain that the figures I have just given are for the first year beginning March 1, 1918, and ending February 28, 1919. Senator Kellogg. Why was that made March 1 ? The Chairman. I have the computation made for the year begin- ning March 1 and ending with February 28 in order that we might compare the results of two years and two months of Government operation with the one year since the railroads were returned to their owners. For the year beginning March 1, 1919, railway operating revenues were $5,099,958,741. The operating expenses were $4,169,387,637. The net railway operating income, as shown by this report, was $714,171,900. The ratio was 82 per cent. For the year beginning March 1, 1919, and ending with March 1, 1920, the operating revenues were $5,360,195,790. The operating expenses were $4,562,941,662. The net railway operating income was $540,018,236. The ratio of expenses to revenues was 85 per cent. Digitized by Microsoft® RAILROAD REVENUES AND EXPENSES. 5 For the year beginning on the 1st of March, 1920, and ending with the 1st of March, 1921 — that is, the year during which the railroads have been in private operation since Federal control Senator Kellogg (interposing) . For the first six months of the year they were not really under private operation because operating expenses were practically fixed by statute. The Chairman. I am not commenting upon the explanation but am simply giving the figures here. Senator Kellogg. All right. The Chairman. The operating revenues for the year ending March 1, 1921, were $6,175,962,718. The operating expenses were $5,825,- 388,510. The net railway operating income was $2,578,922. The ratio of operating expenses to operating revenues was 94 per cent. The railroads received during the year, up to March 1, 1921, as I have stated, $6,175,962,718 as operating revenues. I think it can be said without very much doubt that that is a larger revenue than the railroads will ever receive again for the same volume of business. The operating expenses, together with taxes and the adjustment of equip- ment rents and joint facility rents, consumed all of that sum except $2,578,923. So we have before us the problem, I think, of trying to ascertain whether the $6,000,000,000 and more received as operating revenues were wisely, economically and efficiently expended. If we can not increase the revenues, and I think we have reached our limit in that respect for the same volume of business, it is apparent that expenses must be reduced in some way or other if the railroads of the country are to be successful in their operations. That situation has led me to ask the railway executives to appear, in the first instance, and give the committee the benefit of their knowledge and their observation with regard especially to the enor- mous expenses of 1920, so that we might find out, possibly, some way to assist in the operation of these railroads that would enable them to continue in operation, for it is perfectly obvious that if this condition is to be a permanent one a very grave situation confronts the people of the United States. I have therefore asked Mr. Thorn, who repre- sents the railway executives, or has represented them heretofore and does now I am quite sure, to present the showing which the railroad companies desire to make with regard to this very vital matter. Mr. Alfred P. Thom. Mr. Chairman and gentlemen of the com- mittee, without any opening statement of counsel at this time, I will at once introduce the railway executives to give you the facts which the committee needs, and I will ask Mr. Kruttschnitt to take the stand. But first, Mr. Chairman, let me say that you did not mention when you read the operating ratio, as shown by the figures that you gave for the year beginning March 1, 1918, and ending March 1, 1919. • The Chairman. That ratio was 73 per cent. Mr. Thom. How about the next year? The Chairman. For the year 1919 the ratio was 82 per cent. For 1920 — that is, the year ending March 1, 1920 — the ratio was 85 per cent. Mr. Thom. I have that. The Chairman. In 1921 the ratio was 94 per cent. Mr. Thom. I also missed the operating revenues for the year beginning March 1, 1919, and ending March 1, 1920. Digitized by Microsoft® f> EAILEOAD REVENUES AND EXPENSES. The Chairman. They were $5,360,195,790. I might explain that I am taking all these figures from the reports furnished by the Inter- state Commerce Commission. Senator Pomerene. Before proceeding with Mr. Kruttschnitt I want to ask one question. I have had no opportunity to analyze these figures. There has been a constant increase in the ratio be- tween expenditures and revenues. Is that due to the increase in expenditures or to a decrease in revenues, or to both ? The Chairman. There was a small decrease in revenues comparing 1914 with 1913, and a still smaller decrease in revenues comparing 1915 with 1914. Otherwise the revenues have increased continually. I ought to say in that connection, so that the figures I have given may be complete, that for 1913 these reports cover 222,744 miles of railroad. That mileage increased, little by little, until in 1917 the reports cover 232,198 miles. In 1918 the number of miles covered in these reports was 232,864. In 1919 the mileage was 233,035, in 1920 the mileage was 235,059, and in 1920 it was 235,559. Senator Kellogg. I suggest that the chairman put those tables in the record. The Chairman. Yes; I intend to put the whole table in, but selected only these items that I wanted to call attention to. Senator Kellogg. And then we will have all of the tables printed in the record ? The Chairman. The tables marked "Exhibit A" and "Exhibit B," furnished by the Interstate Commerce Commission, are to be inserted in the record at this point. (The tables referred to are here printed in full as follows :) Revenues and expenses for the United States of class I steam roads, excluding switching and terminals, for the years 191S to 1917. June 30, 1913. June 30, 1914. June 30, 1915. 1. Average number of miles operated . 11. 12. 13. 14. 15. 16. 17. 18. 19. 30. •21. 22. 33. 34. 35. Freight REVENUES. Mail. All other transportation Incidental Joint facility— Creditor Joint facility— Debtor Railway operating revenues EXPENSES. Maintenance of way and structures. . . Maintenance of equipment Traffic Transportation Miscellaneous operations General Transportation for investment^Cr. . . Railway operating expenses Net revenue from railway operations. Railway tax accruals Uncollectible railway revenues Railway operating income , Equipment rents (debtor balance) Joint facility rent (debtor balance) Net of items 22, 23, and 24 36. Ratio of O; per com' expenses to operating revenues, 222,744.79 225, 445. 43 228,433.59 $2,140,083,391 678, 966, 749 49, 711, 893 78,544,017 63, 267, 461 30,252,401 3, 508, 399 1,009,1)32 3,043,324,782 405,840,494 499.914,820 61,427,558 1,067,674,603 $2,059,891,935 683,748,602 53, 965, 955 74,416,658 63, 868, 547 ' 31,602,437 3,614,416 1,209,712 2, 969, 898, 838 403,682,593 520,200,274 62,366,351 1,073,981,380 74,090,139 79,525,390 2,109,634,212 933,690,570 118,386,859 2,139,755,988 830, 142, 850 135,572,579 816,510,793 15,611,817 13,288,541 787,610,435 692,330,572 17,686:287 13,626,138 661,018,147 $1,977,933,275 629,237,464 56, 959, 261 68, 949, 850 78, 119, 110 58,097.398 3,457,668 1,190,979 2, 871, 563. 047 364,004,178 496,739,561 59,403,419 1,010,914,727 22,871,785 74,172,107 e,94S,16S 2,021,160,614 850,402,433 133,276,330 649,917 716,476,186 19,128,943 14,242,410 683, 104, 833 69.320 72. 048 70.385 1 Includes $686,598 unclassified. Digitized by Microsoft® RAILROAD REVENUES AND EXPENSES. 7 Revenues and expenses for the United States of class I steam roads, excluding switching and terminals, for the years 1918 to 1917 — Continued, June 30, 1916. Dec. 31, 1916. Dec. 31, 1917 1. Average number of miles operated BEVENUES. 2. Freight 3. Passenger : 4. Mail..^ 5. Express 6. All other transportation 7. Incidental s. Joint facility'— Creditor .' 9. Joint facility— Debtor i, ..,,.,, ..... . 10. Railway operating revenues , ......: t expenses. , 11. Maintenance of way and structures 12. Maintenance of equipment 13. Traffic 14. Transportation 15. Miscellaneous operations 16. General. . ; 17. Transportation for investment— Cr 18. Railway operating expenses 19. Net revenue from railway operations 20. Railway tax accruals 21. Uncollectible railway revenues 22. RaflwSy^bperating income 23. Equipment rents (debtor balance) 24. Joint faeility rent (debtor balance) 25. Net of items 22, 23, and 24 26. Ratio of operating expenses to operating revenues percent 230,508.35 I 230,991.10 232,198.99 12, ■02,210,995 171,806,175 60,126,464 80,871,864 90. 422, 568 71.905,784 3,598,814 1,SUJ9S 3,381,597,866 404, 514, 144 557,664,332 60,633,984 1,090,100,194 25,249,704 79,192,476 8,4M,0.}8 2,210,892,786 1,170,705,080 145, 517, 034 806, 747 1,024,381,299 23, 564, 582 15,943,758 984,872,959 $2,560,988,111 706.608,630 61,lflfi,800 90,155,445 95,720,654 79,762,985 3, 830, 343 3, 596, 865, 766 421, 775, 812 595,566,336 62,839,996 1, 173, 987, 775 26,858,441 84,418,107 SMS.06B 2,357,398,412 1,239,467,354 157,113,372 797 486 1, 081, 556 496 23,767,262 . 17,704,717 1,040,084,-517 65. 380 $2,819,965,215 825, 211. 593 58,775,765 106,914,603 99,869,036 100,583,698 4,381,795 1,558,967 1,014,142,748 442,109,862 685,428 9l3 64,985,070 1,515,988,879 33,437,644 95,933,290 8,658,685 2,829,325,123 1,184,817,625 213,920,095 700,090 970,197,440 17,999,098 18,129,570 934,068,772 70. 484 Revenues and expenses of class I steam roads, including switching and terminal companies, twelve, months ended with February, 1918, 1919, 1920, and 1921. 1. Average number of miles operated at end of period BEVENUES. io: Freight Passenger Mail Express All other transportation Incidental Joint facility— creditor Joint facility— debtor Railway operating revenues . EXPENSES. Maintenance of way and structures. Maintenance of equipment Traffic Transportation Miscellaneous operations General Transportation for investment — Cr. . Railway operating expenses Net revenue from railway operations Railway tax accruals Uncollectible railway revenues. . Railway operating income Equipment rents— Dr. balance. . Joint facility rent— Dr. balance. . Net of items 22; 23, and 24 . Ratio of operating expenses to operating revenues per cent. . 235,559 $4,322,762,531 1,308,457,443 96,918,452 129,959,447 166,938,454 145,510,437 7,736,198 2,315,244 6,175,962,718 1,026,048,072 1,580,799,653 78,181,004 2,906,302,480 61,246,607 178,093,899 5,283,205 5,825,388,510 350,574,208 290,958,246 1,1717646 58,444,316 36,343,667 19; 521, 727 2,578,922 1920 235,059 $3,647,184,916 1,188,155,444 118,557,832 139,135,363 130,091,079' 131/802,525 7,549,056 2,280,425 5,360,195,790 787,930,491 1,279,591,891 50,354,624 2,273,520,152 50,263,484 127,108,638 5,827,618 4,562,941,662 797,254,128 203,580,430 1,015,977 592,657,721 35,615,021 17,024,484 540,018,236 233,025 $3,590,671,463 1,069,850,113 53,116,813 122,537,912 129,026,681 130,242,338 6,323,903 1, 810, 532 5,099,958,741 689,193,236 1,165,890,672 46,297,986 2,118,130,118 40,149,312 115,786,819 6,060,506 4,169,387,637 930,571,104 187,930,812 642,095 741,978,197 14,252,445 13,553,852 714,171,900 1918 $2,824,503,897 844,125,224 57,108,602 109,230,203 114,314,743 106,807,252 4,550,390 1,615,294 4,059,025,017 46X006,055 721,018,009 64,055,088 1,593,380,275 34,677,653 98,495,557 8,364,430 2,966,268,207 1,092,756,810 184,630,794 693,619 907,432,397 18,779,887 13,892,772 874,759,738 73 Note.— Figures for February, 1921, of Seaboard Air Line and Southern Pacific-Atlantic Steamship Lines are estimated. Digitized by Microsoft® 8 RAILROAD REVENUES AND EXPENSES. The Chairman. What is the view of the committee with regard to having witnesses sworn ? We have not often done that, but I think we have authority to do it. Senator Townsend. I think we ought to do it. There has been so much question about some of these matters, as to whether we were getting the exact facts or not, that I think it would be the better plan to have the witnesses sworn. The Chairman. If there is no objection, we will proceed in that way. Mr. Kruttschnitt, will you be sworn ? Mr. Kruttschnitt. Certainly. Mr. Thom. Mr. Chairman, can you tell me whether the figures you have read include the corporate expenses for the years of Federal control ? The Chairman. If you mean corporate expenses of the corpora- tions outside of railroad administration I do not think so, but am not positive about it. Mr. Thom. That is what I meant. The Chairman. My judgment is that there are no overhead expenses shown in this statement. Senator Fernald. In order that those statements may be entirely clear I would like to know if in those estimates any account is made of interest charges on bonds, which is a necessary expense. The Chairman. Oh, no. The figures I have given do not include* the payments of interest and taxes or dividends on stock. I have dealt only with operating revenues and operating expenses and net operating income, together with the ratio. Of course, they produce the sum which the railroads may finally use in the payment of interest upon bonds or dividends upon stock. Mr. Thom. Before Mr. Kruttschnitt begins I would like to call the attention of the committee to the fact that during Federal control what came to be known as corporate expense, and which prior to Federal control was part of operating expenses, was thrown upon the carriers by the action of the Director General of Ttailroads, who refused to bear them. That explains the question I asked the chairman a moment ago. The Chairman. I have not any information from the Interstate Commerce Commission upon that point, but I understand that the statement you have made, Mr. Thom, is correct. Mr. Thom. In addition to that there were certain expenses of the Railroad Administration which were not charged to the individual carriers but were carried as overhead expenses. I am wondering whether those expenses are in these figures. The Chairman. My information is that they are not. TESTIMONY OF ME. JULIUS KRUTTSCHNITT, CHAIRMAN OF THE EXECUTIVE COMMITTEE OF THE BOARD OF DIRECTORS OF THE SOUTHERN PACIFIC CO., NEW CANAAN, CONN. The witness was duly sworn by the chairman. The Chairman. Mr. Kruttschnitt, you will please give your full name, your business, and your residence to the reporter for the record. Mr. Kruttschnitt. My name is Julius Kruttschnitt; my occupa- tion is chairman of the executive committee of the board of directors of the Southern Pacific Co., and my residence is New Canaan, Conn. Digitized by Microsoft® / • RAILROAD REVENUES AND EXPENSES. 9 The Chairman. You will now proceed. Arrange your testimony as you like, and unless the committee thinks that it is not a good plan you will not be interrupted until you have finished. Mr. Kruttschnitt. I thank you. Mr. Chairman and gentlemen of the committee, with the permis- sion of the committee I will read into the record a statement of Mr. Thomas DeWitt Cuyler, chairman of the Association of Eailway Executives, expressing the spirit of the association in respect to the inquiry now about to he begun: The Association of Railway Executives welcomes the inquiry to be undertaken by (he Senate committee. The presentation of the railroad case will be under the general charge of Mr. Alfred P. 'Thorn, general counsel for the association, and among the first witnesses he will put on the stand will be Mr. Daniel Willard, president of the Baltimore & Ohio Rail- road, and Mr. Julius Kruttschnitt, chairman of the board of the Southern Pacific Co. They will be followed by other witnesses prepared to deal with all phases of the rail- road situation. In a general way it- may be stated that the following will indicate the spirit which will pervade the testimony to be offered by the railroads: The transportation service of this: ountry is passing through a crisis. It is not a crisis peculiar to the railroads of the United States. It is a situation of world-wide incidence arising from perfectly understandable causes, most of them having their origin in the World War. Feeling, as we do, that the world has definitely turned thecorner of its most acute depression, so we feel that the railroad situation has likewise passed through its darkest hour and has now definitely turned for the better. The last Congress in passing the transportation act placed upon the statute books the most constructive measure dealing with our transportation situation which had been enacted into law in the past 15 years. The transportation act has not broken down; the present difficulties of the railroads are not due to the transportation act, and the transportation act provides effective machinery for remedying, in so far as it may be done by national legislation, the difficulties in which the railroads now find themselves. The managements oi the railroads do not approach Congress or the American people asking for any amendments in existing legislation. They desire to make perfectly clear their present situation, and the measures they are taking and propose to take to work their way out of existing difficulties. The railroad managers regret that the operation of inexorable economic laws make it necessary that railroad wages should be reduced. But the railroad managers have no fight with their employees and the supreme aim of every railroad management in America to-day is to establish its relationship with its employees on a basis of friendliness and cooperation which will result in work at satisfactory wages for the largest possible number of men and in an efficient and economical service to the public. The Interstate Commerce Commission has a clear understanding of the real nature of the American transportation problem and has evinced its desire in cooperation with the public and with the railroad managements, to work out the difficult problems of regulation in a manner which will insure adequate facilities and complete protection to public interest. The public also is manifesting a disposition actively to cooperate with railroad managers. Railroad managements are fully aware of the feeling in many quarters that certain railroad rates are excessive, and the unremitting effort of the railroad managements of this country is to provide service of such economy and efficiency that it can be rendered at a rate which will promote the movement of the largest possible amount of traffic. The responsibility of railroad management is of course not alone to give low rates, but to provide adequate facilities. In times of prosperity the adequacy of the facili- ties is , of more consequence than the rate itself. So that if the railroad managers assent to a schedule of rates in time of depression which would make it impossible for them to provide adequate facilities against a period of prosperity, they would be recreant to a duty they can not escape. Digitized by Microsoft® 10 RAILROAD REVENUES AND EXPENSES. The public and the Congress may rest assured that the railroad managers are strain- ing every nerve to reduce their expenses in every possible direction so as to adjust rates responsive to changed economic conditions, at the earliest moment, to the end that no individual rate shall be so high as to interfere with the normal movement of any commodity. The railroads have just emerged from a year of extraordinary expenditures; expen- ditures so large that with greatly increased freight revenue they will be unable to earn an appreciable sum upon the actual investment in American railroad property. The railroad executives will explain to the Senate committee ths reasons for these expenses. The railroads will show specifically that the greater part of the increased expenses of 1920 are due to causes over which the railroads had no control. The railroads will also show, I believe, that they are now rapidly surmounting their diffi- culties and from now on will realize a progressively improving situation. The eyes of the railroads are now turned to the future and the railroad managers are confident that as a result of the hearings before the Senate committee there will be a far better understanding on the part of the public of the railroad situation. - While the terms of the resolution under which this committee is acting deal with revenues and expenses and with the efficiency or inefficiency of management and of labor, and make no express men- tion of service, it may be of interest at the outset to give a brief resume of what the carriers have accomplished since the end of Federal control in the way of transportation service to the public. 1. In 1920, only two months of which were included in the period of Federal control, the railroads of class I performed the greatest transportation service in their history, having during that year handled the largest volume of traffic, both freight and passenger, they ever handled. Some idea of this traffic and of the comparison with the years of Federal control will be gained from the following statistics of performance of the years 1918, 1919, and 1920, respec- tively : Net ton-miles. Revenue passen- ger miles. 1918 440,001,713,865 395,679,051,729 449, 292, 355, 000 42,676,579,199 46,358,303,740 46, 724, 880, 000 1919 t 1920 2. They carried this increased volume of freight traffic in 1920 with fewer freight- train miles than the freight- train miles used in 1918 to carry the smaller freight traffic of that year, the comparative figures being as follows: Not ton-miles. Freight train- miles. 1918 1920 The figures for 1919 were 440,001,713,665 449,292,355,000 395,679,051,729 639,090,556 633,972,000 571,367.251 During Federal control passenger-train service was much curtailed, the curtailment of service being acquiesced in by the public because of the patriotic impulse of the war. Better and more adequate passenger service was furnished by the carriers after the end of Federal control, the passenger train service being 34,962,000 train miles greater in 1920 than m 1918, and 25,473,000 greater than in 1919, when (in the latter year) the number of passenger miles were somewhat, although not much, smaller. Digitized by Microsoft® RAILROAD REVENUES AND EXPENSES. 11 3. Loaded car mileage was greater in 1920 than in 1918 or in 1919, the figures being as follows: ' Loaded car miles. 1918 : 15,024,900,000 1919 14,307,258,000 1920 : 15,327,111,000 which was 2 per cent greater in 1920 than in 1918 and 7.1 per cent greater than in 1919. 4. The empty car movement in 1920 was 76,136,000 car miles greater than in 1918 and 709,649,000 car miles greater than in 1919. It will be recalled that the faulty ca,r distribution at the end of Federal control was so great that the Interstate Commerce Commis- sion was forced to order the conditions to be remedied by directing the carriers to shift the grain cars from the East to the grain fields and the coal cars to the coal fields from points of delivery where they were scattered throughout the country, and that this service had to be rendered by the carriers regardless of expense. The extent to which cars had been sent away from home lines by the Railroad Administration during Federal control and the extent of the work which has been done in restoring them to home lines is shown by the following: At the beginning of Federal control, January 1, 1918, cars away from home lines, 56 per cent. At the end of Federal control, March 1, 1920, 78.1 per cent. January 1, 1921, 54.8 per cent. April 1, 1921, 29.4 per cent. 5. The revenue tons carried per freight train were greater in 1920 than in. any previous year, the figures for the two years of Federal control and for 1920 being, respectively, as follows: Revenue tons per train. 1918 634.31 1919 637.58 1920 646. 67 6. Miles run per freight car per day were greater in 1920 than in 1919 and the same as in 1918, but none of these equaled the record of 1917, the last year of private management prior to Federal control, the figures being : Miles. 1917 26.1 1918 24.9 1919 , 23.1 1920 24.9 For the last four months of 1920 the miles run per freight car per day were as follows : Miles. September 28. 1 October 28.5 November : . 26. 8 December 24. 8 7. The average number of tons per loaded freight car were greater in 1920 than in either of the previous three years "and were as follows: Tons. 1917 27.0 1918 29.1 1919 27.8 1920 29.3 Digitized by Microsoft® 12 RAILROAD REVENUES AND EXPENSES. And for the last four months of 1920 were as follows: Tons. September 30.0 October 29.9 November 30. 5 December •. 31. 2 In forming an estimate of this record of performance and of service,-,-, the disturbed industrial and economic conditions, general in their bearing on all industries including this and special in their bearing on this industry, hereinafter to be more fully adverted to, must be remembered. The facts justify the statement that, from the stand- point of the quantity and quality of the service rendered the public, the record for the year 1920 is especially creditable. In view of it, it is not surprising that the resolution of the Senate makes no reference to the character or adequacy of the service, but, instead, directs an inquiry into the net results of the carrier opera- tions. OPERATING RESULTS OF 1920 AS COMPARED WITH 1919. ■> Doubtless the summary of revenues and expenses of the large roads for the years 1920 and 1919, respectively, issued by the bureau of statistics of the Interstate Commerce Commission February 28, 1921, as well as the general disappointment as to the net results of operation in 1920, aroused anxiety in the minds of responsible states- men and suggested the propriety of this inquiry.- Doubtless also the higher level of transportation charges put into effect in August, 1920, and in the months following, coming as it did at a time of great industrial readjustment and disturbance, when prices were falling and the purchasing power or the purchasing, inchnation of the con- suming public was substantially reduced, increased this anxiety and was thought to impose the duty of a thorough study and understand- ing of the situation and of a comprehensive inquiry as to what bearing, if any, the present level of transportation charges has upon the existing business depression. We accordingly come at once to the summary of revenues and expenses above referred to. It shows that the operating revenues were for — 1920 $6, 225, 402, 762 1919 5, 184, 064, 221 Difference 1, 041, 338, 541 being thus greater in 1920 than in 1919, and that the railway operat- ing expenses, taxes, and rents were for— 1920 $6, 163, 138, 341 1919 4, 667, 774, 131 Difference 1, 495, 364, 210 being thus greater in 1920 than in 1919. The statement further shows that after making allowance in each year for railway tax accruals, uncollectible railway revenues, equip- ment rents and joint facility rents, the net railway operating income was for — 1920 162, 264, 421 1919 516, 290, 090 Difference 454, 025, 669 Digitized by Microsoft® RAILROAD REVENUES AND EXPENSES. 13 being thus smaller in 1920 than in 1919, although the gross railway operating revenues were $1,041,338,541 larger in 1920 than in 1919. This difference in result being therefore caused by the marked disproportion of railway operating expenses as between the two years, we may for the present lay aside question of revenues and come to the consideration of the operating expense account. In order, however, to understand the problem which the committee has before it, and properly to apportion the responsibility for the result, it must be appreciated that, except as either is affected by bad management, the railway operating revenues and more than 64 per cent of the railway operating expenses, being the labor costs, and in 1920, in addition, a very substantial part of the cost of materials and supplies which were purchased by the Railroad Administration during Federal control, but used by the railroads at the prices paid or con- tracted by the Government to be paid, are fixed by the Government — in other words, that the Government prescribes the charges from which the operating revenues of the carriers come, and likewise fixes the wages which constitute more than 64 per cent of the operating expenses, and that the price of the necessary materials and supplies which the carriers must have are fixed either by the Government as above stated or by economic forces beyond the power of the carriers to control. The narrow limits within which the powers of manage- ment may be exercised are thus manifest, and, of course, where there is a limit to power there is a corresponding limit to responsibility. At the same time, even within the limits of these restrictions, there is room for the play and for the effect of good or bad management, and the character of the management, whether good or bad, efficient or inefficient, is a legitimate and proper subject of inquiry. Care must be taken, however, to appraise justly the several causes contributing to the result and to "apportion to each cause its due share of im- portance. Eeference has just been made to the narrow limits within which the powers of management may be exercised. This is peculiarly true in respect to the operating expenses, including the expenses for transportation, for the year 1920. As has been shown 64 cents out of every dollar of operating expenses were, in 1920, paid out to labor, and the wages of labor are fixed by the Government. Out of every dollar of operating expenses during that year 30 cents were paid out for materials and supplies. The Government operated the roads for two months of 1920 and accordingly agreed to the prices of materials and supplies for these months, as well as incurred all the other operating expenses for three months. The Government also purchased or contracted for a large quantity of materials and supplies which were passed over to the carriers on the return of the properties, and these materials and supplies, as used, were charged into the oper- ating expenses for 1920 at prices fixed for the carriers by the Govern- ment in making the purchases. It is conservatively estimated that one-half of the materials and supplies used in the year 1920 were thus necessarily charged into the operating expenses for that year at prices fixed for the carriers by the Government. Accordingly, 15 cents out of every dollar of operating expenses for 1920 were paid out for materials and supplies at prices thus fixed for the carriers by the Government. Digitized by Microsoft® 14 RAILROAD REVENUES AND EXPENSES. All operating expenses (other than for labor, material, and sup- plies) for the first two months of 1920 amounted to about 3.5 cents out of every dollar of operating expenses for the year. These were incurred by the Government and not by the carriers. This means that the 64 cents out of every dollar of operating expenses were paid for labor at prices fixed by the Government; that 15 cents out of every dollar of operating expenses was paid for materials and supplies, at prices fixed by the Government; and that 3.5 cents out of every dollar of operating expenses for the year 1920 was paid for other expenses incurred by the Government in the first two months of 1920, or a total of 82.5 cents out of every dollar of operating expenses for the year 1920 was paid out at prices directly fixed by the Government itself. The remaining materials and supplies used during the year 1920 were purchased by the carriers at prices fixed by general market con- ditions and beyond their power to control, and which cost 15 cents out of every dollar of expense. In other words, prices fixed by the Government or by market conditions cover 97.5 cents out of every dollar of operating expenses. The especially narrow limits within which the efficiency of manage- ment might become effective to control operating expenses for 1920, including transportation expenses, are thus apparent- It follows that efforts to control expenses during that year were of necessity almost wholly confined to obtaining better results from labor and economical use and consumption of materials. The difficulty of this task, in the midst of extensive unrest and disorganization of labor, and of disturbed economic conditions generally, can not be easily exaggerated. Turning to an analysis of the railway-operating expenses, there can be no proper dissent from the statement that pj far the largest contributing cause to the abnormal amount of these expenses is the cost of labor. The cost of labor to the carriers may be divided into two classes, the direct and the indirect cost. The direct cost of labor is the com- pensation paid by the carriers to their employees; the indirect is that part of the cost of materials and supplies which is caused by the labor service in creating them. The history of the direct labor cost is interesting and in this inquiry is of substantial importance. The labor bill of the carriers in 1916, which was before the Adamson law took effect, stood at $1, 468, 576, 394 In 1917, when the Adamson law was in effect, the aggregate com- pensation of the employees of the carriers of Class I amounted to. . 1, 739, 482, 142 An increase over 1916 of 270, 905, 748 This was increased by the Railroad Administration in 1918, so that the labor cost for that year was 2, 613, 813, 351 Or an increase over 1917 of 874, 331, 209 This was further increased by the Railroad Administration in 1919, so that the labor cost for 1919 was ... 2,843,128,432 Or an increase over 1918 of 229, 315, 081 And an increase over 1917 of 1, 103, 646, 290 And over 1916 of 1, 374, 552, 038 This labor cost for 1919 was further increased by the Railroad Labor Board in 1920, so that the labor cost for 1920 was 3, 698, 216, 351 Or an increase over 1919 of 855, 087, 919 Digitized by Microsoft® RAILROAD REVENUES AND EXPENSES. 15 The foregoing figures state the labor cost without including the labor costs of switching and terminal companies^ which are here omitted because figures as to them are not available for years prior to 1919. The increases since 1916, excluding switching and terminal companies, have thus been as follows: 1917... . '. $270,905,748 1918 874,331,209 1919 229,315,081 1920 855,087,919 An aggregate increase since 1916 of 2, 229, 639, 957 And since 1917, the last year of private management prior to Federal control, an increase of 1, 958, 734, 209 The figures given are actual. The increase made in 1920, however, was in force only a part of that year. The labor costs, including switching and terminal companies for 1920. . $3, 742, 486, 936 For 1919 they were 2, 868, 672, 284 An increase in 1920 over 1919 of 873, 814, 652 The figures in the operating statistics now under consideration from the Interstate Commerce Commission include the revenues and expenses, including labor costs, of switching and terminal com- panies, and accordingly the figure of increase in labor costs in 1920 over 1919 is 873, 814, 652 If the increa?ed scale had been in force during the whole year of 1920, the wage bill for 1920 would have been approximately 3, 980, 000, 000 This means that the labor costs to the carriers of Class I were ac- tually greater in 1920' than in 1917 by more than 115 per cent, and that, if the increased scale had been in effect during the entire year 1920 the increase would have been about 128 per cent. It must be noted that during the same period the gross revenues of the carriers increased less than 54 per cent. It will also be noted that since the Government took charge of the labor costs by the Adamson law in 1916 the labor costs have been increased by Government action by $2, 229, 639, 957 The total for 1920 being 3, 698, 216, 351 And that before the Government took charge the entire labor costs amounted to 1, 468, 576, 394 The properties of these carriers had been' taken possession of by the Government for a vital and very sacred public purpose. There was a great and relentless agitation for increases in wages during the whole period of Federal control, which included more than 10 months of the preiod of actual war. The Railroad Administration deemed it best to yield to this agitation and granted the enormous increases which have been noted as made during that period. Manifestly the burden of these increased costs could not end with Federal control but must be passed on to the owners with the return to them of their properties. Nor did the record end with the advances actually made during the period of Government possession. For many months prior to the end of Federal control still larger demands for increases in wages had been pending, and these unadjusted demands were also passed along to the owners with the return of their properties. These were subsequently adjusted by the Labor Board. Thus the inevitable and the recognized effect of what the Railroad Adminis- tration did and of what it began and left incomplete was to burden Digitized by Microsoft® 16 EAILEOAD BEVENUES AND EXPENSES. and encumber these properties and their future management after the resumption of private operation with the necessity to meet and provide for an increase of cost for labor amounting to $1,958,734,209 annually (the difference between the entire labor cost for 1920, excluding switching and terminal companies, $3,698,216,351, and the labor cost of 1917, namely, $1,739,482,142), which is greater by more than $219,000,000 than the entire annual labor cost at the time the Government took possession, namely,. $1,739,482,142. It is a just cause of complaint against the Director General that he neglected and refused to recognize and satisfy the moral obligation he was under to make, in the revenues of these properties, an increase corresponding with the enormous and destructive burden of expense which he had placed upon them, and left the carriers to assume the burden before the public of seeking an increase of rates to meet the increase of expense which he had placed on them. It was easy to impose this increased burden upon the carriers. It would have been a most ungracious task to transfer it to the public. So this task was left to the carriers, and they were confronted at the threshold of resuming their relations with the public with the necessity to assume the responsibility of asking a large increase of rates. In equity this obligation was not theirs — it was the obligation of those who had created the necessity. I will now go on to the analysis of the operating expenses, taxes, and rent. Senator La Follette. Mr. Chairman, I want to have an oppor- tunity to analyze those figures before we conclude with this witness. Mr. Keuttschnitt (reading) : May 7, 192J . EXPENSES, TAXES, AND RENTS. Operating expenses, taxes, and rents for 1920 exceeded 1919 (I. 0. C. statement of Feb. 28, 1921, excluding corporate expenses of $21,224,523 in 1919) by $1, 495, 364, 210 Explained as follows: Increased price. Increased quantity. Total. 1. Labor: In 1920, men employed, 2,054,160; in 1919, men em- ployed, 1,927,066; increase 127,094; average wages, $1,822 in 1920 and $1,483 in 1919 (I. C. C. reports, note 4) 2. Locomotive fuel: Prices per ton of ooal: 1920, $4.20; 1919, $3.32; in December, 1920, $4.80 (I. C. C. reports, note 1).. 3. Ties: Roads with 93 per cent of tie expense report 3,270,535 more ties at $1.31 in 1920 compared with $1.06 in 1919. Estimating remaining roads would give 3,617,000 more $696,360,240 131,857,639 24,313,000 $187,788,499 (7 per cent) 64,572,121 (13 per cent) 3,800,000 $884,148,739 196, 429, 760 28,113,000 Total 852, 530, 879 256, 160, 620 1,108,691,499 4. Insurance: $24,770,000 insurance in 1920 exceeds $4,610,000 fire losses charges in 1919 (no insurance carried during 20,160,000 The Railroad Administration canceled all insurance and carried its own, simply paying the losses when they occurred, out of their treasury. The railroad companies, under private control could not afford to carry those risks, and they paid out $24,770,000 in insur- ance premiums. It is fair, of course, to offset that in comparing the Digitized by Microsoft® RAILROAD REVENUES AND EXPENSES. 17 expenses of 1920 with those of 1919, to deduct the fire losses paid by the Federal administration. That leaves a net increase in 1920 over 1919, of $20,160,000. [Heading:] 5. Payments for injuries to persons, damage to property, stock, freight, and baggage (note 2) $18, 917, 000 6. Stationery and printing, including tariffs (largely higher prices) 12, 264, 000 Senator Townsend. Let me ask you there: Is that in excess of what was paid by the Government ? Mr. Kruttschnitt. Yes ; in each case where I mentioned the sums the excess was paid out in 1920 over what the Government paid. [Reading :] 7. Depreciation on equipment and plant (bookkeeping) $20, 139, 000 8. Ballast, rail, and other track material (higher prices and quantity, deferred Federal maintenance) 10, 764, 000 9. Water and lubricants for locomotives (higher prices and more traffic) 8, 318, 000 10. Station, yard, locomotive, train, and office supplies and expenses; also tools and supplies for maintenance of way (largely higher prices) 29, 741, 000 11. Transportation expenses (other than labor and items explained above), such as fuel and other expenses in operating floating equipment, engine-house expenses, coal and ore wharves, operating sleeping cars, supplies in operating signals, train power purchased and produced, and expenses other than labor for clearing wrecks, and miscellaneous other expenses (traffic units increased 10 per cent and wholesale pricea at least 20 per cent)' 51, 488, 000 12. Increase in valuation expenses 1, 887, 000 13. Corporate war taxes not included in 1919 (I. C. C. report) 35, 837, 326 14. Other increases in taxes and rents and uncollectible revenue (I. C. 0. report) 52,771,359 15. Cost of railroad administration in 1919 (note 3) 7, 168, 000 The Railroad Administration central expenses were never charged up in the operating expenses of the road and therefore do not appear in the operating expenses of 1919. [Reading:] 16. Materials used in maintenance of way and equipment not ac- counted for above (incident to higher prices and greater quan- tity, traffic units increasing 10 per cent and prices at least 20 per cent, and deferred Federal maintenance) $121, 420, 000 Total, or gross, increase in expenses above explained 1, 499, 566, 184 Actual, or net, increase in expenses 1, 495, 364, 210 The slight difference, of course, is due to the impossibility of esti- mating with extreme accuracy all of these causes. There were hundreds, I might say thousands, of causes contributing to these additional costs, only the principal ones of which we have been able to take account of in this analysis. [Reading:] Note 1. — Coal consumed in road service in 1920, 113,574,127 tons, and in 1919, 100,523,215 tons; fuel oil in 1920, 1,626,960,000 gallons, and in 1919, 1,352,674,000. Returns of 96 per cent of roads show increased cost of yard fuel 22 per cent as much as road fuel. Including yard fuel on this basis, above estimated increase in quantity is ascertained. Note 2. — Payment for injuries to persons is generally made some time after • accident occurs. Where roads did not include in current accounts lap-over items from Federal administration, the commission required them to estimate damage payments,- and in many cases credit balances were brought over at close of 1920. Note 3. — Statement of Director General filed with Senate committee and Interstate Commerce Commission in April, 1919, showed anmial pay roll at beginning of 1919 was at rate of $6,390,000 per annum, and after adding the office rentals, office expenses, and traveling expenses given in his testimony, total expense becomes $7,168,000. 63553— 21— Vol I 2 Digitized by Microsoft® 18 RAILROAD REVENUES AND EXPENSES. Note 4. — United States Labor Board increased wages 21 per cent; other increases were partially effective in 1919 and wholly effective in 1920. At the close of 1919 Director General awarded punitive overtime after eight hours to freight- train service and maintenance of way employees; petty officers' salaries were necessarily adjusted, as they received less than men under them. This item also includes increased clerical forces, due to accounting, the number of clerks in 1919, according to Inter- state Commerce Commission statistics, being 231,347, and in 1920, 249,894. To what extent costs have risen under Federal rules and agreements made by Director General in the negotiation of which railroad owners had no voice is illustrated thus: These agreements were effective for a short time only in 1919 and during the entire year 1920. One or two of the increases made by the Director General became effective in November and December, 1919. Of course all of them were effective for the whole of 1920. And the large number of the increases, four or five, as I remember, were' made effective in Janu- ary and February, 1920, so they were not effective in 1919 at /all. [Eeading :] 1. The Pere Marquette Railway was compelled to pay $9,364 in back pay to four employees because their titles under these agreements were changed by a decision of the Director General, while the nature of their duties and the volume of their work remained the same. 2. A car repairer on the Virginian Railway was paid $1,000 for work he never did. He was laid off with other employees because there was no work for him to do. When he became entitled under his "seniority rights" to be reemployed, he received back pay and overtime. 3. The Shop Crafts Agreement provides that when employees are required to check in and out on their own time they will be paid for one hour extra at the close of each week, no matter how few hours they may have worked. This rule in the first six months of 1920 cost the railways $6,500,000, or at rate of $13,000,000 a year. 4. On the Chesapeake & Ohio Railroad piecework car repairers decreased 41.4 per cent and airbrake repairers 33.4 per cent in efficiency under a guarantee of a fixed mJTiiTmiTTi rate per hour. 5. On the abolition of piece work on the Union Pacific Railroad in the wheel shop at Omaha, Nebr., the time required for the same work was increased 31.9 per cent and the output was cut down 24 per cent; and in a coach-cleaning yard at Denver the time required was increased 38.8 per cent and the output decreased 28 per cent. Senator Poindexter. Let me ask you: Was that characteristic of the general situation, or were those exceptions ? Mr. Kruttschnitt. It is characteristic of this situation under these agreements made by the Director General. I have enumerated Sdte a number here. They might be increased indefinitely. But ey all show to what extent the expenses were incurred fictitiously, or for work that was never done, what you might call cons tructive work. They are typical. [Reading:] 6. An employee of the. Southern Pacific Tucson shops was paid $50.05 for three days' work because he was sent 214 miles to repair a gas engine, 45J hours being puni- tive overtime, most of which was spent in traveling or waiting. As a result of several emergencies of this kind he was allowed 377J hours m a 23-day working month, earning $272.16, and a pipe fitter from the same shop was allowed 391 hours in a 23-day month, earning $281.52, mostly punitive and double time allowed while traveling, in addition to his expenses. Senator Pomerene. Do you mean that was extra time ? Mr. Kruttschnitt. All of it extra time. [Reading :] 7. A conspicuous example of ridiculously high compensation to unskilled labor is that of a gang of men on the Southern Pacific who place blue-flag signals on trains in yards and who couple and uncouple steam and air hose. When any of the£e men were absent car cleaners were used as substitutes, the classification of these being changed by the Director General from watchmen with laborers' pay to car men and back pay awarded to January 1, 1918. The gang consisted of 15 men, all unskilled, and they were given back pay during Federal control of $14,436. ■ Digitized by Microsoft® RAILROAD REVENUES AND EXPENSES. 19 8._ On Southern Pacific employees whose sole duty was to keep watch on stationary- engines and to stop the engine in case anything went wrong were reclassified by Di- rector General as "electrical workers," one man on the Salt Lake division being given back pay of $2,381, another $2,094, another $2,009, another $2,003, and six others: amounts varying from $1,500 to $1,900. The St. Louis Chamber of Commerce in March appointed a com- mittee of five to obtain for it answers to a number of questions relative to the national agreements, from which the following are selected: 9. Is it true that under the present classification rules of the shop grafts, in order to change a nozzle tip in the front end of a locomotive it is necessary to call a boiler maker and his helper to open the door, because that is boiler makers' work; to call a pipeman and his helper to remove the blower pipe, because that is pipemen's work; and call a machinist and his helper to remove the tip, because that is machinists' work; also for the same force to be employed for putting in the new tip? Answer: Full comviliance with the national agreement requires the procedure outlined in the question. Senator Stanley. Can you explain that operation to us ? Mr. Kruttschnitt. To get at the tip in the front end of a loco- motive requires to open a door in the front end, which you will see fenerally closed with a lot of bolts in the circumference of the door. Then that is opened this tip on the blower pipe has to be removed- Senator Stanley. That is just a nut ? Mr. Kruttschnitt. Just a nipple on the end of a pipe. A boiler maker and his helper are called to open the door, a pipeman and helper- are called to remove the blower pipe, and then the machinist and his helper remove the tip — three operations where formerly one man did the whole thing. x Senator Stanley. That operation does not require any special skill, any part of the operation ? Mr. Kruttschnitt.* Nor do most of these examples require any special skill, but when these national agreements were made a classi- fication was made putting men with no skill in skilled classes, and thereupon paying them the wages of skilled employees. [Reading:! 10. Is it true that men employed to couple and uncouple hose between the cars (not as difficult or hazardous a task as hitching a span of mules) are now classed as- car men, receiving 80 cents per hour, with time and one-half for Sundays and holidays,. averaging about $215 per month, for working 7 hours and 40 minutes per day? Answer: Yes. 11. Is it true that if a shopman is held after his regular 8-hour assignment, to com- plete a job, for, say, 1 hour and 15 minutes, he would receive pay for 6J hours for his 1 hour and 15 minutes' work? Senator Poindexter. Who gave these answers? Mr. Kruttschnitt. A committee that they appointed. A com- mittee of five. There was a railroad man, a member of the Associa- tion of Commerce, and two others who took the national agreements and formulated the answers from them. [Reading:] Answer: Yes. Illustrative of this is a recent case of mechanic working on passenger car work until 5 p. m., or one hour beyond his assigned day. He had just stepped off car when another employee pulled handle off water valve. Foreman was present and called mechanic back to fix this valve. He performed this work and had 'checked out at clock, fully 100 yards away, at 5.06 p. m. All he had to do was to loosen two screws, put handle back on and tighten screws, about three minutes' work. Was necessary to allow him five hour call for this service. 12. Is it true that under the national agreement with the shop crafts piecework- was discontinued and that since that time the output per man has been greatly reduced? Answer: Yes. Digitized by Microsoft® 20 RAILROAD REVENUES AND EXPENSES.' 13. Is it a fact that railroads can not require shop employees to pass a physical examination when entering service so as to protect them against fictitious claims for hernia, defective eyesight, etc.? Answer: Yes. Not only can railroads not require them to pass physical examination, but they can, not question them as to their past reference. They can only be required to state their age and that they have had four years' experience. - 14. Is it a fact that an employee who keeps a record of wheels applied and removed from cars must be classified as a mechanic and paid 85 cents per hour? Answer: An employee who keeps records of wheels applied and removed from cars is classified as a carman and is paid 80 cents per hour. 15. Is it true that under the rules a section foreman or his men are not allowed to fix or repair the motor car that carries them to and from their work (a machine not as complicated as a farm tractor), because this is machinists' work, and a machinist must be sent to make repairs or the motor sent to the shop for repairs? Answer. Yes. 16. Did the labor board direct the railroads to continue the rules and regulations issued by the Railroad Administration? Answer. Yes. These illustrations might be continued indefinitely, and be it remembered that under the national agreements these indefensible practices and waste of public money exist on all railroads of the country. Of items 1, 2, and 3 of those enumerated $852,000,000, in round numbers, is shown to be allocated to increased rates of wages and prices of fuel and ties, and $256,000,000 to increased number of men, due to greater volume of traffic and higher expense for maintenance material to make up deficient renewals during Federal control. Items 4 to 15, inclusive, are self-explanatory. Item 16 embraces increases in prices of materials and quantity of materials not specified above, but due to undermaintenance during Government control and increased traffic in 1920, which were responsible for the remaining increase in the operating expenses. The following influences, difficult to allocate to expense items, affected them profoundly: 1. Increases in wholesale price levels for railway material of at least 20 per cent. 2. Deferred maintenance of Federal Railroad Administration. 3. Outlaw strike of April, 1920. 4. Restoration of adequate passenger service demanded by public. 5. Reestablishment of public bureaus of information and traffic offices. 6. Relocation of freight cars to owners' rails that involved an increase of empty car miles in 1920 of 328,082,000. 1. Increase in prices. — The index number of wholesale prices of materials consumed in large quantities on railways rose in 1920 over 1919 at least 20 per cent. Lumber prices increased 60 per cent, bar and sheet iron and steel 15 per cent, and fuel 27 per cent. Senator Myers. Mr. Kruttschnitt, I would like to ask before you get away from labor costs if you can give the percentage of operating cost paid to labor in 1916, before the Adamson law took effect and in 1917 after it took effect? Do you know the percentage? Senator Kellogg. He gave that. Senator Myers. He gave it for 1920, that is the only percentage I heard; 64 per cent in 1920. Senator Kellogg. I beg your pardon. Senator Myers. I was wondering if you could tell us what it was in 1916 and in 1917. I would like to get things in percentages if I can. I remember them so "much better than billion's of dollars. Mr. Kruttschnitt. I have a table of operating statistics for the years 1916 to 1920, inclusive, attached to this memorandum, which will be printed. Senator Myers. Well, you need not read it now if, it is going to be printed. Mr. Kruttschnitt. Yes, I have it here, percentages of wages to revenue. Mr. Thom. That is a different thing from percentage of wages to expenses. You gave 64 per cent of wages to expenses. Digitized by Microsoft® RAILROAD REVENUES AND EXPENSES. 21 Mr. Kruttschnitt. What was your question, please ? Senator Myers. I wanted to know if you were able to give us just at this time the percentage of operating cost paid for labor in 1916 before the Adamson law took effect, and in 1917? Mr. Kruttschnitt. I would have to have that computed. Mr. Thom. Senator, we have that computed. Senator Myers. All right, go ahead. Mr. Thom. We have it here. Labor in 1916 and 1917, you asked for, didn't you, Senator Myers? Senator Myers. Yes, particularly. Mr. Thom. In 1916, 62.3 cents; 1917, 61.5 cents; 1918, 65.6 cents; 1919, 64.6 cents; 1920, 64.1 cents. Senator Myers. Thank you. Mr. Kruttschnitt (reading) : 2. Deferred maintenance. — Reports made to bureau of rail-way economics for roads covering 93 per cent of total maintenance of way expenses show that total cross tie renewals in Federal control, years 1918 and 1919, were 25,044,053, or 15 per cent, below the test period — sufficient ties to lay nearly 9,000 miles of track. Rail renewals during the two years of Federal control were short 440,230 tons, or 11 per cent, below the test period. There was also a shortage of 1,816,155 cubic yards of stone, gravel, and other ballast material. We quote the opinion of competent judges to show the condition of railroads when returned to owners by the Federal administration. Hon. Frank B. Kellogg, of Minnesota (Republican), United States Senate, December 5, 1919, said: "When the war broke out we had in this country, all in all, the best, cheapest, and -most efficient transportation system in the world . That it was not perfect goes without saying. ' But this is true, and will be conceded by substantially all the experts in the world, that nearly all the inventions, improvements, and advancements of transpor- tation facilities have resulted from American inventive genius and energy and enter- prise. An efficient and constantly growing transportation system is absolutely neces- sary to the very life and prosperity of this nation and must be had to maintain the growth of the country. In the main, the present deplorable condition of the railroads is due to the inefficient and extravagant Government management and stupid bureau- cratic control." i Hon. Atlee Pomerene, of Ohio (Democrat), United States Senate, December 6, 1919, said: "I say as a result of a year's study of this problem that there has never been in the history of the railroads of this country as much extravagance and inefficiency as there has been under this unified control, no matter what the merits may have been; and there have been merits in the unified operation." William J. Cunningham, James J. Hill professor of transportation, Harvard Univer- sity, in New York Evening Post of January 20, 1921, said: When the railroads were returned to their owners last March the condition of equipment as a whole was worse than when Federal control began." In a paper read before New York Railroad Club January 21, 1921, Samuel O. Dunn, editor of Railway Age, said: "The Government did not maintain the railroads in as good repair and as complete equipment as when taken over. For example, it did not put into their tracks any- where near the number of new ties and rails necessary to maintain them in accordance with their obligation. It repaired and maintained their locomotives and cars so inadequately, that when the railroads were returned to private operation their equip- ment was in the worst condition ever known." 3. Outlaw, strike. — Direct expenses on this account are difficult to ascertain, but the expense of recruiting, drilling, and protecting inexperienced men from violence was undoubtedly very great. Senator Poindexter. Mr. Kruttschnitt, do you indorse those statements you have just quoted as to the conditions of ]the roads on the return of the roads to the private owners ? Mr. Kruttschnitt. I do most emphatically. The Chairman. Mr. Kruttschnitt, have the railroads made claim against the United States growing out of alleged deferred maintenance ? Digitized by Microsoft® 22 EAILROAD REVENUES AND EXPENSES. Mr. Keuttschnitt. They wall. I don't know how many have already done so. It is a Herculean task. We have had men at work on it ever since the restoration of the. roads to private control, and they are not through yet. The Chairman. 1 understood that claims to the extent of probably a billion and a half dollars had been made against the Government under that general provision of the act which provides that the roads shall be returned in as good condition as they were when taken over. Mr. Kruttschnitt. That no doubt is quite true, Senator. I told you that I didn't know. Our road has not done it yet. We have just completed the claims against the Government for compensa- tion during the guaranty period, and I happened to walk into our comptroller's office about a week ago, and there was a stack of papers 63 inches high, and I asked him, What in the name of sense is all this?" He said, "Those are the papers we have got to send to the Government to support our claim for compensation during the guaranty period." That was for six months only. Now how nigh the stack will be when it- comes to make a claim f or-the improper maintenance during Federal control, of 26 months, why, on the law of proportions I suppose it will be about five times that; five times 5 feet will be 25 feet high. Senator Smith. Is that to be reflected in increased rates, to liqui- date that 25 feet ? Mr. Kruttrchnitt. Well, it is an indebtedness of the Govern- ment. I don't know how they will meet it. Senator Pomerene. Mr. Chairman, Senatelike, we have sus- pended the rule which we adopted when we began the inquiry this morning, and now I want to ask a question in that connection. The morning paper quoted the Director General of Railroads as saying that up to date the Government's loss in operation was $1,200,000,000. That does not, I take it, include any part of these claims for deprecia- tion, which will perhaps be presented later ? Mr. Kruttschnht. No. The Chairman. I think the Senator from Ohio is in error about that. Mr. Kruttschnitt. It was in the paper. I read it in the paper also this morning. Senator Pomerene. The Washington Post. The Chairman. It does include a good many of the claims for alleged want of proper maintenance. Senator Kellogg. Very few of them have been paid. It does not include anything that has not been paid. The Chairman. It does not include all of them, of course, because they have not all been made yet, or not all been filed. Senator Stanley. The morning paper spoke of claims made, and not claims paid. »■ The Chairman. But, for instance, the Railroad Administration has settled with the Northern Pacific and the Great Northern. Now, of course, their claims have not only been made, but paid; that is, paid according to an adjustment at which they arrived. The Rail- road Administration has settled with the Chicago, Milwaukee & St. Paul, and the claim of that railroad has been made and paid, according to the adjustment. Digitized by Microsoft® RAILROAD REVENUES AND EXPENSES. 23 Senator Kellogg. I suggest that the witness go on. Senator Pomerene. Well, we can not settle that question now. The Chairman. No. Senator Kellogg. No use of our discussing it. Senator Pomerene. But it all goes to show the unwisdom of Congress in not extending Government control for four years more ! ILaughter.] The Chairman. I quite agree with that. Senator Kellogg. I suggest that Mr. Kruttschnitt go ahead with his statement. Mr. Kruttschnitt (continuing reading) : 4. Restoration of passenger service. — Interstate Commerce Commission's report, March 7, 1921, gives passenger-train miles 550,158,000 in 1920 and 523,714,000 in 1919, an increase of 5 per cent, with substantially the same movement of passengers. Attached statistical statement of transportation results for five years past shows the conspicuously greater efficiency of management in 1920. Items relating to work done per employee and wage expense per traffic unit, controlled by agreements in the making of which the officers of the carriers had no voice, are not so favorable. The Chairman, What is the wish of the committee with regard to holding a session this afternoon ? Senator Kellogg. I can not be here. The Chairman. What i s tne desire of the committee ? Senator Pomerene. Mr. Chairman, the emergency tariff bill is on, and a number of us would like to be there. - I want to offer this suggestion. Mr. Kruttscnnitt has got his manuscript here, and I should like if possible to have that printed so that the members of the committee can have it in the morning, if possible. I think that can A be done. Could not your manuscript thus far be given to the stenographer ? Mr. Kruttschnitt. He has it. Senator Pomerene. Very well. Because necessarily Senators in cross-examining Mr. Kruttschnitt will want to have the benefits of these figures and statements which he has made, and it is impossible for me, at least, to carry those figures in my mind. The Chairman. Is it the desire of the committee to hold a session this afternobn ? So far as the chairman is concerned, I will be obliged to go to the Senate at 12 o'clock. Senator Kellogg. I have got to go to the Senate at 12 o'clock, and I suggest that the committee adjourn until to-morrow morning at 10 o'clock. The Chairman. We can go on now for a few minutes. Then without objection it will be understood that at 10 minutes of 12 o'clock the committee will stand adjourned until 10 o'clock to-morrow morning. Mr. Kruttschnitt. You may continue until that time. Senator Townsend. What about that suggestion of Senator Pomerene ? Why can not the statement be handed in now in order to have it printed ? The Chairman. We will try to have the whole of it printed by to-morrow. Senator Kellogg. All his statement ? The Chairman. That will depend upon the Government Printing Office. I don't know whether it is in condition to print so quickly or not. Senator Poindexter. Well, can we proceed now ? The Chairman. Yes. Digitized by Microsoft® 24 RAILROAD REVENUES AND EXPENSES. Mr. Kruttschnitt. Mr. Chairman, I have passed up to the clerk a set of these statements and charts to which i refer throughout the memorandum. The Chairman. The charts will be printed in the record. (The charts furnished by Mr. Kruttschnitt are here as follows :) Operating statistics, Class I roads. [Authorities: Reports of Interstate Commerce Commission and Bureau of Railway Fccrjcmics.] 1920 1919 1918 1917 1916 Operating revenues . . Operating expenses Percentage of operating expenses to revenue. Operating expenses, taxes, and rents 1 16, 225, 402, 762| 1 $5, 184, 064, 221 W, 880, 202, 255 $4, 014, 142, 747 1*5,826,197,474 1 14,419,441, 949 "13,971,870, 043 $2,829,325,124 93.59 $6, 163, 138, 341 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22. taxes, and rents to revenues Net operating income . . Total wages . Percentage of wages to revenue Total number of em- ployees Train-miles, total Passengers carried 1 mile Tons revenue freight, moved 1 mile Tons all freight moved 1 mile Traffic units (T. M. all frt.+3xP.M.) Freight cars on line Tons freight per train . . Tons freight per loaded car. 85.25 1*4,667,774,131 99.00 90.04 ■162,264,421 ■» $516, 290, 090 $3, 742, 486, 936 1 *$2, 858, 338, 197 5fc» Ton-miles per freight alh car annually. Train-miles per em- ployee Traffic units per em- ages paid per em- ployee Wages paid per traffic unit 60. 12 2,054,140 1,205,626,175 46,724,880,000 55.14 1:927,066 1,117,547,908 46,192,112,000 ,970,656,000 364,025,244,000 81.39 «$4, 193, 141, 793 85 92 1687,060,462 '$2,606,281, 245 53.41 1,837,663 1,175,787,180 42,676,579,199 405,379,284,206 70.48 $3,080,073,977 76.73 $934,068,770 $1,739,482,142 43.33 1,732,876 1,237,137,632 39,476,858,549 449, 292, 355, 000 396, 904, 574,:000 440, 001, 713, 665 589,466,995,000 2,475,007 709 181,532 587 286,965 $1,822 $0,635 535,480,910,000 2,459,617 697 28.0 161,368 580 277,874 $1,483 $0,534 568,031,451,262 2,430,786 682 ,29.1 181,012 640 309,105 $1,418 $0,459 $3,596,865,766 $2,357,398,412 65.54 $2,556,781,249 71.08 $1,040,084,517 $1,468,576,394 40.83 1,647,097 1,224,168,566 34,585,952,026 394, 465, 400, 493 362, 444, 397, 129 430, 319, 014; 635 396, 365, 917, 082 548, 749, 590, 282 500, 123, 773, 160 2,363,3091 2,275,092 610 24.9 174,220 743 303,640 $892 JO, 294 ' 27.0 182,083 714 316,670 $1,004 $0. 317 1 Includes switching and terminal companies. ' Excludes corporate revenues and expenses. Income account, United States (class Iroads and large switching and terminal companies): Authority: Interstate Commerce Commission Monthly Summary. Corporate expenses excluded in 1919. Railway operating revenues. Railway operating expenses. Net revenue from railway operations. Railway tax accruals. Rents and mis- cellane- ous. Net railway operating income. Per cent of operat- ing ex- pense to rev- enue. 1919. January February March April May June. July August September October November December $397, 231, 510 352,385,229 377, 383, 701 389,487,271 413,945,449 426,089,950 455,280,142 471,714,375 498,611,917 509, 760, 115 438,105,217 453,386,816 $361, 325, 347, 344, 355, 356, 358, 405 665 641 435 607 811 447 812 584 137 309 950 414; 514; 029 144,1 147,1 877/ 770,1 691,; 407- 891,: 149, i 901," 879,3 086,845 237, 588 506, 266 716,664 253,638 682, 503 388,330 564, 791 707,780 880,806 214,267 872,787 $15, 415, 15,043, 15, 133. 16,015; 15,892, 14, 552, 16,008, 16,359, 16,878, 17,313, 18,679, 21,259. $2,229,194 2, 405, 236 3,711,918 2,698,917 3,020,917 2, 991,791 3, 150, 110 3,696,085 4,181,051 10,272,841 7,508,677 3,908,240 $18,442,102 9,788,655 10, 661, 152 26,002,383 39,340,216 52,138,463 77, 229, 492 92,508,715 77; 648, 722 76, 294, 127 22,025,807 13,704,977 90.92 92.27 92.18 88.52 85.93 83.65 78.83 76.14 80.20 79.62 88.99 91.43 Digitized by Microsoft® KAILROAD REVENUES AND EXPENSES. 25 Income account, United States (class I roads and large switching and terminal compa- nies — Continued . Railway operating revenues. Railway operating expenses. Net revenue from railway operations. Railway tax accruals. Rents and mis- cellane- ous. Net railway operating income. Per cent of operat- ing ex- pense to rev- enue. 1920. January February March April . . . I May June July August September. .'. October November Docember 1921. January February 12 months ended December, 1919. 12 months ended Deeember, 1920. . 6 months ended August, 1920 i months ended December, 1920.. 2 months ended February, 1921. . 150(1,839,203 424,591,298 460,547,820 401,604,695 456,006,543 493,775.1 528,132,956 554.785,872 616,200,796 642,135,312 592,130,728 550,582,381 470,148,124 405,783,342 $416, 418, 194 416,455,516 421,713,184 4.04,480,142 441,031,310 477,963,290 511.773,300 678,728,882 511,482,960 526,578,888 510,501,352 503,206,-889 $84,421,009 8,135,782 38,834,636 2,875,447 14,975,233 15,811,898 16,359,686 123,942,810 104,717,836 115,556,424 81,629,376 47,375,492 $20,413, 20,681, 21,114. 22,940, 26,692; 25,685 22,951, 25,525, 23,872, 23.396, 22:561, 30,295, 4.275, 3,399, 3,788, 1,738. 6,411, 3, 835, 5,759. 5, 535', 5.704, 4,723, 6,854, 639,698 821,475 320,571 604,417 455,871 284,900 427,989 227,617 310,311 455.487 243,793 225,583 443,700,652 385,443,705 26,447,462 20,339,637 22, 833, 061 21,983.802 4,572,800 5,700,504 958,3 7,344,6 83.1* 98.08- 91. ST 100.72'. 96.72- 96.80- 96.90 122.34 83.01 82.00- 86.21 91.40 94.37 94.99- 5,184,061,221 6,225,402,762 2,898,605,237 2,401,049,217 875,975,265 4,419,441,949 5,826,197,474 2,944,635,366 2,051,770,089 829,109,791 764,622,272 399,205,283 46,030,129 349,279,128 46,865,474 198,806,615 281,380,620 146, 021, 492 100,126,066 44,810,687 49,525,567 55,560,247 23,978,036 22,817,888 10,269,329 516,290,090 62,264,421 216,029,657 226,335,174 8,214,542 85.25- 93.59 101.59 85.45 94.65, Mr. Krtjttschnitt (reading:) 1. The movement of 449,292,000,000 ton-miles of freight as compared with 396,904,- 000,000 in 1919, an increase of 13 per cent, a volume of traffic never before equaled in the history of the railroads. This volume of freight business is nearly twice that handled in 1909, with a small increase in units of equipment, which, however, were much heavier and more intensively and efficiently used. 2. The consumption of fuel per gross ton-mile moved was substantially the same in both years, notwithstanding the disorganized freight- train service caused by the outlaw strikes, the use of inferior grades of fuel, and the abnormal fluctuations in volume of traffic which required subordination of rigid economy to the necessity of moving it at any cost to meet the public demands. Omitting the first six months, which included two months of Federal control, and the month of April, when the outlaw strike caused 11 per cent increase in fuel consumption per gross ton-mile, the performance in the second six months of 1920 was equally as good as 1919. Pounds fuel per gross ton-mile. 1920 1919 Differ- ence. 0.21 .20 .19 0.19 .19 .19 +11 First 6 months + 5 Year .196 .190 + 3 3. The movement of 46,725,000,000 passengers 1 mile, the heaviest passenger traffic ever moved on American railroads. 4. An average freight train load of 709 tons, the highest on record, representing a. saving over 1919 of the cost of moving 11,159,000 freight train miles. Digitized by Microsoft® 26 RAILROAD REVENUES AND EXPENSES. The Chairman. Mr. Kruttschnitt, we will now suspend until 10 o'clock tomorrow morning. (Whereupon, at 11.50 o'clock a. m., Tuesday, May 10, 1921, an adjournment was taken until 10 o'clock a. m. Wednesday, May 11, 1921.) Digitized by Microsoft® RAILKOAD REVENUES AND EXPENSES. WEDNESDAY, MAY 11, 1921. United States Senate, Committee on Interstate Commerce, Washington, D. C. The committee met, pursuant to adjournment, at 10 o'clock a. m. in room 410, Senate Office Building, Senator Albert B. Cummins (chairman) presiding. The Chairman. The committee will be in order. Mr. Kruttschnitt, will you resume your testimony ? I might say, for the benefit of the members of the committee, that the statements and exhibits that were put before the committee on yesterday have been printed and a copy is before each member of the committee. TESTIMONY OF ME. JULIUS KRUTTSCHNITT, CHAIRMAN BOARD OF DIRECTORS OF THE SOUTHERN PACIFIC CO.— Resumed. Mr. Kruttschnitt. Mr. Chairman and gentlemen of the com- mittee, I will resume my statement where I left off on yesterday. [Continuing reading:] 5. An average carload of 29.3 tons, the heaviest on record, with 28 in 1919, and 27 in 1917, equivalent to saving the cost of moving 719,000,000 loaded freight car miles. 6. Although the roads had to move this heavy traffic with an equipment in deplor- able condition, due to under maintenance during Federal control, the car miles per day nervetheless averaged 24.9 miles during 1920, as compared with 23 in 1919, an improvement of 8 per cent; and the ton-miles of freight per car per annum averaged 181,532 in 1920, compared with 161,368 in 1919, or an improvement of 12 per cent, equivalent to adding 300,000 freight cars to the railway equipment. At $3,000 each, the capital value of these cars would be almost $1,000,000,000. As "Transportation expenses," which showed an increase in 1920 over 1919 of $714,416,692, or 32 per cent, have specially been criti- cized, the following explanation is given, although it is included in the foregoing general explanation of operating expenses as a whole : Fuel: Increased price, $131,857,639; increased quantity, $64,572,121, total $196, 429, 760 Labor: Wages paid train dispatchers, telegraphers, signalmen, station employees, yardmen, trainmen, and other transportation classes, increased (principally on account of higher scale of wage schedlues) . . 369, 238, 030 Superintendence and clerical expenses (estimated aB 24.3 per cent of total increase for all officers and clerks) 26, 000, 000 Casualties, including injuries to persons, loss and damage to freight, live stock, and clearing wrecks (latter partly labor) 23, 551, 000 Insurance 16, 671, 000 Stationery and printing - 3, 999, 000 Water and lubricants for locomotives 8, 318, 000 Supplies for stations, yards, locomotives, trains 25, 544, 000 Engine-house expenses (partly labor) 38, 750, 000 Coal and ore wharves (partly labor) .'. 5, 855, 000 Train power produced and purchased 2, 360, 000 Operating floating equipment (partly labor) . 5, 029, 000 Total 721, 744, 790 27 Digitized by Microsoft® 28 RAILROAD REVENUES AND EXPENSES. Above total exceeds total to be explained because items of engine- house expenses, clearing wrecks, and operating floating equipment include a duplication of the labor item, these accounts including both labor and material, and because of the offsetting effect of some of the economies arising from more efficient operation. Notwithstanding the unparalleled increases in operating expenses inherited from the Federal Railroad Administration, over which but slight control had been left to the owners, they were reduced'to such a substantial extent by the very efficient management in the last 10 months of the year that net operating income for 1920 would have been fairly satisfactory had the gross revenue that the Inter- state Commerce Commission intended the carriers to receive from the granted rate increases been enjoyed throughout the year. The following statement is based on the application to the traffic actually handled of the full fate increases granted by the Interstate Commerce Commission and wage increases granted by the Labor Board to 12 months of the year, instead of applying the rates to but 4 months and wages to 8. Railway operating revenueB actually received $6, 225, 402, 762 Additional revenue if full earnings granted per ton mile and passenger mile had been received for 12 months instead of 4 1, 202, 330, 533 Operating revenue readjusted on basis of full rates $7, 427, 733, 295 Actual expenses 5, 826, 197, 474 Additional operating expenses if wage increase of $617,827,938 applied to first 4 months of year as well as to last 8 months... 205, 942, 646 Operating expenses readjusted 6, 032, 140, 120 Ratio of operating expenses to operating revenue, 81.21 per cent. Railway tax accruals 281, 380, 620 Uncollectible railway revenues 1, 226, 574 Railway operating income 1, 112, 985, 981 Equipment and joint facilities rents 54, 333, 673 Net operating income 1, 058, 652, 308 Or $997,000,000 more than net operating income actually received of . . 62, 264, 421 Briefly, and in conclusion, 1920 was such a poor year, although the volume of business measured in traffic units was 10 per cent greater than 1919, because— 1. Increased rates were in effect for 4 months only; the large increase in wages was in effect 8 months out of the 12. 2. Although revenue increased $1,041,000,000, expenses, as we have shown in detail, increased $1,495,000,000; exceeding increase in revenue by $454,000,000. 3. Deducting $454,000,000 of increased expenses over increased revenue from the net operating income for 1919 of $516,000,000, gives net operating income of but $62,000,000 for 1920. 4. Because, as will be shown, the actual increase in revenue in the last four months was less than the rates granted by the Interstate Commerce Commission should have yielded. Chart No. 1 shows the relation of railroad wages to general wages and how uniformly the former have exceeded the latter since 1914, and how railroad wages rose much faster than wholesale prices from 1911 to 1915. In the decision of the Railroad Labor Board railroad Digitized by Microsoft® CHANGES IN PR1CE5, WAGES United States and- railway rates IN 20 YEAR5; RELATIVE 1900- 100 Q a o AJ o 01 o 0) a 01 in a in IO o 0) c- o (7> 03 O (J) o a 01 at 01 ffl U3 t- n 01 1 920 JAN FEB MM) APR MAY JUN JUL AUG SEP OCT NOV OfC JN1 rtB MAR ft 34-0 R ste >°f i 3 -1 5 >t N 3 3 1 § 1 > i 3 2 5 i 1 1 \ | 3 2 5 1 1 3 1 5 «" / \ i 3 1 _w u tfi J« i & ^ §J 5 *T ^ -^ 7 J 95 "2 .... 3, .„ ... rife }'\< ites 90 " s 1 | 3 5 w c c — o o o - c- a o o m ' (C m SO 01 IO '0 «i t- f- C - id is <0 c AJ o ■* to o K) Kl a ■t tn a to o Kl o to o Kl o o ■4 Kl C K WHOLE- SALE PRICES c ci uj o 10 o ID ID a o C < AJ <□ U> 10 M U"l 10 in in o AJ IO « C\J ai o K) -U3 o + HI 10 Kl m a AI to Kl Kl o Kl (0 tu 01 m N K) At AJ 0] a A G C A, 1 8 e i § * o a o o 01 o o O a 01 a Q Q t- 01 US 01 oi ID 01 01 0) o o 01 01 01 cri a o ttl o — t- CVJ CM (U O Ai 01 AJ 01 AJ AJ AJ K] 01 El in in o m K! 1 1 1? & r. * a o to o to IT) o t- o ttl o to o a 10 o 10 a a AJ o o o o o o S3 01 01 - to < "> Kl in IO o Kl ro 10 Aj to Q 10 01 01 V) ^ ^ •< f Digitized by Microsoft® 03553 Digitized by Microsoft® -J Y EAILROAD REVENUES AND EXPENSES. 29 "wages were adjusted to wholesale prices of May, 1920, the highest on record, and the chart shows how they renlained at 340 above the base line of 1900, while wholesale prices have fallen from 340 to 200 in March, 1921. Senator Pomerene. That is, wholesale prices had fallen about two-fifths, according to those figures ? Mr. Kruttschnitt. Yes; they had fallen from 340 to 200. The Chairman. Your chart seems to go back to 1900. Mr. Kruttschnitt. You will notice that railway wages are be- low general wages up to 1914. The black line crosses the red there and then the black, which is railroad wages, is uniformily above the red line up to the limit of the chart. The Chairman. The red line indicates wages in employment ? Mr. Kruttschnitt. Yes. Senator Watson. Is there a sharp drop there at one point in the rates of railroad wages 1 Mr. Kruttschnitt. That means that they were stationary at that point. Senator Watson. It runs below ".the red line in January, Feb- ruary, and March. Mr. Kruttschnitt. And the big rise came in May. That was because of the retroactive effect of rates of wages. If you will look at the caption of the chart you will see that that slight depression to which you call attention was for two months only. Then the labor board's increases of wages were made retroactive to May. You will see the big jump in railroad wages in May. Senator Watson. I understand now. Who prepared these charts ? Mr. Kruttschnitt. I did, or at least I had them prepared in my office by an assistant. The Chairman. You 'may proceed. Mr. Kruttschnitt. Chart No. 2 shows wholesale price move- ments in various countries and explains itself. Chart No. 3 shows relation of railroad and general wages to cost of living. Railroad wages uniformly higher than general wages, and very much higher than cost of living, which is 78 above the cost in 1913, while wages are 155 above those of 1913. You will notice a striking difference between the years 1917 and 1920. In 1917 labor received 43.33 per cent of the revenues, and there was available beyond expenses 23 per cent. In 1920 labor received 60.12 per cent of the revenues, and materials and other expenses con- sumed 33.47 per cent, and taxes 4.51 per cent, and equipment and joint facility rents 0.9 of 1 per cent and the security holders had 1 per cent for their share of the revenue returns. Charts 4 and 5 are self-explanatory. Charts 6 and 7 show strikingly the allocation of the return on the properties to security holders, who have paid for them, and to em- ployees — $62,264,000 to those who paid for the property and 60 times as much, or $3,742,000,000, to those who are employed by it, and answers the question "Why don't we build more railroads?" Charts 8 and 9 are self-explanatory. In this connection one of the Senators asked on yesterday a ques- tion which I believe was : What is the relation of wages to operating expenses. I think Senator Myers asked the question. It was an- swered by Mr. Thorn. I made the computations, and they are the Digitized by Microsoft® 29a RAILROAD REVENUES AND EXPENSES. s> 1 WHOLESALE PRICES OF COMMODITIES 1913 = 100 M 1914 1915 191 6 1317 1918 19(9 I9Z0 1921 6og k A - J l\ / I • 1 / \ | . / ■ ' 1/ 1 ^ spo 1 j h * ' ._ '.n> ^ 1 ! ;-. ■ : i //'= • 1; : , j; | a ' '''■ i i ; ' 400 ' u » / 1 y» /; / / ; / 5W / / i 1 / 1 1! ■' i /! x / / 1 ( ! -/ ••. /-■ Hi .-../r^ y; - 1 / 4" 's/-- y 1 / <^ 4 a°9 I i 1 1 ik ■< 1 i 1 I /\ \ /•/ *A J / \ \ a .,r,0° v / , r" \ \ li ^' ~_ 1 / 1 ■' ^\-c^_i ^- \ L /~' / ' 0^ ^ k//^ /,' y- J v -x- 7 100 / V/ -' /H \ '-^c-r^ \ J :■' y / C •«o5 1h \ J / »«a\ \ // / / S :■■■"'/ / J ■■' .t~**- -* / / ^s* . ^ " "— -'"KrthoriHes. i United States -U. 5. Bureau of Labor France- Statist! que Gene rale I United Kingdom - Economist ' Italy - Prof. Riccardo Bachi Digitized by Microsoft® RAILROAD REVENUES AND EXPENSES. 29b United States 3 changes in cost of living, railway wages amd general wages - year 1913 = 100 IKLATIVI IfflB'lOD n 5 £ o 5> 0) en 19C0 isei tCLATIVE ISlS'lOO JAN FBB MAIf APR MAY JUN JUL AU6 SEP OCT NOV DEC JAN rtB MAR APR MAY JUN JUL AU6 255 Ra 9 5 Of Ra \wi r > "1 2^ 255 850 / 2 SO 2 45 245 240 ' 240 835 235 280 /A 230 225 , *f 225 220 (f 220 81 5 f r ^ .. 2 1 5 2 1 O 4 • & 2 1 205 J f ^ i" -s c- £05 20O 3 ' •, «f *\ •*! 2 00 1 95 V £ / ? 1 95 1 SO 4 '4 y 1 90 1 86 V w. £- 1 85 1 80 L K r- \ 1 BO 175 a / \ 1 75 1 70 / 1 1 7 1 6 5 i ; a 1 65 1 6 0' ■ 1 60 ! 55 /* 1 55 1 50 1 50 145 fj 145 140 1 40 1 35 1 1 36 1 30 '// 1 30 1 25 l /.'" 1 25 1 20 1 20 1 1 5 A /? f i 1 1 6 1 1 N 4 '* fr 1 1 1 05 $H */• if 1 05 10 tf $ vi< < 1 00 Ess o o o Kl O - CO cvi a, ID t CO Kl US. Labor Review Feb. 1921 la o a o O in cu 10 ftj m cu CM LO 10 cu v. CM to 10 I.CC Statistics 1- o fl u- £ o o > ■ft D - O o Kl o IO 01 o r- N o o O CM fft 10 <0 US Labor Review Digitized by Microsoft® 29c RAILROAD REVENUES AND EXPENSES. THE RAILWAY DOLLAR WHERE IT WENT R RETURN) ENT O.oMjj .12 MONTHS ENDED FEBRUARY 1921 6 MONTHS ENDED FEBRUARY 1921 Digitized by Microsoft® RAILROAD REVENUES AND EXPENSES. 29d 63553— 21— Vol I- Digitized by Microsoft® 29e RAILROAD REVENUE ainu jiArn.i-NOJi.i3. 1 CLA55 I ROADS S ALLOCATION OF RAILWAY GR055 REVENUE TO EMPLOYES AND SECURITY HOLDERS J RELATIVE ;i 1915.100 ' 1916 1917 1918 1919 1920 RELATIVE 1916 =100 250 / 250 2 + / 2 40 230 / 230 220 «?y r 2 20 £ 1 ff 2 10 200 7 2 00 1 90 **i>^ 1 90 1 60 1 SO 1 7 1 70 1 bO / 160 1 50 1 50 1 40 1 40 1 30 1 30 1 20 1 20 ! 110 ^ BmK C05I it-Read a 1 " 1 EQu'ipm ent 1 1 1 00 90 ^ L -^£'* 1 00 90 BO \ v ^ SO 70 ^ TO. 60 **ng f ^£_ EO 50 ^^5?^ 5 40 V*. 40 50 \ * rt. 30 20 % 20 1 V 10 \ BOOK COST OF ROAD AND EQUIPMENT r*i7.844ooaoog) / ,04 (» 18. 574.000, 000) 106 (lift 985.000,000. , 108 . (♦19z73.ooo.oK, (■*2Qooo,ooaooo) I.C.C. Statistics PURCHASING POWER OF ONE DOLLAR 100 70 S3 SB 51 Bureau of Labor Review AGGREGATE 1 RETURN TO SECURITYHOLDER: 100 f»i.o*o.o8*.src) 90 (•934.068.770) 66 fo6fl7.O60.46E3 50 (»5I6. 290.090) G 1*62. £64.421) I.CC.Statistics AGGREGATE WA.GE PAYMENTS 100 (»l. 468.576. 394-) 1 IS (»l,739.482.l«Jj m f*2.C06.Za4.24S) 195 («.B58.S38.I97; 255 (43. 742,486,33$) I.CC.Statistics Excludes Corpor< te expenses in 918 ard 1919; in ;ludes switching and terminal companies in 1919 and 1920. Digitized by Microsoft® BAILROAD REVENUES AND EXPENSES. 29F ALL RAILROADS OF UNITED STATES 7 Relative Traffic Units. Aggregate Wages. Operating Income and Depreciation in the Dollar RKLATIVS 190O. too 1900 1901 1902 1903 190+ 1905 1906 1907 1900 1909 1910 1911 ate 1913 191* 1915 Hit 1917 1918 1919 1920 5 4 0. / 1 2 .1 6 •5 a n f * 5 n "40 v " ' inn / / A r. n / ' 4 + n / 4 2 4 .1 fl 1 3 R a +,o * 2 n , son ? « n j,f * / j s n •tf !■* /*" '" "*. •\/ R.+ *< f* ? ? n 4 \ k f^ 1^ J* > •^ \/ \ \ , 10 $^ fiS> — ^ » V i \ \ .£.a ■■ — , ^ £53 is £ s 5 £ g o o o O 0» 0» 0> 01 O) in 03 CD Q3 to ftj O 01 in CM 01 IO 03 U3 M 01 03 rvj HejtJj § 19 a f in M M eg o in in in IO IO in 00 in K) b- o IO e nj Q O O t- IA K> IO 10 ? (D 0> 09 O cu «3 0J est s in in 5 10 eu m tn 5 09 Digitized by Microsoft® 29g RAILROAD REVENUES AND EXPENSES. Operating Statistics - Class I Roads Yat o c c c (I c ee c c c c c c tiir^irur'eao q q oi o| q q q q i 1910 8, poo A 7.000 n >\ J / / , 1 £.000 / 5.000 / \ 4.00Q \ \ \ \ /N 3.00 / i V , 7 1 \ t I / \ t \ / V C \ s, 2.000 r V \ \ _ \ \ , \ 1.000 \ \ v \ 1 v v. ~-\ £jjthoriNqg 1845-1890, incl. - Poor's Manual of Railroads > \ 191 5-1 920J Incl - Rail way A e= Ja n.7. 921 Digitized by Microsoft® Digitized by Microsoft® 30 EAILKOAD REVENUES AND EXPENSES. same as fchose read by Mr. Thorn. The percentage of total wages to revenue was in 1916, 40.8 per cent; in 1917, 43.3 per cent; in 1918, 53.4 per cent; in 1919, 55.14 per cent; and in 1920, 60.12 per cent. Senator Stanley. In that connection, Senator Myers, there has been a good deal of discussion as to the disposition made by the carrier of this increased rate for freight and passenger service. Senator Myers. Yes. Mr. Kruttschnitt. I am coming to that. Senator Stanley. The labor people claim that it went to profit for the carriers or operators, and the carriers or operators claim that it was absorbed in great measure by the increase in wages. That is a subject I would Hke to have some authoritative information on. Mr. Kruttschnitt. I read that yesterday in the explanation of expenses. Senator Stanley. I did not catch it. Did you show the percentage of the increase in wages paid to wage earners and the percentage that went into improved service or the profits of the companies ? Mr. KRUTTSOHNrrT. It is figured in the aggregate. You have the lump sums. The percentage was not figured, but it could be done in 10 or 15 minutes. Charts 6 and 7 answer that question, more particularly chart 6. The security holders got $62,000,000 of return that year and the employees got $3,742,000,000. The employees got just 60 times more than the security holders. Senator Stanley. That is of the total return ? Mr. Kruttschnitt. Yes, sir. Senator Stanley. For instance, there was a Pullman rate of so much promulgated by the Interstate Commerce Commission. Subse- Siently this wage board permitted an increase to the employees, and en in order, as it was claimed, to meet that increase in wages — and I believe Mr. Thorn testified to that effect before the committee — they put a 50 per cent additional charge on each Pullman car ticket issued, that increase to go not to the Pullman company but to the car-, rier, the carrier claiming that the entire amount went to meet this additional increase in wages. How about that ? Mr. Kruttschnitt. If you will indulge me for a moment, Senator Stanley, what is ahead of me here in my statement will give an expla- nation of the accrual of the revenues. I have already attempted to show, at the beginning of my testimony on yesterday, what accounted for the large increase in expenses. The two taken together I think will fully answer the question you have in mind. Senator Stanley. I am not asking for any immediate answer, but am simply calling attention to that phase of the subject so that it may be Drought out. Mr. Kruttschnitt. Yes; I have not overlooked it. The Chairman. I think Senator Stanley may have the order in which these things were done reversed in his mind. As ' I under- stand it, the labor board increased wages in July and made the increase operative from the 1st of May. The commission increased the rates in August. Mr. Kruttschnitt. August 26. The Chairman. On August 26, but made those increases appli- cable from the 1st of September. In other words, wages were in- creased before rates were increased. Digitized by Microsoft® EAILEOAD REVENUES AND EXPENSES. 31 Senator Stanley. The chronology of it is not material, but as I understood from Mr. Thorn there was, first, a Pullman rate estab- lished by the commission; that subsequently the labor board in- creased the pay of the employees, and then in order to meet that increase there was a change made and a further increase allowed on the charge for Pullman service. Mr. Krottschnitt. It came in this way: The Interstate Com- merce Commission held a long hearing, at which the carriers pre- sented evidence to show what was necessary to produce the statutory return on the valuation of the property that had been fixed by the commission. The carriers had about, or perhaps completely, finished their hearings when the labor board rendered its decision. To meet the showing made by the carriers it was necessary to make a certain percentage of increase in the freight rates. When the labor board's decision came out it was found that the award was so large that the increased freight rates would not cover same. Then there was an attempt made by the commission to make up that increase in wages, not by increased freight rates, but by putting a surcharge on Pull- man tickets. Senator Stanley. That is my understanding. Mr. Thom. But not only has the surcharge put on Pullman tickets but the increased passenger rates, the entire revenue from passenger rates and surcharge, turned out insufficient to take care of the increase in wages that was made by the Labor Board; these entire sums have only taken care of about one-half of the increase. Senator Stanley. The change in the Pullman rate was the result of the finding of the Labor Board and to apply on the increased demand. I mean the second change in the Pullman rate. Mr. Thom. In the rate case there had been no fixing of a Pullman charge, but when the question came up of providing for what the Labor Board had done in the way of wages then passenger traffic was, for the first time, taken into consideration, and that passenger traffic was increased 20 per cent, and then came this surcharge on Pullman tickets, which surcharge goes to the railroads. Now, these two to- gether do not begin to take care of the increase in wages made by the Labor Board. Senator Stanley. That was not the first increase in passenger rates since the prewar rate, was it ? Mr. Kruttschnitt. There was an increase by the Director General in the passenger rates but there had been no increase of the passenger rate in this hearing; up to that time it had dealt entirely with freight rates. Senator Stanley. I understand. The Chairman. You may continue. Mr. Kruttsohnitt. Chart No. 10 showing increases in mileage constructed is an instructive supplement to chart No. 1. As we have pointed out, chart No. 1 shows the effect of destructive regulation and the beginning of the rapid increase in railroad expenses through rises in railway wages and prices of commodities. Chart No. 10 shows how closely the fall in new construction synchronized with the period when it became evident that the operation of economic laws on the revenues on the railways was to be throttled by regulation. The fall in rate of construction began in 1905 and, with a negligible check in 1916, has continued ever since, so that the new mileage con- Digitized by Microsoft® 32 RAILROAD REVENUES AND EXPENSES. structed in 1920 was less than the average in the five years from 1840 to 1845. New construction in 1920 was only one-eighth of 1 per cent of the existing mileage, and at this rate it will require eight years to increase.it by 1 per cent. In other words, chart No. 10 shows in a very striking way the unwillingness of the general public to furnish money by investment in railway securities, from the sale of which the railroads must rely for means to build new or extend existing lines. OPERATING REVENUES. In 1920 the gross revenue of Class I roads was $6,2*25,000,000, an increase of $1,041,000,000 over 1919, or 20 per cent. This increase was made up as follows : 1. Increase of 10 per cent in volume of traffic units (ton-miles plus three times passenger miles) $459, 000, 000 2. Increased revenue derived from higher rates on freight and passenger traffic granted by Interstate Commerce Commission, 4 months. . ... 418, 000, 000 3. Increase in mail, express, and miscellaneous revenues 164, 000, 000 Thus of a total increase of $1,041,000,000, only $418,000,000 or 40 per cent, was due to the higher rates granted by the Interstate Com- merce Commission; the balance, $563,000,000, accruing from greater service performed, excepting only the back mail pay amounting to $60,000,000. The increase of $418,000,000 was due to the Interstate Commerce Commission's increases in rates granted on the application of the carriers designed to produce 33.5 per cent increase in freight revenue and 23.9 per cent in passenger revenue. .These higher rates were in effect for the last four months of the year only; so that the increase in revenue from higher rates fell far short, pf the requirements of the railroads and amounted to but 8 per cent for the entire year. How meager this increase was can be judged from the fact that had the increases designed by the commission operated for the full year the carriers would have earned on the volume of traffic handled $1,202,000,000 more than they actually earned and the increase in gross revenues for 1920 would have been $2,243,000,000, instead of $1,041,000,000 (p. 14). From the above will be seen how incorrect is the popular impression that with freight rates fixed so as to increase their gross revenues by 33.5 per cent and passenger rate increases of 23.9 per cent, the man- agements of the railroads since their return to private control must have been improvident and inefficient in the extreme to produce the unsatisfactory results in the calendar year 1920. The increased rates became effective August 26 and although the volume of business during the last four months of 1920 was larger than in the same months of 1919, the actual gross revenue was sub- stantially less than the rates should have yielded, for the following reasons : 1. The State commissions in many States did not raise the State freight rates the full amount authorized by the Interstate Commerce Commission, so that the full measure of increase was not realized until after the Interstate Commerce Commission issued the necessary orders upon appeal of the carriers. In several States some com- modities are still excepted from the increases finally authorized. In Arizona the increases were denied in toto by the State commission so that no freight rate increase in that State on intrastate traffic was enjoyed by the carriers during the year 1920. Digitized by Microsoft® BAILEOAD REVENUES AND EXPENSES. 33 Senator Stanley. Do you know how much that amounted- to in dollars, in the aggregate ? Mr. Kruttschnitt. I do not, but on our own road it amounted to $7,000,000. ' We have quite a large mileage in Arizona. Senator Stanley. All right. The Chairman. You may resume, Mr. Kruttschnitt. Mr. Kruttschnitt. And then along that line many States denied any increase in intrastate passenger fares, and others had to be forced to allow the higher fares to be put in effect, and as the intra- state passenger business is of about the same volume as the inter- state business, the failure of the carriers to realize the increase of passenger revenue that the Interstate Commerce Commission's decision was expected to produce is easily understood. 2. Agencies created by the Government and paid for by taxes, to ■which the railroads themselves contributed largely, operated with constantly increasing effect during 1920 to deprive the steam lines of large amounts of freight traffic which they had created and fostered thus: PANAMA CANAL COMPETITION. The balance sheet of the United States Shipping Board, as of January 1,' 1921, evidenced expenditures aggregating $3,062,000,000; 1,667 vessels have been built and placed m commission, many in domestic coastwise service in most aggressive competition with the railroads. The practice of the Shipping Board is to turn these vessels over to agents to operate them at the expense of the Shipping Board, who receive for their services 5 per cent of the gross receipts. They are relieved of obligations to show any net return to pay over- head expenses or a return on the property investment, so that all incentives to conservative rate making and efficiency of management are absent. The agents' compensation is in no wise affected by rising costs, increased operatmg expenses, or losses; their whole aim is to increase gross earnings as thereby they increase their profits. Indeed, the terms of the contract, as may be well understood, en- courage extravagance and waste. While pointing out the destructive effect of such contracts on the traffic of transcontinental carriers, it should be said in justice to the Shipping Board that it is understood that these contracts are not satisfactory and changes are under consideration. The extent to which the rail lines are affected may be estimated by the total movements through the canal for January and February of 1920 and 1921. The total tonnage east and west bound for 1920 was 189,000 tons, for 1921, 325,000, an increase of 136,000 tons, or 72 per cent. That 72 per cent of traffic was all taken away from the trans continental railroad lines and accounts to a considerable extent for their fall in revenues. Senator Stanley. How do you account for that increase in tonnage handled by water carriers this year ? Mr. Kruttschnitt. These ships are furnished to agents simply to run; or, putting it in another way, the Shipping Board is running these ships through agents. They are free ships. They belong to the United States Government, and the United States Government, with Digitized by Microsoft® 34 RAILROAD REVENUES AND EXPENSES. the Treasury of the country behind it, is conducting a competition with the transcontinental carriers that no private company can meet. They make rates that rail carriers can not possibly meet. The Chairman. Have you any information as to 'the amount of money the Shipping Board has lost in transportation of this character ? Mr. Kruttsohnitt. I have something a little ahead here in my statement. The Chairman. Very well. Senator Wolcott. May I ask if ships can successfully compete on the basis of railroad rates as they' were before the last railroad rate increase ? Mr. Kruttsohnitt. If the ships charged the same rate the rail- roads did charge, then as to whether they could compete or not would depend upon the shipper. If he was satisfied in having the carriage of his goods by vessel, considering the longer time employed and being subject to the payment of insurance rates, the ships might get the Freight. But if he wanted his goods carried more quickly and without incurring the cost of insurance, the railroads would probably get the business. But the real situation is always just the other way; it is not a question whe'ther ships can compete with the railroads, but whether the railroads can compete with ships. And as these figures show, the railroads are rapidly losing the coast to coast traffic. Senator Wolcott. I particularly wanted to know if the loss of that freight to the railroads is due to the present high freight rate ? In other words, if freight rates were back to the same level as before the war would ships have an advantage ? Mr. Kruttschnitt. Water transportation would still have a very considerable advantage along that Ene. Senator Stanley. That would depend on the commodities carried, as to whether they could stand the slower carriage. Mr. Kruttsohnitt. Not altogether. Ships have entered the citrus fruit traffic, carrying lemons and oranges. I know of one cargo of oranges and lemons to Philadelphia, commodities that ordinarily require what is called quick transportation. The Chairman. What is the difference in "time between a ship- ment carried through the Panama Canal and a shipment carried on the transcontinental railroads from the Pacific coast to the Atlantic coast ? Mr. Kruttsohnitt. Oh, perishable fruit like citrus fruits would come through by rail in about 9 days, and by water in from 16 to 17 days. Senator Watson. What percentage of the traffic carried through the Panama Canal is carried by American ships? You spoke of some percentage represented by 72. I wanted to know whether it had relation to all traffic or to traffic carried in American bottoms. Mr. Kruttsohnitt. It referred to all traffic through the canal; the increase. Senator Watson. In order to arrive at a just basis of calculation as to what injury is done to the railroads by reason of these lower rates in the present method of operating our merchant marine, we would have to know what percentage of the traffic actually carried through the canal is carried in American ships, and is American traffic. Digitized by Microsoft® RAILROAD REVENUES AND EXPENSES. 35 Mr. Kruttsohnitt. Well, the tonnage that I gave is tonnage the railroads might otherwise get, whether carried in United States ships or in foreign ships. Mr. Thom. The 72 per cent mentioned means that point of origin and point of destination are both in the United States. Senator Stanley. There is one point I would like to get clear in my mind. Is the time which you put at 16 or 17 days for ships the time between any particular points ? In other words, can they make the haul in that time to points like New York and Boston from the western coast ? Mr. Kruttsohnitt. The time I gave is of course from seaport to seaport. I understood that that was the question asked, and that would be the time as compared with the railroads, leaving the same point of origin and arriving at the same terminal. Of course if fruit is destined to the interior, it would increase the time in the case of ocean carriage and probably decrease it by the rail carrier, depending upon what interior point was considered. Senator Stanley. What I was asking is, Would the bulk of this stuff for seaport towns go to the larger seaport cities, like New York, Boston, etc. ? Mr. Kruttsohnitt. Yes, sir; and be distributed from there. Senator Stanley. It would require a greater length of time to deliver these perishable goods in New York or Boston or some other of the eastern cities on the Atlantic seaboard than 16 or 17 days ; would it n6t ? Mr. Kruttsohnitt. No; the time 1 gave contemplated departure from San Francisco and arrival in New York as a typical eastern port. Senator Stanley. I was under the impression the time was greater than that. Mr. Kruttschnitt.' The time would vary a little, according to the destination and the speed of the ship. You can not give an estimate as accurately for ships as you can by rail. The Chairman. Isn't it true that until some time at least in October, 1920, the transcontinental railroads had all the business they could do ? And if that be true what difference did it make with respect to traffic going through the Panama Canal ? Mr. Kruttsohnitt. I can speak better for my own railroad than for other railroads, because I was in more intimate touch with its traffic. But we were at no time embarrassed to handle the traffic ' offered to us. < The Chairman. It was the general understanding throughout the country that the railroads throughout the country during the winter and spring and summer of 1920 had all the traffic they could handle; indeed, there was a good deal of, complaint that they were not handling it promptly. I reached the conclusion, or that was my general impression at any rate, that the railroads could not have taken on any more business than they had even if they had had no competition. Mr. Kruttsohnitt. All of that is involved in the meaning of the word "promptly." A railroad is said to fail in furnishing facilities if it does not furnish cars the day they are asked for. If that is not done they are said to be in default in the handling of traffic. Traf- fic requiring eight or nine days from, point of origin to point of desti- nation — and the lower commodities require more than that time — can not be said to have suffered a fall down in handling if a day or two more is required. Digitized by Microsoft® 36 RAILROAD REVENUES AND EXPENSES. The Chairman. I would not so consider it either, but in some parts of the country, anyhow, the delay was much greater than 24 or 36 hours. Mr. Kruttschnitt. Of course you can find instances where the delay was no doubt excessive. But as a general thing the railroads handled the traffic quite comfortably. The Chairman I make that observation because it has appeared before our committee many times, and from the railroads them- selves, that they lacked equipment, that they must have some- thing like $600,000,000 in order to provide themselves with the facilities necessary to do the business. And I was thoroughly impressed with the idea $hat the railroads, with the equipment they had, had all the business they could take care of. Senator Pomerene. Did not that complaint apply more largely to the eastern railroads than to the western railroads ? The Chairman. That may be true, but I am trying to find out whether that state of affairs existed with reference to transcon- tinental traffic. Mr. Kruttschnitt. Still the fact remains, Senator, that the' railroads, with the equipment they had, did the largest traffic that was ever done in the history of the railroads. Even if we should admit that for certain months of the year, when the traffic was heaviest, they would not feel the loss of the traffic through the Panama Canal, yet when the pinch comes, as at the present time when the traffic is low, it makes a serious difference in 'the year's business. And when that amount of traffic is subtracted from the total volume the railroads can handle it bears upon them with peculiar hardship. The Chairman. My question was limited to that period from the first of the year 1920 up to the 1st of October or November, when there was a very considerable diminution in the volume of traffic throughout the United States. Mr. Kruttschnitt. We can readily admit that when there is more traffic than the railroads can handle the fact that some of it goes through the Panama Canal is of no importance to them whatever. But me hardship to which the railroads are exposed is that the Panama Canal is there in poor times as well as in good times, and it is a potential influence in depriving the railroads of tonnage, and it seems to us is a handicap imposed upon the railroads at public expense that ought not to be. The Chairman. In order to make the matter clear, you do not complain of water competition necessarily, do you ? Mr. Kruttschnitt. No. The Chairman. That is, with reference to the greatest use of the Panama Canal ? Mr. Kruttschnitt. No, sir. The Chairman. I infer that your criticism refers to this situation, that the Government is furnishing shipping without any compensa- tion; in fact, is subsidizing the traffic through the Panama Canal? Mr. Kruttschnitt. That is it. The Government is competing with its citizens. I think the Panama Canal should have been built. It is a national necessity. We needed it for defensive purposes. But I do not think it is right to allow it to be used for common carrier purposes without the payment of any taxes or any return on Digitized by Microsoft® RAILROAD REVENUES AND EXPENSES. 37 the investment, or without any expense paid, by the vessels that use it, to enable outsiders to pull down the tonnage carried by the rail- roads. The Chairman. It was-in that view that I asked you whether you could give us information with regard to the amount of that subsidy, which I suppose is measured by the loss which the Government has sustained in the operation of ships through the canal. Mr. Kruttschnitt. I have something on that point in my state- ment. The Chairman. Very well. We will wait for it. Senator Stanley. This Panama Canal traffic does not involve a total loss of that traffic to the railroads, does it? Mr. Kruttschnitt. It involves a total loss except .whatever earnings the railroads, in California, for instance, may get in carrying the fruit from the orchard to the seaboard, or the earnings that the railroad carriers may make in distributing that fruit from the sea- board to points of consumption. The loss is not total except for such tonnage as originates at seaports and is consumed at seaports; as to that it is a total loss. Senator Pomerene. Suppose the railroads had received the total tonnage that went through the Panama Canal, what would it have added to the revenues of the railroads ? Mr. Kruttschnitt. I will estimate that in round numbers. In 1921 the tonnage was 4,012,000. I think it is a fair estimate to say that the charge was $12 a ton, and if so that would represent about $50,000,000. . Senator Townsend. Do you maintain that this fruit could have been carried by the railroads if you had had the equipment at the prices expended in carrying it! ? Mr. Kruttschnitt. We spent this year on our express line, which is owned jointly by the Union Pacific and ourselves, $26,000,000. At the present time, with a great deal of fruit moving, the most of the equipment of that express company, the total value of which is. about $50,000,000, is idle. Senator Townsend. My question was, Could the growers of fruit pay your charges in hauling that fruit across the continent at present prices ? Mr. Kruttschnitt. I have devoted a good deal of time and trouble to showing that they can. There is a propaganda extant to- show that the railroads can not, but it is not hased on the facts in the case. Senator Townsend. You are going to answer that in your state- ment, are you? Mr. Kruttschnitt. Yes, sir; quite fully. Senator Townsend. Very well. I will wait for that statement. Senator Poindexter. Do you go into the question of apples $ There is quite a volume of traffic in apples from the Pacific coast. I think the rate is $1.66 a hundred pounds, and the apple growers, claim that is more than they can stand. Mr. Kruttschnitt. I can give you an example in the case of a number of other commodities. I do not think I have apples, but I. have a large assortment of vegetables and fruits and canned goods. Mr. Thom. Mr. Chairman, I call attention to the fact that this print does not contain a part of the testimony that Mr. Kruttschnitt Digitized by Microsoft® 38 RAILROAD REVENUES AND EXPENSES. has given.; There is a misprint, evidently, near the bottom of page 28, as compared with the typewritten statement which was furnished for the Government Printer. Senator Wolcott has just called my attention to the fact that there are certain things Mr. Kruttschnitt has been talking about and contained in the paper he has before him, a copy of which was furnished, which do not appear in the print. I want to call attention to that so that the print will be not taken as a full transcript of his evidence. Senator Myers. I have been looking over your evidence on the matter of propaganda. I suppose the samples you give will apply to apples as well ? Mr. Kruttschnitt. I think I gave substantially that answer to Senator Poindexter. It would. Senator Pomerene. You gave 72 per cent as representing the increase in tonnage through the canal in January, 1921, as compared with January, 1920. As I recall, there was a landslide in the canal that seriously interfered with traffic at one time. Wasn't that early in 1920? Mr. Kruttschnitt. I do not know. I do not recall a landslide, but if there was one that is no doubt the case. Senator Pomerene. I know it is a matter of general information that they had serious trouble down there, which, for a time, inter- fered with traffic. I do not remember the date. . Mr. Kruttschnitt. If that was the case it would affect the per- centage but not the principle. Senator Frelinghuysen. Do you mean when the canal was closed ? Senator Pomerene. I do not know whether it was closed but I understood that it seriously interfered with the traffic passing through the canal. Mr. Kruttschnitt. I do not know about that. Senator Pomerene. I do not remember when it was. I think it was late in 1919 or early in 1920 that there was a time when there was interruption to traffic. That is merely an idea I got from the newspapers. Senator Townsend. I think it was prior to that. Senator Stanley. This Panama Canal traffic permits of distribu- tion of fruits in California and the Pacific, coast as well as on the eastern seaboard, but as to the interior markets they must neces- sarily avail themselves of land carriage, whether those fruits are hauled through the canal or not. Mr. Kruttschnitt. Yes. Senator Stanley. They are bound to reach the interior markets by the land carriers, of course. Mr: Kruttschnitt. I have answered that already . But I think I confined my answer to the railroads, and I will now say that of course the highways that the Federal Government and the States have built, and which are used by private individuals for common carrier purposes, robs the railroads of a tonnage vastly greater than the ton- nage carried through the Panama Canal. Senator Stanley. That is true but I am not 'speaking of that. Does this cheaper carriage by water of such perishables as will stand it increase the traffic in those commodities and compensate the rail- roads to a considerable extent? In other words, will there be a Digitized by Microsoft® RAILROAD REVENUES AND EXPENSES. 39 greater shipment of California fruits to distributing points like Nor- folk, New York, and Boston, owing to the cheaper freight rates of- fered by ships, and therefore a corresponding increase in this traffic for the eastern railroads that must be used in distributing it to points on the eastern portion of the continent ? Mr. Kruttschnitt. I do not think so! Of course ships were in existence long before the construction of the transcontinental, rail- roads, and yet California, Oregon, and Washington never dreamed of producing fruits and sending them to the eastern markets before the transcontinental railroads were built. Senator Stanley. We did not have the Canal then ? Mr. Kruttschnitt. No. Senator Stanley. And you could not send them around the Horn ? Mr. Kruttschnitt. No; but there was a railroad on the Isthmus of Panama. Just as you suggest they may be carried to-day from New York or Norfolk or Boston to the interior by means of the rafiv Toads from those points, they could then be carried over the Panama Railroad. The Panama Railroad is only 48 miles in legnth. Senator Stanley. But that did not involve a cheaper haul to any : great extent ? Mr. Kruttschnitt. What was that question ? Senator Stanley. You had to break bulk twice if you wanted to use the Panama Railroad. That would not involve a much cheaper haul bv water ? Mr. ^Kruttschnitt. I am speaking of a time antedating the conr struction of the transcontinental railroads. At that time the Panama Railroad and the ships could make their own rates as they pleased. The point I want to make is that I do not think that under ocean carriage the fruit and perishable commodity shipments from the Pacific coast to the Atlantic seaboard would have been developed to the extent that it now lias been developed. Senator Stanley. I agree with you on that'. Mr. Kruttschnitt. May I continue, Mr. Chairman ? The Chairman. You may resume your statement. Mr. Kruttschnitt. In addition to the domestic traffic diverted to the ocean a large volume of export and import traffic which was foiv merly handled through Pacific ports by the transcontinental lines has been diverted to direct steamship lines operating through the canal between transpacific countries and Atlantic and Gulf ports of the United States. Data for all lines are wanting, but Southern Pacific lines handled 101,000 of this traffic in January and February, 1920, and only 25,000 tons in the same two months of 1921, a decline of 76 per cent. WATER COMPETITION. Large sums of money are being spent currently by the Government in improving and developing inland waterways, which in the aggregate will deprive the railroads of very heavy tonnage. Instances in point are the construction of dams and locks in the Warrior River, Ala., for the purpose of carrying coal from the Alabama coal field to seaports on the Mexican Gulf — tonnage which heretofore has been carried exclusively by the rail lines; and canals, on which the State of New York has spent $150,000,000 up to April, 1920, on traffic routes closely paralleling steam railroad lines. 63553—21 4 Digitized by Microsoft® 40 EAILROAD REVENUES AND EXPENSES. HIGHWAYS. On the 1st of January, 1921, there was available for new construction $1,130,000,000, made up of appropriations by the Federal Government, States, counties, and districts. The Chamber of Commerce of the United States in July, 1919, listed a number of bills for the promotion of the construction of highways then pending in Congress. One of these bills would add $300,000,000 per annum for the years 1922 and 1923, which with the period to 1921 would provide a total of $1,000,000,000 of Federal money. Senate bill 668 would grant 500,000 acres of public lands to each of 12 western States, 6,000,000 acres in all, the proceeds of the sales of which to be used by the States for the purpose of constructing and maintaining public roads. House bfll 6552 proposes appropriations of $1,700,000,000 over the period to 1927 for national highways east and west and north and south. House bill 270 would have the Post Office Department construct rural post roads connecting all county seats. Senate bill 658 provides for the preparation of a preliminary plan for the improvement of a system of national highways extending into all the States. The conditions under which the highways are constructed and operated are grossly discriminative against the railroads and in favor of their competitors. As a rule the improved highway is located immediately adjacent to the right of way of the steam road, where it inflicts the maximum destructive effect on steam-road traffic. Under their charters, which are agreements with the public, the steam carriers must provide and maintain their permanent ways at large expense; are subject to drastic regulations as to profits, living conditions and terms of employment of those who work for them and heavy damages for injuries to persons or property. The desire to develop and use the powerful motor trucks and passenger vehicles has blinded the public to the necessity for proper and equi- table regulation of this service, which takes thousands of tons of freight and hundreds of thousands of passengers every day from established rail lines. By reason of the unlimited profits that these carriers are thus allowed to earn they can put competing railroad lines out of business or greatly curtail their revenues. Southern Pacific lines alone were deprived of over $4,000,000 of passenger revenue in 1920 by the competition of public motor vehicles. Taxes paid by all the people and to a large extent by the railroads them- selves are used for the purpose of providing free highways for vehicles , which are subjected to no regulation for the protection of life and froperty, and whose heavy wheel loads rapidly destroy the roads, n common justice these public carriers should be required to pay a tax on freight and passengers carried commensurate with the use of and injury to the roads they pass over. The press credits the President to be keenly alive to these inequities and the Legislature of Oregon as being engaged in an investigation of them. Senator Wolcott. How did you arrive at that figure of $4,000,000 of loss in passenger revenue in the year 1920 1 Mr. Kruttschnitt. Because we keep track on the Southern Pacific of the number of these vehicles that are running, and the number of people they carry. Digitized by Microsoft® RAILROAD REVENUES AND EXPENSES. 41 Senator Woloott. Well, are they common carriers, these vehicles that you keep track of ? Bus lines ? Mr. Kruttschnitt. They are common carriers to the extent that private individuals operate them for profit, and for the carriage of freight and passengers, but they are not subject to the laws of common carriers, and that is what I am complaining about. They are favored at the expense of the general public. Senator Wolcott. I understand that. Mr. EJauTTSOHNiTT. In other words, Tom, Dick, and Harry can go and use those roads to make all the money that he can rake in, and he doesn't have to pay anything for it, except for the gasoline to run his machine. Senator Wolcott. I understand your contention on that, and it would seem to have some merit in it, to me at least. But your figures do not take any account of the private individual, the head of a family who wants to go from town to town, and instead of riding on the train, just loads his own family into a car and goes ? Mr. Kruttschnitt. No; I have not mentioned that. Senator Wolcott. So that your figure of $4,000,000 would be an underestimate, if anything? Mr. Kruttschnitt. Yes; it takes no account of that. We do not keep tab on private automobiles. Senator Wolcott. I was curious to know how you reached that figure. Mr. Kruttschnitt. But take it in California. They build a new highway, an improved road. That is between two points. We have electric service between those points. The first thing we know some gentleman gets a great big autobus that can carry 40 or 50 people, and he runs it at the expense of the public, and incidentally at ours, because we are heavily taxed, right alongside of us, and takes the passengers from our trains. We can not stop because our business is no longer profitable. This gentleman can take his motorbus off that service any time he pleases; if it is bad weather he need not run it. But we are tied down by obligations to the public, fixed by law. Senator Townsend. Well, you are assuming, Mr. Kruttschnitt, that everybody that rides in an autotruck or an autocar would otherwise ride on your trains ? Mr. Kruttschnitt. That is a fair assumption. Senator Townsend. Do you think it is ? Mr. Kruttschnitt. I don't see why not. If we have a line which is carrying, we will say, a million passengers a month, and a road is built and a number of autobuses put on that carry passengers right alongside of us, it is fair to assume that all they take will be taken from us, unless some of the people who would not ride in the auto- buses would buy their own automobiles, and those we do not complain of. Senator Townsend. Well, I think that has been a long argument of the railroads against the electric lines, that the electric lines that were paralleling them were destroying the steam roads' business — the steam roads' traffic. It has been quite the reverse in many cases, hasn't it? It has encouraged traffic, and your steam lines have not lost, although the electric lines have gained ? Digitized by Microsoft® 42 RAILROAD REVENUES AND EXPENSES. Mr. Kruttschnitt. It has been the case where the electric lines have been designed.lv built as feeders to steam roads to bring the passengers to them; in such cases it has been profitable. But in most cases tiie electric lines have been built for the specific purpose of taking the traffic, which has been created and fostered by the steam roads, away from them, and appropriatingit. . The Chairman. You don't expect, Mr. Kruttschnitt, that the car- riage by highway will be stopped ? Mr. Kruttschnitt. Senator, I have not dreamed of suggesting that. The Chairman. No. Mr. Kruttschnitt. I merely suggest, in line with what I say, what the President himself has suggested. The Chairman. Precisely. Mr. Kruttschnitt. That it is not right to build these highways at high cost to the public generally, and then permit a limited number of people to put heavy vehicles on them, vehicles that destroy these highways more rapidly in one trip than a thousand private auto- mobiles would do, and let them reap unlimited profit from that business. The Chairman. What you suggest is that those who carry freight for hire or those who carry passengers for hire shall pay a fair license fee or compensation for the privilege of using the roads which have been built and which are maintained by the public ? Mr. Kruttschnitt. That is it. To pay a fair, reasonable price for the interest on construction of the roads and their maintenance. Now, take the State of Connecticut. I think the tax on my auto- mobile is somewhere around $15 a year. The tax on heavy motor vehicles I don't think is as much as twice that. It ought to be very, very much more. Because the automobile , that I run, and that my neighbors run, has a light wheel load, does not damage the roads, and we are probably forced into the side ditch by a truck that is carrying 10 or 15 tons. Senator Wolcott. And then the driver will laugh at you. Mr. Kruttschnitt. Yes; laugh at me. While fhave no personal feeling about being crowded into the ditch, except at the time being, when I am irritated, I do think that the fellow that is carrying such enormous loads there and tearing the roads up should be made to pay for it. In other words, he should not, at the expense of the public, Teap all of that benefit from it and put it in his pocket. Year before last, after a heavy winter, the roads between New York and Stam- ford, Conn., were, for the whole distance, almost impassable. It was detour after detour where the roads had been torn up and were being repaired. Senator Watson. This traffic which you speak of, Mr. Kruttschnitt is largely intrastate; it doesn't run over the State lines much, does it ? Especially in the western country ? Mr. Kruttschnitt. Well, I am speaking about the local traffic. Of course all the traffic from the factories in Connecticut to New York is interstate. Senator Pomerene. There are truck lines from Akron, Ohio, to Boston, that have been maintained for several years. Senator Watson. Yes; but do they do a great volume of business, Senator ? Digitized by Microsoft® RAILROAD REVENUES AND EXPENSES. 43' Senator Pomerene. Yes; they haul a large part of the product of the rubber plants there in that way, so I am advised. The Chairman. Your argument is that the Government ought not to subsidize these carriers for hire, which are in competition with the railroads ? Mr. Kruttschnitt. That is my point exactly, Senator. And they should not be allowed to wreck the business of steam lines, to wreck the property of citizens who have dedicated their money to public use, oy the Government limiting the profit of the steam lines and allowing these gentlemen that make these common carrier companies to collect everything they can get without any regulation or limitation whatsoever. I know, living as I do, alongthe New Haven road, you ean go on what is called the Boston Post Road, which is a main road from New York to Boston, and the use of the road by the public for Eleasure purposes is seriously interfered with by these fleets of these eavy-motor trucks carrying machinery, and I don't know what all, from Connecticut factories parallel with the railroad to New York, for export. The Chairman. You may proceed. Senator Freltnghutsen. Mr. Chairman, may I ask a question '( Are these motor trucks run by incorporated companies, or are they run privately by the industry furnishing the product ? Senator Pomerene. The one that I spoke of was run privately by an industry. . Mr. Kruttschnitt.^ Well, I can tell you, Senator, that if you will travel along this road that I have in mind you will see vehicles the size of a good-sized railroad box car on wheels labeled, "John Smith Quick Express Service between Bridgeport and New York." They are owned by private individuals. They are not subject to any regulation or any limitation as to earnings, or any regulations as to providing for the safety of the people they carry. They just proceed- on their own hook and get all they can, and the heavier they load the trucks, why presumably the more they 'make. And there is almost no limit to the amount they put on. Senator Freunghuysen. I am very familiar with the situation, because there are regular lines between New York and Philadelphia across New Jersey maintained at the present time, and they are destroying our roads, without paying to the State a proper return for the damage they do. Senator Townsend. Well, that is largely a matter of regulation for the State, isn't it? The State can fix those charges. There is a license fee upon the users of the automobiles now which maintains the roads very largely after the roads are constructed. Most of the roads depend upon the automobile license fee to maintain the roads. Senator Frelinghuysen. That is not so in New Jersey, because they have a reciprocal arrangement with New York State; and if New York licenses the truck, New Jersey will not charge them a license fee, unless there is some recent legislation on that. But is it not interstate commerce from New York to Philadelphia ? Senator Townsend. A great deal of it is. Mr. Kruttschnitt. The figures I have given, Senator, show the extent to which the Federal Government has Contributed to the con- struction of these roads. Senator ToWnsend. You are mentioning $1,400,000,000. That is not the amount that the Federal Government is contributing. Digitized by Microsoft® 44 RAILROAD REVENUES AND EXPENSES. Mr. Kruttschnitt. What? Senator Townsend. The Federal Government is not contributing $1,400,000,000, as you mentioned. The Federal Government has contributed $275,000,000. Now, you got your figures from figures that are frequently stated of the moneys invested m roads. That is the statement that is put up in connection with the Federal aid. The Federal Government has expended only about $275,000,000 — appropriated that money for the construction of roads, and that only goes into a very small proportion of the roads of any one State. The balance of this vast amount of money that you are speaking about is the money that the States are appropriating for constructing State and county roads. That is where the large amount comes in. Senator Poindexter. The same principle would apply. Senator Townsend. The same principle would apply, only your amount is not the Federal money. .Mr. Kruttschnitt. I was going to say that except for the cor- rection that you make the principle still stands, that the public agencies should not discriminate in favor of carriers over the highways. Senator Townsend. I am very much in favor myself, and have advocated the proposition, that the users of the roads, especially those that use them for profit, should contribute very largely for the maintenance. Senator Pomereme. For hire. Mr. Kruttschnitt. Those that are used for hire; that is the identi- cal idea that I am arguing. I am not mentioning the private indi- viduals. The private individuals use the roads at a nominal fee. A fee of $12 or $15 for a private automobile is not worth considering. Senator Townsend. You take your manufacturing concerns — for instance, the Buick people or the Ford people in Detroit; they don't use the roads for hire, but they ship their cars on their own power; they drive them across the country. The roads are full of them; full of those cars when they are delivering them. The Chairman. You present rather a difficult problem, Mr. Kruttschnitt, because the public will remember all the while that the Government has made, in one form or another, very large contribu- tions in the construction of steam railroads, in the form of rights of way and other things of that kind. It is pretty hard to tell just where the beneficence of the Government should cease in regard to public highways. Mr. Kruttschnitt. You must not blame me, Mr. Senator,/ if I don't remember that, because the Government did advance money to the Central Pacific for its construction and it collected every dollar with interest. The Chairman. I don't mean in operations of recent times. I mean the public has given a large part of the right of way that is now used by the railroad companies without any compensation at all. Mr. Kruttschnitt. Yes, when that right of way was given it wasn't worth anything. Largely over land that was desert. Take our own roads. Most of the right of way is over public lands, over desert lands, which even to-day, with the existence of the railroads, could not be sold over $1 or $1.50 an acre. The Chairman. Yau may proceed, Mr. Kruttschnitt. Mr. Kruttschsutt. For many years lower transcontinental rates were maintained at the Pacific ports than at interior intermediate Digitized by Microsoft® RAILROAD REVENUES AND EXPENSES. 45 points in order to retain a share of the coast traffic in competition with the sea. The withdrawal of all ships from the Panama Canal during the recent war resulted in the Interstate Commerce Com- mission discontinuing the relief from the long and short haul pro- hibition of the interstate commerce act under which such rates were made. The coast rates by railroad are too high to compete for a share of the commodities that are susceptible of transportation by vessel, and the railroads are suffering from their wholesale diversion. The inade- quacy of their revenue must make it obvious to anyone that they can not afford to reduce their rates at all intermediate points in order to make rates at the coast which will recover a portion of this traffic and check additional inroads thereon. Therefore they must either continue to submit to the loss of the coast tonnage and eventually obtain more revenue from their other rates, including those at the interior points, or obtain a renewal of authority from the Interstate Commerce Commission to make the necessary rates at the port with- out disturbing the prevailing rates at interior intermediate points, if they can earn enough on such traffic above the cost of handling it to contribute something to their revenue. Under efficient management, which is now required by law, it is evident that for every dollar by which a carrier's gross revenue is reduced by depriving it of the right to engage in competitive seaport traffic, although but slightly remun- erative, an equal amount must be added to the burdens of traffic not so fortunately situated. The Interstate Commerce Commission should facilitate the efforts of the railroads to recover and retain a fair share of this traffic. Reference is made to these matters to direct attention to factors, each of which exercises more or less influence in diverting tonnage which the steam carriers were instrumental in creating and on which they rely for the preservation of their corporate life. In the aggregate the amount is very large 1 and is rapidly increasing. FREIGHT RATES NOT RESPONSIBLE FOR BUSINESS DEPRESSION. J A widespread propaganda is being carried on to arouse public sentiment against existing freight rates, whereas the fact is that even since the rates have been advanced the cost of transporting com- modities is far less than the toll taken by the commission merchant and the retailer for buying and selling them. Consequently, people are misled and conclude that high rates have stopped the movement of a large amount of freight and that the railways would make more money if they would reduce the rates and thereby revive the traffic. There is the strongest reason to believe that the very great reduction in traffic has been due almost entirely to general business conditions that are worldwide in their effect and that would have come if there had been no advance in freight rates. The bureau of railway economics furnishes strong proofs that the origin of the depression in business which the propagandists seek to fasten on the railroads was due to other causes antedating the rate increase of August 26, 1920. As early as April, 1920, the New York State Industrial Commission reported a decrease in employment in that State, and later the department of labor and industries reported that in Massachusetts the percentage of unemployment increased Digitized by Microsoft® 46 RAILROAD REVENUES AND EXPENSES. from 8.7 in March to 18.8 in the following June. The Department of Commerce, Bureau of the Census, shows that idle wool machinery increased rapidly beginning with June, 1920. A monthly nation- wide survey, made by the Department of Labor, of industries nor- mally employing" 600,000 men and women shows a decrease of 40,000 workers in July compared with June, 8,000 in August compared with July, and 9,000 in September compared with August — a total de- crease of 57,000 workers, or nearly 10 per cent. Our Chart No. 1 shows that the drop in wholesale prices began after May, 1920. May was the peak, and the drop was rapid after that. This price fall was the result of tightening markets, of less- ened ability of the consuming public to absorb production. The wild orgy of spending that followed the restrain^ of war, coupled with rismg wages and falling efficiency, had come to an end. From May to September the fall in wholesale prices amounted to about 11 per cent, according to the United States Labor Review. Further evidence of the beginning of the price depression far in advance of the rise in rates is afforded by the number of commercial failures reported by Dun & Co., which increased from 1,627, with about $30,000,000 liabilities, in the first quarter of 1920, to 2,031, with $80,000,000 in the last quarter. Senator Watson. When was the last increase in the railroad rates made? Mr. Kruttschnitt. Eailroad wages ? Senator Watson. No ; railroad rates. Mr. Kruttschnitt. I used August 26. For that reason'I use the date of September here, because it coincides almost exactly with the increase of rates; it was four days prior thereto. Senator Townsend. Your rates did not come into effect until September 1 ? Mr. Kruttschnitt. What is that ? Senator Townsend. Your increased rates did not go into effect until September 1 ? Mr. Kruttschnitt. Oh, no; there could not have been any effect felt in the four days of August. Total bank clearings of the country fell 16 per cent from $41,000,000,000 in March, 1920, to $34,500,000,000 the following August. In construction reports compiled by F. W. Dodge Co. the floor space of new buildings started, beginning with the second quarter of 1920, fell 33 per cent, from 129,000,000 square feet to 86,000,000 in the third quarter of 1920. Any one of the foregoing pieces of evidence by itself would be reliable indication of growing stagnation. Taken together, they give overwhelming support to the theory that the railroads are not responsible for our commercial depression. Prosperity is followed by hard times about as regularly as day is by night, and in the case under discussion we find that the war brought about a wide disarrangement of industry. All peace-time occupations were subordinated to winning the war. Farm help was attracted to the cities by the high wages paid in shipyards and mu- nition factories. With the armistice business activities were resumed at high pressure to make up for the period of neglect. The public, weary of economies and sacrifices, bought extravagantly of every- Digitized by Microsoft® RAILROAD REVENUES AND EXPENSES. 47 thing that struck their fancies, and prices soared. Speculation, easy money, and extravagant wages were widespread. There was little inducement toward efficiency, and wages were far beyond anything ever dreamed of. The purchasing power of the dollar fell with the rise in prices, which in turn checked purchases, and finally the era of falling prices began. Jobbers and retailers were reluctant to stock heavily; buyers waited for still lower prices. Manufacturers, having fewer and fewer orders, laid off help. No one in particular could be blamed, as the country was helpless in the face of forces that we do not know how to control. A very potent factor in bringing about the present depression was the inability of Europe to purchase goods we had for sale. While admitting the possibility that some rates may be too high and on proof might be reduced, any horizontal reduction in rates in the present plight of the railroads 'is indefensible and impossible until operating costs shall have been reduced sufficiently to insure adequate and steady net income. Present conditions arose from a sudden increase of rates after a long period of starvation of the railroads; a sudden and horizontal reduc- tion should be carefully avoided, as it would inevitably lead to further troubles and nation-wide unrest. The attached chart No. 2 shows how the prices of commodities reached their maximum in the first half of the year 1920, and there- after fell with great rapidity in France, the United States, and the United Kingdom. The fall in the United States began in May and was rapidly on its way down grade in September, when the advanced rates took effect. Nevertheless, traffic did not drop for at least four months, as the following statistics of freight-traffic movement clearly show : For the last four months of 1919 and 1920 net ton-miles of revenue freight were as follows : Class I roads — Revenue ton-mileage (excluding company freight) . Net ton-miles revenue freight. 1920 1919 37, 940, 516, 000 39, 105, 429, 000 34,499,318,000 31,804,415,000 35,978,349,00* 37,721,306,00fl 29, 851, 389, OCT 30, 856, 283, Or • Total 143,349,678,000 134,407,327,000 Increase, 7 per cent. It was a general deflation and fall in prices from the heights to- which they had been driven by war conditions that has caused a stagnation of business throughout the world That it is not caused, by the cost of transportation is convincingly shown by the fact that stoppage of buying has caused an oversupply of ships, whence ocean tonnage rates have been recently at the lowest point in their history. Notwithstanding these low rates, ocean traffic snows as great stagna- tion as rail, traffic and millions of tons of shipping here and abroad are rusting away in idleness. Many commodities would not move even if the freight charges on them were abolished entirely, because producers can find no market. Digitized by Microsoft® 48 RAILROAD REVENUES AND EXPENSES. Chart No. 1 shows clearly the general and rapid deflation or fall in prices that started in May, 1920, with comparatively low freight rates, and also shows that the great increase in rates of August 26, 1920, had no effect whatever in checking the fall of prices, which continued to fall under the real depressing influences whose effect first felt in May, 1920, has been so potent and uninterrupted as to reduce them from three and four-tenths times those of 1900 to double the same prices in March, 1921. In an address before a meeting of the American Farm Bureau Federation April 15, 1921, Mr. E. E. Clark, chairman of the Inter- state Commerce Commission, said [reading] : We have made it our business to inquire considerably out of our line in order to get a correct understanding of the situation. We have had complaints about the rates on fruits and vegetables in great numbers and we have studied the situation as far as we have been able. For instance, there were complaints on the rates on spinach from the South. The facts are that the retail dealer in New York is paying just one-half what he paid last year but his price to the consumer is identical with that of last year. Obviously the freight rate in that case is not what is preventing the grower from getting the price he got last year, and under those conditions we do not see where a reduction in freight rates would benefit the grower. This is because those who control the market will not pay any more than they are com- pelled to pay. The farmer is back to almost prewar conditions so far as the price he gets forTiis wheat is concerned, but we are paying the same price for the same loaf of bread. And again, in a reply to a letter of Senator Shortridge on behalf of shippers of California fruit and vegetables, he said [reading] : We are in no wise insensible to the difficulties which shippers generally are ex- periencing, but, as I have said, the plight of the shippers can not well be much wflrse than that of the railroads. In many instances inquiry into a situation demon- strates that it is not high freight rates that is preventing the sale of goods at the prices that must be paid. We are passing through a period of readjustment following the convulsions of the war, and many hardships exist which are the result of the world- wide economic forces which -it is hoped will progressively adjust themselves with steadily improving conditions. It is not pleasant to have to write in this tone, and I do not want to be under- stood as pessimistic. I believe that the situation is clearing and will gradually clear, and that readjustment of the operating expenses of the railroads will produce a much brighter outlook and make it possible to effect more readjustments of rates with consequent benefit to commerce and industry generally. That the decline in business is not due to prohibitive freight rates is shown by the following examples : (a) In January of this year the total tonnage of lines west of El Paso and Ogden operated by the Southern Pacific Co. fell off 41 per cent. The combined intrastate freight tonnage in Arizona and Nevada declined 50 per cent, although no increase in the intrastate freight rates in those States has been as yet authorized or made effective. Southern Pacific Co., Pacific system — Total revenue tons carried. 1920 1921 Decrease. Per cent. Tons. 2,503,145 Tons. 1,471,145 Tons. 1,032,000 41 Intrastate: 22,549 7,930 9,022 6,248 13,527 1,682 60 21 30,479 15,270 15,209 50 (This decrease embraced grain, hay, and live stock, as well as ores and other commodities.) Digitized by Microsoft® EAILBOAD REVENUES AND EXPENSES. 49 Senator Pomerene. Did your decrease there relate to intrastate business alone, or is that the total t Mr. Kruttschnitt. No; I said in January the total tonnage decreased 41 per cent, and the intrastate tonnage decreased 50 per cent. , Mr. Thom. In Arizona and Nevada. Mr. Kruttschnitt. The intrastate tonnage in Arizona and Nevada decreased 50 per cent, and then I give the supporting figures. (6) Of a Texas cotton crop of over 4,000,000 bales, 40 per cent remains unmarketed. The average amount of increase in the inland freight rate to Galveston was 24£ cents per 100 pounds. On the other hand, the ocean rates from Galveston to Liverpool had declined from $1.98 per 100 pounds in August of last year, to 45 cents per 100 pounds in March of this year, so that the average cost of shipment from producing point to Liverpool has been reduced about $1.28£ per 100 pounds, m the face of which about 500,000 bales of cotton less than normal have been exported to Liverpool. Obviously the freight rate is not responsible for the restricted movement, and cotton shippers do not so claim. They attribute it to absence of demand by both foreign and domestic purchasers. (c) Of a total crop of approximately 99,000 bales of cotton in the Imperial Valley of California, about 54,000 bales remain unshipped, notwithstanding that a rate is now obtainable through the Panama Canal as low as the rail rate available last season before the August advance and notwithstanding that the ocean rates across the Pacific to Yokohama have been reduced $1.10 per 100 pounds, and across the Atlantic, Galveston to Liverpool, $1.28 i per 100 pounds as previously stated, while the rail rate to Pacific port was only in- creased 14 cents per 100 pounds and to Galveston 40 cents per 100 pounds. In other words, this cotton remains unshipped notwith- standing it can reach its markets at no higher aggregate cost of transportation than during the previous season — indeed much less. The inability to market this cotton is attributed by shippers to the absence of demand and not to prevailing freight rates. (d) During September, October, and November, 1920, 45 per cent less rice, 54 per cent less canned salmon, and 77 per cent less dried fruit were exported than during the same months of previous year, although the reduction in ocean rates was substantially more than the increase in inland rail rates, so that the material decline in the exports of these commodities was in the face of a less aggregate cost of transportation. Export movement by sea of domestic rice, dried fruit, and canned salmon during September, October, and November, 1920, compared with same period 1919, as shown by Department of Commerce records. 1920 1919 Decrease. Percent. Rice pounds. . Dried fruit do ... . Canned salmon do 50,545,839 12,834,732 15,926,879 91,583,979 55,780,457 34,470,192 41,038,140 42,945,725 18,543,313 45 77 54 Digitized by Microsoft® 50 RAILROAD REVENUES AND EXPENSES. Mr. Kruttsohnitt. I will say as to these data concerning the Southern Pacific^ that we have had them worked up by our own officers in conference with the shippers. Senator PomErene. Well, but your figures relate almost exclu- sively here to our foreign commerce. Now does the same rule apply to our domestic commerce ? Mr. Kruttsohnitt. I give you a number of instances showing that it does. But it is not the freight rate that is stopping shipments. The Chairman. You deal with that phase of the matter later on. Mr. Kruttsohnitt. Yes. Senator Pomerene. Maybe so. Mr. Kruttsohnitt. I will soon come to that. Senator Pomerene. Very well. Mr. Kruttschnitt. Why cotton is low. (e) The following are excerpted from the Wall Street Journal, April 22 [reading] : A study of the International Cotton Spinners' Association's report, just Published in Manchester, on the world's idle spindles for the six months ending January 1, might show why cotton is a drug in the market. ' * * * The time lost by the spindles of the world in this six-months period is appalling. With the reports from every country before them, this Manchester organization worked out the average number of days lost for all the spindles oE a country in a period of 26 weeks. The time lost in the principal European countries, reduced to weeks, LEMONS. The troubles of the California lemon grower have attracted much attention. He claims he is unable to ship his product because of the increased freight rates, and I found on a recent visit to California that the public was invited to help itself freely to all the lemons it wanted from the orchards. A removal of all the recent increase of the rate on lemons would not help him. He has a rate by sea through the Panama Canal of less than half — 42 per cent — of the rail rate, yet his lemons are not, marketed. More lemons were shipped from Cali- fornia in November and December, 1920, and January and February., 1921, after the increase in freight rates, than were shipped in the cor- responding months in 1919 and 1920. The real trouble is that his Government has taxed him heavily to create a glut of ocean tonnage, which has lowered ocean rates to unheard of limits and Sicilian lemons are sold at $1.25 a box in eastern markets where the Cali- Digitized by Microsoft® RAILROAD REVENUES AND EXPENSES. 51 f ornian must sell his fruit. The ocean highway is free and the Sicilian knows it. If Congress wants to help the Calif ornian it knows how it can easily do so, but it can not be done by interminable discussion and investigation of rail-freight rates. As numerous items have appeared in the press to show that freight rates check the shipment oflettuce and cabbage, the following data "were obtained from shippers and producers in California : Lettuce. Cost p6r crat6g Seed $0. 015 Miscellaneous supplies . 0002 Irrigation water 015 Plowing and digging 055 General expenses 128 Labor, including cutting 274 Rent of land, lettuce only 089 Total production cost 576 Hauling from fields to shed. 124 Total production cost delivered shed 70 Cost of packing, including material 81 Total cost, f. o. b. cars 1. 51 Freight charges to New York at $2.08£ '. 1. 56 Refrigeration at $105 per car of 320 crates 39 Imperial Valley Distributor's commission 08 New York brokers' commission ' 08 Total cost sold New York 3. 62 Or $1,158.40 per car. The above figures are furnished by one of the large valley growers from actual book record. On the basis of 54 heads to the crate the cost per head is 6.7 cents. From personal experience at retail markets, consumers have to pay 25 cents a head for California lettuce, or $4,320 per car. It would be interesting to know what becomes of the $3,161.60 profit per car. Quite as much is paid for lettuce grown in the neighborhood, on which there is no freight charges whatsoever. In circular issued by parties in Washington calling themselves 'Producers and shippers of perishable and high-tonnage commodi- ties on the Pacific coast," appears'the assertion that " increased freight rates put a tax of $185 per acre on lettuce." , The increase in freight rates amounts to seven-tenths of a cent per large-sized heads running 54 to the crate. The number of heads per acre is 9,530, which at seven-tenths of a cent a head amounts to $66.71, and not $185 as asserted — the odd $118.29 being added no doubt for good measure and to make the statement impressive. The cost to the producer of the lettuce from one acre sold to distributors in New York, all ■charges paid, including refrigeration, amounts to $638.51 per car; the proceeds. from the sale of the carload at retail prices, $2,382; the net proceeds from the lettuce produced on an acre, $1,743.49. The interesting question is, "Who gets it?" Digitized by Microsoft® 52 RAILROAD REVENUES AND EXPENSES. CABBAGE. The following bearing on the price of cabbage is taken from a recent issue of the Fort Worth Star-Telegram [reading] : The south Texas farmer gets $6 a ton for his' cabbage. The freight from south Texas to Dallas or Port Worth is $11.20 a ton. Icing adds another $5 a ton. So far, it sounds bad for freight rates, and undoubtedly the rates are high. But the consumer pays between $120 and $140 a ton for that cabbage. In other words, the total cost, including the price received by the producer, the freight, and the icing, is $22.20 a ton to place the cabbage in Fort Worth or Dallas. But the consumer pays five or six times that amount for the cabbage. Aside from the question of whether freight rates are too high or not, the question is raised as to how the difference in high or low freight rates in such circumstances can endanger the business of producing cabbage. In perfect frankness it must be admitted that it is a fan - question. If $11.20 a ton is too high a rate for freight on cabbage, if it ought to be reduced to $7.50, let us say, what about the $100 or more that is added to the price of the cabbage after it is re- ceived by the commission man? We do not know how far this applies to other commodities, but an experience related by D. W. Grant, a melon grower of Palacios, Tex., in a communication to the Houston Post, has bearing on that point. He says: "During the summer of 1919 I shipped a carload of melons to Houston and when I tried to sell them to your com- mission men I was offered $60 for the car, and that was the best offer I could get until I was about to close a deal with two hotels and a restaurant, when a boy came to me and told me there was a phone call for me at the hotel where I was stopping, and I went to the phone and found that the call was from the man who first offered me $60 for my car of melons, and I sold them to him for $225." Mr. Grant adds that melons were retailing in Houston at that time for 5 cents a pound; $1,300 a carload. A correspondent of the Washington Post of April 19 asserts that — There are now 3,000,000 cases of canned salmon on Puget Sound on which the rail freight rate to eastern ports is about $1.42 per hundred. Water carriers are offering a rate of only 50 cents per hundred, but the salmon is not moved. The same compara- tive rates apply to California fruit, which is unable to find a market. To cite a personal and homely case, I purchased in San Francisco last summer a pair of $4 New England shoes for which I paid the prevailing price, $11. I de- manded of a railroad authority yesterday how much of that exorbitant total went to the railroads. I learned that under existing rates a pair of shoes can be shipped from Boston to San Francisco for 10 cents. ' ' The Railway Age of April 22 says: Becently much propaganda has been spread among the producers of vegetables in Texas, Florida, and other southern States, and also in California, regarding the present freight rates. It is time that a few cold facts regarding these matters should be told. On April 16 the average price paid to the producer for cabbage in Texas was $7 per ton. The cost of transporting it to Chicago was $26.30 per ton'. This includes not only the freight rate but also the cost of icing the refrigerator car and the Federal tax on freight charges. The total amount that the producer received for producing it and that the railroad received for hauling it about 1,300 miles was 1.67 cents a pound, or $33.30 a ton. On the same date cabbage retailed in Chicago for 7 cents a pound, or $140 a ton, or $106.70 per ton more than the total amount that the producer received for producing it and that the railroad received for bringing it to Chicago. Where did this $106.70 per ton — which was 75 per cent of the, total retail price — go to? A very large part of it went into the pockets of the commission men who are carrying on the E resent propaganda, and the rest went into the pocket of the retailer. The toll taken y them was four times as much as the railroad received for hauling the cabbage from Texas to Chicago. On the same date the producer in Texas received $42 per ton for white onions. The cost of transportation to Chicago was $29.64, and the total received by the producer and the railroad was $71.64 a ton, or 3.58 cents a pound. At the same time white onions sold at retail in Chicago for 10 cents a pound, or $200 a ton, or $128.36 more than the amount that the producer received for producing them and that the railroad received for bringing them to Chicago. Most of this difference went into the pockets of the commission merchant and the retailer. Digitized by Microsoft® RAILROAD REVENUES AND EXPENSES. 53 Senator Frelinghtjysen. May I ask you a question ? Have you figured the deterioration in a car of perishable vegetables? Mr. Kruttschnitt. No; but if there is any deterioration, why the railroad has to pay that. The claim is put in very promptly, and we have to pay it- Senator Frelinghuysen. Now, the loss comes after delivery, doesn't it ? Mr. Kruttschnitt. Perhaps. That we have no means of finding out. I got a telegram since writing this memorandum, to this effect, that on May 7 our steamer leaving Galveston on that date had 86 carloads of Texas onions, and other shipments freely offered. So the freight rate certainly can not stop the shipment of onions. On the same date, the producer in Texas was paid $5 a ton for spinach. The cost of transportation to Chicago was $30.36 per ton, making a total of $35.36 per ton, or 1.77 cents a pound, that the producer and the railroad together received. At the same time the retail price of spinach in Chicago was 15 cents a pound, or $300 per ton, or $264.64 per ton more than both the producer and the railroad received. Who got this $264.64 per ton, which was almost 90 per cent of the retail price? Most of it went to, the very commission merchants who are carrying on propaganda against the present freight rates. A special propaganda (sample given hereunder) is being addressed to the producers of cantaloupes and vegetables in the Imperial Valley of California. They are being told that "big distributers in that section are worried because of the prohibitive freight rates to the eastern markets," and that "it is the duty of every receiver of cantaloupes in the East, and of every man or firm interested in this industry, to cooperate with the distributers in an .effort to reduce the ruinous freight rates. ' ' These "distributers-" are the very same men who, on April 16, were getting most of that $265 per ton from spinach, for the production and transportation of which the producers and railroads together had got only $35.36. The inference might be drawn that the cantaloupe crop in the Imperial Valley was ready to be moved, but could not be shipped on account of the high freight rates. The fact is that no cantaloupes grown in the Imperial Valley were then ready for transportation and that they probably will not move until about May 15. The crop was reported in good condition and a harvest of 10,000 or 11,000 cars was expected. Traffic experts stated that they knew of no reason why the cantaloupes would not freely move to market under present conditions and rates. Copy of article from New York Produce News of March 26: YOUE BUSINESS IN PERIL — HELP SAVE IT. There is a serious condition in traffic matters facing the growers of cantaloupes and vegetables in the Imperial Valley of California. Big distributers in that section are worried because of the prohibitive freight rates to the eastern markets. Cantaloupes this year will cost $1.35 packed and put on car, and with a $2 per crate freight rate, the stock must sell in the eastern ,markets at $3.50 to pay the actual cost and freight, leaving nothing for the operator. With this condition facing them, operators are sending wires to Congressmen and to the Interstate Commerce Commission asking for the restoration of the freight rates of 1920. With that rate the operators could make a small profit. The present rate means the ruination of the hueiness. It is the duty of every receiver of cantaloupes in the East and of every man or firm interested in this industry to cooperate with the distributers in an effort to reduce the ruinous freight rates. Senator Pomerene. Do you remember what the freight rate was in 1920 ? Now you say it is $2. Mr. Kruttschnitt. I think I have them here. I analyze this statement. Senator Pomerene. Well, maybe you will come to that. Digitized by Microsoft® 54 RAILROAD REVENUES AND EXPENSES. Mr. Krtjttschnitt [reading]: Every person should write or wire individually to the Congressman representing his district to insist upon a reduced rate. Without it the great amount of money invested in the industry in the Imperial Valley will ruin the investor. Will you write or wire your Congressman to-day? The Interstate Commerce Com- mission is a creature of Congress and, with sufficient pressure brought to bear on this all-powerful body in railroad rates, the rates can be reduced. Act quickly; act with vigor, and continue to act until the request is granted. If you do not act, then you jeopardize one of the most important industries in the trade. Similar conditions exist in almost every producing section, and if this country is to prosper from produc- tion it must have cheaper freight rates. In writing or wiring your Congressman •explain the situation. Bring to bear on Congress all the influence you can for the sal- vation of production. The above is a sample of the propaganda nominally in the interest of the producer but actually in the interest of the middle man, which will bear close examination. It is asserted that cantaloupes this year will cost $1.35 packed and put on car. Assuming that figure to be correct, we find the freight rate is grossly misrepresented. The present freight rates, plus refrigeration, are $1.84 J to New York and $1.49 to Chicago. It is stated that the cantaloupes must sell in the eastern markets at $3.50 to pay the actual cost and freight, leaving nothing for the operator. As the cost, freight, and refrig- eration is $3.19£, the sale at $3.50 yields a little over 30 cents profit to the operator, bjjut further analyzing this statement which mis- represents the freight rate and the sale price in the eastern markets we find from the report of the United States Department of Agri- culture, Bureau of Markets; that the average sale price for the 1920 season in New York was $4.82 per crate, from which, if we sub- tract the production and transportation costs, leaves a profit to the operator of $1.62£ per crate. The average price of a cantaloupe laid down in New York in the season of 1920 was not quite 11 cents. As they were retailed at about 25 cents, there is a further profit to somebody of 14 cents per cantaloupe. As this propaganda will no doubt lead to Congressmen getting a great many letters, we have gone to some trouble to verify the figures for their enlightenment. The Galveston News in its leading editorial of April 20, 1921, commenting on the propaganda in behalf of the fruit and vegetable growers of Texas, very pertinently says (reading) : For certainly it must seem to most of us that the numerous and heavy marketing expenses present a more inviting subject for inquiry and challenge than does the transportation charge. Granting that some part of that charge could be remitted — though it is not apparent that it could — the fact remains that the utmost relief which could be got in that way is hardly great enough to make the difference between prosperity and adversity, and this, too. on the assumption that all of any remission the railroads might make would inure to the benefit of the producer. The problem to be solved, if the producers are to get out of their industry what they are entitled to, is a marketing problem, and until the enSrgies of themselves and their agents are directed toward the solution of that problem there can be no reasonable hope of their getting the relief they deserve. The managers of the propaganda for a general reduction of freight rates have lost sight of the fact that in October, 1920, 1,195,321 car- loads of coal were moved, being the maximum moved in any month in the preceding two years, although it was handled at the advanced freight rates, and we have heard nothing as to coal being produced at a loss or of the coal mine owners going out of business because of existing freight rates. Digitized by Microsoft® RAILROAD REVENtTES AND EXPENSES. 55 RELATION OF FREIGHT CHARGES TO AVERAGE COMMODITY PRICES. In a letter addressed to the Hon. John J. Esch, chairman of House Committee on Interstate and Foreign Commerce, dated September 15, 1919, it was computed on the basis of data taken from Government statistics that the percentage of freight charges to the average value per ton of freight originated was 3.6 per cent in 1914, at the beginning of the war, and 2.4 per cent at the date of writing the letter. Similar computations have been made for the year 1920 and an estimate made from such data as are now available of the figures for 1921 : 1914 1920 Average commodity value per ton of freight originated Average freight charges per ton originated Percentage charges to value per cent. Increase m cost to consumer over 1914 Increase in freight charges per ton over 1914 $56.00 $2.00 3.6 $119.00 $2.80 2.4 $0.63 $0.80 $143. 00 $2.83 2 $0.87 $0.83 $93.00 $3.54 3.8 $0.37 $1.54 It will be observed that the percentage of freight charges to value in the early part of the current year is almost exactly the same as it was in 1914. REMEDIES FOR EXISTING CONDITIONS. • The decline in business and the failure of many commodities to move is not due to higher freight rates. The volume of traffic, as we have shown, substantially increased for some time after August 26, when the new rates became effective, but the fall in prices (de- flation) the result of a growing world-wide inability to buy due to impoverishment — a natural consequence of the war— began in May and was well advanced on its downward course before August 26. The fall in traffic undoubtedly would have taken place had freight rates remained as they were prior to September 1, 1920, or even if they had fallen, as is actually the case with ocean rates, because traffic has fallen in the principal nations of Europe as well as with us. There may be cases where existing freight rates restrict movement, but in general business has been checked by the fall of purchasing power of the nations of Europe, which have been bled white by the costs of the war and whose inability to purchase has affected the markets of the United States. The trouble with our railroads has been intensified by the results of 26 months of an experiment in Government ownership and operation. The word "ownership" is used advisedly, as the Federal Railroad Administration from the beginning treated the railroads as if they were absolutely owned by the Government and turned them back to their owners helplessly bound in improvident agreements in the making of which their owners had no voice. ,The first requisite for the prosperity of any property is the right to conduct its own affairs. Without this right, efficient operation is impossible. In endeavoring to free themselves from the bonds of the labor agreements riveted on them during Federal control, when they were powerless to help themselves, the railroads are now trying to eliminate conditions that militate against their rendering such service 63553— 21— Vol I 5 Digitized by Microsoft® 56 RAILROAD REVENUES AND EXPENSES. as the public has a right to expect, and in so doing are championing its cause. Their present predicament should cause the gravest apprehension to every thinking person. It is not a question of revenues adequate to cover operating expenses, taxes, fixed charges, and a reasonable return to shareholders, as much as one of corporate life and death, and life and death to every industry in the land. Poor service, no matter how low the rate, is expensive and increases the cost of everything. The price of good service is negligible when compared with the price of poor service, and if you want to reduce the cost of transportation and the costs in all lines of business I urge you to support the railroads in their efforts to bring about better transportation conditions. The roads have proposed that the Labor Board permit a prompt return to pre-Federal control, working conditions, under which an honest day's work was given for an honest day's pay. It is imperative to remove the waste and inefficiency fastened upon the railroads by rules and working conditions made by men who were indifferent to the future of the properties and in the negotiation of which railroad owners had no voice. It is an essentially preliminary step in any effort toward the realization of conditions which may make it possible for the railroads to live. The latest Interstate Commerce Commission report showed that in the last three months of 1920 the carriers employed 276,829 track laborers, receiving $3.78 for an 8-hour day, and 121,197 other laborers at the rate of $4.33 per 8-hour day, while individuals, contractors and corporations alongside their tracks and shops were employing men glad to work for $1.80 and $2.50 per 10-hour day. If the carriers were free to employ unskilled labor at prevailing rates, they could save $550,000 to $600,000 per day. Is it any wonder labor repre- sentatives have pursued such dilatory tactics before the Labor Board ? / Every day's delay granted by the board was worth over half a million dollars to them on unskilled labor alone. In trying to better existing conditions we feel we have the right to ask the people's help through you, their representatives, as the people in 1916 made the most complete surrender of their interests in passing the Adamson bill, the first of many concessions to un- reasonable demands of organized labor that have saddled burdens on the railroads, which if not soon lifted will lead inevitably to ruin. Other remedies easily applied and productive of great economies are: 1. Stop the use for common carrier purposes of highways, built with public moneys without adequate tolls and proper regulation. Vehicles of such size and weight as wreck not only the highways but the business of highly regulated and very highly taxed public service corporations should be made to contribute tolls enough to pay interest on cost and maintenance of roads used in competition with public service corporations. The Railway Age of January 7, 1921, gives tiie following amounts spent on highways : 1917 $280, 000, 000 1918 286, 000, 000 1919 390, 000, 000 1920 650, 000, 000 1921, to be spent 1, 130, 000, 000 Total 2,736,000,000 Digitized by Microsoft® RAILROAD REVENUES AND EXPENSES. 57 The interest on this amount by the end of 1921 will amount t > over $150,000,000 annually. 2. Make inland waterways, built or improved at public expense, carry themselves as to interest on cost and maintenance by regu- lating the common carrier traffic on them and by imposing adequate tolls. A privately owned public service corporation can not provide and maintain an expensive permanent way and compete successfully with agencies for which the public builds and maintains a permanent way free of cost. 3. Keep the United States Government out of the business of operating steamships, and stop the lavish expenditure of public money to provide coast to coast ocean transportation in competition with transcontinental railroads. No line can exist in face of one backed by the United States Treasury, and in a contest must inevi- tably be hopelessly ruined. We have shown from its balance sheet that the expenditures of the Shipping Board up to January 1, 1921, aggregated $3,062,000,000, annual interest on which at current rates is $168,410,000. On April 22 Congress was asked for $36,852,000 to enable it to continue opera- tions until July 1 and $134,000,000 for operations of the next fiscal year, a grand total of: Interest , $168, 410, 000 Operating expenses, six months to July 1 36, 852, 000 Operating expenses, six months to Dec. 31 67, 000, 000 Total 272, 262, 000 Is it surprising that railroads and priva' ely owned steamship lines find it impossible to compete with such agencies as highways and ships built and maintained at public cost, operated regardless of financial results and lending themselves to the deliberate destruction of the fruits of private enterprise ? Try to visualize the capital expenditures on highways, $2,736,- 000,000; capital expenditures on Shipping Board, $3,062,000,000; a total of $5,798,000,000, nearly $6,000,000,000, to say nothing of the cost of the Panama Canal and inland waterways, and the annual expenditures for their maintenance and operation. The annual expense would be : Interest on cost of highways $150, 048, 000 Maintenance and depreciation, at least as much 150, 048, 000 Interest on Shipping Board property 168, 4l0, 000 Maintenance and depreciation, as much more 168, 410, 000 Operating expenses ( 103, 852, 000 Total every year 740, 768, 000 4. Refrain from furnishing Government-owned steamship lines with additional means to destroy the business of transcontinental railroad lines by refusing to abolish tolls for use of the Panama Canal that should be sufficient to pay interest on its cost and operating expenses and mairitenan^eT 5. Do not deprive transcontinental carriers of coast-to-coast traffic by inflexibly enforcing a strict long-and-short haul clause. The revenue lost by their exclusion from this traffic must inevitably be retrieved by higher rates on the remaining traffic to intermediate points. Digitized by Microsoft® 58 RAILEOAD REVENUES AND EXPENSES. These, then, are the directions in which we need and ask your help. You may well ask what the railroads propose to do to help themselves. The railroad executives have exerted, are exerting, and will con- tinue to exert every effort to increase efficiency of operation, as they realize since the passage of the transportation act to a degree greater than they ever did before their allegiance to the public as well as to their shareholders. Many absurd, impractical and totally indefensible estimates of possible savings to result from the adoption of numerous improve- ments have been made in the heat of discussion of pending issues with organized labor. These economies are to be made by the universal use of practices and devices of different degrees of merit, some of which have long been used by all roads and all of which are used by some roads. All the suggestions cost money and a great deal of money, and the proposal of organized labor is that the addi- tional capital be invested, not for the benefit of those who provide it, not for the benefit of the public to reduce rates, but generally and principally to permanently support wages on the inflated war level. Some of the directions in which the joint and several efforts of the public, the carriers and their employees can help the situation are : The public can help, among other ways: 1 . By continuing the splendid cooperation that it has accorded the railroads since their return to their owners, in using equipment and other facilities intensively. 2. By modifying laws that limit the length of freight trains and compel the employment, of unnecessary men. 3. By terminating Government-made agreements that put a premium on inefficiency. The carriers can help : 1. By increasing capacity of existing lines by reducing curves and grades. * 2. By conserving fuel through educating enginemen and the use of improved devices. 3. By replacing obsolete locomotives, shops, and tools by modern ones — matters of supreme importance on account of great increase in wages. 4. By eliminating every ounce of useless dead weight in locomo- tives and cars, remembering that it costs just as much to haul a ton of useless wood and iron as it does to haul a ton of dry goods. 5. By reducing delays at terminals and in transit through the provision of more second tracks, passing sidings, and terminals. 6. By extended use of power devices for handling freight, and other labor-saving devices. 7. By promoting common use of tracks and terminals wherever practicable. The employees can help: 1 . By increasing and ever increasing production in all departments of railroad service. 2. By loyal, earnest effort to reduce operating expenses to prewar costs, or better, in recognition of the generous increases in wages granted by public regulating bodies. 3. By conserving fuel and saving life, limb, and property through greater care and stricter observance of rules and regulations. Pay- Digitized by Microsoft® RAILROAD REVENUES AND EXPENSES. 59 ments for loss, and damage to freight increased from 135,000,000 in 1917 to over $104,000,000 in 1919, or $40,000,000 more than they should have done after allowing for 8 per cent fall in traffic volume and 100 per cent increase in value of commodities. Finally, managers and employees jointly can render incalculable service to their corporations and to the public by cultivating friendly, harmonious, and cooperative relations that were dangerously weak- ened during governmental control, and above all, by establishing a thorough realization of the obligation of public service, to which we all owe absolute fealty. We do not wish to be understood as criticizing or disapproving the motives' of public policy that determined the construction of the Panama Canal, highways, inland waterways, and ships. We recog- nize the first as a measure of national defense; the last as indispensable to winning the war, whose cost, even if many times what it has been, would have been wisely incurred. The others are necessary for the development of our country and contribute largely to the pleasure and convenience of every one of us. But what we do criticize and protest most earnestly is the unrestricted use for common carrier Eurposes of these works, built with public money, to destroy the usmess of public service corporations built with private moneys dedicated to public use; and most of all do we protest against the entry by the United States Government, backed by the United States Treasury, into destructive competition with its own citizens. You call us here to tell you what ails the railroads. We have been. explaining to this and other regulating bodies for years what the troubles were and trying to make it understood that railroads were subject to the same inflexible economic laws to which all industries are subject. If you will examine chart No. 1 you will see that far back in 1907 began the rise in wholesale prices that has continued uninterruptedly until it culminated in the peak of May, 1920, at the highest level ever known. Starting on a parity in 1900, prices and freight rates were still on a parity in 1903. By 1907 prices had risen to 118, rates had fallen to 104; m 1910 prices had advanced to 124, rates had fallen to 103; in 1915 prices had risen to 126, rates stood at 100; in 1917 prices were at 220, rates at 99; in 1918 the Director General made his increase in rates, in consequence of which they rose to 134 in 1919, but prices in the meanwhile had risen to 265, and ever since that time up to May, 1920, rates have fluctuated between 134 and 130, while prices have risen from 265 to 340. Senator Watson. Can you continue that comparison up to the present, time ? Mr. Kruttschnitt. Can I continue the comparison ? Senator Watson. Yes, up to the present time. This is May, 1921. The last figures you give there are a year ago. Mr. Kruttschnitt. I think the chart does. Yes, I continue the comparison up to the peak. On chart No. 1 I have the fall in prices from May up to the present time. At the present time they are 200 for prices, and freight rates are about 173. Senator Poindexter. Have you a similar comparison as to rates and wages ? Mr. Kruttschnitt. They are on that chart. This chart shows a line for variation of wholesale prices, rates of railway wages, rates of Digitized by Microsoft® '60 RAILROAD REVENUES AND EXPENSES. general wages, freight rates, and passenger rates. You will find it in the set that was handed to you yesterday. The Government, having strangled the railroads into something like bankruptcy, has at last removed its hand and permitted a sudden increase of rates that should have been gradual and started at least 12 years ago so as to have kept pace with advancing railroad wages and wholesale prices. Note how closely the wage and price lines are related on the chart and how absolutely unrelated is the rate line, and how little response was made to the appeals of the railroads for relief in July, 1914, July, 1915, and June, 1917, as shown by the continued depression of the rate line. Chart No. 10 shows the effect of public policies on new construction. Briefly, for 15 years the railroads have been starved into a condi- tion of paralysis and atrophy, and we now inquire why they have finally succumbed instead of showing vigorous and healthy growth. We should bear in mind and circulate widely the President's epi- grammatic sentiment of "more business in Government and less Government in business." The Chairman. At this point the committee will adjourn until to-morrow at 10 o'clock, at which time the members of the com- mittee will have an opportunity to examine Mr, KrUttschnitt. (Whereupon, at 12.20 o'clock p. m., May 11, 1921, an adjournment was taken until 10 o'clock a. m. Thursday, May 12, 1921.) Digitized by Microsoft® BAILROAD REVENUES AND EXPENSES. THURSDAY, MAY 12, 1921. • United States Senate, Committee on Interstate Commerce, Washington, D. C. The committee met, pursuant to adjournment, at 10 o'clock a. m., in room 410, Senate Office Building, Senator Albert B. Cummins (chairman) presiding. TESTIMONY OF MR. JULIUS KRUTTSCHNITT, CHAIRMAN BOARD OF DIRECTORS OF THE SOUTHERN PACIFIC CO.— Resumed. The Chairman. The committee will be in order. Mr. Krutt- schnitt, will you resume your statement ? The chairman will take the liberty of pursuing an old practice by calling upon members of the committee for any inquiries they desire to make of the witness in the order in which they sit at the table. Senator Townsend, have you any inquiries to make of the witness ? Senator Townsend. As I have already suggested to the chairman, I would much prefer that he should begin questioning the witness, because I am also engaged in hearings on another committee, of which I am chairman, and which hearings are taking much of my time. But there are a few general questions I would like to ask. Mr. Kruttschnitt, first I want to ask you if the fact that the railroad law has authorized the Interstate Commerce Commission to fix rates which will enable the railroads, in a particular district or zone, to earn at least 5J per cent and possibly more, as the law provides, has had the effect to cause railroad operators to let up in their efforts to economize or to render their railroads more efficient; has the fact that they will be permitted to charge higher rates had any effect in the way of a let-up in their efforts ? Mr. Kruttschnitt. I do not believe it has. I know as to our own road that it has not; that everybody was keyed up at the time of the return of the roads to private ownership to make unusually strenuous efforts to increase efficiency of operation. I think all of us felt that we were, so to speak, on trial; that the railroads had been returned to private ownership in obedience to the will of the people and the action of the Congress, and that it was incumbent on us to show in every , possible way our appreciation of the responsibility that rested upon us to give efficient management, and, if possible, to show great economies over what the Government had shown in its administra- tion of the railroads. I might add that on our line there was only one direction in which we spent more money, and that was on our lines in Louisiana and 61 Digitized by Microsoft® 62 RAILROAD REVENUES AND EXPENSES. Texas, that had been shamefully neglected; neglected to such an extent that the Louisiana State commission called our attention to the condition of some of our lines in that State and peremptorily demanded that they be put in condition. I explained to them that in addressing me they had addressed the wrong officer, that I had nothing to do with the maintenance of the lines at the time, but that I had transmitted their communication to the Federal officers— of course, without comment. I had no authority to do anything more than that. Senator Pomerene. When was that? Mr. Kruttschnitt. That was, perhaps, at the end of the first 10 or 15 months of Federal control. I do know, from two trips I made over those lines during Federal control, that I complained bitterly to the Federal manager of the condition in which our properties had been allowed to lapse. On those lines we did spend, particularly in put- ting in crossties and in putting the roadbed back in a condition of safety, as it was absolutely unsafe when we got our lines back — we did spend as much money as we could putting in crossties; and even then we did not get in all the crossties we should have put in, but we fot in all we could. But that covered less than half of the Southern 'acific mileage; those lines amount to about 3,200 miles out of a total mileage of over 11,000. Senator Townsend. If I understand you correctly one of the reasons you advance for the deplorable condition in which the rail- roads found themselves is the fact that the railroad properties were allowed to deteriorate during Federal administration, and that proper repairs had not been made. Am I correct about that ? Mr. Kruttschnitt.' Please do not understand me as including all the railroads of the country in the picture I have attempted to paint as to our lines in Louisiana and Texas. - Take our lines west of El Paso and west of Ogden, where there were different sets of Federal officers and which were under different regional directors, and those lines, in the main, were kept up in very good condition. 'However, the equipment of our lines' deteriorated very much. And I do know from a conference with other railroad officials that there was neglect on substantially all railroads. But I do not mean to be understood as saying that the neglect was as great as what I have described as having taken place on our Texas and Louisiana lines. Senator Townsend. That neglect is one of the causes of the present condition of the railroads, according to your view ? Mr. Kruttschnitt. Yes. Senator Townsend. Were the former railroad operatives, as a rule at least, placed in charge of the railroads by the Federal adminis- tration ? Mr. Kruttschnitt. Yes. Senator Townsend. Were those railroad operatives that were under the Federal administration guilty of any laches; were they indifferent or endeavoring to do or doing things to injure the rail- roads while they were under Federal operation ? Mr. Kruttschnitt. I can best illustrate that by telling you what happened in my conference with the Federal manager of the Southern Pacific lines east of El Paso when I made a trip over that road. I said Digitized by Microsoft® KAILKOAD REVENUES AND EXPENSES. 6& to him, when we were going over the particular portion of the line between Houston and Dallas and Denison, and when we were going over pieces of the track where there were five and six broken ties to the rail length with the ends of ties sticking up in the air, "How in the world can you think of letting these lines get in the condition they are 1" He said, "Did you notice in going along the road that I had no ties piled up?" I said, "Yes; I did not notice any con- siderable number of ties piled up along the road for use in making repairs." He said, "I have exhausted my efforts in asking for ties. I was formerly allowed to buy ties but am not allowed to buy them now." He then added, "On other parts of the line you will see thousands of ties piled up." I then said, "Why not use them here to make the much needed repairs?" He said, "I can not touch these ties without making requisition on the regional director or his purchasing man for permission to use a certain number of those ties." Then he said further, "I have exhausted my efforts. I have tried time and again, and will occasionally. get a carload or two carloads of ties, but I can not get ties to use for the purpose of replacing these ties." Senator Pomerene. Who was that man ? Mr. Kruttschnitt. W. B. Scott, Federal manager at the time. Senator Pomerene. Who was the regional director? Mr. Kruttschnitt. B. F. Bush, of the Missouri Pacific. Senator Townsend. Are those matters of record? Mr. Kruttschnitt. They are, and I would like, with the per- mission of the committee, to file with you copies of at least four or five bitter protests that I made to the Federal director of the condi- tion in which those lines were allowed to lapse. I will get copies of those letters out of my files, and with your permission, Mr. Chairman, will file them as a part of my answer to this question. The Chairman. That may be done. (The copies of letters referred to were subsequently furnished by the witness and are as follows:) DEPARTURE FROM TIE STA.NI>AKES PN SOUTHERN PACIFIC LINES IN TEXAS AND LOUISIANA. May 27, JSJ3. Director General of Railroads, Washington, D. C. My Dear Sir: I respectfully protest against the practice of the United States Railroad Administration in furnishing ties for renewal on certain of the Southern Pacific lines which differ from the company's standards, thereby reducing the bearing area under the rail, decreasing the average life of the ties remaining in track, and in- creasing the future labor expense for track maintenance and tie renewal. The improvement in track and the cost of maintaining it, the reduction of broken rails and of accidents resulting therefrom that have followed the increase of dimensions of ties were marked, and the growth of traffic, speed of trains, etc., led to our prescrib- ing the use of ties for primary main-line heavy traffic 7 inches by 10 inches by 8 feet, and for secondary light-traffic and branch lines, 7 inches by 8 inches by 8 feet, and this practice has been followed for four years. An exception to the above was made on that portion of our line between Houston, Tex., and New Orleans, La., where our track passes over much of what is known as the "terre, tremblante," or quaking ground; there it was found necessary to increase the length of the ties so as to distribute the load over a greater width of roadbed. This was accomplished by the use of a tie 7 by 9 inches by 9 feet. Digitized by Microsoft® 64 RAILROAD REVENUES AND EXPENSES. The United States Railroad Administration has departed from the above standards by neglecting to furnish the 9-foot ties for the Southern Pacific main line .between Houston, Tex., and New Orleans, La., and has inserted in this track many ties 8 feet long, thereby ruining its workmanlike and neat appearance, impairing the track struc- ture, and insuring an increase in maintenance expense hereafter. For other Southern Pacific main lines in Texas the Federal administration has failed to furnish our standard 7 by 10 inches by 8 feet ties and has used instead ties 7 by 9 inches by 8 feet, which will likewise result in decreasing the average tie life and increasing maintenance expenses. The Southern Pacific Co. desires in its own behalf and in behalf of Houston & Texas Central Railroad Co., the Galveston, Harrisburg & San Antonio Railway Co., Texas and New Orleans Railroad Co., the Houston East & West Texas Railway Co., Houston & Shreveport Railroad Co., Morgan's Louisiana & Texas Railroad & Steamship Co., Louisiana Western Railroad Co., Lake Charles & Northern Railroad Co., Iberia & Vermilion Railroad Co. to file notice of claim for any damage or increased expenses which may result from this change in established practice, and respectfully request that the Federal officers in charge of these properties be instructed to procure at once and to resume the use of ties conforming to the company's standards. Very truly, yours, J. Kruttschnitt. June 11, 1919. Director General of Railroads, Washington, D. C. My Dear Sir: The physical condition of some parts of the- Southern Pacific lines in Texas and Louisiana has fallen far below former standards contrary to the intent of section 5 (the upkeep section) of the standard contract with our company, dated February 19, 1919, due to the fact that during Federal control the quantity of ties used in renewals has been far below that used during the test period. Statistics for these lines show that for the three years ending June 30, 1917 (the test period), the tie renewals in the aggregate averaged 1,565,183 per annum; for the calendar year 1918 the number of ties used in renewals was 1,062,924, a reduction of 502,259, or 32 per cent. In a recent trip over the properties I confirmed reports of our local corporate officers that this decrease in material has seriously impaired the general condition of the per- manent way, particularly on portions of these lines where deficiency in renewals was most marked. Unless the shortage is made up by increasing the tie renewals during the calendar year 1919 above the average of the test period, these properties can not possibly be returned to their owners in "substantially as good repair" as on January 1, 1918, as set forth in upkeep section, No. 5, referred to. The Southern Pacific Co., therefore, in its own behalf, and on behalf of the Houston & Texas Central Railroad Co., the Galveston, Harrisburg & San Antonio Railway Co., Texas & New Orleans Railroad Co., the Houston East & West Texas Railway Co., Houston & Shreveport Railroad Co.,' Morgan's Louisiana & Texas Railroad & Steam- ship Co., Louisiana Western Railraod Co., Lake Charles & Northern Railroad Co., and Iberia & Vermilion Railroad Co., desires to file notice of its intention to make claim for the depreciation of its properties caused by insufficient tie renewals in 1918 and in 1919 up to date unless the Federal officers in charge of the properties be in- structed at once to place in the track a number of new ties sufficient to make good the depreciation that has already accrued and that will accrue currently unless all ties whose life has expired shall be removed. We desire to impress on you the urgency of making this depreciation good, because engineers of the department of valuation are working on these properties at the pres- ent time and will reduce the valuation of them by the amount of the deferred mainte- nance which exists at the present time. Such action on their part will involve a lasting injury to our properties by establishing a value less than the real value by the cost of replacing the ties whose life is ended. In view of the large amount of money involved we should like to receive assurances that this question will have immediate action and that the Federal manager will be authorized to make the necessary outlay for both labor and material. Yours, very truly, J. Kruttschnitt. (Copy to Mr. C. K. Dunlap.) Digitized by Microsoft® RAILROAD REVENUES AND EXPENSES. 65 United States Railroad Administration, Washington, June 14, 1919. Mr. ,T. Kruttschnitt, Chairman Executive Committee, Southern Pacific Co., New York City. Dear Sir: On behalf of the director general and during his absence on ah inspec- tion trip, I acknowledge receipt of your letter of June 11, in regard to maintenance of the Southern Pacific Co.'s lines in Texas and Louisiana, which will be given careful attention. Very truly, yours, H. A. Taylor. departure from tie standards on southern pacific lines in texas and louisiana. June 17, 1919. Director General op Railroads, Washington, D. C. My Dear Sir: On May 27 I filed with you a protest against the practice of the United States Railroad Administration in furnishing ties for renewal which differed from our standards. Since that time inspections made by our corporate engineer reveal the following: Three care of ties on the Victoria division, inspected at Cuero, reveal the presence of ties 6 by 6 inches by 8 feet long, 7 by 9, and 7 by 10 ties, the company's standard being 7 by 8 inches by 8 feet long. A tie 6 by 6 is very little more than a fence post and is smaller than any tie I have ever known used in track. On the Fort Worth branch several cars of ties shipped from the treating works in Houston contained ties 6 by 6, 6 by 7, and 6 by 8. These small ties are below the company's standards and are unsuitable to put into the track. For the reasons given in my previous letter above referred to, the damage caused by the use of these ties will continue long after the expected return of the roadB to their owners, and I herein respectfully file notice of claim for any damage or increased expense in behalf of the Galveston, Harrisburg & San Antonio Railway Co. and the Houston & Texas Central Railroad Co. which may result from this change in estab- lished practice, and respectfully repeat my request that the Federal officers in charge of these properties be instructed to remove these ties from the track and to substitute for them ties conforming to the companies' standards, and hereafter to place no ties in the tracks that do not conform to these standards. Very truly, yours, J. Kruttschnitt. Unwed States Railroad Administration, Washington, June, H, 1919. J. Kruttschnitt, Esq., Chairman Executive Committee Southern Pacific Co., New York City. Dear Sra: Your letter of June 17, in regard to tie standards on the Southern Pa- cific in Texas and Louisiana, has been received, as well as your letter of May 27 therein referred to, and will be given careful attention. Sincerely, yours, Walker D. Hines. July 29, 1921. Mr. C. K. Dunlap, President, Houston, Tex. Dear Sir: Your letter of July 25 shows for the months of May and June an average of 110,000 ties per month put into the track, or, combining these figures with those given in your letter of June 17, we find that for the first six months 579,547 ties have been put into the track, and if this rate is kept up in the second six months 1,159,000 may be put in. This is 272,000 less than the average annual renewals during the test period. The figures given in yours of June 17 show that in 1918 the renewals were 376,000 less than the average for the test period, so that from present indications very little is being done to make up for the deficiency in renewals last year, and the indica- Digitized by Microsoft® 66 RAILROAD REVENUES AND EXPENSES. tions are that the renewals this year will not be equal to the average for the test period. I should like you to lay these figures before the Federal manager and let me know what the prospects are for increasing speed for the remainder of the year. Yours, truly, J. Kruttschnitt. September 11, 1919. Mr. W. T. Tyler, Director Division of Operation, United States Railroad Administration, Washington, D. C. My Dear Mr'. Tyler: Following a conference with the Director General when I was last in Washington, I give you the specific items that form the basis of my general statement: Alexandria Branch, Louisiana. — Track generally in bad condition; many bad ties, and very few ties on hand for renewals. There is a general mixture of 8 and 9 foot, ties; estimated 75 per cent of 9 and 25 per cent of 8, principally of classes 1, 2, and 3, hewn cypress. Do not compare in quality with ties used during test period. Houston Terminals. — Ties furnished in this terminal do not compare favorably with those used during test period. Houston division. — Ties generally treated pine of mixed sizes; many 6 by 6 to 6 by 8 by 8 foot ties, particularly between mile posts 220 and 240 and 260 and 270. Considerable number of these small ties put into main track. Standard on division, 7 by 10 inches by 9 feet. Very little attention paid to spacing joint ties under new 90-pound rail. Louisiana Western.— Use of 8-foot ties on main line ■ appears to be increasing. Standard on this line, 7 by 10 inches by 9 feet. Twelve thousand to fifteen thousand 6 by 8 inches by 8 foot ties put into the main line to the great detriment of appearances and bearing area. Morgan's Louisiana & Texas, main line. — Standard tie, 7 by 10 inches by 9 feet. Use of 8-foot ties between Lafayette and Morgan City continues despite protests. . Texas & New Orleans, main line. — At date of report covering July inspection, from which I quote, use of 8-foot treated pine ties continues despite protests. The good appearance of the track, on which Southern Pacific has always laid great stress, is destroyed, and lasting damage to the supporting power of the track will result from this practice. Reported that several thousand 8-foot ties have been put into the track within a few months. The following excerpts are from August inspection reports: , Austin .division, Houston & Texas Central Railroad. — Ties received since last in- spection are treated pine, classes 1, 2, and 3; about half 6 1 by 8 inches by 8 feet, the remainder 6 by 6 inches and 6 by 7 inches. Standard for this line, 7 by 8 inches by 8 feet. Victoria division, Galveston, Hamsburg & San Antonio Railway. — Plenty of ties distributed for renewals, generally of classes 3, 4, and 5: about one-half 6 by 8 inches by 8 feet, with some ties of classes 1 and 2. Standard for this line, 7 by 8 inches by 8 feet. Sincerely, yours, J. Kruttschnitt. improper maintenance on southern pacific lines in texas and louisiana. October 27, 1919. The Director General op Railroads, Washington, D. C. My Dear Sib: Permit me to direct your attention to the several complaints that we have made as to insufficient tie renewals and improper maintenance conditions on Southern Pacific lines in TexaB and Louisiana; they continue very unsatisfactory; notwithstanding the approaching end of Federal control. For convenience, I brief my previous communications to you on this subject. 1. My letter of May 27, 1919, protested against departure from our standards of ties used in renewals, particularly as to the failure to furnish our standard 9-foot ties for the main line between Houston and New Orleans where this length is necessary because of the character of the soil. The use of 8-foot ties not only impairs the track structure but destroys the appearance of track. We also objected to the use of ties Digitized by Microsoft® RAILROAD REVENUES AND EXPENSES. 67 7 by 9 inches by 8 feet instead of our standard 7 by 10 inches by 8 feet on other Southern Pacific main lines in Texas; the smaller ties have a shorter life and will therefore increase future maintenance expense. 2. My letter of June 11, 1919, complained of deterioration in physical condition of parts of Southern Pacific lines in Texas and Louisiana, due largely to insufficient renewals of ties, and asserted that nearly a third less ties than the average used in the test period were placed in track during 1918. We requested that the shortage be offset by increasing renewals during calendar year 1919 and that immediate instructions to do this be conveyed to the Federal manager. On June 14 this letter was merely acknowledged by Mr. H. A. Taylor, assistant to the director general. 3. On June 17, 1919, we renewed protest of May 27, 1919, against the use of ties varying from our standard; we informed you that ties as small as 6 by 6 inches, or not much more than fence posts, were being used. While such a tie might temporarily tide over emergencies, its life would be so short as to require replacement soon after the return of the roads, thereby increasing maintenance expense. We requested that these ties be removed from the track, standard ties substituted, and their use dis- continued. On June 24, you acknowledged this letter as well as the one of May 27. 4. My letter to Mr. W. T.Tyler, director Division of Operation, September 11, 1919, written at your request following my conference with you, gave specific information as to use of improper ties on Texas and Louisiana lines. This has not been acknowl- edged. We had hoped that following our complaints conditions would have been improved during the remainder of 1919; half a year still remained during which the insufficient tie renewals might have been overcome, changes in our standards checked, and the track put in a condition equally as good as when taken over by the Government. Kecent reports indicate that Httle has been done to recover lost ground, the renewals being as follows: Test period average 1, 431, 825 Calendar year 1918 1, 055, 305 Estimate for 1919, made by doubling renewals for first half of year 1, 110, 762 This would show a shortage of 376 ; 520 ties, or 26 per cent, in 1918, and instead of an increase for 1919 to make up for this shortage it is apparent renewals this year will fall below the average by 321,000 ties, or 22$ per cent. Insufficient renewals of switch and bridge ties seem also apparent. Our protests against inadequate renewals and departure from standards have been ignored, as 8-foot ties are still being put in the main line between Houston and New Orleans, where 9-foot ties are standard, and ties as small as 6 by 6 inches are being used in other Southern Pacific lines in Texas and Louisiana. In compliance with your request when I last conferred with you, I attach some excerpts from latest reports of our corporate engineer, made after thorough inspec- tion of the lines in question, which disclose quite serious conditions due to neglected tie renewals, departures from our standards, and insufficient maintenance, to which I invite your personal attention. These lines are now being surveyed by the engineers of the Interstate Commerce Commission to determine their values, which, when ascertained, will no doubt be used for an indefinite period as a basis for rates. Our lines have long enjoyed an envi- able reputation for the condition in which they have been maintained — repairs have been made so promptly that depreciation never accrued,_ but estimates based on their physical condition now and for some time past while in Government control will register values far below normal . It is proposed in legislation now pending in Congress to allow returns on appraised values to be fixed by the Interstate Commerce Commis- sion; therefore to the extent that these values are depreciated by the acts of the Rail- road Administration our companies will suffer continuing losses, for which they should be compensated and for which we shall file claims. In view of the inadequate maintenance on lines in Texas and Louisiana, the South- ern Pacific desires in its own behalf and in behalf of the Houston & Texas Central Rail- road Co.; the Galveston, Harrisburg & San Antonio Railway Co.; Texas & New Orleans Railroad Co.; the Houston East & West Texas Railway Co.; Houston & Shreveport Railroad Co.; Morgan's Louisiana & Texas Railroad & Steamship Co.; Louisiana Western Railroad Co.; Lake Charles & Northern Railroad Co.; Iberia & Vermilion Rail- road Co.; and Arizona Eastern Railroad Co. to file notice" of claim for any damage or increased expenses which may result from insufficient and improper maintenance, or from unarrested depreciation which may cause reduction in revenue by regulating bodies. I again request that the Federal officers in charge of these properties be instructed to immediately discontinue the use of ties that do not conform to our Digitized by Microsoft® 68 RAILROAD REVENUES AND EXPENSES. standards, and in the remaining period of Federal control to increase tie renewals so as to make good the accrued shortage, and in all respects to place the roadbed of these lines in as good condition as when the roads were taken over by the Government. Yours, very truly, J. Kruttschnitt. extract from report op corporate engineer of southern pacific lines in texas and louisiana. October 23, 1919. Louisiana lines (M. L. & T.). — General riding condition of track is worse than inspector has ever seen it. Track over Chacahoula swamp very rough in many places and needs reinforcing with earth. Track through Berwick swamp in very bad con- dition and roadbed needs reinforcing with earth. Use of 8-foot ties instead of our standard 9-foot between Lafayette and Morgan City continues and is increasing. Between New Iberia and Franklin there are about 1,000 8-foot ties distributed for ' main line renewals, also a number, of smaller ties, including some 6 by 6 inches. Track on Baton Rouge branch in very bad condition. " Large number of trestles on this branch in bad line and surface from settling, several being damaged by derailed cars, breaking ties, through bad track at bridge ends. Alexandria branch track in bad condition, many poor ties and few on hand for renewals. Louisiana lines (L. W.). — General riding conditions are bad. Track between Vinton and Sabine River in very poor condition. Switch ties are badly needed, request made for them over a year ago not having been filled. Cross- tie situation continues serious, with not even temporary improvement. Use of 8-foot ties in main line continues and is increasing. Between Lafayette and Sabine River there were 900 ties piled along track, of which only about 200 were our standard 9-foot length, balance 8-foot. Condition of Midland branch is now, and has been for a long time, bad, resulting in numerous complaints to Louisiana State commission, it being understood there were frequent derailments of trains on this branch. T. & N. 0. {includes main line in Texas east of Houston). — Track generally not in good riding condition. Eight-foot ties still being placed in main line, although company's standard is 9-foot for main line between Houston, and New Orleans. G., H. & S. A. (lines in Texas between Houston and El Paso, including branches). — Main line track on Houston division is rough, also deteriorating through shortage of ties, between San Antonio and Houston. Undue attention to grass and weeds has resulted in neglect of tie renewals and there are many bad ties in track which should come out. On El Paso division track between Sanderson and Valentine is not in good condi- tion, but track on this division is better than on Houston division. On Victoria division track from Gulf Junction to Rosenberg very rough and bad in many places. Ties of lower grade are also being furnished. Houston & Texas Central. — Track on the main line in inferior condition. Sufficient progress not being made in needed reballasting and much of ballast furnished is very unsatisfactory material, account carelessness in loading, being 50 per cent earth. Tie renewals are insufficient and many small ties, including 6 by 6 inches and 6 by 7 inches, being furnished. Track very bad in a number of places. The inspector in walking over roadbed for 2 miles north of Anna found 10 bad ties to the rail, and in walking near Sherman found 14 bad ties to the rail. On Fort Worth branch condition of track very bad, additional ballast required; Fort Worth yard needs attention; insufficient track forces for needed repairs. On Austin division condition of track and track alignment not good; many 6 by 6 inch and 6 by 7 inch ties being used. Altogether condition of H. & T. C. is very unsatis- factory. United States Railroad Administration, Washington, December 16, 1919. Julius Kruttschnitt, ; Chairman of the Board, Southern Pacific Railway Co., New York City. Dear Mr. Kruttschnitt: Immediately upon receipt of your letter of October 27, and of the several preceding letters which you have written me, in regard to the main- tenance of the Southern Pacific lines, some of which were acknowledged at the time Digitized by Microsoft® KAILKOAD REVENUES AND EXPENSES. 69 of receipt and others of which do not appear to have been heretofore acknowledged, the several matters therein referred to were taken up and have been given careful consideration and attention. I do not believe it would be useful to enter into a detailed discussion of these problems. We have been endeavoring to do what was reasonably practicable, in view of the limitations which rested upon us, and I anticipate that when our repre- sentatives and yours get together it ought to be feasible to agree substantially as to the facts and make an adjustment accordinlgy. I am writing merely that you may understand that these matters have not been overlooked, but have been receiving careful attention since receipt of your letters and, indeed, before. Sincerely, yours, Walker D. Hines. Senator Poindexter. To what do you attribute Mr. Bush's conduct in that matter ? Mr. Kruttschnitt. I do not know. Our other lines, which were under another regional director, were treated entirely differently. Senator Townsend. Was it brought to your attention at any time that any of your railroad employees were doing things pur- posely to destroy the usefulness or injure the usefulness of the railroad in its operations ? Mr. Kruttschnitt. No. But there was a fall in the interest taken. There was not much interest, apparently, taken in the property. But I can not say that I ever knew of any deliberate acts to injure or destroy property. Senator Townsend. You understand, of course, that it has been charged that the railroad operatives, those formerly in the employ of the railroad companies, did what they could to injure the railroads or the efficiency of their operation while under Government control. Mr. Kruttschnitt. There was a great loss of interest when the employees of the railroads recognized that their allegiance was to a central authority in Washington and no longer to the local authority. I have never attributed the fall in the condition of the physical properties to any deliberate acts on the part of employees ; they were rather sins of omission than of commission. Senator Townsend. You have never discovered any concerted effort to any extent on the part of railroad men to retard or injure the operation of the railroads while under Federal control ? Mr. Kruttschnitt. I can not recall any instance of that kind. Senator Townsend. We are speaking ahout the 'condition of the railroads; was the equipment of the railroads kept up, the rolling stock, while they were under Federal control? , Mr. Kruttschnitt. It was not. Senator Townsend. How badly was it allowed to get behind ? Mr. Kruttschnitt. I do not know that I can give you any percent- ages, but the percentage of damaged cars reported when the railroads were returned to private control was greater than when the Govern- ment took the railroads over. Now, this has happened. You may have noticed that the percentage of damaged cars, or cars awaiting repairs, has increased very rapidly in the past few months. • Senator Townsend. That is what I was going to ask you about. Mr. Kruttschnitt. That is due to this situation. AH ownership marks on rolling stock were ignored and they were treated as common property. Senator Townsend. You mean during Federal control? Mr. Kruttschnitt. Yes. Let me cite an instance: While on a visit up in Northern Vermont, in a very small village, I saw six Digitized by Microsoft® 70 RAILROAD REVENUES AND EXPENSES. Southern Pacific cars on the tracks of the industrial plants of that village, showing to what extent our equipment had been scattered. It was scattered all over New England and the east, and the per- centage of our own cars on our own rails fell down to 12 per cent or 15 per cent, while normally it should have been around 60 per cent to 70 per cent. And on that point let me say that a few months after the railroads came back to their owners the owners wanted to get their own cars on their own tracks for the purpose of repairing them. Senator Townsend. Let me interrupt you right there. Are cars never repaired except when on the tracks of the owners ? Mr. Kruttschnitt. They are repaired on the tracks of users, but only to the extent of making them fit to run. There are a great many other repairs on a car that have to be made by the owner and that are totally neglected when on the lines of other railroads. The roads began tryingj a few months after the lines came back to the control of their owners, to relocate their cars and get them back on their own lines. To show you to what extent this has been done, the last report we had, a few weeks ago, we had 82 per cent of our own cars on our own lines. When those cars were examined by our own people a large number of them were reported as requiring repairs over what the foreign lines had reported. That showed the reason for the large increase in the number of cars needing repairs as well as additional repairs needed on cars reported. / Senator Townsend. Are you working to the limit your forces 4o repair cars ? Mr. Kruttschnitt. We had been until this last great drop in earnings. We did shorten our forces some then. Senator Townsend. So that the fact is that you have more cars out of repair now than you had when the roads were turned over to their owners % Mr. Kruttschnitt. Yes, sir. Senator Townsend. If I have followed you correctly — and, as I have said, I have not been able to be here all the time Senator Fernald (interposing). Would you allow me to ask a question there, Senator ? Senator Townsend. Certainly. Senator Fernald. You say there are more cars now needing repairs. You mean there are more cars reported. Those same cars need ed repairs when on other lines ? Mr. Kruttschnitt. Yes, sir; that is true. I thought I made that clear, but you have made it more so. Senator Townsend. Yes; he explained that. Senator Fernald. I did not so understand it. Senator Townsend. If I understood you, you have got to have practically a billion dollars, at least $800,000,000 or $900,000,000, more money that you are now receiving, before you can operate these railroads as you think they ought to be operated. Mr. Kruttschnitt. Well, I can not offhand verify the figures you give. But we should have a great deal more money, because business has fallen off so that the gross revenues have been very, very much reduced. Senator Townsend. How do you propose to get that money? Digitized by' Microsoft® RAILROAD REVENUES AND EXPENSES. 71 Mr. Kruttschnitt. There are only two ways in which we can get it. One is to have the revenues of the railroads increased, and the other is to reduce expenses. Senator Townsend. How are you going to increase revenues ? Mr. Kruttschnitt. I do not know of any way except through the operation of economic laws. That is to say, we are in a bad fix; we can not control the amount of business that the country does, or that we will be called on to carry, so that the only way we can better the situation is to do everything we can to reduce expenses. Senator Townsend. After you reduce expenses as you have sug- gested, you will still be short of sufficient revenue to operate the rail- roads, won't you % Mr. Kruttschnitt. Well, again, that will depend on whether whilst we are reducing expenses our revenues grow. The outlook I would say, Senator, is anything but encouraging; it is extremely bad. I suppose some railroads may be able to hang on for a few months waiting for things to change, but I am afraid a great many will lose their grip and fall into receivers' courts, go into bankruptcy. Senator Townsend. You have no suggestions other than those you have given for relief along that- line ? Mr. Kruttschnitt. Let me say that the suggestions I have made have been somewhat twisted in the press. So I would like to define what I said, or meant to have said, better than it is being reflected in the press. I said, first of all, that we had to reduce expenses. There have been petitions pending before the Labor Board for some months now to reduce the pay of common labor to the price at which we can get that labor in the market. We are now paying from 40 to 46 cents an hour for an eight-hour day on our lines when contractors, farmers, and private individuals alongside are getting labor at from $1.75 to $2 a day for 10 hours' work. We are not allowed to do that. We have to pay the large wages until we can get permission from the proper authorities to employ men at lower rates. That is the first thing and the greatest relief that we can expect. When we can get it depends, of course, on conditions that the Labor Board has imposed. The next thing- Senator Stanley (interposing). At that point let me ask: The representatives of labor unanimously and emphatically opposed the representation features incorporated originally in the transportation act of 1920. Would an amendment to the present law, like the English system, allowing the operatives and the operators, those who are in control of the roads and those employed by the roads, without interference from any other source, to meet and adjust the question of wages and hours, meet the approval of both parties in the trans- portation business ? Mr. Kruttschnitt. That was the method of adjusting differences up to the time of the present transportation act. But it always failed ; there was never any agreement. We could not now get any agree- ment. I suppose we could meet and confer for six months or a year, or may be a year and six months before we would get labor to agree to work for the railroads at the rates which prevail in the market, at rates that men are getting from other industries. I do not think the transportation act has ever been given a fair chance to operate; it has hardly had an opportunity to show its merits. I think it has great merit. I think it is the only measure 63553— 21— Vol I 6 Digitized by Microsoft® 72- RAILROAD REVENUES AJNJJ JiAi-jajN SliS. we have ever had that is really constructive, but the labor adjustment part of the act seems to be functioning very, very slowly. To resume the statement. That is the first principal remedy we have to rely on to get our expenses down. The other points to which I called the attention of the committee, and that the news- papers insist now on calling my five points, were measures to increase revenues. Take the Panama Canal, for instance, and I am made, in some of the papers, to appear as objecting to the Panama Canal, I have never said anything of the sort. I do not object to the competition of the Panama Canal. Our line as well as other trans- continental lines for years, ever since the canal has been finished, have been meeting the competition of the Panama Canal and have never whimpered. What I did complain about was that the Panama Canal, in connection with ships turned over to agents to operate, substantially at no cost to themselves, are robbing the transconti- nental lines of freight which they were enjoying, and really putting the United States Government in competition with its citizens for the carriage of freight. I said the same thing as to the highways. We can compete with the highways if those using them for their own purpose and for common carrier purposes had to pay something in the way of interest on the cost of the highways and the cost of maintenance thereof. And so it is with the inland waterways. Those are directions in which the revenues of the railroads can be improved, or rather the traffic can be allowed to remain with the carriers, who have built up the traffic, the United States Government refraining frqm lending its irresistible power to fight the transcon- tinental lines and take freight away from them. These things, together with what reductions we can get in wages, will be cumulative. These are the only directions in which I can see help, other than continued efforts to increase efficiency. What we are able to do in that direction is, unfortunately, misunderstood. In the past the railroads have made fabulous savings in the way of increasing train- loads, increasing carloads, increasing efficiency of equipment, replac- ing antiquated locomotives with new and more powerful ones; but the most that can be accomplished has already been accomplished along that line, and it does not follow at all because that has been done for the past 10 years to a remarkable extent that it can be done to the same extent in the next 10 years. It is like getting all of the molasses out of a jug; it is very easy to get three-quarters of the molasses out, perhaps, but very difficult to get the last quarter out. Senator Townsend. Are you through on that line? Mr. Kruttschnitt. Yes. Senator Townsend. You do not think that the increase of rates, freight and passenger, has had any disastrous effect upon an increase in revenue for the railroads, do you ? Mr. Kruttschnitt. The question is whether I think the increase in rates has done what ? Senator Townsend. At this time is it having the effect of reducing or increasing your revenues? Mr. Kruttschnitt. I do not think it has had any effect at all. I think the trouble was, and it is altogether accidental, that the in- crease of rates was given us at a time when business was already on a rapid decline, as evidenced by the facts I presented to this com- Digitized by Microsoft® RAILROAD REVENUES AND EXPENSES. 73 mittee on yesterday of the fall in prices of commodities. That fall began in May. Rates were raised about the 1st of September, so that the fall had already become quite rapid. Senator Townsend. Are you familiar with the case that went through the courts of Michigan, being the case of the Michigan Central Railroad? But I do not think that particular case ever got into the Supreme Court of the United States, yet you are doubt- less familiar with the -fact that the Michigan Central Railroad's charter originally had a provision permitting it to charge 3 cents per mile for passenger fares. It also contained a provision that it could be repealed by the legislature, but in that event the railroad should have the right to go into the courts of Michigan and establish such facts as they could as to damages suffered thereby as a result of a reduction in rate. The legislature passed an act in 1900 or 1901 repealing that provi- sion, and immediately the Michigan Central Railroad Co. commenced suit against the State of Michigan for something like $1,000,000 in damages. The suit ran along for a year or two, and was dismissed because it was discovered that the revenues of the railroad had increased so enormously under the 2-cent rate that the railroad was unable to establish any damages; and that notwithstanding the very fact which you have alluded to, namely, that electric lines had prac- tically paralleled that railroad from Detroit to Chicago, picking up all kinds of local passenger traffic, and within a short time having some of the through traffic. That is an indication at least that reduction of rates encouraged traffic, and that the traffic was very much greater after the reduction; that they could employ their equipment to more nearly its capacity, and that it was therefore more profitable to carry a large volume of traffic at a smaller rate than it was to make a comparatively small portion of the traffic pay enough money to keep the road going. That is an example that is of record, and I have had some question in my mind, and still have it, whether the increase of rates has not discouraged the movement of traffic which ought to be moved and would move, at a lower rate. I am not trying now to answer your argument, which I think was good, namely, that the vedors have added very largely to this situation, but that does not justify an exorbitant charge or overcharge on the part of the railroads. I am wondering if you have any explanation about that ? Mr. Kruttschnitt. Nothing except that I do not think rates even as they are at the present constitute an overcharge on the part of the railroads. What you have said about bringing traffic up by increasing rates, of course, is well known in a great number of instances, but whether or not a reduction in rates will increase traffic depends entirely on circumstances and on the territory traversed by a railroad; and, of course, on the expenses. I am not familiar with the Michigan Central case to which vou have called attention, but I suppose any railroad man would admit that if the territory is such that while running passenger trains only half full at 3 cents a mile you could fill every seat in every coach at 2 cents a mile it would probably be a wise thing to do, to continue the 2-cent a mile rate. But there is a limit beyond which you can not go without- running into bankruptcy. Digitized by Microsoft® 74 RAILROAD REVENUES AND EXPENSES. It is evident, it seems to me as evident as anything can be, and proven by experience, that the railroads have not been able to exist under present conditions; that they have been going steadily down the hill for 15 years under a policy of starvation. That con- dition of starvation has been more or less acute from time to time, but the fact remains, as shown by this chart No. 1, that since early in the 1900's rates have either been stationary, falling slightly, or increasing very slightly, and entirely out" of harmony with the increases of wages and of wholesale prices. In other words, anyone who would look at the trend of the figures which we have put in chart form there, could see the inevitable need of the future, and the future is now the present. Senator Townsend. I am not going to take up all the time of this committee, even though I could do it and any other member of the committee could do it in asking questions about this matter, but that would not be fair to the balance of the committee. So I will ask one more question and then will be glad for somebody else to take the witness. Mr. Kruttschnitt, do not you believe that the railroads would have been in a little better position as a matter of equity in asking for a reduction of wages if they had not obtained this last increase of rates ? Mr. Kruttschnitt. While the last increase of rates— and let me, explain a moment ; I said on yesterday in my statement that perhaps it was not fully appreciated — while the percentage of increase of rates was large, yet that increase came late in the year, and when dis- tributed over the whole year, the 33£ per cent increase in freight rates granted by the Interstate Commerce Commission shrunk to an 8 per cent increase in rates for the entire year. In other words, the increase was very small for the entire year 1920, because the increase for the last four months was distributed over 12 months in the statement of earnings. Senator Pomerene. But those last four months are usually your best traffic months ? Mr. Kruttschnitt. Yes; but those last four months, while show- ing an increase in traffic over the preceding year, were already affected by the fall in business which I pointed out could be seen from nu- merous signs as beginning in May preceding, cumulatively — which you will find by looking at the ton-mile statement for the last four months of the year, and the increases were quite substantial in Sep- tember, October, and November, but you can see the effect of falling business in December." In other words, for three months under the operation of the increased rates there was little or no abatement of traffic, but in December it was felt; the increase was smaller. And when you come to the showing for February of this year there was a material check. I believe this, that if this check in business had not come the urgent necessity of at once applying for a reduction in wages would not have been so imperative, but the railroads were in a deplorable condition. They were not only saddled with this unusual war-time expense, but were confronted by the loss, I think it is, of about 40 per cent of their traffic. Senator Townsend. You have not answered my question directly, riamely: Do not you think you would have been in a better position strategically if you had gone through that period and asked for a Digitized by Microsoft® BAILROAD REVENUES AND EXPENSES. 75 reduction of wages, which you think you ought to have, before you fot this increase in rates? You certainly must have or ought to ave a favorable public opinion as a public or semipublic corporation. And did not you alienate a good deal of that opinion by asking and receiving an increase in rates and then asking for a reduction in wages ? Mr. Kruttschnitt. Well, I do not know how the public would have looked at it. Of course, it is a disagreeable thing, I suppose, for anybody to see a man in the throes of death, but the railroads were in such condition that they had to have relief. Eelief through the increases in rates was deferred until nearly the end of 1920. if I understand your question, it is : We should have waited along without asking for any increases in rates ? Senator Townsend. To have worked for a reduction of your ex- penses. The Chairman. Let me remark that the law did not permit of any reduction until the 1st of September. Mr. Kruttschnitt. I just had the answer on the tip of my tongue to say if we had done that and had been subjected to the delays we are now experiencing the railroads would have probably gone to wreck and ruin before any relief could have been had. Senator Townsend. I believe that is all I will ask at this time. The Chairman. Senator Pomerene, will you inquire of the witness ? Senator Pomerene. Mr. Kruttschnitt, I think we all must agree- that while an increase in rates will up to a certain point increase revenues, yet if the increase gets to the point where it reduces traffic; it necessarily reduces revenues. Isn't that correct ? Mr. Kruttschnitt. That if the rates are increased to a point where- they reduce traffic, it is unwise to ask for increased rates ? Senator Pomerene. Yes; or, in other words, it may and it likely will reduce revenues. Mr. Kruttschnitt. While it may it depends altogether on the amount of the increase in rates. Senator Pomerene. I want to say very frankly that it has been: my judgment, and that is subject to what the facts may develop,, and I have been very much impressed with the thought that this last- increase in rates has served to embarrass traffic to some extent and thereby to reduce revenues. I want to call your attention to this situation, local in character. You may not have immediate knowledge of it. Out in Ohio we have a very large road-building program, and in our industrial cities we have been very much embarrassed because of lack of housing facili- ties. That condition is almost universal in the industrial centers. It is contended by the building material men and by the road material men that railroad rates are so high that they very seriously handicap them, both in the road-making program and in the house-building program. And as I understand the situation, many — well, I will not say many, but some of these road-material men claim that if the rail- roads will reduce their rates for transportation they are quite willing to reduce rates on their material; one large company takmg the pos- ition that they are willing to do this even to the extent of operating at a loss in order to maintain the good will they have heretofore es- tablished. Digitized by Microsoft® 76 RAILROAD REVENUES AND EXPENSES. Therefore it has seemed to me that if some reasonable arrangement could be made as between these material men and the transportation companies the railroads would have materials offered them for ship- ment which they do not have now, and that such a situation would help along the industrial program to a very large extent. Let me illustrate, if I may: In northern Ohio there are very large quarries at which large quantities of stone are crushed, both for ballast for railroads and to lay the foundation for the brick paving which is now being done very extensively on our country highways. These quarrymen say that because of present railroad rates they are not able to enter into contracts, or if they have entered into contracts they must fill them at very large loss. As a result, whereas they formerly shipped their crushed stone from central quarries to dif- ferent points along the railroads, now they are obliged to send out small crushers to little places near the points where they want to deliver their crushed stone. As a result of this plan some of the highways are being built — not many of them, but some of them — by using crushed stone from little near-by quarries, and the transporta- tion companies are not getting any traffic in crushed stone. These ; little temporary quarries are T>eing opened up for the purpose of furnishing stone near the point where the work is being done. While this course is followed the railroads do not get the traffic they other- wise would get. Assuming that to be a fair statement of the situation, does it not seem to you that if the railroad rates could be reasonably reduced, such action would hot only help along the road-building program in Ohio, but it would help along the railroads themselves by increasing their traffic or giving them traffic in that particular commodity, whereas now they have substantially no traffic in that commodity ? I would like your views on that. Mr. Kkuttschnitt. The answer to that, Senator, is ''this : This large quarry, owned by this large company to which you refer, no ■doubt negotiated with the railroads for rates at a time when railroad -expenses were far less than they are now. At that time the railroads •could find a reason in their net income derived from the carriage of ■such stone, and no doubt a valid reason, for making the rates that existed before this last big increase in expenses came about. And at that time the large company crushing stone was making profits which unquestionably were satisfactory to it, and it was not limited by either State or Federal regulation. And yet during all that time the railroads were operating on rates that were not giving them a living. Now, if the railroads should reduce the rate on that broken stone to the extent desired by the owners of the large quarry, the question is whether the railroads would not be paying out $1.10 or $1.15 for every dollar of revenue derived. That depends altogether on the rates and what the railroads can turn into their treasury as net income. There is no question but what the conditions you outline do pre- vail. That is, the inability to build roads is based on the fact that communities can not get materials from as long distances as they got them before; and that the larger concerns which, perhaps, have put up large crushers and developed large quarries, can not pay the additional freight rates. And yet the railroads can not cut rates because if they did they would not have any net income left. Digitized by Microsoft® RAILROAD REVENUES AND EXPENSES. 77 The moral is that you should get your stone, sand, and other materials from shorter distances and develop more quarries. If, however, the railroads could make any fair return — and I do not mean to say, perhaps, full return, the full return that they got before present economic conditions came about 1 — but if they could get a fair income out of this carriage it would seem the part of wisdom to make some concessions. But again calling attention to chart 1, which is extremely instruc- tive if followed through, you will find that up to the time of Federal control the railroads Ttiad been begging and supplicating the Inter- state Commerce Commission during a period of five or six years to give them an increase of rates in order to keep pace with their increase in expenses. I am sure that I am not far wrong in saying that those appeals met with very, very little response, so little response that railway freight rates actually showed a considerable decline in the < years prior to 1919; and that they did not show a larger decline was due no doubt to excessive activity in the country and a very large volume of freight. Now, the railroads could not be accumulating, what is slangily termed fat during those years. They were kept on such a diet that they were very, very lean. All others, as shown by the curve increase in wholesale prices and wages, were accumulating fat. And it is hardly fair, at a time when the railroads are in extremis, for those people who had Unlooked-for profits a few years ago to now come and say that the railroads should make reductions. Senator Pomerene. Mr. Kruttschnitt, with all due respect it does not seem to me you are quite meeting the question. No doubt the conditions you have indicated may have existed and did exist in the past year. At any rate, I am sure you think so otherwise you would not make the statement you have made. But we are in an extreme condition now, both from a transportation standpoint and from an industrial standpoint. Let me, in order to illustrate iriy question more clearly, give to you the substance of a conversation I had with a brick manufacturer. And I might add that I think his company has seven large plants at Canton, Ohio, and in that vicinity. When they are operating to their full capacity they burn about 500 tons of coal a day. During this last year they burned 300 tons of coal a day. They have in the course of the past few years built up a very large business in Detroit, Mich., sending their brick from Canton, Ohio, to Michigan. They have been able to do that because municipal and State authorities have been able to enter into contracts with them on terms that were satisfactory. Now the rates on traffic between Canton and Detroit are such that they are not able to get those contracts. Senator Poindexter. Can you state what those rates are, Senator ? Senator Pomerene. No; I can not, Senator, I am sorry to say. The traffic manager of this company said to me that they were willing to sell their brick in Detroit, for a time at least, at a loss in order to keep up the good will that they have established in that vicinity; they say they are willing to do that if the railroad rates will come down so that the combined traffic rate and brick rate will be such that the Michigan authorities can afford to enter into con- tracts. They say they are willing to suffer that loss because they know it will continue the good wul that they have established and Digitized by Microsoft® 78 RAILROAD REVENUES AND EXPENSES. ft that will give them the hope of being able to make profits in the future. Meanwhile, when they are not shipping any bricks, the railroads in that vicinity are not getting any revenue from that commodity, and would not it be sound policy to reduce to some extent the rate on brick so as to keep that traffic 1 It seems to me that that would not only improve the road-building proposition but would improve industrial conditions generally, that it would all help; and if we can all take up this subject in the proper spirit it seems to me that the business interests will be started in this country even before we realize that they have started. In other words, this problem to some extent is psychological, and it seems to me that if the railroads could see their way clear to make a reasonable reduction along this line, and if material men will make a v reasonable reduction, that we would help the whole business situation in the country. That is the thought I had in mind, and if I am wrong about it I would like to have it made clear to me. , Mr. Kruttschnitt. When the road applied to the Interstate Com- merce Commission for these increases in rates, it was distinctly stated by the traffic representatives that it was to be expected that in a general increase of rates there would be inequities, ana directions in which they might bear so hard that injury would be done and business stopped; and it was stated before the commission, and acquiesced in by the commission, that it was understood that the roads would take up, roads such as the one you have in mind, what- ever it may be — the public would take up with the roads individually, or if necessary appeal to the commission, and have the commission settle it, whether the increase of rates bore so hard as to be a public hardship or not. Now, that was definitely and distinctly understood, and I suggest that these brick men should take up with the roads affected in the carriage of their brick the question of whether they can stand the increase of rate. If they can not agree with the roads, that they appeal to the commission, and let the commission decide it. The course is clear. Senator Pomerene. I think that is a very good suggestion. Mr. Kruttschnitt. I want to say this, that all of the instances that I have presented to this committee yesterday were to my mind part and parcel of a well planned propaganda to make a general assault on all rate increases. Enery one that has come to me, and that I have been able to investigate, for getting the data on freight rates and other necessary data, has shown that the whole trouble is a question of allocation of profits on theproduction and ultimate sale of these products to the consumer. That the producer gets very little, and the man who simply handles them takes the big slice, or enough of the earnings to mate the freight and the cost of production seem almost insignificant. And the railroads are skeptical of , these gentlemen who make, these complaints. They have simply been in the attitude of falling back on their offer at the time the commission raised the rates: Prove your case. And not one of them has done it yet. Senator Pomerene. I have no doubt, about this proposition that the retailers as a class are more to blame for the present high prices than any other class. Digitized by Microsoft® RAILROAD REVENUES AND EXPENSES. 79 Mr. Kruttschnitt. And the intermediates between the retailers and the man who put the goods in the cities. Senator Pomerene. And the same may be said of some of these labor leaders who say there shall be no reduction in wages. They are coming, and everybody recognizes that fact. If there is just a little disposition on the part of everybody to get together here I think we will be moving along very harmoniously and prosperity will soon return. Mr. Kruttschnitt. Let me draw this fact to your attention, Senator, that the unexampled prosperity of our country has been built up on the very theory that you have been advocating; that is, railroads making rates that will encourage and produce traffic. I may say, without tooting our own horn, that the whole fresh-fruit traffic of the Pacific coast was built up originally by that theory ,and policy of the Southern Pacific; that is, to counsel with the producers and say, "You want to reach such a market. Let us know what is necessary to do. What rate must you have ? Name it, and we will see whether we can make it." And we have never, I think in any instance, until perhaps in these unusual circumstances, failed to agree with the producers to help them market their products. It has not been only our ^policy, but it has been the universal policy of the American railroads to do that, and under that policy has grown up the enormous traffic of this country, and the settling up of the waste places. So give us the credit of wanting to do that, if it is proven to us that it is absolutely necessary. Senator Stanley. At that point let me interrupt you, Senator Pomerene. I understand the fresh-fruit traffic is in the hands of associations of fruit growers rather than of jobbers. You don't have the intermediate demand there to deal with. Is that true ? Mr. Kruttschnitt. Well, whether you call them one thing, Mr. Senator, or another, they work the same way. ' Senator Stanley. You mean that the producers of fruits in California, through their associations, absorb inordinate profits that should^go to the carriers and the consumers ? Mr. Kruttschnitt. No; but the associations of fruit growers might be called simply very large fruit growers. They can of course control by having a bigger stick with which to hit the commission men in the East, and distributors; they can get a larger share of profits than individuals could. But they are still, after all, at the mercy of the distributors at eastern points. Take oranges. There is no fruit that I know of that is handled more by central agencies in California than oranges. Yet you can see that after the box of oranges leaves the railroad station in New York, that between that time and the time the consumer gets it there have been taken profits many, many times the cost of carriage and cost of production. I think I cited 20 to 30 instances yesterday where we had checked it up and followed it. The Chairman. Have you finished, Senator Pomerene ? SenatorPoMERENE. One or two other questions. On yesterday, I think, or the day before, you made the statement that 64 per cent of the revenues of the railroads — I think that was during the last calendar year — went to labor; 15 per cei^t of the revenues, for material. Digitized by Microsoft® 80 RAILROAD REVENUES AND EXPENSES. Senator Kellogg. Thirty per cent. The Chairman. No,; 64 per cent of the expenses of the railroads. Senator Pomerene. How is that? The Chairman. I think he said 64 per cent of the expenses of the railroads. Mr. Kruttschnitt. The expenses. The proportion of revenue is shown on this diagram called "The railway dollar." In 1920 a little over 60 per cent. Senator Pomerene. Well, you used the figure 64 per cent. Air. Kruttschnitt. Sixty-four per cent of expenses. Senator Pomerene. Well, maybe I have got that. And 15 per cent for material and 3£ per cent for other expenses. What did you embrace in the phrase: "Other expenses" ? Senator Kellogg. Pardon me, Senator. That was 30 per cent. Fifteen per cent, he said, was fixed by Congress. Senator Pomerene. Well, I took this down at the time and made a note of it. Maybe I am wrong. Senator Kellogg. Yes; you are. Senator Townsend. I think you are right about that. That is the way I understood it. He can explain it. Senator Kellogg. Let the witness explain it. Senator Pomerene. Well, if you will refer to your notes. I feel very confident that I am right about that. If I "am wrong I want to be set right on it. Senator Townsend.' That is what he did say. He mentioned 15, 3£, and 64. Senator Kellogg. As I understood what the witness said — and he will look it up — 64 per cent of the expenses were labor. Senator Pomerene. Yes. Senator Kellogg. Thirty per cent was material, of which 15 per cent was fixed by law, beyond the control of the railroads. Mr. Kruttschnitt. You will find it On page 13 of the printed record. At the bottom of page 13. I , Senator Townsend. Part 1. Senator Pomerene. Well, I don't care to take the time now, but I wanted to know what you included in the 3$ per cent: "All other expenses"? Mr. Kruttschnitt. Well, it was pointed out that the larger part of the material was material in the hands of the railroads, brought over from Government control, and prices fixed by purchasing agencies during Government control, that would be material delivered under contracts, and 3£ per cent would be material largely made up of purchases made by the railroads themselves at market conditions. Senator Pomerene. Well, on page 14 you have this: This means that the 64 cents out of every dollar of operating expenses were paid for labor at prices fixed by the Government; that 15 cents out of every dollar of oper- ating expenses was paid for materials and supplies at prices fixed by the Government; and that 3.5 cents out of every dollar of operating expenses for the year 1920 was paid for other expenses incurred by the Government in the first two months, of 1920; or a total of 82.5 cents out of every dollar of operating expenses for the year 1920 was paid out at prices directly fixed by the Government itself. Now, what did that 3.5 cents include ? Operating expenses for the year 1920, "for other" expenses incurred by the Government"? What were those expenses ? Digitized by Microsoft® RAILROAD REVENUES AND EXPENSES. 81 Mr. Kruttschnitt. I don't know that I can tell you that. That is simply stating a fact evidenced by the Government's state- ment of operating expenses. Senator Pomerene. Oh, do I understand then that your answer is that you have taken those figures from statements made by the Government ? Mr. Kruttschnitt. Yes. All the figures that I have given you have been taken from statements, either the statements made by the Government, or statements since that, made by the Interstate Commerce Commission. Senator Pomerene. Yes. Now just one other question arid then I will conclude. If I understand your testimony of yes- terday ,t, as interpreted by you this morning you do not want to be understood as opposing the building of permanent rural highways, but that you simply desire to be understood as saying that those who use these highways for hire ought to contribute more toward the expense of their building and upkeep than they are under the present law ? Mr. Kruttschnitt. That is exactly what I meant. Mr. Thom. Mr. Chairman, may I make one point clear on the record at this point ? The Chairman. Yes. Mr. Thom. Mr. Kruttschnitt has referred in part to what occurred at the time of the increase of rates in Ex parte 74, in regard to the understanding at the time that conditions indicating unjust dis- criminations or undue hardships would be taken up separately in conference between the carriers and the shippers who conceive that these conditions were unfortunate. I wish to explain that at the time the only way open for an increase of rates was to make a hori- zontal increase; to apply a single percentage in a group it was recog- nized at the time would perhaps create new discriminations, or would intensify old ones. The understanding which Mr. Kruttschnitt referred to was had at the time, but in addition to that the motion was made by the carriers before the commission to retain Ex parte 74 upon its docket, so that it, the commission, might supervise the rearrangement of any unfortunate conditions which a horizontal raise of rates might create. The Chairman. Several, indeed many of these readjustments have already taken place, to my knowledge. Mr. Thom. Yes. The Chairman. Senator Poindexter, will you inquire of Mr. Kruttschnitt ? Senator Poindexter. One or two questions. Mr. Kruttschnitt, have you followed the recent proceedings before the Labor Board, the Railroad Labor Board ? Mr. Kruttschnitt. No, the officers on our two systems have attended those hearings and have handled all of the details. You understand from my office, which is largely a supervisory office, and an office to criticise and watch what is being done, these details of operation are in the hands of the presidents of the two systems to handle, and my information about what is going on has been of a general character only. Senator Poindexter. There were great hopes entertained when that board was established, that it would solve a great many diffi- Digitized by Microsoft® 82 RAILROAD REVENUES AND EXPENSES. culties that the public and the railroads lived under, in the settle- ment of questions between the management and the employes. Mr. Kruttschnitt. You are quite right. I entertained that hope myself. I thought it would be pretty much a cureall of contentions between labor and their employers. 1 Senator Poindexter. Now, I will confess that I am not familiar enough with the proceedings before it to have formed an opinion as to its merits. But I hear a great many complaints about the delay of the board in deciding questions that are submitted. I hear those complaints from all sides ; labor men complain, the public complains, there are complaints from all sides, that vital questions upon which the public is interested, pending there from month to month and for a year even, are undecided. I was wondering if you could throw any light on the cause of that apparent failure of the board to function properly? Mr. Kruttschnitt. I have heard the same complaints that you have. They have been very widespread, and all I can do is to attribute the slowness to the personal equation, to the personnel of the board. It seems to me the method prescribed in the transporta- tion act is correct, and it ought to work better than it does, and the only conclusion that I have been able to reach is that it is in the make-up of the board itself. Some men will decide questions quickly and others procrastinate indefinitely. Senator Poindexter. There seems to be an immense amount of formality and cumbersome procedure about its action. Now, we had a board under the Railroad Administration, called Adjustment Board No. 1, somewhat differently constituted from this Labor Board, being composed, in equal numbers, of representatives of the management and of the employees. While they dealt with a somewhat different class of cases, not involving the fixing of wages or anything as vital as that, perhaps, but yet questions that caused a great deal of trouble between the management and employees, they decided and disposed of, with apparent satisfaction to everybody concerned, literally thou- sands of cases. Mr. Kruttschnitt. But when you say " to everybody concerned," the railroads themselves had nothing to say about it. The adjust- ments were made between officers of the Federal Railroad Administra- tion, who had no interest in the future of the companies, and the result was the celebrated national agreements that we have been complaining about so much. Senator Poindexter. Well, did this Railroad Adjustment Board No. 1 make those agreements ? Mr. Kruttschnitt. Well, I don't know them by numbers, but there were boards created by the direction of the Government. Senator Poindexter. I don't know about the other boards; I am speaking about this particular board. I don't think they had any- thing to do with the agreements between the Government manage- ment and the representatives of .the employees. This board that I speak of simply adjusted controversies that arose under those agree- ments and otherwise between the employees and the management. I was interested in the great contrast between it and its procedure, its economy — the expense of it was trivial — and the very expensive and cumbersome and unsatisfactory performance of this Labor Board. Now, there may be an explanation for it. Digitized by Microsoft® BAILEOAD REVENUES AND EXPENSES. 83 Mr. Kruttschnitt. Well, one explanation that will occur at once to anyone is this, that in making these settlements and adjustments the parties making them — the so-called railroad side — had no earthly interest in income. They didn't have to look for the future. The Chairman. What was the jurisdiction of this hoard, Adjust- ment Board No. 1. Senator? Senator Poindexter. Why, controversies as to working conditions nnder agreements that had been entered into. The Chairman. Yes. The difficulty is that that is a very small matter compared with the question which the Labor Board has to settle, which is essentially one of wages. Senator Poindexter. Well, I pointed that out a moment ago, that the questions did not deal with wages and were not so vital, and yet they were important, and the contrast between the speed in disposing of cases coming before them, and the slowness of this Labor Board, is the most remarkable thing I have ever seen. Senator Pomerene. Did that adjustment board fix the classifica- tion of labor ? Senator Poindexter. No. Senator Pomerene. Who did it ? Senator Poindexter. Mr. McAdoo, I think. Mr. Kruttschnitt. My recollection is that it was in Mr. Hines's administration that the most of these agreements, very objectionable agreements, were made. But I will say this, Senator, that Mr. Thorn proposes to have appear before you the gentlemen who represented the railroads before the Labor Board, and to have them tell you exactly all about their relations and troubles. Senator Poindexter. Very well; that is all I have to ask. The Chairman. Senator Stanley, will you inquire of the witness ? Senator Stanley. I will ask some questions later. I don't care to ask now. The Chairman. Senator Kellogg ? Senator Kellogg. Just one or two questions. Eeferring to the rates on sand, gravel, and brick, I see by the decision in the increase of rates made by the Interstate Commerce Commission that they considered that very subject. Senator Pomerene. What is the document from which you are reading ? Senator Kellogg. It is the decision of the Interstate Commerce Commission, Ex parte 74, in the matter of the application for increase in rates last August. They said : We are not convinced that exceptions should be made at this time from the per- centages approved for the traffic generally. That is the general traffic increase. [Continuing reading:] The carriers have indicated a willingness promptly fo readjust rates in cases where hardship results from the general percentage increases. And their special attention is called to these commodities to the end, that such action may be taken as the facts may seem to warrant. That occurred in a good many commodities, did it not ? Mr. Kruttschnitt. Do you mean these adjustments ? Senator Kellogg. That is, adjustments have been made since in a good many commodities ? Mr. Kruttschnitt. That is my impression. Digitized by Microsoft® 84 RAILROAD REVENUES AND EXPENSES. Senator Kellogg. That would necessarily occur in a general per- centage increase of rates, would it not ? Mr. Kruttschnitt. It was anticipated by the representatives of the railroads, their traffic officers, that numerous cases of this sort would come up, and they assured the commission that prompt meas- ures would be taken to adjust these matters if possible with the public; if not, of course, either side always had the right of appeal to the commission. Senator Kellogg. Well, the situation was this : The roads went back the 1st of March, 1920. For six months the rate of pay and expenses practically could not be reduced under the law; that is, the rate of pay could not. Mr. Kruttschnitt. Yes. Senator KelLogg. During that six months the Labor Board added something between $600,000,000 and $700,000,000 more per annum to the railroads' expenses, which took all, and more than all, of the operating revenues ? Mr. Kruttschnitt. Yes. Senator Kellogg. It was not possible for the commission during those months to examine into each class of traffic, each commodity, and consider the rates as to each commodity separately, was it ? Mr. Kruttschnitt. It was not; and as I will repeat, the railroad officers expected that numerous cases would come up. Now, I am under the impression, though I can not assert it positively, that whatever complaints have come up have been adjusted without appeal to the commission. I don't remember of any cases that have been brought up to them under this clause. Senator Kellogg. Now, you stated that prices began rapidly to decrease, wholesale prices, in the spring of 1920? Mr. Kruttschnitt. Yes, sir. Senator Kellogg. And continued all through the year. Retail prices did not go down in the same percentage ? Mr. Kruttschnitt. No; retail prices have gone down very little. The individual knows, from his family expenses, that vegetables, fruits, provisions, meats have fallen extremely little. Senator Kellogg. In November and December traffic and business all oyer the country had a very great decrease, isn't that true ? Mr. Kruttschnitt. Yes; a decrease that started way back in the spring, continued through, the summer, through the autumn, and be- came more accentuated in the winter months. Senator Kellogg. Yes. Now, traffic is increasing steadily now, isn't it ? Mr. Kruttschnitt. There are signs in a good many directions that business is recovering. Not very rapidly, but still any change is encouraging. Senator Kellogg. Well, car loading is increasing ? Mr. Kruttschnitt. Yes. Senator Kellogg. Freight car loading is increasing ? Mr. Kruttschnitt. Yes. Senator Kellogg. And for the week ending April 30, did not the car loading in this country increase 17,470 cars? Mr. Kruttschnitt. I don't remember the number. I remember the fact; I read it in the Railway Age, which keeps track of these things, that there had been for two or three weeks, I think, increases. Digitized by Microsoft® / RAILROAD REVENUES AND EXPENSES. 85 Senator Pomerene. Senator, do you mean increase over the pre- ceding month, or what ? Senator Kellogg. Yes. Mr. Kruttschnitt. That is to say, that the excess of empty cars on hand had begun to fall, which is another expression for the fact that business was increasing. Senator Fernald. Just a moment, Mr. Chairman, on that ques- tion. The increase was 17,000 cars. Was that from the week pre- vious, or from the month previous, or from the lowest point ? ! Mr. Kruttschnitt. It would be from the week previous. Senator Kellogg. Well, the car loading for that week was the greatest of any oar loading since the previous October, wasn't it? Mr. Kruttschnitt. That I don't know. Senator Kellogg. Will you look up those figures and see what increases have taken place in car loading ? Mr. Kruttschnitt. Yes, sir. Senator Kellogg. Which indicates that business is beginning to improve ? Mr. Kruttschnitt. Yes, sir. Senator Kellogg. Now, Mr. Kruttschnitt, there seemed to be some misunderstanding about the percentage of labor and material of the operating expenses. About what percentage of your operating expenses is now labor ? I don't mean the percentages of the dollar, but I mean the percentage of operating expense ? Mr. Thom. Do you mean percentages of the dollar of expenses, or how much of the dollar of revenue ? Senator Kellogg. I mean of the dollar of expenses. Mr. Kruttschnitt. Well, my studies were made from these charts, the diagram of the dollar, all based on the relation of labor, taxes, materials, and supplies to, revenue. I will have to recast that for you. Senator Kellogg. All right. Mr. Kruttschnitt. I think I have it somewhere; but I have not been thinking in those trems. Senator Kellogg. I did not understand you to say that only 15 per cent of your operating expense Was for material, but about 30 per cent was for material. Mr. Kruttschnitt. 33.47 per cent. Senator Kellogg. Unfortunately I was compelled to be in the Senate yesterday when you testified, and I didn't hear the statement. I want to clear that up. The Chairman. It seems to me there is a little confusion here. Of course, all the operating expenses, 100 per cent, are for either labor or material. Mr. Thom. No. The Chairman. It is impossible to imagine anything that a railroad does that is not either labor or material. Mr. Thom. Personal injury claims are in operating expenses. Loss and damage claims. Senator Kellogg. Loss and damage claims and personal injury claims, and taxes. The Chairman. Well, that is a rather small item compared with the others. Senator Kellogg. Well, taxes are large. Digitized by Microsoft® 86 RAILROAD REVENUES AND EXPENSES. Mr. Kruttschnitt. I have not divided the dollar up on the basis of the proportion of each item of operating expense to the whole, but on theory of showing what relation each one of these items bore to railroad revenues. Senator Kellogg. What I would like, if it is not too much trouble, / is this : If you will have made the percentage of labor to the total operating expenses, the percentage paid for labor, the percentage paid for material to the total operating expenses. And taxes. Mr. Krtjttschnitt. I will give you a diagram similar to this, for expenses. Senator Kellogg. Yes. Senator Stanley. Senator Kellogg, in order that that very im- portant and very vital information might be the basis for future de- duction on the part of this committee, wouldn't it be well to have a statement, not only of the present ratio of such expenses, but accom- panied by a statement of the same kind for 1916, the years previous to Government control, and under the new regime ? •Senator Kellogg. I will be glad to have you go back a number of years. Mr. Keuttschnitt. Will 1917 do — the year prior to Government control t Senator Kellogg. Yes; 1917 will do. And separate in the labor account, salaries from labor, so that we can know the salary account as well as the labor account. If you will have that made up and brought in I would like to ask you some questions on that, when you get it. Mr. Kruttschnitt. Very well. >y (Note. — The information here requested will be found on p. 103.) Senator Kellogg. Now, one other matter and I think I am through Senator Townsend asked you if the 5£ per cent guaranty had made the railroads in any way careless about operating expenses. It is fair to say, isn't it, that the 5£ per cent is not a guaranty ? Mr. Kruttschnitt. No. If the Senator used that Senator Townsend. I did not use the term. Senator Kellogg. I thought you did. I beg your pardon. Senator Townsend. I said with the permission of the Interstate Commerce Commission to fix rates that would yield 5£ per cent. Senator Kellogg. That is as near as may be they were to do it, but they have not done it, have they, and could not do it ? Mr. Kruttschnitt. Well, they did it, but it has not produced results. Senator Kellogg. Well, they thought they had done it ? Mr. Kruttschnitt. Yes. Senator Kellogg. But it did not produce it ? Mr. Kruttschnitt. Yes. Senator Pomerene. Now, Senator, does that exactly state the situation? My understanding was that when the Interstate Com- merce Commission granted these increases in rates they did it because they felt it was necessary, and not because they were seeking to make a net profit of 5£ per cent. Is that not right ? Senator Kellogg. Oh, yes; that is quite right. I think they fig- ured that the rates allowed would comply with that statute, but it turned out that they did not. Their expenses were much greater than they had calculated. Digitized by Microsoft® RAILROAD SEVENTIES AND EXPENSES. 87 < The Chairman. I think that is true. I think the ruling will show- that the Interstate Commerce Commission thought they were estab- lishing rates that would yield the 5i per cent. The commission was apparently not much mistaken with regard to the increase of revenue, but plainly it was very greatly mistaken in regard to the expenses that would be incurred in earning that revenue. Senator Pomerene. I wanted to make that perfectly clear in the record here for this reason, that several times it has been said on the floor of the Senate by Senators who ought to know better that the rate-making powers in the transportation act were the cause of the present traffic conditions, and it ought to be known that these same traffic conditions might have occurred under the rate-making power as it existed theretofore in the Interstate Commerce Commission. In other words, it is perfectly clear that the present traffic conditions are not due to the present rate-making provisions of the transporta- tion act. Senator Kellogg. In spite of the law each railroad is left to earn what it can, and is there any possible object or incentive to a railroad to be extravagant under that law 1 Mr. Kruttschnitt. I can not see it, because it has no guaranty that it is going to be made whole. In other words, on the schedule of rates fixed it is left to make the money if it can make it. Senator Kellogg. That is all I wish to ask. The Chairman; That really answers the inquiry, too, of Senator Townsend with regard to the motive that the railroad companies had to earn all they could and save all they could. You have gone through the year and saved nothing, and I assume that you endeav- ored to be as efficient as possible in order to save something. Mr. Kruttschnitt. We have. I stated that once as earnestly as I knew how, and I repeat it. Senator Stanley. At .that point, what is the effect of a provision in the law providing that in certain contingencies a certain part of your earnings shall be prorated to other roads not so prosperous ? Mr. Kruttschnitt. Well, there is such a provision. Senator Stanley. What is the effect of that provision upon the operation of these more successful railroads ? Mr. Kruttschnitt. Well, you can not tell what will be the effect;' of course it will reduce their revenue. I don't know that the com- mission has made any ruling changing- the divisions. Senator Stanley. Under that provision of the act you are in the same position exactly ats an individual or corporation would be if it knew that all it earned beyond a certain point would be distributed in public charities or for some other good purposes; isn't that so ? Mr. Kruttschnitt. Yes; but as long as it has not attained any- thing near the amount permitted or allowed by law it would be very foolish if it did not try to earn all it could. Senator Stanley. It would only affect those that did make more than this maximum 1 Mr. Kruttschnitt. Yes — well, not necessarily. Senator Stanley. Have any roads contributed to this fund pro- vided for in this act ? Mr. Kruttschnitt. Well, I don't know that the commission has made a ruling in any case changing the divisions in order to benefit some road not as favorably situated as another as to earnings. 63558— 21— Vol I 7 Digitized by Microsoft® 88 RAILROAD REVENUES AND EXPENSES. Senator Kellogg. Right there, in connection with Senator Cum- mins's question. Of course, under the law a part of the earnings, above 6 per cent on the value of the property would remain with the road anyhow. Mr. Kruttschnitt. Yes. Senator Kellogg. So there is an incentive to earn that. The Chairman. I suppose what Senator Stanley really inquired for, as I understood him, was whether any road has earned more than 6 per cent. Mr. Kruttschnitt. I don't know of any. The Chairman. Whether any road has earned more than 6 per cent upon the value of its property, so as to be required to contribute to the fund of excess profits. Senator Stanley. I maintained at the time that no road would ,- that there would be enough places to put that money, under the lati- tude necessarily permissible to one of these carrier corporations, to keep any of it from ever going into this eleemosynary fund. The Chairman. Senator Myers, will you ask a few questions of Mr. Kruttschnitt ? Senator Myers. I will ask a few questions that occurred to me. Mr. Kruttschnitt, with reference to the readiness and expedition with which decisions, adjudications, and orders were made under Govern- ment control, to which Senator Poindexter made reference a while ago, I don't suppose you want many more decisions like many of the decisions, orders, and adjudications that were made under Federal control, do you ? Mr. Kruttschnitt. No; I called attention to the hardships ex- perienced under the national agreements. You understand, I am not familiar enough with the details of Federal operation to know just what the jurisdiction was of this Board No. 1, but if I understand it correctly as explained that this board took up what are called griev- ances, that is, issues between the management and the employees, I would say that almost all grievances, except the punishment for an actual misdemeanor, are connected in some way or other with wages or expenses, and a tribunal that has no intimate interest or close interest in a property and does not look out for its future can, of course, very easily dispose of contentions involving pay or money, because it does not concern them. In other words, if you give the •other fellow all he wants, it is- very easy to get rid of him. - Senator Myers. It is largely the decisions, adjudications, and orders made under Federal control that are responsible for the present rates ; is that not true ? Mr. Kruttschnitt. A great deal of the present expenses. Senator Myers. And the present rates, too, I suppose, to try to cover those expenses ? Mr. Kruttschnitt. Yes. Senator Myers. There seems to be a considerable opinion in the country to the effect that the present rates should be reduced and that some reduction of the present rates would result in an increase of business and an increase of the net profits of the roads, and that opinion seems to be reflected to some extent in this committee by some of the questions that have been asked. Mr. Kruttschnitt. I was going to say, the effect of reductions in rates on the stimulation of business is highly speculative. Digitized by Microsoft® EAILKOAD REVENUES AND EXPENSES. 89 Senator Myers. I was going to ask you about that. Mr. Kruttschnitt. It may or it may not occur. But the loss of revenue, the loss of possible revenue, in case of any resumption of business from natural economic causes is a certainty. . Senator Myers. What do you say about the financial ability of the roads at this time to engage in experimentation of that sort, as to whether or not a reduction of rates which might be brought about would result in increased business and increased net profits to the roads ? Are the roads in a condition to engage safely in experiments of that kind at this time ? Mr. Kruttschnitt. I think what I said about the policy that had always been followed by the railroads will largely answer that; that is to say, when the roads were more prosperous than they are now they were not at all backward in indulging in these experiments to promote traffic; but they are in such a different condition now, there is so little margin to make experiments on, that except in the gravest emergencies I don't see that they would be warranted in doing it. and I think the roads will require more proof than they have now that certain exceptional raises bear so hard on industry as to stifle traffic. Senator Myers. Of course, if a reduction in rates would result in a large increase of business and some increase of net profits, it would be all right. But suppose, on the other hand, as you think probable, it would result in a very serious and very material reduction in net profits, what would be the effect on the railroads ? . Mr. Kruttschnitt. Well, it would put them in a worse fix than they are now in, even. Senator Myers. Are they in a position to stand it ? Mr. Kruttschnitt. They are not. In the last two or three months a great many roads— ^-a majority of the roads, I might say — have not earned their expenses and fixed charges, and a great many have not earned their operating expenses. Senator Myers. What, in your opinion, at this time, would be the result of a material reduction in rates without any reduction in wages of employees ? Mr. Kruttschnitt. Well, that depends on whether the experiment, as you call it, of increased traffic would be successful or not. Of course, if the reduction in rate stimulated enough traffic to give the road a substantial profit the experiment would be justified and successful. It is a question whether it will do that. Senator Myers. From your knowledge of the condition of the roads, would it be justifiable to indulge in any such experiments without a reduction of wages ? Mr. Kruttschnitt. I don't think so, except in the conditions out- lined before the commission— that is, if the raise in rates should be proven to be such as to unduly affect certain industries, and then only should the reduction in rate be made if the road could make it and still make something out of it. Senator Stanley. At that^ point, Senator Myers, let me interrupt you with one question, because I am very much interested in this matter. Senator Myers. Yes. Senator Stanley. A reduction in freight rates would not be reflected immediately in that increase of rates which would normally flow from such reduction, would it ? Digitized by Microsoft® 90 RAILROAD REVENUES AND EXPENSES. Mr. Kruttschnitt. I don't just get the drift of your question. Senator Stanley. Well, here is what I mean. If the rate on lumber and building material should be materially lower, it is highly probable that that would be reflected in the course of time, more or less remote, in an increased building program all over the country, but it would take some time for the prospective home builder to make his con- tracts upon the basis of the cheaper material. It would take some time for carpenters and other operators engaged in the building of structures to agree to a reduction of wages more or less in keeping with the prospective reduction in the cost of lumber. It would take some time for the reduced rate to have its psychological effect upon those cutting and sawing lumber. But if a reduction in .the freight rate should, as it probably would, be reflected in an increase in transportation, for the reasons that I have assigned, that increase could not follow immediately upon the reduction of the rate. It would come later, as the effect of the reduction percolated into the industrial life of the country, isn't that true? Mr. Kruttschnitt. I suppose so. The trouble about these specu- lations and theories of the production, or stimulating of traffic by reduced rates, is that all of us are prone to generalize too much. There are cases where reduction has stimulated traffic to a remark- able extent. There are perhaps hundreds of instances where it has not done that. Everybody gives great prominence and attention to the case where it was successful, and forgets the cases where it was not so. Now, I don't want to be understood as opposing any reduction of rates where it is necessary. But I think each case should be carefully studied, and proof should be asked from those applying for the re- ductions, that increased traffic at some profit to the railroads would be reasonably certain to follow. I will give you an example on our own road in the way we handle those matters. When I had charge of the operations of the roads solely and a traffic officer had charge of the movement of traffic and the making of rates, we had an understanding that we would always confer before there was any large reduction of rate offered for the purpose of stimulating traffic. I had three or four instances brought to me by the traffic man, who said, "I can get a very large volume of traffic in this or that commodity" — I have two or three cases in mind — "if we can offer a substantial reduction in rate." He said, "Can you carry it and make money and have me make this reduc- tion"? ' In each case I made a careful study, with his help, of course, and I have told him "yes" or "no" as to the reduction. In the two cases that I remember I told him, in both of them, after study, "I think we can make the reduction you propose and still make money for the company." The reductions were made, and our conclusions were right. The traffic was stimulated, and we got a considerable increase. Senator Stanley. I should think that an analysis of the rate changes in the past by those who are experts would throw consider- able fight upon my previous question. I haven't that accurate knowl- edge of railroad rates or that facility in interpreting them that those have who have charge of the* roads. Digitized by Microsoft® EAILROAD REVENUES AND EXPENSES. 91 Mr. Kruttschnitt. Now, take the case of the Panama Canal com- petition. When the canal was first opened, it of course, took business very rapidly from our Southern or Sunset Line, and the traffic director and I took the question under study. What must we do to hold this traffic on our line? The line was built to carry this traffic, and if We can not carry it any more we will be in a very sorry fix. So careful study was made of the matter and application made to the commission for a right to lower certain rail rates. The commission asked for my analysis of the case and it was given, and after closely inspecting it they gave the necessary permission, and we got back a considerable portion of our traffic. But at that time we were not operating Shipping Board ships through the canal, and the full weight of the Government support was not behind the people who were taking away the traffic, and we regained a considerable part of it. Now we shall have to make such an analysis of that again to see whether we can do anything in the face of the competition that is now confronting us. Senator Stanley. Have the canal rates been decreased in that time that you speak of ? Mr. Kruttschnitt. Some months ago the canal rates were lower than ever known. The same way about transpacific and trans- atlantic rates. There has been a glut of shipping, and under the conditions that the agents can get ships from the Shipping Board they can make rates that were unheard of before, because they needn't make any profit at all. Senator Stanley. In the light of certain legislation, certain bills now pending before this committee, I was led to believe that the effect of the rate upon the movement of traffic was not a matter of pure conjecture. For instance, there is a bill introduced by the Senator from New Jersey, to wnich I am favorably inclined in many respects, providing for a seasonal reduction in the rate upon coal designed to equalize and distribute the movement of coal cars during the 12 months of the year, instead of the congestion at certain periods when coal is needed, and the surplus of coal cars at other periods, in some months when they are not so much in demand. And experts came before the committee with a wealth of tabulated information — it is true a great many of them were professors of this, that, and the other — and how many railroad people were parties to the calcula-' tions, I don't know — and they figured out- quite accurately just ex- actly what a certain reduction in rate would mean to the movement of freight, and were under the impression that there was a fixed rela- tion between the charge — the freight rate — and the volume of busi- ness, and that by a reduction at certain periods of the year you would have an automatic increase, and in that way we could dis- tribute the movement of coal by altering the rates just as you con- trol the movement of a clock by adjusting the length of its pendulum. Mr. Kruttschnitt. What would happen in the other months ol the year when you hadn't the reduced rates on coal ? Senator Stanley. You would have correspondingly less pressure upon the railroad movement. Mr. Kruttschnitt. Less movement ? Senator Stanley. A less' movement. Digitized by Microsoft® 92 RAILROAD REVENUES AND EXPENSES. Mr. Kruttschnitt. Then the net result would be a large decrease of the revenues to the carriers. Senator Stanley. No; the carrier on the whole would move the same tonnage, but if, say, during the three winter months you carried 50 per cent of the coal, and during the nine other months you carried 50 per cent, this would adjust it so that during the months when there is the greatest strain upon the carrier you would carry 40 per cent, and during the other months you would carry 60 per cent, say. In other words, the legislation was designed to keep the coal car, which was used for other purposes as well, in a more continuous service, and distribute the burden upon this particular kind of rolling stock. Mr. Kruttschnitt. If you had a million tons of coal to move in all, which was the total movement, and you reduced, during a certain period, the rates sufficient to intensify the movement in those months, and you moved, say, 750,000 tons in six months instead of 500,000 at the reduced rate, you would have only 250,000 to move at what you might call the normal rate, and the net result would be a loss to the carrier. Senator Stanley. Oh, if you opened it up wide, of course you would jump out of the frying pan into the fire, you would still have that lack of equilibrium. But the purpose of this legislation was to encourage the movement of the freight and to utilize the car for the full 12 months, in that way compensating the railroad for the loss of revenue for a short time by giving it a continuous revenue at a less operating charge for the whole time. ' Mr. Kruttschnitt. Permit me to tell you a story of a personal experience. Senator Stanley. I am not saying whether it is right or wrong; I am giving it as it was given to the committee. Mr. Kruttschnitt. Permit me to tell you a story of a personal experience right on that point. When the Southern and the Union Pacific roads were merged as a unit I had charge of the operation of both roads, and I was also president of the Union Pacific coal prop- erties, and we had that same trouble, that everybody wanted. coal in the winter, when every car and locomotive was busy, and they couldn't get it, and there was a dreadful complaint, and I said to the manager of the coal company: "We are going to try the experi- ment of making a seasonal reduction in the price of coal, and you make it material so as to encourage people to fill up their cellars, encourage dealers to fill up their yards with coal, whilst we have got ample locomotive power and cars." We tried that for two years, and the first year it had substantially no effect. The second year, I think, we managed to get 25,000 tons more than normally bought in the season, and it was then given up as a bad job. Senator Pomerene. What was the total for the season ? Mr. Kruttschnitt. The total for the season at that time, when we were in the commercial coal business, would have been three or three and a half million tons. So you see the movement was insignificant. We couldn't get people to do it. We not only offered the induce- ment in lowering the price, but we sent agents around to dealers to explain this thing to them, and to coax them to take advantage of the lower price to stock up. Digitized by Microsoft® KAILEOAD REVENUES AND EXPENSES. 93 Senator Wolcott. At the same time was there a seasonal con- cession in price at the mines ? Mr. Keuttschnitt. What? Senator Wolcott. I say, at the same time, was there a seasonal concession in price at the mines ? Mr. Keuttschnitt. This was a concession in price at the mines. Senator Wolcott. Yes, in the rate; but at the same time were the mine operators making a seasonal concession in price like they do here in the East 1 Mr. Keuttschnitt. You mean the miners ? Senator Wolcott. The mine operators. Mr. Keuttschnitt. Well, we were the mine operators ; these were mines belonging to the railroads. Senator Pomeeene. What decrease in the seasonal rates did you make ? Mr. Keuttschnitt. About 10 per cent. Senator Pomeeene. Ten per cent of the total ? Mr. Keuttschnitt. No; 10 per cent of the normal sale price. In other words, if the price was $2.50 per ton, why, we made it $2.25 per ton. Senator Pomeeene. Well, did you make a decrease in the trans- portation rate ? Mr. Keuttschnitt. No; but it was immaterial how the decrease was made. The net effect was to make the coal cost the dealer and consumer 25 cents a ton less. Senator Feelinghuysen. Mr. Chairman, if you are going into the question of a cross-examination of the witness on my coal bill, I want to have an opportunity of cross-examining him. . Senator Stanley. Tb,at was just as an illustration. The Chaieman. Well-, so far as it is material to this inquiry we will have to go into it. Senator Feelinghuysen. I will just say this, that the object of the bill is to prevent conditions that existed last year, which created the panic prices, to prevent a coal famine next winter, to induce buying now when there are 250,000 coal cars idle, at a time when the public are not buying the coal, by giving the Interstate Com- merce Commission power for the next three months to reduce the freight rates moderately in order to induce buying. Now, it may be successful and it may not, but it is an honest effort to remove the high peak load in the winter and place it on the summer, when it is low; that is all. The Chaieman. Both Senator Stanley and Senator Frelinghuysen have omitted one element in the bill which might be very interest- ing to the railroads, at least. The base rate on coal we will assume is established. The proposal that that rate shall be reduced during the summer. Senator Pomeeene. Maybe. The Chaieman. Some summer months, and during certain fall and winter months the rates shall be increased above the base rate, so that the earnings of the railroad companies upon the coal moved is just the same as though there had been no differential between summer and winter. Mr. Keuttschnitt. Well, of course if the legislation is so framed as to produce that effect, why of course nobody could complain. Digitized by Microsoft® 94 RAILROAD REVENUES AND EXPENSES. The Chairman. The railroads could not complain, at any rate. Mr. Kruttschnitt. I mentioned this case because the attempt had been made honestly, and we had not been able to get much success out of it. Senator Stanley. Mr. Chairman, I was quoting that simply as an illustration of the attempt by certain people who profess to Know, statisticians and political economists — whether railroad people or not — that you could anticipate the effect of a reduction in freight rates upon the amount of the tonnage of freight carried by the rail- roads. Whether it can be done or not I don't know. The Chairman. Well, it would not be a perfect illustration, be- cause the reduction of freight rates generally is supposed, by many people, to bring about an increased consumption, or increased trans- portation. But with the coal the user takes so much coal throughout the year. The reduction of rates in the summer does not increase the volume of coal moved for the year. It is simply an effort to move it during certain times in the year rather than at other times. Mr. Kruttschnitt. That is it exactly. Senator Stanley. Yes; to equalize it. The Chairman. Senator Frelinghuysen, have you a question to ask? Senator Frelinghuysen. I only have a few questions. Senator Stanley. I interrupted Senator Myers. The Chairman. Are you finished, Senator ? Senator Myers. Yes. Senator Frelinghuysen. Have you finished ? Senator Myers. Go ahead, Senator. Senator Frelinghuysen. I don't want to take your place. Senator Myers. No; we have diverted from that line. Go ahead, Senator. Senator Frelinghuysen. I only have two questions to ask. Is it not true that the volume of railroad traffic is reflected only in the rise and fall of business conditions ? Mr. Kruttschnitt. Whether it is true that the volume of railroad traffic is reflected Senator Frelinghuysen. Only in the rise and fall of business prosperity ? , Mr. Kruttschnitt. In a general way I should say yes, that is correct. Senator Frelinghuysen. Now if the increase in rates was an unwise policy in that it might have affected the business of the rail- roads somewhat, and created adverse criticism, as unfair to the public, was not the arbitrary increase in wages also unfair to the public, and was not the financial condition of the roads which made an increase of rates necessary due entirely to the burdens placed on the railroads by the Federal control ? Mr. Kruttschnitt. I should say yes, that is a correct statement. Senator Frelinghuysen. Therefore, the fact that you had to have more income through increase in rates was not an academic question, but a practical one, in that Government control was responsible for this helpless condition ? Mr. Kruttschnitt. I agree with that because it is in line with the testimony I gave from my written statement. Senator Frelinghuysen. That is all I have to ask. Digitized by Microsoft® RAILROAD REVENUES AND EXPENSES. 95 Mr. Thom. Mr. Chairman, I would like to invite the attention of the committee to the fact that the increase of rates in ex parte 74 had the very strong indorsement of the shippers of the country, generally speaking. The Chairman. Have you finished, Senator Frelinghuysen? Senator Frelinghuysen. I have. The Chairman. Senator Fernald. Senator Fernald. Mr. Chairman, I have just one question, which may be quite aside from the discussion. However, on the first page in the estimates made of the operating expenses of the railroads I find that there is no mention of the interest on the bonds. Isn't that a legal obligation that the railroads must pay just as much as they pay their employees, the labor men ? Mr. Kruttschnitt. Unquestionably, but the interest on the bonds and the dividends on the stock, if any, come after the payment of the operating expenses. They must be paid first. Senator Fernald. The dividends, on the stock are not obligatory, are they, Mr. Kruttschnitt ? Mr. Kruttschnitt. No. Senator Fernald. A man that buys stock may expect to receive a dividend or not. Mr. Kruttschnitt. Yes. Senator Fernald. But the interest on the bonds must be paid. Mr. Kruttschnitt. Unquestionably. But I want to explain that this schedule of expenses is simply a schedule of the operating ex- penses and taxes, which come first. Senator Fernald. Yes; those come first. Mr. Kruttschnitt. And unquestionably the payment of interest on the bonds is necessary, or else you go into the receiver's court. Senator Fernald. Just as necessary as the taxes. Mr. Kruttschnitt. Unquestionably. Senator Fernald. That is all. Senator To wnsend (presiding). Senator Wolcott? Senator Wolcott. Well, this question that was just asked by Senator Fernald related to a question that I wanted to ask. Mr. Kruttschnitt, your Table 10-A shows that for 1920 the net operat- ing income was sixty-two odd millions. The paper marked "No. 4, entitled "The Railway Dollar" shows that these net earnings available for return on investment were three-one-hundredths of 1 per cent. Mr. Kruttschnitt. Wouldn't you refer to Diagram 5, which is a diagram of actual conditions. These others take into account — • well, one of them, No. 1 on diagram 4, takes the 12 months ended February, 1921. Senator Wolcott. Yes. Mr. Kruttschnitt. So if we both look at that I will try to answer your question. Senator Wolcott. Well, I just wanted to get a correct under- standing of the term, that is all. I notice on your diagram No. 6 you again refer to aggregate returns to security holders, sixty-two odd millions, the same figure I mentioned. a moment ago. Now I want to know what you mean by investment, and by security holders, that is to say, are the security holders not only bond- holders but also stockholders ? Digitized by Microsoft® 96 RAILROAD REVENUES AND EXPENSES. Mr. Kruttschnitt. Yes, both. Senator Wolcott. Both ? Mr. Kruttschnitt. Yes, in other words, the income, after pay- ing the operating enpenses and taxes, available for paying interest on bonds and dividends, if any, to stockholders, is only $62,000,000. Senator Wolcott. Yes. Mr. Kruttschnitt. On an investment of nearly twenty thousand millions. Senator Wolcott. Is that investment account of twenty thousand millions ascertained by adding total bonded indebted- ness and total stock issue together? Mr. Kruttschnitt. No, as is shown on diagram 6, it is the book cost of road and equipment. Senator Wolcott. It is the book cost. Well, what is the total security issue of the roads; by security issue meaning bonds and stocks? In excess of twenty billions, or under it? Mr. Kruttschnitt. No, it is not as much as that. My recol- lection is that there are about eleven billions of dollars of bonds, and six or seven billions of stock. The Chairman. Mr. Senator, do you mean the total securities, excluding what the Interstate Commerce Commission has given as duplication, that is, securities of one railroad company held by another, upon which the latter has also issued securities ? Senator Wolcott. Well, by securities I mean the total securi- ties outstanding upon which the issue roads are liable for interest charges in case of bonds, or dividends in case dividends be declared on stock. Mr. Kruttschnitt. It is somewhat less than what the commis- sion fixed as the cost of investment of eighteen and one-half billion, and therefore I say it is somewhere around probably sixteen billions or seventeen billions. Senator Wolcott. Well now, does your testimony disclose any- where the net earnings and their adequacy to meet interest on fixed obligations, as contrasted with stock? Mr. Kruttschnitt. No, but diagram 6 shows the total amount after paying expenses and taxes, at sixty-two millions. Senator Wolcott. Yes. Mr. Kruttschnitt. And my recollection is that the bond interest is — without being extremely accurate, because I have not referred to it lately, somewhere around $400,000,000. Senator Wolcott. So that the roads as a whole are not anywhere beginning to earn the interest charges which it is necessary for them to earn in order to save them from insolvency ? Mr. Kruttschnitt. No. I repeat what I said before, that in the first months of 1921 very few roads earned enough upon their operat- ing expenses to pay their bond interest, and a great many did not earn their operating expenses. Senator Wolcott. Well, assuming that notwithstanding the difference of views as to the extent of watering of the railroad securi- ties that has taken place, I suppose it is safe to say that certain of the roads are worth at least their outstanding bonded indebtedness. That is to say, if there is any water in the roads it would not be in excess of the total stock issues outstanding, that is a pretty generous concession to make ? Digitized by Microsoft® RAILROAD REVENUES AND EXPENSES. 97 Mr. Kruttschnitt. No, you have the commission's estimate that the investment of the roads is between eighteen and nineteen thousand million. Senator Wolcott. Which is considerably in excess of the bonded indebtedness. Mr. Kruttschnitt. Oh, very much. Senator Wolcott. Yes. There is an idea abroad, which I find in my contact with people somewhat growing, that it will help the railroad situation very much to let them go into the hands of receivers and squeeze out all this water and start out anew, and the situation will be lovely. But the earnings being as they are, falling far, far short of being able to pay a reasonable yield on the bonded indebtedness alone, this strenuous remedy of allowing them to go into receivership and squeeze out all the watered stock would not help the matter at all ? Mr. Kruttschnitt. Absolutely not, because suppose you assume— which I do not admit, and which I don't understand that you admit — that you wipe out all of the stock, you would not have enough yet to pay the interest on the bonds alone. Senator Wolcott. Yes. Mr. Kruttschnitt. And certainly all of the stock is not water, because the Interstate Commerce Commission that has charge of the accounts, and has had immediate charge for a number of years of the moneys that go into the properties, and they can see that it all goes there, has given this estimate of the value of the properties. Senator Kellogg. $18,900,000,000. Mr. Kruttschnitt. Well, that is substantially nineteen thousand millions. > Senator Wolcott. One other line of inquiry and I am done. I want to come to this arrangement set up by the transportation act which directs the Interstate Commerce Commission to fix the rates which will yield 5J per cent return on the real value of the property and the effect that arrangement might have on efficiency in opera- tion. You pointed out a moment ago that at present the railroads, being in the bad condition they are in, have the greatest motive to conduct their properties with the greatest degree of efficiency in order that they might earn as much of that 5£ per cent that they can under these adverse circumstances, so there is all the motive in the world to run the business efficiently and economically. But suppose you were back in such a year as 1916, when you had the prospect ahead of you of earning over a billion of dollars net, and the yield on the investment, as in that year, would be 9.9 per cent, well above the 5£ per cent: What inducement would there then be for the roads to Eractice strict economy and pass the benefit of it on to the public, ecause all up to that 9.9 per cent, above the 5$ per cent Mr. Kruttschnitt (interposing). Above 6. Senator Wolcott (continuing). Well, possibly. Above 6 per cent would be taken away from them ? Mr. Kruttschnitt. No; not all. Senator Wolcott. Well, half of it; you can not spend that half until it accumulates to Mr. Kruttschnitt (interposing). Well, if you go on earning that way, there is always a temptation to earn more than 6. Digitized by Microsoft® 98 RAILROAD REVENUES AND EXPENSES. Senator Wolcott. Do you think the roads will be desirous of exercising that strict degree of economy when they get into a pros- {>erous period like you had in 1916 with this certainty that at east half of their earnings above the 6 per cent would be taken away from them ? Mr. Kruttsohnitt. Railroads always have, and I expect always will spend more freely in prosperous times than in hard times. That is natural. It is human nature. We are experiencing extremely hard times now, and all the roads of the country have cut their expenses down below a point where they can be permanently main- tained, and unquestionably if we get prosperous times within the next two or three or four months, why a great many of the expenses that have been choked off will be reinstated. They will have to be reinstated for the preservation of the properties. Senator Wolcott. Then it will be an economy to make such an expenditure as that? Mr. Kruttschnitt. Well, that is an answer to your' question whether we would spend more freely. Unquestionably we would in prosperous times. Senator Wolcott. I didn't ask you if you would spend more freely. I can see very plainly that a free expenditure following this period of depression would not be an extravagance at all, it would be a necessity. But I am asking you the question whether there would not be a tendency to an extravagant expenditure, an uneconomical expenditure. Mr. Kruttschnttt. We have a watchdog on us. The transporta- tion act puts the commission on us to see that we don't practice uneconomical or extravagant expenditures, reckless expenditures. The Chairman. I think it should be borne in mind in that connec- tion that the 5£ per cent rule of rate making, so-called, expires on the 1st of next March, and it was introduced only to cover an extraor- dinary condition which it was supposed had followed the war. Senator Wolcott. Yes. I assume, Mr. Chairman, there will be an agitation to keep it alive after the 1st of March, and I am trying to get some light in my own mind as to whether it, should continue. Those are all the questions I wish to ask. Mr. Kruttschnitt. I call attention to the fact that in two places, I think, in the transportation act, the act provides for certain returns to the railroads conditioned on honest and efficient management. Mr. Thom. And economical management. Mr. Kruttschnitt. And economical management. The commis- sion is made the judge of that. Senator Stanley. I just wish to ask one question now. Do you think it wise to continue in any future legislation this "transporta- tion jack-pot," we might call it, contained in the act of 1920 ? Mr. Kruttschnitt. Do you mean a continuation of this direction . to the commission to provide 5^ ? Senator Stanley. This distribution of the excess over 5£ per cent among the several roads ? Mr. Kruttschnitt. Well, the carriers always contended, but of course Congress thought otherwise, that with strict regulation of rates that the profits of the carriers from efficient and close manage- ment — because there are all kinds of grades of management amongst Digitized by Microsoft® RAILROAD REVENUES AND EXPENSES. 99 the carriers, and they all are honest, all are efficient, and some are more economical than others — but numbers of us thought that there could not be any unreasonable profits from regulated rates. That we ought to be allowed to keep it all. But, as I say, Congress thought otherwise. The Chairman. Most of the railroads, I may say, very earnestly opposed that proposal. Senator Stanley. Yes; I know a good many of them did, but perhaps they are for once right, but that is what I wanted to get, the opinion of Mr. Kruttschnitt, 'who has shown a wonderfully accurate and varied information on that subject, on that proposition. Mr. Kruttschnitt. Well, I thought we ought to be allowed to retain everything that we could earn under regulated rates, and by strictly careful and efficient management. Senator Stanley. Do you think it would be better now, in any future legislation, to put every road on its own bottom, and let it earn what it can by efficiency and by skill in the operation of a great system, under the control, of course, of the Interstate Commerce Commission against excessive, exorbitant rates ? Mr. Kruttschnitt. Senator, I believe the transportation act of 1920 was one of the best pieces of work that Congress has ever done, and I should be extremely reluctant to see the act modified, amended, or changed before it is given a fair chance to prove what it can do. I was a firm believer, and am still, in the act. There may be some points where the machinery is still operating with friction on some hot journals, but I think that wear will smooth them down, and it ought to be operating well. I should dislike extremely now to see it tinkered with or changed. Senator Stanley. I am not asking you about the repeal of the act. I am asking you about the repeal of this provision in the act, this part of the act providing for the distribution among roads other than the road earning it, of certain amounts above 5£ or 6 per cent, as the case may be. The Chairman. There is no such provision in the act, Senator. You are thinking of the way the law was originally quoted. The act provides that the earning of any particular railroad above 6 per cent upon the value of its property shall be divided between the Government and that railroad. Wo part of that money is distributed to any other railroad. Senator Stanley. Well, whether it goes into the hands of the Government, or into the hands of other railroads Senator Wolcott. It can be loaned to other railroads. The Chairman. The fund that is created by the payment by rail- roads which earn more than 6 per cent passes into the Government of the United States. Now, the Government is given the authority to loan that money to railroads upon' good security. Senator Stanley. Exactly. The purpose of this provision was to enable the earnings of the better located and more prosperous roads to be utilized by the roads that were less successfully managed or less advantageously located. This money may go, as the chairman says, through the Treasurer in its way back to the other roads, but it is a method for the distribution of the gross earnings of the railroads of the Nation, by taking a part of the earnings of the more prosperous Digitized by Microsoft® 100 RAILROAD REVENUES AND EXPENSES. roads and making them available for the necessities of the less pros- perous. The Chairman. What I meant was that there was no gift of this money to any of the railroads. Senator Stanley. I did not imply that. Senator Kellogg. It seems to me we are using a good deal of time in discussing what the act means, and that we can do by ourselves. I think we ought to go ahead with the witness. The Chairman. Has Senator Wolcott finished ? Senator Wolcott. Yes. Senator Townsend. Senator Myers did not finish. The Chairman. No ; Senator Myers had not finished. Senator Myers. I didn't have anything very particular to ask. I was on this matter of reduction of rates. Any reduction of rates, if it resulted in an increase of revenue or net profits at all, would take some time to bring about that result, wouldn't it, Mr. Kruttschnitt ? Mr. Kruttschnitt. Yes, sir; unquestionably. Senator Myers. It would not be instantaneous ? Mr. Kruttschnitt. No. Senator Myers. Suppose it took from three to six months for a reduction of rates to result in an increase of net revenues, if it did at all, how many of the railroads of the country 'do you think are in a financial condition to stand that period of three to six months of decreased rates without any reduction of wages and expenses ? Mr. Kruttschnitt. In a very short time the water would be up to here [indicating]; I should say that the water is about up to here [the witness indicated his mouth] now, and rising, and it won't take it very long to get up to here [the witness indicated above his nose], and then that is the end. Senator Myers. The proposition is that some of them could not hold up three months even ? Mr. Kruttschnitt. No. Some of them are-not holding up now. Senator Myers. Some of them are not holding up now ? Mr. Kruttschnitt. I suppose they are paying their expenses by borrowed money, and not knowing just how it is to be paid. Senator Myers. What in your opinion would be the result at this time of a reduction of rates without a reduction of wages on the majority of the roads in the country ? Mr. Kruttschnitt. I will repeat what I said before, that whether the reduction of rates is wise or not would depend on what it would lead to. Senator Myers. Yes. Mr. Kruttschnitt. If a reduction of rates led* as a majority of- people suppose, and I believe incorrectly, at the present time, to more traffic, and the roads could gain revenue, why it accords with the opinion I first gave when the cross-examination was started, that whatever increases the revenue or income, or reduces expenses, goes to the same end, it is an improvement. Senator Myers. The theory that it would result in benefit is wholly and purely speculative, isn't it ? Mr. Kruttschnitt. Yes; absolutely so. Senator Myers. And the railroads of the country are not in con- dition to indulge in speculation, are they ? Digitized by Microsoft® RAILROAD REVENUES AND EXPENSES. 101 Mr. -Kruttschnitt. And more speculative to-day — I want to em- phasize it — more speculative to-day, under existing economic condi- tions, than it would be ordinarily under ordinary economic conditions. Senator Myers. So your conclusion is that there being no safe and reliable way in prospect of increasing revenues and net profits, the only way to save the roads is by a reduction of expenses ? Mr. Kruttschnitt. Yes; I think that is far more vital than the other, because a reduction of all expenses is positive, certain. Senator Myers. You will know what that will be. Mr. Kruttschnitt. The other is speculative. Senator Myers. Do you know of any way in which extensive econo- mies could be put into practice in the management and expenditures of the railroads to materially reduce expenses at this time ? Mr. Kruttschnitt. I don't know of any except the economies that we have been consistently practicing for a number of years, for periods varying from 10, 15 to 20 or 25 years. Senator Myers. Well, they are in force to about their full extent now, aren't they? Mr. Kruttschnitt. They are in force now, and they are being practiced, I should say, to a greater extent than ever. Now, the results from those economies, I want to repeat, so that there will be no disappointment whatever, can not be as great in the next 15 or 20 years as they have been in the last 15 or 20 years Senator Myers. Do you know of any great amount of waste or the prevalence of wasteful methods to any material extent indulged in by railroads now ? Mr. Kruttschnitt. I don't know of any, and I do know that small economies are always being added to those now made. Take the ques- tion of looking after scrap. Scrap formerly was sold for what it would bring. Now most roads have a regular scrap reclamation department; sort over the old stuff and work it over, paint up old lanterns that have been rejected, and all^that kind of economy. In the aggregate it is large; for each item it is quite small . Senator Myeks. There is some talk to the effect that the railroads might better their conditions and stand a reduction of rates without a reduction of wages by better methods and widespread economies. You deny that anything of that kind can be practiced, then, under- present conditions ? Mr. Kruttschnitt. I should be very reluctant to say that we have gotten to a point where we could never do better. Senator Myers. I understand. Mr. Kruttschnitt. I believe that when a man gets in that fix it is time for him to put on his shroud. But I do think that the preva- lent idea that fabulous sums can be saved by doing this, that, and the other are totally unfounded. Senator Myers. If there were a reduction in wages decreed by the Labor Board, such as to materially reduce expenses of the railroads, if that were first done, do you think then when that adjustment were made, that the roads might be in a condition to stand some experi- mentation as to reduction of some rates with a view of increasing their business ? Mr. Krittschnitt. That depends altogether on the amount of the reduction. I have said in my statement that if the roads were simply allowed to employ unskilled labor, of which they employ in the aggre- Digitized by Microsoft® 102 KAILROAD REVENUES AND EXPENSES. gate somewhere around half a million to six hundred thousand men, at the rates that other people are paying, that they could at once save in the neighborhood of $600,000 a day. And there is no specu- lation about that, because we know of places where we are paying 40 cents an hour to unskilled labor, and people right alongside of us are getting them, and in any numbers they want, and they are anxious to work at 20 and 22 cents an hour. Senator Myers. And then it would be simply a matter of results and computation with the passing of a little time, to learn whether the income of the roads was up to the 6 per cent which it is intended that they shiuld have, and whether or not they could make any reduction in rates and maintain that 6 per cent return ? Mr. Kruttschnitt. The Interstate Commerce Commission is watching us closely. They know exactly what we do. They get an infinite number of reports, and they can be trusted to say when we are getting too much. Senator Myers. That is all I care to ask. Mr. Kruttschnitt. They have never had to do that yet, though. Senator Pomerene. Will you let me ask one question, Mr. Chairman ? The Chairman. Certainly. Senator Pomerene. Mr. Kruttschnitt, a moment ago you expressed your faith in the transportation act. Earlier in your testimony you spoke with approval of the original labor provisions of the act. Still later you expressed some dissatisfaction with what the Labor Board has been doing. Let me ask you : Have you any suggested amend- ments with regard to the labor provisions of this act ? Mr. Kruttschnitt. I have not; and if I had in my mind some- where such a suggestion I should not make it. I should hesitate very much to make it, because as I have said already, I think the act ought to be given a fair chance to prove its worth, and the more it is tinkered with the less chance it has of doing it. Senator Pomerene. Well, I inferred that that was your position, and I was anxious to have it expressed. The Chairman. It is now 20 minutes of 1, past the hour at which we usually adjourn. I have some questions that I want to ask this witness. What is the pleasure of the committee ? Shall we adjourn now until to-morrow at 10 o'clock, or go on? I may remind the committee that it has a meeting in the rooms in the Capitol at 3 o'clock. Senator Kellogg. Then we had better adjourn. N The Chairman. I will take it as the sense of the committee that we shall not go on further at this time, and we stand adjourned until 10 o'clock to-morrow morning. (Thereupon, at 12.40 o'clock p. m., Thursday, May 12, 1921, an adjournment was taken until 10 o'clock a. m. the next day, Friday, May 13, 1921.) Digitized by Microsoft® EAILEOAD SEVENTIES AND EXPENSES. fbiday, may 13, 1921. United States Senate, Committee on Interstate Commerce, Washington, D. C. The committee met at 10 o'clock a. m. in room 410, Senate Office Building, pursuant to adjournment, Hon. Albert B. Cummins (chair- man) presiding. The Chairman. The committee will be in order. Mr Kruttschnitt, Senator Kellogg asked you yesterday to produce some tables, and he will now interrogate you. TESTIMONY OF MR. JULIUS KRUTTSCHNITT, CHAIRMAN BOARD OF DIRECTORS OF THE SOUTHERN PACIFIC CO.— Resumed. Senator Kellogg. Mr. Kruttschnitt, I asked you on yesterday if you would give us the percentage of labor of the entire operating ex- penses of the railroads, divided into salaries and day labor; the per- centages of operating expenses represented by the purchase of ma- terials and other iterns, as far as you can reduce same to percentages, of operating expenses, rather than of the dollar' earned by the roads; I do not wish you to go into details, but if you will put such a table in the hearings I think it will be very useful. Mr. Kruttschnitt. I have had such a table prepared and will now read the items : Distribution of railway operating expenses and taxes — Class I roads, calendar years 1917 to 1920. [Excludes returns of switching and terminal companies.] Item. 1917 1918 1919 1920 52,829,325,124 213,920,095 3,043,245,219 34,832.985 22,513 625 1,682,135,532 13,982,068,197 223,175,379 4,205,243,576 36,124,648 28,426,668 2,548,262,035 $4,399,715,.5lS 232,601,396 4,632,316,911 39,904,177 37,530,991 2,765,693,264 $5,768,720,013 278,868,668 Total operating expenses and taxes . AMOUNT. Compensation* of employees: 6,047,588,651 47,119,465 45,341,370 Wages of all other employees 3,605,755,516 1,739,482,142 2,613,813,351 2.843.128.432 3,693,216,351 ' For foot note see p. 104 63553— 21— Vol I- 103 Digitized by Microsoft® 104 RAILROAD REVENUES AND EXPENSES. Distribution of railway operating expenses and taxes — Class I roads, calendar years 1917 to 1920— Continued. Item. 1917 1918 1919 1920 DISTRIBUTION OF EXPENSES AND TAXES, EXPRESSED IN CENTS PEE DOLLAR. Compensation of employees: Cents. 1. 15 .74 55.27 Cents. 0.86 .70 60.60 Cents. 0.86 .81 59.70 Cents. - 0.78 .75 59.62 57.16 62.16 61.37 61.15 12. 94 16.07 1.45 1.11 .45 3.79 7.00 11.89 15.17 1.56 .80 .27 2.34 5.31 10.24 17.31 2.52 .60 .01 2.73 5.02 11.13 Material, supplies, and miscellaneous. . . 17.59 2.02 .84 .26 2.40 4.61 • The rules of the Interstate Commerce Commission, classifying steam railway employees, define "Gen- eral officers" as follows: Include under this head executive officers and other officers and their assistants having general super- vision over the affairs of the company or of the operations of a department for either the entire road or a grand division of the road, such as: (a) Chairman of the board, president, vice president in charge of the law department, vice president in charge of traffic, vice president in charge of operation, vice president in charge of accounts, vice president in charge of finance, vice president in charge of real estate, vice president in charge of purchases, vice presi- dent in charge of insurance, secretary, publicity agent. (6) Comptroller, general auditor, auditor of freight accounts, auditor of passenger accounts, auditor of other accounts, general apcountant. (c) Treasurer, registrar of bonds, registrar of stock, paymasters. (d) General counsel, general solicitor, general attorney, district or State attorneys, general claim agent, general claim adjuster, tax agent . (e) General traffic manager, freight traffic manager, freight claim agent, general freight agent, general coal and coke agent, general live stock agent, general dairy freight agent. (/) Passenger traffic manager, general passenger agent, general baggage agent. (g) Chief engineer, consulting engineer, valuation engineer, engineer of surveys, architects (when their authority is sufficiently extensive), district engineers, engineer of construction, engineer of maintenance, engineer of bridges and buildings, signal engineer, principal assistant engineers, assistant engineers. (A) General real estate agent, superintendent of relief department, superintendent of pension depart- ment, superintendent of insurance department, chief surgeon, chief medical examiner, purchasing agent, general storekeeper. (t) General manager, general superintendents, general superintendent of transporation, superintendents of freight or passenger transportation, superintendent of oar service, inspectors of transportation, superin- tendents or supervisors of mail traffic, superintendent of dining cars, superintendent of marine or floating equipment, superintendent of timber preservation, supervisor of locomotive or fuel operation, general safety committeemen, superintendent of police. (J) General superintendent of motive j?ower, n superintendent of motive power, general and district . tof omouvcN, air vrnkc ;m<] .sieiaxi rrni in<:i rnctnr'-; <> general inspectors, supervisors of electric lighting. Note A. — This head shall include any other officers, regardless of titles, when they have authority gen- erally over the property, and perform the duties of the position indicated; also assistants to such officers. Note B.— When the authority of any officer is less extensive than is indicated above he shall be classed as a division officer. (Bureau of Railway Economics, Washington, D: C, May 12, 1921.) Senator Pomerene. In regard to your heading; — "Distribution of expenses and taxes expressed in cents per dollar — do you mean of total expenses ? Mr. Kruttschnitt. Yes, sir. These are percentages of the total expenses of the different classes. Senator PomeRene. In regard to the item "fuel (locomotive)," I notice you speak of it as locomotive fuel. You do not include in that item the fuel which was used at your repair shops and other shops, I take it ? Mr. Kruttschnitt. No; that is extremely difficult to allocate exactly. Locomotive is the big end of the fuel bill, and the other is small in comparison with the locomotive fuel. That, however, is included in other supplies. Digitized by Microsoft® RAILROAD REVENUES AND EXPENSES. 105 Senator Pomerene. It is ? Mr. Kkuttschnitt. Yes, sir. Mr. Thom. Mr. Chairman, may I make a statement in reference to this exhibit Mr. Kruttschnitt has just presented ? The Chairman. You may. Mr. Thom. You will recall. that the witness has testified that of the dollar of operating expenses labor consumed a. little over 64 cents. This exhibit indicates that labor received 61.15 per cent, but that is because in this exhibit is included taxes, which is not an operating expense, and this 61.15 per cent is of the total operating expenses plus taxes. Senator Pomerene. Mr. Kruttschnitt, you have given us some figures which you have read from a statement. From what source did you take those figures ? Mr. Kruttschnitt. This is worked up by .the Bureau of Railway Economics here from Interstate Commerce Commission reports. Senator Pomerene. That is, the Bureau of Railway Economics is an agency of the railway executives ? Mr. Kruttschnitt. Of the railways. It has no functions what- ever in originating figures; it is simply a bureau for compiling. Senator Pomerene. But its conclusions are based upon returns to the Interstate Commerce Commission ? Mr. Kruttschnitt. Yes, sir. If they ever do make an estimate of their own it is specially marked on the statement. Senator Fernald. I noticed an item of insurance when you read your statement. What does that cover? Mr. Kruttschnitt. Those are premiums paid by the carriers on insurance on property. You will notice that in 19 19 it was extremely small. It was smaller than usual in 1918 and negligible in 1919. That is because the Federal Administration did not insure. They simply paid losses out of their own funds when losses occurred and that was treated as insurance. Senator Fernald. Do all the companies carry insurance ? Mr. Kruttschnitt. I could not tell you as to that. I can tell you our own practice. , Senator Fernald. I wish you would. t Mr. Kruttschnitt. Our practice is to carry our own insurance except as to very large and concentrated risks. There a loss may be so great as to materially affect the showing of one year, and as to those properties we insure. We also insure our steamships, but the general run of property, such as section houses, station buildings, 'and equip- ment, are not insured, because any loss.es, say of equipment, would hardly be large. The equipment is so scattered that we would not have enough destroyed at any one time to make a very material loss. Senator Kellogg. Mr. Chairman, I do not want to ask any further questions. I take it these figures will speak for themselves. Mr. Kruttschnitt. One more statement. You asked whether it was true that for the week ending April 30, 1921, the increase in cars loaded was 17,000. It is true, and we have compiled the loadings from the September before, including the loadings for the month of October, which, as is always the case, is the heaviest month iii the year's business. Senator Kellogg. Will that statement go in the testimony at this point? ♦ Digitized by Microsoft® 106 RAILROAD REVENUES AND EXPENSES. Mr. Kruttsohnitt. I will be glad to furnish it for insertion at this point, and this is an answer to a request for a statement to be prepared. Senator Kellogg. I want that statement «put in as Mr. Krutt- schnitt's testimony at this point, and do not want it to come at the end of the record. The Chairman. That will be done. (The statement referred to is as follows :) Weekly statement of revenue cars loaded. [Compiled by Bureau of Railway Economies from records of car service division, American Railway Association.] Revenue cars Week ended — loaded. 1920— Sept. 4 947,743 Sept. 11 872,043 Sept. 18 983,913 Sept. 25 994,687 Oct. 2 975,946 Oct. 9 1,009,787 Oct. 16 1,005,663 Oct. 23 1,010,961 Oct. 30 973,120 Nov. 6 910,592 Nov. 13 919,909 Nov. 20 880,528 Nov. 27 797,673 Dec. 4 872,162 Dec. 11 834,897 Dec. 18 796,858 Dec. 25 639,275 Revenue cars Week ended— loaded - 1921-^Tan. 1 598,905 Jan. 8..... 706,413 Jan. 15 709,888 Jan. 22 703,115 Jan. 29 699,936 Feb. 5 696,997 Feb. 12 681,627 Feb. 19 : 695,506 Feb. 26.., 658,222 Mar. 5 712,882 Mar. 12 702,068 Mar. 19 691,707 Mar. 26 ".. 687,852 Apr. 2 666,642 Apr. 9 693,,719 Apr. 16 703,896 Apr. 23 704,527 Apr. 30 721,997 Senator Kellogg. There was nothing else that I asked for, was there ? Mr. Kruttschnitt. I think not. Senator Kellogg. Then that is all, Mr. Chairman. The Chairman. Does any other member of the committee wish to ask any questions at this time? [After a pause.] If not, I want to call attention to some phases of this matter. Mr. Kruttschnitt, the table or tables that you have presented relate only to class 1 railroads ? Mr. Kruttschnitt. Yes, sir. Unless otherwise specified on the table. My recollection is that they all apply to class 1 railroads. The Chairman. The mileage of class 2 and class 3 railroads is about 30,000 miles, isn't it ? Mr. Kruttschnitt. It is small. I do not recall the exact number of miles, but from frequently looking it up I know that the revenues of the other classes of railroads constitute a very small percentage of the total revenues as shown in the statistics of operations of all the railroads. Senator Pomerene. Approximately what percentage ? Mr. Kruttschnitt. My recollection is between 1 per cent and 2 per cent. The Chairman. We have altogether about 265,000 miles of railroad in the United States which report to the Interstate Commerce Com- mission, I believe ? Mr. Kruttschnitt. I think that is about right. The Chairman. The class 1 railroads, for 1921, reported 235,000 miles, according to the tables you have introduced as well as according to the tables I have before me. What knowledge have you with regard to the result of operation during the year of 1921 — and by that Digitized by Microsoft® RAILROAD REVENUES AND EXPENSES. 107 I mean from the 1st of March, 1920, to the 1st of March, 1921 — of the class 2 and class 3 railroads ? (Note. — The data requested by the chairman will be found on p. 124.) Mr. Kruttschnitt. I have made no study of that matter because their operations form such a small percentage of the whole. The Chairman. You know, do you not, that the result of the operation of those two classes is less favorable than in the case of the class 1 railroads? Mr. Kruttschnitt. I do not. I was going to add that nearly all of the Interstate Commerce Commission's current statements as to the carriers are confined to class 1 roads, and in preparing my tables and papers I confined my attention to class 1 railroads. The Chairman. I think it is a matter of general observation, how- ever, that the class 2 and class 3 railroads are less prosperous as a whole than the class 1 railroads ? Mr. Kruttschnitt. As I have said, I do not know about that but I suppose that is so. But their effect on the total would of course be small; they are a very small percentage of the total, and class 1 rail-: roads run 98 per cent or 99 per cent of the total. The Chairman. The class 1 railroads for the year ending March 1, 1921, had a net operating income of $2,578,922, accordmg to the report furnished to me by the Interstate Commerce Commission. The purpose of my former inquiry was to ascertain whether the rail- roads as a whole during this year had any net operating income. Mr. Kruttschnitt. The analysis that I prepared, Mr. Chairman, was necessarily confined to the calendar year 1920, for the reason that we had no detailed analyses of operating expenses from the Interstate Commerce Commission for the year ending March 1, 1921. But from such information as we did have as to their earnings and expenses the results closely followed those of the calendar year 1920. The analysis that I read out here from my statement at the begin- ning of my testimony is based on the year 1920, for which we had quite full details from the Interstate Commerce Commission reports. The Chairman. There is this difference, that for the year 1920 — and that is for the year ending December 31, 1920 — the net operating income of the class 1 railroads was approximately $10,000,000. Mr. Kruttschnitt. For the year 1920 it was $10,000,000, do you say? My recollection is that it was $62,000,000. The Chairman. The difficulty with your figures is that you have not deducted what is known as debtor balance for joint-facility rents and equipment rents. Mr. Kruttschnitt. We have taken into operating expenses taxes and rents. This statement 10-A shows that. Taking these into account, the net operating revenue was $62,264>421. The Chairman. Let me look over my papers for a moment. That is not the result as shown by the papers furnished me. However, that may be. Mr. Kruttschnitt. It also includes switching and terminal companies. The Chairman. According to the report of the Interstate Com- merce Commission upon the class I railroads for 1921 — and that is, 'for the year ending March 1, 1921 — your railway operating income was $58,444,316. The debtor balance for equipment rents was $36,343,667, and your debtor balance for joint facility rents was Digitized by Microsoft® 108 EAILEOAD REVENUES AND EXPENSES. $19,521,727. Taking the railway operating income as modified by these two last items, the net operating income was $2,578,922. Mr. Kruttschnitt, I call that to your attention in order to ascertain, if I can, whether the railroads as a whole for the year of private operation had any net operating income ? I have already put these tables in evidence so they will show for themselves. Senator Pomerene. Are those the same ones you had before you at the time you made your opening statement, Mr. Chairman ? The Chairman. They are the same ones. , Mr. Kruttschnitt. At the time I prepared my testimony I used the latest figures available. We had great difficulty in getting the details necessary to make this analysis of operating expenses, but ■ The Chairman (interposing). I think I am mistaken with regard to net operating income of $10,000,000 for the class I railroads. y I have not the table from which I took my figures, I have not that table before me now, but it seems that railway operating income for the calendar year "1920 was $116,598,094, and that after deducting debtor balances for equipment rents and for facility rents there re- mained $62,264,421. Mr. Kruttschnitt. Well, that is the figure I have as to net operating income. The Chairman. But my information is that when you take into account the losses that occurred in the operation of class 2 and class 3 railroads, the net income for the year, if there was any net income, is negligible. So that we have this situation, that the railroads as a whole have been operated for the year without saving anything for a distribution of dividends or the payment of interest on bonds. Mr. Kruttschnitt. I can neither confirm or deny that, because, as I have already stated, it was with the greatest difficulty I was able to get the data for analyzing the operating expenses for the calendar year 1920. To do that it was necessary to segregate all the numerous accounts into which the Interstate Commerce Commission segregates operating expenses; each item has to be added up for the roads in class 1 over the United States, and we got that segregation not over a week or 10 days ago, and that alone enabled us to make the analyses of operating expenses for 1920, which I have already given you, but left us powerless to do anything on the year ending March 1, 1921. The Chairman. I have the 'accounts for the year ending March 1, 1921, but income, of course, is not in the detail that you have shown in the reports that you furnished. Mr. Kruttschnitt. And that is the reason we can not answer your question. The Chairman. The revenues which you gave, . amounting to more than $6,000,000,000, are operating revenues, I assume. Those revenues, or the aggregate of those revenues, do not include any sum that was paid to the railroads by the Government under the guaranty that ran from the 1st of March, 1920, to the 1st of Sep- tember, 1920. Mr. Kruttschnitt. That I could not say unless I saw the Inter- state Commerce Commission's statement. That statement no doubt says whether it does or does not include those figures. The Chairman. That is very important, because if the $6,000,- 000,000 includes the payments which the Government had made or will make on account of the guaranty of operating income it Digitized by Microsoft® RAILROAD REVENUES AND EXPENSES. 109 would disturb your balances very much. Now, as I understand it these operating revenues — the amount of which you have stated did not include the sum or sums which the Government had paid you or will pay you on account of the guaranty ? Mr. Kruttschnitt. I am told they do not. The Chairman. Nor do these revenues include any sums which have been paid by the Government during the year upon compensa- tion for some period of Federal control? Mr. Kruttschnitt. No; I am quite sure they do not include that. The Chairman. And of course they do not include any sums which have been loaned to the carriers under the appropriation of $300,000,- 000 .contained in the transportation act of 1920? Mr. Kruttschnitt. I want to say again and with the utmost frankness that I am unable to answer to my own satisfaction the questions which you are asking. The Chairman. There ought to be somebody here who will know whether the railroads have reported as operating revenues those sums of money which have been received from the Government. Mr. Kruttschnitt. I have no doubt Mr. Thorn is familiar with the case and will answer that. Mr. Thom. You are right about that. It does not include any of the amounts you have mentioned. Senator Kellogg. This statement is supposed to show the actual result of operation of the railroads ? Mr. Thom. That is right. The Chairman. What I want to know — and I think I do know, but want the record to be certain on that point — is whether the $6,000,000,000 in round numbers which have been received by the railroad companies during the last year, have been received for the moving of freight and the carrying of passengers. Mr. Thom. That is for operaring revenue alone. The Chairman. And for other services which the companies have rendered during that period ? Mr. Kruttschnitt. The figures which I have used are operating revenues reported by the Interstate Commerce Commission. Senator Kellogg. May I state that the Interstate Commerce Commission's report shows that to be true. The Chairman. Well, I wanted somebody here who knew about it to testify. I know what it is, of course, but I supposed that the railroad companies which prepared these reports also knew. My in- formation is that the sums stated here as operating revenues do not include payments made by the Government on its guaranty, or pay- ments that were made during the period covered on compensation due to the railroads under the Federal control act. Mr. Thom. That is undoubtedly so. The Chairman. I will take that for granted until we are further informed. Mr. Kruttschnitt, there has been a great deal said in the newspapers and by others about the failure of the transportation act. The transportation act did not fail in giving to the' railroads the revenue which I have already described ; a larger revenue than they had ever received in the history of the United States ? Mr. Kruttschnitt. The transportation act provided for the mak- ing of rates to provide certain revenues, but those revenues, as I have explained several times during my testimony, were not enjoyed. The Chairman. Were not what? Digitized by Microsoft® 1.10 EAILEOAD BEVENuJia ajnjj jSA±-i5iN&iio. Mr. Kruttschnitt. Were not enjoyed. The Chaieman. The railroads got the money. Why was it not enjoyed ? Mr. Kruttschnitt. Because the increases provided by the trans- portation act were made very late in the year, and amounted to only 8 per cent more for the year. The Chaieman. They were not enjoyed for the entire year, you mean? Mr. Kruttschnitt. Not even for the year during which they were in force, for reasons already explained—that the States in a great many instances declined to put the increased rates into effect. The Chairman. They were enjoyed to the extent that the revenues received by the class 1 railroads were substantially a billion dollars more than were received during a like period of the year before 1 Mr. Kruttschnitt. The revenues were $1,041,000,000 more, of which the revenue derived from the increased rates on freight and passenger traffic granted by the Interstate Commerce ' Commission represented $418,000,000. In other words, of the increase of $i,041,000,000 only about 40 per cent was due to increased rates. The Chairman. I have a table which, as I have stated before, car- ries the matter up to the 1st of March, 1921. Mr. Kruttschnitt. And of course I am at a disadvantage, because I did not have the advantage of those figures in preparing my state- ment. The Chairman. I will give you the figures as I have given them once or twice before. Railway operating revenues for the year tha t ended with February, 1921, were $6,175,962,718, while the revenues received in 1920, which was the year ending Federal control, were $5,360,193,790. So that the increase'in operating revenues was, sub- stantially, $1,000,000,000, and that covers a period of six months of increased rates, for, as I understand it, these increased rates went into effect about the 1st of September, 1920. Now, Mr. Kruttschnitt, those rates were fixed as high as it was believed the business of this country would sustain, were they' not ? Mr. Kruttschnitt. I think so. The Chairman. So that it can not be said that the transportation act is a failure so far as increasing the revenues of the railroads is con- cerned, can it? Mr. Kruttschnitt. The transportation act itself is not a failure, but the application of the transportation act, owing to the abnormal conditions that have existed, conditions that are entirely different from those that were contemplated when the transportation act was passed and when the rate increase was made, prevents the carriers from enjoying what the Congress in passing the act meant them to enjoy. The Chairman. Do I understand you to mean by that that the transportation act intended that the carriers should have a larger revenue than they actually received? Mr. Kruttschnitt. I mean by what I have said that if the con- ditions existing now had existed at. the time the rate raise was under consideration, the Interstate Commerce Commission would have been confronted with the necessity of providing, by the mandate of the act, a very much larger revenue than it did provide. The Chairman. Do you think it was the duty of the Interstate Commerce Commission to provide a larger revenue than it did provide ? Digitized by Microsoft® BAILKOAD REVENUES AND EXPENSES". Ill Mr. Kruttschnitt. The transportation act tells the Interstate Commerce Commission what it is to do. If the conditions found by the commission at the time they made their award had been such as to warrant a larger increase I assume they would have made it in obedience to the order of the Congress. The Chairman. If they had made a raise that would have yielded a billion dollars more than were actually received what effect do you think that would have had upon the business of the country ? Mr. Kruttschnitt. Well, it would have made a burden of a billion dollars more on the business of the country. The Chairman. How much more did the railroads ask than was given to them ? Mr. Kruttschnitt. I think they got very nearly all they asked for. And what they asked for was based on economic conditions at the time their estimates of expenses were made. The Chairman. Do you think the Interstate Commerce Com- mission ought to have foreseen the events that the railroad companies themselves could not foresee ? Mr. Kruttschnitt. No; it was beyond their power and beyond ours to see what was ahead. The Chairman. I thought, therefore, you would be willing to admit that the law, so far as revenues are concerned, under all the circum- stances, produced what was expected. I do not mean that it pro- duced what it was hoped it might produce, but that it produced the revenues that the railroads themselves believed to be sufficient for their needs. Mr. Xruttschnitt. I believe that the law, as interpreted by the Interstate Commerce Commission in their award, did everything that the Congress could foresee. And I have already stated that I believed the law marked the beginning of a new era in that for the first time the lawmakers of the country gave some consideration to the needs of the carriers. For 15 years theretofore they had been begging for relief but it had been denied them, and this bill for the first time gave them relief. The Chairman. If the law, so far as the act itself is concerned, is not a failure in respect to producing revenues, the other part of the law, which has to do with this immediate subject, is that part which controls expenses. Do you think the law is a failure so far as the Labor Board is concerned ? Mr. Kruttschnitt. I think I gave my opinion quite fully about that on yesterday, and I will repeat it. I do not think the law has been given a fair chance to prove in all directions its merits and its short- comings. I do not think, and I do not believe, anybody in the rail- road world thinks that the Labor Board has been a perfect success up to the present time. Its actions have been very long delayed, perhaps too long delayed, but I think the theory of the Labor Board was correct. To answer your question in full, particularly the first part of it, where you said, if I can quote you correctly, where the law controls the expenses, I would say that the law does not control the expenses, but that the expenses are controlled by rules and regulations as well as by certain provisions of the law, and the rules and regulations, the things which control expenses more than anything else, are the result of Federal control. The Chairman. The dispute which resulted in an increased cost of labor, variously estimated at from $600,000,000 to $750,000,000 Digitized by Microsoft® 112 RAILROAD REVENUES AND EXPENSES. Mr. Kruttschnitt (interposing). That was the Labor Board's award alone. The Chairman. I beg pardon. Mr. Kruttschnitt. I think you are naming the estimate of the award of the Labor Board alone. That has been estimated at from $617,000,000 to $700,000,000. But there were orders, orders that affected the expenses very much, that long antedated the workings The Chairman (interposing) . I have not referred to them as yet. I was about to say that the dispute which the Labor Board decided in July, 1920, and through which decision it is alleged that the labor cost was increased from $600,000,000 to $750,000,000 a year, arose long before this law was enacted and while the roa'ds were still under Federal control, did it not? Mr. KRUTTSCHNnr. Yes; it was a legacy of Federal control. The Chairman. The claim of the men for increased wages was presented to the director general as early as the 1st of September, 1919, or somewhere along that time, was it not? Mr. Kruttschnitt. I would like to be accurate and will refer to a memorandum I have made of those orders issued by the Director General. The Chairman. The director general did not make any order about that matter. He refused to decide it. Mr. Kruttschnitt. Well, without finding the exact date I think you are right. It was in the autumn of 1919 that the men urged their demands and the railroads hoped and expected the Director General would Tender a decision before the end of Federal control, but he did not and passed it along to the private owners. The Chacrman. The director general came to the conclusion that inasmuch as it was expected that Federal control would cease within a few months it was not wise for him to attempt to adjudicate that dispute, and it was passed on to the railroads after they were returned to their owners. That is true, isn't it ? Mr. Kruttschnitt. That is certainly true. Senator Kellogg. I did not hear what you said ? Mr. Kruttschnitt. That is certainly true. It was passed on; it was a disagreeable job, or duty I should say, so it was shirked and passed on to the private owners. The Chairman. I wish to call your attention to the situation from the 1st of January on for a month or two, and it is true, is it not, that there was a great deal of agitation among the railway men looking toward a strike because the director general had not decided the dispute and had not granted their demands ? Mr. Kruttschnitt. That is true. The Chairman. And there was a very considerable and rather destructive strike, which has been commonly called the "outlaw strike, " from the 1st of January on for a long period. Mr. Kruttschnitt. I believe it occurred very early in April or late in March. It did not occur quite as early as the 1st of January. The Chairman. I would like your opinion as. a man experienced in railroad operation with respect to what would have happened, in all probability, to the railroads of the country if a Labor Board had not been, created to which these men could look for a decision of the disputes which had arisen between them and the director general. Mr. Kruttschnitt. I think it quite certain that a strike would have occurred. I think it was a very wise provision of the law, that provision which constituted a tribunal to settle these industrial disputes. Digitized by Microsoft® EAILEOAD SEVENTIES AND EXPENSES. 113 The Chairman. As I have looked at it, and you can confirm my view or not, if there had not been created a tribunal at that time which it was believed would be fair and impartial to adjudicate these disputes in regard to wages, working conditions, rules, etc., this country would have seen a very disastrous suspension of com- merce, meaning a loss which would have been so much greater than any increase in rates as the result of this law as to make that increase seem negligible. Mr. Kruttschnitt. Of course the result of a nation-wide strike, or the damages or losses arising therefrom, would have been almost incalculable. Senator Pomeeene. Not only to the railroads, but to the in- dustries of the country generally ? Mr. Kruttschnitt. Yes; to the whole country. The Chairman. As it was, the men who did strike, and who left their employment contrary to the desires and directions of their respective unions, caused a delay in transportation that was exceedingly unfor- tunate and very expensive. Mr. Kruttschnitt. Very. I tried to estimate the losses but had to give it up. I had no data on which I could pursue such a study. They did cause a very great loss, and they so disorgan- ized the business of the country that it took a long while after those men were replaced to straighten out the traffic tangles. The Chairman. And a very considerable part of the excess ex- penses of 1921 as compared with 1920 is due to that strike and the disorder which it brought about as a result of the strike; isn't that true? Mr. Kruttschnitt. A large part of the expenses of 1921 Mr. Thom (interposing). You mean 1920. Mr. Kruttschnitt. Senator Cummins said 1921. The Chairman. When I use the year 1921 I mean the year of private operation, and when I say 1920 I mean the last year of Federal control. Mr. Kruttschnitt. Of course, I can only answer that question in the way I did before, but in a general way, from a knowledge of operations for the year ending March 1, 1920, and the year ending March 1, 1921, they are not very far different. I have not had the means to study them so as to be able to answer your question in the way that I would like to answer it. The Chairman. I suppose you know whether that strike was expensive to the railroads or not ? Mr. Kruttschnitt. I have already admitted that, but I am incapable of giving you the kind of answer I think you want and that I want to give you because of want of information and want of data upon, which to study the question. The Chairman. I think you have suggested once or twice that the Labor Board was somewhat slow in its operations. The Labor Board decided this dispute, which had been passed over to the railroad com- panies and to the Labor Board on account of the failure of the director general to decide it in July, did it not? Mr. Kruttschnitt. Yes. The Chairman. I am not going to enter upon the merits of that dispute. I do not think this committee ought to review the action of the Labor Board, and I , for one, do not intend to be tempted into that field.' But do you think that a delay from about the 1st of April, and even a little later than that maybe, until July was an undue * Digitized by Microsoft® \- \ 114 RAILROAD REVENUES AND EXPENSES. delay on the part of the Labor Board in reaching a conclusion upon a matter of that magnitude ? Mr. Kruttsohnitt. No; because the Labor Board in that case offset the delay by making its decision retroactive to the 1st of May; their decision went back to the 1st of May. The railroads had to pay increased compensation for May, June, and July, even though the decision was made, as I remember it, in the latter part of July. But the delay at the present time, as I explained on yesterday, or perhaps the day before, is costing the railroads from t $500,000 to $600,000 a day, because when that decision of the Labor Board comes it can not be made retroactive with respect to labor; there is no one from whom to collect that money, even if the board should render its decision in that way. That is why the railroads feel, quite naturally feel, impatient at having to wait so long. The Chairman. I can understand your impatience, but when a board of nine men is charged with the duty of surveying a field as broad as was presented in that dispute, I do not think any reasonable man can complain because it requires two or three months in which to do it. I am not now speaking about the character of the decision at all, but I have heard so many complaints about the delay of the Labor Board in rendering its decision that I am utterly unable to see any cause for criticism on that point. As I remarked a day or two ago, the act itself protected the existing scale of wages until about the 1st of September, did it not ? Mr. Kruttsohnitt. That is my recollection. The Chairman. After the 1st of September the railroads were free to initiate a dispute regarding wages or rules or working conditions, of which the board has jurisdiction, and the men also were free to initiate disputes that would finally reach a decision by the Labor Board.- Why was it that after the 1st of September, when both the railroads and the men were free to originate a dispute concerning wages and rules and working conditions there was such a long delay in originating such action ? Mr. Kruttsohnitt. For the reason that for several months after the rates were raised traffic continued to increase. The conditions to the railroads were favorable. They were making earnings as contemplated, or to a certain extent they were making earnings that were contemplated when the rate raise was made; and they were hoping all the time that they would be able to avoid this issue with labor, which everybody knew would be a long and bitter contest. They deferred it on that account. Now, then, just when the first railroad took this question up I do not know, but it was quite a con- siderable number of months ago, and they took the question up because they were compelled to do it on account of their financial condition. The Chairman. Yes ; but the disputes which are specifically pro- vided for in the act, and over which alone the Labor Board has juris- diction, were not created until within a very recent time, I think, that is, two or three months ago ? Mr. Kruttsohnitt. Well, I should say the pinch began to be felt some time in the month of December. It was evident then that the causes that had evidenced themselves in the spring of 1920 were pro- ducing their effect, that is, checking business. The Chairman. You began to feel the pinch; that I understand, but when did the railroads begin to invoke the jurisdiction of the Labor Board respecting the reduction of wages ? Digitized by Microsoft® RAILROAD REVENUES AND EXPENSES. 115 Mr. Kruttschnitt. I will have to look that up. I don't know. I can't give you the date from memory. Memory is treacherous. I should say offhand three or four months ago, but I didn't put much reliance in that myself, because as I say, time flies --* The Chairman. You have not given your personal attention to these disputes that were carried to the Labor Board ? Mr. Kruttschnitt. No, no; officers of our company were doing that and acting with officers of other companies.* The Chairman. You can see what I am trying to develop. , I would like to know the exact truth about the matter, whether the railroads are to blame for this long delay in bringing to the Labor Board whatever disputes have arisen, or whether the Labor Board has been negligent or unduly slow in deciding tbose disputes ? Mr. Kruttschnitt. Clearly no one, no reasonable 'man, could attribute to the Labor Board responsibilities for delay before the matter was presented to them. The Chairman. Yes. Now, as a matter of fact, the first dis- pute, so far as the wages of men are concerned, which has arisen, or which arose after the dispute which was passed over, has just been submitted to the Labor Board, hasn't it? Within the last week that submission is complete ? Mr. Kruttschnitt. Well, as I said, the officers immediately in charge of operations of our properties are handling that matter. The Chairman. I know. Mr. Kruttschnitt And the procedure from day to day does not come before me. My information is gotten from what we all know, a rather superficial reading of the papers, so that I am not able to give you dates. If they are important, I will have them looked up and submit them to you. The Chairman. I know, but I supposed that probably you had kept yourself informed about it, and I could get it in the record in this way as well as any other. I am advised that the dispute which has arisen between the shopmen and the unskilled labor men and the railroads has just been submitted to the board, and in fact that dispute did not take form until very recently, and my judgment is that remarkable speed has been manifested in hearing the testimony and in finishing the submission of the case. What the result will be I don't know, Dut still any proposal of the railroads to reduce the wages of what are known as the trainmen and enginemen — that dispute is still unformed, isn't it, with the exception of possibly a hall a dozen roads ? Mr. Kruttschnitt. That is my impression; I think so. The Chairman. Yes. I thought this was due to the situation, because there has been a good deal of complaint, I know, with regard to the action of the Labor Board. Personally, I think it has pro- ceeded with a good deal of promptness. Mr. Kruttschnitt. I mentioned in reading my paper that the extra expense that the roads were put to by not being able to employ unskilled labor, unskilled, at current rates, was causing a great loss, and I know that the opportunity to employ unskilled labor at much lower rates than prescribed by the Labor Board The Chairman. I have no doubt of it. Mr. Kruttschnitt (continuing). has existed for I should say easily two months. The Chairman. I have no doubt of that, but if the Labor Board has, any valuable iuncfiiiigttiibd&fol\/pcms®ft Credit, $44,378,309 ■91,144,032 488,948 547 3,357,359 60,454 46,184,703 i 712,103 161,708 •23; 712 95,430,533 8 944,971 24,892,212 '233,744 38, 905; 795 a 363, 970 15,941, 000 8 130,049 228,308,820 6,762,126 2,394 799,133 207 10,041,573 12,145 30, 291, 150 207,996 4,662,887 ' 2 4,140 12,624,051 49,400 5,530,939 26,165 26,987,566 155, 568 323,332 2,400 91, 519 6,267 5, 441, 527 27,687 3,729,172 424,140 53, 825 10,215,993 - 58, 681 25,023,078 41,795 2,619 , 5 713,029 71,983 31,928 16,014 238,324 48,167 2, 158, 559 166,723 240,001 49, 680 17,604 11, 231 , 651,598 ' 21,484 354,057 f., 008, 730 3,257 10,245,391 8,263,283 449,032 3,980,531 4?4,703 1,459,072 $11,939,173 38,626,177 15,264 175 1,045' ■783,340 18,933 6, 848, 578 198,623 13,507 ' ■ 11/588 28,112,847 2,256,303 3,489,896 838,136' 2,657,315 858,722 4,617,286 321,446 79,105,364' 1,161,83* 103 147,886 166 2,462,940 1,250 9,170,768 155,107 1,699,660 41 06& 1,759,8^8 12,281 576,862 % 642 2,519,966 2,690 24,696 1 22, 342 169 900,493 ' 57,677 93,921 349,645 23/727 3 1,412,303 1 27, 675 3,765,807 124,214 1987 15 302, 566 33, 918 7,621 1,614 27,109 27,482 495,077 117, 221 76, 081 36, 363 1 5, 803 1 1, 413 724, 167 111,657 199, 886 1,364,388 186 2,483,778 13,360,759 1121,590 973,485 3,433,641 481,460 Digitized by Microsoft® 126 RAILROAD REVENUES AND EXPENSES. Operating expenses, by primary accounts, calendar years 19HO and 1919 {192 Class I companies — Continued . ) Account. 1920 1919 increase in expenses, 1920 over 1919. MAINTENANCE OF WAY AND STRUCTURES— Continued. (277) Other expenses Miscellaneous expenses Maintenance, joint tracks, yards, andjjther facili- ties: (278) Debtor (279) Creditor Total. MAINTENANCE OF EQUIPMENT. (301) (302) (303) (304) (305) (306) (307) (308) (309) (310) (311) (312) (313) (314) (315) (316) (317) (318) (319) (320) (321) (322) (323) (324) (325) (326) (327) (328) (330) (333) (334) (335) (337) Supreintendence Shop machinery. : Shop machinery— depreciation Power plant machinery ,...i Power plant machinery— depreciation Power substation apparatus .,....'..; Power substation apparatus — depreciation . Steam locomotives: Repairs. Depreciation . Retirements Other locomotives: Repairs. ...... , , Depreciation.. . ; Retirements Freight-train cars: Repairs. . . Depreciation Retirements •. Passenger-train cars— repairs Passenger-train cars: Depreciation Retirements Motor equipment of cars: Repairs,.... Depredation. , Retirements Floating equipment: x Repairs. Depreciation Retirements.... Work equipment: Repairs Depreciation.. Retirements Miscellaneous equipment: Repairs ,., D epreciation Retirements Injuries to persons , Insurance... , Stationery and printing , Other expenses... Miscellaneous expenses , Maintaining joint equipment at terminals: Debtor „ Credit ,. Total. TRANSPORTATION RAH LINE. (371) Superintendence (372) Dispatching, trains (373) Station employees (374) Weighing, inspection, and dem. bureaus. (375) Coal and ore wharves (376) Station supplies and expenses (377) Yardmasters and yard clerks .' ...:... (378) Yard conductors and brakemen (379) Yard switch and signal tenders (380) Yard engtaemen (381) Yard motormen (382) Fuel for yard locomotives (383) Yard switching power produced {384) Yard switching power purchased $1,299,802 •298,650 36,554,640 26, 599, 385 1899,950 42,456 29,656,731 21,930,424 1,006,937,052 45,227,730 29,571,664 236, 157 5,282,376 437,319 285,848 9*, 542 603,143,351 38,501,165 4,168,297 553,739 3,872 586,112,345 79.519,642 '428,956 99,858,626 11, 629, 143 522,719 1, 904, 289 363,550 92,408 20,458,218 2, 249, 107 224,567 22,010,404 3, 016, 576 516, 279 838,573 50,440 2,224 5,593,194 6,130,238 3,046,121 1, 528, 031 2 56,799 5, 499, 839 3, 284, 902 1, 575, 395, 526 74,526,701 404, i 15, 101, 115, 479,935 599,634 919,420 615,104 511, 633 321,936 159,083 562.090 885, 163 121,556 407,205 117,411 775,260,795 35, 428, 181 '24,975,648 191,243 4,641,618 363,155 163,218 11,470 462,975,711 35,049,314 1,591,388 2,482,693 383,798 7,318 448,097,733 68 612,509 465,584 80,671,621 10, 969, 210 281,249 1, 575, 954 346, 815 283 16, 940, 756 3, 042, 980 77,046 16, 613, 094 2, 785, 556 271, 820 248,171 . 34,446 27,939 4,378,318 1,618,849 2, 248, 955 872,929 53,840 4, 914, 169 2, 809, 724 1,230,604,491 59,429,902 33, 593, 053 321, 729, 953 4,821,076 10, 064, 545 23,184,697 51,434,978 121, 535, 291 12, 899, 199 73, 201, 966 564,559 79,681,073 285,195 97,321 $399,852 i 341, 106 6,897,909 4,668,961 231,676,257 9, 799, 549 4, 596, 016 44,914 640,758 74, 164 122,630 83,072 140,167,640 3, 451, 851 '1,097,798 1, 685, 604 169,941 13,446 138,014,612 10,907,133 '894,540 19,187,005 659, 933 241, 470 328, 335 16,735 92,491 3, 517, 462 1793,873 147,521 5, 397, 310 231,020 244,459 590,402 15,994 1 25, 715 1,214,876 4,511/389 797, 166 655, 102 1 110, 639 585,670 1475,178 344,791,035 15, 096, 799 5, 873, 236 82, 749, 982 778,658 5,854,875 3,430,407 18,076,655 47/786,645 2,259,884 28, 360, 124 320,604 35,440,483 121,910 20,090 i Decrease. •Credit. Digitized by Microsoft® RAILROAD REVENUES AND EXPENSES. 127 Operating expenses, by primary accounts, calendar years 1920 and 1919 (192 Class I companies) ^— Continued. Account. 1920 1919 Increase in expenses, 1920 over 1919. transportation eail line— continued. (385) Water for yard locomotives (386) Lubricants for yard locomotives (387) Other supplies for yard locomotives: (388) Engine-house expenses— yard (389) Yard supplies and expenses (392) Train engmemen (393) Train-raotormen (394) Fuel for train locomotives (395) Train power produoed (396) Train power purchased (397) Water for train locomotives (398) Lubricants for train locomotives (399) Other supplies for train locomotives (400) Engine house expenses— train (401) Trainmen (402) Train supplies and expenses (403) Operating sleeping cars (404) Signal and interlocker operation (405) Crossing protection (406) Drawbridge operation (407) Telegraph and telephone operation (408) Operating floating equipment (409) Express service (410) Stationery and printing (411) Other expenses (414) Insurance (415) Clearing wrecks (416) ' Damage to property (417) Damage to live stock on right of way Loss and damage: (418) Freight. (419) (420) (390) (391) (412) (413) (351) (352) (353) (354). (355) (356) (357 (358) (359) (451) (452) (453) (454) (455) (456) (457) (458) (459) (460) (461) (462) Injuries to persons Miscellaneous expenses Operating joint yards and terminals: Debit Credit Operating joint tracks and facilities: Debit Credit Total. Superintendence Outside agencies Advertising Traffic associations •Fast Weight lines Industrial and immigration bureaus. Insurance Stationery and printing Other expenses Total. GENERAL. Salaries and expenses of general officers Salaries and expenses of clerks and attendants . General office supplies and expenses Law expenses Insurance Relief department expenses Pensions Stationery and printing Valuation expenses Other expenses Miscellaneous expenses G eneral joint facilities: Debit Credit $4,918,659 1,785,602 2,212,544 47,350,640 6,725,865 263,422,052 3,291,416 562,622,335 4,019,718 4,425,990 25,752,203 8,698,811 10,302,168 124,408,667 311,801,883 104,629,123 .1,660,613 30,398,633 26,224,644 2,927,440 12,557,758 29,923,215 19,041,317 11,888,614 15, 124, 415 21,054,739 9,623,350 6,951,069 105,223,749 767,624 40.838,912 896, 789 71,158,952 43,576,367 18,082,461 15,697,358 $4,172,188 1,283,273 1,865,391 35,793,659 3,753,246 193,857,497 2,563,823 397,912,907 2,884,490 3,201,125 21,430,175 5,950,911 8,233,535 97,215,888 225,259,844 87,904,244 932,229 26,053,191 22,924,316 2,271,867 10,250,405 24,894,225 ! 1,680 15,042,767 3,320,538 8 1,546,212 14,233.086 5,963,982 5,650,660 105,046,125 542,046 29,473,290 7 63,544,353 41,438,716 15,661,578 14,653,756 2,890,131,406 2,173,969,304 29,300,034 23,390)307 4,087^817 3,919,750 101,466 1,353,603 60,506 11,210,045 64,767 24,012,419 9,413,287 2,543,845 3,976,642 ' 11,720 892,502 20/744 6,609,025 49,340 73,488,295 47,529,524 15,647,118 101,173,897 6,620,579 14,081,382 193, 197 1, 582, 741 7,604,136 7,469,107 10,606,229 5,749,370 -16,607 1,837,895 765,301 7,751,245 76,902,736 4,907,749 9,586,558 79,314 1,373,641 6,887,959 5,082,679 8,718,872 3,061,408 1,456,444 702,926 Total. 171,866,957 125,105,679 1746,471 502, 329 347,153 11,556,981 2,972,619 69,564,555 727,593 164,709,428 1,135,528 1,224/865 4,322,028 2, 747,900 2,068,633 27,192,779 86,542,039 16,724,879 728,384 4,345,442 3,300,329 655,573 2,307,353 5,028,990 1,681 3,998,550 8,568,076 16,670,627 6,821,653 3,659,368 1,300,409 177,624 225,578 11,365,622 896,782 7,614,599 12,137,651 2,420,883 11,043,602 716,162,102 5,287,615 13,977,020 1,543,972 156,892 89,746 461, 101 39,762 4,601,020 15,427 25,958,771 7,895,873 24,271,161 1,712,830 4,494,824 113,883 209, 100 766, 177 2,386,428 1,887,357 2,687,962 16,607 381,451 162,375 46,761,278 i Decrease. ' Credit. Note.— Total operating expenses of roads included in statement are $5,782,326,151 for 1920, 99.25 per cent of total operating expenses of Class I roads and switching and terminal companies, as shown in the Interstate Commerce Commission's summary of revenues and expenses for December. Digitized by Microsoft® 128 RAILROAD REVENUES AND EXPENSES. The chairman asked for information respecting the amount paid for overtime to maintenance-of-way employees in 1919 and 1920. No information exists in Washington on that point, but it is possible the matter has been tabulated in connection with hearings before the Railroad Labor Board. This would seem to be a matter for. the labor committee to handle. In other words, w6 could not get the infor- mation. ' Senator Pomerene asked : Can you tell us what the amount of maintenance for the year 1917 was, measured in the amount of labor and material, compared with that in the year 1921? Information on this pqint is available only for the calendar years 1917 and 1920. As to labor, the table which I now offer, being iden- tified by being marked "C," gives the hours (or days') of labor in 1917 and 1920 of the five classes of railway employees (Class I car- riers) whose work lies wholly or principally in maintenance of way. It will be noted that three of the classes show slightly increased time in 1920, and two classes considerable decreases. The conclusion is that very little more, if any, labor was expended on maintenance-of- way work in 1920 than in 1917. As to material, the information for ties and rail laid in replacement work is as follows: The data for 1917 is from the statistical report of the Interstate Commerce Commission for 1917,jpage 61 ; that for 1920 from reports by the carriers to the Bureau of Railway Economics. Class I carriers. 1917 1920 niimhnr 79, 070, 201 208,526,311 2, 046; 575 82,800,000 f eet . . 227,000,000 Bail. . . : •. . 2,430,000 As to ballast, statistics were not reported for the year 1917. The annual average of the three test-period years was 18,350,000 cubic yards, and the total for 1920 was 20,550,000 cubic yards. (The statement furnished by the witness is here printed in full in the record, as follows :) C. Sours (or days) expended in maintenance of way by the five classes of employees wholly or principally engaged in maintenance of way work: Class of employees. 1920 1917 Increase or decrease, 1920 over 1917. Number. Per cent. Maintenance of way and structures foremen . (days) Section foremen (days) Masons and bricklayers (hours) Structural ironworkers (hours) Section men (hours) 2, 757, 074 14, 033, 953 2, 811, 037 1, 641, 619 761, 965, 074 2, 708, 255 13,792,748 3, 885, 155 2, 515, 175 754, 597, 545 48,819 241, 205 i 1. 074, 118 1873; 556 7,367,-529 1.80 1.75 i 27. 65 134.73 i Decrease. Digitized by Microsoft® RAILROAD REVENUES AND EXPENSES. 129 I would say that the two classes of labor in which there is a big Increase are Senator Pomerene (interposing) . Increase in what ? Mr. Kruttschnitt. Increase in number of hours worked. Senator Kellogg. You said there was a decrease, I thought. Mr. Kruttschnttt. I said this statement would show a decrease in the total number of men employed in two lines, but the bulk of "the work is done by the section forces. Senator Kellogg. That shows an increase in 1920 ? Mr. Kruttschnttt. The section foremen and section men show a small increase. The masons and bricklayers and structural iron- workers show a large decrease. But they are unimportant because they do not represent very much work out of the total. In other -words, the men who bore the brunt of keeping up the tracks and structures can be said, without substantial error, to have worked the same number of hours in the two years given, so that the entire •difference in cost is in the difference in pay. Senator Pomeeene. You have given your conclusion there. State specifically, if you can, what the increase in wages was in 1920 over 1917. Mr. Thom. Do you confine that question to maintenance of way ? Senator Pomerene. To maintenance of way and structures. Mr. Kruttschnttt. This whole answer is as to maintenance of way. Senator Pomerene. Do you mean maintenance of way only ? Mr. Thom. Oh, no; maintenance of way and structures. Mr. Kruttschnttt. As this statement is now prepared it will take me a little time to give you an answer to your question, Senator Pomerene. Senator Pomerene. Then I will not ask you to do that now. There were orders made by the director general's office increasing wages from time to time, and then later on by the labor board. I think whatever those increases are should be incorporated in your testimony here for convenience. Mr. Thom. We have it right here, but the data will have to be consolidated. Senator Pomerene. All right. The Chairman. Does that complete the statement you have to make? Mr. Kruttschnttt. It does as to the inquiry Senator Pomerene made. The Chairman. If you have anything else there go ahead. Mr. Kruttschnttt. The chairman asked — Was steel higher from the 1st of March, 1920. for a year on, than it was in 1919? This statement, which I have marked "D," was prepared by the general purchasing agent of the Eock Island Railroad for the 1920 rate case, and shows the prices in May, 1919 and 1920, of 60 different articles in use by the railroad, a number of which were iron and steel. On the assumption that May prices govern the cost of a large proportion of the material utilized through the year — since articles are purchased or contracted for several months in advance of use — this statement may give some idea of relative prices in the two years. (The statement referred to is here printed in full in the record, as follows :) Digitized by Microsoft® 130 RAILROAD REVENUES AND EXPENSES. 3-8 I is oo ^H O too COO gggffi SS| ox i-i»ih eg 3S3SS (NOlDiONOINClOHC " "5 CD O iO U510 © ' > OJ ^H eo CD O O « ssss S>000)N(Dp 'OOOOOOOOOt-OOOOOOCOOiQO >GOOQOgOQOOHOOONQOiO>OC40 ■ THCOiOCOt- .Nt^t* O C* ION MiricScoeoi-^tDOaor'i ONQOOOOOwnciHHNtOOOCOUJOCQOOOS^Q^S SS Si •oNoooooNWN'S'O'aiXHoiijooennooo'i'ooMCHO tor ssss ss cotf3r-»Q ON (Dl>-CCtN r-tCO so I «, s •I 1 13 s •a 'S.s S5& ;©COGOCOCOi-((NMOOi6iOKr uOOODO SSSSSSggS§SS888S8SSSSSSSSSS°SS 88 NNwHfow-*ocf;NO*NU5HHtN - ■* i-3 r-lrH (N .oooooooooooe 'SS9299000noI _ 'COOQOoSooO'-ic»soir5ooooo>o_- • Hdooooiocor-oufOTiicoiSiflP-MaQ •QOtOO'-OOO— *OC C4 ^ S •*' C4 CO l© I> OS OS *? 00000000008 S-S S S SS S S.S s s s s s s ss s s s s iflHracmoiOffl«Mni(5 nHt-WO^epre»fFH~o~eo*o*^i^c>r©~» r^V-T OJOrtN « 00 «^ M « to e* ^ « ^ « co .-1 eo •* ■* eo >o "■ « co -tf ! r- «-ti-i Neo j£5S?SS ,2££?P££'- , 3; a!.*- 1 ©^ o ej SS3?S! 00 . 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' « 3 « O .3 g 13 < 3 Digitized by Microsoft® i32 RAILROAD REVENUES AND EXPENSES. The price of steel rails in 1919 and 1920 was the same, $47.80 a ton. That is, Bessemer rail. Open-hearth rail generally runs about $2 a, ton more than Bessemer, but the figures would be the. same for open- hearth as for Bessemer, except $2 r higher; that is, $49.80 in 1920 for open-hearth rails. Senator Stanley. Most of your rails now are open-hearth ? Mr. Kruttschnitt. Yes; the railroads are using open-hearth rails almost exclusively. It is a safer rail and less liable to sudden breaks. Relative to the answer to that question, I have a statement in my hand giving the average price per gross ton of new steel rail charged into maintenance of way accounts in 1919 and 1920, respectively, oii 28 different railroads. Senator Pomerene. Does that cover the year 1917 as well? Mr. Kruttschnitt. It covers 1919 and 1920. Senator Pomerene. Do you have the information for the year 1917, so as to continue the comparison? Mr. Kruttschnitt. I will get that. I got- that information for our own railroad but left it to be typed. It has not come in yet. It will probably be here in a few mmutes. It was a little difficult to get all this information over the end of the week. Senator Pomerene. I understand. Mr. Kruttschnitt. I now give you the statement, which is marked "E," and will give you the other statement when it comes in. (The statement referred to is here printed in full in the record, as follows :) E. Average price per gross ton of new steel rail charged into maintenance of way accounts in 1919 and 1920, respectively. [Compiled by Bureau of Railway Economics, Washington, D. C, May 14, 1921.] Road. Atchison, Topeka & Santa Fe Atlantic Coast Line Baltimore & Ohio R. R Chesapeake & Ohio Ry ., Chicago & North Western ; Chicago, Burlington & Quincy Chicago Great Western Chicago, Milwaukee & St. Paul Ry Chicago, Rock Island & Pacific Erie Railroad Great Northern Illinois Central R. R Lehigh Valley R. R Louisville & Nashville Maine Central R. R Minneapolis, St. Paul & Sault Ste. Marie Ry. . . New York Central R.R New York, New Haven & Hartford Norfolk & Western Ry : Northern Pacific Ry Oregon Short Line Oregon- Washington Railroad & Navigation Co Pennsylvania R.R L Philadelphia & Reading Seaboard Air Line Ry Union Pacific System Wabash Ry ' Yazoo & Mississippi Valley 1919 1920 $40.63 $45.01 37.81 48.31 43.53 47. IT 42.96 45.56- 40.19 40.12 37. 62 45.27 56.86 50.52" 40.25 45.00- 36.85 46.37 40.31 44.93 39.55 48.22 40.01 45.90 35.26 56. .5$ 36.23 47.17 41.54 57.78 41.12 47.00- 40.83 46.43 45.80 62.97 41.76 48.17 35.04 40.24 42.43 51.J72 54.12 65.05 40.36 48. J2 36.21 53.7* 31.80 39.47 41.13 46.56 31.46 44.62 37.61 45.43 Here is another statement that has been compiled- and which will answer your question, I Ithink. This gives the monthly average price of Bessemer steel rails at the mills, in dollars per gross ton, taken Digitized by Microsoft® RAILROAD REVENUES AND EXPENSES. 133 from ttie Irbri Age. Your question, we will say, will be for the mon,th pf May, 1917, as that was the. month we used before. Then the mill price was $38 a ton. Senator Pomerene, That is for open-hearth steel rail? Mr. Kruttschnitt. This is Bessemer, In May, 1918, the price was $55 a ton; in May, 1919, the price was $45 a ton; in May, 1920,. the price was $55 a ton. The Chairman. You are speaking now of steel rail ? Mr.: Kruttschnitt. Yes, sir; Bessemer steel rail. I will now , offer this statement, which will be identified by being marked "F." (The statement referred to is here printed in full in the record, as follows :) F. Monthly average price of Bessemer steel rails at mill, dollars per gross ton. [Source: Iron Age, Jan. 6, 1921, p. 57.] , Month. 1910 1911 1912 1913 1914 1915 1916 1917 1918 1919 . . 1920 , January $28.00 $28.00 $28.00 $28.00 $28. 00 $28.00' $28.00 $38.00 $55. 00 $55.00 $45. 00 February. . . 28.00 28.00 28.00 28.00 28.00 28.00 28.00 38.00 55.00 55.00 45.00 March 28.00 28.00 28.00 28.00 28.00 28.00 28.00 38.00 55.00' 52.50 47. 50' April r May 28.00. 28.00 28.00 28.00 28.00 28.00 28.00 28.00 38.00 55.00 45..00 '55.00 28.00 28.00 28. 00' 28.00 28.00 33.00 38.00 55.00 45.00 55.00 28.00 28.00 28.00 28.00 28.00 28.00 33.00 38.00 55.00 45.00 55. W July 28.00 28.00 28.00 28.00 28.00 28.00 33.00 38.00 55.00 45.00 55.00 28.00 28.00 28.00 28.00 28.00 28.00 33.00 38.00 55.00 45.00 65.00' September.. 28.00 28.00 28.00 28.00 28.00 28.-00 33.00 38.00 55.00 45.00 55.00 55.00 October 28.00 28.00 28.00 28.00 28.00 28.00 33.00 55.00 45.00 November. . 28.00 28.00 28.00 28.00 2a 00 '28.00 36.00 55.00 45.00 55.00 December.. 28.00 28.00 28.00 28.00 28.00 28.00 38.00 55.00 45.00 51. oa Senator Stanley. The difference between open-hearth and Besse- mer applies to 1917 as well as to 1920 ? Mr. Kruttschnitt. Yes, sir. The mills quite uniformly charge $2 more a ton for or/en hearth than for Bessemer. Now, Mr. Chairman, I think that is all you asked for. The Chairman. In order to get started again on the matter I was inquiring about on Friday, I will refer to your tables, because I see that you have no tables for the year ending with February, 1921. Mr. Kruttschnitt. That is quite true. The Chairman. You simply have your tables for the calendar year? Mr. Kruttschnitt. Yes; that was all the information we could get. The Chairman. How much more did your maintenance of way and structure cost in 1920 than in 1919 ? Senator Pomerene. You are speaking of the calendar year now, are you ? The Chairman. Yes; I am speaking of the calendar year. I wish Mr. Kruttschnitt had his tables brought down to February, 1921, but he has not. Mr. Kruttschnitt. If you will allow me to make the explanation, I now have in my hands the statement I told the committee was being prepared. > The Chairman. Can you state the amount in millions of dollars ? Mr. Kruttschnitt. In 1920? The;GHAiRMAN. Comparing 1919 with 1920. Mr. Kruttschnitt. Maintenance of way and structures in 1919^ were $778,340,000; in 1920, $1,033,548,000. Digitized by Microsoft® 134 RAILROAD REVENUES AND EXPENSES. The Chairman. Compare, now, 1920 with 1917 and state the same figures. Mr. Kruttschnitt. In 1917 maintenance of wav and structures were $442,000,000. The Chairman. Do you mean $442,000,000 even ? Mr. Kruttschnitt. No; the exact figures are $442,109,862. The Chairman. You have already stated, but I will ask you to state again what the percentage of cost of this item is for labor direct. Mr. Kruttschnitt. I think I gave that the other day, and it was 60.09 per cent. The Chairman. It was 60.09 per cent ? Mr. Kruttschnitt. Yes, sir. The Chairman. I think a few moments ago you compared the hours of labor in these two years! Mr. Kruttschnitt. In 1917 and 1920. The Chairman. Have you the hours of labor for 1919 as compared to 1920? v (Note — The data requested will be found in the Appendix p. 5.) Mr. Kruttschnitt. No ; I have not. The Chairman. Have you information that will enable you to state that ? Mr. Kruttschnitt. I think quite certainly we have. We will have it worked up. The Chairman. If the reduction in wages that you are now pro- posing — or, I mean, that the railroads as a whole are proposing before the Railway Labor Board — were carried into effect what would be the reduction in the cost of maintenance of way and structures for the present year, or for one year, as I will not say for the present year ? Mr.' Kruttschnitt. If the wage reductions that are being asked for were granted ? The Chairman. I understand that the railroads are proposing certain reductions in wages and that those reductions are now or soon will be before the,Labor Board. If those reductions were all carried into effect, how much would that reduce the post of maintenance of way and structures per year, assuming that the amount of work is the same as was done in 1920 ? (Note. — The data requested will be found in the Appendix p. 14.) Mr. Kruttschnitt. Well, I would have to have that computed. I am sorry to be forced to say to so many of your questions that I can not answer them offhand. The Chairman. It is not to be expected that you will be able to answer them all offhand. Mr. Kruttschnitt. I will have to have that information computed. But the statement I had prepared was not by separate accounts to show the extent of the increase in operating expenses, in 1920 over 1919, for the calendar years. Of course as to all those computations, if any other principles are established they will haye to be recomputed, I will have that worked up and file it with the committee. The Chairman. I wish you would also make a table showing the lessened cost of this item of maintenance of way and structures if you were to apply present prices for material. I want to know how much less you hope to be able to expend during a year for the item of main- Digitized by Microsoft® BAILROAD REVENUES AND EXPENSES. 135 tenance of way and structures under the lessened cost. (See Ap- pendix, p. 14.) Mr. Kruttschnitt. Well, that would require asking for information from each carrier of the amount of materials that each used and applying to those amounts the difference in prices. It is a job in- volving a great deaf of time and expense, but of course it can be done. Senator Pomerene. Wouldn't it be exact enough for your purposes if we were to assume that the same amount of material were used ? The Chairman'. That is a part of the question; assuming that the same amount of material is used in the maintenance of way and structures, how much less would that item be for the present year in which lessened prices are prevailing for materials, You are paying less for crossties this year than last year? Mr. Kruttschnitt. Yes. The Chairman. You are paying less for steel ? , Mr. Kruttschnitt. No ; we are. paying more for steel, is my re- collection r The Chairman. I am speaking of. steel other than rails. Mr. Kruttschnitt. Yes; but steel rails overshadow all other steel Eurchases. But I understand what you want, and we will do our est to get the information and £16! it with the committee. The Chairman. I want information on that point because one of the objects of this inquiry, in fact the main object, is to find out whether the railroads are going to be able to maintain themselves or whether we have got to find some other system under which we can furnish transportation to the people of the country. I want you to get the idea I have in mind. If you can not do any better this year than you did last year you will not last very long. That is pretty plain, is it not ? Mr. Kruttschnitt. It is quite plain. But when I learned of the resolution, and in discussing the matter with Mr. Thom, I placed this task before me and thought I was complying with the spirit of the resolution by preparing this statement. If 1 have not, I will try again. The Chairman. The information you have given here is very ma- terial, of course, but I want to go a little beyond the information that you furnish in your tables and see what is going to happen to the railroads and to the country. Mr. Kruttschnitt. Very well. The Chairman. Now, Mr. Kruttschnitt, I would like to have this same information I have asked for with respect to maintenance of way and structures upon the item of maintenance of equipment. Your maintenance of equipment for 1920 was even greater in com- parison with former years than your item for maintenance of way and structures; I mean, the difference in cost is greater. I would like to have you give me some information with regard to that item, the same information that I asked for with respect to maintenance of way and structures. (See Appendix, p. 14.) Mr. Kruttschnitt. Very well. The Chairman. I would like to have the same information with regard to the item known as transportation. What does that include ? (See Appendix, p. 14.) Mr. Kruttschnitt. That includes, generally, the cost of running the trains, wages of trainmen, water station men, fuel station men, 6355S— 21— Vol I 10 Digitized by Microsoft® • 136 RAILROAD REVENUES AND EXPENSES. cost of fuel, cost of lubricants, cost of water, and a good many other items. • Senator Kellogg. Such as telegraph operators ? Mr. Kruttschnitt. Yes. . The Chairman. It is the largest single item in the account of ex- penses, is it not i • Mr. Kruttschnitt. Yes; conducting transportation has taken up about half of the total expense. The Chairman. You have already given it, I think, but I would like to have some notion right at this point as to a comparison of the volume of traffic in 1920 with 1919. Mr. Kruttschnitt. The number of traffic units, that is, ton miles and three times the passenger miles, which is the equation usually used to bring them to a common denominator, showed a 10 per cent increase in 1920 over 1919. The Chairman. What was the increase over 1917 ? Mr. Kruttschnitt. About 8 per cent. The Chairman. At this time I do not desire to ask any further questions. Do any members of the committee desire to further in- terrogate Mr. Kruttschnitt ? - Senator Pomerene. Mr. Kruttschnitt, following the line of inquiry which has been pursued by Senator Cummins, I should like if you will for you to furnish us this same information concerning the item of railway-operating expenses, for the years 1920, 1919, and 1917; and then, also, I wish you would state specifically in answer to the questions by Senator Cummins, as well as this one which I am asking, what items of expenditures are in fact included in your statement. You have indicated already some of the items which were included in the subject of transportation. (Note. — The data requested will be found in the Appendix, pp. y. and 12.) Mr. Kruttschnitt. The reply will give that, Senator, because it will be based on the Interstate Commerce Commission's classification. In other words, maintenance of way alone takes in 78 or 79 different items. Senator Pomerene. You will include the same information as to the subject matter about which I have inquired, will you? Mr. Kruttschnitt. Yes; except that I understand! that Senator Cummins's inquiry is embraced in yours. He asked for 1919 and 1920, and you asked for 1917. Senator Pomerene. His questions' or a part of them went to the year 1917. In other words, we are trying to get some basis of comparison between the year 1917 and the past year. Mr. KrUttschnitt. It will be for 1917, 1919, and 1920 ? Senator Pomerene. Yes; I think that is all right. The Chairman. If no member of the committee has any other questions to ask, I will say that we will probably find it necessary to recall Mr. Kruttschnitt lor further cross-examination. Senator Pomerene. Mr. Chairman, if I may interpose right there, I wish to say in that connection, Mr. Kruttschnitt, that there have been substantial increases in wages of different classes of labor, and I wish your statement would include what those increases are, for each class; that is, the percentage of the increase. Mr. Kruttschnitt. Very well. Digitized by Microsoft® RAILROAD REVENUES AND EXPENSES. 137 Senator Stanley. Mr. Kruttschnitt, as I understand it, you have given a great many instances of what you consider waste or extrava- gance in the payments due to regulation touching time and overtime and reclassification of employees. Mr. Kruttschnitt. Yes; wages gaid really for services not per- formed under the so-called national agreements. Senator Stanley. Are . these classifications to which you have referred and which were formerly made by the director general still binding? . Mr. Kruttschnitt. Yes, sir; they were made binding by the transportation act. They were to remain in effect during the guaranty period, which was up to the 1st of September. Senator Stanley. Are they binding now ? Mr. Kruttschnitt. They are, because the applications made to make those agreements void have been denied by the Labor Board, and we have to wait, I think it is, until the 1st of July. Senator Stanley. You are still bound, for instance, to call a machinist in the instance you gave of having work to do that under Government control and under the ruling of the director general was the work of a machinist; and you have to call a plumber for work that is construed to be a plumber's work, and so on ? Mr. Kruttschnitt. Yes. Senator Stanley. Again, I do not recall whether you referred specifically to the standardization of wages, that is, paying the same price for the same character of labor at every point in the United States. That was what was done under the Director General of Railroads, I believe. Mr. Kruttschnitt. Perhaps I did not refer to it specifically. Senator Stanley. Is ^that standardization in full force and effect now ? Mr. Kruttschnitt. Yes. But I want to explain what my answer means, and that is, that the increases in nay given by the Labor Board were percentages of increase over what was paid before, and what was paid before I do not think was the same in all parts of the United States. Senator Stanley. My impression is, although I may be in error about it, that substantially the same wage per hour was paid for identical service under the standardization of wages, without regard to the location, the situs, of the labor. For instance, an engineer or a conductor got the same amount no matter whether the train ran through Alabama or through Maine; and a janitor or a track foreman, or any other employee for that matter, received practically the same amount for the service rendered without regard to the place in which it was rendered and without regard to the cost of living in the locality. Mr. Kruttschnitt. That is the case as to some employees. The reason I answered yo'u as I did was that I was furnished some time ago, when looking over the cost per hour for labor on our road and found that a different rate per hour was paid on the Pacific coast from what was paid in Texas; I say I was furnished with that statement and was looking it over, and 1 asked how that situation came about. I had supposedthat the wages had been unified everywhere. But I was given the same information I gave you, that a certain percentage was added to the amounts previously received, and, as they were different before, they are different now. Digitized by Microsoft® 138 RAILROAD REVENUES AND EXPENSES. But I might say to you that Mr. Thorn will have a man veYy familiar with these agreements, which I am not, because -I can not attend to all the details of our properties, which are in the hands of three presidents; but the witnesses that Mr. Thorn will produce will be able to answer all these questions with perfect accuracy. Senator Stanley. Some years ago I had occasion to look into statistics on the subject of relative cost of wages at home and abroad, and I was very much surprised to find that wages for identical service m a very highly organized trade; like the carpenter's trade, in different parts of the United States varied very, very greatly, say, as between San Francisco and Boston. I have heard considerable discussion pro and con on the propriety of making the wage scale absolute for all points in the United States, or approximately so, without regard to the effect of local conditions and the purchasing power of the wage paid. What do you think about that ? Mr. Kruttschnitt. Well, I do not think it is practicable to do that, to make wages absolutely the same, because conditions vary very much. Senator Stanley. But you do not know to what extent they have varied ? Mr. Kruttschnitt. No. Mr. Thom. We will have witnesses on that subject. Senator Pomerene. As a corollary to Senator Stanley's question I should like to have as specific information as possible, not neces- sarily from Mr. Kruttschnitt, but from some other witness, as to the reclassification of this labor, the wisdom or unwisdom of it, and the effect of it. Mr. Thom. Senator, we will have witnesses on the stand on all those subjects, and will give you that information. The Chairman. Mr. Thom, will you now call your next witness? Mr. Thom. I would like to have Mr. Daniel Willard heard. The Chairman. Mr. Willard, in accordance with our plan, you will please be sworn. TESTIMONY OF MR. DANIEL WILLARD, PRESIDENT BALTI- MORE & OHIO RAILROAD CO., BALTIMORE, MD. The witness was duly sworn by the chairman. The Chairman. Mr. Willard, you may proceed, taking up such phases of this subject as you may desire to take up, and in your own way. Mr. Willard. Mr. Chairman and gentlemen of the committee, I had opportunity to hear what Mr. Kruttschnitt said in his direct testimony and much of his cross-examination, and as my views gen- erally are in accord with his — or certainly I have no exceptions to take — in order to save repetition I have prepared a statement which perhaps may be the basis for future examination, and is in- tended to refer to some phases of the question that Mr. Kruttschnitt did not take up. I would like to say that during the presentation of my statement it will not embarrass me in the slightest to be interrupted with ques- tions, and I will be glad to have questions at any time if my state- ment is not entirely clear. Digitized by Microsoft® RAILROAD REVENUES AND EXPENSES. 139 [Reading:] The condition of the railroads at the present time differs only in degree from the conditions generally surrounding all business activ- ities, and is the direct result of the economic changes brought about by the war. During the war we had in this country a condition of unprecedented business activity accompanied by an equally un- precedented increase in wages and material prices. Those engaged in private enterprises were generally able to so adjust their affairs, including their selling' prices, as to enable them to operate at a satisfactory profit, notwithstanding the higher costs. The case was entirely different, however, with the railroads. In order that we might as a Nation put forth our maximum efforts toward winning the war, the President considered it necessary to take possession and assume control of all the steam railroads in the United States. Whether such action by the President was in fact necessary and wise need not' now be discussed, and in any event it is not my purpose to question the wisdom of his action in this respect. Congress itself had foreseen the possible necessity for such action on the part of the President, and by suitable legislation had provided in advance for such an emergency. For 26 months the railroads of the United States were operated by the President or his representative, acting under authority granted as a war measure, and for no other purpose. During that full period all of the roads, or at least many of them, were operated with entire disregard of their interests as independent properties. Notwith- standing the largely increased cost of operating the roads, the director general did not increase the rates and fares proportionately, and consequently the railroads while under Federal control were operated at a loss, the deficit being made up out of the Federal Treasury. Senator Pomerene. You just made the statement that the increase in rates and passenger fares were not in proportion to the increase in operating expenses. Mr. WiLlard. Yes, sir. Senator Pomerene. And it may also be apparent that it did not cover the same period. I understand that wages were increased for the entire year 1918, while freight rates and passenggr fares only dated from July of that year ? Mr. Willard. That is correct, as I understand it. [Reading:] This policy of the director general may or may not have been wise, but in any event it contributed largely toward bringing about the confusion of thought and general misunderstanding of the railroad situation which now exists. Congress, with a full understanding of the matter, enacted the transportation act of 1920, which provided for the termination of Federal control, and was intended also to provide_ a basis for the successful operation of the roads by their owners in the future. I take it that it is the purpose of this committee, among other things, to inquire into the operations of the carriers under the terms of the new act, and I am glad of this opportunity to be heard in that connection. It has b # een claimed by some that the railroads under private man- agement can not be operated so effectively as a whole, and conse- quently can not perform as large a measure of service for the public Digitized by Microsoft® 140 RAILROAD REVENUES AND EXPENSES. as could be done with the same facilities under Federal ownership or control. The fallacy of that argument is clearly demonstrated by the fact that during the year ended December 31, 1920, the more than 1,800 independent railroad companies in this country, reporting to the Interstate Commerce Commission were able to so coordinate their efforts that they handled during the year 9,000,000,000 net ton-miles more than they ever handled before in the same length of' time. This effective coordination on the part of the carriers was made possible by the Esch-Cummins Act. I think I ought to elaborate a little right there, Mr. Chairman, upon this statement m order that you may know just what the railroads did to meet the situation. The transportation act, as you recall, states that in times of emergency the Interstate Commerce Commission shall have full authority to direct the use and movement of all cars and engines and trains of all the railroads, regardless of ownership, and in such way as will best serve the public interest. It rests with the Interstate Commerce Commission to decide when there is an emergency justifying the exercise of such authority. The law also says that the Interstate Commerce Commission in the exercise of that authority may make use of such agency as it may select for that purpose. Shortly after the termination of Federal control it was apparent that an emergency had either arisen or was about to arise, and the matter was a subject of conference between some of the railroad executives and the Interstate Commerce Commission. Following the conference the railroad executives, through their association, ap- f>ointed an advisory committee consisting of, at first, I think, 9, and ater of 11 railroad presidents, geographically selected, this advisory committee being instructed by the presidents to get in touch with the Interstate Commerce Commission and assist them in every way possible in order to carry out the spirit of the act. In 1917, shortly after ouf country entered the war, before Federal control, the railroads, as you will recall, undertook, through their own voluntary action, to coordinate the carriers, and they found it necessary at that time to establish what was called a car service com- mission ner* in Washington. They had employed in that commis- sion at one time perhaps 200 men, and the purpose of that commission was to obtain daily information, by telegraph and otherwise, of the, car and locomotive situation in the United States as a whole and the demands or requirements for transportation. They found that a necessary agency to use in order to coordinate the carriers at that time. Later on, when the Government took control of the railroads, the Director General continued that same car service commission, and used it as his agency for accomplishing the same thing all during the period of Federal control, and after the termination of Federal control, this advisory committee, which I have just referred to, was instructed by the railroads to take charge of the car service commission located iiei e in Washington, to direct its efforts, or supervise them in a general way, and to work with the Interstate Commerce Commission. The advisory committee established relationship with the Interstate Com- merce Commission, they advised with it through their chairman, and committees appointed for that purpose from time to time, and they Digitized by Microsoft® RAILROAD REVENUES AND EXPENSES. 141 endeavored to support the commission in every way in order to carry out the spirit of the act. Mr. Thom. Mr. Chairman, I think in order for it to be understood with what knowledge and authority Mr. Willard is speaking about' that, that it ought to appear that he was chairman of that advisory committee. Mr. Willard. At the end of Federal control, as has been stated by Mr. Kruttschnitt, the cars in the country were poorly distributed, that is to say, the empty cars were not where the loads were, and one of the first things that it was necessary for the advisory committee to do, through its car service commission, was to order the empty movement of a large number of box cars that were in the East and not wanted at that time, to the West, where they were needed, and the movement of a large number of empty coal cars from the West to the East, where they were needed, That maladjustment, or lack of cars, came about partly from the fact that in November the year before there was a very general coal strike over the United States and cars were loaded with coal in Vir-' ginia and Ohio at some mines that were kept working, and they were sent all over the country, to points in the extreme West, and there being no immediate loading for them to take them back, they were stopped where they were ; they had, of course, to come back at some time, but they were held where they were until they were ordered back after the termination of Federal control. I think something like 33,000 were ordered early in the summer. Later on an additional number. And during the summer more than 100,000 empty box cars were moved on special orders by the car service commission from points in the East to points in the West, where they were needed for grain movement. * Not only that, but in the summer there developed a heavier -move- ment westbound of tinplate and pipe, and other commodities that could travel in box cars, and it was necessary to move those empty box cars away from loading in the East, move them empty West , when they might have gone loaded, because the demand for them in the West was so urgent to move the grain. Now that particular act had something to do with the higher cost of operations of the railroads in 1920. They were performing an unusual service. Ordinarily many of those cars that were moved empty west would have gone loaded, and they would have earned more than enough to pay the cost of movement. They went empty, because of the urgency of the situation. Of course I should say that the railroads themselves did not assume the authority to handle cars in that way. The act itself provides that in such times the Interstate Commerce Commission may decide what loading should have priority; have prior use of such facilities as may be available. Later in the s umm er other matters concerning the use of cars developed, which I need not go into now, unless you desire, which resulted in the issuance by the commission of priority orders for the use of coal cars for moving coal, and forbidding the use for handling of road-building materials and other materials, but that is another matter that I won't go into now unless you desire. My point in diverting for a minute was simply to advise you of the organization of the advisory committee by the railroads and the effort that the carriers made to cooperate fully with the commission Digitized by Microsoft® 142 RAILEOAD REVENUES AND EXPENSES. in order to carry out the spirit of the act, and the result of that effort is reflected in this fact, that with the same facilities that the director general had in 1918, certainly in no better condition, and I think not in as good condition, the railroads did move 9,000,000,000 ton-miles more than they ever moved before, showing that the idea of Congress that there could be unification of facilities when neces- sary in the public interest, and under private control, was justified, and it has worked out under the terms of the act. I will proceed. [Reading:] . Many in the past have feared that private ownership of the rail- roads might fail as an economic policy because of the inability of the carriers to secure adequate rates for the services which they perform, and on that account be unable to provide the new capital necessary for additions and betterments. Congress was fully ad- vised concerning this phase of the _problem and the capital needs of the carriers, and realized also that the necessary new capital could not be obtained unless the credit of the roads was sound and on a satisfactory basis. The provisions of the transportation act with respect to the rate of return may appear academic at the present time, however, the principle recognized in the act with respect to the assurance of reasonable return upon the value of the transporta- tion property devoted to public use has encouraged the owners of railroad securities, and in my judgment has been a most helpful influence in sustaining the credit of the carriers during a very trying period. What I mean there, to be a little more specific, is this, that during some months past when none of the railroads — I think I am safe in saying — have been earning their proportionate dividend require- ments, and very few were earning their fixed charges, and many were not earning their operating expenses, the bonds, and even the stocks of such companies have been dealt with on some basis ; people have continued to show confidence in them, when the, mere earning statements that were put out from month to month justified no such confidence at all, and I am sure it must be because of the assurances contained in the act of the ultimate fair treatment of the railroads under the act that people have been less discouraged than otherwise they would have been. [Reading:] .A very important phase of the whole question at the present time is the labor problem as it affects the railroads. The railroads in the aggregate employ roundly 2,000,000 men and women, and out of every dollar they collected from the public for the service which they performed during the year 1920, approximately 60 per cent was paid out directly to the employees in the service of the carriers. Before the war, of in 1916, the railroads paid for labor about 41 cents out of every dollar earned. The transportation act provides methods and agencies to deal in an orderly manner with questions which may arise in the future between the railroads and their employees relating to wages and working conditions and to prevent the serious results which would flow from any considerable interruption of the transpor- tation service in this country, which might be caused by disputes arising between the carriers and their employees. , To my mind the labor provisions of this act afford a reasonable assurance to the railway employees that they will at all times and under all circumstances receive jus„t and reasonable wages and be granted iust and reasonable working conditions. While this part of 6 J Digitized by Microsoft® y Digitized by Microsoft® &/**rtc*/r rfb/Arajr rfssoc/afio/T Car eJerr/'c* fi/'r/s/a/r Mzstr/'/rf/b/r, £7.C. £7fNF£ffL flCCt/Ml/Lffr/ON /7LL <£>/fi? /WOT MOWNG C(/££fNTL Y 1 i7a/7. Fej>. | A7arc/r /7/7r/7 May <7"^/*? c72//>- /7/>y. <5 L 1 I / \ , / ^ > / ft / \, % K 1 1 rf y \ _ » # / / '-, 1 \ / < * * * ^ L '-. V ► \ 1 * **" Y " v r\ . f ■ i \ '' •if \ — - J tr > S J \ 'V -/^ s / ^ •*" *-.J V n V 1 v>« • ,^ V. s 3f 9, ^^ ? y • ».« '•3 ,< «4*.», mwr* '*•',- '»<; f *», / •? '/< *s y ^* "-* h— 1 » ^v" ""S "S.J l^* 7 \ v r > "H~ ?Z \ s * / 1 \ ~* M — \ •rm . ^ '*> 4 is s p— 4~ '"*">i — *• ?3*T f* " ■"•1 '*-- «.. -j* .-j. ■ • ft s L -K *WI if— ^... ~rf k- 5 fi i,t < »» •9 n ** - »•■ »«Mi '*..»- t_ . - — — Digitized hv Microsoft® 63553—21. (To face page 143). Digitized by Microsoft® BAILEOAD REVENUES AND EXPENSES. 143 the act has been somewhat criticized it can at least be said that by virtue of the act we have had continuity of service during the critical period of 12 months since the termination of Federal control, during which time one of the most complex labor problems that ever confronted the railroads was being slowly worked out and adjusted. I have said there that we have had continuity of service. That statement is generally true, but this exception, of course, will be kept in mind. I refer to the so-called outlaw strike which took place in April, 1920. I have a chart showing the effect of the outlaw strike on the accumulation of loads. I will submit that diagram in a minute, showing that when the railroads were turned back to their owners the 1st of March, 1920, there were about 100,000 loads await- ing movement in the country. Senator Pomeeene. One hundred thousand what ? . ' Mr. Willaed. A hundred thousand loaded cars awaiting move- ment in the country. During the month of March that was reduced to about 85,000. The first week in April the outlaw strike began in Chicago, and it extended generally over the East, and some portions of the West and South and it continued with more or less irregularity until July or August. The immediate result of the strike is noted on this chart by the fact that the delayed loads went up from 85,000 to 288,000 in about a month's time. And because of the difficulties of operation it was a very slow process to bring that delayed business down to normal proportions. In fact, it did not get down to normal proportions until October. Senator Pomeeene. Now, you say, "normal proportions." What do you mean by that ? Mr. Willaed. Well, what I had in mind at that moment was the number of loads so delayejd during the preceding year and the year previous, both years being above normal. At the present time the number of delayed loads in the middle of April is 15,000 in the country as a whole. Senator Pomeeene. Do you regard that as normal? Mr. Willaed. I think that is as low as it can be. That is, cars in bad order, %ars with misinformation on waybills, and all that sort of thing, tend to build that up, and I think that that is as low as it can be; in fact it is as low a record to-day, this very minute, as we have had any time. Senator Pomeeene. May I interrupt you to ask another ques- tion there ? Mr. Willaed. Certainly. Senator Pomeeene. How many loaded cars normally are moving? Mr. Willaed. Well, the highest week we had last, summer, in October, was a million loads a week, That- was the highest loading that we had. And. 288,000 would be upwards of a third of a week's loading that was being held at the time of which I speak. Now that accumulation of loads, which is indicated on the chart, had a great deal to do with increasing the operating expenses of the railroads, aside from such expenses as came from extra police, and all that sort of thing, because there was quite a large expend- iture for better police protection, and special arrangements made to protect the new men, but aside from that the fact that the terminals were filled up and congested with cars that could not be moved, also added directly to the transportation cost of that period. Digitized by Microsoft® 144 RAILROAD REVENUES ANp EXPENSES. What I am now about to state has reference to the operating results and expenses for the year ended December 31, 1920, as com- pared with the year ended December 31, 1919. I hare taken it up on somewhat different basis than was followed by Mr. Krutt- schnitt, but it may be somewhat illuminating. [Reading:] "While subject to certain interruptions, because of strikes in the coal and steel industries, the railroads during the year ended De- cember 31, 1919, handled a large volume of tonnage and an excep- tionally heavy passenger traffic was also moved, much of it incident to the demobilization of the military forces, which traffic was handled with a lesser train mileage than would be satisfying to the public under normal conditions, resulting in decided economics in the operations for the year 1919. Furthermore the full effect of the wage, advances and changes in working conditions granted by the Director General in the latter part of 1919 were not reflected in the operations of that year. These increases were in effect during the entire year 1920, and in addition thereto the award of the United States Labor Board was in effect for eight months, resulting in an average increase in rates of pay in 1920 over 1919 of something more than 20 per cent." Senator Pomerene. You mean by that to cover the entire working force of employees ? Mr. Willard. The entire working force of employees. Senator Pomerene. Yes. Mr. Willard. It is a very difficult thing to work out, because changes in working conditions and rules went into effect at the same time, but as nearly as can be calculated the increase is upward of 21 per cent ; it is over 20 per cent. The Chairman. Do you mean an actual increase, or if it had been over the entire year it would have been 20 per cent ? Mr. Willard. Over the entire year. What I mean is this, that if the business of 1919 had been done over again, with the rates of pay and working conditions in effect of 1920, the wage bill would have been over 20 per cent greater than it actually was in 1919. The properties were returned on March 1, 1920, m a somewhat depleted condition, particularly as to equipment, due in part to war conditions in 1918 and in part to an evident desire in 1919 to control and reduce maintenance expenditures. Perhaps I ought to stop reading a moment. In 1918 the Director General took the equipment as he found it, and naturally during that year every effort possible was being made by the use of men and material to carry out the war program, and I understand — and I think it is a matter of record, though I was not a part of the administration, and I am not so sure as otherwise I might be — that instructions were given, for instance, concerning cars, that the freight cars should be kept in a safe condition to run, with the draft gears in good condition, the airbrakes and safety appliance in good con- dition, but other things, other repairs that would ordinarily be made, should be deferred, if such repairs could be deferred and the car be safely operated and handle the business of the country. Now, the repairs that were deferred were in the nature of holes in the roof and in the sides, and things of that kind, and that resulted in this fact, that at the end of Federal control, while the per cent of . bad-order cars, as reported, was only, I think, 1 or 1^ per cent higher than it Digitized by Microsoft® BAILROAD REVENUES AND EXPENSES. 145 was at the beginning of Federal control, that statement did not fairly reflect the actual condition of the cars, because cars were being reported as in good condition when they were entirely unfit to do the thing they were made to do. That developed, somewhat to our surprise, last summer when we were moving large numbers of cars, a thousand a day at times, empty through Chicago for grain loading in the West, and it developed when the cars reached the grain fields that perhaps not more than half of them were suitable for handling grain. They were all safe to run, but they had holes in the floors, and missing doors, and holes in the roofs, and all that sort of thing, and they could not carry grain. Senator Pomerene. That was in 1919? Mr. Willard. That was in 1920. In 1918 the putting' off or deferring of repairs of that kind, I think, was properly justifiable, because the cars could do the business of that period and the men and material could be used for other purposes. Senatoi Pomerene. Then you mean by that that the reports that were made of the cars out of repair, by the-Director General's office, did not accurately state the condition ? Mr. Willard. The reports did not state the conditions in the same way as they have been stated by the railroads in the past. I will explain that just a little more fully in a minute, Senator. During 1918, as I said, it was very certainly proper enough to do that. In 1919 tliere was no such emergency, but in 1919 I am also told that it was decided to reduce expenditures on maintenance of equipment — for what purpose, of course, I am not able to explain. The forces were reduced when they actually were available, and the result of what we will say had to be done in 1918, plus what was done in 1919 was this, that when they came back to their owners on the 1st of March, 1920, and the reports indicated only 5£ or 6 per cent bad order, which was perhaps 25,000 more cars reported bad order than when they took the roads over, as a matter of fact, investi- gations made later on showed that as much as from 30 to 40 per cent of the box cars were unfit to carry the things they were made to carry, and still they were reported as good-order cars. Senator Pomerene. Instead of 6 per cent plus, as reported? Mr. Willard. Yes. Please understand, I don't say that that was done for the purpose of deceiving at all. It simply was done. The plans, the methods were changed during the war for proper purposes, and they were not restored, and that fact, the fact that cars were being reported in good condition, when they really were not, except so far as they could be run safely, is partly responsible for the large number of bad-order cars being carried by the carriers to-day. Senator Pomerene. Then you mean by your statement, I take it, that the reports made under, the inspection rules by the Bailway Administration in 1918 were continued in 1919? Mr. Willard. Yes; that is my understanding. Senator Frelinghuysen. And 1920? Mr. Willard. And 1920. They came into use at that time, but they have gradually changed. It is a rather complicated process, but I will try to make it clear. When the roads came back to their owners on the 1st of March last year, the records show that on the average only 20 per cent of the cars owned by any road were on the rails of that particular company. Eighty per cent were away somewhere else. That naturally followed the policy of the general * Digitized by Microsoft® 146 RAILROAD REVENUES AND EXPENSES. pool of equipment during the Federal control. Now, of course, it was not possible for any particular road to know the condition of its- cars, because it could only see 20 per cent of them,. in any event, if it saw all there were on its system, and the other 80 per cent were away. Not very much progress was made during the summer in the way of getting home cars Dack to the home roads, because the general pool was continued owing to the urgent demands for transporta- tion. No effort of any importance was made to get home cars home. But in November, when business began to let up a little bit, then the railroads made efforts to get then* own cars home, and when their own cars did come home and were subjected to their own in- spection, then they went back to the practices in effect before the war, and if a car had a leaky roof and could not carry grain and was not suitable to do the business that it ought to do without sustain- ing claims for damages, it was reported as a bad-order car. And that, together with extraordinary economies on the part of the carriers during the last two or three months, the two things working together, has nad the effect of bringing up the number of cars bad order to-day as reported, to about 12 per cent. In my opinion that reflects largely a situation that grew out of the war conditions. It was reflected in the reports. Senator Pomeeene. Is that 12 per cent of bad-drder cars an in- crease or a decrease over what it was in the preceding year? Mr. Willard. It was very much increased, Decause it is not made on the same basis of inspection. I assume that to-day all of the railroads are inspecting their cars and passing upon them in accordance with the master car builders' rules that were in effect previous to Federal control, but which were departed from during Federal control. They have now been put back into practice. Senator Stanley. As I understand you, Mr. Willard, at the time these roads were returned to you, March 1, 1920, there were 40 per cent of the cars in bad order, according to the standards of the master car builders. Mr. Willard. No, I could not say that, Senator. Senator Stanley. I got that; I was not sure. Mr. Willard. Well, \ will explain a little more fully just what I meant by that. Last June we found that when we sent cars to the West they were being reported as very largely unfit for service, con- siderably above what we expected, and we did not understand it. I think Mr. Kruttschnitt — or someone else — sent out messages to a dozen or more of the important railroads, asking them to have an inspection made on a certain specified day, of .all the box cars, regardless of ownership, in their principal terminals. The result was that a good many thousand box cars were inspected by the different roads, and the result of that inspection was to show that somewhere from 30 to 40 per cent were unfit to do the things they were meant to do, and that gave us an understanding of why it was that so many of the cars that we were sending west, presumably fit for service, so reported, were unfit for service when they got out there, because for a year or two the cars had not been given the same attention. That is, the condi- tion of the equipment had not been given the same attention that the carriers themselves had been giving to it previous to Federal control. Digitized by Microsoft® EAILKOAD REVENUES AND EXPENSES. 147 1 Senator Stanley. Are you able to give any figures showing what "economies you can anticipate for the ensuing year due to the fact that your rolling stock is now in much better condition than it was at the time that you resumed private ownership ; the difference be- tween 30 or 35 per cent and 12 per cent? Mr. Willard. I haven't made myself clear yet, I fear. The 30 or 40 per cent of bad-order cars, I should say that that particular investigation applied, as I recall, only to box cars, of which there are 1,000,000 out of a total of two and a half million. Whether that- same ratio applied for the remainder of the cars I do not know. The cars to-day stand at about 12 per cent bad orders in the country -as a whole, which is much higher than it ought to be. The railroad executives last summer decided that the bad-order cars ought not to "be in number above 4 per cent of the total ownership. To-day they are 8 per cent above that, which is 200,000 cars. Now, of course, if there should be a demand for cars, if business should become active, it would be the first duty of the carriers to repair those cars as promptly as possible. Senator Stanley. Mr. Willard, we are not expert railroad men, and I at least can not, and I presume the majority of the com- mittee can not, form any estimate of the value of this work that the railroads have done unless we know something about the amount that was necessary to bring up this rolling stock from the condition that prevailed at the time you resumed private ownership until the present situation. Mr. Willard. I can not give you figures for the country as a whole, but I can give figures for the Baltimore & Ohio Co. which, I think, -will answer your question. Last year the Baltimore & Ohio worked all of its shops to their utmost capacity during the entire year, or, I -will say, up to December, when we began to reduce our forces. In -addition to that we arranged with outside shops to have 6,500 cars repaired that we were not able to repair at our own shops. That was because of the fact that at the end of Federal control so^many of ■our cars were unfit for service that we could not see when we could clean up in our own shops, and so we had 6,500 repaired outside. Those repairs have all been finished, I think, except 700, and they are back ready for service. In the meantime we made,. I think, about 5,000 or 5,500 heavy repairs in our own shops, and several hundred thousand light repairs during the year. Now, to-day, so our officers feel, we are in a position where we ought to'give about 8,000 of our •cars heavy repairs. We are not yet caught up. When the Baltimore & Ohio Railroad was turned over to the Gov- ernment in December, 1917, less than 3 per cent of our cars needed repairs,. For the entire year 1917 the percentage ran less than 3 per cent. Now, to-day, our bad-order cars stand at about 12 per cent. Senator Stanley. At the conclusion of Federal Control what per cent? l • Mr. Willard. They showed 5 or 6 per cent, but that, as I have tried to explain, was not a fair Senator Stanley. Do you know what per cent of them were in bad order, acfeording to your master car builders rules ? Mr. Willard. During Federal control ? Senator Stanley. Yes. Digitized by Microsoft® 148 RAILROAD REVENUES AND EXPENSES. Mr. Willard, No; I have no way of knowing anything about that, because our cars were scattered all over the country, and we could, not very well survey them. To-day over 70 per cent of our cars are at home, and we are able to inspect them and see the condition that they are in. <■ Senator Pomerene. Are you able to state what proportion of the * cars which you have repaired since you tookxontrol of your road, got out of repair during. your own operation, and what ( proportion were out of repair as a result of Government operation, or during Govern- ment operation ? Senator Stanley. That is exactly what I am trying to get at. Mr. Willaed. Yes. My recollection is that in the case of the, Baltimore & Ohio Railroad — and I will confirm this later on — when the Baltimore & Ohio road was turned back we had on our lines about 6 per cent of bad-order cars ; that is, the bad-order cars on our line amounted to 6 per cent of all the cars on our line, of which 20 per cent were ours only. Senator Pomeeene. That is, as reported? Mr. Willaed. As reported. As I have already stated, the standard of maintenance during Federal control was changed. . Senator Pomeeene. I do not think you quite answer my question,, Mr. Willard. Since you took control of these roads you have repaired a given number of cars ? Mr. Willard. Yes. Senator Pomeeene. Some of those cars got out of repair during your own operation. Mr. Wdllaed. Yes. Senator Pomerene. And since you took the roads back ? Mr. Willaed. Yes. Senator Pomeeene. What portion of those cars that you repaired were out of repair due to your own operation, and what portion of those cars which you repaired were repaired due to the condition they, were in when you took the roads back ? Mr. Willaed. I am afraid it will be impossible to answer that definitely, Mr. Senator, because of the two influences working there. First of all, we had so few of our own cars home, and then as the cars came home they came home in worse condition than we expected, but it is fair to say that during the year 1920 we made as .many bad-order cars as we did under ordinary circumstances. There is no reason why we should not have made as many as we did under, ordinary circumstances — probably more—because we were crowd- ing the roads to the utmost, and we were making bad-order cars every, day. It is possible I can give some figures on that, but I haven't got them in mind. Senator Stanley. It strikes me, Mr. Willard, that as the Govern- ment's agreed to return the cars in as good condition as they found the rolling stock, that that is a very vital matter, not only to this committee, but to the roads in ascertaining what amount is due to the co mp anies for this wear and tear uopn the property. Mr. Willaed. Well, one difficulty about it — and it is only a difficulty, I don't say that it is insurmountable — is the fact\ that for, nearly a year after Federal control we did not get our own cars home so that we could see them. Digitized by Microsoft® RAILROAD REVENUES AND EXPENSES. 149 Senator Stanley. And you do not know when the injury was done to the cars ? Mr. Willard. No. The Chairman. And there was no general inspection at the close of Federal control ? Mr. "Willard. No. The Chairman. No attempt to compare the condition physically, of the cars, with the condition when they were taken over by the Government ? Mr. Willard. I think that is true, Senator. The Chairman. There was no inspection at the time the Govern- ment took them over ? Mr. Willard. No. The Chairman. It is a good deal of an uncertainty. Mr. Willard. There was this further thing, which, so far as I am concerned, and it may apply to others, I did not know about. I did not know that the change of the standard of what made a bad-order car had occurred during Federal control; I did not know that the standard of what made a bad-order car had been changed until some months after Federal control, and then I was told that the order had been given — and I do not question the wisdom of the order, I simply state the fact— the order had been given not to make certain repairs, and not to report that as a bad-order car. Senator Stanley. Mr. Willard, as' the chairman has said, there is a very vital question involved here in this inquiry — which is the very crux of it — whether under existing conditions it is not ap- parently necessary to charge a rate for transportation in order to re- imburse the owners of this property, to pay dividends, and to meet bonded obligations, that is greater than the traffic will bear. At present many people are claiming that the rate for carriage of com- modities is so great as to prevent their transportation, and to destroy a great many enterprises that are dependent upon a long haul, and we are very anxious to know just what economies can .be in- stituted, both in the way of the labor cost and in economies in the expenditure for materials and other things, and for that reason it is very important for us to know: What is the cash value to the rail- roads of the difference in the physical condition of your rolling stock now and the condition of that same stock when you took con- 1 trol March 1, 1920? Mr. Willard. I can not answer that question now, Senator. Senator Stanley. Can it be answered ? Mr. Willard. It may be. I do not know. It is a question that I never heard before, and I will see if it can be answered. (Note. — Mr. Willard has informed the committee that he is unable to answer this question.) Senator Stanley. It is a generalization, otherwise; we can not determine. Mr. Willard. Yes. Senator Pomerene. Let me ask a question which occurs to me. I want to know what effect this rule had. As I understand it — at least it was so testified before our committee, and what purported to be the rule was presented to the committee — the Director General's office served notice upon the shippers that when they asked for a car Digitized by Microsoft® 150 RAILROAD REVENUES AND EXPENSES. for a given purpose the shipper was obliged to inspect that car to ascertain whether or not it was fit for the purpose, and if it turned out that the shipper did not inspect it, and the car turned out to be not fit for that specific purpose and a loss resulted to the shipper, the Director General would not be held responsible in damages. That is correct, is it not ? Mr. Willard. I do not know. Senator Pomerene. That is a statement that was made. If you do not know I will not pursue the inquiry further. Mr. Willard. I do not know what the practice was. Certainly that is not the practice under private control. Senator PomereNe. Presumably, as a matter of law, when you furnish a car it is supposed to be fit for the purpose for which it was intended, but not under the law as it was administered by the Director General's office. Mr. Willard. No. I will say right here, because it may give a little better key as to what I hope to say— and referring to Senator Stanley's question — I don't believe it will be necessary to raise rates ( beyond what the traffic will bear to make private ownership a success. ' It was not necessary before the war, and I do not think it will be necessary after the war, once we get adjusted so that our income and our expense bear some proper relationship to each other, which they do not at this time for reasons which I will explain a little more in detail as I go along. Senator Stanley. A rate, as we say, in excess of what. the traffic will bear means in its last analysis a rate so great as not to produce a maximum of freight at a maximum of charge, or, in other words, ultimately the higher charge will be reflected in such a loss of busi- ness as to entail a loss upon the carrier as well as an injury to the shipper. Is not that true ? Mr. Willard; I think that is generally true. I think we may also assume that the railroads are selfish, and they want to make as large net earnings as they can, and if they were free to do so : , would adj-ust the rates to the business so that together with the volume of busi- ness they would yield the largest earnings. I think I agree with you generally on that statement, Senator. [Reading:] "During the months from January to October, 1920, there was a persistent and urgent demand for increased service, consequently every effort was made to accomplish essential repairs and to make available all equipment possible. Notwithstanding the decline in business in November and December, the service performed in the year ending December 31, 1920, shows in relation to. the preceding years as f oflows : Class I railroads of the United States. ' Total tons 1 mile. Passengers 1 mile. Train miles (passenger). 1916 396,365,917,082 430,319,014,635 440,001,713,665 395,679,051,729 449,292,355,000 53,613,303,271 •13.55 34,585,952,026 39,476,858,549 42,676,579,199 46,358,303,740 46,724,880,000 366,576,260 0.79 582,859,175 582, 556, 148 536,692,235 546,180,657 571,653,863 25,473,206 1917 1918 1919 1920 Increased service, 1920 over 1919 per cent. . 4.66 Digitized by Microsoft® RAILROAD REVENUES AND EXPENSES. 151 This table shows the ton-miles and passenger-miles from 1916 to 1920, inclusive. I will point out that the increase in ton-miles moved in 1920 over 1919 was 13.55 per cent. The passenger-miles moved in 1920 over 1919 were 0.79 per cent. Although the passenger train miles moved increased 4.66 per cent, or over 25,000,000 miles. During the war of course it was necessary, in order to move the troops, that all unnecessary passenger trains should be discontinued, and that was done by the Director General. Fewer trains were run, and the people had to be crowded more in the cars that did run. After the end, of Federal control the people immediately de- manded restoration of the train service that had been taken off, and the war being over there was no real reason why conveniences that they had enjoyed for a long time should not be restored, in a measure in any event, and that is why it was that last year, in order to move only seventy-nine one-hundredths of a per cent more passenger miles the roads were obliged to run 25,000,000 more passenger train miles in order to meet the reasonable requirements of the public. My attention is called to the fact that even last year the increase that we made of 25,000,000 passenger train miles over 1919 was still 12,000,000 passenger train miles less than we ran in 1916 when we handled fewer people— 12,000,000 fewer passenger train miles. So the railroads are not yet given anything like the passenger train mile service that they were in 1916. Senator Stanley. And they are charging 150 per cent more for it. Mr. Willard. Charging considerably more, for reasons which I think we will make apparent. The tonnage handled in 1920 was the largest in the history of the railroads, being 9,000,000,000 ton-miles in excess of that handled in the year 1918, when owing to the nature of the business and the extraordinary measures taken, the greatest tonnage moved up to that time was transported. I show in the next table the costs for 1920 as compared with 1919, but as that table is substantially the same one as was submitted by the chairman of the commission, perhaps you will not care to have me read it. Senator Kellogg. It will go in the record ? Mr. Willard. It will go in the record, yes. (The table presented by Mr. Willard is as follows :) Class I railroads of the United States. Operating expenses. 1920 Increase. Per cent. Maintenance of way Maintenance of equipment Transportation Traffic General — , . : Miscellaneous. . , Total S772.186.045 1,226,532,195 2,168,646,844 47,673,883 141, 853, 136 42,823,412 $1,025,676,200 1, 572, 171, 561 2, 871, 434, 772 73,543,604' 169, 534, 387 56,359,489 $253,490,155 345,639,366 702,787,928 25, 869, 721 27,681,251 13,536,077 4, 399, 715, 515 5,768,720,013 1, 369, 004, 498 32.83 28. 18 32.41 54.26 19.51 31.61 31.12 Mr. Willard. I may say that the increased expenses of 1920 are roundly accounted for, as follows : 63553— 21— Vol I- -11 Digitized by Microsoft® 152 RAILROAD REVENUES AND EXPENSES. Increase in basis of cost, 1920 over 1919 — and by that I mean the higher wages and higher prices for material — amounted to $872,- 400,000, or 19.83 per cent. Increased service performed in 1920 over 1919 would account for $496,600,000 more, on a basis that I have elaborated in the next table, or 11.29 per cent, making a total increase of 1920 over 1919 of $1,369,000,000, or 31.12 per cent. The Chairman. Now that table is bottomed upon the increase of 9,000,000,000 ton miles ? Mr. Willard. No, 9,000,000,000 more than 1918, Senator. The Chairman. Nine billions more than 1918 ? Mr. Willard. And 53,000,000,000 more than 1919. The Chairman. Fifth-three billions ? Mr. Willard. Yes, 53,000,000,000 more than 1919. Senator Stanley. The trouble is that under the present basis the more work you do, the greater the operation of the railroads, the greater the deficit. .., Mr. Willard. In a way that is true; but that will not always be so, of course. The Chairman. Let us fully understand that Do you mean that in 1920 your labor bill was $872,400,000 more than in 1919 ? Mr. Willard. No ; the increased labor bill and the increased prices of materials compared with 1919 accounted for that. The Chairman. Have you divided that item so that we may know how much of it is labor and how much of it is material ? Mr. Willard. I don't know that I have done that sufficiently, but as I go on you will see that I have dealt with it, and perhaps you may want more information. The Chairman. How do you estimate the cost of the increased service for 1920 over 1919 ? Mr. Willard. I have elaborated that in the following table, Sena- tor, if you will permit me to read that. The Chairman. Very well. Senator Stanley. I want to get this in my mind at the present time. The net result of all your calculations is that the rate now charged does not compensate the railroads for the service rendered ; in other words, you are carrying freight at least at a loss, even though you have increased the amount of freight carried ? Mr. Willard. We are not carrying it at sufficient profit at the present time. Senator Stanley. Take it this way ; assuming 5 per cent on your stock, and an amount sufficient to meet your bonded indebtedness, you are carrying freight at a loss under the present rates ? Mr. Willard. The present rates with the present volume of business, together with the present basis of costs will not permit the railroads to continue under private ownership; there is no doubt about that. Senator Stanley. That is the thing I wanted to know. Mr. Willard. And if the rates do not go up, the basis of cost must come down, of course. Senator Stanley. And if the rates go up over what they are now you will destroy enough business to deplete Digitized by Microsoft® EAILROAD REVENUES AND EXPENSES. ' 153 Mr. Willard (interposing). I won't say that. It depends on what else goes up at the same time. I think we ought to keep this in mind, if I may say so, that rates last summer, when they went up to their highest point did not go up anywhere near as high, in terms of percentage, as prices of labor or commodities went up, and put into terms of commodities, the railroad rates on the 1st day of September, when the >new rates went into effect, were relatively lower than they had been in the last 15 or 20 years. Since then the prices of some commodities have come down and rates have not. Senator Stanley. Mr. Willard, in the Senate a great many ad- dresses have been made by the representatives of certain sections. In Florida it is claimed that citrus fruits and vegetables can no longer be shipped to the eastern markets ; that the increase of rate has absolutely absorbed all the profits of the producer. Senator Tram- mell stated, I think, on the floor— I know he stated otherwise — that in a shipment of a thousand boxes of oranges the railroad rate absorbed the profits, the shipper getting 10 cents a box ,for his oranges and that in shipments of lettuce and other vegetables ship- ped to the eastern market the prices received just pay for the cost of shipment, leaving nothing to the shipper. The same charges have been made with reference to the shipment of meats and live stock from the West. If that be true, an increase in rates will eliminate that traffic entirely. Mr. Willard. That is not always true. Senator Stanley. Whether that is true or not, I wanted to get that as we go along. Mr. Willard. That is not always true. And if I may be per- mitted, Senator, I would like to put in evidence now a statement that I had prepared with, reference to a statement that appeared in the New York Times not long since, and I think Senator Capper made a somewhat similar statement a short time ago about the rates on grain from the Central West to the eastern seaboard. Undoubt- edly the statement made by the Senator was correct, so far as it went, but it did not go the whole distance. I have been at some pains to analyze the statement that did appear in the New York Times, and it was substantially the same thing. For instance, it was said that the rate on wheat from Kansas City to New York was 30 cents a bushel, and the rate on wheat from the Argentine to New York was 10 cents a bushel. Both statements were substantially correct, but people do not eat wheat, they eat flour. And wheat does not grow at tidewater, it grows inland, even in Argentina, so I made some investigations to see what the whole rate would be. The rate on 100 pounds of wheat from Kansas City to New York is 56 cents. Or, if you reduce it to a unit of 60 pounds for a bushel, it would be 33.6 cents, including a milling in transit rate, so that when it arrived at New York it would be flour ready to eat: 33.6 cents for 60 pounds. It was somewhat difficult to find data concerning Argentina, because no wheat has been brought into this country from Argentina this year, and none was brought in last year. Some corn did come. But it appears that the average inland haul by rail to Buenos Aires, where it is shipped from the fields where it actually grows, is any- where from 60 miles up to three or four hundred miles, and the Digitized by Microsoft® 154 RAILROAD REVENUES AND EXPENSES. average rate, taking a normal basis of exchange of the peso to the dollar, of $0.42449 — and I won't take your time to analyze it, but I have the figures here which we obtained in Washington — it makes a rail rate in Argentina of $0,101 a bushel before it ever gets where the ship is. Then the ocean rate, when we investigated it — and this was the best we could find — was $0,136. The 10-cent rate had evidently been withdrawn, and the $0,136 rate and one other higher were both given by Argentine and British lines. There were no American lines running from Argentina to this country at all. The insurance amounted to $0,004 a unit of 6t) pounds, and that got the wheat' to New York, but not flour, and it had cost at that time about 24 cents to get the wheat to New York. Now, New York City is not a milling center; you can not have flour ground in great quantities there, and the average rate on grain to milling points such as Bridgeport, Springfield, Mass.; Baltimore, Rochester, and Buffalo, and all around, wherever you might go to the large mills, would be $0,124 out and just as much coming back again. Senator Pomerene. Do you mean the freight rate ? Mr. Willard. Yes, sir. So when you get around and get 60 pounds of flour in New York ready to eat it has cost you $0,336 for trans- portation if it came from Kansas City, and it has cost $0,489 for transportation if it came from Argentina. Senator Pomerene. Now, do I underatartd that your 33 cents and a fraction there includes the cost of milling ? Mr. Willard. No; just the railroad rate. Senator Pomerene. To the mill ? Mr. Willard. To the mill, and then back again. Senator Stanley. The cost of the flour plus the cost of the grain. Mr. Willard. I am trying to find what it will cost to get 60 pounds of wheat in shape to eat from the field in the Argentine to the city of New York. Senator Kellogg. Is there much milling in the Argentine ? Mr. Willard. I can not find out. I did not learn that there was, and I did not hear that any flour had ever been imported in this country. Senator Kellogg. So there is no rate on flour? Mr. Wtllard. No. Senator Kellogg. Mr. Willard, you spoke about a rail rate from Kansas City. The northwestern grain does not go to the east by rail. It goes by rail and water. Mr. Willard. Chiefly. Senator Kellogg. Almost entirely from Montana, North Dakota, South Dakota, and Minnesota, the spring wheat country. Did you investigate the rates on that by water ? Mr. Willard. No, I did not. But the difference would not be very great, Senator, and it would nowhere near make up the difference that comes here. But the statement of Senator Capper was correct enough, except it did not take into account all of the necessary elements. Senator Stanley. My question was not based upon the statement by Senator Capper. The Tariff Commission report on this same question shows that Argentine wheat has never gone to any part of Digitized by Microsoft® KAILROAD REVENUES AND EXPENSES. 155 the United States except a few southeastern ports that are so far removed from the western grain fields as to make the rate by water from South America available to that remote corner, as far as the wheat fields are concerned. Mr. Willaed. Yes. In a sense that was true of the 4,000,000 bushels of corn that came in the year before. Senator Stanley. Never got any further than New York Harbor? Mr. Willaed. It went up around New England and in that imme- diate region; it never went inland. Senator Pomerene. Four million bushels in what year? Mr. Willaed. Four million bushels came in in 1920. Senator Stanley. Most of it used by the Corn Products Co. Mr. Willaed. I can not say. In 1920, 4,309,000 bushels of corn came in, and it was distributed to points immediately adjacent to New York, and it may have been as you say. Senator Pomeeene. I assume this whole statement will be intro- duced in the record^ Mr. Willaed. Yes. (The statement presented by Mr. Willard is as follows:) May 10, 1921. Me. D. Willard: In reply to your inquiry with reference to an article published in the New York Times of April 16. The rate on wheat from Missouri River points to New York for domestic purposes is 56 cents per 100 pounds, or 33 cents per bushel. Grain shipped under this rate could be milled in transit at any intermediate milling point, in which case the through rate on the milled product would be applied from point of shipment of the grain to destination plus one-half cent per 100 pounds milling charge. We were able to obtain two ocean quotations on May 6, one from Lunham & Moore, New York, $7 per ton on wheat Argentine to New York, equal 19 cents per bushel; the other from Furness, Withy & Co., New York, $5 per ton on wheat Argentine to New York, equal 13.6 cents per bushel. The latter advises that their ocean rate does not include insurance, which approximates 15 cents per ton, equal 0.4 cent per bushel. Through the Department of Commerce at Washington we obtained a statement of the rates in effect on grain in the Argentine during February, 1918, which was the latest they had on record, although it is understood that their rates have been advanced as well as our own. The average rate, according to the 1918 figures, on wheat, is 23.9 cents per bushel, and on corn 16.73 cents per bushel. At that time the peso in Argen- tine was equal to the United States dollar but on the basis of the normal exchange the peso, or Argentine dollar, is only worth 42.449 cents, and on this basis the average rate on wheat, in American money, would be reduced to 10.1 cents per bushel, corn 7.08 cents per bushel. There is no milling at New York and wheat arriving at this port from the Argentine would have to be forwarded to some interior milling point for milling, the product to be returned to the New York market. The average rate from New York to milling points in trunk line territory would be 12.4 cents per bushel of 60 pounds with same rate on 60 pounds of the grain product returned to New York. Corn imported from the Argentine would be used largely for feeding purposes and on attached chart we onlv show the average rate to feeding points in trunk line and New England territories. Information from the New York Produce Exchange, received to-day, shows no wheat was imported from the Argentine during 1920. Of corn there were 4,309,000 bushels, which grain was distributed to points in New Jersey, New York, and New England for feeding purposes. In 1921 no wheat or corn has been imported from the Argentine. Archibald Fbies. Digitized by Microsoft® 156 RAILROAD REVENUES AND EXPENSES. MISSOURI RIVER WHEAT. ARGENTINE WHEAT. Wheat from Missouri River points to New Average rate from Argentine York milled into flour in transit pavs grain points to port, per bushel rate of $0.56 per 100 pounds; f0.336 per of 60 pounds TO. 239 unit of 60 pounds. === On basis normal exchange ($0.42449), per bushel of 60 pounds $0. 101 Ocean rate, per bushel of 60 pounds 136 Insurance, per bushel of 60 pounds 004 Average rate grain to mill, per bushel of 60 pounds 124 Average rate flour to New York, per unit of 60 pounds 124 Total, per unit of 60 pounds 489 MISSOURI RIVER CORN. ARGENTINE CORN. Corn from Missouri River points to New Average rate from Argentine York milled in transit pavs rate of grain ports to port, per bushel $0.56 per 100 pounds; $0.3136 per unit of 56 pounds TO. 167 of 56 pbunds. ~ On basis normal exchange • ($0.42449), per bushel of 56 pounds $0. 0708 Ocean rate, per bushel of 56 pounds 136- Insurance, per bushel of 56 pounds 004 Average rate grain to mill, per bushel of 56 pounds . 124 Average rate product to New York, per unit of 56 pounds. . .124 Total, per unit of 56 pounds . 4588 Corn from Missouri Riverfpoints to New Argentine' corn consumed at in- York for feeding pavs rate of $0.55 terior points; average rate from per 100 pounds; $0,308 per bushel of Argentine grain points to port, 56 pounds. _ per bushel of 56 pounds P0.167 On basis normal exchange ($0.42449), per bushel of 56 pounds $0. 0708 Ocean rate, per bushel of 56 pounds 136 Insurance, per bushel of 56 |h> pounds 1 004 Average rate grain to interior, per bushel of 56 pounds 124 Total, per bushel of 56 Bounds 33-18 PROM INTERIOR ORIGIN POINTS. Wheat: Average rate to port, per bushel of 60 pounds TO. 2:.C. ffl/f/VS/F £7/7So 96 o J4o 9xo ^oo 380 &60 £00 7<$o x ?** % ?*o S 7 oo K 6SO eeo 6<9o 6ZO — — - — — — /.OSO . _ „ - /. 0+0 — 1 — - — r*K — 1 '*••. /.ooo _ _^_. . > fei~ 7~ — — _. - J V ft / — t i ^ ■" ^ C/- ^^«? \— — ■ - — _ — — t b k A T 1 ^ - > H t — ^ \ I ^s_ 9*0 — — - - — / — / — ~T ■■■j" — - _/ 1 r • • 1 \ 1 \ f^O - — |0 / \ 7i j — 1 1 5,«i ( 0H — ~^ ^E»L 1 V ri-- . /_ \ X 900 — — — — ^ -\ r — | V x —i \ 1^ 1 \ A_. » I IF < 1 >^ 1 0&O — 1 -y * 1 >*■« X j 5 ^1 •l y s 1 - - T v — 1 , i a. 06O - — '«-- J i -> » f- (-'« t 1 l 4 T~ f- A \ f \ ^XL ;■'■ « \ I — r % / '- # _t_ - 9 « 1 i h y i \ i K - >'■ 'i J /lw. '. -14 -T» \ &00 ^^ t . o( I'' 1 ' 9 1 • - 1 i _- / 1 V bur » 1 \v • ' % / 7 \J fn« 1 ! LL i S % / tf t f 1 \ / V T 1 ^ ! / "V^ * - -t > / \ N » ,/ I 1 j ■ Si 1 V ^ \ J 1', r - * -— 1 V / S^- ^ — — \ 1 1 1 — 1 - - - Hi, ft - '-co \ , ' 1- / t "j V / X^, • ! » T*T* s A — \ / ' 'to" K V ' ?+o ^J — r -N / - 1 1 / - — — — — -— — / — 'N k- I & > s f K ** yr — — - T^ $ 3 1 V i -/• P j: ( -^ r \ I / 1— ■—■i — V 6SO (^ VI ± V V /> • • $ "I 1" $ — - — - 1 1 ? : E \ -- 1 -t 9 — - — -- * 1 1 \ f 1 • 9 ' - - — - — — — - — - I 600 j&e 3~£C J^o JTXO j-oo 4So ■feo ■4+0 ■420 1 i — - - - 1 1 — , -- ~i 1 - - — - — — — — — 1 - — - — — - — — — ■— ■ — ~ - . s-jio 1 "* J S~oo ■&&0 -f-6o — — ■4+0 4zo 3&o S60 D W ; i; c/j by /I lie TC )Sl 3« (s) ^00 360 03533 — 21. (To face page 167.) Digitized by Microsoft® RAILEOAD REVENUES AND EXPENSES. 167 Mr. Willaed. In November and December, 1920, traffic was declining as compared with the previous months. The Chairman. I mean, beginning with March 1, 1920. Mr. Willard. We did not attempt to relocate cars early in the summer. During the summer the cars were handled quite generally regardless of ownership. The Chairman. That onlv refers to November and December of 1920? Mr. WnxARR. Yes, sir. I should have made that clearer. My attention has been called to the fact that something has been said about movement of cars early in the year. That is simply with regard to moving empty cars as may have been necessary to care for the business and not the movement of cars onto home railroads. In this connection I would call attention to the following as re- flecting the situation respecting bad-order cars : Total ears owned. Home ears on home lines. Per cent of cars owned on home lines. Total bad order cars. Per cent. Jan. 1, 1918 Mar. 1,1920 Mar. 1,1921 Apr. IS, 1921 An increase over Jan. 1, 1918. . 2,264,019 2,328,460 2,346,638 2,346,269 1,118,856 507,887 1,570,485 1,683,884 21.9 67.0 71.8 128,780 153,727 243,586 289,771 160,991 5.7 6.7 10.7 12.7 I think I explained fully yesterday that the basis on which these figures were arrived at was not the same basis at the end of Federal control as at the beginning of Federal control. I also explained on yesterday that the increase in bad order cars was due to two causes, (i) to getting them home* where they could be carefully inspected and their true condition learned; and (2) restriction in maintenance ex- penditures by the companies during the last two or three months. [Reading:] "Summarizing 1920 operations compared with 1919, it is shown that after providing for the increased bases of costs in the way of increased rates of pay and increased prices, the additional increases in expenses in 1920 over 1919 are not out of line with the increased service performed — indeed it appears there was a measure of economy. That the increased business was not productive of an even larger proportion of net was due in part to the handicaps encountered by reason of the so-called "outlaw strikes," the necessity to relocate equipment, with consequent increase in empty car mileage, and the fact that a large number of cars were not in condition to operate and an even greater number were not in condition to handle the traffic for which they were designed." I have another chart that I desire to file. I filed some charts yes- terday 'showing the effect of the outlaw strike on the accumulation of loaded cars, awaiting movement. I have here and now hand you a chart which shows, in diagrammatic form, revenue cars loaded dur- ing the months of the year. You will note that from 865,000 cars loaded on January 15 it went down to 585,000 in the week of April 16, 1920. That was the period of the strike. .Senator Poindextek. Speaking of loaded cars, do you mean cars actually loaded ? 63553— 21— Vol I- -12 Digitized by Microsoft® 168 RAILROAD REVENUES AND EXPENSES. Mr. Willaed. Yes, sir. You will note also that after the number of loaded cars got down to the low figure of 585,000 per week it was nearly four months before the line on the diagram shows the number loaded back again to where it was in 1918. It was influenced largely by the fact that such an unusually large number of loaded cars were out of service awaiting movement, bad order condition cars, disorganized condition of the service growing out of the strike — all these kept the railroads from getting to going again at the gait at which they were going somewhere along in the middle of March. In August you will notice that the red line goes up as high as any line, and in October it got above where it had ever been. It was only in October that the railroads fully recovered from the condition existing early in the year and caused by the strike. I now propose to give you the figures as to operations from 1912 to 1920, both inclusive. I am furnishing these figures because of that Eart of the resolution which asks for figures for these years. I have' ad prepared a statement (marked "Exhibit B," l and which will here- after be presented for insertion in the record) of the income of the Class I roads of the United States for the fiscal years ended June 30, 1912 and 1916, inclusive, and for the years ended December 31, 1916 to 1920, inclusive, and for the 12 months ended February 28, 1921. This statement shows : Class I roads. Twelve months. Net revenue. Operating ratio. Net operating income. Return on property value. To June 30— 1912 $845,911,733 934, 897, 652 827,903,151 850,402,433 1,170,705,080 1, 239, 467, 354 1,184,817,623 898,885,283 745, 079, 639 402,773,288 350,114,473 Per cent. 69.84 69.92 72.69 70.39 65.38 65.54 70.48 81.58 85.52 93.47 94.33 $708,484,383 787,610,435 661,018,147 683, 104, 833 984, 872, 959^ 1,040,084,517 934,068,770 638, 568, 603 454,984,953 61,928,626 2,090,975 Per cent. 4.84 1913 5.15 1914 , 4.17 1915 4.20 1916 * 5.90 To Dec. 31— , 1916 6.16 1917 5.26 1918 3.51 1919 2.46 1920 .32 February, 1921 .0109 The Chairman. In this statement do you use the term "net operating income" in the sense that I used it the other day ? Mr. Willard. That is money available for interest after payment of taxes; it is the amount of money available for return on the in- vestment. The Chairman. It means after the payment of the expenses to which I referred the other day ? Mr. Willard. Yes, sir. Notwithstanding there had been a con- stant but slight decrease in the rate per ton per mile on traffic handled, and a gradual increase in prices of commodities and in rates of pay, there was no abnormal change in net revenues, and the operating ratio averaged about 70 per cent for the period 1912 to 1915, inclusive; due, however, to increase in taxes and continued expenditure of addi- tional capital, the return on property value during the same period had declmed. It seems to me that 1916 is a better year than 1917 > Exhibit B will be found on p. 184. Digitized by Microsoft® RAILROAD REVENUES AND EXPENSES. 169 as a basis for comparison, because 1916 was the last year of railroad operation before we began to feel the result of the war; 1916 was a typical year. The Chairman. 1916 was when there was the largest net operating income in the history of the railroads ? Mr. Willard. Yes, sir. Senator Pomerene. When you say "typical year," what do you mean? Mr. Willard. Perhaps I should not use the words "typical year," but should have stated that I meant the best results were attained then, under private ownership; we handled the largest volume of business in that year. The Chairman. That is the only year when net operating income went over a billion dollars ? Mr. Willard. Yes, sir. The following year was not as satisfac- tory, resulting from rerouting of traffic, and the workings of the Adamson law, war conditions, and so on. Taking 1916, which is selected because it was the last full year pre- ceding the radical changes that have since occurred in both revenues and expenses, and comparing it with the year ended December 31, 1920, there is noted a change in the ratio of expenses to earnings from 65.54 per cent in 1916 to 93.47 per cent in 1920 — and this notwith- standing the freight ton-miles increased 19.38 per cent, while freight train-miles actually decreased 1.14 per cent, due to an increase in tons per train-mile from 565.16 to 646.67. During the same period. there was an increase in passengers carried 1 mile of 35.09 per cent with an actual decrease in passenger train- miles of almost 2 per cent. Ordinarily a condition such as indicated by these figures would have resulted in a lower operating ratio, with a corresponding increase in net revenue. The Chairman. By the words "net revenue" I suppose you mean net income. ? Mr. Willard. Yes, sir. The Chairman. Attaching the terminology of the Interstate Com- merce Commission to it ? Mr. Willard. Yes; but I think perhaps net revenue is a better expression here, because I am talking about the result of operation. This comparison clearly demonstrates that the increase in the basis of operating expenses had in 1920 far exceeded the increase in the basis of operating revenues. The extent to which the increase in operating expenses had outstripped the increase in rates may be more strikingly shown by applying to the business actually handled in 1916 the increased rates and charges and the increased basis of expense which actually obtained for the year 1920. You have before you Exhibit D. 1 The particular statement which I am now going to give, you refers to Exhibit D, and only refers to carriers in the eastern region. I have another statement which applies to railroads as a whole, but. this particular statement was prepared in connection with the rate case of last summer, and the calculations were, apparently, acceptable to the Interstate Com- merce Commission, and that is the reason why I am using them again. I think they are fairly illuminative of the whole situation. These figures show: i Exhibit D will be found on pp. 185-186. Digitized by Microsoft® 170 RAILROAD REVENUES AND EXPENSES. Effect of increased transportation charges and increased bases of expense, year 1920, applied to the total business of the eastern carriers during the year 1916. Increase in revenues derived from: Freight — Interstate Commerce Commission authority, 15 per cent case, etc. (1917 and Mar. 21, 1918) $158, 462, 984 , United States Railroad Administration, freight increase 25 per cent (June, 1918) 337,007,051 Interstate Commerce Commission authority, ex parte 74 (Aug. 26, 1920) 196,348,667 Passenger- United States Railroad Administration, passenger increase 26.98 per cent (June, 1918) 86,803,036 Interstate Commerce Commission, authority, ex parte (pas- senger) 74 (Aug. 26, 1920) , . : : 31, 503, 355 Interstate Commerce Commission, authority, mail increase 55 per cent (Dec. 23, 1919) 12, 554, 149 Interstate Commerce Commission, authority, express increase. 13, 383, 514 Miscellaneous increase, estimated 28, 944, 033 Total increased revenues as above 865, 006, 789 Or 51.68 per cent. ===== Increase in expenses, taxes and rents: Rates of pay (per hour) 140 per cent 947, 816, 762 Fuel, 230.57 per cent 260,872,312 Materials, 107 per cent 225, 716, 572 Miscellaneous (claims, freight-car repairs, joint facility operations, etc., estimated) 130 per cent / 163, 249, 277 Taxes 48, 654, 904 Hire of equipment and joint facility rents 25, 483, 586 Total increase in basis of expense 1, 671, 793. 413 Or 136.34 per cent. ========================== Net increase in cost over increase in revenue 806, 786, 624 This computation does not reflect the full weight of increased basis of costs as it makes no provision for increases due to certain changes in working conditions. It will be noted that while the expense basis of 1920 over 1916 was increased 136.34 per cent the revenue basis during the same period was increased only 51.68 percent. As a result the ratio of operating expenses to operating revenues which in 1916 was actually 67.32 per cent, becomes 107.31 per cent when revenues and expenses are restated to 1920 costs and revenue basis and instead of earning a net railway operating income of $447,541,000, as was done in 1916, there would be a deficit of $359,245^000. I have assumed that we are attempting to do over again the busi- ness done in 1916 with the rates and wages and working conditions that were in effect in 1920. The Chairman. Were not your other expenses also increased ? Mr. Willard. Yes, sir. But I have analyzed them here. Senator Smith. You are applying cost conditions to the business done in 1916, I mean the cost 'conditions of 1920 ? Mr. Willard. I am applying all conditions under which the busi- ness was actually done by the railroads in 1920 — the railroads in the eastern district — to the business done in 1916. Senator Poindexter. You have not -done that as to all of the railroads ? Mr. Willard. Yes, sir; in another statement, in a little different way, but we get the same end. Senator Smith. In your statement I notice you referred to the freight increase of 15 per cent and of 25 per cent and then a later one. Is that all cumulative ? Mr. Willard. Yes, sir. Digitized by Microsoft® BAILEOAD REVENUES AND EXPENSES. 171 • Senator Smith. You add 15 per cent, and then to that you add 25 per cent, and on to those two you add the Interstate Commerce Commission's authority for an increase ? Mr. Willard. Yes, sir. And later on here I show all of the in T creases. Senator Pomekene. I noticed that you read under increases in expenses a statement about 140 per cent increase. Does that apply to your entire pay roll % Mr. Willard. It takes the man-hours worked in 1916 and the man-hours worked in 1920, and they were divided into the total wages of the men to get the average price paid for a man-hour of work. Senator Pomerene. Does that mean that the average rate of pay was increased 140 per cent ? Mr. Willard. Yes, sir. We have had to lump together all kinds of men, skilled and unskilled, to get up this statement. There was no other way to get at it that I know of, but presumably the ratio between the different classes was the same. Senator Pomerene. And it was on that theory that you made this calculation 1 Mr. Willard. Yes, sir. Senator Smith. I noticed that you read a fuel increase of 230.57 per cent. Mr. Willard. Yes; and that item is included in the general item "increase in expenses, taxes, and rents." It was carefully prepared for the eastern rate case last summer, and the Interstate Commerce Commission raised no question as to the accuracy of these figures. Senator Smith. What was the increase in taxes ? Mr. Willard. The increase represented $48,654,904. In other words, going back to 1916 and doing the business over again under the conditions prevailing in 1920, we find that charges had increased— freight and passenger — 51 per cent, but the cost of doing business by the railroads was increased 136 per cent, or- a, net increase in cost over increase in revenue of $806,000,000. The Chairman. That means that instead of having net operating income, as was the case in 1916, of a billion dollars plus, if you had been doing business in that year under the conditions prevailing. in 1920, you would have had a net operating income of about $200,000,000? Mr. Willard. Not quite; this statement only refers to the eastern railroads. I will cover all of the railroads in the next statement I present. But what this really does mean is found in the paragraph at the bottom of the page, where it says : As a result the ratio of operating expenses to operating revenues, which in 1916 was actually 67.32 per cent, becomes 107.31 per cent when revenues and expenses are restated to 1920 costs and revenue basis, and instead of earning a net railway operating income of $447,541,000, as was done in 1916, there would be a deficit o 1 $359,245,000, which is for the eastern carriers alone. Senator Poindexter. You have spoken of not taking into account working conditions. Have you taken those into account at all ? Mr. Willard. I have not, because, as I understand, Mr. Whiter ia to appear here, and he is more familiar with that matter. Senator Pomerene. Can you state for the benefit of the record what those changes were ? Digitized by Microsoft® 172 RAILROAD REVENUES AND EXPENSES. Mr. Willard. I fancy the majority of the conditions that have been referred to in connection with the national agreement could not have been very, well taken into this statement, because we have no basis upon which to calculate them. Those were things I had in mind particularly. Senator Pomerene. That is the national agreement made by the Railroad Administration ? Mr. Willard. Yes, sir; as further illustrating how the upward trend in expenses exceeded the increase in revenue, there is submitted statement marked "Willard Exhibit C," which includes all railroads. Comparing the year ended December 31, 1920, with the year 1916, it will be noted that the passengers 1 mile increased 35 per cent and the net ton-miles increased 13.35 per cent. Notwithstanding the increase in passenger and net ton-miles handled, there was an actual decrease in the total train-mileage of 1.51 per cent. The total hours on duty of all employees in 1920 was 7.68 per cent larger than in 1916, while total wages paid in 1920 was 151.82 per cent greater than in 19l6. Taking the business as a whole, revenues increased only 71.58 per cent during the same period, while total expenses increased 141.71 per cent. ' For 1916 the total operating revenue was $3,596,865,766, and the net railway operating income applicable to interest and other corpo- rate purposes was $1,040,084,517. The increase in revenue 1920 over 1916, due both to increased traffic and increased rates and charges aggregated $2,574,627,535; total wages increased, $2,229,639,957; cost of fuel increased, $452,- 229,229; total increased cost of wages and fuel, $2,681,869,186; other expenses increased, $729,452,415; a total increase in expenses of, $3,411,321,601, or an increase in expenses in 1920 over 1916 in excess of increase in revenues of $836,694,066, and correspondingly reduced the net operating income, which becomes $203J390,451. From this there is to be further deducted increases in taxes, hire of equipment and rents, etc., $141,461,825, leaving the net operating income in 1920 available for interest and other corporate purposes $61,928,626, as compared with that earned in 1916 of $1,040,084,517 , Digitized by Microsoft® RAILROAD REVENUES AND EXPENSES. 173 8! so "S I &. I a ■ 3 S §■ ■S =5 I SB —i W A* gig bow > ,ggfc t2 *-* m * «.2 ■S3 e£ ?3 S m 53 io S3 CO »H CO ^* CO 03 • t-QO^-ld T-tCOl-l «3 tH 00 .-I CN «5 ■fl? t- tO 00 SO M ft -*Iion W WOO 6 00 £- 'oa'cfOT'oo' I -r lOjlWCJliOrl CO 00 OS CO t- ■* «3« co»ocor-i>. S-J<»OpiC»M soNircr^fi-r^dr air-i oo"* t*.r»- IOOOCHH io OCOO)OM^>0 UJCONQH CO ■ to co oo ■* pS tj; rt HrtNUJtOW «2 CT> OS o o ■* c OWi-i NOD! (TiTpo'prco'crhf'Cl WKJiOOOOOiO co-cgONO i-i co 00(0 t-o o . - - - _ .. -co i> ■* co i— i »o r— i-h ^■1 ^J i-H lO IO CO id*crjH*QVN*tO* (OOOWCDn Ol CO TH C3S "* iO co'sp'tfco ■* cj (3 ED ED aimcn cno> fli Digitized by Microsoft® 174 RAILROAD REVENUES AND EXPENSES. Senator Fernald. Mr. Willard, can you tell us about the bond interest that has to be paid out of.that? Mr. Willard. There was nothing included in these operating ex- penses for return on property at all. Senator Fernald. No; but the interest on the bonds must be paid out of that. Mr. Willard. Yes, it must be paid out of something, but there wasn't anything to pay it out of. Senator Fernald. That is what I thought. Mr. Willard. I understand the amount of interest that had accrued during- that period was $640,000,000, against which there . was an earning of only $62,000,000. Senator Fernald. Yes. Mr. Willard. I will now pass on to railway operating income, following change in rate structure under Ex parte 74- I now discuss the rate increase that was made last summer, known as Ex parte 74, and the results flowing from that increase. Question has been raised concerning the failure on the part of the railroads to realize the anticipated net returns incident to the in- creases in rates and charges approved by the. commission under its decision in what is known as Ex Parte 74, and whether the railroads in their presentation to the commission failed to correctly forecast the results. This situation, because of the varying conditions and the difference in the rate increases in the several territories, can best be considered by the groups or districts adopted by the Interstate; Commerce Commission in Ex parte 74, and as I am more familiar with the eastern district, I will confine my remarks chiefly to the figures relating to that group. But I think I can fairly say that those figures are illustrative of what took place in the other groups. It will be recalled that during Federal control operating costs had been largely increased by reason of increased prices of all commodities and higher" rates of pay granted from time to time, and that while some increases had been made in the rates and charges for transpor- tation, such increases were not sufficient to maintain the revenues in proper relation to expenses, resulting in a failure of the railroads during the operation under Federal control to earn the agreed com- pensation, the deficiency in large measure becoming a charge on the Federal Treasury. The maladjustment between the revenues and expenses of the carriers still existed when on March 1, 1920, the railroads were released from Federal control. It was with this in mind that Congress, practically extended the period of agreed com- pensation for six months from March 1, 1920, during which time it was expected the necessary adjustment of rates and charges would be made. Prices of commodities generally continued to advance after the termination of Federal control, reaching the maximum in June or July, 1920. In the case of coal, more especially in the eastern district, where, because of unusual foreign demands there was a strongly competitive market, prices were exceptionally high, reaching the maximum perhaps only in October, 1920. I will present a statement, marked "Exhibit A," 1 showing the figures prepared by the eastern carriers and submitted to the lnter- i Exhibit A and a supplemental exhibit marked "A-l" will be found on pp. 182-183. Digitized by Microsoft® -RAILROAD REVENUES AND EXPENSES. 175- state Commerce Commission in support of their recommendations with respect to rates and. charges necessary to, provide the basis of return contemplated under the transportation act. The computa- tions are for a constructive year ending October 31, 1919, and. are based upon the amount of business actually handled during that. period. Senator Pomerene. What do you mean by " constructive ? " Mr. Wtllard. I will explain that, Senator. When this rate case was being prepared there, were not available figures for up to the» close of the year. The official figures which had come in and could be compiled at that time were no later than October 31; so a year beginning 12 months previous to that time and ending October 31, 1919, was taken, a constructive year, because it was the latest that, could be fully developed. In this statement both revenues and expenses were adjusted so as to reflect a full year's operations on the basis of rates, charges, and costs in effect at the close of the year or, rather, adjusted to the basis- in effect at March 1, 1920. On this basis it is shown that the eastern carriers, if they were to do over again the business actually done during the 12 months ending October 31, 1919, on the bases of costs existing at March 1, 1920, would have earned a net railway operating income of only $18,008,219, and consequently would have failed by $541,401,715 to realize a return of 6 per cent upon the value of the, transportation properties so employed. This difference, $541,000,000 which is the difference between what they did earn and what was assumed to be a 6 per cent return upon the value of their properties, represented a sum equal to 20.94 per cent on all revenues, or 29.75 per cent on' the freight revenues of the eastern carriers in that period. It was on the basis of this computation that the railroads recom- mended an increase in freight rates of 30 per cent in the eastern district, it having been shown that 30 per cent on the freight rates in that district would make up the deficit of $541,000,000. Subsequently, on July 20, 1920, the United States Railroad Labor Board handed down its decision retroactive to May 1, granting in- creases in rates of pay estimated by the board to involve an increased annual expense to the railroads of the country as a whole of about $618,000,000, and of this amount it was estimated that approxi- mately $314,000,000 would apply to the eastern district. To provide for this additional cost the carriers recommended a 20 per cent increase in passenger and miscellaneous charges, a sur- charge in parlor and sleeping cars (50 per cent of parlor and sleeping car rate), and a further increase of 10 per cent in freight rates. Senator Smith. That would make the increase then 40 per cent ? Mr. Willard. That would make 40 per cent in freight rates; yes. Senator Smith. Yes. Mr. Willard. In practice, however, it developed that the effect of the increase in rates of pay involved a somewhat larger sum than the estimate prepared by the Labor Board. Coincident with the award of the Labor Board it became necessary to make like adjust- ments in the compensation of other classes of employees and super- vising forces. The Labor Board did not take into account the official staffs of the companies in making its award, but of course their wages, at Digitized by Microsoft® 176 RAILROAD REVENUES AND EXPENSES. least of officials up to a certain rank, had to be adjusted propor- tionately with the wages of the employees. It would hardly be practical to have an engineer, we wdl say, receiving more wages than the superintendent whom he works under, and on that ac- count certain adjustments had to be made. Senator Smith. Well, didn't that actually exist for a good long time ? Mr. Willard. Well, now, I can not answer that. I don't quite know what you mean by a "good long time," but there was a mal- adjustment there? Senator Smith. Well, wasn't there a period when employees of a higher grade received considerably less pay than employees of a lower grade ? Mr. Willard. I think that is a fact, Senator. Senator Smith. Yes. Senator Pomerene. Carrying out the thought of Senator Smith, I happen to have a photostat copy of the payroll of a wrecking crew on the Pennsylvania Lines for two weeks in the month of January, 1919, in which it appears that the men doing the ordi- nary work on the wrecking crew got twice as much as the wreck master. Mr. Willard. I think those cases occurred frequently, so I have been told. Senator Pomerene. That was under the. director general. Mr. Willard. Yes. Mr. Thom. Is that offered for the record, Senator? Senator Pomerene. I will offer it later for the record. Mr. Willard. The total increases directly and indirectly attribut- able to the decision, as indicated by compilation of the Interstate Commerce Commission based on returns of the carriers for the month of July, 1920, aggregated about $60,000,000 per month, or approximately $700,000,000 per annum. Of course, the forces employed m July are not one-twelfth of the forces all through the year. If they had been, the increase on that basis would have been $720,000,000, but taking the usual proportion of the forces and applying $60,000,000, would show that in estimating the award of the Labor Board at $618,000,000 it was underestimated about $82,000,000. It should have been about $700,000,000 per annum. Mr. Thom hands me a report which was prepared by the Inter- state Commerce Commission based upon a special inquiry, which I have just referred to in my statement, and I will place it in the record. (The statement presented by Mr. Willard, together with a sta- tistical table, are as follows:) increase in compensation of railroad employees resulting from decision no. 2; united states railroad labor board, rendered july 20, 1920. Interstate Commerce Commission, Bureau of Statistics, Washington, March iS, 19%1. The attached compilation is the result of an inquiry by the Interstate Commerce Commission through Statistical Series Circular No. 12, issued October 5, 1920. The compilation relates to the single month of July, 1920. As switching and terminal companies are not included, the number of men reported as in service at Digitized by Microsoft® BAILROAD KEVENUES AND EXPENSES. 177 middle of month is somewhat below the corresponding figure appearing in the regu- lar quarterly statement of .compensation and employees for the third quarter of 1920. For 1920 the rates of pay resulting from decision No. 2 were effective for eight months only, being retroactive to May 1, 1920. The expressions "payable" and "not payable" in columns (f) and (g) refer to the fact that in some cases the computed increase was not payable because 1 the employees whose names appeared on the pay roll had not remained in the service of the re- spondent. It will be noted that the increases in compensation are those resulting from decision No. 2, regardless of whether or not they were specifically covered thereby. Some per-' sons, for example, classed as general officers or their assistants, received advances in salary to maintain a relation between their salaries and those of other employees. (The table follows on p. 178.) Digitized by Microsoft® 178 RAILROAD REVENUES AND EXPENSES. •1 •s . s £ C3kJ h § .s e e'-S ■ob II «*> ? S =0 & ° M a o 1 &§ 3 - *>£? CO p O HrtHN«NHHNi-tMHHHNH«WHHHH ■g H"tO(»CO()nNO,!OC»'!''1'H«|HlO*U3H* Ht-OiO«« I* sis 1. ^ -p 3 OS 13 2 +3 5figs.S§ p o o ** jg Mo3 _, O O . JfiSlg&gat slls 05 -H ^-r- Hag h (S O Oai-inr5SoCS|i-HCN>-HOJt^OQC'*OQO^-iOi»r>t-Mt*-I--Q «3«3CCOOSDt*OSMGaO>C01NU3«t>-«D«D"«rO>f5«ni-HOO r-j to ■* (M rH CN t-I (OH^Nffl-' rH COCO CQtM OOt«.itl'*NOOlOOtpiflN«OOa3'-lHmffl'*HNO) m«opiracc«xb-'*eftOQOu5-#iflgi-*«DOD(ooo-*im i-«i-i ; 3iOi»GONr-03mooooo3i>.tt>o»ibeM«5i-Hi-''*o jP3«Srt"*OOOCpN!OOH< 3c0(O QOOatDCO CC*' )OOSCD iKCfl«JI--OOC>lW^-'t^ajQCiCO«b;CJOC«3»0«POW50'>*ii- loOCN ^-i^-(*o looeoH ■ac-i too NNOC NMCC NHOOfflCM 00HOO5DN eoc* SS" • OSrH ■ 00 t^ QCNNMONKl ■ T»«00C» OS CI t— CO 00 00 Q lOSMOi OJ •-* « CO rH »Q c5 >oocc 5»HiH tN ■00»O- efeo 1 '«-r«D"c -i I-- N oo ■* o a eCTt*iOM00^H«3CMt^.COC3ilOr 5coai»OQO'o»ratt>«cC'' DHionoaooNa HtDQCt^eOiHOOOCNIf ss; o o g oi g S § 2-P-P^'S a § S.B5 &§ S OoQQooS Digitized by Microsoft® RAILROAD REVENUES AND EXPENSES. 179 H^NS«SHHHHHWrtHHHSNHH«N««NNS«H«H«HHHM«Hl!v|HH os»o rlOJP- S« C4ti ■I o cn o io o O'foNaHHa CG CJ> t- 'O BOO^Nto«co«c»c^^oicoOiO*#cXt^eboi^cM^weS«cooi eo»oco o r-t ,-( oi oo o co — i i-H ^ o ■* m i-h i> Tt» -ih "^ im so ■* »h HftiflOl CO WWri •* afcT^-rc) 5i-l NOCDW COC QNOXOtDIDOO HN(D tH ■* "* N «D -* i-H mm t- oingo ■*COOS s"§"sf C0--HCO CQ H(N U3HO^ , *M 1 flH^'*'*10ai0'*C0i-l'0 oTicfr4"of pf ,-TesTi-T *-Tcfe>f ofi-T ^coVfod* i-Taoao'vS'tD'i-fmcfci' of »-? <-** COCO ^H CO iO CO N(DH 3©r-l SS5 i-H ooTjp »ra oo c « os ooT- -*ooiooo«3oob-ooooocNieacn« S®cs^coc3'«Nirat^eaM5'*oo j *csir-« ■* CO 00 Tfl NO Ost*00lO00Oil>-eO'*^O U3 , i^uf«"rt^i^co*o6~oo"oo"^^ofcfc<'r-reo' Om0Jt-00tpHNWNCBO<0'nNQ0C»'0INQt>. r-^eoiHi^CT^r^^we5s^oi««oicoNi^co««)0«c^tDoocoi>c»o-*j* oT^igWi-rt^'csr , iSr^oSooct^'ci' ■^Tgp'co' SOS t<- ^ OS OS ■oomaoo MOONW3HHIN-* OO w (M "3 iO 00 55^ o"^«r HHNM'QO>-*CSHNMNHNOD«ei|f-Qa3 000(iO«'0'n'*iOCi|T|'(DQONNO>0>OroNH 00OQH0Q^NCn^ONlonC0^^t0C04Hl^O^^C4WtDMNfflNiO«HNCriO'*N»ffl©'*OHa(0>0«I>00 o^co^r-TejTr-roreo'r-r sD - crod'co"Worco"' ON 00 -^ OOrH cnTioVT 3-S S ...s Pi S oJ « cfl o i 2 ® 8 & 9-2 •' *9« ;-.,'-; -, ,..:, rj HUHg 1 W S> » 0J 03 &UJ3 jj 5 . d III l£jsf# 211 S1&3S3 H £ ® s SSB-S a &» s |8« "SB'S 'lis, air Ho .1 II* a ■a c 'E'S'S'E C3 c3 o3 oS >^a OT f*fe i Tat) S^ ISlllllalpdMll ■a-% f -a* sagas gSS iii>S a 2 s Digitized by Microsoft® 180 KAILEOAD REVENUES AND EXPENSES. Mr, Willard. Of the amount of $700,000,000 per annum applying to all the roads in the United States it is estimated that about $356,- 300,000 would apply to the eastern roads, an excess of $42,000,000 above the amount they put in their figures when they asked for increased rates. -They faded to take into account that particular item of expense. The decision of the commission in granting its increases did not yield to the railroads what they had expected they would get, for the reasons I will mention. The commission granted increases in rates and charges for the eastern district as follows: Forty per cent in freight on traffic local to the district, and 33 J per cent on all traffic going out of the district or coming into the district from the other groups Traffic going south of the Ohio River or west of the Mississippi River, or through other boundaries into other groups, only gave an increase of 33 J per cent to the eastern carriers, and the effect of that was to make the average increase of all the freight charges in the eastern group instead of 40 per cent, about 34 per cent, as near as we can estimate it. Now, if the full amount of 40 per cent had been granted, the in- crease resulting therefrom would have been $723,422,256, estimated. The amount that actually was granted gave an increase of $618,- 749,085, or a difference of about $105,000,000. In other words, the character of the decision given by the com- mission yielded $105,000,000 less revenue than we asked for, and the mistake of computation in wages resulted in our not asking for $42,000,000 that we ought to have asked for, so that taking the two together there was a difference of $146,673,000 from the results that we hoped to obtain. Our estimate was that we required about $559,409,000 net oper- ating income in the eastern region to yield 6 per cent on the property investment, and it was our thought that the increase we asked for would yield that, but because of the two things I have mentioned it only did yield, applied to the business of 1919, $412,736,000, or about 4.42 per cent on the value of the property. To that extent the rate increase did not yield the results that we had expected it would if applied to the business of 1919. Of course, to-day that same result is applying to a much lesser business, with correspondingly dis- appointing results. There was a marked increase in traffic during 1920 up to and in- cluding October, followed by a sharp decline in November and De- cember, the decline, in fact, being so rapid that it was not possible to adjust maintenance and operation methods so as to at once effect corresponding reductions in expenses. The increase in rates granted in Ex parte 74 became effective in large part but not in whole in August, 1920, and the months of September and October of that year measurably reflect the effect of the higher rates in relation to the incr&ased bases of costs. The net railway operating income of the carriers for these two months projected on the same basis for -a 12 months' period would give an annual net railway operating income for the year as follows : CLASS I RAILROADS OP THE UNITED STATES. September and October, net railway operating income, $159,765,798. Same, projected over 12 months' period, $778,388,507. Return on valuation, as used by commission in Ex parte 74, 4.12 per cent. Digitized by Microsoft® RAILROAD REVENUES AND EXPENSES. 181 The returns for these two months, as projected through a 12 months' period, fell much below expectations. Senator Pomerene. Just for the purpose of comparison, that 4.12 per cent would be approximately 1.2 per cent less than was the average return on the railroads during the test period which we used in determining the amount of the guaranty to the railroads during Federal operation. Mr. Willard. I think that is right. I assume that your figures are right, Senator. I don't recall. Senator Pomerene. My recollection is that it was 5.34 per cent. The Chairman. Five and twenty-four one hundredths. Senator Pomerene. Five and twenty-four one hundredths ? The Chairman. Yes. Senator Smith. And the three years we used for the test period were 1913, 1914, and 1915? Mr. Willard. No. Senator Pomerene. 1915, 1916, and 1917. Mr. Willard. 1915, 1916, and 1917, ending June 30. Senator Smith. Yes. Mr. Willard. The returns for these two months, as projected through a 12-months' period, fell much below expectations. It is believed, however, that the full realization of the rate basis as actually authorized — by that I mean getting it into effect in the States as it was intended to be, and I don't think it is all fully in effect yet, but getting it fully into effect as was intended, together with such economies and reductions in operating costs as may be effected, will, with a normal business, yield results more closely approximating the intent of the act. v A careful review of the situation shows very clearly that the increases in rates of pay and prices of fuel, materials, and miscellane- ous items, have been greatly in excess of the increase in the basis of charges for transportation and that the adjustments made with a view to correcting this situation have in part failed of their purpose because of the severe decline in traffic. The situation, not only with respect to working conditions, but also as to rates of pay, is now before the Labor Board. It is expected that substantial reduction will be secured in the price of fuel for 1921, in fact a number of contracts have already been made effective as of April 1, much under last year's prices. Other material prices are showing a gradual decline and as materials and supplies now in stock are consumed and gradually replaced with materials purchased at lower figures there will be reduced charges to expenses on this account, all of which will be reflected in lower operating costs. Meantime the railroad representatives in conference with the Interstate Commerce Commission are making such rate adjustments from time to time as are found necessary in order to remove inequalities and reestablish proper relationships. The railroad problem to-day is largely one of misunderstanding, and I think it may be fairly said that the misunderstanding has been caused chiefly by the fact that during the period of 26 months of Federal control a great economic problem was dealt with in an uneconomic way. This policy resulted in serious maladjustment between the revenues and expenses of the carriers which still existed at the end of Federal control. Deficits during Federal control Digitized by Microsoft® 182 RAILROAD REVENUES AND EXPENSES. growing out of operations under such conditions could be and were met by drafts upon the Federal Treasury. It is doubtful if such a policy was a wise one at any time or under any circumstances. In any event, it can not be followed under existing conditions. As soon as the revenues and operating costs of the railroads can again be brought to a proper relationship, the railroad problem as it pre- sents itself to-day will have been largely, if not entirely, solved. I will now place in the record A, A-l, B, and D. (Exhibits A, A-l, B, and D are as follows:) Exhibit A. General recapitulation — Eastern district. tBased on data submitted in questionnaire for the year ended Oct. 31, 1919, and subsequent adjustments.] Item. Class I roads (51 repre- . sented). Class II roads (39 repre- sented). Class III roads (30 repre- sented). Switching and terminal companies (24 repre- sented). Total (144 represented). $9,115,761,215 546, 945, 674 111, 722, 728 435, 222, 846 2 14, 348, 800 8 22, 304, 687 '3 11,790,000 ; « 3, 388, 636 '54,811,580 '16,510,681 $96,299,577 5, 777, 974 1230,952 6, 008, 926 $10, 133, 140 607, 988 1 129, 288 737,276 $101, 304, 966 6, 078, 298 1, 102, 515 4,975,783 $9, 323, 498, 898 Six per cent on property investment . Adjusted net operating income Difference between adjusted net operating income year to Oct. 31, ■ 1919, and 6 per cent on investment — 559,409,934 112, 465, 003 446,944,931 Other adjustments subsequent to ' Oct. 31, 1919: 2 14, 348) 800 "22,304,687 National agreement with train- National agreement with mainte- nance of way employees and '11,790,000 '3,388,636 ' 54, 811, 580 '16,510,681 Loss on privately operated re- . f rlgerator cars (6 per cent basis) . Estimated increased cost of fuel Estimated increase in taxes on « 94, 456, 784 529, 679, 730 ''94,456,784 541,401,715 Total additional revenue required to 6, 008, 926 737,276 4, 975, 783 1,793,531,737 11,381,036 1,635,625. *, 13, 301, 851 n, 819, 850, 249 Percentage ' on freight revenue needed to meet deficit under 6 per cent per cent. . 29. '53 $2,556,233,850 20.72 52.80 113,692,974 43.88 45.08 $2,087,940 35.31 37.41 $13,301,851 37,41 29.75 (2,585,316,615 20.94 Percentage on total all revenues needed to meet deficit under 6 per cent per cent. . i Deficit. 'Credit. , » Debit. * freight revenue shown for switching and terminal companies includes switching revenue. Note.— Includes Illinois Central Lines north of Cairo, HI; Digitized by Microsoft® EAILKOAD BEVENTJES AND EXPENSES. Exhibit A-l. 183 Eastern district — Summary of railways, Classes I, II, and III, and switching and terminal companies, year ended Oct. 31, 1919. Item. Constructive year ended Oct. 31, 1919. Efieet of further ad- justment de- veloped subsequent to Oct. 31, 1919. Constructive year, final. $2,570,967,815 1 $14, 348, 800 . Total $2,585,316,615 2, 307, 629, 658 Exhibit A 1 . $2, 300, 467, 209 « 34, 094, 687 "54,811,580 « 88, 906, 267 Included in corporate expenses, Ex- hibit B... 7,162,449 Mairitenance-of-way emp 1 o y e e s and clerks 11, 790, 000 2,396,535,925 263, 338, 157 » 74, 557, 467 188, 780, 690 Ratio of expenses to earnings per cent . . 89. 76 92.70 $109, 433, 280 Exhibit A $91, 739, 480 '$16,510,681 Federal income taxes, Exhibit B 17, 693, 800 6 per cent on property investment $562, 121, 921 Standard return 397, 015, 107 Total $125,943,961 251, 160 » 31, 519, 753 251,160 Increased allowance for privately owned refrigerator * 3, 388, 636 Total s 34, 908, 389 " 7, 861, 290 2 6, 226, 466 J-106,678 ■*, 345, 125 11,133,838 1 46, 510 2 7,861,290 2 6,226,466 » 106, 678 1 3, 345, 125 Exhibit B: Creditor $7,619,149 Debtor 4,274,024 1 1, 133, 838 1 46, 510 & 112,465,003 » 94, 456,784] 18.008.219 i Credit. Note. — Includes the Illinois Central Lines north of Cairo. 6355a— 21— Vol I 13 » Debit. Digitized by Microsoft® 184 RAILROAD REVENUES AND EXPENSES. Exhibit B. Operating income account of Class I railways, United States, 1912 to 1920. [Railways having annual operating revenues above $1,000,000— excludes switching and terminal com- panies.] Item. Fiscal years ended June 30 — 1912 1913 1914 1916 Average miles represented . . Total operating revenues... Freight (accounts 101 and 121) Passenger (accounts 102 and 122).... Mail (accounts 106 and 125) Express (accounts 107 and 126) ' All other revenue Total operating expenses Maintenance of way and structures Maintenance of equip- ment Traffic Transportation General All other expenses Operating ratio per cent. . Net operating revenue Railway tax accruals Uncollectible railway reve- nues Railway operating income. . . Hire of equipment — net balance (debit) Joint facility rents — net balance (debit) Net railway operating in- come (standard return basis) Property investment^CIass I roads and their nonoper- ating subsidiaries (invest- ment in road and equip- ment, exclusive of ma- terial and supplies) Rate of return on invest- ment percent.. 218,134 222,745 $2,805,006,544 1,897,692,838 639,818,627 49,529,279 71,773,138 146,192,662 1,959,094,811 348,470,704 436,995,458 59,047,064 984,852,159 69,297,080 60, 432, 346 69.84 $845,911,733 109,445,407 736,466,326 15,772,338 12, 209, 605 708,484,383 14,632,497,022 4.84 $3,108,361,215 2,140,083,394 678,966,749 491711,893 78,544,017 161, 055, 162 2,173,463,563 406, 042, 529 499, 988, 331 61,451,485 1,068,017,845 74, 134, 022 63,829,351 69.92 $934, 897, 852 118, 386, 859 225,445 228,434 230,508 816, 510, 793 15,611,817 13,288,541 787,610,435 15,284,763,489 5.15 $3,031,326,963 2,059,891,935 683,748,602 53,965,955 74,416,658 159,303,813 2,203,423,812 403,682,593 520,200,274 62, 366, 351 1,073,981,380 79, 525, 390 63,667,824 72. 69 $827,903,151 135, 572, 579 692, 330, 572 17,686,287 13,626,138 661,018,147 15,842,127,273 4.17 $2,871,563,047 1,988,522,179 630,705,841 56,984,233 68,969,507 126,381,287 2,021,160,614 364,004,178 496,739,561 59,403,419 1,010,914,727 74,172,107 15,926,622 70.39 $850,402,433 133, 276, 330 649, 917 716, 476, 186 19, 128, 943 14,242,410 683,104,833 16,257,146,632 4.20 $3,381,597,866 2,415,048,777 675,216,483 60,151,292 80,890,375 150,290,939 2,210,892,786 404, 514, 144 557,664,332 60,633,984 1,090,100,194 79,192,476 18,787,656 65.38 $1,170,705,080 145,517,034 806,747 1, 024, 381, 299 23,564,582 15,943,758 984, 872, 959 16, 688, 440, 056 5.90 Item. Calendar years ended Dec. 31— 1918 1919 Average miles represented. . Total operating revenues Freight (accounts 101 and 121) Passenger (accounts 102 and 122) Mail ^accounts 108 and 125).... Express (accounts 107 and 126) All other revenue Total operating expenses... Maintenance of way and structures Maintenance of equip- ment Traffic Transportation General All other expenses 230,991 232, 199 $3,596,865,766 2,575,210,622 708,044,033 61,223,671 90, 176, 198 162,211,242 2,357,398,412 421,775,812 595,566,336 62,839,996 1,173,987,775 84,418,107 18,810,386 $4,014,142,748 2,832,923,825 826,666,315 58,805,723 106,952,283 188,794,602 2,829,325,124 442, 109, 862 685,428,913 64,985,070 1,515,988,879 95, 933, 290 24,879,110 233,204 235,139 $4,880,953,480 3,453,935,308 1,032,869,815 53, 537,403 126,331,714 214,279,240 3,982,068,197 649,794,953 1,103,031,350 J8, 713, 289 2JB9,459,671 118,432,684 32, 636, 250 $5, 144, 795, .154 3,556,451,084 1,180,276,923 57,510,421 127,630,576 222,926 150 4,399,715,515 772, 186, 045 1,226,532,195 47,673,883 2,168,646,844 141, 853, 136 42, 823, 412 $6,171,493,301 4,323,677,660 1,288,745,417 '150,404,467 143,371,324 265,294,433 5,768,720,013 1,025,676,200 1,572,171,561 73,543,604 2,871.434,772 169, 534, 387 56, 359, 489 1 Total operating revenues and mail revenue for the year 1920 includes $64,508,260 of mail pay applicable to the years 1917, 1918, and 1919, of which $7,584,084 was earned in 1917, approximately $30,000,000, in 1918 and $26,924,176 in 1919. Digitized by Microsoft® RAILROAD REVENUES AND EXPENSES. 185 Operating income account of Class I railways, United States, 1912 to 1920 — Continued. Item. Calendar years ended Bee. 31- 1916 1917 1918 1919 1920 Operating ratio. . .per cent. . Net operating revenue Railway tax accruals Uncollectible railway reve- nues Railway operating income. . Hire of equipment— net balance (debit) Joint facility rents— net balance (debit) Net railway operating in- come (standard return basis) Property investment— Class I roads and their non- operating subsidiaries (investment in road and equipment, exclusive of material and supplies) Rate of return on invest- ment percent.. 65.54 II, 239, 467, 354 157,113,372 797, 486 1, 081, 556, 496 23, 767, 262 17,704,717 1, 040, 084, 517 16, 884, 440, 038 6.16 70.48 $1, 184, 817, 623 213, 920, 095 700,090 970, 197, 438 17,999,098 18, 129, 570 934, 068, 770 17, 762, 152, 127 5.26 81.58 $898, 885, 283 223, 175, 379 613, 821 675, 096, 083 15,676,577 20, 850, 903 638, 568, 803' 18, 213, 629, 613 3.51 85.52 $745,079,639 232, 601, 396 916, 8S9 511,561,354 33,488,823 23, 087, 578 454,984,953 18,529,749,653 * 2.46 $402, 278, 1, 122, 93.47 773,288 27, 679,640 086, 318 664, 696 61, 928, 626 »19, 100, 000, 000 0.32 * Partially estimated by the Bureau of Railway Economics. Note. — Total operating revenues and expenses for the years 1912 to 1914, inclusive, as shown above, in- cludes returns of "outside operations." Data for the years 1918 and 1919 represents the combined result of the Federal and corporate operations of the roads under Federal control, also data for Class I roads not under Federal control, but does not take into account any expenses of the United States Railroad Ad- ministration, or the rents received by the corporations from the United States Government in consideration of their lease. Exhibit D. Eastern railroads, $8 systems — Memorandum showing effect of increased rates and increased basis of expense in effect for the year 1920 applied to the business of 1916. 1916, actual. Adjustment account, increases. 1916, adjusted to 1920 basis. Railway operating revenues: Freight revenue, year 1916 Estimated increase in coal and ore rates and 15 per cent case Administration, 25 per cent increase in 1918 Increase granted Aug. 26, 1920, ex parte 74 Freight revenue 1916, adjusted to 1920 rates Passenger revenue, year 1916 Increase authorized by administration in 1918 Increase granted Aug. 26, 1920, ex parte 74 Passenger revenue 1916, adjusted to 1920 rates Mail revenue $1, 189, 565, 219 Increase granted by Interstate Commerce Com- mission De Express revenue. by in , 1919, estimated at 55 per cent. Increase in rates, less decrease in contract basis from Sept. 1, 1920 Miscellaneous revenue Advance estimated at 30 per cent Total railway operating revenues . Railway operating expenses: Pay roll, year 1916. $712,644,182 Less estimate of 5 per cent charged to capital account. 35,632,209 Increase in rates of pay, 140 per cent Fuel In 1916 there was purchased 72,108,369 tons of fuel at an average price of $1.57 per ton The increase in 1920 based on a price of $5.19 per ton is 230.57 per cent $158, 462, 984 331 007^ 051 196, 348, 667 321,731,046 $1, 881, 383, 921 31, 503, 355 22, 825, 725 "43,"ii6,'i86 "96,"480,'ii6 12,554,149 13, 383, 514 "28,'944,"033' 1,673,718,586 865, 006, 789 677,011,973 113,142,348 947,816,762 260,872,312 440,037,437 35,379,874 56, 500, 000 *i25,'424,"i43 2,538,725,375 1,624,828,735 374,014,660 Digitized by Microsoft® 186 RAILROAD REVENUES AND EXPENSES. Eastern railroads, 88 systems — Memorandum showing effect of increased rates and increased ''basis of expense in effect for the year 1920 applied to the business of 1916 — Continued. 1916, actual. Adjustment account, increases. 1916, adjusted to 1920 basis. Railway operating expenses — Continued. Material: Amount charged to operating expenses in 1916 was . The increase in price 1920 over 1916 is 107 per cent. . , Miscellaneous Estimatedincreasebased ontheaveragedeveloped by increase shown by pay rolls and material, 130 per cent $210,950,068 "'i25,"576,"367 $225,716,572 5436,666,640 "288,"825,'644 163, 249, 277 Total railway operating expenses . 1, 126, 680, 756 1,597,654,923 2,724,335,679 N et revenue from railway operations. . Net increase in expense basis' Railway tax accruals Uncollectible railway revenues 547, 037, 830 65, 651, 841 244, 511 732,648,134 48, 654, 904 185,610,304 114,306,745 244, 511 Railway operating income Hire of equipment, net debit Adjustment (per diem rate of 60 cents, 90 cents, and $1, and increased mileage rate), 92 per cent Joint facility rents, net debit r. Net railway operating income Rate of return, per cent Operating ratio 481,141,478 25,366,594 781,S0S,0S8 300, 161, 660 48, 703, 860 8,233,314 23,337,266 2, 146, 320 10, 379, 634 447,541,570 806, 1 '86, en 359, US, 054 6.46 67.32 0) 107.31 'Deficit. Mr. Willard. Now, since that statement was prepared, Mr. Chairman, and suggested by some of the questions that were asked during Mr. Kruttschnitt's examination, I have prepared another statement which deals more particularly with the charges that have been made against the railroads for inefficient management, and so on, and if it is agreeable I will proceed with that now. The Chairman. You may proceed, Mr. Willard, until you have finished. Mr. Willard. Part 1 of the exhibit prepared by Mr. W. Jett Lauck for the bureau of research, railway employees' department, American Federation of Labor, dealing with the inadequacies of railway management, and submitted to the United States Labor Board in Chicago on or about April 20, 1921, contains the definite statement that total annual savings (partial only) amounting to $578,500,000 could be made by the railroads by more efficient methods of management. The items dealt with in connection with this saving are as follows: Modernizing locomotives. Locomotive operation, firing methods. Shop organization improvements. Power plant fuel saving. Water-consumption savings. Service of supply savings. Shop cost accounting savings. Labor turnover savings. Loss and damage savings. The exhibit also enumerates other items in connection with which it is said savings have been demonstrated, but where precise valuation is not feasible. Under that caption the following items appear: Digitized by Microsoft® RAILROAD REVENUES AND EXPENSES. 187 Car equipment, operation and maintenance. Engine terminals. Permanent way, improvements and maintenance. Signal maintenance. Train operation. Research and engineering. Miscellaneous overhead, advertising, etc. And it is stated that it is quite possible that the savings in con- nection with the items last mentioned would aggregate as much again as the figures actually shown above, resulting in a total saving of more than $1,000,000,000 per annum. I will present to the committee a copy of the exhibit prepared by Mr. Lauck, or for him. (Mr. Lauck's exhibit before the Railroad Labor Board is too bulky to be printed in the record, but copies for the use of members of the committee are on file with the clerk.) Senator Pomerene. You say, "prepared for him." Mr. Willard. My attention was called, after I had prepared my statement, to the fact that on the cover of his exhibit the statement is made that it is prepared by the Bureau of Research of the American Federation of Labor, for Mr. Lauck, I take it, and not absolutely by him. Senator Poindexter. I take it that these documents that are presented will be printed in the record ? The Chairman. All of them. Mr. Willard. The exhibit prepared by Mr. Lauck, a copy of which I have presented to the committee, indicates that his estimated savings are based upon statements generally that have been made from time to time and* on various occasions by railroad officers and employees, inventors, manufacturers and dealers in railway supplies and others, all of whom presumably have given the matter more or less study. It would appear that in arriving at the possible economies to be made in connection with railway operation, Mr. Lauck has acted upon the assumption that if the worst were as good as the best, the results which he indicates would come about. Mr. Lauck's statement, how- ever, would be even more interesting and illuminating if it had con- tained also an estimate of the probable cost of making the improve- ments and changes necessary before the savings which he had in mind could be accomplished. It is, of course, highly desirable that all preventable wastes should be avoided in whatever line of human endeavor, in case, of course, the cost of avoidance does not exceed the value of the saving. If we were to apply to the farming industry in this country, for instance, the theory of making the worst as good as the best, some very interesting results would develop. There are in round numbers 6,500,000 farms in the United States, and it has been estimated that the annual losses from rodent pests sustained by the farmers in the United States amount to fully $300,000,000 per year, and in addition to this, it is claimed by the manufacturers of steel storage bins that the yearly loss by American farmers is over $200,000,000 through improper storage of grain on the farms. No doubt very large savings in this respect could also be accomplished by a greater and more effective use of carnivorous animals trained to capture or kill the Digitized by Microsoft® 188 RAILROAD REVENUES AND EXPENSES. destroying rodents, but in spite of improved bins and other suggested methods, the wastes, we are advised officially, continue to go on. There are roundly in the United States, as reported in the latest official circulars," 23,000,000 milch cows. It is a safe estimate that if they were all thoroughbreds the entire herd would have an enduring value of at least $10 per animal in excess of the present valuation which is stated at approximately $65 per head. An increase in the value of milch cows on all the farms in the United States of as much as $10 per head would mean over $230,000,000 enhanced value, and this would be a continuing value from year to year and would be reflected in large economies, not here enumerated. It has been further stated that if all farmers followed the practices that have been recognized as the most productive, that the cereal yield in the United States could easily be increased 25 per cent per year. Reduced into dollars and cents and depending somewhat upon the market conditions, it may be fairly stated that the increased value of the crops so raised would amount to much more than $1,000,000,000 per year. Attention has repeatedly been called by the Secretary of Agricul- ture and others interested in the subject to the possible savings that could be accomplished by improving our methods of agriculture, but' it is a matter of common knowledge that the improvements so pointed out have not generally been adopted or made effective. However, it is hardly fan- to the farmer to say that he is as a class unmindful of the situation or indifferent to his opportunities. As a matter of fact, we know very well the difficulties with which the average farmer has to contend, and upon the whole I believe it is only just to say that the farmers generally are among the most thrifty and well-deserving people in the Nation, and if they have not availed themselves as a class of the opportunities that have so fre- . quently been pointed out to them by economists, writers in the rural papers, Chautauqua speakers, and others it has not been, I am cer- tain, because of indifference on their part, but is due rather to con- trolling influences of a very human character, which they have been obliged to take into account in their own domestic economy. It may at first seem strange that one should compare the railroads with the farming industry and particularly concerning questions of fundamental policy. I am convinced, however, that it will be found upon careful thought that the underlying principles df these two great industries are very much alike. The railroads, however, have prob- ably accomplished more in the way of possible savings and economies in connection with their operations than is the case with the average farmer, and it is due largely, in my opinion, to the fact that the rail- roads have been obliged by force of circumstances to give more careful thought to methods of economy than has usually been the case with the men actually engaged in agriculture. Senator Pomerene. Mr. Wiflard, do you mean by this reference to Chautauqua speakers to suggest that this committee ought to call them before it ? [Laughter.] Mr. Wiixard. I thought the statement was clear, but I am sure I did not use it in that sense. The Chairman. We will have them, though. I have already made arrangement. Digitized by Microsoft® BAILROAD REVENUES AND EXPENSES. 189 Senator Smith. We already have them on the floor of the Senate. We don't care for them in the committee room. < -~ Mr. Willaed (reading) : "I wish to repeat, however, that I raise no issue at all with the proposition that there are possibilities of still fur- ther savings on the part of the railroads. I question only the practica- bility of such savings as have been proposed by Mr. Lauck, or many of them, when considered from the point of view which confronts the railway manager. " Possibly a brief reference to the practice of the Baltimore & Ohio Co. in this particular during the last 10 or 12 years may throw addi- tional light upon the problem." And here again permit me to say, Mr. Chairman, that I only refer to the Baltimore & Ohio Co. because I know about it, and I assume that conditions there are fairly typical of all the other railroads. It is only on that account that I would feel justified in referring to it at all. "Since July 1, 1910, and up to December 31, 1920, the Baltimore & Ohio Co. has spent for additions and betterments to its property slightly more than $197,000,000. Of this amount, $98,000,000 roundly were spent for new equipment, and a substantially equal amount for new construction and additional facilities. " During the year ended June 30, 1910, the Baltimore & Ohio Co. carried 13,870,868 ton-miles. During the year ended December 31, 1920, the same property carried 21,661,448,095 ton-miles, an in- crease of 56.2 per cent, and in spite of the large capital expenditure and the resultant increase of facilities, the Baltimore & Ohio Co. was unable during the last fiscal year to carry currently all of the business which it was offered. It could not, in short, perform the service demanded of it^as a common carrier. It is clear, therefore, that it had not increased its facilities beyond the reasonable require- ments of its patrons. The expenditure of new capital by the Balti- more & Ohio Co. during the period mentioned, as I have stated, was approximately $18,000,000 per annum, about one-half of which was spent for locomotives and for freight and passenger equipment. All of the officers of the company familiar with the subject, from the president down, have given careful thought to the design and suit- ability of cars and engmes whenever new purchases were being con- sidered, and it is believed that the equipment purchased during the period mentioned was in accord with the best practice of the period When the purchase was made. " In order, however, to operate the new and heavier cars and engines, it was necessary during the period under consideration for the Balti- more & Ohio Co. to spend more than $10,000,000 for strengthening and rebuilding bridges and culverts, so that they might safely carry the heavier load. " More than $30,000,000 were spent during the same period for addi- tional tracks, such as second, third and fourth running tracks, passing sidings, enlarged tunnels, terminal facilities, etc., for the accommodation of the heavier volume of traffic constantly offered. " Nine million two hundred thousand dollars were expended for new f shops, shop tools and engine nouses with which to care for the modern and larger power. " Five million dollars were spent for docks and wharves necessary for the prompt and economical handling of the larger volume of lake and tidewater business carried by the company. Digitized by Microsoft® 190 RAILROAD REVENUES AND EXPENSES. " Four million six hundred thousand dollars were expended for new stations and other buildings and for modernizing existing structures. " The remainder of the principal sum was spent for telephone and telegraph lines, storage warehouses, paving, etc. "There was no time during the entire period under consideration when the urgent recommendations of the operating and mechanical officers of the Baltimore & Ohio Co. did not call each year for new capital expenditures Tery greatly in excess of the amount that was available and actually expended. At all times the problem confront- ing the chief executive 01 the company was how to spend the amount of money actually available at the particular time in such way as to best serve the requirements of the public for transportation. " With all this in mind and applying to the situation the policy of making the worst as good as the best, it would appear upon investiga- tion that if the Baltimore & Ohio Co. could have arranged so as to handle its entire freight business over all suitable divisions of the line with engines of the Mallet or Mikado type — these engines being of the most improved pattern to-day for heavy freight service, it would have been possible under such circumstances for the Baltimore & Ohio so equipped to handle all the business it actually did handle last year with a saving of 10,000,000 freight-train miles, and it may be roughly estimated that the saving so effected would have been at least $10,000,000. Three thousand six hundred fewer train and enginemen than actually were employed would have been sufficient to perform the service, but in order to procure the necessary heavier engines and to equip the road generally for their safe operation, so it has been carefully estimated, would have required a capital ex- penditure estimated at approximately $165,000,000, almost as much, m fact, as the company spent for all improvements, additions, better- ments, and equipment during the last 11 years, and even after this great additional expenditure had been made the company would not ave been able on that account to handle a very much larger volume of business than actually was handled." I think perhaps I ought to add to that a little explanation. It may be thought, naturally, that the expenditure of that sum of money for larger power would mean an ability to carry a much greater volume of business. That is not so. In order to realize that saving it would be necessary to strengthen and put in shape all divisions of the road to run the heavier engines, many of which are now able to carry much more business than they are now carry- ing, but the business is not there, and the controlling point, the thing that actually controls the amount of business that we can do, is not determined by the kind of engines that we operate, but by the carry- ing capacity of certain portions of the railroad. For instance, the number of trains that we could get through Sand Patch Tunnel on the top of the Allegheny Mountains, or Kingwood Tunnel, are the things that determine and limit the amount of business, and it does not mat- ter if we had the whole railroad equipped with Mallet or Mikado en- gines, we could only carry a certam amount of business through those tunnels, and unless we spend a certain amount of our. money in putting in new tunnels, increased facilities, and new running tracks, just, in fact, as we have been doing for the last 11 years, the expendi- ture of that large sum of money for the heavier power would not enable us to carry a very much larger volume of business — it would enable Digitized by Microsoft® RAILKOAD REVENUES AND EXPENSES. 191 us to carry some more business, but nothing like a proportionate amount of .business. That is the point I want to make. — [Reading:] ''Certainly the increased carrying capacity resulting from an ex- Jenditure of that character would nave been relatively insignificant, t is true that the company would have been able to handle the same volume of business at a much less expenditure of money, but would it have been wise to have expended so large a sum, assuming such a sum were available, simply for the purpose of performing substan- tially the same service at a lower cost and ignore the constant de- mands of the public for increased transportation facilities. "Another case in point: If the Baltimore & Ohio Co. were to dis- mantle such of its repair shops as are not completely modern and replace them with new structures equipped with modern tools and facilities at an expenditure estimated at $6,000,000, it would be able to save about $1,250,000 a year in connection with the repairs to its locomotives. As a matter of fact the chief executive of the com- pany has been urged on frequent occasions to authorize large ex- penditures for shops and shop facilities in order that the engines might be repaired more economically, and on one particular occasion the question presented itself as follows: Is it desirable at this time to spend for new shops $2,000,000, which sum is available and which expenditure, if made, would enable the company to repair its loco- motives at a lesser cost, or should the money be used for the pur- chase of new steel coaches which will mean no economy in operation, but on the contrary, mean an increased cost of transportation be- cause of the greater weight of steel equipment as compared with equipment of wooden construction ? It was decided that the public in this particular instance would be better served by spending the money available for steel coaches rather than for new shops, inas- much as it was possible to maintain the power in the existing shops, although at a somewhat higher cost. "The question is a very practical one. If a condition could be con- ceived of wherein the railroads had available all the. money that was necessary — first, to provide safe and regular transportation as demanded by their patrons; second, to provide a constantly increas- ing carrying capacity to take care of the growing business of the country, and in addition thereto a sufficient sum to replace all facili- ties with modern and more efficient facilities, wherever it was shown that by so doing economies could be effected if such a condition could be conceived of, there would perhaps be no real excuse for the railway managers if they failed to adopt the policy of making the worst as good as tloe best, as suggested in Mr. Lauck's statement; but again I repeat the question is a very practical one. " The experience of the past shows that only a certain amount of new capital in the aggregate is available in any one year for all invest- ment purposes, and of the total amount so available the railroads require and obtain a portion. The capital requirements of other in- dustries and undertakings must also be provided from the same in- vestment fund, and the total amount available is divided presumably in such way as best fits the demands and requirements of the imme- diate situation. "It has been frequently stated during the last 10 years that the rail- roads in this country require at least $1,000,000,000 of new capital each year for additional improvements and extensions, and yet the Digitized by Microsoft® 192 RAILROAD REVENUES AND EXPENSES. official figures show that the average amount of new capital raised and so expended by the railroads during the 10 years preceding Federal control was under $600,000,000 per annum, not enough in fact to provide the additional facilities actually necessary to cur- rently handle the traffic offered in times of business activity and take care of the future developments, much less to do all that and in addition carry out the program suggested by Mr. Lauck, however attractive, if attainable, it might be. " I do not wish to appear as m any sense minimizing the economies that may be possible m railway operation, nor do I wish to be under- stood as saying or believing that there are not substantial economies to be made without the expenditure of excessively large capital sums. On the contrary I believe there are many things that can be done; changes made in operation, in methods of maintenance, in care of materials, etc., which will mean constant and increasing economies. What I do mean to say is this, that I believe the railway managers are not unmindful of the possibilities of the situation. In fact, it is because the railway managers in the past have been consistently following such a policy to the extent of their ability to do so, that the American railroads have been able to carry the freight traffic of this country at rates lower than those in effect in any other country in the world. I can hardly believe that those who have been directly Charged with the financial integrity of the properties could possibly have been less interested in the subject that Mr. Lauck and others, however well disposed, who must of necessity view the matter from a somewhat academic standpoint. "Under the terms of the transportation act, Congress has charged its agent, the Interstate Commerce Commission, with the duty of acquainting itself with the methods of management in effect upon the several railway systems, and this fact of itself will be an incentive to all railway managers to study and improve their practice wherever possi- ble and practicable to do so. Furthermore, the exchange of informa- tion and the. comparison of data which has already resulted from the closer cooperation between the carriers, encouraged and provided for under the transportation act, will furnish additional incentive and will point to new ways in which economies can be effected." n I have estimated that by an expenditure of approximately $165,- 000,000, the Baltimore & Ohio Co. could probably effect a saving of $10,000,000 a year. Senator Kellogg. Over and above interest ? Mr. Willard. No, $10,000,000 for interest. "The Baltimore & Ohio Co. in a way may be considered as about one-twenty-fifth of the entire railroad system of the United States, and assuming that conditions on the Baltimore & Ohio Railroad are fairly typical, it might be still further assumed that an expenditure of twenty-five times the amount necessary to fully equip the Balti- more & Ohio Railroad with engines of the most improved and mod- ern type, would be sufficient to equip all of the railroads in the United States in the same manner, thereby effecting a saving, we will say, of $250,000,000 a year, involving however the investment of more than $4,000,000,000 of new capital. "It should be borne in mind that I have only included in these figures one of the items enumerated by Mr. Lauck, and I am unable to say what amount of new capital might be required in order to carry out his entire program. Digitized by Microsoft® RAILROAD REVENUES AND EXPENSES. 193 "Will anyone suggest, however, that $4,000,000,000, or even one- fourth of that sum is readily or will be immediately available for such an expenditure by the railroads, or that the solution of the present •difficulty of the railroads is to be found in such a course of action or is even to be looked for in that direction ? Economies resulting from good practice should, of course, be encouraged and not only encour- aged, but be insisted upon in the public interest, but let us not de- ceive ourselves by thinking that the economies suggested by Mr. JLauck, however appealing they may appear, afford a solution of the very practical problem confronting the railroads at this time." Senator Smith (presiding). The Senate convenes at 12 o'clock. If none of the members of the committee desire to ask Mr. Willard any questions just now, we will adjourn. Senator Kellogg. I suggest we adjourn until to-morrow, as it is ■only 15 minutes of 12 now. Senator Smith (presiding). If there are no questions to be asked, the committee stands adjourned until 10 o'clock to-morrow. (Whereupon, at 11.45 a. m., Tuesday, May 17, 1921, an adjourn- ment was taken until 10 o'clock a. m., Wednesday, May 18, 1921.) Digitized by Microsoft® Digitized by Microsoft® T//fmfmM/i>MW/yr/7ssoc//yr/o/v C/Y/7//?A//7/V coMAf/rrff at //o*f/rt#r/Ofl/s 30/7PD or P/fffCWP-5 £Xl~C(/77Vf COMM/Tlff tfuarwc eoMM/rret Pfff~5/DE/VT &wmij£c/?£mfamfiw/r&? £)/l//5/OMl'-OPJr/?/?r/MG XL Crr-cro,' Ct n.T fff .' Vcsir/'/7ar, 'c#s CcMtm/'rfet? &> O0ert*f//70 &//S5 ^Caaff?///ee ca Jcfff? 7/iMAwAr/c? o/^ApteJ. res A Coi?fes-e/7ce Com /n// fee I YSoecxa/ Comar/Mre est tcacf/Ap ** t/afoat/i'if ic&sfionk — l t Z>*'w ."tor c-v&T'V*.'x>*tCa&**?4'i?cri!Oft<3**/i!Z jebwitf .^/ZJ-gftl MJT0/Cf?S /M0 5 /ty j'-3,a/'£?/ -Jfosrtf&rtfs ^• ■wnn/ffr airJIr. ?*n* 'rr.i. f/ar . 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C/0S*'fCr*fs?*, M&K,?">j *Ja,frj ^3ufyacf 15- 1 , r,t-\ -.- ^cxr, /*S0CVf*Oft, ~ ^Ai'tccf/6-^/4>fiy v 7>€S/ti Pper&f/a,) — - JA-^Ar/ /7- ^■A3-*a&rWs Oenerts/ femtrt/ffi** "ft** Corn rrt if fee 'tSZZmZ S \tes>* c b'*9e#f*P«'f'ot l Com* r ,tte Can.^, '/fee £ Cem*ir/?/te f ) ?sir£,e tfrbifr,2f K >st Cd^.itm/yArff njK?t /?vfes ^Comm/ftee C C*Vrc/teroe /pL//e3 r//ft?i? Qjt COK/3 c" *■ PrvwrtffOie ^.Cofn/tn/.-ee en Mes*0 /vs-fj Digitized by Microsoft® Digitized by Microsoft® Digitized by Microsoft® RAILKOAD REVENUES AND EXPENSES. WEDNESDAY, MAY 18, 1921. United States Senate, Committee on Interstate Commerce, Washington, D. C. The committee met, pursuant to adjournment, at 10 o'clock a. m. r In room 410, Senate Office Building, Senator Albert B. Cummins (chairman) presiding. The Chairman. The committee will be in order. Mr. Willard, will you resume your testimony ? TESTIMONY OF MR. DANIEL WILLARD, PRESIDENT OF THE BALTIMORE & OHIO RAILROAD CO.— Resumed. The Chairman. I understand that Mr. Willard has concluded his direct testimony or statement. Am I right about that, Mr. Willard ? Mr. Willard. No; that is hardly true, Mr. Chairman. I would like the privilege, if I may have it, of discussing two or three features in the Lauck exhibit; not in detail at all, but it seems to me that some of these matters might well be referred to briefly. The Chairman. Very well, you may proceed. Mr. Willard. In the Lauck exhibit, a copy of which I have already filed with the committee, dealing with the inadequacies of railway management, Mr. Lauck has pointed out different details in regard to which he suggests that large economies could be effected. I have prepared for the Baltimore & Ohio Railroad a complete answer to each specific caption, which I shall not file at this time and do not expect to discuss unless you care to have me do it, though I am -prepared to do it if you desire; but there are two or three things I think it might be well to refer to because they are subjects of general misunderstanding. And I think this whole railway problem, as I have stated before, is largely a matter of misunder- standing, and perhaps what I can say concerning some matters will tend to clear up that misunderstanding. Mr. Lauck refers to the fact that the railroads — — Senator Pomerene (interposing). What are you reading from? Mr. Willard. I propose to read from Mr. Lauck's statement that I filed the other day; and I have just stated, but before you came in, that I am not going into detail at all, except that I think there are two or three things which, in my opinion, I ought to explain, because they can be very clearly explained and there seems to be so much misunderstanding about them. Mr. Lauck says the railroads have given no thought to research or engineering or general methods of practice. In that connection I want to file this chart with the committee. It shows the general plan 195 Digitized by Microsoft® 196 RAILROAD REVENUES AND EXPENSES. of organization of the American Railway Association, which was organized in 1883 and has had a continuous existence for 38 years r and is functioning effectively at the present time. Mr. Willard. I also file in that same connection a copy of the articles of organization and by-laws of the American Railway Asso- ciation. (The pamphlet referred to is as follows:) American Railway' Association, articles of organization. Article 1. The name of this organization is the "American Railway Association,"' with headquarters in New York City. Art. 2. Its object is, by recommendation, to harmonize and coordinate the prin- ciples and practices of American railroads with respect to their construction, mainte^ nance, and operation. Art. 3. Its membership shall consist of carriers which operate American steam- railroads, but no carrier operating less than 100 miles of road, including trackage- rights, or which operates primarily as a plant facility, shall be eligible for membership- Each carrier shall be entitled to exercise the right of one membership for each 1,000 miles of road, or fraction thereof, including trackage rights operated by it. The board of directors may admit to the association as associate members carriers: which, in the judgment of the board, are not eligible for membership. Art. 4. Each membership shall be entitled to one vote, which vote shall be cast only by the chief executive officer of the member voting, or by the officer designated in accordance with paragraphs 3 or 4 of article 5. Associates shall not be entitled to- vote, but otherwise shall have the same standing as members. Art. 5. Representation in the association shall be restricted to the chief executive- officer of each carrier holding membership therein, to be named by its board of directors. Members may be represented in each division by their officers in charge of matters 5 coming within the scope of the division. In the event of more than one carrier having the same chief executive officer, the- board of directors of the association may permit such officer to designate the next ranking official of each of such carriers as its representative; provided, however, that- the chief executive officer shall be the representative of at least one such carrier. Should a chief executive officer find it impossible to attend an association, board, or committee meeting he may, not more frequently than permitted by section 16 of the by-laws, designate his next ranking official to represent him, subject to the ap- proval of the board of directors, or the committee of which he is a member. Art. 6. A carrier may terminate its membership by formal withdrawal after the payment of assessments due; or if it shall fail to pay its dues and assessments for two- consecutive years its membership may be' terminated by the board of directors. Art. 7. Its officers shall consist of a president, vice presidents, and a general secre- tary and treasurer. The term of any such officer shall terminate with the appoint- ment of his successor. These officers shall receive such salaries, if any, as shall be- determined by the board of directors. » The work of the association shall be conducted by a board of directors, of 18 elected* members, one of whom shall be elected chairman, and an executive committee, con- stituted as hereinafter prescribed. The board shall designate one of its members' as the head of each division into which the work of the association may be divided. The members of the board of directors' so selected for the heads of divisions become ex officio the executive committee. Prom March 1, 1920, until the organization of the new board of directors, following the annual meeting of 1920, the advisory committee of the association of railway execu- tives shall perform the duties and exercise the powers of the board of directors and', the executive' committee. There shall be also a committee on nominations of five elected members. Art. 8. It shall be the duty of the president to preside at all meetings of the asso- ciation and to exercise general supervision over the affairs of the association. He- shall be ex officio a member of the board of directors and of all committees. In the absence of the president his duties shall devolve upon the vice president in the order of precedence indicated by the numbers of the divisions; that is, the vice president of Division I, shall act in the absence of the president. In the absence' of the president and the vice presidents of Divisions I, II, III, and IV the vice presi- dent of Division V shall perform the duties of president, and so on. Digitized by Microsoft® RAILROAD REVENUES AND EXPENSES. 197 Art. 9. It shall be the duty of the general secretary to keep a full and complete record of the proceedings of each regular and special session, to notify members of the date and location of and to provide printed copies of the proceedings of each session and of each meeting of the several divisions, to issue all circulars and to compile information for the use of the association and of the various divisions thereof. He shall act as secretary of the board of directors, the executive committee, and the committee on nominations. He shall either act as secretary of the divisions and of the several sections and committees thereof, or in connection with the chairman and vice chairman of any division or. section he may appoint a secretary thereof, and shall see that the minutes of the sessions of the divisions, the sections, and of the several committees are properly kept, and from time to time shall attend their sessions. He shall be the custodian of the library and of all records of the association,, and under the direction of the board of directors shall authorize all disbursements on account thereof. He shall select an assistant general secretary and such other assistants as the business of the association may require, subject to the approval of the board of directors and shall perform such other duties as may be assigned to him. Art. 10. The treasurer shall receive, disburse, and account for all moneys received or expended, and shall deposit the funds of the association in such banks or places of deposit as may be approved by the board of directors. He shall make a semi- annual report of the finances in detail to such board, and, with its consent, may select an assistant treasurer to act in his absence. Art. 11. The powers and duties conferred on the American Railway Association by these articles of organization are subject to the resolution adopted by the Associa- tion of Railway Executives, July 1, 1920, viz: The Association of Railway Execu- tives shall have at all times executive control of all railway and railroad associations. Art. 12. These articles may be amended on the recommendation of the board of directors, if approved by a two-thirds vote of the members of the association. 1. A regular session of the association will be held on the third Wednesday oi November of each year at such place as the board of directors may determine . i? peciu 1 sessions shall be called by the president at the request of the board of directors, or on the written request of 10 members. The board of directors may change the date c.f a regular session wheji in its judgment the best interests of the association will be thereli v conserved . 2. In addition to the board of directors, the executive committee and the com- mittee on nominations, the organization includes the following divisions: Division I — Operating. Division II — Transportation. Division III — Traffic. Division IV — Engineering. Division V — Mechanical. Division VI — Purchases and stores. Division VII — Freight claims. Division VIII — Perishable freight. Division IX — Fuel. Each division shall be under the general supervision of a chairman and two vice chairmen, the chairman to be selected by the board of directors from its number. Each chairman shall recommend two vice chairmen for his division, to be appointed by the board of directors. These officers shall be so chosen as to fairly represent geographically all carriers. The vice chairmen shall perform such duties as may be assigned to tham by the chairmen of their divisions. The time and place of holding sessions of divisions, the designations of committees, selection of the members thereof, and the method of conducting its business shall be prescribed by the chairman and vice chairmen in each division, subject to the approval of the board of directors. All committees shall be so chosen as to fairly represent geographically all carriers of the country. Any division may, with the approval of the board of directors, permit others than representatives of members to become affiliated members of such division and to serve on and vote in committees. Qualifications for affiliated membership shall be fixed by each division, subject to the approval of the board of directors. 3. Six members of the board of directors shall be elected each year to serve for three years. Three members and two members of the committee on nominations, each to serve for two years, shall be elected alternately. These elections shall be by letter ballot in advance of the regular sessions of the association. 4. The board of directors shall exercise general supervision over the affairs of the association and pass upon applications for membership. Digitized by Microsoft® 198 RAILKOAD SEVENTIES AND EXPENSES. It shall appoint the president, the vice presidents, and the general secretary and treasurer, and prescribe their salaries, if any. It shall nominate nine persons and six persons, in alternate years, as candidates for the committee on nominations. Such nominations shall be so made as to fairly repre- sent geographically all carriers. It shall report to the association at each regular session the action it has taken and its recommendations on matters of importance. In aduition to the duty of supervising the activities of the several divisions, the board of directors may assign to the executive committee such other duties as it deems advisable. Whenever the committee on nominations shall cease to have a quorum in its member- ship, the board of directors shall make such appointments as are necessary to fill the vacancies. 5. The committee on nominations shall nominate each year the names of 18 chief executive officers as candidates for the board of directors. Such nominations shall be bo made as to fairly represent geographically all carriers. 6. It shall be the duty of Division I, Operating, to consider and report upon questions affecting operatingpractices. 7. It shall be the duty of Division II, Transportation, to consider and report upon .questions affecting the efficient use and interchange of equipment. 8. It shall be the duty of Division III, Traffic, to consider and report upon rules, regulations, and practices (not including rates, fares, or classifications for rating) which affect the operation of the railroads in relation to the public. 9. It shall be the duty of Division IV, Engineering, to consider and report upon methods affecting the location, construction and maintenance of railroads. 10. It shall be the duty of Division V, Mechanical, to consider and report upon methods of construction, maintenance and service of the rolling stock of railroads. 11. It shall be the duty of Division VI, Purchases and stores, to consider and report upon methods for purchasing, storing, distribution, and selling of materials and ; supplies. 12. It shall be the duty of Division VII, Freight claims, to consider and report upon methods for the settlement of freight claims of shippers, consignees, and carriers, also to study claim causes and preventive measures. 13. It shall be the duty of Division VIII, Perishable freight, to consider and report upon questions relating to protective services. 14. It shall be the duty of Division IX, Fuel, to consider and report upon methods for purchasing, inspecting, distributing, handling, conserving, and accounting for fuel. 15. Reports, except the report of the board of directors, shall be prepared at least 30 days prior to the date of the session at which they are to be considered by the association and copies forwarded to the members by the general secretary with the call for the meeting. 16. A person who becomes a member of the board of directors or of a committee shall continue to perform the duties thereof to the end of his term, so long as he is an official or a member of the association, whether in the service of the original member or of another. A vacancy on the board of directors or on a committee caused by registra- tion or disability shall be filled by the vote of its remaining members except as pro- vided in by-law 4. When a member of the board of directors or of a committee shall be absent three times consecutively from regularly called meetings of the board of directors or of the committee his membership ceases ipso facto, and the board or committee shall act as in the case of a vacancy from any other cause. 17. Any officer or a member when properly accredited by his chief executive officer will be admitted to the sessions, and may join in the discussions or serve on the com- mittees of the association, except the board of directors and the committee on nominations. 18. Thirty members shall constitute a quorum for the transaction of business, but a lesser number may adjourn from time to time. 19. Each membership shall pay an annual fee of $10, and such other sums as are assessed by the board of directors for conducting the affairs of the association. Each association shall pay annual dues of $20, but shall not be subject to assessment. Annual dues shall be payable on April 1. Assessments shall be based upon the num- ber of miles of road operated, leased, or controlled by each member at the time the assessment shall be payable or on such other basis as may be prescribed from time to time by the board of directors. 20. A member shall not be entitled to vote if in arrears to the association. 21. Each member shall have the privilege of voting for any six candidates lor membership on the board of -directors, and for any two (or three) candidates for mem bership on the committee on nominations. The six persons receiving the highest Digitized by Microsoft® RAILROAD REVENUES AND EXPENSES. 199 number of votes cast for membership on the board of directors and the two (or three) persons receiving the highest number of votes cast for membership on the committee on nominations shall be declared elected. All such votes shall be by letter ballot on forms prepared by the committee on nominations. A member may cast such ballot for any eligible representative of a member of the association for membership on the board of directors, or on any committee. 22. A vote in the regular sessions of the association may be taken viva voce, by rising, by roll call, or by ballot, in any of which members only shall participate. Letter ballots other than for elections may be ordered to be taken in such manner and under such conditions as the board of directors may from time to time direct. 23. In all letter ballots for members of the board of directors and of committees, the following form of voting shall be adhered to: An envelope shall be provided on which there shall be a blank space for the name of the member, the name of the official voting, and the number of votes which he casts. In these envelopes the ballots shall be placed by those Voting them, and they shall then be forwarded to the general secretary, and by him presented to three tellers to be appointed by the president. Such tellers shall be so selected as to fairly represent geographically all carriers of the country. 24. At all regular sessions of the association the regular order, unless otherwise directed by a majority of the members present, shall be as follows: 1. Announcement of members present. 2. Approval of minutes of previous meeting. 3. Reports. 4. Unfinished business. 5. Miscellaneous business. 25. The members of the board of directors and of committees shall serve for the periods designated or until their successors are elected and qualified. Any member of the board of directors may resign by giving notice to the board; any member of a committee may resign by giving notice to its chairman. 26. The proceedings of this association shall be governed by "Robert's Rules of Order," except as otherwise herein provided. 27. These by-laws may be amended by the board of directors at any regular meeting or at a special meeting called for the purpose, provided two-thirds of all the members constituting the board vote in favor .of said amendment. September 1, 1920. The Chairman. Mr. Willard, what is the materiality of this chart ? Mr. Willard. The materiality of the chart which I have just handed you, Senator Cummins, is to show the comprehensiveness of the organization of the American Railway Association, an associa- tion that has been maintained by the railroads for 38 years and which deals with all the matters shown on the chart under the various headings. Then there are large committees that are con- stantly engaged in investigating and reporting upon the various subjects which Mr. Lauck has stated we do not give attention to. It is for the purpose of meeting that allegation that I am presenting this chart. Mr. Chairman and gentlemen of the committee, the chart which I have put in evidence shows the organization of the American Rail- way Association, and that that organization provides for various committees at the head of which are chairmen. Col. Thorn suggests that I state for the benefit of the committee and the record that I am the chairman of the board of directors of that particular organ- ization, so that I speak with personal knowledge of its activities. I also file, not to be printed unless you desire it done, but simply as evidence of the activities of the American Railway Association, printed reports, eight in number, giving the results of the inquiries within the last six months of the several committees referred to; at least, these reports were made within the last six months. 63553— 21— Vol I 14 Digitized by Microsoft® 200 BAILROAD REVENUES AND EXPENSES, Senator Pomeeene. Covering what subjects ? Mr. Willaed. The printed reports are as follows : Note. — These reports are not printed as a part of the record but are on file with the committee. Circular No. 2049, dated October 20, 1920, Report of Division I— Operating. Circular No. 2050, dated October 25, 1920, Report of Division II— Transportation. Circular No. 2051, dated October 15, 1920, Report of Division III— Traffic. Circular No. 2052, dated October 15, 1920, Report of Division IV— Engineering. Circular No. 2053, dated October 15, 1920, Report of Division V— Mechanical. Circular No. 2054, dated October 15, 1920, Report of Division VI— Purchases and stores. Circular No. 2055, dated October 15, 1920, Report of Division VII— Freight claims. Circular No. 2056, dated October 15, 1920, Report of Division VIII— Perishable freight. Circular No. 2057, dated October 11, 1920, Report of Conference Committee on Grain, relative to Interstate Commerce Commission's supplemental report No. 9009, claims for loss and damage of grain. These are the identical subjects that Mr. Lauck referred to, alleging that the railroads were giving no attention to such subjects. I simply wish to submit for the information of the committee that, regardless of what any individual railroad may be doing, here is a large organi- zation, the American Railway Association, that has been doing busi- ness for 38 years, has been Constantly maintained by the railroads, and through its various committees is giving constant attention and study to all subjects of interest in railroading, and the investigations and conclusions of the committees are printed and furnished for general information to all of the railroads. Senator Pomeeene. Who prepares these reports ? Mr. Willaed. These reports are prepared under the direction of the general secretary of the American Railway Association. Senator Pomeeene. Who is he ? Mr. Willaed. Mr. Fairbanks, who will be here this afternoon, and his assistant is here this morning. Their headquarters are maintained in New York, with a branch office in Chicago. The expense of run- ning the organization at the present time is about $30,000 a month. The car service commission here in Washington, which I have referred to in my previous testimony, is a subcommittee of the American Railway Association, and it is costing about $30,000 a month to to maintam it, or about $700,000 a year to maintain these activities that are dealing with matters of practice and coordination. Senator Pomeeene. And this money is contributed by the various railway companies? Mr. Willaed. Yes; on the basis of their gross earnings. Senator Kellogg. You said Mr. Fairbanks prepared these reports ? Mr. Willaed. Yes. Senator Kellogg. Did he get up the information contained in them ? Mr. Willaed. Oh, no. Senator Kellogg. Explain how that information is procured, and if it is procured from all the railroads state it. Mr. Willaed. Take this Repoft of Division VI — Purchases and Stores, and I will read the personnel of the committee. But, first of all, there is a committee having to do with each of these subjects, and this committee haying particularly to do with purchases and stores is under the chairmanship of Mr. H. C. Pearce, purchasing Digitized by Microsoft® RAILROAD REVENUES AND EXPENSES. 201 agent, Seaboard Air Line Railway. There are serving with him on that committee: H. E. Ray (vice chairman), general storekeeper, Atchison, Topeka & Santa Fe Railway, Topeka, Kans. U. K. Hall, general storekeeper, Union Pacific Railroad, Omaha, Nebr. W. A. Hopkins, supply agent, Missouri Pacific Railroad, St. Louis, Mo. B. T. Jellison, general purchasing agent, Chesapeake & Ohio Railway, Richmond, Va. F. D. Reed, vice president, Chicago, Rock Island & Pacific Railway, Chicago, 111. S. B. Wight, manager purchases and stores, New York Central Lines, New York, N. Y. H. P. McQuilken, general storekeeper, Baltimore & Ohio Railroad, Baltimore, Md. E. J. McVeigh, general storekeeper, Grand Trunk Railway, Montreal, Canada. F. A. Bushnell, purchasing agent, Great Northern Railway, St. Paul, Minn. J. P. Murphy, general storekeeper, New York Central Lines (West), Collinwood, Ohio. H. H. Laughton, assistant to vice president. Southern Railway, Washington, D. C. W. G. Phelps, purchasing agent, Pennsylvania System (central region), Pitts- burgh, Pa. J. G. Stuart, general storekeeper, Chicago, Burlington & Quincy Eailroad, Chicago, 111. W. A. Summerhays, purchasing agent, Illinois Central Railroad. Chicago. This committee takes up for consideration, at its annual or semi- annual meeting, as the case may be, various subjects, such as recla- mation of materials; purchasing, storage, and distribution of sta- tionery; handling and sale of scrap; purchasing and storage and dis- tribution of ice, and so on. The committee makes reports from time to time, and Mr. Fairbanks, the general secretary of the American Railway Association, arranges to have them printed. That is all he does in regard to the reports. The Chairman. The committee will not attempt to determine now whether these reports shall be printed in the record. I assume we will have them examined and determine upon that matter later. However, as I understand the principal purpose you have in view in calling attention to these reports is to show that you have an associa- tion and various committees organized for this purpose. Mr. Willard. Yes. The Chairman. To inquire into and investigate the actual work ? Mr. Willard. Yes, sir. The Chairman. In order to see whether it is meritorious or helpful or otherwise ? Mr. Willard. That is all. I might say further that my only excuse really for bringing this subject up is this: This Lauck report was prepared with care, apparently; was submitted before the labor board at Chicago and given great publicity, and seems to have had some influence upon Members of Congress, and is undoubtedly having an influence upon the public mind to-day. Without desiring to go into the merits of the report in great detail, I want to say that there are one or two things which seemed to me to be pertinent at this time, and this question seemed particularly pertinent: In addi- tion to the activities of the American Railway Association, to which I have previously referred, there is another committee, which I also referred to on day before yesterday, known as the advisory com- mittee, which was formed by the presidents of the railways early in the summer of 1920 to form a point of contact with the Interstate Commerce Commission primarily at that time and to assist in Digitized by Microsoft® 202 RAILROAD REVENUES AND EXPENSES. dealing with the emergency. The purpose of that committee was that the railroads might have a committee of responsible officers in direct contact with the Interstate Commerce Commission and prepared to deal actively and effectively at any time with any subject which might come up under the provisions of the new trans- portation act. The first thing which it was called upon to deal with were the unusual demands for transportation, and I think I may say that that situation was dealt with rather effectively, as shown by the figures already presented. After the transportation emergency had been dealt with, the next most pressing subject in order was the reallocation of equipment on home railroads; the getting of equipment relocated where it be- longed, so that the condition of cars could be determined and the owners might get them ready for service. As soon as that condition was out of the way, consideration was fiven by this committee to an inquiry into the general subject of etter coordination of terminals and other facilities, such as seemed to be contemplated under the transportation act, and a study and investigation of that subject is going on. It is a very large subject, but had to be deferred until the transportation matter could be dealt with. Perhaps it would make my position a little clearer if I should say right now that the transportation act of 1920 does, in my opinion, make the future successful operation of railroads possible as pri- vately owned and operated properties. That I thoroughly believe. It is necessary, of course, if they are to succeed that the railroads themselves should cooperate effectively in order to carry out the spirit of the act. That the railroads are attempting to do that through these several agencies I have mentioned, and particularly through this new agency, the advisory committee, that was only created after the passage of the transportation act, is a matter which I desired to bring to the attention of the members of this committee Senator Pomerene. Is it your claim, then, that these matters which were referred to at Chicago have been receiving the attention of the railroad companies ? Mr. Willard. Yes. Senator Pomerene. With a view to improving methods of opera- tion and financing ? Mr. Willard. Yes — or not so much financing as regards the Ameri- can Railway Association. That association was organized primarily to bring about standard time. That was the first step that the Amer- ican railroads took, and the step taken in this country through this -^very association has been followed all around the world. Senator Poindexter. When was the association organized ? Mr. Willard. In 1883. Senator Poindexter. Who are on its board of directors at this time? Mr. Willard. I have their names here and will get them for you. Senator Poindexter. Who are the members of the advisory com- mittee ? Mr. Willard. The advisory committee was organized last May. I think shortly after the termination of Federal control. That is a Digitized by Microsoft® RAILROAD REVENUES AND EXPENSES. 203 more recent committee, and was organized more particularly to meet the requirements of the transportation act. Senator Poindextee. Who are the members of that committee ? Mr. Willard. I will submit a list of the committee in a few minutes. I have also, I might say as a matter of record, a list of the board of directors of the American Railway Association, if you care to have it filed. They are practically all presidents of railroads. Senator Poindextee. I would like to have that in the record. Mr. Willard. The members of the board of directors and of the executive committee of the American Railway Association, are as follows : BOARD OP DIEECTOES. Daniel Willard (chairman), president Baltimore & Ohio Railroad, Baltimore, Md. R. H. Aishton, president American Railway Aascoiation, Chicago. Ill (431 South Dearborn Street). Gen. W. W. Atterbury, vice president, Pennsylvania System, Philadelphia, Pa. E. W. Beatty, president Canadian Pacific Railway, Montreal, Quebec. W. G. Besler, president and general manager Central Railroad Co. of New Jersey, 143 Liberty Street, New York City. B. F. Bush, president Missouri Pacific Railroad, St. Louis, Mo. H. E. Byram, president Chicago, Milwaukee & St. Paul Railway, Chicago, 111. C. R. Gray, president Union Pacific Railway, Omaha, Nebr. Hale Holden, president Chicago, Burlington & Quincy Railroad, Chicago, 111. J. H. Hustis, president Boston & Maine Railroad, Boston, Mass. H. G. Kelley, president Grand Trunk Railway, Montreal, Quebec. N. D. Maher, president Norfolk & Western Railway, Roanoke, Va. W. L. Mapother, executive vice president Louisville & Nashville Railroad, Louis- ville, Ky. C. H. Markham, president Illinois Central Railroad, Chicago, 111. E. J. Pearson, president New York, New Haven & Hartford Railroad, New Haven, Conn. W. R. Scott, president Southern Pacific, Texas-Louisiana Lines, Houston, Tex. A. H. Smith, president New York Central Railroad, Grand Central Terminal. New York City. W. B. Storey, president Atchison, Topeka & Santa Pe Railway, Chicago, 111. W. H. Truesdale, president Delaware, Lackawanna & Western Railway, 90 West Street, New York City. EXECUTIVE COMMITTEE. Division I — W. W. Atterbury. Division II — E. J. Pearson. Division III — C. H. Markham. Division IV — Howard G. Kelley. Division V — W. B. Storey. Division VI— W. G. Besler. Division VII — N. D. Maher. ADVISORY COMMITTEE. Daniel Willard, chairman,' president Baltimore # Ohio Railroad Co. . W. W. Atterbury, vice president, Pennsylvania Railroad Co. Hale Holden, president Chicago, Burlington & Quincy Railroad Co. Howard Elliott, chairman Northern Pacific Railway Co. W. L. Mapother, president Louisville & Nashville Railroad. W. B. Storey, president Atchison, Topeka & Santa Fe Railroad Co. W. H. Truesdale, president Delaware, Lackawanna & Western Railroad Co. B. F. Bush, president Missouri Pacific Railroad. C. H. Markham, president Illinois Central Railroad. E. J. Pearson, president New York, New Haven & Hartford Railroad Co. C. R. Gray, president Union Pacific Railway. Senator Watson. That committee, just as you described a while ago, makes a report of its action to this general board ? Mr. Willard. Yes. Digitized by Microsoft® 204 RAILROAD REVENUES AND EXPENSES. Senator Watson. And after that the general board proceeds to put into execution suggestions of that committee, as far as the feneral board deems advisable. In other words, it does not all end y having a report and the passing of a resolution ? Mr. Willard. Oh, no. Since the passage of the transportation act and the creation of the advisory committee the constitution of the American Railway Association has been changed, and it has been^ arranged so that it embraces the activities of all other independent associations that have been of long standing, such as the Master Mechanics ' Association, maintenance engineers, mechanical engineers, etc. They have all been brought in under the general supervision of the American Railway Association, and their work is carried on as shown by this organization, with standing committees, as I have already indicated. Under the existing plan of organization when these several committees submit their reports they are considered by the board of directors of the American Railway Association, and their recommendations are laid before the advisory committee for its recommendations. If those recommendations meet with the approval of the advisory committee they are submitted to all the railroads with recommendation that they be made effective. There is no way to definitely impose a rule of practice of that kind, but as it has worked out the general acceptance by the railroads of recommended practice has made such practice general. Senator Watson. I have heard it charged that while there is a very great deal of machinery for ascertaining the facts and effect of railroad practice, yet that after a report is made the work is ended. What have you to say along that line ? Mr. Willard. Of course, Senator, that is a part of the general misunderstanding connected with conditions surrounding the whole subject. I could give with great detail, if desired, a list of standard practices they have recommended and that have been accepted all over the country. A special committee for more than 10 years, with a very eminent mechanical engineer at the head of it, has been dealing with the one subject, steel rails — defects, breakages, etc. It has been inspecting mill practices with a view to improving the quality of steel rails. And in addition to the work done by this general committee, the most of the railroads carry on their own investigations at the same time. But this work is being carried on by all of the railroads and all contribute to the expense. Mr. Chairman and gentlemen of the committee, there is one other matter it seems to me I ought to bring to your attention at this time, and for this particular reason: I think railway managers generally recognize that this committee of the Senate, with the analogous committee in the House, is the highest authority in the United States concerning railroads under our present form of government; and when we come here we come to those who are charged with the responsibility and have the authority to deal with the railroad question; subject, of course, to the approval of the Congress. It seems to e that it is the duty of railway officers when they come here to lay before this committee any information that in their opinion ould seem to be of value in d aling with this question. *• That prompts me to refer to the subject of is ellaneous losses, dealt with by Mr. Lauck, in which he says : Salaries of railway officers are well known to be exorbitant in some cases. Digitized by Microsoft® RAILKOAD REVENUES AND EXPENSES. 205 Further, in the same connection it appears that a bill has been recently introduced in the House of Representatives pro iding that salaries shall be fixed, I think, at not over $15,000 per annum. And then it provides penalties if anything is done to pay more than that amount. This is a matter very much in the public mind, and I believe also that it is very much misunderstood. Of course, it is obvious that it will make very little difference to " e, personally, what salaries rail- road presidents are paid, or what their duties may be, because neces- sarily I shall not be in the business very much longer. But it does make a difference, a great difference, in fact, in connection with the success of rivate ownership of railroads, whether this matter is dealt with fairly and in a broad-minded way. There are two phases of the subject. The first one is— strange as it seems to me, for I can not understand it — an official of a railroad seems to hold the only office in connection with which, in a general way, it seems to be discreditable to succeed, as measured in terms of salary. We hear of large salaries being paid to men engaged in the coal business, and in the steel business, and in the sugar business, and in the leather business, in the newspaper business, and all that sort of thing, and the newspapers usually comment favorably con- cerning such salaries. If a young man has gone into one of these businesses and succeeded to a position of high responsibility, and receives a substantial salary, it is not referred to in terms of dis- credit but in terms of commendation. Even when Mr. Schwab refers, as he does occasionally, to the fact that his company pays its president a million dollars a year, no one criticizes it. It is looked upon as an evidence of wise management and good judg- ment. Senator Poindexter; Who is the president of that company ? Mr. Willard. Mr. Eugene Grace. But it is quite different when we come to the railroads. My salary is a matter of frequent dis- cussion. It has been printed in all of the newspapers from time to time, and I have no reason to be ashamed of it, but it is considered a matter of public interest, and usually when it is referred to it is attempted to make it appear that in some way or in some manner I am obtaining more salary than I am fairly entitled to, and that I ought to apologize for it and reduce it. That is the impression that grows out of the general attitude toward salaries of railroad presidents. That attitude has two effects upon the problem of railroading that I think I ought to explain: (i) That the railroad's in the last few years on this account have lost many of their most capable and experienced and brightest railway execu- tives. I know of a case where a young man who grew up in the railway service was receiving a salary that was large for his age and position, and all that sort of thing, $35,000 a year I think, previous to the war. . When the Director General took the railroads over he reduced his salary — and of course this young man remained in the service until the war was over and did his part. But after the war was over he received an offer of twice that amount to go with another business. There was nothing to keep him in the railroad service when a higher value was placed upon his services outside. That is a typical case. I could cite dozens of cases of that kind. Is it a good thing for the transportation service to lose men of that type ? If it is a fact that the transportation service is of that char- Digitized by Microsoft® 206 RAILROAD REVENUES AND EXPENSES. acter that men only need be obtained for officers who may be paid second or third rate salaries, then a limitation might properly be placed upon salaries of executives of railroads. But when a limita- tion is placed thereon the effect ought to be understood. Then there is another and more serious effect: Formerly it was customary for hundreds of bright young college boys to enter the railroad service each year. I myself received from college presidents and from boys at college communications inquiring as to now many such boys we could take into the railway service. They were anxious then to enter the service. But what is the situation to-day ? Applications of that kind have almost entirely ceased. They do not come in any numbers any more. I do not advise them to enter the service. In my own case, to put the matter as definitely as possible, I had thought that my own son might enter the railroad service, but before he finished his college course, even though he had theretofore intended entering the railroad service, he changed his mind and decided to enter some other line of business. And why? (1) Be- cause the future status of railroading seemed uncertain; and (2) because I did not care to encourage him to enter a business where to succeed will be a reproach as the public mind looks at the matter at this time. I felt that he had better opportunities elsewhere. And please bear in mind that under the terms of proposed legisla- tion and according to public opinion not only is it proposed to limit salaries of railway executives, as has been suggested in a certain bill, but it has finally and actually come about that a railway officer, if he meets the public standard as to how he shall conduct himself, can not have an investment in anything he knows anything about; because he is actually doing business with pretty nearly everything he has knowledge of, and if he complies with the law and public opinion he is cut off from opportunities of profitable investment. He must then depend upon his salary. Mr. Chairman and gentlemen of the committee, if that subject receives serious consideration at any time, and I assume that sooner or later it will come before this committee, I only wish to suggest that you act with a full appreciation of the fact that one gets in service exactly what he pays for. Whatever salary you may fix that will measure the general ability of the man you get, because you can not expect to get ability without paying for it. Senator Wolcott. Mr. Willard, may I ask here a question some- what related to the subject you have been discussing ? Mr. Willard. Certainly. Senator Wolcott. The other day a train man accosteTl ine on the r street, and when mentioning these high salaries paid tp executives in the railroad service, the subject you have been discussing, he said the railroad executives consumed a great deal of railway revenues in the operation of their private cars. And if I recall aright he said the private car of one executive was costing $2,000 a day. Can you give me any information on that subject? Mr. Willard. I can only speak from my own personal experience, but I can give you data as to that; and I am glad to do so, because it is a matter of common discussion and also of much misunder- standing. I am provided with a so-called private car. I happen to call it an official car or an office car. That strikes my point of view better, but it is a matter of no importance what you call it. I use that car Digitized by Microsoft® (Information filed by Mr. Daniel Willard in regard to cost of operating private cars on the Baltimore & Ohio Railroad.) The Baltimore & Ohio Railroad had 18 business cars, including a special dynamometer and test car, in operation on its lines during the year ended December 31, 1920, which were used by its president, vice president in charge of operation, and occasionally by the two other vice presidents, the general manager eastern lines, the general manager western lines, chief engineer, chief engineer maintenance, engineer maintenance eastern lines, engineer maintenance western lines, general superintendent motive power, general supervisor of terminals, and five general superintendents, etc. The total cost of operating these cars during the year above re- ferred to, including supplies, equipment, wages of cooks, and porters where occasion called for second man, laundry, etc., aggregated $68,340.62, or an average per car of $3,796.70, equal to about $10.40 per car per day. However, as these cars were not in use more than 40 per cent of the time, the average cost is about $26 per car per day. The general officers are usually accompanied on their trips over the line by the division superintendent, division engineer, and superintendent motive power, an average of not less than four per- sons, or say at an average cost of $6.50 per day per person. 206a Digitized by Microsoft® Digitized by Microsoft® RAILEOAD REVENUES AND EXPENSES. 207 ■ as my office. Ordinarily I spend one or two days a week in my office in Baltimore, and the rest of the time I am traveling to some other place where I am to attend a hearing or meet with shippers or do •something pertaining to the business of the Baltimore & Ohio Railroad. Senator Pomeeene. In that car? Mr. Willaed. Yes, sir; that is my offiee. My secretary travels with me, and a cook and a por.ter. The porter assists the cook in taking care of the car. When he is in Baltimore he works in my office. In order that my time may be made the best use of, he takes my baggage to and from my house and does other things I desire, and I personally pay one-half of his salary. I use that official car for the business of the company. When I go away sometimes — I have not recently, but before the war I used sometimes to go up in New England, or to some place where I was acquainted, and would take the car — it is usually moved as a matter of courtesy without charge against my company or myself. I mean without any charge made for the trip over the foreign railroads. I myself personally pay for all supplies consumed in the car when off the rails of the Baltimore ■& Ohio Railroad Co. on my personal account, which is seldom. That is my personal practice in dealing with private cars. How much it costs to run that car a day I can not at this moment tell you, but I shall be glad to have a report made out covering the last year's operation. It will contain the salary of two colored men who work on the car and the supplies that are used to furnish meals for myself and the officers who usually accompany me on trips of inspection. Occasionally a shipper comes along, and the courtesy of a meal is extended to him. Now, gentlemen of the committee, I have tried to deal with this matter as frankly as possible, and while I can not give you at this moment, offhand, a detailed statement, I will have one prepared and furnished if you desire it. I do want to say that I have not heard of any case where it cost $2,000 a day or anything approaching any such sum to operate a private car. Col. Thorn suggests that I have not quite completed what I might ;say about the use of private or official cars. I have only referred to my own experience, and if I might be considered as entailing an unnecessary expense on the railroad for handling my official car, I :might refer to the officials cars of the superintendents, general super- intendents and general managers, the men who really use the ma- jority of the official cars that are handled over the roads and who must spend the most of their time on the road. There are some 20 •such cars in the service of the Baltimore & Ohio Railroad, and I suppose that number is fairly typical of other railroads. These operating officers I refer to are on the road all the time, or at least much of the time, and much of the time they are staying at lit- tle places in between terminals where there are no hotels, etc., so it is a matter of real economy to use official cars for such service. Take the men in the engineering work, and who must be in such out of the way places, and they are much more efficient by being thus taken care of. They can travel nights and be fresh the next morning for the day's work. It is simply a traveling office, that is all. Senator Pomeeene. How many miles of railroad are there in your system ? Mr. Willard. Fifty-five hundred. Digitized by Microsoft® 208 BAILEOAD REVENUES AND EXPENSES. Senator Pomerene. And it is necessary in the proper conduct and management of your railroad to travel over the entire road and see your entire plant, I take it ? Mr. Willard. Yes, sir; I think it is. In line with the same matter I have been discussing and for the purpose of clearing up what seems to be a further misunderstanding in the public mind, 1 wish to refer to another exhibit prepared by the American Federation of Labor, through Mr. Lauck, and introduced at Chicago. There are a few things that I think ought to be cleared up. Senator Pomerene. In view of the course this discussion has taken, and with the permission of the chairman, I would like to make a little observation here; I think it is due the public. The Chairman. You may proceed, Senator Pomerene. Senator Pomerene. In January, 1919, when this committee was investigating the railroads and we had the Director General of Rail- roads before us, he gave as one of the items of economy effected that he had saved $6,100,000 in lopping off salaries of highly paid execu- tives and general counsel. At that time I think the then chairman of the committee (Senator Smith) asked for a statement as to the number of men on his staff and the salaries paid to them. This was in the first week in January, and on January 15, the chairman of the committee indited a letter to the then Director General of Railroads, again formally asking for that information. Those hearings con- tinued substantially all of the months of January and February — am I not right, Senator Smith ? Senator Smith. Yes. Senator Pomerene. And we got the answer under date of March 1, which was on Saturday. It was delivered to the chairman of the committee on Monday, March 3, and was handed to me at 2 o'clock on Tuesday morning, at the night session. That statement showed the number on the staff of the Director General of Railroads and the salaries paid. There were a few salaries around $50,000, and there were 74 salaries over and above $10,000. The average salary was $19,400. I may vary a few dollars in these figures in taking them from memory as compared with the actual statement. It seemed to me then and it has seemed to me since that when we were told of those economies we should have been shown the other side of that column, and when they talked about the mistakes of Government operation, likewise it would have been important for the committee and for the public to have information of how many additional em- ployees there were. It may be that it is not policy to make a state- ment of this land, but I am interested in getting the truth of the situation. Senator Wolcott. Senator Pomerene, can you state by way of supplement of what you have already said, the total of salaries paid to the Director General's staff as compared with the saving they claimed to have effected ? Senator Pomerene. I can not give you that now. I know the figures I have given are substantially accurate, but they are from, memory. (The report referred to is as follows :) Digitized by Microsoft® RAILROAD REVENUES AND EXPENSES. 209 Schedule 1. A list as of date Jan. 1, 1919, of all officers and employees of the Central Railroad Admin- istration, under the Director General, and of the regional administration, under' regional directors, other than those on the regular pay rolls of the various railroad companies under Federal control, together with all salaries, wages, and compensation. DIRECTOR GENERAL— GENERAL OFFICE. No. Occupation. Annual salary. No. Occupation. :r - Annual salary. 1 Assistant to Director General.. Assistant to assistant to Direc- $10,000 3,000 6,000 5,000 3,000 2,600 3,000 2,000 1,900 ],800 1,700 1,600 1,600 1,200 1,080 2,700 2,400 2,100 2,000 1,800 1,680 1,500 1,380 1,320 1,260 1,200 1,140 5 3 2 2 2 2 2 2 1 1 5 1 3 1 2 1 1 1 24 1 1 1 3 3 2 11 3 7 1 Clerk $1,080 1 do 1,020 do 1,000 1 Private secretary to Director do 900 ido 840 1 do 780 1 Assistant private' secretary to do 720 do 600 2 2,000 1,800 1,500 1,320 1,200 1 Superintendent of telegraph . . . 1 1 ....ao"..v..".".:::::::::::::::: 2 do do 5 do... do 1,080 1,000 900 6 do do 5 do do 1 1,000 5 do 960 1 Clerk 840 2 do 720 2 do do 300 3 do 1,200 5 do 900 1 do do 840 4 do do 720 2 do do 600 6 do 360 1 do do 312 18 do do.. 180 2 do ASSISTANT DIRECTOR GENERAL. Assistant Director General.. Assistant to Assistant Director General ....do Office assistant Secretary do Accountant. do $25,000 1 12,000 1 9,000 1 5,000 5 4,000 3 3,000 1 5,009 1 3,000 2 Clerk ....do ....do Secretary Assistant secretaries . Stenographers do .do. $2,000 1,560 1,200 2,100 1,800 1,500 1,400 720 600 FINANCE AND PURCHASES. 1 $9,000 4,000 8,400 7,500 5,000 10,000 3,600 3,600 4,000 3,900 3,600 3,500 2,700 2,700 3,000 2,400 2,100 2,000 1,800 4 1 1 5 1 1 1 1 3 1 17 1 3 11 1 2 1 5 1 Clerk $1,500 1,380 1,320 1,200 1 do do 1 Manager, fire loss and protec- do do 1 Manager, marine insurance Manager, forest product section do 1,050 1 . do 1,000 2,100 2,000 1,800 1 1 1 2 1,680 1 do 1,500 1 do 1,400 2 do do 1,320 1 do... do 1,200 1 do 1,000 1 Clerk 840 4 ...;.do 840 4 do 600 1 do do 480 7 do Digitized by Microsoft® 210 EAILKOAD SEVENTIES AND EXPENSES. A list as of date Jan. 1, 1919, of all officers and employees of the Central Railroad Admin-- istration, under the Director General, and of the regional administration, under regional"- directors, other than those on the regular pay rolls of the various railroad companies- under Federal control, together with all salaries, wages, and compensation — Continued. CAPITAL EXPENDITURES. Occupation. Director Assistant to director do Accountant do do Secretary and assistant. Chief clerk Assistant engineers do ....do Annual salary. $25,000 10,600 8,400 3,900 3,000 2,700 4,000 4,000 4,200 3,900 3,600 No. Occupation. Clerk do ....do ....do ....do ....do Secretaries Stenographers . do ....do Annual salary. $1,920' 1,809- 1,509- 1,389' 1,329- 1,209' 1,809' 1,509' 1,329* 1,209- 849> DIVISION OF OPERATION (PROPER). Director Assistant director do •. do do Assistant to director Manager, fuel conservation Manager, operating statistics.. Manager, telegraph Assistant manager, operating statistics Assistant manager, fuel conser- vation Assistant manager, safety Assistant to manager, fuel con- servation General supervisors, equipment General supervisor, car repairs. Supervisors, equipment Assistant supervisors, equip- ment Supervisors, safety Supervisors, car repairs Supervisor, troop movement... Supervisor, troop routing Supervisor, coding Assistant engineer Inspector of transportation Supervisors, fuel conservation . Inspector of transportation Assistant supervisors, fuel conservation do Inspector do Statistician do Secretary and assistant do 125,000 15,000 14,000 12,000 10,000 7,500 9,000 7,500 7,500 4,800 7,200 4,500 6,000 ^500 6,000 4,800 3,900 3,000 4,200 3,600 6,000 3,000 4,800 7,500 4,800 5; 000 3,900 3,600 2,400 1,800 4,200 3,000 3,900 3,000 Chief clerk Office engineer Chief clerk Assistant chief clerk . Clerk do do do do do do do do do do do ....do ....do ....do ....do ....do ....do ....do ....do ....do ....do Assistant secretary . . . Secretary do Stenographers do ....do ....do .:..do ....do ...do Laborers .do. $4,50Oi 4,209- 3,609- 3,609' 3,609 3,309- 3,009- 2,709" 2,409 2,109' 2,009' 1, 869- 1,809' 1,689' 1,620' 1,509' 1,449- 1,389' 1,329- 1,209- 1,089- 1,029' 969' 909' 849- 729' 2,409- 2,10O- 1,800* l,50O- 1,440' 1,400" 1,389 1,320< 1,209- 969- 849- 600* 489' DIVISION OF OPERATION (CAR SERVICE). Manager Assistant managers. . . do do District manager do Assistant to manager. Assistant Special assistant Chief inspector Special inspector Inspectors do $ 10, 000 2 9,000 V^50f 6,50f 5,400 1 1 4 3 4,800 2 3,600 2 3,000 1 6,000 1 3,300 4 3,000 3 2,400 1 1,800 2 Special representatives. Secretary do Office assistants ....do ....do Clerks ....do ....do ....do ....do ....do ....do $4,009' 3,309- 3,009' 3,609' 3,309- 3,009- 3, COO- 2,800» 2,709 2,409 2,109 2,009 1,920 Digitized by Microsoft® EAILROAD REVENUES AND EXPENSES. 211 A list as of date Jan. 1, 1919, of all officers and employees of the Central Railroad Admin- istration, under the Director General, and of the regional administration, under regional directors, other than those on the regular pay rolls of the various railroad companies under Federal control, together with all salaries, wages, and compensation — Continued. DIVISION OF OPERATION (CAR SERVICE)— Continued. No. Occupation. Annual salary. No. Occupation. Annual salary. 3 Clerks Jl, 800 1,620 1,500 1,380 1,320 1,260 1,200 1,080 1,050 1,020 1,000 960 900 840 780 720 1,800 2 13 2 20 1 12 1 6 1 5 2 3 1 2 2 1 2 $1,620 7 do 13 do 1,440 1,320 1,260 1,200' 1 do do 2 do do 1 do do 7 do do 1,140 1,080 1,050 S do do 2 do do 11 do do 1,020- 1,000- 900' 1 do do 4 do do 4 do 900 6 do do 660 2 do do 600- 8 do ; do 540 2 do 480 DIVISION OF TRAFFIC. Director Assistant director do ....do Manager Food Administration. Manager, War Industry Board. Manager, Inland traffic, War Department. Manager, Fuel Administration. Manager, express and mail Manager, Navy Department.. Manager, Shipping Board Managers, fuel oil Manager, inland traffic, United States military railroads. Manager, War Trade Board. . Assistant .do .do., .do. .do. .do. .do. .do. Assistant, War Department do , Assistant, Navy Department . . do Assistants, FuelAdministration do Assistant, FoodAdministration do do Assistant, War IndustriesBoard 125,000 15,000 12,500 7,200 20,000 18,500 18,000 13,200 12,000 8,000 7,200 6,000 4,200 3,000 7,500 7,200 6,000 4,800 4,200 4,000 3,600 3,000 6,000 3,300 3,600 3,000 4,800 4,200 5,000 3,600 2,400 5,000 Assistant, War IndustriesBoard General agent do do do do do do Secretary do Chief clerk do Clerks do do do do do do do do do do do Secretary do do do. ....do Laborer Messengers. do ....do J3,000- 4,800 4,500 4,000 3,600 3,300 2,700 2,100 3,000 2,820 3,600 3,300 3,600 3,300 3,000 2,700 2,400 2,100 2,641 1,800 1,320 1,200 1,020 840 2,400 2,100 1,800 1,500 1,320 1,200 840 780 600 480 PUBLIC SERVICE AND ACCOUNTING. Manager, accounting Manager, Short Line section. . . Auditor Special rate expert, Short line section Traffic assistants Accountant do do do ....do ....do ....do $9,000 8,500 7,500 7,200 6,000 6,500 6,000 4,200 3,900 3,600 3,300 3,000 Accountant. do do .....do do do do do Chief Clerk. . Clerks do do .....do $2,880 2,700 2,500 2,400 2,100 2,000 1,800 1,500 3,900 2,700 2,400 2,200 2,100 Digitized by Microsoft® 212 RAILROAD REVENUES AND EXPENSES. A list as of date Jan, 1, 1919, of all officers and employees of the Central Railroad Admin- istration, under the Director General, and of the regional administration, under regional directors, other than those on the regular pay rolls of the various railroad companies under Federal control, together with all salaries, wages, and compensation — Continued. PUBLIC SERVICE AND ACCOUNTING— Continued. No. Occupation. Annual salary. No. Occupation. Annual salary. 1 Clerks {2,000 1,800 1,720 1,700 1,680 1,600 1,500 1,400 1,320 1,200 1,080 1,020 1,000 960 1 2 1 1 9 1 1 4 3 1 1 4 1 $900 4 do .do. . 840 1 do 1,680 2 do Stenographer and clerk 1,620 2 do 1,500 2 do 1,440 16 do do 1,400 5 do ::::: ....do Secretaries to members. Stenographers r(0 ....do SI, 500 1,200 1,050 900 720 1,800 1,500 1,320 1,200 EASTERN REGION. Regional director Assistant regional director District director do Chairman budget committee.. Traffic assistant Mechanical assistant Resident traffic assistant Marine director Assistant mail and express Terminal manager do do ....do ....do........ Staff assistant to traffic assist- ant . j Assistant to traffic assistant... Supervisor of stores Transportation assistant Operating assistant ....do fDecial agent xecutive assistant ....do .-, Office assistant do........ ....do..... Secretary. Special assistant, Assistants do Transportation inspector , do do...:.... do Telegraph and telephone engi- neer Engineer do do Supervisor of transportation . . . Members subcommittee— For- est products Freight representative inspector do Statistician $50,000 35,000 35,000 30,000 25,000 20,000 20,000 15,000 15,000 10,000 8.400 8,000 7,200 5,400 5,000 7,200 4,200 6,000 6,000 4,800 4,200 8,000 6.E0O 4,200 6,000 5,000 3,600 6,000 5,000 4,200 3,600 4,000 3,60Q 3,000 2,400 4,200 4,800 2,700 2,520 2,700 4,200 3,600 3,000 2,700 2,100 6,000 . Accountant do do Chart erra as ter . . Tug dispatcher. do do .....do Secretary do do...., do do Chief clerk do do. do. do. do. do. Clerk.. ....do. do. ....do. ....do. ....do, ....do.. ....do. ....do.. ....do. do.. do.. ....do.. ....do.. ....do.. ....do.. ....do.. ....do.. ....do.. ....do.. ....do.. ....do.. ....do.. ....do.. ....do.. ....do.. ....do.. ....do.. ....do.. $3,000 1,950 1,800 2,700 2,700 2,400 2,100 1,800 3,600 3,000 2,700 2,610 2,400 4,800 4,000 3,600 3,300 3,000 2,700 2,400 3,000 2,820 2,700 2,520 2,400 2,160 2,100 2,000 1,980 1,950 1,875 1,800 1,740 1,680 1,620 1,600 1,500 1,440 1,400 1,380 1,320 1,260 1,200 1,160 1,080 1,056 1,020 950 900 63553— 21— Vol T- -15 Digitized by Microsoft® 214 RAILROAD REVENUES AND EXPENSES. A list as of date Jan. 1, 1919, of all officers and employees of the Central Railroad Admin- istration, under the Director General, and of the regional administration, under regional directors, other than those on the regular pay rolls of the various railroad Companies under Federal control, together with all salaries, wages, and compensation — Continued. EASTERN REGION— Continued. No. Occupation. Annual salary. No. Occupation. Annual salary. 4 f840 2,250 1,920 1,800 1,680 1,620 1,500 1,440 1,430 1,400 1.320 1,260 1,200 1,187 1,140 1,100 1,080 1, 056 1,050 2 2 1 1 3 1 4 1 2 3 2 1 3 3 4 3 3 $1,020 1 960 1 do 960 3 do do 720 1 do Telegraph and telephone oper- do 1,800 8 -do. do 1,740 2 do. do 1,680 1 do ....do 1,100 4 do do 1,020 5 do do 960 3 do 840 9 .do. . 1,100 5 .do. . 780 3 .do. do. . 720 2 .do. 600 7 .do. do . 540 11 .do. . do. 480 2 do . ALLEGHENY REGION. Regional director Assistant regional director Traffic assistant Operating assistant Mechanical assistant Transportation assistant Engineering assistant Assistant to traffic assistant Terminal manager Assistant terminal manager Assistant to terminal manager. Supervisor operating division. . do Supervisor freight service Freight supervisor Supervisor car repairs Supervisor locomotive repairs . Supervisor train movement Engineer.. ... Chief of wage information Inspector of yards Inspector of piers., , Freight service representative. Passenger service representa- tive----...., Perishable traffic agent Office manager Statistician... do, do. do. do.;_ Chief clerk. . $50,000 20,000 20,000 20,000 10,000 10,000 10,000 5,400 10,000 5,400 3,600 4,800 3,600 4,200 4,200 4,200 4,200 3,000 4,200 4,200 4,500 3,900 3,300 3,000 3,600 4,500 5,000 2,607 3,000 1,920 2,100 1,800 3,600 Chief clerk do do ....do..: Clerk ....do do do do do do ....do ....do do do do do do do do do Stenographer. do..: do........ .....do.., .....do........ do do........ do........ do........ do .do. .do. POCAHONTAS REGION. 1 $40,000 17,500 10,800 10,000 7,800 2,800 3,100 3,300 3,000 2 2 1 2 Clerk $2,700 1 do 2,274 1 Chairman regional purchasing do 2,100 2,000 1,860 1 do do Member regional purchasing do 1,740 1,620 1,500 ,- do..... 1,326 do 1,380 1 do 1,020 Digitized by Microsoft® EAILEOAD REVENUES AND EXPENSES. 215 A list ax of date Jan. 1, 1919, of all officers and employees of the Central Railroad Adviin- iMration, under the Di.rer.tor General, and of the regional administration, under regional directors, other than those on the regular pay rolls of the various railroad companies under Federal control, together with all salaries, wages ,' and compensation — Continued. SOUTHERN REGION. No. Occupation. Regional director Traffic assistant Operating assistant Staff officer, mechanical Staff officer, engineering Staff officer, traffic Assistant to traffic assistant . . Terminal managers do do Assistant to terminal manager. Staff officer, accounting Accountant do Engineer Terminal trainmaster Traveling representative. ...... do Assistant to regional purchas- ing committee Inspector instrructor do Secretary do do do do Chi ef clerk do do do do Clerk do ....do Annual salary. $40,000 15,000 10,000 7,500 6,000 6,000 3,600 6,000 5,000 2,500 3,600 5,100 3,600 2,400 4,200 3,900 4,200 3,000 3,600 3,000 2,100 2,700 2,100 1,950 1,800 1,620 4,500 3,600 3,000 2,400 2,100 3,600 2,520 2,400 No. Occupation. Clerk do.'. do do , do do do do do do do do do do do Stenographer do do do do do do ....do do ....do Telegraph and telephone oper- ator ....do ....do Chef ...do Porter ....do Messenger do NORTHWESTERN REGION. Regional director Assistant regional director . . District director Traffic assistant do Traffic supervisor Operating assistant . ." Engineering assistant District manager Car service assistant Terminal manager do do .... do Acting terminal manager . . . Assistant to terminal manager. Assistant to traffic assistant. . . . Engineer do Engineers do Assistant to district director . . . Joint export agent Car agent Field man. Inspectors .■ do ...do Correspondent Accountant ....do Supervisor of car service Assistant supervisor of car $50, 000 20,000 25,000 20,000 8,000 5,000 6,000 6,000 10,000 6,000 10,000 9,000 7,000 5,400 4,800 3,600 3,600 4,300 3,600 3,600 3,000 4,200 4,200 2,700 3,600 2,400 2,100 3,000 2,700 3,600 3,300 4,500 2,700 Supervisor of transportation . . Assistant supervisor of trans- portation : Supervisor of transportation . . Supervisor Freight house supervisor Office assistant Offiae manager Chief clerks do Chief clerk Chief clerks do. do. Clerk.. ....do. ....do. ....do. ....do. ....do.. ....do.. ....do.. ....do.. ....do.. ....do.. ....do.. ....do.. ....do.. ....do.. ....do.. ....do.. ....do.. ....do.. Digitized by Microsoft® 216 RAILROAD REVENUES AND EXPENSES. A list as of date Jan. 1, 1919, of all officers arid employees of the Central Railroad Admin- istration, under the Director General, and of the regional administration, under regional directois, other than those on the regular pay rolls of the various railroad companies under Federal control, together with all salaries, wages, and compensation — Continued. NORTHWESTERN REGION— Continued. No. Occupation. Annual salaiy. No. Occupation. Annual salary. 1 Clerks. . $1,482 1,380 1,320 1,272 1, 235 1,319 1,200 1,184 1,140 1,099 1,080 1,020 960 8 1 2 5 3 1 1 1 1 6 1 1 1900 5 .do. do 858 17 do.. . do 780 3 do. do 720 1 ... .do. ...do 660 1 do .....do 540 33 do.... 2,100 1,200 4 do 1 do 1,020 2 do 1,591 25 do Cook. 1, 320 3 do 1,200 2 do CENTRAL WESTERN REGION. Regional director Assistant regional director. . District director Traffic assistant Engineering assistant Transportation assistant. . . . Mechanical assistant Terminal manager Labor representative Routing assistant Assistant to district director Transportation efficiency . . . Assistant to traffic assistant. Engineers Supervisor of loss and damage-. Inspector of transportation. ... Traffic inspector. Inspector, teleg'aph and tele- phone ,i, Chief tie inspector Chief treatment inspector Treatment inspectors Accountant do Office manager Chief clerk ....do Chief clerks Chief clerk , do do Secretary 150,000 3 20,000 2 35,000 2 20,000 1 12,000 1 8,400 1 ,4,000 1 3,900 5 5,000 1 7,500 2 5,000 1 3,300 2 4,200 4 3,000 1 3,900 3 3,600 2 3,300 2 3 2,400 1 2,400 1 2,400 3 1,800 1 3,600 1 2,400 6 4,000 17 3,300 1 3,000 1 2,700 1 2,100 1 2,000 1 1,980 1 2,640 1 $2,400 1,800 1,620 2.220 do ....do Clerk ....do 2,100 ....do 1,980 1,900 1,800 1,74B 1,680 1,620 1,560 1,500 ....do Clerks Clerk Clerks Clerk Clerks ....do Clerk 1,320 Clerks 1,260 1,260 ....do do 1,080 1,050 do Clerk 960 do 900 Clerks 720 1,620 1,500 1,320 1,200 1,140 1,080 1,050 do do 1,020 1,380 1,320 1,269 Chef Cook SOUTHWESTERN REGION. Regional director. Assistant regional director District director Traffic assistant Engineering assistant- Supervisor transportation ... . . . Supervisor car service Supervisor oil traffic Supervisor coal traffic Manager, tie and bridge Inspectors, tie and bridge. Assistant inspectors, tie and bridge , . Telegraph. and telephone engi- neer Special investigator Office manager $50,000 2 15,000 3 30,000 1 20,000 1 12,000 1 4,800 1 4,200 2 4,500 3 4,800 1 3,600 2 2,400 3 2 1,800 5 1 3,600. 2 « 3 4,200 1 Chief clerks. ....do Chief clerk.. ....do : Secretary... Clerk Clerks ....do Clerk Clerks ....do ....do ....do Clerk Clerks ....do Clerk. $3,600 3,000 2,400 2,100 2,100 3,000 2,700 2,400 2,280 2,220 1,980 1,620 1,500 1,440 1,320 1,140 1,020 i $7.50 per day. Digitized by Microsoft® RAILROAD REVENUES AND EXPENSES. 217 A list as of date Jan. 1, 1919, of all officers and employees of the Central Railroad Admin- istration, w\der the Director General, and of the regional administration, under regional directors, other than those on the regular poy rolls of the various railroad companies under Federal control, together with all salaries, wages, and compensation — 'Continued. SOUTHWESTERN REGION-Continued. No. Occupation. Annual salary. No. Occupation. Annual salary. 1 Clerk S900 840 780 720 2,400 1,800 1,620 1,500 1,440 1,380 11 1 1 1 1 1 1 i 1 1 $1,320 1 .do 1,080 1,020 1 .do. 2 Clerks . . . ..do. 900 1 Stenographers .do. 600 3 do. 126 5 Chef 1,100 1 do 1,100 o 1,356 3 do 1,020 Recapitulation. CENTRAL ADMINISTRATION. Employees. Office of Director General 175 Office of Assistant Director General 24 Division of finance and purchases 94 Division of capital expenditures 44 Division of operation (proper) 281 Division of operation fear service) 260 Division of traffic .• 143 Division of public service and accounting 167 Division of labor 63 Division of law 71 Office of actuary to Bailroad Administration . 31 Division of inland waterways 13 Board of railroad wages and working con- ditions , 45 REGIONAL ADMINISTRATION. Employees. Eastern region 320 Allegheny region 126 Pocahontas region 24 Southern region 126 Northwestern region 286 Central Western region 112 Southwestern region 91 Total, regional administration 1 , 085 Grand total , 2,4a6 Total, central administration 1,411 Mr. Willakd. On the page before me I find : On Baltimore & Ohio Railroad at hand are 69 bad-order cards torn from B. & O. cars ■without the defects being repaired* * This shows that the practice already de- scribed as prevailing on the Norfolk & Western has followed the lay-offs on the B. & O. These .c,ard&.were taken off cars shopped a^Gjunberland, Md. Then,, there are photostats of two cards removed from bad-order Baltimore & Ohio cars, 69 in number. I have investigated that matter very carefully, and the statement made by Mr. Lauck is correct so far as I can find; that is, that 69 such cards indicating defects in cars were removed. This is why they were removed and this is what resulted: Car inspectors are a part of the railroad organi- zation and are always under a foreman, and the foreman is always a man of greater experience and supposed to be a man of better judg- ment. In the particular cases referred to these cards were brought to the attention of the fdreman, and he, after going into the matter, considered that. the cars were safe to run, that it was unnecessary that they should be stopped and repaired at that time. He substi- tuted his' judgment for his inspector's judgment, who is his sub- ordinate; The cars were permitted to run. That was in February, and so far as I know they are still running. The record of the cars up to two or three days ago showed that they had continued to run safely while on our railroad. No accident has resulted, or anything to raise any question whatever concerning the judgment of the fore- Digitized by Microsoft® 218 RAILROAD REVENUES AND EXPENSES. man. Nevertheless, a thing of that kind might lead the public or the members of this committee to think that we were running ears that were unsafe to run and that might produce wrecks. It was simply a question of the older and better man substituting his judgment for that of the younger and less experienced man, and the facts have sustained his judgment. One other statement appears in this same Lauck report — — Senator Watson (interposing) . Let me ask you a question right there. Mr. Willaed. Certainly. Senator Watson. In your organization, is the foreman superior to the car inspector ? Mr. Willard. Oh, yes; always. Senator Watson. That is all. Mr. Willard. Another statement has led to a great deal of mis- understanding. It is headed : Cost of freight-car repair work in Baltimore & Ohio shops. Inasmuch as this whole subject is under investigation by the Interstate Commerce Commission, I am not going into it in detail, but I want to bring out one phase of it. This statement, found on page 52 of the Lauck report, says : Similar figures to those shown in the preceding section are available for repair work done in the Baltimore & Ohio Railroad shops. The work shown includes all the repair work except the trucks. It will be noted that the average total cost per car iB $514.83. Similar work when done under contract by equipment concerns is reported to have cost the company $1,015 per car. Then on this page the numbers and initials of cars are given, and the amounts that it is alleged were spent on those cars. I should explain that evidently Mr. Lauck obtained these figures through some subordinate clerk in some of our departments, because they were not made up by the officers charged with duties of that kindf. They were not sent out with the approval of the foreman or any other responsible officer, and therefore it is not surprising that they were incorrect. But the figures that he mentions would indicate that where our cars were repaired at Keyser, W. Va., the average labor cost per car was $155.90. He shows 34 cars repaired at that point. I have picked out 10 of these individual cars, and we have gone through our accounts Senator Poindexter (interposing) . How did you pick those out, indiscriminately ? Mr. Willard. Yes, sir; and I have the numbers here. The par- ticular 10 cars taken from this exhibit show a labor cost of $229 per car, as represented by the employees. Our records, made up by our clerk at the company shops, show the labor costs to have been $245 — but the difference is not material. However, it is the Cumber- land shops that I am now talking about. The material cost as reported in Mr. Lauck's statement was, at the Cumberland shop> $290 pef car, but our accounts show a cost of $380 per car — that is, when the account was complete. The man who reported to Mr. Lauck apparently did not know all the material that went into the repairing of the cars. Mr. Lauck's report of the cost of repairing a car was $520, while the actual cost was $625, in our own shops at Cumberland. Digitized by Microsoft® RAILROAD REVENUES AND EXPENSES. 219 If those 10 cars at that average price had been repaired at outside shops, under the contracts that we have and under which we have been working, the cost would have been $680 instead of $1,015 as stated by Mr. Lauck. This would represent $55 more than it cost us to do it at our own shops. I simply want to make it clear that while it does cost some more at an outside shop, yet in this particular case the increase would have been only about 8 per cent instead of practi- cally 100 per cent as suggested by Mr. Lauck. I have here some details concerning the work done at the Keyser shop, which I will not take. your time to read, but they get to exactly the same conclusion. Col. Thorn calls my attention to the fact that I have not mentioned that our statement of costs in the Baltimore & Ohio shops does not include any overhead. , It is just the direct cost of labor and material. It is what we put into a car in the way of labor and material and com- paring that with the total cost of having a car repaired at outside shops, where, of course, overhead must be considered. If overhead were considered at our shops there would be less difference between our costs and outside shops. Senator Pomerene. I wish you would put that statement in, to which you have just referred. Mr. Willard. All right. (The .statement referred to is as follows:) - THE BALTIMORE &, OHIO RAILROAD CO. MOTIVE POWER DEPARTMENT. Statement of Employees' Association to the United States Kailroad Labor Board, Chicago, 111., showing cost of repairing 34 grain cars, railroad shops, Keyser, W. Va., and 23 grain cars, Cumberland, Md. Below are three comparable exhibits made after selecting 10 cars repaired at each of the above shops from the nuntbers submitted by the employees. EXHIBIT A. Cost. As shown in exhibit by em- ployees. 1 Com- pany's shops.* II re- paired in contract shops.' Increase contract over company's. Amount. Per cent. Cumberland shop: $229. 65 290. 63 $245.01 3S0. 20 $251. 79 428. 48 $6.78 48.28 2.7 12.7 Total 520. 28 625.21 680.27 55. OS 8.8 EXHIBIT B. Keyser shop: $167. 69 369.21 $183. 13 386.77 $256.46- 435.83 $73.33 49.06 40.0 11.2 Total 536. 90 569.90 692.29 122. 39 21.4 EXHIBIT C. Average: $195. 17 330. 12 $214.07 383. 48 $254. 13 432. 15 $40.06 48.67 18.7 12.6 525.29 597. 55 686.28 88.73 14.8 i Shows the average cost as presented by the employees. ' Shows the average cost as established by railroad company after investigation. a Shows the cost if the cars had been repaired in contract shops on the present prevailing contracts. Digitized by Microsoft® 220 RAILROAD REVENUES AND EXPENSES. Exhibit A is the comparative cost established for 10 of the cars, repaired at Cumber- land. Exhibit B, same information for Keyser. Exhibit C, the weighted average for the total of 20 cars repaired at both shops. The percentages added on company's shops cost were added to conform to classi- fication of operating Eevenues and Operating Expenses, of Steam Roads, issue of 1914, by Interstate Commerce Commission. Senator Stanley. In order to make that statement of greater value would it be possible to reconcile the apparent difference between the two statements by a like verification in the case of the whole of the 34 cars ? Mr. Willard. Oh, yes; I think so. Senator Stanley. You have taken 10 cars and he takes 34 cars. Mr. Willard. Yes. Senator Stanley. It may be the whole 34 cars would reconcile the statement. Mr. Willard. All right, I will be glad to have that done. It will only mean a little more work but we will be glad to do it, and I think we can have it for you in a few days and then I will file it. Senator Stanley. I wish that to be done. (See facing page). The Chairman. Is there anything else you wish to mention, Mr. Willard? Mr. Willard. There is only one other matter of special importance which I should like to refer to, and I wish to do so because it is also a subject much in the public mind. Here is a chart, on page 67 of the Lauck exhibit, presented at Chicago, which is headed, "Spread of control of 25 railroad directors, 1920." It is a subject commonly discussed under the head of interlocking directorates. My reason for speaking of it is that the Baltimore & Ohio Railroad Co. is men- tioned in the list of companies, and in the list of men whose names are given is one of the Baltimore & Ohio directors. There are two other men mentioned in the Lauck report who have been on the Baltimore & Ohio board of directors. The men I refer to are Robert S. Lovett, Samuel Rea, and L. F. Loree. Judge Lovett and Mr. Rea are not now on the Baltimore & Ohio board; Mr. Loree is and has been for 12 or 15 years. Senator Pomerene. How long has it been since Judge Lovett and Mr. Rea ceased to be on your board ? Mr. Willard. They have not been on our board for sjx or eight years. And I should explain that they are not indicated here as being on our board; only Mr. Loree is indicated as being on our board. Senator Poindexter. Is any control exercised over your road by the Pennsylvania Railroad"? Mr. Willard. No, sir; none whatever, nor by any other railroad. Senator Pomerene. Does your railroad exercise any influence over any other railroad ? > Mr. Willard. None whatever, except as a competitor. My reason for referring to this matter is not to defend Mr. Loree or anyone else, because I assume that they are all well able to defend himself and themselves. But when a statement of this character is made it is- for the purpose of creating the impression that because of that inter- locking relationship they are able to exercise, and in fact probably do exercise, some influence over the Baltimore & Ohio Railroad affairs inimical to that property. Digitized by Microsoft® Digitized by Microsoft® The Baltimore & Ohio Railroad Company— Motive power department. rf&wo^l STSId^^twentTthlrd £? show {JS^taSKSSBf"^ °' V? *? ""T I^ i?" " ^^ sh °P s as submitted b ? tbe "mptayew. Car No. line September, October, November, and December S during tnTceriod and UvJ Ci „ ~ ^'°f ^ aS be "' g re P aire 95960 should be 95961; no record of repairs made to 95960. I Q7i1? o ^,!'M C h d Q 7'i!, epairS mad S *} thls - car; superintendent's car service record shows cars not at Cumberland shops. 5 97127 should be 9712u; no record of repairs made to 97127. ^ » 96809 should be 76809; no record of repairs made to 96809. w^^i^^^^^SS^iTJl^S^" " °' the ° arS r<5Paired at CumberIa » d ' E * hiblt B - »™ »"°™ a «°n lor 34 cars repaired at Keyser; Exhibit C, the Comme^cSSsfoli 1611 ^ COmpany ' s shop cost was added t0 conform t0 classification of operating revenues and operating expenses of steam roads, issue of 1914, by Interstate >Ji^^££^X&5£^£2gS& gS^gZSSZSZSSr C ° St aS eStabliS " ed ^ rallr ° ad C ° mpa " 5 ' aft " -elation. Column XXX G3553 — 21. (To face page 220.) Digitized by Microsoft® Digitized by Microsoft® RAILROAD REVENUES AND EXPENSES. 221 In that connection I want to say this: That the only way directors can exercise an influence over a property organized as is the Balti- more & Ohio Railroad— and so far as I know all other properties are organized the same way — is through the chief executive officer of the company. Directors do not make contracts. Directors do not purchase ties, coal, or steel. They approve of such action by their chief executive, hut the chief executive officer of the company, the president usually, is the man charged with that responsibility. And if Judge Lovett or Mr. Rea or Mr. Loree at any time ever did exercise over the Baltimore & Ohio an influence that was inimical to that company they did it through me and because I was their willing tool; and I want to say that I was not. I just wish to make that state- ment and wish to make it emphatically. So far as I know I have never experienced such personal influence even attempted, nor have I heard where any such pernicious influences were exercised. It may be that such cases have occurred, and if so the individual who acted wrongfully should take the punishment coming to him. I am making no defense of any man who may be guilty, but I do wish to say that it is harmful and unfair to accuse everybody connected with the railroad business of being dishonest because somebody may at some time have been dishonest. I want to say this, further, that never at any time, on any occasion or concerning any subject, did any one of the three gentlemen whose names I have mentioned suggest to me in the remotest way that he would like or desire me to do anything inimical to the interests of the Baltimore & Ohio Railroad. I can not make that statement too specific as my answer to this particular charge; I simply repeat that if they do the things they are charged with doing they have to do it through the executives of the companies. And knowing the exec- utives personally as I do, I do nob believe the charge or insinuation. That, I think, is all I care to say in that connection. It has been suggested that I ought to add a little to the questions that were asked under: my first statement concerning the condition of the railroads, and with your permission I will submit some figures that were not available a few days' ago when the matter was up, but we have them now in shape so that we can give them to you first. The Chairman. I believe I introduced such a statement at the beginning of the hearings ? Mr. Willard. Yes; but we did not have the statement analyzed then as I have it now. Senator Stanley. Are you talking about the fiscal year or the calendar year in this statement ? Mr. Willard. The year ending February 28, 1921, compared with the year ending February 29, 1920. The year ending February 28, 1921, is the first 12 months after Federal control. Mr. Chairman, with your permission I desire to submit and place in the record a statement showing the operating revenues, net earn- ings and expenses, and net railway operating income for the year to February 28, 1921, compared with the year ended February 29, 1920. The net railway operating income for the year ended February 28, 1921, was $2,090,975, compared with $530,869,481 for the year to February 29, 1920, a decrease of $528,778,506. It will be recalled that the increase in rates authorized by the Interstate Commerce Commission were effective only from August 26, Digitized by Microsoft® 222 KAILKOAD REVENUES AND .EXPENSES. 1920, and that the increases in wages under the Labor Board award of July 20, 1920, were made retroactive to May 1, 1920, so that the business for the first six months was done without the benefit of the increase in rates, and the expenses for the months of March and April, 1920, were not charged with the increase in wages awarded by the Labor Board. It is estimated that if the increase in rates and charges approved by the Interstate Commerce Commission in ex parte 74 had been in effect for the six months to August 31, 1920, it would have increased! the revenues of that period as follows : Increase in freight $507, 017, 000 Increase in passenger ' 108, 099, 000 Increase in all other revenues 28, 002, 000 Total estimated increase in revenues 643, 119, 000 And had the award of the Labor Board been effective for the months of March and April, 1920, it is estimated the expenses would have been increased by 102,000,000 The net result would have been to increase the net railway operating income by. 541, 119, 000 And would have converted the deficit of > 216., 030, 0C0 Into a net railway operating income of 325,089; 000 Which added to the net operating income earned in the 6 months to Feb . 28, 1921 218, 120, 632 Would have given a net railway operating income for the year of 543, 210, 000 In other words, if the business of the entire year had been done over again at the rates and charges and the rates 6f pay in effect at the end of the year, the net operating income would have been $543,000,000 instead of only $2,090,000, and the operating ratio would have been 86.93 per cent instead of 04.33 per cent. I submit, and if agreeable will place in the record, a statement showing the revenues and expenses for the year ended February 28, 1921, actual and adjusted, as I have indicated. (The statements referred to are as follows:) Digitized by Microsoft® RAILROAD REVENUES AND EXPENSES. 223 Income account, United States, year ended February, 1921, compared with the corresponding period ended February, 1920. Class I roads and large switching and terminal com- panies. Account. Year ended February— 1921 Increase, 1921 over 1920. Amount. Per cent Average miles operated- Revenues: Freight Passenger Mafli Express, Ail other transportation Incidental Joint facility—Cr Joint facility — Dr Railway operating revenues ! Expenses: Maintenance ol way and structures Maintenance of equipment Traffic Transportation Miscellaneous operations General Transportation for investment— Cr. Railway operating expenses Net revenue from railway operations . . . Railway tax accruals Uncollectible railway revenues Railway operating income Equipment rents, net balance Joinffacility rents, net balance Net railway operating income Operating ratio, per cent 235, 501. 27 $4,322,973,688 1, 308, 080, 235 96,919,767 129,803,975 166,948,928 145,481,704 7, 736, 545 2, 315, 123 6,175,629,719 1,026, 1, 581, 78, 2,906, 61, 178, 5, 5,825, • 350, 290, k "36, «19, 2 084,739 034, 680 186,771 142,737 245, 521 103, 549 282, 751 515, 246 114,473 958,245 174, 568 981, 660 367, 261 523,424 090,975 94.33 234, 355. 31 $3,647,025,094 1,188,081,465 118,518,996 139, 106, 285 130, 068, 680 131, 794, 897 7, 562, 988 2, 280, 424 5,359,877,981 787,909,623 1, 279, 795, 648 50,430,362 2,273,067,143 50, 215, 331 130, 440, 650 5, 827, 464 4, 566, 031, 293 793,846,688 209,441,880 1,019,439 583,385,369 "35,478,686 • 17,037,202 530,869,481 85.19 1, 145. 96 J675.948.594 119,998,770 2 21, 599, 229 « 9, 302, 310 36, 880, 248 13, 686, 807 173, 557 34,699 815,751,738 238, 175, 116 301, 239, 032 27,756,409 633,075,594 11,030,190 47,662,899 i 544, 713 1,259,483,953 2 443, 732, 215 81,516,365 155,129 2 525,403,709 a 888, 575 2 2,486,222 2 528,778,506 0.5 18.5 10.1 2 18.2 26.7 28.4 10.4 2.3 1.5 15.2 30.2 23.5 55.0 27.9 22.0 36.5 2 9.3 27.6 2 55.9 38.9 15.2 2 90.1 2 2.5 2 14.6 2 99.6 i Total operating revenues and mail revenue are affected by the inclusion of the following amounts of mail pay applicable to the years 1917, 1918, and 1919: Included™ January, 1920 $54,261,582 Included in February, 1920 f. 1,935,945 Included in March, 1920 595,764 Included in April, 1920 130,885 Other njonths of 1920 (not segregated) 7,584,084 2 Denotes decrease. * Debtor. Note. — Foregoing does not include war taxes and corporate expenses for months of 1919. Source. — Monthly summaries of the Interstate Commerce Commission. Bureau of Railway Economics, Washington, D. C, Map 16, 19SI. 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AS IS; . . o o doSoOOOOOrrt a'diSfl c3c8 ao3ca t- l-§g , .S.S.g|.S.23 < >$ PPH a a d o I « S o a a S3 Digitized by Microsoft® 236 EA1LE0AD REVENUES AND EXPENSES. -si o c o gs-s ■a II 6a P» O"* t£> CO to O OSDCOtO CO >-iOO(00-i i-i aaocioiNh.NiC'j'a.ociiOHecHONW^fflOJ WWO!WCSlLNWcOCS(NC>l(N(r)Ca(N«c5(NC— u: © od co »o >ra a 32 c HCOQ0C3 MrtHiOr COOJOJOOt N-*OiONCN©l>^i':©ONi-coo-*t»c OOWL:oCMNt^OM(ON ■ ■■■ — -_ !£, C5 i-H 03 r- 1> CO oo ■* oc ■* •* nOOlONI'OClDlDN!! 0)iOh>WiOHa(ON"*Ot-a300QMHQOOCOiO M« is 3(DlOOMC3 .......... . _„ .OONO i-l ire CO CO CD i-h CO niNOMOOHooooioiowoowcji^nroawoo 9"co"©~e^orcNr^oo~co"y-"" SCNt^t- COCOr-l-*!— -(HCOCO r-! Mrt *gs ^-'03 CD •9'Ote 1-3 la Ah j o o •3-5 tat r, v* Vi a cc ca o w w d c3 o3 >k>kv St ?«3 5 so en 3 « «J 3 K K 3 ft) .t- ■- a O t C3— >7 a>°3 Il'S'i „ c8 CJ Digitized by Microsoft® RAILROAD REVENUES AND EXPENSES. 237 CO m 0»»0 cooocort r- OOO! «J(OWM. COCO CD" CO OSGOCJ *-ti-tO0.-C 00 00 ■* ~ coo»A ■J" -2 ff ffl J33, ^ 3 oa -* o 05 I so iS .gill go? go g 0>OC0M«i000NOOWP0 c5c«ioiotfi-HOst^coh^(deoc5 l> C- N O I- tD C !D O tD C O NU5H ^-fO>C-1'OfnH (Dc^ocogt^t-ico'oe^afiJ^H Offl<4-n>r-ioQ0 oiododojt^oddcjoiaiojoi oocooo-*e4orH-*^H»ooooo odeiTpideo«30(Dcd(D-*c>j lOeotnt^aioQodt^cQcdeO'-i 1# 8 s-gj . . . g s«s i g-g o! a« H'g a &o 5 S Digitized by Microsoft® 238 KAILEOAD REVENUES AND EXPENSES. Mr. Willard. I wish to make a brief statement in connection with this statement which I hare just filed with the committee. It was suggested to me yesterday by some who heard my testimony that I did not make clear to others just what I meant when I said the roads did poor railroading last year, and it is possible that I did not make myself clear to the members of the Senate committee, and I wish to add just a word to that, in explanation. What I meant was this, that while we actually moved 9,000,000,000 ton-miles more than the Director General moved in 1918, which was the previous biggest year, and 53,000,000,000 ton-miles more than he moved in 1919, and 25,000,000 more passenger train miles than were moved in 1919 Senator Poindexter. Twenty-five million, did you say? Was it 25,000,000 more passenger train miles? Mr. Willard. Yes. We moved that much more— 53,000,000,000 ton-miles and 25,000,000 passenger train miles in 1920 than in 1919, and while we did all that, which might be considered as an evidence of efficient operation, I ventured as an observation that we were doing very poor railroading. Some of my friends thought that what I said tended to discredit the railroads in a way which I did not intend, and it is in that connection that I want to call your attention to the fact that last year the tons per loaded car, at 31.2 tons per car in December, was the biggest record ever made, and the miles per car per day were also larger last year than ever before, with one excep- tion, and that was in May, 1917, under private control. What I meant was this: We, of course, were making every possible effort to increase our efficiency of operation. We did increase the car loading. We did increase the miles, per day over the previous period of Federal control. We did move more business than ever moved before. Senator Poindexter. You increased the train loads too ? Mr. Willard. We increased the train loads too. We did more business than was ever done with the same facilities over the same period of time in any form of control. Nevertheless we had to con- tend with the congestion resulting from the outlaw strike, which I elaborated yesterday. We had to move a large number of empty cars from one part of the country to another in response to very urgent situations, and we moved them empty away from loads when the loads were there, because the cars were needed so much more some- where else. We changed the ordinary methods of doing business. We had roads at times moving empties in order to relieve another road to enable it to move its cars. We did all the things contem- plated under the act. But because of the labor conditions resulting from the war, because of the propaganda that had gone on during Federal control, particularly for the purpose of discrediting private control, all of those influences, we did not get as good results as I thought we ought to have gotten, and in spite of what we did I felt that we did poor railroading after all, and in spite of all we did. Senator Poindexter. Do you consider these irregularities that you speak of justified under the circumstances that existed at that time ? Mr. Willard. That was a part of the price we were paying for the war. Our properties had been upset, our managements had been changed, methods had been turned around, the roads were dumped back in hampered condition, with a greater volume of business and Digitized by Microsoft® RAILROAD REVENUES AND EXPENSES. 239 switching movement than ever before, and immediately we had a strike growing out of a delayed labor adjustment which originated under Federal control. Now all of those things we had to contend with, but the railway executives — and I am in a position to know, because as chairman of the advisory committee I was in contact with the problem — made special efforts, at all times and regardless of everything else, to move the business, and we did move the business. It was an expensive transaction some of the time, but we did move the business. Senator Pomerene. Mr. Willard, just a question or two. You have just handed the stenographer this leaflet which is designated as "Freight Car Performance, December, 1920." Mr. Willard. Yes. Senator Pomerene. I note at the head of it the name "Bureau of Railway Economics, Washington, D. C. " Mr. Willard. Yes. Senator Pomerene. Is that a bureau maintained by the railroads themselves ? Mr. Willard. Yes, sir. Senator Pomerene. And there are a number of tabulations of figures here. From what sources do you get them ? Mr. Willard. Those are sent in by the railroads to our car-service commission here in Washington, and the information was obtained from the railroads themselves and transmitted to the Bureau of Railway Economics, the same information being given to the Inter- state Commerce Commission. Senator Pomerene. You speak of the car-service commission. Is that a commission also maintained by the railroads ? Mr. Willard. Yes; the car-service commission is also maintained by the railroads. Senator Pomerene. Or run by the Interstate Commerce Com- mission ? Mr. Willard. The one I am referring to is maintained by the rail- roads here in Washington. Senator Pomerene. Well, are these same tables or records kept by the Interstate Commerce Commission ? Mr. Willard. That information is also furnished to them, I understand. Senator Pomerene. So that this could be verified by looking at the records of the Interstate Commerce Commission, if any question arose ? Mr. Willard. Yes. Senator Pomerene. That is all. Mr. Willard. Mr. Chairman, I have just been advised, in regard to Senator Stanley's inquiry, that train and engine men represented about 18 per cent of the employees in the service. Senator Stanley. Whose wages were standard ? Mr. Willard. They are standard more generally, than anything else. Senator Stanley. Could you tell me, in that connection, Mr. Willard, just what per cent of employees of these roads are now paid a standardized wage ? Mr.. Willard. Well, I am inclined to think that practically all of them are. , I do not know certainly. Digitized by Microsoft® 240 EA1LEOAD REVENUES AND EXPENSES. Senator Stanley. That is all. The Chairman. That will be all, Mr. Willard. We will now hear Mr. Smith. TESTIMONY OF MR. ALFRED H. SMITH, PRESIDENT OF THE NEW YORK CENTRAL RAILROAD CO., NEW YORK CITY. The witness was duly sworn by the chairman. The Chairman. Mr. Smith, will you state your name and your official relation to the railways of the country ? Mr. Smith. Alfred H. Smith, president of the New York Central Railroad and its affiliated lines. The Chairman. You may now proceed with any statement that you may have prepared, or extemporaneously, if you like. Mr. Smith. I would like to say a few words in opening my state- ment. The railroads of these United States before the war were the best in the world and furnished the most economical transportation in the world. They went into the war for the United States as the best transportation machine in the world. I think they proved it without question. They brought to the task a well-trained army of transportation men, and the railroads of the country were, you might say, a well-equipped machine. There was no outlay required on the part of the Government when it called on them in that terrific time; in that terrific winter of 1917—18, to meet a situation that was intense and difficult. There was no outlay required, and I think it can be said, regardless of what the cost was, or what effect it has had upon the property since, that the railroads of the country did their full share in the war to get the country through its difficulties. I think that to-day the railroads of this country are the best transportation machine and furnish the cheapest transportation in the world. That may not mean so much, because the others may be broken down and pretty high in their charges. We are much higher than we were, due to reasons that have been so very ably presented here, and facts in regard to the general situation that I think are incontrovertible. I have always believed that the country has been unappreciative of what these railroads did in 1918 particularly, and in 1919, having brought all that they did to the task that was before this country in the war, and there has been so much delay and so much sparring and so much questioning as to what — if I may put it that way — the hire of the soldier should be after he came out of the battle. We are still debating what we shall have for what we brought in and for what we did, and for what was not given back to us as was promised would be done when we got through. And, not as a railroad officer, but as a citizen, it seems to me that some means ought to be found to get us together. You come to our property, you take thirteen millions of cash and $60,000,000 worth of property, inventoried supplies, and we are still debating as to whether those supplies have all been returned, or, if they were used up, where they were used, and whether they have been replaced, and what the value of those that came back was as compared with those that were put in, and we are still waiting, and we need the money. Senator Pomerene. Debating with whom, do you mean ? Digitized by Microsoft® KAILKOAD REVENUES AND EXPENSES. 241 Mr. Smith. Ourselves. Senator Watson. You refer, now, to the Railroad Administration, Mr. Smith? Mr. Smith. I mean the Railroad Administration; yes, sir, and all its activities. The Chairman. Have you filed your account with the director general ? Mr. Smith. In part. But we can not agree. The principles have not been laid down on which you can file your account. You have got to have some principles on which you shall proceed. The Chairman. The director general has laid down his principles, but you do not agree with them, I understand. Mr. Smith. Well, perhaps that is so, Senator. If we have not, it is because they are not fair, in our opinion. The Chairman. Well, I do not pretend to express any opinion about the controversy between the roads and the director general, but 1 do know that there is a controversy there which involves a very large sum of money. Mr. Smith. Very true. The fact is, of course, that the act that provided for the taking over of the railroads was passed some three months after actual possession was taken, as I recall it. I am speaking from my memory, and not from any memorandum, in saying that it was about three months. There was no inventory taken when the properties were turned over, and the regulations in regard to the inventory were changed two or three times, and it is a very difficult thing to know after the fire is over, or after the war is over and the property is turned back, all of the details and all of the facts that are required. It is difficult to find all of the details and all of the facts that are required. The situation is that we turned over $60,000,000 worth of property; Either give us the property or pay us for the difference. That is what ought to be laid down as the principle. Senator Pomerene. Mr. Smith, you say no inventory was made when these properties were turned over. You mean by the rail- roads ? Mr. Smith. By the Government or the railroads. Senator Pomerene. By the Government, you say, but didn't you have stock records which would show the amount of stock you had on hand ? Mr. Smith. Yes. Senator Pomerene. And wouldn't you be able to get at the amount with reasonable accuracy, of the stock that you had on hand, and the supplies ? Mr. Smith. We think so, if they will take our figures. But many things were changed, and they began many of these changes. Of course the book record is all right, but we went into the war and things moved very rapidly, things were done without any considera- tion of just what they would cost or where they were. We had only been in this service of the Government two months when the word came from the other side that they could not go on more than 60 days if they did not get food and munitions. Senator Pomerene. Let me ask you another question in connec- tion with that. Except, of course, the head organization, or the men at the head of the several organizations, the personnel of the rail' • * Digitized by Microsoft® 242 RAILROAD REVENUES AND EXPENSES. ways was substantially the same, so that those who were charged with the keeping of your stock records while the railroads were in private control were substantially the same as those who were in charge of those records under Government operation, were they not ? Mr. Smith. Yes ; directed by a new force at Washington. Senator Pomerene. I know; but they would have to keep reason- ably accurate records, it would seem to me, and I do not quite under- stand why there should be any serious difference in that respect. Mr. Smith. I do not either, Senator, but there is. The Chairman. Well, the differences are not so much with regard to the physical property that was on hand when the railroads were taken over as compared with the physical property on hand when the roads were returned to their owners. The chief difficulty, as I understand it, is to secure an agreement with respect to the rule which shall determine maintenance, upkeep, isn't th&t so? Mr. Smith. That is another factor. I am talking particularly now about inventories, the replacement of what was taken, and the value of what they replaced, as to what they gave us back for what they took. I can not understand myself, and I have never been able to understand, why there should be so much difficulty in getting to that, but they are trying to identify the materials as they were passed about or passed through, as to whether they are the same materials. For illustration, we had a heavy stock of material that we bought in 19l6 and in 1915. Anticipating in 1916 that the price of steel would undoubtedly advance, the railroad that I represent entered the market and we bought something like 700 locomotives and 20,000 cars, and we laid in a very large stock of materials and sup- plies, looking toward the repairs of equipment. As it proved, after- wards the price did go up, and what the Government used to replace what they used out of our stocks — and they used most of them up — was very much higher priced. Now, that has all got to be identified and checked up. I say this because of the fact that we are in need of funds, and this is two or three years back, and we ought to somehow or another get the thing settled up. What I want to get to your mind is just merely this, that these railroads did bring to the Government a great contribution in the war, and it seems to me that we can be pretty liberal with them, pretty broad, anyway, and helpful, in getting an early settlement with them; more so than we nave been. I don't know that this com- mittee can do anything with that, but that is the situation. The Chairman. We probably can not. We have charged the Director General with the duty of adjusting and settling all these accounts between the railroad companies and the Government. I have been very much disappointed myself, because I supposed that could be done in a year. I never dreamed that the Railroad Admin- istration, as such, would be continued beyond a year. I think the whole committee assumed that in that time whatever could be settled would be settled, and whatever claims there were upon either side that were impossible of adjustment would find their way into the courts, and we would get on. But I am told that the railroad com- panies themselves have not filed all their claims yet. Mr. Smith. They have filed many of them. They have not filed all of them for the reason that there is so much to make up in the Digitized by Microsoft® KAILROAD REVENUES AND EXPENSES. 243 way of statistics and clerical work. We have employed a very large force at a very, very high cost to us to get this information together in the form that they want it, and there have been debates in trying to reach principles on which we could proceed, and of course there are differences of opinion, and they are the men that have got the money, and we are the ones that are looking for it, and their opinion prevailed. The Chairman. I am sure the committee is sympathetic in that respect, and if it can do anything or initiate anything that will tend to bring to a close the Railroad Administration and complete the adjustment it will be very glad to do so, because we do not want to keep permanently the very large bureau which is now working simply to settle up the Government's affairs with the railroad com- panies. Senator Watson. They have made a partial adjustment with your line, have they not ? Mr. Smith. They have paid us something on account. Senator Watson. Yes. Mr. Smith. Well, the only thought that I wanted to leave with you was that these are good railroads; they were good railroads in the war, and they did these things, and I think as good soldiers they ought to get liberal consideration from the Government in settlement of these matters, because now we need the money. Mr. Thom. Would it be appropriate, Mr. Chairman, as the ques- tion has several times arisen here as to what is the difference between the carriers and the Railroad Administration in respect to the matter of maintenance, for me to make a brief statement as to what that is to the committee ? The Chairman. I do not believe that we ought to get into that at this time. I will take the judgment of the committee upon it. Mr. Thom. I just wanted the committee to appreciate the points of difference between the carriers and the Railroad Administration. The Chairman. It is not material to our inquiry. Mr. Thom. I understand that; but you are investigating the whole railroad situation, and I wanted the committee to have a com- prehensive appreciation of the points of difference between the carriers and the Railroad Administration. The Chairman. At some future time, if you desire, you can put that before the committee. Senator Kellogg. I understand Mr. Smith has not commenced his regular statement, but he made some remarks as I was coming in about the condition of the railroads here not being peculiar to this country. May I ask a question right there before he starts in 1 The Chairman. Certainly. Senator Kellogg. Do you know the condition of the railroads in England and in France and other countries which have been through the war ? Mr. Smith. Somewhat. I was over there last year. Senator Kellogg. The English railroads are in as bad condition as the American railroads, or in a worse condition than the American railroads, so far as income is concerned, are they not 1 Mr. Smith. Yes; I think so. Senator Kellogg. Their operating expenses have tremendously increased ? , Digitized by Microsoft® 244 BAILROAD REVENUES AND EXPENSES. Mr. Smith. They are very large. Senator Kellogg. And the Government is now losing a very large sum in money every year. I haven't the exact figures. Mr. Smith. The Government is losing a very large sum, Sena- tor; yes. Senator Kellogg. And the same is true in France ? Mr. Smith. The same is true in France. And I am reminded that the same is true in Canada. Senator Kellogg. Yes; that is true; the same is true in Canada. That is all I wish to ask. Senator Stanley. Mr. Smith, just a question right at that point. To what extent are the Canadian and English roads owned by the Government ? Mr. Smith. The Canadian situation is this: About 52 per cent of the railroads in Canada are owned by the Government. In England I don't recall that any of them are owned by the Government. Senator Stanley. That is my understanding — that there was no Government ownership in England. Senator Kellogg. None. Mr. Smith. The Canadian situation, as far as I know, and undoubt- edly as you are aware, is rather bad, as regards government opera- tion. Senator Watson. They have Government regulation in England ? Mr. Smith. They had Government operation in England; the roads were directed by the Government, and that still continues, I believe; but not as we have it here. Senator Watson. I hope not. Mr. Smith. No. There was a guaranty made to the railroads, and they continued to be operated under private management, and, as I understand it, they conveyed all troops, munitions, etc., without any charge to the Government. Senator Pomerene. Am I right in this statement, that in Great Britain during the period of the war the executives for the different railroad companies were allowed to "wear their heads," and in this country they were not ? Mr. Smith. Well, the railroad executives over there remained in charge during the war. Senator Pomerene. Yes. The Chairman. Do you know what the English Government is now losing, under its guaranty, per year ? Mr. Smith. A very large sum, Senator, but I do not recall the figures. Senator Kellogg. I have the figures somewhere. The Chairman. Well, it was a good deal more, proportionately, than we lost here. Mr. Smith. Yes. Senator Kellogg. The loss was very large. Mr. Smith. Yes. Senator Pomerene. I think I saw a statement in yesterday's Eaper to the effect that every Government-owned railroad in Canada ad lost money, and that there was only one of the large railroad companies which made any money, or had any surplus, and that was a privately owned company, is that correct ? Mr. Smith. The facts are, I think, that the railroads in Canada are owned practically in this proportion: Fifty- two per cent by the Digitized by Microsoft® RAILROAD REVENUES AND EXPENSES. Government and 48 per cent by private ownership, under private control. The 48 per cent represents the Canadian Pacific Railroad. I think they lost last year some $70,000,000, as I recall it, and they lost some $50,000,000 the year before, a total of $120,000,000. Senator Pomerene. And what were those Government interests compared with the total interest in the United States ? The Chairman. You are speaking about Canada now ? Senator Pomerene. Yes. Mr. Smith. Yes. Well, in regard to the mileage I do not recall. Senator Stanley. Fifty-two per cent of 37,000 miles. Senator Pomerene. Well, that would give us a basis. Senator Poindexter. Mr. Chairman, bearing on the question of the condition in which these roads were received back by the owners, which runs through this testimony, before Mr. Smith starts I would like to get the point that Mr. Thorn was going to make on that subject. The Chairman. Well, it is perfectly proper to get it in, but it does not occur to me that we ought to interrupt the testimony of Mr. Smith in order to get the testimony of Mr. Thorn. . Mr. Smith. It is all right as far as I am concerned, Senator. I am just starting on the New York Central Railroad now. Senator Stanley. Mr. Chairman, he spoke about one particular thing there that is not clear in my mind, and I thought perhaps it would help us to understand the testimony of these other gentlemen if we had Mr. Thorn's statement, on which he has made a special study. Senator Kellogg. I would like to hear Mr. Thom some time, but if it is to be an independent statement of his own, why I should think it ought to be separate. I merely make that as a suggestion. Mr. Smith. The following memorandum contains facts and, figures which have been assembled from many different sources. No one witness could testify to all the details. Witnesses are available and will be produced on any subject contained in this memorandum upon which additional information is required. The matters to be covered by the investigation before the Senate Committee on Interstate Commerce are as follows : First. The operating revenues and expenses of the railroads of the country which, under the law, make reports' to the Interstate Commerce Commission, comparing these revenues and expenses with like revenues and expenses (including the period of Federal control) since 1912. The New York Central Railroad Co., as it now exists, was organized in December, 1914, by the consolidation of a number of different rail- roads, so that the revenues and. expenditures for 1913 and 1914 are those of the individual lines, which were afterwards consolidated. The operating revenues and expenses were, by years, as follows : Year. , Revenues. Expenses. Net revenue. Oper- ating ratio. 1913... '.. J187,40d,«03 169,404,291 168,118,293 201,585,048 216,267,517 269,270,956 283,659,330 338,624,456 $141,510,678 125,963,774 109,651,037 129,738,369 153,597,905 210,637,848 224,964,911 317,553,242 $45,890,124 43,440,516 58,467,256 71,846,679 62,669,611 58,633,107 58,694,418 21,071,214 75.5 1914 ' 74.3 1915 65.2 1916 64.4 1917 71.0 1918 78.2 1919 79.3 1920 93.8 63553— 21— Vol I- -17 Digitized by Microsoft® 246 RAILROAD REVENUES AND EXPENSES. Senator Pomerene. Now, is this with respect to the New York Central alone ? Mr. Smith. This is with respect to the New York Central Kailroad alone. Senator Watson. What was the lowest of those figures ? Mr. Smith. The lowest was 64.4 in 1916. Senator Pomerene. About 19 per cent difference? Mr. Smith. No; more than that. Senator Pomerene. About 30. Mr. Smith. About 29 per cent. From this table it will be noted that during the period 1913 to 1920, railway operating revenues of the New York Central Eailroad increased $151,223,653, or 80.7 per cent. Operating expenses increased $176,042,564, or 124.4 per cent and net revenue decreased $24,818,910, or 54.1 per cent; in other words, with $151,223,653 greater revenue in 1920 than in 1913 the New York Central Railroad earned a net operating revenue of $24,818,910 less in 1920 than in 1913, due largely to the increases in the cost of labor and material and supplies, as will be explained in detail hereinafter. The year 1917 was the last one operated under private manage- ment and as the revenue tons carried in 1920 is only one-half of 1 per cent greater than that carried in 1917 and as the bulk of railroad operating revenue is' derived from freight traffic, it may be assumed that the Dusiness for these two years is practically identical and that comparisons may be made on an equal basis. You have two years there, 1917 and 1920. Nineteen hundred and seventeen is the year of private operation, and 1920 is the first year, again, of private operation, broken as it was in regard to the first two months of the year, at the close of the Railroad Administra- tion. Exhibit No. 1, which I will present to 'the committee hereafter, shows the summary of operations in detail from 1917 to 1920, inclu- sive, by years, the accounts being shown as called for by the rules of the Interstate Commerce Commission. Not all these accounts are indicated, as this would make a very bulky exhibit. However, all the important items are shown on this exhibit, together with the per- centages increase or decrease 1920 with respect to 1917, 1918, and 1919. (See facing pages.) The operating revenues and operating expenses for each of the 12 months of 1919 and 1920 and for the months of January and February, 1921, are given in detail on Exhibit 2, which I will hereafter give to the committee. (See facing pages.) Referring again to Exhibit 1, the operating revenue 1920, compared with 1917, increased $122,356,939, or 56.9 per cent. The operating revenue 1920, compared with 1919, increased $54,965,125, or 19.5 per cent. Under the heading of "Maintenance of way and structures," 1920, compared with 1917, shows an increase of $27,161,261, or 131 per cent, and 1920, compared with 1919, of $13,342,712, or 38.6 per cent. The Chairman. Will you suspend just a moment, Mr. Smith ? It is necessary for me to go to the Senate, and Senator Pomerene is in charge for the rest of the session this morning. Senator Kellogg. How long do you wish the committee to sit ? Digitized by Microsoft® Digitized by Microsoft® EXHIBIT 1. New York Central Railroad— Summary of operation* 1917 to 1920, inclusive. (12 months each year.) Item No. Item. 1917 Twelve months ending Dec. 31, 1918. 1919 1920 [ncrease or decrease per cent 1920 compared with— 1917 1918 1919 101 Railway operating revenue. Transportation: Freight % 135,979,337.13 1 49,987,343.25 4,668,311.30 9,408,419.73 2,514,310.20 2,363,305.49 428, 700. 63 857,644.44 175,869,945.48 $173,926,743.59 1 60,370,139.05 75,652,262.01 4,099,304.32 4,063,804.65 11,113,915.70 11,311,964.72 2,864,7.56.22 3,410,127.08 2 124,082.37 2,325,775.01 747,495.32 622,145.99 209,792,208.11 84,601,640.43 111,448,457.90 11,697,569.93 3,995,542.74 .54.2 69.1 145.2 24.5 58.8 19.2 40.1 179.3 5.2 39.4 46.7 63.3 6.3 2. 05 102 12.0 106 Mail 181.8 107 3.5 109 Milk 1 7. 5 110 3,117,180.67 32.1 1,220,379.80 | 183.4 1,003,209.50 1 16.8 34. 5 96.0 113-116 Water transfers 943,683.96 1,033,020.56 2 2.9 Total . .. 206,673,181.15 10,114,640.70 » 520, 304. 63 2.58 133,322.42 ] 272,345,843.61 11,710,577.44 11,987,503.80 ! 572, 943. 35 2 674,016.71 326,876,189.08 1 58.1 12,596,652.18 , 24.8 2 848, 384. 77 j 63. 2 26.5 7.5 48.0 20.0 Incidental 5.0 25.8 Total 216, 267, 517. 22 269,27^,9.56.51 1 283,659,330.70 338,624,4.56.49 56.9 25.6 19.5 201 Railway operating expenses. Maintenance of way and structures: 1,355,041. .56 2,081,540.52 928,337.85 3, 097, 521. 59 2 624, 596. 56 1,331,868.90 5,874,694.04 1,095,629.72 737, 371. 87 1,429,808.63 981,655.38 230, 329. 05 2, 185, 103. 82 ' 1,796,345.51 3,235,841.03 1,063,830.37 3,395,012.84 99,202.41 1,949,266.33 9,569,416.62 1,857,281.97 1,360,159.66 2,444.702.35 1,78^,917.25 231,830.14 3,075,962.32 2, 294, 196. 23 3,198,294.54 1,337,721.58 3, 828, 448. 86 1,788,731.82 2,464,644.07 10, 274, 827. .56 1,651,687.66 1,365,722.42 2,577,689.39 451,384.99 2 15,400.30 3.302.906.41 3,053,665.26 125.2 69.9 29.6 12.7 S3. 1 202 4,196,346.82 ' 101.0 1,199,359.80 29.2 4,127,448.24 33.0 31.1 208 2 10.4 212 Ties 21. 5 | 7. 8 1,161,020.61 . 2, 142, 570. 18 17. 2 35. 3 216 Other track material 60.8 10.0 «13.0 220 12,306,259.14 ! 109.5 1,914,462.13 ' 74.2 1,514,001.13 , 105.0 2,581,307.39 82.5 2,343,352.05 ! 138.6 309,6.56.83 34.5 28. 5 1 20. 227 Station and office buildings 3.0 1 16.0 235 Shops and engine houses^. 11.2 5.6 31.0 33.8 1U. 7 249 Signals and interlockers .3 272 Removing snow, ice, and sand 420.0 275 4,087,770.76 6,928,347.16 Total 20,704,306.37 Ratio 9. 6 31.867,768.80 Ratio 11. 8 34,522,855.23 Ratio 12. 2 47,865,567.50 j 131.0 50.0 1 38.6 Maintenance of equipment: Superintendence Ratio 14. 1 1 301 1,012,228.55 1,131,205.15 9,389,514.68 15, 091,. 549. 31 2,972,625.87 480,071.00 854, 474. 73 341,608.22 7,173,316.81 1,254,902.73 1,354,735.01 15,668,813.43 25,781,142.03 4,216,385.50 564,973.20 922,122.11 355,628.09 7,194,035.68 1,480,815.44 1,674,648.07 16,969,732.11 27,185,086.10 4,862,466.77 686,951.62 809,213.53 5,948.71 8,496,599.00 1,866,727.56 , 84.5 2,002,147.22 76.9 25,031,357.15 ! 167.1 47,658,512.08 ! 215.0 6,139,313.85 , 106.2 1,070,998.16 ! 123.0 1,188,387.11 1 39.1 193,583.94 , 243.5 48.9 47.8 59.8 85. 45. 5 89. 5 28.8 2 45.5 26. 1 302-304 : Shop and power plant machinery. . . 19.7 308 Steam locomotive repairs 47.0 314 Freight car repairs 74.9 317 Passenger car repairs 26. 1 323 Floating equipment repairs 56.0 326 Work equipment repairs 48.0 332 3,290.9 8,171,581.71 1 2 35,270.03 Total 38,446,594.32 Ratio 17. 9 57, 312, 737. 78 Ratio 21. 3 62 171,461.31 j 93,287,338.75 i 142.5 62.6 50.5 Traffic: Superintendence Ratio 21. 8 | Ratio 27. 6 351 788,201.66 877,545.83 279,653.38 87, 635. 22 377,094.24 519,694.15 1,259,115.33 487,218.81 79,376.20 114,925.00 347,098.56 293, 726. 32 1,393,833.33 457, 599. 73 98,840.19 203,851.85 287,651.77 2,201.81 1,703,480.83 '. 116.2 615,386.82 \ 2 29.9 210,962.40 1 2 24.7 264,650.31 200.7 533,857.75 j 41.5 36. 3 ; 22. 1 352 Outside agencies 26.4 j 34.4 3-53 Advertising 167.0 110.9 354 Traffic associations 130.1 53.9 29. B 358 Stationery and printing 85.5 Other items Total 2,929,824.48 Ratio 1.3 2,572,460.22 Ratio 1. 2 483,978.68 1 3,464,273.64 | 18.1 34.6 39.5 Transportation, rail: Superintendence Ratio 0. 9 Ratio 1. 371 1,930,858.04 12,977,592.16 1,494,342.37 5,812,396.87 631,288.29 3,674,557.71 3,938,232.76 1,259,601.04 7, 362, 645. 96 14,482,015.05 780, 257. 64 2, 575, 3.55. 44 8,616,623.14 2,699,127.74 1,548,686.47 2, 563, 913. 57 2,920,000.00 1,662,075.00 6,697,870.40 2, 536, 897. 66 16,793,769.94 2,319,042.51 7,931,312.13 806,477.96 4,820,937.44 5.062,135.25 2,426,577.49 8,751,630.93 17,876,241.65 958,212.19 4, 191, 156. 22 11,126,903.85 3,941,942.34 2, 159, 125. 40 3, 025, 365. 40 4,954,397.29 1,122,817.94 8,597,227.-50 2,842,187.83 3,763,136.66 ' 94.8 48.3 45.0 66.9 23.5 129.5 36.1 39.5 45.7 46.7 57.2 29.1 59.0 41.4 20.0 37.1 43.5 50.6 91.0 32.1 373 Station employees 19,259,429.00 24,356,537.59 87.1 2,770,372.13 1 3,867,185.53 159.0 6,559,113.95 i 9,802,371.03 69.0 1,572,555.15: 1,850,527.78; 183.0 4,445,346.69 6,557,265,96 . 78.6 26.1 377 Yardmasters and clerks 39.5 378 Yard conductors and brakemen.. 49.5 379 18.0 380 47.5 382 Fuel for yard locomotives 4, 605, 927. 03 2,425,826.71 8,535,091.19 15,984,335.50 965,648.27 4,609,605.53 10, 440, 256. 67 4,275,241.29 2,622,806.12 3,854,782.82 8,857,490.-53 1,498,819.22 8,642,398.02 7,068,306.50 3,535,735.49 12, 846, 228. 60 28,101,299.48 1,239,4.53.86 6,668,271.28 15,741,012.25 4,733.695.81 2, 960, 546. 63 4,343,199.84 7,468,004.10 2, 145, 506. 92 12. 154. 720. 59 79.1 180.0 74.6 94.0 58.6 158.9 82.5 75.0 91.0 69.5 156.0 29.0 53.0 388 Engine house expenses, yard 45.9 . 192 Train enginemen 51.0 394 Fuel for train locomotives 75.5 399 Water for train locomotives 28.5 4(H) Engine house expenses, train 44.4 401 Trainmen 50.2 402 Train supplies and expenses 10.5 104 Signal and interlocker operators 13.0 41 is 12.5 418 Loss and damage, freight «15.7 420 Injuries to persons 42.5 Total 83,627,439.65 Ratio 38. 5 109.405,171.09 114,767.233.65 ; 159,203,005.90 90.0 45. 5 | 38. 8 Miscellaneous operations: Ratio 40. 6 ! Ratio 40. 4 j Ratio 47.0 441 1,801,837.15 210,'OU. 10 243,452.42 425, 742. 74 235, 135. 94 50, 545. 04 1,959,466.16 2,670,595.16 1,207.77 . 1,167.48 312,366.41 293,810.32 589,865.43 684,173.96 312,004.80 ! 367,834.13 65,485.10 1 74,590.39 3,511,629.11 506.36 327,266.04 443,558.12 417, 139. 13 106, 528. 82 94.9 299.8 34.7 4.1 77.5 79.3 2 58.1 4.8 224.8 33.7 31.4 442 Hotels and restaurants 2 56.6 11.3 Stockyards 2 35.2 445 Producing power sold 13.4 42.6 Total 2, 966, 724. 39 Ratio 1. 4 3,240,395.67 1 4,092,171.44 4,806.627.58 Ratio 1. 4 60.0 48.1 17.2 General: 381,861.40 2, 475, 292. 69 263, 166. 97 570, 653. 14 410,581.64 167,685.01 567,014.03 86,761.26 354,936.83 316,685.56 3,568,297.69 4,262,690.36 300,657.90 i 436,148.38 544,338.05 , 446,885.41 413, 155. 56 480, 399. 13 185,426.56 i 185,669.81 832,867.99 : 800,269.47 39,634.85 i 15,849.31 524,473.29 5,487,981.89 396, 824. 84 563,584.75 37.3 121.7 50.9 '1.3 47.7 53.8 31.8 3.6 31.1 48.1 23.5 65.6 452 28.7 453 29.O 30.6 457 541,670.28 31.8 273,953.00 63.1 1,029,189.91 | 85.1 12.9 • 458 Stationery and printing 47.3 Valuation expenses 18.6 110,946.91 Total 4,923,016. 14 Ratio 2. 3 6,239,315.43 6,929.211.49 8,928,624.87 Ratio 2. 6 2 2,196.11 81.4 43. 1 28. 8 Ratio 2. 3 Ratio 2. 6 Total 153, 597, 905. 35 62,669,611.87 71.02 210,637,848.99 1 224,964,911.84 58,633,107.52 58,694,41&86 78.23 | 79.31 317,553,242.13 1 106.7 21,071,214.36 2 66.3 93.78 ! 31.8 46. 6 : 41. 2 2 64. 1 1 2 64. Per cent of expense to revenue 19. 7 1 18. Deductions from net revenue. 11,239,638.42 19, 395. 51 2,480,451.64 2 1,969,997.44 11,273.155.71 17, 594. 44 3,411,326.39 10,601,745.18 15, 597. 13 2.418.758.07 14,440,234.53 [ 28.5 28.0 36.1 67,012.49 3,374,202.16 2 2,479,686.76 36.0 2 1.1 39.1 1 2, 198, 205. 05 | * 2, 427, 997. 80 Total 11,769,488.13 12,593,871.49 1 10,608,102.58 15,401.762.42 30.6 22.2 45.1 50,900,123.74 46,039,236.03 47.375.868.55 5,669,451.94 | »88.9 2 87.7 2 88.0 Less net of operating income items applicable to Federal control and 2 5,042,356.99 f 10,711,808.93 \ 8,850,087.92 26,650,895.61 205, 529. 07 15.370.119.35 Net railway operating income (corporate account) compensation ac- \ 52,260,371.55 53,590,884.10 i\ 1 J • 256. 16 12,313,915.76 • 2, 962. 19 12,949,374.64 2 1,449.65 13,926,418.46 1 1 1 63, 213, 783. 34 65,206,784.00 67. 515. 852. 91 1 61.788,440.88 1 2 2.7 2 5.3 2 9.2 Deductions from gross income. 6,462,350.03 29,099,071.94 762, 807. 02 6,112,450.3e 29,432,623.3; 2,004,364. 1C 1, 784, 168. 5! 8,166,388.* 6,093,240.3c 29,227,222. 1( 5,065,276.1! 1,650,690.7. 5,982,429.5! 7, 170, 182. 42 30,736,911.26 5,776,420.45 1,049,304.88 ! 3,202,691.99 11. C 5. c 657.; 17.31 4.4 188.1 17.5 5.1 14.0 . "41.2 2 36.4 1,290,334.51 1 ! Total 1 37,614,563.50 47,499,994.8: 48,018,858.9' 47.935,511.00 27.. i .8 2.2 25,599,219.84 10. 25 17,706,789. 17 j 19, 496, 993. 94 13.852.929. 8S '46.( ) 2 28.9 j 229.4 5. ol 12, 479, 602. 5C 115,563.4c 12, 479, 610. 0( 115,563.4 ) 12,479,611.2 j 4, 576. 51 5 12, 479, 614. 76 i 4, 816. 8 - | — Diaitized, , 13,004,053.86 bvWiicr 5,llL61i7 ason® I 7,012,806.13 | 1,368,498.2. 2 89. 3 1 2 73. 2 2 so. 1 1 This includes $4,400,000 back pay accrued from Jan. 1, 1918, to Dec. 31, 1919. 2 Decrease. U3033 — 21. (To face page 246.) No. 1 Digitized by Microsoft® Digitized by Microsoft® Digitized by Microsoft® BAILROAD REVENUES AND EXPENSES. 247 The Chairman. Well, that is your own pleasure. Usually you i adjourn at 12 o'clock, or about that time. Senator P'omerene (presiding). Well, we might just as well take the sense of the committee now. The naval appropriation bill is on, and there will probably be some voting this afternoon, and is it the desire o,f the committee to continue this session beyond 12 ? Senator Watson. Well, of course Senator Poindexter will be com- pelled to leave, and I imagine the Senators will drift out one by one. Senator Pomerene. Well, then, unless the committee thinks other- wise, we will recess at 12 o'clock. Senator Poindexter. Until 10 o'clock to-morrow morning? Senator Pomerene. Yes. You may continue, Mr. Smith. Mr. Smith. Maintenance of equipment, 1920, compared with 1917, shows an increase of $54,840,744, or 142.5 per cent, and 1920, com- pared with 1919, of $31,090,871, or 50.5 per cent. Transportation, rail, shows an increase 1920 compared with 1917 of $75,575,566, or 90 per cent, and 1920 compared with 1919 of $44,435,772, or 38.8 per cent. Traffic expenses show an increase 1920 compared with 1917 of $534,449, or 18.1 per cent, and 1920 compared with 1919 of $975,295, or 39.5 per cent. Miscellaneous operations show an increase 1920 compared with 1917 of $1,839,903, or 60 per cent, and 1920 compared with 1919 of $714,456, or 17.2 per cent. General expenses show an increase 1920 compared with 1917 of $4,005,609, or 81.4 per cent, and 1920 compared with 1919 of $1,999,413, or 28.8 per cent. The total operating expenses, 1920 compared with 1917, shows an increase of $163,955,387, or 106.9 per cent, and 1920 compared with 1919, $92,588,331, or 41.2 per cent. Senator Watson. Now, Mr. Smith, were those figures disputed by anybody before the Labor Board in their hearing in Chicago ? Mr, Smith. I think not. They were actual facts. Senator Watson. Yes. And the question there then did not turn on the amount of revenue, but what disposition had been made of the revenue ? Mr. Smith. Yes; I think so. Senator Watson. Whether or not it had been wisely expended ? Mr. Smith. Yes. Senator Watson. Certain persons charging that while you did receive that amount of revenue, you had not wisely expended it; that you had been guilty of wasteful management. Isn't that the sole object of this inquiry ? Mr. Smith. I don't know, Senator. Senator Watson. W e U> that is what we understand it to be. Senator Pomerene. You mean the inquiry at Chicago, don't you. Senator ? Senator Watson. Yes; I mean the inquiry at Chicago. That waa the sole object of the inquiry, wasn't it? Mr. Smith. Oh, the inquiry of the Labor Board at Chicago ? Senator Watson. Yes. And isn't that very largely the question to which we are addressing ourselves, as you understand it ? And is that the subject to which you are addressing yourself largely ? Digitized by Microsoft® 248 BAILEOAD REVENUES AND EXPENSES. Mr. Smith. I am addressing myself to the questions as prepared by this committee, in which you ask certain things, and I am answer- ing them categorically. Senator Watson. Yes. After you get through, then we can ask you any questions we like as to specific propositions. Mr. Smith. Yes. Now, the second question was: The reasons which led to the extraordinary ,cost of maintenance and operation from March 1, 1920, to March 1, 1921. In order to properly examine railroad expenditures for mainte- nance and operation it is necessary to take into account the expenses for the years 1916, 1917, 1918, 1919, and 1920, for the reason that the different causes for the increases in the operating costs of rail- roads really began in 1916 and reached their culmination during 1920. These causes have not been removed or modified during January or February, 1921. The operating expenses for the New York Central Railroad for each of the above years were, in totals, as follows: Year: Operating expenses. 1916 $129, 738, 369 1917 153, 597, 905 1918 210, 637, 848 1919 224, 964, 911 1920 317, 553, 242 That is, in 1920 they were nearly $200,000,000 more than in 1916. Senator Pomerene. Now, I take it you mean by your operating expenses just as the other witnesses did here — everything except that which would go as an earning on the capital invested ? Mr. Smith. Yes, sir; as specified by the Interstate Commerce Com- mission. These are all based on figures in the Interstate Commerce Commission's report. Senator Pomerene. Does that include taxes ? Mr. Smith. This does not include taxes. Just the expenses of operating the property. The above operating expenses are subdivided on Exhibit No. 3, which we will hereafter file, into the six operating accounts, mainte- nance of way and structures, maintenance of equipment, transpor- tation, traffic, miscellaneous and general expenses, for the years 1916 to 1920, inclusive. (See facing page.) Costs of maintenance of way and structures and of maintenance of equipment had been increasing since 1914. To some extent trans- portation expenses had been increasing, but the item which was show- ing the most rapid increases was that of material and supplies. This was, of course, due to the demand upon America by the Allies for supplies of various kinds, and had the effect of increasing all prices. In other words, we first ran into increases on supplies, and the labor followed later on. During the summer of 1916 came the movement among railroad employees for the so-called 8-hour day, which culminated in the enactment, by Congress, of the Adamson law, which became effective from the 1st day of January, 1917. Therefore, 1916 is, the year at which the comparison should commence, since it was free from wage adjustments. Digitized by Microsoft® EXHIBIT 3. 1910 1917 1P18 19^9 1920 Maintenance of way and structures Maintenance of equip- S18, 965, 060. 82 35, 995, 816. 22 64, 950, 528. 04 2,897,683.05 2, 596, 471. 41 4, 332, 809. 65 $20, 704, 306. 37 38, 446, 594. 32 83, 627, 439. 65 2, 929, 824. 48 2, 966, 724. 39 4, 923, 016. 14 $31, 867, 76S. 80 57, 312, 737. 78 109, 405, 171. 09 2, 572, 460. 22 3, 240, 395. 67 6, 239, 315. 43 $34, 520, S55. 23 62, 171, 461. 35 114, 767, 233. 65 2, 483, 978. 6S 4, 092, 171. 44 6, 929, 211. 49 S47, 865, 567. 50 93, 287, 338. 75 Transportation Traffic 159,203,005.90 3,464,273.64 4, 806, 627. 58 8, 928, 624. 87 General expenses Total 129, 738, 369. 19 153,597,905.35 210,637,848.99 224,964,911.84 317, 555, 433. 24 Transportation for in- 2, 196. 11 Total 317, 553, 242. 13 - * 248a Digitized by Microsoft® Digitized by Microsoft® KAILKOAD REVENUES AND EXPENSES. 249 The effect of the Adamson law, which became operative as of January 1, 1917, upon the railroads was to establish in contracts for labor and service, eight hours as the measure or standard of a day's work for the purpose of reckoning the compensation for services, in place of ten hours, which had previously obtained. While this did not increase the basic daily or mileage rates of engine and train crews, the overtime rates were increased as well as the number of hours over- time accruing since this extra compensation became payable in four- fifths of the time, under the law's application. The result, in money, to the New York Central in 1917 was an increase of $4,045,321, or 18.9 per cent in the pay of men concerned under the Adamson law, enginemen, firemen, conductors, and train- men. Senator Pomeeene. That is for the entire year, you mean ? Mr. Smith. That is for the entire year. Senator Pomerene. 1917? Mr. Smith. Yes, sir; the entire year 1917. In round figures, $4,000,000. In addition to these increases in wages, fuel for locomotives in 1917 cost $7,486,481 more than the preceding year. This was on account of the increased cost of fuel due to the effect of the war upon the mines. Production was lessened, due to the fact that many of the miners were foreigners who left the country to go to their homes, and to the increased and increasing demands for fuel from foreign coun- tries whose own production was lessened by the demand of their armies for men. On December 28, 1917, the period of Federal control began. In May, 1918, under the supervision of the director general began a series of wage orders, Retroactive to various dates, beginning January 1, 1918, affecting all classes of railroad employees, so far as wages and working conditions were concerned. The wages of all employees who were upon a daily and hourly basis of pay, as well as the wages of all employees who were on a monthly basis, receiving less than $250 per month, were materially increased. This led to an enormous increase in the cost of mainte- nance of way and structures, maintenance of equipment, transporta- tion expenses and general expenses. The maintenance of way and structures increased in 1918 over 1917 $11,163,462, or 53.9 per cent. Maintenance of equipment increased $18,866,143, or 49.1 per cent. Transportation expenses increased $25,777,731, or 30.8 per cent. General expenses increased $1,316,299, or 26.7 per cent. The item of labor wages in the maintenance of way account was increased by $7,598,594, or 60.8 per cent over 1917. Maintenance of equipment was increased by $12,943,489, or 80.3 per cent over 1917. Transportation account was increased by $19,179,352, or 39 per cent over 1917. Of this $3,816,178, or 29.4 per cent was an increase in the wages of station employees; $2,118,915, or 36.5 per cent, in the wages of yard conductors and brakemen; $1,146,380,' or 31.2 per cent, in the wages of yard enginemen; $1,391,985, or 18.9 per cent, in the wages of train enginemen; $2,510,280, or 29.1 per cent, in' the wages of conductors and trainmen. The wages of crossing protection alone — and I mean by that the flagging of crossings — increased $499,268, or 76.6 per cent. Crossing Digitized by Microsoft® 250 RAILROAD REVENUES AND EXPENSES. men who had been paid $45 on a 12-hour day bsfcsis were placed on an 8-hour basis at SI 00 a month. The price of fuel increased by 22 per cent over 1917, making an increase in the fuel account of $4,518,129. In 1919 the volume of business decreased 18.3 per cent, the total tonnage over the New York Central Railroad being 96,048,798 as against 117,495,612 in 1918, or 22.4 per cent. This had its effect upon the wages of train crews, which decreased during that year. But further orders of the Railroad Administration led to further increases in the wages of other classes of employees, particularly shop employees and station employees and ordinary labor. The wages for track laying and surfacing increased in 1919 over 1918, $705,411, or 7.4 per cent. Station employees, $2,465,659, or 14.7 per cent. Yard masters and yard clerks, $451,330, or 19.5 per cent; while the wages paid to yard conductors and brakemen decreased by $1,372,198, or 17.3 per cent; yard enginemen, $375,591, or 7.8 per cent; train enginemen, $219,540, or 2.5 per cent; conductors and brakemen, $686,647, or 6.2 per cent. That the decreased business affected only the wages of train crews is strikingly, shown by the fact that the wages of yard, switch, and signal tenders increased during the same period by $766,077, or 95 per cent; that the wages of maintenance of equipment employees increased by $1,226,328, or 4.2 per cent over the preceding years. In the maintenance of way and engineering departments the increase in wages was $709,170, or 3.5 per cent. The amount spent for fuel also decreased during 1919 by $2,496,634, although the price had slightly increased. Senator Wolcott. You mentioned 95 per cent increase in some wages there. Was it 95 per cent increase? Mr. Smith. Yes; 95 per cent increase. That is in the wages of yard, switch and signal tenders. That was on account of the increase in wages. There was a decrease in business, but their wages increased 95 per cent. Senator Kellogg. If this is a good place to stop, Mr. Chairman, I suggest that we adjourn. Senator Pomerene (presiding) . Yes ; I think, Mr. Smith, we will suspend until 10 o'clock to-morrow morning. (Thereupon, at 11.55 a. m., Wednesday, May 18, 1921, an ad- journment was taken until 10 o'clock a. m., Thursday, May 19, 1921,) Digitized by Microsoft® RAILROAD REVENUES AND EXPENSES. THURSDAY, MAY 19, 1920. United States Senate, Committee on Interstate Commerce, Washington, D. C. The committee'met pursuant to adjournment at 10 o'clock a. m. in room 410, Senate Office Building, Senator Albert B. Cummins (chairman) presiding. , The Chairman. The committee will be in order. Mr. Smith, you may resume your testimony. TESTIMONY OF MR. A. H. SMITH, PRESIDENT NEW YORK CENTRAL LINES— Resumed. Mr. Smith. Mr. Chairman and gentlemen of the committee, I will begin where I closed on yesterday in the making of my general statement. In 1920 the total business for the. year again increased 15.3 per cent, to 110,743,433 tons. That was over 1919. The Chairman. Are you now giving statistics for the New York Central. Mr. Smith. Yes, sir. The Chairman. Or for the entire railroads of the country? Mr. Smith. No, sir; only for the New York Central. I am answer- ing interrogatories of the committee for the New York Central. Senator Townsend. Is that for the Michigan Central Railroad as well? Mr. Smith. No, sir; only for the New York Central proper, without any of its subsidiaries. In July, 1920, a decision of the United States Labor Board con- cerning railroad wages was rendered which increased the wages of practically all employees and made the wage retroactive to May 1. The increase in rates was practically 20 per cent, and that added to other causes made the wages of labor for the year 1920 increase $38,800,000, or— For maintenance of way and engineering, $5,950,687, or 28.6 per cent. For maintenance of equipment, $12,623,380, or 41.7 per cent. For wages of station employees, $5,097,108, or 26.5 per cent. For wages of yard conductors and brakemen, $3,243,257, or 49.5 per cent. For wages of yard enginemen, $2,111,119, or 47.5 per cent. For wages of train enginemen, $4,311,138, or 50.5 per cent. For wages of conductors and trainmen, $5,330,756, or 50.8 per cent 251 Digitized by Microsoft® 252 KAILROAD REVENUES AND EXPENSES. Wages for crossing protection, nagging road crossings, $216,653, or 13.8 per cent. The Chairman. Do you mean that there were more men employed or more hours worked ? Mr. Smith. More hours, more men, and different regulations under which we worked. The increase of fuel for 1920 over 1919 was $14,579,343. This last increase was due to a number of causes: First, the average price of coal increased 45 per cent; that is, from $3.33 to $4.83 per ton. Next, the quality of coal, which was not throughout the year of as good quality as was desired or desirable, nor as good quality as we usually obtained. Also the coal, which I will refer to a little more in detail later, was affected by the outlaw strike. We could not get our regular supply and had to pick it up wherever we could. The foregoing summary shows a steadily increasing cost of railroad operation since 1916, the causes of which are : 1. The increase in the wages of employees in the train service due, in the first instance, to the Adamson Law, and, subsequently (a) to the orders of the director general, and (&) to the decision of the United States Railroad Labor Board. 2. The increase in the wages of employees other than those in the train service due to (a) the orders of the director general, and (b). the decision of the United States Railroad Labor Board. As to the orders of the. director general. What was known as General Order No. 27 of the director general and the supplements thereto, issued by him from time to time, not only increased the wages of all railroad employees, but changed the classifications of the em- ployees, not only by the terms of the order and its supplements, but by the national agreements which were made under the terms of the supplements. Under these reclassifications not only were wages of specified classes of employees raised, but many employees in these crafts were placed in higher grades than those in which they were prior to the order and the agreements. The reclassification not only had the effect of increasing wages, but very largely increased the number of men, for the reason that prior to the agreements a man would do and did do different kinds of work. After the agreements that same man was permitted to do but one kind of work and it was necessary to employ others to do the different kinds of work which the first man had done before, the number of men employed varying according to the kinds of work the other man had done. Senator Pometene. Will you illustrate what you mean by that statement ? Mr. Smith. I am just coming to that, Senator. Senator Pomerene. All right; excuse me. Mr. Smith. A few of the instances, and of course I am only giving a few in order to save time, showing the way in which this worked, are as follows : An airbrake repairer in December, 1917, was paid 27 cents an hour. Under the provisions of Supplement No. 4 to General Order No. 27, his rate of pay was raised to 58 cents per hour. Under the provisions of the national agreements his classification was changed to that of tender repairer and, automatically, his wages were raised to 68 cents per hour, and that was his rate of pay up to the time of the decision Digitized by Microsoft® RAILROAD REVENUES AND EXPENSES. 25-3 of the United States Railroad Labor Board, which I will refer to here- after. I am bringing this up in answer to the questions propounded and trying to keep the statement in line with the questions so they can be checked. An engine cleaner, who, in December, 1917, was paid 22 cents per hour, was, by Supplement No. 4 to General Order No. 27 raised to 45 cents an hour. Under the provision of the national agreements his classification was changed to painter helper at a rate of pay of 49 cents per hour, which was his pay until the decision of the United States Railroad Labor Board. A hydraulic rivet operator, in December, 1917, was paid 34 cents per hour. Under the provisions of Supplement No. 4 to General order No. 27 he was paid 68 cents per hour. Under the provisions of the national agreements his classification was changed to boiler maker and his pay was made 72 cents an hour, which was his pay until the decision of the LTnited States Railroad Labor Board. Senator Pomerene. Who composed the board that made this classification ? Mr. Smith. The national agreements ? Senator Pomerene. Yes. Mr. Smith. I do not recall. I do not know that I ever did know just who was on the board. It was here in Washington, and I think the board was constituted of certain officers of the Director General's force and certain labor representatives, and they made up these national agreements. The Chairman. Was it the board of adjustment ? Mr. Smith. There were other boards that were created to pass upon grievances and other questions. Senator Townsend. Did that classification in any case reduce the positions so as to carry a less wage than any position theretofore carried '( Mr. Smith. I know of none. Mr. Thom wants me to make it plain that this was a board acting for the Railroad Administration. It was, of course, that; it was a part of the Railroad Administration. It was a board created by the Railroad Administration to review things, and that was their decision on the national agreements. Senator Townsend. One thing more:. Where this man was changed to boiler maker, was he actually engaged in the business of making or repairing boilers instead of being a cleaner ? Mr. Smith. Well, I referred to that position as a hydrualic riveter. Of course a riveter was employed on boiler work, or work of that character. Senator Kellogg. And was he also employed on other work? Mr. Smith. Well, speaking of a hydraulic riveter, he was employed upon boiler work. We have here another case, I think, later on of a rivet heater who became a boiler maker helper. I was a rivet heater myself once, but was on bridge work. That is work merely of heating a rivet and getting it to the right temperature and throwing it over to the hydraulic riveter, who will drive it up. vSenator Townsend. What I want to get is, originally and before the reclassification were the employees classified in any work that did not properly designate the work they were doing? Mr. Smith. I think not, Senator. I should say no. They had been classified by the railroad men for manjr years. We had always Digitized by Microsoft® 254 RAILROAD REVENUES AND EXPENSES. negotiated with our employees in the matter of such classifications. For instance, I have here as the next man a stripper. A stripper is a man who tears an engine apart as it comes in for overhauling. I think in that case he finally becomes a machinist. He could not very well be much of a machinist to be tearing engines down. For in- stance, anyone who runs a Ford automobile may be termed more or less a machinist, after a time, but certainly he is not a machinist in the sense that he can put together machinery or do high-class machine work, say such as setting a valve on a locomotive or any- thing of that kind. In this case they call a stripper a machinist, but he is still a stripper. Senator Townsend. And he continued to do the same class of work after the reclassification that he had been doing before ? Mr. Smith. Yes. Senator Pomerene. No additional work ? Mr. Smith. No. Senator Pomerene. Then the real purpose of the reclassification was to give an increase in wages ? Mr. Smith. I should imagine so. I do not know anything about it, as I was not in the negotiations, but I take it that is a fact. Of course, in these matters we must look back and take into account the fact that the whole world was upset, and that we had great trouble getting men enough to run the shops and do railroad work, and the main thing to do then was to furnish the transportation required. It is pretty difficult now to even recall all the difficulties that con- fronted us at that time in trying to give the transportation that the> people required. A great many of those men had been taken into the Army. Some of them had volunteered. We had new men. We had to take a green army and train it into our service, just as the United States was taking our men and putting them into their Army and training them to be soldiers. It is pretty difficult to recall all the circumstances surrounding us at the time, but as I sense it now it was very, very difficult at times. Senator Kellogg. I think statistics were produced by the rail- roads in the hearing on the first bill relating to the operation of rail- roads after they were taken over by the President, snowing that for the first six or nine months of private operation of railroads during the war period that you lost 12 per cent of your men. Mr. Smith. I should say that that was a very conservative state- ment, Senator. In addition to what the Army took, we lost men in the increased demand on the part of manufacturers for labor. Senator Kellogg. I did not mean that all of the men you lost went to the Army, but that you lost 12 per cent of your men to the Army and to industries which drew them away from you, being willing to pay higher wages on account of the increased demands for men ? Mr. Smith. Yes, sir. I should say that was rather understating than overstating the situation. Senator Pomerene. Another question: You have referred to the necessity for training an army of employees for the railroad service. I take it that in that respect you were in no different position than other branches of industry in the country; as men went into the Army it more or less demoralized the forces on the railroads as, it did the forces in the mines and the factories in the country ? Digitized by Microsoft® RAILROAD REVENUES AND EXPENSES. 255 Mr. Smith. Well, comparatively speaking, it is pretty difficult to say how much it affected other industries. There is a little difference between running a railroad and running a factory or a mine. The operation of a railroad, particularly in the matter of train operation, is practically all outside of the vision of the officer in charge, and it is rather difficult to control it in the case of green men. Green men out on the road are in a different position from green men on a shop floor or in a mine, where the foreman or the man in charge can see what the green man is doing all the time. Senator Pomerene. In other words, your railroad plant extends over thousands of miles ? Mr. Smith. Yes, sir. Senator Pomerene. And a part of it can not be under the imme- diate supervision of the superior officers ? Mr. Smith. Most of it can not. The Chairman. The main point I assume that you make is that under those circumstances it increased the labor cost of operating the railroads. Mr. Smith. Yes, sir. What all this means and, of course, what we are trying to explain to you gentlemen is why operations in 1920 cost so much more than those in 1919. I will show you later that our 1920 tonnage was more than our tonnage in 1919, but it cost us some $93,000,000 more to handle it, and there is a reason for every bit of that extra cost. What I am trying to do is to explain those reasons as clearly as I can. Senator Pomerene. In the course of y6ur statement do you pur- pose discussing the relative efficiency of your labor organization and your officer organization ? Mr. Smith. Yes, sir; I will come to the units of operation) that which I think gives efficiency. Efficiency is reflected in what you accomplish, of course, the tons you move and the mileage and con- sumption of fuel per thousand ton-miles, etc. After all that is what it means when you get through. It is like a man with a gun; you can give him a gun and ammunition, but the amount of game that he brings home tells the tale as to how well he has done his work. A stripper was paid, in December, 1917, 30 cents an hour. Under the above supplement No. 4 he received 68 cents an hour. Under the national agreements he became a machinist at 72 cents an hour, which was his pay until the decision of the United States Railroad Labor Board. A rivet heater, in December, 1917, received 18 cents an hour. Under supplement No. 4 to General Order No. 27 he received 45 cents an hour. Under the 'national agreements he became a boilermaker helper at 49 cents an hour, which was his pay until the decision of the United States Kailroad Labor Board. Now, gentlemen, of the com- mittee, is it fair to say that a rivet heater is a boilermaker's helper because he is going to give the boilermaker rivets to drive into the sheets ? Senator Pomerene. What, from the standpoint of the efficiency of the plant, was gained by this reclassification ? Mr. Smith. Nothing whatever. All the man wanted- was money. You might jiist as well have given him the money and called him by the same designation; it would not have made any difference to him, so he got the increased pay. „ Digitized by Microsoft® 256 KAILROAD REVENUES AND EXPENSES. The Chairman. You are making comparisons with 1917. Have you made any with 1919 along the same line ? Mr. Smith. The reason I am going back to 1917, Senator, is that that is the last year of private operation. Following 1917 comes General Order No. 27, supplement No. 4, and the national agreements that were added generally in July, 1920. They had some of it done in 1920, but it was done generally in July, 1920. The Chairman. Most of those reclassifications were made in 1918, I think. Mr. Smith. General Order 27 and the supplements ran through 1918 and 1919, but the action of the United States Labor Board was in 1920. Just what years they were I do not recall exactly, but I can look back and get the record; I mean that I do not recall at the moment just on what dates th«y issued the orders. But I am mak- ing comparisons, and I think in time I will bring out the comparison between 1919 and 1920. I am trying to show you where these men's wages were elevated from 1917, and I will bring it on through in the matter of efficiency in 1918, 1919, and 1920 in a few moments. The Chairman. Very well. Mr. Smith. The above instances are from the Locomotive De- partment, and are given as typical instances of the approximately 120 classifications which were m force in that department prior to the national agreements. The number of major classifications was changed by the national agreements to 108, and hundreds of minor classifications added. Senator Pomerene. You have spoken of 120 classifications; were they major classifications ? Mr. Smith. Yes, sir. Senator Pomerene. That was reduced from 120 to 108 ? Mr. Smith. Yes, sir. And they have added many minor classi- fications, which I have not had time to recite here, but they were not so ' consequential. Everything was classified finally. The rules are set forth so rigidly that everythiug is done by agreement ' and regulation. Prior to the execution of the national agreements the average number of employees per month in the locomotive department was 11,545. These agreements took effect in Septem- ber and December, 1919 and were in effect during all of 1920 and are still in effect. The average number of employees in 1920 was 13,- 665 per month. That is, roundly speaking, 2,000 more employees per month. Illustrations in the car department: An oil room man, in Decem- ber, 1917, was paid 0.2825 cents per hour. Under supplement No. 4 he went to 68 cents; under the national agreements he became a blacksmith at 72 cents. Senator Pomerene. What was that position ? Mr. Smith. Oil room man. Senator Pomerene. How did they classify him, as a blacksmith ? Mr. Smith. Yes, sir. Senator Pomerene. How did that entitle him to the classifica- tion of blacksmith ? Mr. Smith. I have not the faintest idea. ' Senator Fernald. The original classifications about which you speak had existed up to that time and had been of long standing, had they not ? Digitized by Microsoft® RAILROAD REVENUES AND- EXPENSES. 257 Mr, Smith. Yes, sir. Senator Fernald. And they had been made by railroad men like yourself, men who had worked up? Some of these presidents of railroads were conductors and engineers, as I remember, and those classifications were made by experienced railroad officials and labor representatives ? Mr. Smith. Yes, sir; made by railroad officials and the men. An air-brake repairer in December, 1917, was paid 30.75 cents per hour. Under supplement No. 4 he went to 68 cents; under the national agreements he became a triple-Valve tester at 72 cents. There is not so much distinction between an air-brake repairer and a triple-valve tester, for they are about one and the same thing. As an air-brake repairer the man might have been testing triple valves, because they are a part of an air" brakei Senator Kellogg. Do you mean that he was thereafter confined to that work alone ? Mr. Smith. He might be, but I question that. I imagine he did other things. But you will see he had to go from 68 cents an hour to 72 cents an hour, and so they changed the title; something like raising a sergeant to a lieutenant, I suppose. , Senator Kellogg. I do not like to be breaking into your statement, but it has been stated that many of these classifications required men to confine themselves to the particular jobs mentioned, and that they could not do general work such as they did before, and therefore that the reclassification meant an increased number of men. What have you to say about that ? Mr. Smith. That is true, but in this particular instance I could not say that this man did not do anything but test triple valves. I can not imagine that he would not do anything else but that. Senator Kellogg. All right. The Chairman. A good many of these advances in 1918 were retro- active. How about the classifications, were they made retroactive as well? Mr. Smith. No, sir; it was just merely the money. The Chairman. How was that answer ? Mr. Smith. It was just merely the money that would go back. They could not reclassify him, because the man was paid currently, and all the retroactive pay was paid to the individual. Senator Townsend. That is, this man who was a triple-valve inspector got that 72 cents an hour back to what time ? Mr. Smith. Back to the date when it was made retroactive. I do not recall when that date was. Senator Townsend. Back to the time of supplement No. 4, re- ferred to ? Mr. Smith. Back to the time when the national agreements were made retroactive. Does anyone here know when that was ? Mr. Thom. Wasn't it September or December ? Mr. Smith. Well, whenever it was. Of course, the title could not actually go back. Senator Pomerene. As I recall, the first order for an increase of wages was made, perhaps, some time in June, 1919, and it was dated- back to January- 1 of that year. Mr. Smith. That is right. 63553— 21— Vol I 1 8 Digitized by Microsoft® 258 KAILEOAD REVENUES AND EXPENSES. Senator Pomerene. Did this reclassification date back to that time, so that the man who had been getting 68 cents — was paid what ? Mr. Smith. Seventy-two cents an hour. Senator Pomerene. Under the new classification he was to get 72 cents an hour. Did he get that 72-cent rate as from January 1 ? Mr. Smith. No, I should say not. I will look that up and give you an accurate answer, as each one of these orders specified in it- self how far it should be made retroactive. Senator Pomerene. The thing I do not understand, and I take no exception to these increases of wages because I do not know any- thing about them, except in a general way I have always felt that large increases were necessary during the war; but assuming that those increases were properly made", what was the necessity for this kind of camouflage in changing the classifications in that way? Mr. Smith. I do not know. A passenger car inspector, in December, 1917, was paid 0.375 cents per hour. Under supplement No. 4 he went to 63 cents; under the national agreements he became a passenger car inspector leader at 67 cents.' They added on there the word "leader" and gave the man 4 cents an hour additional. A blacksmith in December, 1917, was paid 55 cents. Under supplement No. 4 he went to 68 cents; under the national agree- ments he became a hammersmith at 82 cents. I have other instances that I might give you gentlemen. Senator Kellogg. Just put them in the record. Mr. Smith. Without reading them ? Senator Pomerene. What are they? Mr. Smith. Some additional instances. Senator Pomerene. I suggest that you let us have them as we might wish to ask some questions as you go along. Senator Kellogg. All right. Mr. Smith. Here is the case of a man by the name of De Stefano. Duties consisted of work in connection with coopering and recooper- ing boxes and barrels, 'repairing hand and trailer trucks, gangplanks, welding truck straps and handles, occasionally sharpening crowbars and boring holes in iron plates used in gangplanks, using a hand forge for necessary heating, working at Barclay Pier, New York City, and classed as a laborer at an hourly rate of 25 cents on January 1, 1918. New York Central Decision, October 21, 1920, No. 53, reclassified him as a blacksmith at 68 cents per hour with back pay allowance of $1,710.54, as per Article I, supplement 4, and as per Article II, section 1 or 2, supplement 4 to General Order No. 27. The Chairman. When was he reclassified? Mr. Smith. In October, 1920, to take effect January 1, 1918. He was given $1,710.54 back pay, being classified as a blacksmith in- stead of as a laborer. The Chairman. That was done by the Labor Board ? Mr. Smith. That was the director general's adjustment board. The Chairman. But back pay was not required of the railroad company after the 1st of March, 1920, was it ? Mr. Smith. Oh, yes. sir. These all carry through. We are paying all these things. Digitized by Microsoft® RAILROAD REVENUES AND EXPENSES. , 259 The Chairman. I want to understand that. Do you say that for the time these men' worked for the Government the railroad compan- ies, since their return to private ownership, have been obliged to pay the men the increased wages ? Mr. Smith. We are paying them to-day; The Chairman. Out of the treasuries of the railroad companies ? Mr. Smith. Yes, sir; we are paying them to-day. The Chairman. But you are charging it up to the Government, are you not ? Mr. Smith. Oh, no, sir; charging it to operating expenses. Senator Poindexter. What Senator Cummins is referring to is back pay; wasn't that it, Senator Cummins? The Chairman. You say you went back to January, 1918, and paid this man $1,710.54 back pay? Mr. Smith. Yes, sir. The Chairman. From January 1, 1918, to March 1, 1920, this man, as was the case with other men in the same situation, was working for the Government. This is the first time I have ever heard it suggested that the railroad companies had to pay any part of the sums due by the Government during the period of Government operation, to the men. Mr. Smith. These payments were made at the time the decision was rendered, October 21, 1920. When that decision was rendered it was at a time after the railroads were back in the hands of their owners, and we paid those sums and charged them to operating expenses. The Chairmak. I can understand how it ought to have been paid out of the operating expenses by the railroads from the 1st of March, 1920, on. But for that period covered by Federal control you were under no obligation to pay the wages that had accummulated by reason of this decision. Mr. Smith. No ; and that is the basis of a claim against the director general. That is what I was referring to on yesterday, and it is one of about a million such cases we have to work out. The Chairman. Why did you pay that money to the men ? Mr. Smith. Why did we pay it ? The Chairman. Yes; there was no obligation on your part tp pay it out of the treasuries of the railroads. Mr. Smith. I wish someone had told me that. The Chairman. It is perfectly obvious, is it not? Mr. Smith. No, sir. 1 understood that we were required to carry out the obligations, and we are still carrying out all of the obligations to those men made by the Government either during the director general's administration or the guaranty period, until the Labor Board shall decide under the transportation act that they are changed. The Chairman. You are obliged to pay after the 1st of March, 1920, the existing rate of wages tall a dispute arises in regard thereto ■ and the Labor Board passes on the dispute; and the Labor Board, I assume, could make the pay retroactive, so that you could be required to pay from the 1st of March, 1920. But there is nothing in the law and nothing in the relation of the parties that would require railroad companies to pay for work done for the director general. That is a new suggestion: to me entirely. Digitized by Microsoft® 260 RAILROAD REVENUES AND EXPENSES. Mr. Smith. Well, you will take this situation into consideration: The Labor Board made a ruling perpetuating everything handed over to us in these matters. I quite see your point, that we can take this $1,710.54, or such portion of it as is applicable to the director general, and charge it back to him, and such portion of it as belongs to the guaranty period and charge it up there, and all we have to finally pay is that portion that might be applicable or is applicable between March 1, 1920, and October 21, 1920, when the decision was made. The Chairman. Without regard to the national agreements the railroads do not have to pay a man unless he is working for them. But these men were not working for the railroad companies from the 1st of January, 1918, until the 1st of March, 1920; and there could not be any obligation on the part of the railroad companies to pay the men for work done during that period. I am somewhat sur- prised to know that the railroads have paid any such retroactive obligation as that. Mr. Smith. Senator Cummins, if we had not paid them who was going to pay them ? The Chairman. Nobody. Mr. Smith. Oh, well. The Chairman. The Government should pay them. Mr. Smith. But the Government stopped functioning in the way of paying anyone after the director general ceased in that connec- tion and we were the agents. The Chairman. The employee would have had a claim against the Government, that is all. Mr. Smith. That would not do. I am not saying that that is not legal, but that is not a proposition that would work out. The Chairman. You say you have paid it and put it in your oper- ating expenses for 1920? Mr. Smith. Just how the accounting department has charged the time I can not tell you, but the total of $1,710.54 was paid to that man. The Chairman. That is only for one man ? Mr. Smith. Yes, sir. The Chairman. And I take it that was universal throughout the United States ? Mr. Smith. Yes; all over the United States. The Chairman. And you have not charged that payment against the Government ? Mr. Smith. We have it in an item to try and get from the Gov- «rnment. There is a lap-over item, I think, on our line of $6,000,000. The Chairman. I do not know how it was charged, but it should not have been charged in your operating expenses. \ Mr. Smith. It is a lap-over item held in suspense.- It is probably held in suspense against the Government. But it has taken the money out of our treasury, and it has meant that we have had to borrow money to pay our bills. Just how the auditor of the New York Central Lines has it charged up I can tell you now, but I can find out and let you know. The Chairman. It would make a great deal of difference as to your expense account for last year ? Digitized by Microsoft® RAILROAD REVENUES AND EXPENSES. 261 Mr. Smith. Yes, sir; it would. The Chairman. And therefore that expense ought to be taken out of the expenses of the railroads for the last year and put in the expenses for 1919 and 1918 ? Senator Kellogg. Well, it is so carried in the accounts, isn't it? Mr. Smith. It is in the books that way, I take it. Senator Kellogg. I wish you would look it up and let us knowt Mr. Smith. We will. Senator Kellogg. And find out if it is not a fact that the roads did pay all the Government bills. Mr. Smith. They did. Senator Kellogg. And did collect the money of the Government, back income or deferred income-; and would have a claim against the Government for those bills which they paid; and that the pro- portion of those bills which went into the expenses of operation for 1919 was on your books charged to the expenses for that year. Will you look that up ? Mr. Smith. With great pleasure. Senator Kellogg. The bills were greater than the income ? Mr. Smith. Yes, sir. The Chairman. You had what was known as a trustee account, as I have been informed by the director general; when the railroads came over, all the current bills or accounts were not sent down here to Washington to be paid, but were paid out of the income or reve- nues that the railroads received — that is, bills contracted before Gov- ernment operation took effect. Now, the same thing happened when the roads went back. But the point is not as to the method of book- keeping you may have employed, but whether your accounts are made up by charging the amount to 1920 operating expenses instead of to 1918 and to 1919 and 1920, as should be the case. If you have charged yourself up with operating expenses that ought to have been charged to the period of Federal control, then your operating ex- penses for 1920 are by that amount too much and do not show the true situation. Senator Pomekene. If I understood Senator Cummins's ques- tibn . Senator Kellogg (interposing) . Let the witness answer the chair- man's question first. Senator Pomerene. Very well; I was only trying to make it a little clearer. Mr. Smith. I do not profess to be much of a bookkeeper, gentle- men of the committee; I do not know much about auditing, though. I feel I am acquainted with the practical side of railroading. I would rather send you down our comptroller, who can tell you afl about the way he has kept the accounts and how he has charged these payments, and could give you expert testimony of a character that will be abso- lutely correct. He knows, because these charges were made under his direction. I do not have the time to look after the bookkeeping, and, as I said, I would not know much about the details anyway, as I know more about the practical side of railroading. The Chairman. I do not know about your bookkeeping, but we are trying to find out how much it cost you to operate your railroads during the year in which they have been in private hands, and in a way we are comparing that operation with what it cost to operate Digitized by Microsoft® 262 EAILEOAD REVENUES AND EXPENSES. the same railroads in 1919, the last year of Government control. Now, it appears that in your operating expenses there has been charged some large sums which ought to have been charged to oper- ating expenses for 1918 and 1919. Senator Kellogg (interposing) . I do not understand that the wit- ness said it was charged in the operating expenses of 1920. The Chairman. He first said it was in there, as I understood. Senator Kellogg. No ; he does not make that statement, though it may have been inferred from his first reply. Mr. Smith. No, sir; I do not know where it is charged. I could not tell you whether that payment of $1,710.54 to De Stefano was charged up in 1919 or 1920. I merely know that we paid him $1,710.54, and if we charged a part «f it back to 1918 and 1919 it will so show in the books. I feel quite certain it must have been charged back that way, but to tell you that it is in the books in just that way I could not do it at this time. The accounting department has the figures in the books, and it is set up in the books I suppose so that we have a claim against the Government for the portion that refers to Federal control. Senator Pomerene. I assume that Senator Cummins is right so far as the effect of accounting between the railroads and the Gov- ernment is concerned, and that is this : That if this sum were charged back it would increase the Government liability on its guaranty for those particular years, and that is about the only difference it would make. But Senator Cummins is correct, assuming that his premises are correctly stated, that it would be of interest to us to know exactly how that money was charged, because it would enable us to ascertain what the financial conditions were due to operation in 1920. The Chairman. My only point is, that it does not apply to opera- tions for 1920, not the whole of that payment. Mr. Smith. This same situation applies to every railroad in the United States. It does not apply exclusively to the New York Central, but applies to every railroad in the United States, north east, west, and south. And you will find that it runs into vast sums of money. I have no doubt, and I think I may state it without much question of contradiction, that the auditors of the railroads have adopted the plan suggested by the chairman, and have divided those payments up properly, as they should be divided, in carrying the payments into the accounts of the railroad, for each period — the director general's period, the guaranty period, and the private-: operation period. And those payments being so deducted they are properly assessed against each period of operation. But to make that statement in a positive manner, I can not do it this morning because I have not the information. Senator Pomerene. Why can not Mr. Smith get a complete state- ment of these facts from his auditor and have it submitted here as a part of his testimony; and if after the statement comes we desire to recall him personally for further questions, we can do so. (Note. — The explanation of the comptroller will be found on p. 315.) The Chairman. That may be done. Mr. Smith. I will be glad to furnish the statement. Mr. Thom. We will show the accounting features of this matter, Mr. Chairman. Digitized by Microsoft® RAILROAD REVENUES AND EXPENSES. 263 Mr. Smith. Do you care for any further illustrations along that line? Senator Pomerene. I would like to have them because I think they are very interesting and may be of some benefit in considering this subject. Mr. Thom. I do not understand that Mr. Smith is detailing these items as a matter of accounting features, to show the effect on ex- penses. He is giving this information so that the, committee may understand what changes were made. As to where these sums so paid went in the account of the railroads, we will make that clearer hereafter in a complete statement. The Chairman. Very well. Mr. Smith. There are other illustrations here along that same line that I can give you if you so desire. The Chairman. We will be glad to have them. / Mr. Smith. The next case I have is that of Mr. G. Kahl. Duties consisted of filling "chill" molds to make small packing rings; uses an iron bowl with gas burner. Upon jr&ceipt of orders places small bars of babbitt metal in bowl, lights gas, melts metal, and using a small cup ladel dips out liquid and pours into mold. Upon cool- ing he opens molds, removes ring, and repeats. Spends 60 per cent of time in this occupation, remainder as machinist helper. Said work requires no apprenticeship, no experience, no skill, and only 10 minutes' instruction. He was classed as helper at 45 cents per hour. New York Central decision, July 8, 1920, reclassified him as a sheet-metal worker at 68 cents per hour with back-pay allowance of $1,574.17, as per Article II, supplement 4, general order No. 27. Martin Wilcox and two others : Duties for these three men are to start and stop machines, oil and keep them clean, adjust and clean commutator brushes, renew fuses, devoting not to exceed two hours per day to this work. Plant furnishes current for light and power to passenger stations, roundhouses, inspection sheds, and other buildings on railroad property at North White Plains. These men were classed in 1919 as stationary engineers, at $125 per month with no overtime. New York Central decision No. 20, July 31, 1919, they were reclassified as per section 5, Article I, supplement No. 4, general order No. 27, and shall be paid as per Article II, section 1, supplement No. 4, general order No. 27, back-pay allowance, $1,677.07. Under wage award of July, 1920, the hourly rate was increased from 68 cents and time and one-half time for overtime to 81 cents and time and one-half time for overtime. Drawbridge foremen at Park Avenue draw, New York: These three men formerly classed as monthly employees, one man at $100 and two at $90 per month. Supplement No. 8 to general order No. 27, Article II, gave them $125 and $115 per month, respectively. Duties were solely in connection with operation of drawbridge, inci- dental inspections, and minor tasks not connected with train operation. Railway Board of Adjustment No. 3, Docket T-736, August 9, 1920, changed classification to conform to Article II, supplement No. 13, General Order No. 27, and they shall be governed, rated, and paid under its provision from October 1, 1918. Digitized by Microsoft® 264 RAILROAD REVENUES AND EXPENSES. Back time allowances of $627.96, $539.88, and $292.71, respec- tively, total $1,460.55, and were classed as lever men at 64£ cents and 59i cents per hour, plus time and half time for overtime. Under wage award of July, 1920, these hourly rates became respectively 74J cents and 69£ cents with time and half time for overtime. C. Devore: In 1918, at Yonkers Power Station he received as assistant stoker operator 50 cents per hour plus 75 cents per hour for overtime. He was later reclassified as a machinist at 68 cents per hour for straight time and $1.02 per hour for overtime. Wage award gave him 85 cents per hour or $1,275 per hour for straight and overtime, respectively. H. F. Peck, and others, were employed in June, 1920, in Tele- graph Department as helper at 49 cents per hour and-time and half for overtime. His duties were unloading poles, digging holes, and passing materials and tools to linemen from ground, being classed as helper under supplement No. 4, General Order No. 27. Docket 1566, Railroad Board of Adjustment No. 2, July 14, 1920, directed such employees should be classed as per section 5A, Act I, supplement No. 4, General Order No. 27, and paid in accordance with their years of experience as per Act II, supplement No. 4, General Order No. 27; and this gave these men 62 cents per hour with time and a half time for overtime as electrical worker second class. Wage award gave them 75 cents per hour plus time and half time for overtime. In car department the average number of men employed per month in 1919 was 12,350. In 1920 it was 13,888. An additional cause of increase, due to these orders and supple- ments, was the application of punitive overtime to all classes of employees. Overtime, which had previously been compensated at pro rata hourly basis was placed on a time and a half hourly basis, increasing by- at least 50 per cent the rate per hour for overtime pay. The decision of the United States Railroad Labor Board: Now, we have gotten to the period of 1920. This board was created by the transportation act and its members were appointed and it organized immediately after the passage of that act. In July, 1920, it handed down its decision in the matter of the wages of all railroad employees receiving wages or salaries up to $250 per month, the effect of which was an increase amounting to 20 per cent, made retroactive to May 1, 1920. This involved to the New York Central an increase in wages, by reason of the decision of the board, of ap- proximately $21,640,000, including back time of $8,100,000. Senator Pomerene. Do you mean for the year ? Mr. Smith. For the year; yes, sir. Mr. Thom. For what period do you mean ? Mr. Smith. I mean for the year ending December 31, 1920, but this began May 1, 1920: Senator Pomerene. Do you mean from May 1, 1920, to May 1, 1921? Mr. Smith. No; to December 31, 1920. Senator. Pomerene. You say that makes an increase of $21^000,000 ? ' Is that for the year ? Mr. Smith. That is for eight months of the year 1920. Digitized by Microsoft® RAILROAD REVENUES AND EXPENSES. 265 Senator Pomerene. Do you mean that another 50 per cent would have to be added to that for the additional four months ? Mr. Smith. No; it did not exist for the other four months of the year, because you see they only made it retroactive to the 1st of May, 1920. So January, February, March, and April did not carry any of that labor board's charge. Senator Pomerene. Then you mean that that actually added to your pay roll $21,000,000 for the eight months from May 1 to December 31, 1920? Mr. Smith. Yes, sir. The effect of the successive wage increases from January 1, 1917, to and including December 31, 1920, is illus- trated by the fact that the wages paid in cents out of the dollar of operating revenue were, for the years 1916 to 1920, inclusive, as follows: Cents . 1916 40. 66 1917 : 44. 14 1918 51.37 1919 52. 26 1920 ,. 58. 67 That means, for instance, that in 1916 out of every dollar taken in we had to pay 1 40.66 cents for labor. Senator Poindexter. Of every dollar taken in ? Mr. Smith. Yes, sir. That means in 1920 out of every dollar in revenues we took in we had to pay 58.67 cents for labor. Illustrations of the specific instances before recited of the effect of General Order No. 27 and supplements of the director general and the national agreements may further be mentioned as follows: An air-brake repairer became a tender repairer, and his rate of pay was raised from 67 cents to 80 cents an hour by the labor board, and the air-brake repairer originally received 30| cents, which means that a man who in 1917 received 30| cents an hour now receives 80 cents an hour. The engine cleaner became a painter helper, and his rate of pay was raised from 49 cents an hour to 62 cents an hour. The engine cleaner received in 1917 22 cents an hour. The hydraulic rivet operator became a boilermaker, and his rate of Eay was raised from 72 cents an hour to 85 cents an hour. And the ydraulic rivet operator received in 1917 34 cents an hour. I give you these illustrations because they simply indicate the man and the. price and show how these increased costs come in, and when multiplied by the thousands of men we have it runs into great sums of money. v Senator Pomerene. You have picked out certain instances. Have you or your statistical department or your bookkeeping department or your auditing department gone through your records so that you can furnish this information as to each particular work- man, or, I mean, as to each particular class of workmen ? Mr. Smith. Yes, sir. We have it here and will file it if you like. I am just giving you these typical cases to save time. The Chairman. I am afraid that the particular accounts of all the workmen would swell the record too much. Senator Pomerene. I am not asking for that. I am putting this question for the purpose of testing the statement the witness has Digitized by Microsoft® y 266 RAILROAD REVENUES AND EXPENSES. made. He has pointed out certain instances, and what I wanted to know was whether we could get similar information as to each of the other classes if desired. . Mr. Smith. Very surely, Senator. Senator Pomerene. That is what I wanted to know. Mr. Smith. You see these men have been raised successively, and the United States Labor Board in July, thinking they had not been raised sufficiently, raised them again. I suppose that was after a full investigation and review of all things and all factors taken into account as justifying the increase; considering what was paid in other walks of life, etc., and they decided this was a fair rate to pay. The contrast to it is what we originally paid in 1917, when the rates were low, and on that basis our costs were figured, and they are given here, to show the effect on our costs and why we got these increased freight and passenger rates and why the costs of transpor- tation generally are now as they are. The rivet heater became a boiler helper, and his rate of pay was increased from 49 cents an hour to 62 cents an hour, and originally, in 1917, he was paid 18 cents an hour. The stripper became a machinist, and his rate of pay was changed from 72 cents an hour to 85 cents an hour, whereas he originally received 30 cents an hour. I will now give you some illustrations in the car department : The oil room man was made a blacksmith, and his rate of pay was changed from 72 cents an hour to 85 cents an hour, and he was originally paid 28| cents an hour, in 1917. Senator Pomerene. I wish you would get some expert to explain that change in classification, from oil man to blacksmith. Mr. Smith. I do not know whether I could do that or not. The Chairman. That was done by some of the best railroad men in the country, who were with Mr. McAdoo and Mr. Hines. I do not know why they did it, I am sure, but that is the situation. Senator Pomerene. You might say that some of the railroad men were with the administration, but not the best railroad men in the country, I assume. Mr. Thom. Just there I might, say that there is a case where a man who dug the hole for a telegraph pole was made an electrician. The Chairman. Well, probably he is connected indirectly with the current. [Laughter.] Mr. Thom. That is in the record here, and I merely called attention to it in connection with these illustrations that Mr. Smith is giving. Senator Pomerene. Well, I just wonder in that connection why they wanted to continue Government operation for four years more. [Laughter.] Mr. Smith. The air-brake repairer became a triple-valve tester, and his rate of pay was increased from 72 cents an hour to 85 cents an hour. He originally received 30f cents an hour. The passenger car inspector became a passenger car inspector leader, and his pay was raised from 67 cents an hour to 85 cents an hour, whereas he originally received 37£ cents an hour. Senator Poindexter. What is the difference. between a passenger car inspector and a passenger car inspector leader ? Mr. Smith. I do not know unless he leads another fellow around somewhat, or is a foreman of some other man, or something of that Digitized by Microsoft® RAILROAD REVENUES AND EXPENSES. 267 kind. I do not know how thej>- got a reason for some of these titles, because the most of them are over my head. Senator Fernald. The inspector was promoted to become inspector leader. Was anybody promoted to become an inspector, or has that office now passed out of existence, and are all of them passenger car inspector leaders ? Mr. Smith. I can not tell you about that. Those were the same men who were inspectors, but I can not undertake to answer your question. Senator Poindexter. What was the date when these classifica- tions were made ? Mr. Smith. About October, 1919, I think. Senator Fernald. Have any of these post-hole diggers, or men who go by that title and who dug holes to set telegraph posts in — have you any 18 cents an hour men of that kind? Mr. Smith. Oh, no. We have to pay common labor now from 43 cents to 54 cents an hour. Senator Poindexter. Is his title still that of post-hole digger or has he been promoted to some new title ? Mr. Smith. He was just where he was placed by that official decision. Senator Poindexter. In the reclassification? Mr. Smith. Yes, sir. Mr. Smith. The blacksmith, who became a hammersmith, was raised by the Labor Board from 82 cents to 95 cents an hour. He ■originally received 55 cents. Now it must be understood that this, of course, is the United States Labor Board that has raised these titled men to this rate, in the last analysis, so that that has not anything to do with the national agreement, or what took place before. Mr. Thom suggests to me that they took the force as they found it, and added the wages to that. That is stating it another way. Of course that is correct. As applied to employees in train service the effects of the orders of the director general and of the various supplements are given in detail on exhibit 4, divided among the various classes of employees, i. e., enginemen, firemen, conductors, baggagemen, flagmen, and brakemen. Now I have an exhibit here containing the figures for engineers, firemen, conductors, baggagemen, flagmen, and brakemen, and I will read some of them, and then file the exhibit with the reporter. A passenger engineman who in December, 1917, received $4.25 per hundred miles or fraction thereof, in 1918 received $4.73; that is, on January 1, 1918. Senator Stanley. That is a locomotive engineer ? Mr. Smith. A locomotive engineer. The Chairman. Passenger? Mr. Smith. Yes. January 1, 1919, they were given rates of $5.60 to $5.84. On May 1, 1920, they were raised by the Labor Board to $6.40 .and $6.64, respectively. They are classified according to the size of their engine. The increase in rates of pay from December, 1917, to 1920, was 56 per cent. Digitized by Microsoft® 268 RAILROAD REVENUES AND EXPENSES. The firemen in passenger service in December; 1917, were receiving from $2.45 to $2.85. On January 1, 1918, they received from $3.15 to $3.67; on Januarv 1, 1919, they received from $4 to $4.40; on May 1, 1920, they received $4.80 to $5.20; that was an increase of 83 per cent. The freight engineer in December, 1917, received from $4.75 to $5.85; on January 1, 1918, he received from $5.49 to $6.76; on January 1, 1919, he received from $6.08 to $8; and on May 1, 1920, he received from $7.12 to $9.04, an increase of 54 per cent. The fireman in the through freight service received in December, 1917, from $2.75 to $4; on January 1, 1918, he received from $3.69 to $5.37; on January 1, 1919, he received from $4.24 to $5.75; on May 1, 1920, he received from $5.28 to $6.79, an increase of 70 per cent during that period. In the yard service the engineer received in December, 1917, from $4.10 to $4.25; on January 1, 1918, from $5.28 to $5.40; on January 1, 1919, from $5.60 to $5.92; on May 1, 1920, from $7.04 to $7.36; an increase of 73 per cent. The fireman in the yard service received in December, 1917, from $2.50 to $2.60; on January 1, 1918, from $3.53 to $3.67; on January 1, 1919, from $4.16 to $4.40; and on May 1, 1920, from $5.60 to $5.84; an increase of 124 per cent. The Chairman. You are now comparing 1917 with the present time, are you ? Mr. Smith. I am comparing 1917 with what they received in 1920/ and I will file this statement with the reporter later. The passenger conductor in December, 1917, was paid $4.50 a minimum day; on January 1, 1918, he received $5.38; on January 1, 1919, he received $6; and on May 1, 1920, he received $7; that is an increase of 56 per cent. In the through freight service the conductor received per 100 miles in Decenfber, 1917, $4; on January 1, 1918, he received $4.82; on January 1, 1919, he received $5.40; on May 1, 1920, he received $6.44; an increase of 61 per cent. Senator Kellogg. Is that for eight hours ? Mr. Smith. That is for eight hours. Senator Kellogg. Now to what extent do these men draw over- time ? Mr. Smith. They ' get overtime on eight-hour basis on a speed 1 average of 12£ miles, and they get punitive overtime; they get time' and a half for that overtime. Director General Hines decided that in 1919, just about two months before the Government released us, as I recall it. Senator Kellogg. Now the question is : To what extent does that add to the average pay of the meii? You are giving us simply an eight-hour day. Mr. Smith. Well, take the typical men. Of course in the train service passenger men run with regularity. Senator Kellogg. Yes. Mr. Smith. And in the freight service men run, of course, as the business is there for them to run. This is their day's work, and we try to furnish them with the work, cut the crews down and furnish them as nearly a full month's work as possible. The overtime that they receive in a month varies in accordance with how they get over Digitized by Microsoft® BAILEOAD REVENUES AND EXPENSES. 269 the road, and how much overtime they collect. That punitive overtime is a very costly factor to us. Senator Kellogg. Well, that is what I was trying to get at, and to what extent it is a costly factor. Mr. Smith. They tell me that it cost us, last year, in 1920. over $7,500,000. We will furnish the actual figures. Senator Kellogg. That is, all of your employees, or train crews ? Mr. Smith. That applies to train crews; that is what I am talking about. Senator Pomerene. Do you mean by that that the excess time over and above the regular 8-hour day has cost $7,500,000? Mr. Smith. Yes. Senator Pomerene. Or do you mean that the increase in cost over the regular pay would be the $7,500,000? Mr. Smith. Over the regular overtime arrangement. This is ovetime only. Senator Pomerene. That is overtime at the time and a half pay, is that it ? Mr. Smith. At the time and one-half pay. Senator Pomerene. Yes. The Chairman. You had an overtime arrangement before? Mr. Smith. Oh, yes; pro rata. There is no argument about the overtime, Senator. We ought to pay overtime. Everyone recognizes that. My own idea is that instead of paying punitive time — and I argued this to the director general, but my argument did not prevail — we should pay a premium for getting in. I wanted to pay a premium for getting in instead of being punished for staying out, but it was made in this way. This is a punitive overtime. You are punished for keeping them out when you can not help it. The Chairman. That is, you think it ought to be paid at the same rate? Mr. Smith. I haven't any quarrel with that at all. There is something about this railroad business that differentiates in its men when it comes to these particular men that we are talking about now, because they are allied to the transportation interests of this country directly and completely, so to speak. It is a lifetime undertaking. When you see an engineer pull you in here on a train, he has spent a lifetime learning the business, and there is no other employment for him, practically, in other occupations. He is not like the laborer and the post-hole digger you referred to, and all those people. They can go across the street and get a job somewhere else. They can go into shops and make automobiles and do other things. These {>articular men, and they are the backbone of your transportation abor service in this country, are men who begin young and spend a lifetime in getting to the point of rendering this service to the public, and they are in a different category, according to my mind, than the other classes of labor. Senator Pomerene. In other words, they are specializing along certain lines ? Mr. Smith. Yes, they are. I do not like the principle of paying time and a half for punitive overtime. I prefer the principle of paying premium time for getting in. I would rather pay a man extra for taking a train in in 9 hours than I would to pay him extra Digitized by Microsoft® 270 RAILROAD REVENUES AND EXPENSES. for bringing it in in 11 hours, because by bringing it in more quickly I thereby clear my line, get the engine back that much more quickly, and he gets home, and the work is done, and everything is benefited by getting the train in quickly. On the other hand, everything is damaged by keepingit out. The Chairman. What you say does not apply to the passenger service, does it ? Mr. Smith. There is very little overtime in passenger service. In fact, there is no overtime in passenger service, excepting when some- thing happens that is beyond our control, such as a severe storm or some delay that can not "be avoided. The Chairman. You have your schedule time, and you expect your engineer and other trainmen to make it ? Mr. Smith. Yes, we expect them to make it, and they generally do. But, of course, there is an overtime schedule with them. I have seen snowstorms in New York State when they have been out for three days, snowed in a snow bank. Well, of course, we have got to pay them in cases like that, or in any cases where a situation arises demanding overtime. It is not the fault of the man; it is the risk of the business, and we ought to pay him for it. The baggageman in December, 1917, received $2.75; on January 1, 1918, he received $3.87; on January 1, 1919, he received from $4.16 to $4.84; on May 1, 1920, he received from $5.16 to $5.84; an in- crease of 112 per cent. The flagman in December, 1917, received $2.60, in passenger serv- ice; on January 1, 1918, he received $3.67; on January 1, 1919, he received $4; on May 1, 1920, he received $5; an increase of 92 per cent. The flagman in through-freight service for 100 miles received $2.67 in December, 1917; on January 1, 1918, he received $3.72; on Jan- uary 1, 1919, he received $4.08; on May 1, 1920, he received $5.12; an increase of 92 per cent. The brakeman in passenger service received in December, 1917, $2.55 per 100 miles; on January 1, 1918, $3.62; on January 1, 1919, $4; and on May 1, 1920, he received $5; an increase of 96 per cent. The brakeman in through-freight service received in December, 1917, $2.67; on January 1, 1918, he received $3.72; on January 1, 1919, he received $4.08; and on May 1, 1920, he received $5.12; an increase of 92 per cent. I will now file this statement for the record. The Chairman. It may be made a part of the record. (The statement presented by Mr. Smith is as follows :) Rates of pay of engineers. Passenger service per 100 miles: In December, 1917, $4.25. January 1, 1918, $4.73, or 11 per cent increase. January 1, 1919, $5.60 (increase 32 per cent) to $5.84 (increase, 37 per cent). May 1, 1920, $6.40 (increase, 50 per cent) to $6.64 (increase, 56 per cent). Through, freight service per 100 miles: In December, 1917, $4.75 to $5.85. January 1, 1918, $5.49 (increase, 16 per cent) to $6.76 (increase, 15 per cent). ■ January.l, 1919, $6.08 (increase, 29 per cent) to $8 (increase, 36 per cent). May 1, 1920, $7.12 (increase, 50 per cent) to $9.04 (increase, 54 per cent). Digitized by Microsoft® RAILROAD REVENUES AND EXPENSES. 271 Yard service per day of eight hours: In December, 1917, $4.10 to $4.25. January 1, 1918, $5.28 (increase, 28 per cent) to $5.40 (increase, 27 per cent). January 1, 1919, $5.60 (increase, 36 per cent) to $5.92 (increase, 39 per cent). May 1, 1920, $7.04 (increase, 72 per cent) to $7.36 (increase, 73 per cent). Rates of pay of firemen. Passenger service per 100 miles: In December, 1917, $2.45 to 12.85. January 1, 1918, $3.15 (increase, 24 per cent), to $3.67 (increase, 29 per cent). January 1, 1919, $4 (increase, 63 per, cent), to $4.40 (increase, 54 per cent). May 1, 1920, $4.80 (increase, 96 per cent), to $5.20 (increase, 83 per cent). Through freight service per 100 miles: In December, 1917, $2.75 to $4. 'January 1, 1918, $3.69 (increase, 34 per cent}, to $5.37 (increase, 34 per cent). January 1, 1919, $4.24 (increase, 54 per cent), to $5.75 (increase, 44 per cent). May 1, 1920, $5.28 (increase, 82 per cent), to $6.79 (increase, 70 per cent). Yard service, per day of eight hours: In December, 1917, $2.50 to $2.60. January 1, 1918, $3.53 (increase, 41 per cent), to $3.67 (increase, 41 per cent;. January 1, 1919, $4.16 (increase, 66 per cent^, to $4.40 (increase, 69 per cent). May 1, 1920, $5.60 (increase, 124 per cent), to $5.84 (increase, 124 per cent). Rates of pay of conductors. Passenger service per day (minimum): In December, 1917, $4.50. January 1, 1918, $5.38 (increase, 19 per cent). January 1, 1919, $6 (increase, 33 percent). May 1, 1920, $7 (increase, 56 per cent). Through freight service per 100 miles: In December, 1917, $4. January 1, 1918, $4.82 (increase, 20 per cent). January 1, 1919, $5.40 (-increase, 35 per cent). May 1, 1920, $6.44 (increase, 61 per cent). Yard service: In December, 1917, $3.20 to $4. January 1, 1918, $4.48 (increase, 40 per cent) to $5.20 (increase, 30 per cent). January 1, 1919, $5.33 (increase, 67 per cent). May 1, 1920, $6.96 (increase, ill per cent). Rates of pay of baggagemen. Passenger service per day (minimum): In December, 1917, $2.75. January 1, 1918, $3.87 (increase, 41 per cent). January 1, 1919, $4.16 (increase, 51 per cent) to $4.84 (increase, 76 per cent). May 1, 1920, $5.16 (increase, 88 per cent) to $5.84 (increase, 112 per cent). Rates of pay of flagmen. Passenger service per day (minimum): In December, 1917, $2.60. January 1, 1918, $3.67 (increase, 41 per cent). January 1, 1919, $4 (increase, 54 per cent). May 1, 1920, $5 (increase, 92 percent). Through freight service, per 100 miles: In December, 1917, $2.67. January 1, 1918, $3.72 (increase, 39 per cent). January 1, 1919, $4.08 (increase, 53 per cent). May 1, 1920, $5.12 (increase, 92 per cent). Digitized by Microsoft® 272 RAILROAD REVENUES AND EXPENSES. Rates of pay qfbrakemen. Passenger service per day (minimum): In December, 1917, $2.55. January 1, 1918, $3.62 (increase, 42 per cent). January 1, 1919, $4 (increase, 57 percent). May 1, 1920, $5 (increase, 96 per cent). Through freight service per 100 miles: In December, 1917, $2.67. January 1, 1918, $3.72 (increase, 39 per cent). January 1, 1919, $4.08 (increase, 53 per cent). May 1, 1920, $5.12 (increase, 92 per cent). Yard service: In December, 1917, $2.90 to $3.70. January 1, 1918, $4.09 (increase, 41 per cent) to $4.94 (increase, 33 per cent). January 1, 1919, $5 (increase, 71 per cent). May 1, 1920, $6.48 (increase, 123 per cent). Mr. Smith. Third. Increases in the cost of materials and supplies, /excluding fuel. I am just giving you the principal items to show / you the trend of it. I do not go into all the details. I Rail. In 1917 the rail cost was $30; in 1918, S40; in 1919, $40; and I in 1920, $47 a gross' ton. I Senator Pomerene. What rail, the Bessemer or open-hearth rail ? / Mr. Smith. That was the open-hearth rail. / Senator Kellogg. Do you buy mostly open-hearth rails now ? ' Mr. Smith. Open hearth altogether. With high speed and heavy power we must have an open-hearth rail. Senator Kellogg. Has the price gone down within the last few months ? Mr. Smith. No, sir; it is still at $47. This is 1920. We haven't bought our 1921 rail yet; 1920 rail is laid in 1921, and the 1921 rail will be laid in 1922. Senator Kellogg. What is the price for 1921 ? Has it been fixed yet? Mr. Smith. Not yet. The prices for rail show an increase in 1920 over 1917 of 52.1 per cent; and 1920 over 1919 of 17.5 per cent. Ties. The average cost per tie on the New York Central Railroad was: In 1917, 94.7 cents; in 1918, $1,007; in 1919, $1.30; in 1920, $1,592; showing an increase 1920 over 1917 of 68.1 per cent, and 1920 over 1919 of 22.5 per cent. Now, Senator, the reason why I keep bringing in 1917 with 1920 all the time is because of the fact that the business on the New York Central in 1920 was practically the same as in 1917. Senator Pomerene. -In amount, you mean? Mr. Smith. In amount, tonnage moved, and everything; it very nearly matched. Senator Kellogg. That was true all over the country, wasn't it ? Mr. Smith. I don't think it was quite so, but perhaps. I don't know, Senator. Senator Kellogg. Well, substantially ? Mr. Smith. Substantially; yes, sir. Ballast. The average price of ballast on the New York Central Railroad was: In 1917, 67 cents per cubic yard; in 1918, 94 cents per cubic yard; in 1919, 93 cents per cubic yard; in 1920, $1.12 per cubic yard; showing an increase 1920 over 1917 of 67.2 per cent; and 1920 over 1919 of 20.4 per cent. v Digitized by Microsoft® RAILROAD REVENUES AND EXPENSES. 278 The kinds of material and supplies are so numerous that it would require top mjich space to detail them all here. Generally speaking, the increases, m prices were as great as those detailed above, and, in most instances greater, so far as percentages are concerned. Fourth. Increase in the cost of fuel. The New York Central Kail- road used not only bituminpus coal, but a quantity of anthracite. It also uses fuel oils, on acc^jit of the State requirements as to loco- motives going through forest preserves of New York State and State property. The amounts paid for fuel during the years 1916 to 1920, inclusive, are as follows : 1916 1917 1918 1919 1920 $10,501,919 558,317 142,250 $18,062,217 553,707 232, 913 $22/989,018 306,616 274, 495 $20,131,883 658,661 223,174 $25,078,223 754,793 88,442 Fuel oil Total '.'. 11,202,486 18,848,837 23,570,129 21,013,718 35,921,458 During these years the average price per ton of fuel coal went up from $1.70 in 1916 to $4.83 in 1920, or 184.1 per cent. By years the prices were as follows: 1916, $1.70; 1917, $2.68; 1918, $3.28; 1919, $3.33; 1920, $4.83. Senator Kellogg. Now, let me ask you right there. In 1921 isn't it as bad as 1920 ? oti ■ ■ Mr. Smith. No; coal is coming down now. Coal is coming down, ties are coming down, lumber is coming down, and we are getting down out of the clouds somewhat. Senator Kellogg. I thought I saw the other day that the inten- tion was to reduce theprice of iron and steel in 1921. Do you know anything about that % Mr. Smith. I think that is the intention, yes. The Chairman. Do you buy your coal on contract ? Mr. Smith. Oh, yes. The Chairman, And have you made your contracts for this year ? Mr. Smith. They are in the process of being made now, Senator. We generally make the contract as of April 1, but this year business fell off so, and the contracts of 1920 lap over until the 1st of April,. 1921, and we had so much ooal on hand that we did not have to make a contract, and we have been buying some spot coal too, on the belief that the price of coal was coming down, and we are waiting to try and find the right place. ; f. The Chairman. How much do you expect to save on your bitumi- nous coal bill this year as compared to last year? Mr. Smith. I should say in the neighborhood of five and a half or six million dollars. That is an estimate; Col. Thorn mentioned, in regard to the price of steel coming down, that that does not refer to steel rail. It does not yet. The steel rail price is hot made yet. Now, I want to interject here just a word about the temperature during the winter of 1918 and 1919, because temperature in this northern country has a good deal to do with operation, running, as we do, along the Lakes. :4i 63533—21— Vol I- -lf) ,7'ltj: liO'i M'lOjRfiS Digitized by Microsoft® #74 RAILROAD REVENUES AND EXPENSES. The winter of 1918-19 was a mild one, and that of 1919-20 an ex- ceptionally severe one. The New York Central Railroad operates in the following territory: New York, Albany, Buffalo, and Chicago. The average temperature in that territory was: OTfg 1919 19» January... February. March 38.1 35. 8 42.6 11.1 22.3 41.5 These figures show the average- temperature, above zero, for the month. January, 1920, was a bitterly cold month. The revenue tonnage moved for each of these. months during £ach of these years was as follows; 1919 1920 January.. February. March 8,010,390 ,6,459,917 "6,872,891 7,875,389 7,770,547 7,945,402 The cost of removing snow in the first three months of 1920, was $1,892,000 more than for the corresponding months in 1919. In addition, cold weather and snow retard movement of trains,: reduce train loading, and increase coal consumption. And snow diminishes the steam power of a locomotive.; Those are the vicissitudes of railroading. This year we have had a lot of luck, and that is a good thing, because we did not have any- thing else. [Laughter.] Next winter it will probably be pretty cold. The Chairman. It is said that Providence tempers the wind to the shorn lamb. f Mr. Smith. That is the great hope that we have, Senator, be- cause he has been looking down on us this winter. In April, 1920, the Switchmen's strike — rwhat is known as the "outlaw strike "^occurred. This adversely affected all operations and was costly. The regu- lar supply of coal was not received and we were obliged to obtain what was required at high cost, when it was available from private stores, and confiscate it and pick it up as we could, in order to operate food trains and handle passengers and mail. A locomotive is a peculiar thine. It is different than a stationary plant. It is under forced draft. A locomotive boiler, the one boiler on those wheels, does the work of a battery of boilers in a stationary i plant > and it is all done by forced draft, and when that J draft is set and you have a coal supply coming regularly for it you get the best results from the engine. You can shut those nozzles and set that draft for any reasonable kind of coal, but the minute that you begin to mix it up you get into trouble, and the engine does not do as well, and it burns more coal. That is what I mean by mixing the coal. The City of New York was in great danger of being out off from its food supplies, and there were great difficulties all through the eastern country. That forced us to do anything thai; could be done, Digitized by Microsoft® RAILROAD REVENUES AND EXPENSES. 275 to take coal at any price from anywhere, and try and get this traffic through. And also we had to use our officers in this service; most all of our officers went into the ranks as workmen, and supervision was taken away for the time being. The tonnage moved in April, 1919, was 6,262,158 tons. And notwithstanding this strike, and laboring as we were under these difficulties, with these officers and with these men who were loyal and stood by us, we moved in April, 1920, more than we did in April, 1919; moving in April, 1920, 7,574,580 tons. And it is because of those things, Senator, that I say that you have got the greatest transportation machine in the whole world. There is nothing like it. When these fellows wiU cdine through in that sort of a way in times of trouble, these officers and these men, there is a great loyalty underlying all of this operation so that they will respond in that manner when people are in trouble and crying for food, and ther,e is such a grave situation as existed at that time and that makes me say, Senator, that it is a great machine. It is a great industry. ; ., j; ,, . tii , . . Now, for each of the remaining eight months of the years 1919 and 1920 we have figures showing (the tonnage moved, and the figures show that we moved in each month in 1920 more than we did in the corresponding months in 1919. The figures are as follows: 1919 1920 May June July August September October ,.' November December Total tor year 7,00)2,154 7,885,802 8.960,588 9„378,355 9,863,042 10,369,311 7,221,852 7, 762; 438 7,331,000 9,143,312 10,422,721 10,526,213 11,218,715 11,689,286 10,177,734 9,086,634 96,048,798 110,753,433 Senator Pomerene. Mr. Smith, you speak of the increase in your movement in 1920 over the corresponding months in 1919, and as you have said before, that applies to the New York Central system. Mr. Smith. The New York Central Railroad, sir. Senator Pomerene. The New York Central Railroad ? Mr. Smith. Yes. i Senator Pomerene. Well, does that same corresponding increase occur in the other railway systems of the country ? Mr. Smith. I do not know. I do not know, Senator. It will apply to most of our system lines, about the same. The Boston & Albany Railroad will not do quite as well in New England, and we have one or two light lines, but some of them will do as well as this, or better, but I do not know about the other lines. The Chairman. The statistics for all the lines have already been given. Senator Pomerene. Yes. Mr. Smith. Now, I have given you, I: think, the total tons of. coal we consumed, and I will furnish the tables to the reporter, giving it by months and also the gallons of oil. Digitized by Microsoft® 276 EAILROAD REVENUES AND EXPENSES. January February. . March .. April. . May June July...u... August..:. September. October November. December.. 4;;.,, Total ,: 6,123,392 1919 Tons of coal. B4, 154 186,135 198, 859 45S, 205 479,632 436i 150 460,747 , 513, 105 557,957 509,705 620,634 Gallons of oil. 246, 229 394,053 414, 899 552, 880 888,881 761,748 283,204 620,533 641, 392 4,603,819 1920 Tons of Gallons of coal. oil. 693,659 610,716 679,199 523,463 544,898 532,889 585,000 616,607 615,602 623,097 633,478 669,227 7,337,835 58,650 56,550 56,244 78,398 57,340 66,1648 100,092 83,694 81,338 67,319 61,235 66,748 834,246 One hundred and sixty-eight gallons of oil are equivalent to one ton of coal. Therefore, the fuel used in each of the two years ex- pressed in terms of coal would be for 1919, 6,150,796 tons, arid for 1920, 7,332,801 tons. ' Senator Pomerene. May I just ask you a question there for the record? 1 Mr. Smith. Yes. ... Senator Pomerene. You are convertirfsf the oil into coal. What is the relative expense of the two as a fuel for. railway operations ? Mr. Smith. Oh, the oil costs more. I do not remember what it was then. But the oil costs more. And particularly it did in 1920. Oil then was very high. Gasoline and all oil was high, but now oil is getting down, but it does not reach coal in oUr territory. The cost of transportation on it is too much. The gross ton-miles in freight service in 1919 were 46,765,431,000, and the fuel consumed by locomotives in this service was 9,026,038,000 pounds, or 0.193 pounds of fuel per gross ton-mile. The gross ton-miles in freight service in i920 were 51,272,009,000, and the fuel consumed by locomotives in this service was 10,966,448,000 pounds, or 0.213 pounds of fuel per gross ton-mile. Showing an increase, notwithstanding the cold weather, and not- withstanding the outlaw strike, of less than one ounce of coal per fross ton-mue of freight moved. That is pretty close. And if we ad had the same weather, and if we had not had the outlaw strike, of course we would have shown a material reduction in the coal used per gross ton-mile. And if we take into account 7,500,000 more passengers carried, the coal consumed per gross ton mile would have decreased, due to the heavier train loads in 1920 over 1919, notwithstanding cold weather and the " outlaw strike." The movement of empty freight cars during the year 1920, was in miles, 445,064,000, as against 397,940,000 for 1919, due to relocation of cars after pooling, by order of the Car Service Department of the Interstate Commerce Commission. Senator Pomerene. What per cent of your cars were off of your system during the war period s Mr. Smith. We had about 12 per cent home when we got them back. They were all gone but about 12 per cent. Digitized by Microsoft® BAILBOAD REVENUES AND EXPENSES. 277 Senator Pomerene. Then the conditions on your line were sub- stantially the same as on the Baltimore & Ohio, as was testified to fully by Mr. Willard? Mr. Smith. Yes, they were all about the same. They were all away from home, had been gone for several years, and some of them came back with their numbers gone, and all the paint off, and you could hardly identify them. I am reminded that in moving all those empty cars there is not a cent of revenue to the line for relocating them. That is another claim against the Government, but we will be glad to get what we have got in, without adding some of these things. We need that, and if we put this in, why it will take a good deal more time. Passenger traffic during 1920 was very much greater than that traffic during 1919. The number of revenue passengers carried in 1919 was 53,444,637; in 1920, 60,682,651. This large increase means, of course, more trains, more cars, and, necessarily, more coal con- sumed. 5. The loss in effectiveness of labor, due to the operation of the ' national agreements. The so-called national agreements were agreements signed by the Director General with different organizations of railway employees and they were effective at different times. The classes of employees affected by these agreements were: (a) All employees in the maintenance of way department (not including supervisory officers above the rank of foreman and not including signal, telegraph and telephone maintenance departments) , shop and roundhouse laborers (including their gang leaders) , transfer and turntable operators, engine watchmen, pumpers, and highway crossing watchmen. * (6) Employees provided for in the national agreements with the mechanical crafts, dated September 20, 1919. (c) Clerical forces and other forces provided for in Articles I and II, supplement No. 7, General Order No. 27. (d) Boarding car and camp employees provided for in supplement No. 18. This agreement was dated November 22, 1919, and took effect December 16, 1919. That was only two months and one-half before the railroads came back to private operation, and it was when a good many things were happening in the world to indicate that we were getting over the top. The agreement between the Director General and the following organizations of the radway employees' department of the American Federation of Labor : (1) International Association of Machinists. (2 International Brotherhood of Boiler Makers, Iron Ship- builders, and Helpers of America. (3) International Brotherhood of Blacksmiths and Helpers. (4) Amalgamated Sheet Metal Workers, International Alliance. (5) International Brotherhood of Electrical Workers. (6) Brotherhood Railway Carmen of America. This agreement was dated September 20, 1919, and became effec- tive 30 days thereafter. Digitized by Microsoft® 278 RAILROAD REVENUES AND EXPENSES,. Large increases in costs were caused by these agreements and among these increases were amounts paid for hours mot, worked, such as : .• ■ , (a) The time of men traveling to and from, their work is now paid for in many instances. (6) Employees" traveling in. camp cars were, during 1920, allowed straight time during the working periods and half time at night while traveling. These camp cars are these cars that they sleep in and eat in: , , ; (c) Lunoh time was, during 1920, paid for on straight time. That is to say, they work eight hours and they are allowed 20 minutes to eat their lunch and they, are paid for the 20 minutes. ; (d) Employees called i to do any work on Sundays or holidays are paid a full day's time no matter how short a time, is occupied doing that work, provided they remain even though there may not be sufficient work to keep, them occupied. (e) One hour a week for punching a time clock. That costs the New York Central about $700,000. . I think it costs all the railroads about $12,000,000. The Chairman. Per year? -,= •;,., . : Mr. Smith. A year; yes. .•,= ,,; The total overtime payment on the, New York Central for 1920 amounted to $25,540,073, at the: punitive rates prescribed by the agreement. Under former arrangements providing for straight overtime at pro rata rates , this . would , have amounted to only $17,786,188, the additional $7,753,885 ; representing the penalty imposed upon the: company by the agreements requiring payment at punitive rates,,,: .:, , Due to the reclassification of employees under each of the "above agreements, in many casesy a number of employees are, required to do work that was formerly done by one. This is illustrated by the following figures : Locomotive department: Average per month— , in - , 1919 :.. 12,066 1920.. v -...,,,.; 13,665 For the car department: Average per month — 1919 12,833 1920 ..,..,..,.,, 13,888 In the locomotive department the average pay per man went up from $134.47 per month in 1919 to $166.52 in 1920. Senator Pomerene. Now, the locomotive department; what classes do you embrace in that ? Mr. Smith. All the men in the locomotive department, and that is the department that repairs and cares for the locomotive, round- houses, and shops. Senator Pomerene. You don't mean to include any of the trainmen in that ? Mr. Smith. Oh, no; just the shops. In the car department the average pay per man went up from $147.19 per month in 1919 to $187.25 in 1920. 6. Other items, such as increased maintenance of way expenses and increased maintenance of equipment expense. Digitized by Microsoft® KAiLROAD revenues and expenses. 27,9 (a) Increased maintenance of way. Prior to, Federal control a standard of maintenance of track was maintained upon the New York Central, the standard being the result of, the experience, of years, by which replacements of ties, ballast, and rails were as follows: Average annual performance: 3,400,00Q ties should be put in that track every year to maintain, it, to its proper standard; 6i0,000 cubic yards of ballast; 64,000 gross tons new rail; 6,2,000 gross tons second- hand rail, or what we call relaid rail. You understand that we put the new rail in the high-speed tracks, and after that is worn down so that it becomes. at all uncomfortable it is removed and worn out on freight tracks or side or branch-line tracks. But the new rail is put into the high-speed tracks. That costs money, of course; the taking up and relaying of track costs money, but that is a wise thing to do. In any, event, that is the material, the average meterial of years of experience. That is, that the New York Central Railroad Co. would have, during the. two years and two months o,f Federal control, if the road had been in the control of the corporation, and the standards set by it therefor kept up, put in 7,315,000 ties, 1,325,000 cubic yards ballast, 138, 50Q tons new rail, 134,000 tons secondhand rail. , The ; actual ; amount . of these materials placed by the director general 1 was 5,445,000 ties instead of 7,315,000 ties; 1,000,000 cubic yards of ballast, instead of 1,325,000 cubic yards- of ballast. Senator Pomeeene. Do you mean per year now? Mr. Smith. No; for the 26 months during Federal control. Senator Pomeeene. ,And the other was per year? Mr. Smith. No; per year, senator, the average standard is 3,400,- 000 ties. Senator Pomebenes Well, in your comparisons you are including the same lengths of time, are. you, for each? Mr., Smith. Yes, sir; in the comparison I am using the same length of time, 26 months. -. Sena-tor Pomeeene. All right. Mr. Smith. Now, they provided 138,000 tons of new rail, which was within 500 tons, of the rail they should have provided. Where they failed to maintain was in providing the ties and the ballast. Where our argument comes in with them is this: They say they put the money in the track; it was in labor. But they did not put in the material, and the argument comes in as to the efficiency of labor that was provided,, although they spent the money for it. Now, during the war and during this Government control there were times when we could not get men for track work. We employed hundreds and thousands of women. We had to take old men, and people, two of whom were not able to lift a tie, but we took what we could get. ,, That was all there was left. There isn't any criticism of that,. We did the best we could. The country was at war, and the country. had the railroads, and those are the things that we think they ought to settle for. Excuse me for getting back to that, but I need the money. . , Senator Pomeeene. The difference between you and the Director General seems to be. this, then, that while you claim that the law provides that they were to return these railroads in the same condi- tion of repair that they were at the beginning of Federal control, their contention is that they have spent the same amount of money Digitized by Microsoft® 280 RAILROAD REVENUES AND EXPENSES. in repair and maintenance during Federal control that you expended during private control ? Mr. Thom. But are not responsible for the result in actual main- tenance. Senator Pomerene. How is that? Mr. Thom. He claims he is not responsible for the result in actual maintenance. We claim he is. Senator Pomerene. Well, I just wanted to have the record show clearly, in language at least so that I could understand it, what the bone of contention was. Mr. Smith. That is it. After the return to private control it was found impossible to obtain sufficient ties and ballast to make up the deficit and to bring the property up to standard. This meant an increased amount of maintenance of way work and repair work, increasing as the months went on. Early in 1920, before the relinquishment of Federal con- trol, the corporate officers realized that the road would be returned to their control with depleted materials and supplies. Contracts were, therefore, placed in the name of the railroad company for amounts of ties, rails, and ballast which would bring the amount on hand or under contract up to standard amount, which experience has shown was required. Now, this applies largely 'to ties. We did not get ties enough. They undertook, during Government control, to pool the purchase of ties — that is, have one general buyer of ties for all the United States — and it resulted in a great many people going out of the tie business, and stopping the production, and going over into other activities at that time. Lumber and timber, of course, was in great demand, and the ties were not produced, and therefore we did not get the ties, and you must have ties or you won't have track very long, and we realized that, and we went into the market and con- tracted for ties. The deliveries upon the contracts thus made did not begin to be made until the latter part of August, which meant that the replace- ments were necessarily made during what are considered unfavorable months — that is, during^the late summer and 'fall — at a time when the business is heaviest and, as a matter of fact, was heaviest during 1920. This is illustrated by the fact that in September, 1919, 18,999 men were employed in the maintenance of Way department; in Sep L tember, 1920, 20,333 men, and that the increases in the succeeding months of 1920 were correspondingly large over those of 1919, with a more than corresponding increase in the pay roll, due to- the fact that the orders of the Labor Board were then in effect. In other words, we had more men at higher prices doing work under traffic, at its heaviest time, and there is one time when you ought not to disturb the roadbed, and that is in the fall, just before Jou go into the winter, particularly in this north country, but we ad to get the ties in, and we had to do these things after we got the material, which was after August and September. (6) Maintenance of equipment: The greater part of the locomo- tives, which were the property of the New York Central, were upon the line of that company. An inspection of their condition showed that it was bad, generally and specifically. It was necessary to do intensive work to Diing the power up to a condition in which it could Digitized by Microsoft® RAILROAD REVENUES AND EXPENSES. 281 do the work required of it, and it was necessary to do this at a time of largely increasing business. This meant pushing the repairs to as great an extent as was possible in the utilization of all the shops of the company and in contracting with outside concerns for the repair of such power as could not be taken care of in the shops dur- ing the time that it was estimated could be given to repairs, naving in mind the increasing business and the anticipated continuing increase. And what I do not say in this statement, but what I wish to say, is : And anticipating a winter that might have been very bad. I had no means of knowing that we were going to have this kind of a winter. Generally on the New York Central Railroad we must go into the winter with a reserve of 150 of the best power that we own in white lead ready to meet the storms of northern New York State. That is recognized as a requirement by the Public Service Commission of •New York State. Senator Frelinghuysen. With a reserve of 150 what? Mr. Smith. One hundred and fifty big modern engines in reserve. Senator Frelinghuysen. What do you mean by "in white lead" ? Mr. Smith. Well, engines standing ready, not working. We white- lead them during the summer. We repair them and put them in goed condition, and put white lead on them, and they are ready when the storm hits us in the winter. Senator Frelinghuysen. Reserve ? Mr. Smith. Yes. sir; reserve, idle railroad power. Conditions in the shops had materially changed. The measure of work done in a locomotive shop is the locomotive miles replaced — what is known as shop mileage — and that shop mileage had decreased materially during the year 1919 with the abolition of piecework and the advent of the national agreements. Many more men were needed to do the same amount of work as measured by the test of the shops; that is, by shop mileage. Under piecework and the other shop conditions existing in 1915, 2,799 men turned out 73,072,000 miles. And now I get back; to 1915 for the reason that in 1915 and in 1920 the shop mileage re- stored in the shops was practically the same. In other words, in 1915 we restored or built up 73,072,000 locomotive miles, and in 1920 we turned out 74,655,000 miles. That is about one million and a half more miles in 1920 than in 1915 in the same shop on the New York Central. Senator Pomekene. I don't understand your terms there. You say you turn out locomotive miles. What do you mean by that? Mr. Smith. Well, if a locomotive is new, and it runs 50,000 miles, and it then had to go to the shop for repairs and comes out as good as it was originally, practically, then you have restored those 50,000 miles, and are ready to go to work with it again. Now, whether it is 50,000 or 60,000 or 70j000 miles depends largely on water. The condition of water has very much to do with the Doilers, and of course the character of work that the locomotive is in has a good deal to do with it. But take a locomotive that runs 50,000 miles, and it is put in the shop and repaired, and comes out as good as it was originally, practically, then you nave restored those 50,000 miles. Digitized by Microsoft® 282 RAILROAD REVENUES AND EXPENSES. Senator Feenald. When you speak of 74,000,00QlQCQmotive miles, you mean tkat you turn engines! out that are capable of producing 74,000,000 miles? Mr. Smith. Yes. In 1915 we turned out 73,072,000 miles, and in 1920, 74,655,000 miles. And in 1915- to do that we employed 2,799 men. That was under piecework and under the old conditions. < T j In 1920, piecework having been abolished, classification, of, em- ployees having been changed and working conditions of employees having been changed — that is, employees being employed to do but one certain kind of work for each class of employment — practically the same amount of miles turned out; namely, 74,655,000 required the services of 4,521 men, instead of 2,799 men. The, cost in 1915 was $2,903,700, and the cost in 1920 was $£,352,000. The Chairman. That was in your own shops ? , Mr. Smith. That was in our own^shop. . ■,,. Senator Fernald. Will you give that first figure again, Mr. Smith; the cost in 1915? . "• ■• , Mr. Smith. $2,903,700. . Senator Fernald. In 1915 ? Mr. Smith. In 1915, to produce 73,072,000 miles. And it cost $8,352,000 in 1920 to produce 74,655,000 miles. An increase of $5>,448,300. That is what the war did to us. That is what happened to us during the time of all this trouble that has been on the world. I am not finding any fault with what was done. I suppose everybody did the best they could. But the facts show of themselves what .we are up against. Many of these men that got all of this money in these shops have gone over into some other factory. You take the United States Government in the building of cantonments, and all tihat sort of thing; you would have found a situation that would have been as heartbreaking as any could have been. There was an increase in men of 60.3 per cent and an increase in money of 187 per cent, and the mileage output was increased but 2 per cent. The shops covered by the above figures are located at Elkhart, Ind.; Collinwood, Ohio; Depew, N. Y\; Avis, Pa.; and West Albany, N. Y. The number of locomotives repaired during 1920 at company shops was: Classified repairs, 2,231; unclassified repairs, 1;077; a total of 3,308 locomotives. ; Senator Pomerene. Mr. Chairman, before you adjourn I would like the attention of the Senators for a moment. I want to make a motion, and when I make it I do not want the fact that I make the motion to be construed either for or 'against any testimony which has been given or which may be given hereafter. I make the, motion so that the committee can get the benefit of the testimony. And with that preliminary statement I move that the chairman of this committee be requested to invite criticism of statistics which have been presented or which may hereafter.be presented on behalf of the railroad executives, both by the statisticians of other interests which may appear, as well as by the statisticians of the Interstate Com- merce Commission^ and also that the statisticians of the railway executives be invited to present later their criticism of any statistics which may be presented on behalf of other interests. Digitized by Microsoft® RAILROAD REVENUES AND EXPENSES. 283 In other words, I want to, if I can, save to the committee a great -deal of labor and a great deal of trouble on their part, which would be placed on them if they had to make the original investigations and comparisons themselves. The Chairman. Would it not be better to take that matter up in executive meeting ? Senator Pomerene. All right. The Chairman. Because there are a good many like questions •coming up. Senator Pomerene. Yes. The Chairman. And I had it in my mind to lay before the com- mittee a good many suggestions along that line, Senator. Senator Frelinghuysen. I was going to suggest that there be some time fixed for passing upon that. Senator Pomerene. Oh, certainly, we will do that; and the Sen- ator suggests that we take it up in executive session, and we can arrange the matter definitely at that time. The Chairman. We will adjourn until 10 o'clock to-morrow morning. (Whereupon, at 11.55 o'clock a. m., Thursday, May 19, 1921, adjournment was taken until 10 o'clock a. m., Friday, May 20, 1921.) Digitized by Microsoft® Digitized by Microsoft® RAILROAD REVENUES AND EXPENSES. FRIDAY, MAY 20, 1921. United States Senate, Committee on Interstate Commerce, Washington, D. G. The committee met, pursuant to adjournment, at 10 o'clock a. m., in room 410, Senate Office Building, Senator Albert B. Cummins (chairman) presiding. The Chairman. The committee will be in order. Mr. Smith, you may resume your testimony. TESTIMONY OF MR. A. H. SMITH, PRESIDENT NEW YORK CENTRAL LINES— Resumed. Mr. Smith. Mr. Chairman and gentlemen of the committee, my last statement yesterday was with reference to a total of 3,308 loco- motives repaired in our shops. We were discussing it yesterday at the time of closing. In addition, 112, or 3.4 per cent of those repaired in company shops, received classified repairs at outside shops, and in the company shops 24 locomotives not belonging to the company received classified repairs. And 13 of such locomotives unclassified repairs, the last being repaired in company, shops due to the order of the director general. In the shops on December 31, 1920, there were 234 locomotives undergoing classified repairs, and 57 undergoing unclassified repairs, and in outside shops at that time under contract were 84 locomotives undergoing classified repairs. I am presenting this in connection with costs because of certain comments that have been made in regard to contract work in outside shops on locomotives; and I thought the detail of it should be recorded here for the information of this committee. The Chairman. The principal thing, I believe, is whether it Cost you more in your repairs outside than if you has repaired them in your own shops. Mr. Smith. I will try to give that to you, Senator, as briefly as pos- sible. It is necessary to build up what repair is, however, and so I am going to begin that way. The Chairman. Very well. Mr. Smith. Shop capacity as represented by shop mileage output is determined or fixed on the basis of the experience of the line, in the following manner : Each locomotive is assumed to be good for a certain potential mileage when new, which mileage, known as "assigned mileage," is 285 Digitized by Microsoft® 286 RAILROAD REVENUES AND EXPENSES. fixed on the basis of our experience. Such assigned mileage is cor- rected from year to year by the measure of actual performance. Therefore, as experience increases from the development of statis- tical information based upon actual performance potential mileage is assigned with increasing accuracy. The mileage made from day to day by ©a.(jh individual locomotive is tabulated from a stub attached to the enghieman's time slip, which stub shows the exact mileage covered. In other words, the mileage has nothing to do with the pay,"because there is a great deal of pay made up of overtime and other things ; but this is the actual mileage- of the locomotive. The ratio of the mileage completed to its total assigned mileage is representative of its general condition for the term of serviceability. When it goes to the shop for repairs it is restored to its originally assigned mileage and the mileage thus put back in the locomotive represents shop service in miles applicable to such locomotive. The aggregate of such shop mileage service restored with respect, to afiTpcpmotives^during a given period represents shop mileage output and the measure of the capacity of the shop to restore ■ power to- meet service mileage demand. It is interesting to note (that the man hours per thousand shop- miles increased largely from 1918 through 1920, as will be indicated by the following. , Senator Kellogg. You figure the repairs on locomotives by the service performed by the individual in mileage ? Mr. Smith. Yes, sir. Senator Kellogg. Instead of hours' work % Mr. Smith. That is our yardstick or measure. A locomotive, or automobile, or any other moving piece of machinery, as it stands, there new, has so many miles of serviceability in it. Senator Kellogg. Without repairs ? Mr. Smith. With only running repairs, touching it up and keeping, it trim and tight. Senator Kellogg. Yes ; I understand. ' Mr. Smith. Now, we will say it has 80,000 miles, and that it- worked, out on the road. Now, that goes to the back shop, or the big shop, to be restored, and outside of depreciation and general* wearing out of the machine, where the life of the boiler is gone, and the life of the machine is gone, which eventually throws it into the, scrap, it is restored so that when it comes out of that shop it has- 80,000 miles again. Senator Kellogg. Very well; and in that restoring, you say they have restored ^0,000 miles of service ? Mr. Smith. They have replaced 80,000 miles of service. I will, bring you a table shortly that shows what the situation is with those that go into the locomotive shop and come back. Only in that way can we know whether we are going along on the right line or not.. If they tell me that our locomotive run out is below 50— — Senator Kellogg (interposing) . Is that passenger and freight ? Mr. Smith. Oh, yes, If they tell me our locomotive run out is, below 50 I get alarmed, because I know we are going the wrong way, You will seejhaw^ this works out, in a little bit, throughout the years — Digitized by Microsoft® RAILROAD REVENUES AND EXPENSES. 287 ' Man hours per 1,000 shop miles. First six months of 1918 .' . : : 113. 4 Last six months of 1918 131. 4 First six months of 1919 . . . l,u y n.:,. 134. 8 Last six months of 1919 r , ,..,.. 135.0 First six months of 1920. . . '.,:'.: 146. 9 Last six months of 1920 .'. .:.*.' :. ".{■.',.*: 152.5 showing that the man hours for. the last six months of 1920 increased as compared with, the first six months of 1918 39.1 per cent. The Chairman. You will attempt to explain that, will you ? Mr. Smith. Yes, sir. The Chairman. Why the efficiency or effectiveness of the work fell off so rapidly? Mr. Smith. I have explained it largely. This has gone so rapidly in 1920 because of the new regulations that went into effect in Octo- ber, November, and December, 1919, just previous to the ending of the Government control of the railroads; that is what entered into it in 1920. The Chairman. I would take it in a shop like yours that you could employ men with their maximum ability, even with those rules. I can not understand why it required so much more labor to accom- ?lish the same number of miles than it did in 1918 and 1919, etc. 'hat is the whole question. I want to know whether it is simply because the men did not work up to their capacity, or whether it was because the distribution of work was affected. Mr. Smith. No; the distribution remains the same. Just remem- ber they cut out the piecework, and that was a large factor in increas- ing the cost and in decreasing the output. Senator Kellogg. In the fall of 1919 they cut out the piecework? Mr. Smith. Yes; and then put in these other regulations which Mr. Willard and others have explained to you. They put in rules that it required sometimes two or more men to do what one man had successfully performed before. In other words, the rules of the game had tightened. The Chairman. If it required the two men only half as long as it required the one before, it would not affect the output. Mr. Smith. Senator, you are playing with human nature all the time, and human nature will not perform as well in any place in life if it is measured by time as if measured by the results which it per- forms. I worked myself, and I know r ; I can cite an instance in my own experience that will illustrate the point. We used to get time and a half for changing a track — changing a track on a bridge gang is what it was. We always worked at time and a half on that bridge floor, and an order came out that we were only going to be paid sin- gle time. There was a lot of talk about striking, and one thing and another, but finally we went to work the next Sunday morning on that job with apparently just the same organization we had always been used to, but everybody slowed down, and while we used to readily get this piece of work done by starting at 7 o'clock in the morning and get through at 4 o'clock in the, afternoon and get a day and a half for it, we did not get through that time until 2 o'clock on Monday morning, and got two days. The foreman did not know why. They were all mad. When you do piecework, you get paid for what you do; when you get paid by the hour, why hurry ? Digitized by Microsoft® 288 BAILEOAD REVENUES AND EXPENSES., The Chairman. Then you attribute the additional labor necessary, or the hours necessary, to the change from piecework to hour work or daywork ? Mr. Smith. I attribute it to the policy of running those shops, the abolition of piecework, the rules and regulations, and the fact that they are allowed 20 minutes for lunch for which they are paid, and the hundreds of things interjected into this work since the war began, and the result is as I have recited here. The Chairman. Do you find that same result in other departments in your train service ? Mr. Smith, Well, train service, you see, is measurable in a different way. A train-service man has got an engine and a train, and he is scheduled to go and arrive at a certain time. In passenger-train operation, for instance, he can not escape performing the service, if he wants to. In the freight service it depends a great deal on cir- cumstances, but he has a moving proposition and you can tell' what he is doing. He has got the locomotive, and they got to keep up: steam, and the engineer keeps moving. He might, if he wanted to, slow down, but that is not the temperament of man when he is going somewhere; he will get there as quickly as he can, outside of a few exceptions where one man will run and another will walk. That is the difference in energy in the human being. Between the train service and the shop service there is a great distinction ; and, then, again, train service is paid piecework, because it is paid on miles. When miles exceed hours, they get paid by miles, and when hours exceed miles, they get paid by hours. Because if you run a man a, certain number of miles and keep him out, he is entitled to pay fot! that time. One hundred and fifty miles in eight hours, he gets paid for the 150 miles, or a day and a half. The measure is, what does he work? ; When we had piecework, if a man was oh a wheel lathe and turned four pairs of wheels a day, he got paid that much; if he turned five, he got paid that much. He got paid, then, for what he did. That is the way the.se contract shops work. You take these big motor works; they all work piecework. Motor manufacturing everywhere is by piecework; a man gets paid for what he does. Otherwise, you are likely to get into a situation where he slows down and where the slow mover measures the output; and there is a great difference in men, of course. Senator Wolcott. When did these various rules that you speak of gather, in point of time ? When were they formulated ? When did the most of them become operative as to date, I mean ? Mr. Smith. Of course, they began in 1918 slowly,' some three or four months after the Government took control, and they gathered 1 Eotentiality in 1919, about three months before the railroads C&me ack. I should say that the abolition of the piecework in the shops was the most striking. Senator Wolcott. That was the most potent in this alleged disastrous effect? Mr. Smith. Yes, sir. Senator Wolcott. And that was when ? Mr. Smith. February, 1919. And then the national agreements which we recited yesterday went into effect in the fall of 1919, so that in 1920 you got the full measure of what the change Was. Digitized by Microsoft® KAILROAD REVENUES AND EXPENSES. 289 Senator Wolcott. Did these things show any perceptible influence during 1919? Mr. Smith. Oh, yes; but not so much as they did in 1920. • On the basis of the performance of the first six months of 1919 the man hours actually worked in 1919 and 1920 should have pro- duced 41,020,683 more shop miles than was actually produced. The shop miles repaired in contract shops during the year 1920 were 3,631,443, representing 112 locomotives, whereas the excess mileage that should have been produced during 1919 and 1920 would have amounted to 561 additional locomotives repaired in 1919 and 1,028 in 1920, a total of 1,589. During the years 1918, 1919, and 1920 every possible effort was being made to get maximum output. Under date of February 22, 1918 — this was all during Federal control — the following telegram was received from Mr. Frank McManamy : Owing to the general condition of motive power it is desired that the hours at all New York Central shops be increased to at elast 60 per week and more wherever practicable, with a view of handling all New York Central repairs and repairing locomotives from other lines. Will you please advise if this can not be done? Senator Pomerene. Who was Frank McManamy? Mr. Smith. He was in the Federal administration. Senator Pomerene. In the Kailroad Administration ? Mr. Smith. He was assistant to the Director General, in charge of mechanical matters. At this time the shops in the line east of Buffalo were working 54 hours per week with the exception of West Albany and Avis, which were working 50 hours per week. On the line west of Buffalo the shops were working six 10-hour days and an additional 10 hours on alternate Sundays or an average of 65 hours weekly. The line east shops were immediately placed on 60 hours weekly. This condition continued approximately until July, when some reduction was made in hours at some points on the request of the men, so that the hours at the different shops varied between 50 and 60 until on November 25, when all shops were put on a 9-hours basis and on December 9, 1918, on an 8-hour basis in accordance with instruc- tions from the Director General in his circular No. 1200-2-25A-270 issued under date of November 23. On December 9, therefore, the two and three shift principle of 8 hours each shift was put into effect — by that I mean three shifts in general and two shifts in some shops. On December 9, therefore, the two and three shift principle of 8 hours each shift was put into effect except that certain small points were continued on the 9-hour basis until men could be secured to enable the 8-hour principle to be put into effect. During 1919 48 hours per week were worked on two shifts in most of the shops, which situation continued in general until Fepruary 11, 1920 — that is just approaching the end of Government control — when instruc- tions were issued by the Federal manager to put all shops in a 9-hour basis. Senator Kellogg. Nine-hour basis ? Mr. Smith. Yes; 9 hours, and. you understand that pays a pre- mium on the last hour. Senator Kellogg. Yes. 63553— 21— Vol I 20 Digitized by Microsoft® 290 RAILROAD REVENUES AND EXPENSES. Senator Wolcott. Coming back to Mr. McManamy, who was in the Railroad Administration, was he a practical railroad man ? Mr. Smith. I think so; yes. Senator Wolcott. From what line was he ? Mr. Smith. I do not recall. I think he came from the Interstate Commerce Commission to the Railroad Administration, but he is a practical man. He has been with some railroad ; I do not recall just where. I can not tell you, Senator, any more about him. The Chairman. Who are you speaking of; Mr. McManamy? Senator Wolcott. Yes. The Chairman. He was the head of the Bureau of Locomotive or Boiler Inspection; first locomotive and then boiler inspection; he was a very competent man. Senator Wolcott. To whom did this telegram go ? Mr. Smith. The Government manager. Senator Wolcott. Who was he ? Mr. Smith. Mr. Crowley. Senator Wolcott.. He was advised as to what should be done ? Mr. Smith. I should read the telegram — that it should be done, and if he could not do it to advise. Senator Wolcott. Do you know whether he advised that he could not do it ? Mr. Smith. He did it. Senator Wolcott. Was he a New York Central official ? Mr. Smith. He was. Senator Wolcott. So far as you know, he pointed out no objec- tions to it ? Mr. Smith. He did hot, so far as I know. , There wasn't any reason that I could see, after he got an order like that, not to go ahead and do it. There were not very many " cant's " during this war business-. Senator Wolcott. At that time it was necessary that everything be put through at top speed? Mr. Smith. Yes, indeed. Senator Wolcott. And cost was a minor consideration ? Mr. Smith. It was. I am reminded to say that this is historical and not critical. I do not undertake to say that it was not necessary. There is no criticism of this message at all. I have no criticism of Mr. McManamy; I think he is a very able man. I worked with him. This telegram simply said to put the shops on so many hours work. As I said yesterday, during this trouble, during the war and during the operation of the railroads, and particularly in 1918, when we were very acutely in it, there were difficulties that it is rather hard to recall to-day. It was all trouble; there was very little sunshine throughout the proposition. We were up against a hard game, and we were not questioning how we were to go through; just simply going through. Senator Wolcott. I was under the apprehension that perhaps there might be some disposition to shift all the load on this Federal control. I witnessed some feeling of that kind ; and it struck me that the difficulties were to a large extent inherent in the situation, and the private managers might hot have done a bit better, and might have been driven to the same things under the circumstances. Mr. Smith. I hope, Senator, I have not said a word here or conveyed one thought in the direction of a desire to load this onto the Govern- Digitized by Microsoft® RAILROAD REVENUES AND EXPENSES. 291 ment. I have no criticism. I have tried once or twice to interject the statement that we were up against a difficult situation. I was with the Government. Senator Wolcott. You were regional director ? Mr. Smith. I was drafted into this thing. We had difficulties before we got into this war. And 'the Government found many difficulties after they got hold of this child. It was a question of winning the war and doing the best under the circumstances. Senator Watson. It is your contention, Mr. Smith, that in order to get back to the original efficiency these rules and regulations adopted for war time should be abrogated ? Mr. Smith. They should be changed. The question whether one would have done better than the other is not measurable, because no one can tell. Senator Wolcott. That is purely speculative, of course. Mr. Smith. As I said when we opened this hearing, the railroads came into this war with a trained lot of men and other facilities, and their machinery, and they did as much, I dare say, as anything that was brought into this war to win it. And unless they had done what they did do you could not have ever won the war, in my opinion. Senator Wolcott. I think that is true. Mr. Smith. Now, it would be beyond me to criticize anything that was accomplished under those circumstances, and all these things are very difficult, very difficult. These things are very difficult to analyze and go through. The facts are — and I am only giving you facts; I am not giving criticism — and these are facts, gentlemen. You can put any acid test on them that you want to, and they are facts. Senator Wolcott. Please don't understand that I question your facts at all. Mr. Smith. I do not. Senator Kellogg. Mr. Smith, let me understand. Personally I do not know whether piecework is the best way, or the most humane way, or otherwise more advantageous than hour work, but if, as you say, piecework is efficient and is prevalent in all other employment, why give the order about taking out piecework in 1919? Mr. Smith. Well, I did not take it out, so I don't know. The judgment of the general Senator Kellogg (interposing). I do not express any opinion whether piecework was proper or not. Mr. Smith. Neither do I. I was merely on the firing line, and the feneral ordered piecework taken out. I hated to make the move, but did it. It was done that way. I was merely a soldier in the ranks, so why they did it I do not know. Senator Wolcott. Relative to this same thing, there is another matter that has been in my mind. There has been considerable criticism of the uniform classification of the employees adopted, I think, back in 1918; general order 27. Mr. Smith. Yes; supplement 4; you will find it in the minutes of yesterday, some detail of it. Senator Wolcott. I was not here yesterday, barring a few minutes ; unfortunately, I had to leave for another committee meeting. That order was made by the order of Mr. Gray, was it ? Mr. Smith. I don't know who made it. Digitized by Microsoft® 292 RAILROAD REVENUES AND EXPENSES. Senator Wolcott. He would be the official in the administration who would make it^ wouldn't he ? , ( , .. Mr. Smith. I would not- undertake to say. It emanated from Washington headquarters. I do not know whose mind it was, or who worked on it. Senator Wolcott. My opinion was that it was Mr. Gray's responsi- bility. He was a railroad man and is now the president, is he not, of the Union Pacific ? Mr. Smith. Yes> sir. Senator Wolcott. 'Was the wisdom of issuing that order taken up and discussed with the regional directors ? Mr. Smith. No, sn\ Senator Wolcott. You knew nothing of it until it came from Washington ? Mr. Smith. As I dropped in here for a few hours I knew something was going on, but I knew nothing about it; I was ndt in conference. I knew some things, of course* as . you hear things going around. I was here sometimes, and I would hear things in a way, and some- times as it was about at the finish I wouldsee some of it, and perhaps all of it, previous to the order being issued, but I had had nothing to do with it. I used to kick, but it did not do any good. Senator Wolcott. Did you kick on that order ? Mr. Smith* I don't know whether I kicked on that particular one, but I kicked on a lot of them. Senator Wolcott. That seems to have been a very important one. Mr. Smith. I would have. kicked on the piecework order, if I could. I did object to it after the order was issued, and disliked very much to put it into effect, but I had no alternative; I either had to put it into effect or quit, and I could not quit, because the war was going on and they would Senator Wolcott (interposing) . You had no alternative ? Mr. Smith. No, sir. ' Senator Wolcott. What I am getting at is whether the practical railroad men who were in the administration of the railroads con- curred in that order. Mr. Smith. I could not tell you, Senator, because I was not here, and just what the press was and how much they debated it I do not know. I myself was on the line. I had the territory from the At- lantic Ocean to Chicago, and from the Canadian border to the Potomac a part of the time, and to the border the balance of the time. I had a job that kept me very busy. And I had nothing to do with that. Judge Thorn suggests that I might say where the order originated, but I do not know where it originated. You understand, there were different departments ; there was a department of labor, a depart- ment of traffic, and other different departments. I do not: know where these things originated, whether it was in the labor or operation department. The Chairman. What difference where it originated ? Mr. Smith. I don't know that there is any. Senator Wolcott. Just this: I hold no brief for the Railroad Administration ; know very little about it, in fact, but I know there is prevalent quite extensively a disposition to blame everything on the administration — not by these witnesses; I do not think that — Digitized by Microsoft® RAILROAD REVENUES AND EXPENSES. 293 but generally to blame everything on the administration which was superimposed on the top of the railroads and that things were done by this administration at Washington which were unwise from the railroad point of view; and I wanted to know whether the railroad men were approving these things. The Chairman. The wisdom or unwisdom would not be determined by who issued it. Senator Kellogg. McAdoo was not a railroad man, and every- body knows it. Senator Wolcott. I am not championing McAdoo, nor am I blindly criticizing him. Senator Kellogg. I have not blindly criticized him. The Chairman. Mr. McAdoo did not do it. Senator Wolcott. I have not mentioned him. That was a gratuitous remark by the Senator from Minnesota. , Senator Kellogg. He did it, and everybody knows it. Senator Wolcott. I don't know it. The Chairman. Proceed, Mr. Smith. Mr. Smith. During 1919, 48 hours per week were worked on /two shifts in most of the shops, which situation continued in general until February 11, 1920, when instructions were issued by the Federal ' manager to put all shops on the 9-hour basis. 'I do not know why he did that; whether of his own motion or not, but it was in December, I think, that the President gave notice that the railroads were coming back on the 1st of March, and it then became the Federal manager s duty to look over the situation, and he found his power in bad shape, and his judgment was that he had better begin to work longer hours. I do not know whether he got that from headquarters br not. In any event, he put that order out. Throughout 1919 and 1920 considerable difficulty was had in shops as the result of sporadic strikes and walkouts at various points. During 1919 and 1920 every possible effort was being made to obtain additional men in an effort to increase shop output. Agents were sent to Chicago, Fort Wayne, St. Louis, Terre Haute, Kendall- ville, Ligonier, Ind., Toledo, Kalamazoo, South Bend, Elkhart, Cleveland, Lima, Garrett, Ind., Richmond, Ind., Buffalo, Dunkirk, N. Y., Columbus, Akron, and as far south as Knoxville, Tenn., and Richmond. Va. A typical report in regard to such efforts is as follows : I left my home almost every morning between 4 and 5 o'clock, explored every corner of Collinwood. Nottingham, St. Olair Avenue, from One hundred and fifty- second' to East Sixth Streets, all through the flats, every corner on the we3t side, the shipyards; Newburgh,, took in every employment agency in town. I have also been all the way east of Cleveland to Erie, Pa., south of Cleveland to Youngstown. and west of Cleveland to Xoledo, I also advertised in different newspapers in a number of different languages. ' ' '■'■ ' In addition to sending out; these agents advertisements were carried in the following publications: . . I will not read the names of all the \ papers; but there were in Kankakee, 111., two papers; in Cleveland, Ohio; in Fort Wayne, Ind., two papers; in Ashtabula, Ohio; in South Bend, Ind.; in Buffalo, N. Y., three papers; in Chicago, in two papers; in Grand Rapids, Mich 7 in two papers, and in Cleveland, Ohio, in two foreign papers. Digitized by Microsoft® 294 EAILEOAD REVENUES AND EXPENSES. A number of men were obtained through these efforts, but in a majority of instances they worked but a short time and left the service of the railroad. These .efforts began in August, 1919, and continued through August, 1920. „ , As previously explained, power condition is largely dependent upon shop miles output m relation to miles run out in service. Power condition is also affected by the miles lost on account of. locomotive retirements and gained on account of new locomotives purchased. Shop miles should be slightly in excess of but must be' at least equivalent to miles run out in service to properly maintain power. New power should be added not only to equal the potential miles of equipment retired annually, but to equalize also depreciation. The relation of shop and service miles for the period under consideration was as follows : These figures reflect the situation in actual miles. Three years prior to Federal control, service miles 278, 828, 438 ; shop miles 273,620,599, a loss of 5,207,839. Senator Kellogg. How many ? Mr. Smith. A loss of 5,207,839; this was three years previous to Federal control. In other words, our railroad lost 5,000,000 miles in the three years previous to Government control. This was not all fair weather then; we had a heavy business, due to the war on the other side, and the shipment of material made us a very heavy busi- ness, and the business of the country was such that it was taking the; men away from us rapidly, and the increase in cost over previous years was then with us. Senator Kellogg. You are not claiming that the increase of wages, was not necessary ? * Mr. Smith. Not at all. If I had my way I should like to have had a good bonus given to the men during the war, and then looked it over afterwards, in accordance with the conditions existing, and not tie it up. Three years prior to Federal control 278,828,438 service miles and, 273,620,599 shop miles, a loss of 5,207,839 miles. Yearly average, service miles, 92,942,812, shop miles, 91,206;866, or a loss of 1,735,946. For the year 1917. — and. I consider that year with 1920, because the; actual business performed in those two years is about the same. For the year 1917, service miles 97,135,930, shop miles 95,213,637 were replaced, or a loss of 1,922,293 miles. .,,.,, .. That is what we did the year before we went into Federal control.. For 26 months of Federal control, service miles 190,439,940 and 189,933,477 shop miles replaced, or a loss of 506,463 miles. A yearly average of 87,895,356 service miles and a replacement of 87,661,602 shop miles, a loss of 233,754 miles. That is all right now when you come to the actual locomotives we did pretty well. But the depreciation of the replacement , is where you will see in a moment where the Government failed to keep up the wear out that they mader Ten months subsequent to Federal control they used 77,321,185 service miles and replaced 74,539,396 shop miles, or a loss of 2,781,789 miles; that was a yearly average of 92,785,422 service miles, and a replacement of 89,447,275 shop miles, or a loss of 3,338,147 miles. That is due to the fact that these rules got into effect just previous to their going out of Government operation. The railroads were Digitized by Microsoft® RAILROAD REVENUES AND EXPENSES. 295 coming back on the 1st of March, and yet in the last of the year 1919 they put some new rules into operation. The reason for this tremendous loss in 1920 is explained Senator Pomerene (interposing) . Have you a copy of those rules here ? Mr. Smith. We will file them. The reason for the tremendous loss in 1920 is explained by the fact that it took 152.5 man hours in the last six months of 1920 and 146 man hours for the first six months of 1920 to produce 1,000 shop miles, as compared with 113.4 man hours in the first six months of 1918. Senator Watson. Now, you attribute that loss to the enforcement of those rules and regulations largely ? Mr. Smith. I attribute it to the abolition of piecework and a change in the state of mind of the men. Everybody has had a change of mind in the last few years. And these rules and these changes that have come about that have permeated human nature, have changed this output. It is the condition that has come upon us; it is not, all of it, in railroading. Senator Watson. You mean the general psychology of the 1 country ? Mr. Smith. Yes; that has something to do with it. Senator Watson. This is an interesting recital of yours, and I am very much interested in these figures. But do you make this recital the basis of some recommendation by which you can get back the average man efficiency ? Mr. Smith. The recital is made because you asked us for the facts; you asked us to tell you why 1920 was as it was. Now, it is necessary to go over all this to try to get at that, and in the future we, of course, have got to change the situation in some way or we can not go on. Senator Watson. That is what I think is the value of this in- vestigation — to find out what can be done. We know what has been done; we know what the result is, but how can we help it in the future ? Mr. Smith. There may be a million reasons why, but the answer is that we are in bad shape to-day, and getting worse every day. What has happened is not concerning me one-tenth as much as what we are going to do in the future, because we are going the wrong way this moment. And the things that governed me then in regard to these contracts and these actions are no help to me now, but I ought to be up and figuring what I am going to do for next winter, because just as soon as business returns — and it will return— we will go ahead, and then you will want these transportation machines. And I say to you they will not be ready; the next thing that will happen, you will want them, and they will not be there. We have not had any chance to get any fat on us in 20 years. We have not had the opportunity that other business has had. Other business has good years and can lay up a sum in real money for the rainy day, but we have never had that opportunity; we haven't it to-day. And now, while to-day we should be repairing these locomotives and getting this plant in the very best order for the future, we are not doing it at all. We haven't the money, and without the money we can not do it. Now then, that is beside the question; that looks into the future. Digitized by Microsoft® 296 RAILROAD REVENUES AND EXPENSES. Senator Watson. I do not think that is beside the question. 1 think that is the question. Mr. Smith. Beside the question of what you asked us here. Senator Pomerene. Mr. Smith, you say you haven't the money; can you get it ? Mr. Smith. I have got to borrow it; I can not earn it. I am not running my shops to-day^' because I can not get the money to run the pay car to pay the men. Senator Pomerene. Are you going to develop that thought before yoU get through 1 Mr. Smith. My thought is the answering of the questions' you have asked. Senator Pomerene. One of the things' we wanted here is to get the money to run these plants of which you speak. Query : What can be done to get this money ? Mr. Smith. After I finish "this I am Willing to give you every- thing that is inside my heart and my head. ' Senator Watson. That is what we want. Mr. Smith. I will do it. It will also be recalled that the shop agreements issued by the Director General in October, November,^ and December, 1919, became fully effective in 1920. During the three years preceding Federal control there was a loss on account of miles not repaired in shop of 5,207,839 miles. That is what these railroad losses were. There was a net gain on account of new equipment exceeding retirements of 15,119,000 miles. :, > We went into the market in 1916, when we considered steel was low, and bought something like 1,750 locomotives, and that was a lesser price by; $110,000,000 than they were worth later on. We bought 10,000 freight cars at a lesser price also. That showed a net gain for the period of 9^911, 161 miles, and we took this net gain into the Government, a net gain of praetically 10,000,000 miles. Now, I want to say, and you recall, this three-year period ended in June, 1917. We bought these engines in 1916, and we brought this 9,000,000 miles Into the Government service, which they wore down, and they handed this property back to us 3,000,000 miles short of what it ought to be. And most of these engines were de- livered in 1917 and 1918, and we never got a cent for the use of them. I am not finding any fault about that; that was part of the rules of the game, but these railroads brought a lot in, and I think they played a fair game. Senator Kellogg. You mean their value was hot figured in the additional percentage under the railroad act ? Mr. Smith. No sir; it could not be. The six months intervened, and everything we had or brought to the task in the last six months of 1917 or during 1918 we received no compensation for at all. Senator WOloott. Are you making claim for that now, Mr. Smith? Mr. Smith. We did ask to be allowed that, but they would not allow it to us. Senator Wolcott. And it is not in the contract ? Mr. Smith. No, sir. Senator Wolcott. And you have no claim now for it ? Mr; Smith. No; they threw us out, so what is the use? v Digitized by Microsoft® EAILEOAD REVENUES AND EXPENSES. 297 During Federal-control period there was a loss on account of miles not repaired in shops of 506,463, and a net gain on account of new equipment 1 exceeding retirements of 5,267,000, and a loss on account of failure to retire equipment that should have been retired of 11,074,000. In other words, they did not retire them as they were retirable. Resulting in a net mileage loss for the Federai-control period of 6,313,463, compared with a net gain during the three years pre- ceding Federal control of 9,911,161 miles. Summed up, the loss in locomotive mileage' at the close of Federal control was 16,224,624 miles. . " ! ' Now, that is where we landed when they handed them back, with 16,224,624 miles behind. By loss is meant net loss. That means the excess of miles run out over shop miles output, locomotives retired, new equipment provided, and failure to retire equipment due for retirement. That is the proposition, and it can be checked wherever it is desired to check it. As has been stated, the business of the company during 1920 was holding in volume equal to that of 1919 and whiie there were indi- cations that some diminution might occur, it was impossible to anticipate how much, if any, and we were approaching a winter, the severity or mildness of which could not be known and the risk could not be taken of allowing machinery as potential as locomotives to remain unrepaired upon the company's property if the needs of the public to protect them in food and fuel should demand their use. Now, that was the governing factor; that was in my mind, and in all our minds when it, came to the question of these locomotives. They were there; they had to be repaired. We had more men; we were doing everything we could to get the shop output. We could not get it. The winter was coming with its uncertainty, and the distress of the people if they could not be supplied with food and fuel, and I wondered where I would stand if I allowed this machinery to stand on the sidetracks as dead and not be able to take care of these people of New York State and others- l Senator Kellogg (interposing). That was when? Mr. Smith. In the spring of 1920, beginning as early as February and March, 1920, and continuing along until midsummer; we sent our test engines to the Baldwin Co. in July, 1920, and ; after we had stripped them down and gone over them, we closed the contract with them in September, I think, 1920. Senator Kellogg. Now, at that time was there a shortage of equipment, and a very large business? . Mr. Smith. A very large business, Senator, and a shortage of engines. In fact, the New York Central became so distressed for power in the summer of 1920 that we could not handle our business, and we had to draw on our other lines to get engines. And we were fortunate enough, that we had made contracts for engines to be delivered to the other lines, and instead of sending them to' the Ashtabula district and the Buffalo district, and other places, we sent them to the main line. Senator Kellogg. When did the big decrease in business start? - Mr. Smith. It started in January. It held up pretty well until then. I am coming to that. Digitized by Microsoft® 298 ' RAILROAD REVENUES AND EXPENSES. Senator Kellogg. Very well. I Mr. Smith. Therefore, m view of the fact that everything possible* was being done to realize maximum output from the company s shops, and as it was apparent that they could not, from the pace that;. was being experienced, repair the locomotives that required attention, the only alternative was to contract for the work in outside shops. They were asked to undertake the work and negotiations began as to the terms under which repairs would be made. The first contracts were made with the American Locomotive Co. and the Lima Locomotive Works, arrangements to that end having been made in January, 1920, during Federal control. At the same time, although it is fair to say in that connection that in January, 1920, while we were under Federal control, we all knew the railroads were coming back the 1st of March — the President had said so — ;and the Federal control and direction was lessening, of course, at that time, and the Federal manager took his own responsibility to commence to make these contracts, because he, in his situation, then realized that he was not getting the output, and he started in to make these con- tracts, but he was a Government officer at that time — -but he is our officer now — and his mind was working in the interest of the company no doubt in January, 1920. At the same time negotiations were going on with the Rome Manufacturing Co., which resulted in a con r tract with that company in March, 1920. In January, 1920, the number of employees in the locomotive, department was 13,690; in January, 1919, it was 12,748. We had- 1,000 more men in the shops in January, 1920, than we had- in January, 1919, when they started to make these contracts. In March, 1920, we had 13,778 men, and in March, 1919, there were 12,421 men in the locomotive department. Work continued in the shops and under the contracts referred to above, and in June it was found that the progress being made would not give the necessary results. At that time the movement of traffic on the New York Central was getting beyond its capacity so far as locomotives were concerned and it was necessary to borrow engines from other lines of the system. The comparison of the mileage run out and the output of the shops and of the contract shops referred to above indicated that the railroad was going into the winter in very bad shape as to its power. Negotiations were therefore started with the Baldwin Locomotive Works in that month. The same course was pursued with regard to obtaining the lowest price at which repairs could be made by them, as was pursued with two of the com- panies above mentioned, that is, test engines to the number of seven were sent in July. After their arrival inspections were made by both the locomotive people and the railroad people and a price was given the latter part of August, which resulted in further negotiations and in a contract finally being made in October. In July, the month in which these locomotives were sent, the number of men in the loco- motive department of the railroad was 13,239, and in July, 1919, 11,326. Some 2,000 more men in the service in 1920 than in 1919. In August the number was 13,882, and in August, 1919, 11,410. There were nearly 2,500 more men in the locomotive department in August, 1920, than in August, 1919. In September, 1920, there were 14 s 343 men, and in September, 1919, 11,449 men. Or 3,000 more men in September, 192Q, than in Digitized by Microsoft® RAILROAD REVENUES AND EXPENSES. 299 September, 1919, and we were trying to increase our output by put- ting on men and getting these engines out. In October, 1920, there were 14,039 men, and in October, 1919, 11,972. During this same period the shop mileage output, notwith- standing the number of men employed, decreased sharply in Septem- ber and October, as is shown by these figures: Shop mileage output. September. October. 1919 1920 1919 1920 Company 5,929,781 29,431 '6,792,794 72,404 7,145,936 6,024,078 ,22,498 5,959,212 6,865,198 7,145,936 6,046,576 The repairs in the outside shops were made under the supervision of competent representatives of the railroad company acting as inspectors. Criticism has been made of the amounts paid or agreed to be paid to these outside companies for the repairs made and this criticism las been sought to be fortified by statements that the same repairs -could be made or that repairs of the same class actually were made in railroad shops for vastly less amounts of money. It is sufficient to say as to this that the reported cost of the repair of a locomotive in a company shop covers only the applied labor and the material involved, and no other factor enters into it. Senator Pomerene. Now for the benefit of the record, will you state what other elements do enter into it? Mr. Smith. I am coming to it a little later on, Senator. The many other expenses entering into the repair of a locomotive in a company shop, which are carried in other accounts under the Interstate Commerce Commission classification accounts, are not reflected in the report of locomotive repairs, on which criticisms have been based, and which have been commented on so generally. These items are: Shop supervision. You understand all that report that has been presented contained was the applied labor and the applied material to the particular locomotive. It did not include: Shop supervision. Stores expenses. Accounting for the work. Property insurance. Taxes. Shop expenses. Indirect labor. Engineering. Injuries to persons. Repairs to buildings, machinery and tools, and tracks. There are other indirect expenses incurred not charged to loco- motive repairs, such as general supervision. In addition to the ^ibove there should be considered interest on valuation of shops, machinery and tools, power plants, and material stocks. Senator' Pomerene. Now, Mr. Smith, you have given quite a number Of items which you say were not included in the cost by Digitized by Microsoft® 300 RAILROAD REVENUES AND EXPENSES. those who have made this criticism, and as I understand you, ypu say the only two items included in the cost by thpse who make the- criticism are the applied labor and the applied material. What 1>er. cent would you add to the applied material and the applied, abor in order to comprehend the entire cost ? Mr. Smith. Why, the overhead. Senator Pomerene. All of those items to which you referred ? Mr. Smith. I would add what is commonly called overhead. It will vary, of course, at the different shops, 'and I haven't the figures with me, but we will file them in the record. We will file the figures that we have at one or^two shops. It is quite a task, of course, to keep those figures. We are not, under the Interstate Commerce Commission's regulations, required to keep that separate, but we have- valued one or two of our shops as if they were manufacturing shops,. and have applied the overhead, and I will file those figures with the- committee. Senator Pomerene. Well, can you give us an estimate of what that cost would be in percentage ? Mr. Smith. Well, my opinion is that it would run 95 per cent or 100 per cent. Well, they tell me that it runs 120 per cent.., They have got some figures on it here, and they say 120 per cent.. The manufacturer adds about 120 per cent, and sometimes as high as 130 per cent. Senator Kellogg. That is for interest and everything ? Mr. Smiths Yes ; he adds a profit. Of course, we would not have a profit. I want to say that in letting these contracts we were in a seller's marketr There is another thing about going into a new shop like the American Locomotive Works,: or the Baldwin Locomotive Works, or with any of these locomotive works— they preferably do not. want repair work. There is a vast difference between repairing an engine and building a new one. I can imagine that Mr. Ford would not repair your car — I beg your pardon. [Laughter.] The Chairman. Keep on; don't beg his pardon as to that. Senator Pomerene. You compliment us by even suggesting that we can afford to own a Ford. Mr. Smith. I imagine Mr. Ford would not take a car in to repair it for any price. These people do not want to repair locomotives. They have told me, and this much I know about their shops, that you can put up six new ones while you are tearing down and fitting up an old one and making it good enough to go again. And so we were confronted with that. They did not want this business if they can get anything else to do. I really had to bring pressure on the Lima people to take the engines in. I threatened to get mad at them and never buy another engine of them unless they did. Senator Pomerene. Is that Lima, Ohio ? Mr. Smith. Lima, Ohio. The Chairman. Is it charged that any persons who were influ- ential in giving this outside work to the Baldwin people were inter- ested in the profits of the Baldwin Works ? Is that charged by any- body? Mr. Smith. I don't know whether they charged it or .not and it did not make any difference to me whether they did or. not. We were not . interested in the Baldwin Locomotive Works. We have npt bpught a new engine of them since 1913. They are not located on our line, and we try to patronize those who patronize us, when their figures Digitized by Microsoft® RAILROAD REVENUES AND EXPENSES. 301 are equal to those of others, and so we went to the Baldwin Locomo- tive people as a sort of an outside proposition. We could not get the work done otherwise, and we pressed the Baldwin people to do this work so as to try to get in shape for the winter. Senator Kellogg. What is the big locomotive works on your line ? The American Locomotive Works? Mr. Smith. The American Locomotive Works. They have their big works at Dunkirk, N. Y., and Schenectady, N. Y. And the Lima Locomotive Works are on our line, at Lima, Ohio. And we patronize them when their figures match up, and they have always been able to give us as good a figure or better than the Baldwin people. The Chairman. This outside work was all done at a fair price, in your opinion, was it ? Mr. Smith. Yes, Senator. I say it was done in a seller's market. Of eourse, a seller's market is harder than a buyer's market for the buyer.. We sent these engines to the Schenectady and Dunkirk works, principally to Dunkirk, and to Rome; we stripped them down and exposed all all there was to do, as nearly as it could be exposed, and then agreed upon a price for doing the work, plus an overhead, and plus a resonable profit. Now, with the Baldwin Locomotive Works we stripped down these seven, and as I recall it they gave a figure that struck us as being too high, and then we went on to a cost-plus arrangement, and we have not paid for it yet. We have not paid yet for the Baldwin engines, because I think the experts are still debating as to just whether the charges are as they ought to be. We did not finish the Baldwin contract, because before they got through, before they had finished their contract, the bottom dropped out of ! business-, and I couldn't see how in the world we were going to pay them, so I stopped sending them the engines. I have not yet sent them 21 engines that are due them, and we are not going to send them to them, because we can not pay them anyway, if they did repair them, Now we come to cars. On the return of the road to the owners, the freight cars belonging to the company were scattered over the country. Only 15 per cent of its cars were on its line, and they were ■ in bad condition, as shown by inspection. I would like to interject just a word before we leave the locomo- tives. The criticism has been made about these railroads not being modernized and mechanical in their appliances to locomotives, it being said that we did not have superheaters and arches etc. I want to say for the New York Central Railroad that 96 per cent of our engines are superheated — 96 per cent of the engines of the New York Central Railroad that are fit to superheat are superheated, that is, that per- centage of our engines that we could afford to put it on are super- heated; Eighty-four per cent of the total number of our engines are superheated. Ninety-eight per cent of our engines have arches. And we yield to no one in the quality and capacity and the character of our locomotives; our company has been forehanded in providing power and in protecting the operation on its line. And if there is anything anywhere that will produce economy, and we can get the money and can. figure out that it can be done, we have never failed to approve it, and I don't imagine we will fail now. Senator Watson. Tell us something about that, Mr. Smith. You say an engine is superheated. That is one expression which \ r ou used. What do you mean by that ? * Digitized by Microsoft® 302 RAILROAD REVENUES AND EXPENSES- Mr. Smith. Well, that is an appliance that you put in a locomotive. You are getting rather technical now, but I can tell you roughly. Senator Watson. That is all I want. I don't want a technical explanation of it, but just state it roughly. Mr. Smith. Well, a superheater consists of a number of small pipes which go through the boiler in the locomotive, through which the steam passes, for the purpose of putting drier steam into: the locomotive, and it economizes in the, use of coal, and it increases the power of the cylinder because of the superior quality of the steam that is put into the cylinder, it being drier, and there is less saturation in it. The distinction between a superheated engine and a saturated engine is that in the engine without the superheater the steam has more moisture in it, and therefore there is not the power. Now that, is, roughly, an explanation of it. Senator Watson. Now you say that 98 per cent of your engines- have arches. Is that the expression you used ? Mr. Smith. Yes. Senator Watson. Now what do you mean by that ? Mr. Smith. Well, a brick arch put in the fire box of the locomotive. That is a contrivance that is put in the fire box of the locomotive, built up in there to assist in the combustion in the fire box, and to let the heat pass over the arches into the flues and keep out the smoke and the carbon and lots of things that are detrimental to the heating qualities. In other words, they send a purified lot of heat into the boilers, an improved lot of heat. Senator Watson. That is a matter of economy ? Mr. Smith. Yes, sir; that is a matter of economy. Senator Watson. And. that is the last word in engine construc- tion, is it ? Mr. Smith. Yes; that is the last word in engine construction. Senator Watson. That is what I wanted to get at. Mr. Smith. I know of nothing and I have known of nothing in the last word of engine construction that we have not adopted. We are now experimenting with what they call a "booster," that one of our young men got up, and we have probably 25 or 30 of them, and they are being put on different lines through the country, and that is. a geared engine that is placed upon the trailing wheel of a locomotive that is brought into play when the train is started. It is designed on a passenger train or engine to stop jerking— to start a big train without the necessity of jerking. And on a freight train it starts the train more readily and avoids shock, etc., in starting it. It brings into play the steam, when they have got it. An engine stand^- ing still, of course, has got the steam, and it automatically cuts off when the train reaches a speed of about 15 miles an hour. I merely mention that to show that we are adopting every improvement we can that makes for economy. And that speaks for economy, and we are experimenting with, it, and we are doing that all the time. And that is what has built up American railways. Senator Pomerene. Mr. Smith, if I may follow Senator Watson's inquiry just one step further, what per cent of fuel would these higher types of engines save over and, above the inferior types ? Mr. Smith. About, something over 20 per cent. . Now, getting back to the freight cars, on the return of the road to the owners, the freight cars belonging, to the company were seat- Digitized by Microsoft® RAILROAD REVENUES AND EXPENSES. 303 tered all over the country. Only 15 per cent of its cars were on its- line when we got these railroads back. To-day there are about 60 per cent, I think. We ought to have half of them there, generally speaking, all the time. A car away from home is like anything else away from home, no one cares for it, and no one takes any interest in it. If it is your property you will take care of it, and if it is some- one else's property you haven't the same respect for it and will not take care of it as well as you will your own. Senator Watson. How can you intelligently file a claim for repara- tion when you haven't got your cars back, and do not know what condition they were in ? Mr. Smith. Well, we have got them back now, and when they came they were looked at very closely. Senator Watson. But you say you have only got 60 per cent of them. What about the other 40 per cent ? Mr. Smith. Sir? Senator Watson. You say you have only got 60 per cent of them. What about those that did not come back? Do you know what • condition they are in ? Mr. Smith. Well, they have pretty nearly all come back now since private control. Of course, we keep sending them away. Senator Watson. I thought you said that you had only about 60 per cent back now. Mr. Smith. Yes; we have only about 60 per cent of them baek now, but we are sending them out from time to time. We keep sending them away, of course. Senator Wolcott. They have come back and have gone out again ? Mr. Smith. Yes; they have come back and have gone out again. Now, in addition to that, of course, we had a large number of other lines' cars. We had about 130,000 or 140,000 on the line; 15 per cent of pur own, and the balance foreign cars. Now, those foreign cars, of course, were in just as bad condition as our cars were, or any one else's cars. They all got in about the same shape. We had to repair them to get them off the line. All of that cost a lot of money. These cars in 1920 were being ordered about by the commission. There was a time there when it was necessary, under orders of the commission, to pick them up regardless of nearly everything, and get them out to the grain, and we had to get stock cars, and we were short of refrigerator cars, and they had to be repaired in a hurry, and it all cost money. There is no way to measure nowadays comparison of this car- repair situation, because previous to the order being issued we repaired practically all of these cars under a piecework arrangement. Now they are repaired under a day arrangement, and of course at higher cost, because a car repairer is paid much higher wages, as has been reported. I can not make the comparison in regard to car repairs as I did locomotive repairs, for the reason that it is a different problem, and was entirely under piecework. , In the car department after piecework was abolished no measure existed by which a comparison of the amount of work done could be made between the year 1920 and any previous years. It is possible to compare locomotive miles repaired, as was done in the locomotive department, but, as has been stated, the abolition of piecework took away the only standard by which the amount of work done in the « Digitized by Microsoft® 304 RAILROAD REVENUES AND EXPENSES. car department could be measured. The number of men increased greatly, the actual figures being previously given. Now, as to the transportation department. The average revenue per ton-mile 1920 over 1917 increased ,54 per cent. The average monthly pay of all employees increased 86 per cent. The relative efficiency of employees in producing revenue ton-miles decreased 10 per cent. That is to say, it took 10 per cent more men in 1920 to do the same amount of work that was done in 1917. The above com- parisons are made as between 1920 and 1917 because the number of revenue tons carried 1 mile in 1920 was practically the same as. the revenue tons carried 1 mile in 1917. Senator Watson.. Is that comparison made in all branches of the service, or just in the train service? ,i i Mr. Smiths That comparison is made in the train service, trans- portation. . ... , The actual figures being 22,567,929,000 in 1920 and 22,542,548,000 in 1917. That is practically the same. This difference in efficiency in the men came about because, as X said yesterday, we had more green men. You take a green fireman and put him on a locomotive and it takes him some time to get the knack of first keeping the engine hot and second in knowing how much coal not to put in and still keep the engine hot. I now come to your third question : The reasons which induced the diminished volume of traffic in the latter part of. the year 192Q and first two months of 1921, and in that connection the influence of the increased freight and passenger rates prevailing during that period. As to freight traffic: The volume ,of traffic upon the New York Central Railroad during the latter part. of the year i920 was not diminished. Senator Pomerene. It was not ? Mr. Smith. It was not diminished. We held up through 1920; as you remember the tables producedyesterday, we show an increase all the way through, 1920 over 1919. The total tonnage for the year was greater than the total tonnage for the year 1919, and an analysis of it by months shows an increase in tonnage each month during the year, including the winter months, and the " outlaw strike" period. The total tonnage, 1919 as compared with 1920, and given by months, is as follows : January.. February March April May June July 1919 8,010,390 6,459,917 6.872,891 6,262,158 7,002,154 7,885,802 8,960,588 1920 7,875,389 7,770,547 7,945,402 7,574,580 7,331,900 9,143,312 10,422,721 August September. October November. December, . Total. 1919 9,378,355 9,863,042 10,369,311 7,221,852 7,762,438 96,048,798 1920 10,526,213 11,218,715 11,680,286 10,177,734 9,086,634 110,753,433 Senator Pomerene. Do you mean by that that the outlaw strike did not affect your transportation ? Mr. Smith. We handled just as many tons. That is what I referred to yesterday, Senator. Through the loyalty of our officers and our men we were able to do that. Digitized by Microsoft® RAILROAD REVENUES AND EXPENSES. 305 Sen&tor Pomerene. I am trying to find out what the influence of this outlaw strike was on your business. Now, you say that you handled more tons Mr. Smith. We did. Senator Pomerene (continuing). During the year that you had the outlaw strike than you did before. If that is so, then it did not materially affect yout transportation. Mr. Smith. It affected the cost of it. Senator Kellogg. The cost of it? Mr. Smith. It affected the cost of it, but it did not affect the quantity, because we buckled up and moved it just the same. The Chairman. Well, do you say that there was no falling off in the traffic. at all at any time? Mr. Smith. At any time during 1920. The Chairman. Up to the present time ? Mr. Smith. It seemed to drop off, Senator, on the 1st of January. Now, I will get to that in a moment. As to passenger traffic. Passenger traffic did not diminish during the year 1920. The number of passengers carried increased by over seven millions. The detailed figures, by months, for the years 1919 and 1920, were as follows: Juniiary. February March AjfcU;.... $W June ',. July 4,230,552 3,777,594 4,245,859 4,154,091 4, 113,, 936 4,587,242 4,,662,02# 1920 4,802, 4,861, 5,138, 4,755; 4,986, 5,109; 5,288', August September. October. .. November. December.. Total 1919 4,801,306 5,129,615 4,567,310 -4,574,836 4,620,272 53,444,637 1920 5,705,729 5,255,050 5,065,820 5,023,357 4,689,647 60,682,651 Business began to fall off sharply in January, 1921. The freight tonnage for January and February, 1921, as compared with the ton- nage for the corresponding months in 1919 and 1920, was as follows: 1921 1920 1919 January... February. 6,984,622 5, 797,476 7, 875, 389 7, 770, 547 8, 010, 000 6, 460, 000 In February, 1921, it dropped to 5,797,476 tons, or 2,000,000 tons less than it was in February, 1920. The Chairman, . So that the failure of the railroads as a whole to earn a net income, or to earn more than a negligible net income, is not due at all to the volume of traffic ? Mr. Smith. Not this railroad. The Chairman. You mean your railroad 1 Mr. Smith. Yes. Senator Kellogg. During what time, Mr. Smith? I thought you were just stating that business fell off in 1921. * Mr. Smith. It did. Senator Kellogg. Well, then, it must have affected your road. Mr. Smith." It did then. Senator Kellogg. Yes; but the chairman just asked you if the falling off of business affected the railroads at all. 63553— 21— Vol I- -21 Digitized by Microsoft® 306 RAILROAD REVENUES -AND EXPENSES. Mr. Smith. I beg his pardon; and I beg your pardon — I, thought he was talking about 1920. , The Chairman. No; I am talking about the year in which you operated your railroad. Mr. Smith. That was in 1920. The Chairman. Welly you operated your railroad up to the 1st of March, 1921, did you not? That ended your first year of private operation after the return of the railroads ? Mr. Smith. Oh, yes; if you bring the year up to the 1st of March, it affected us, because we fell off so sharply the last two months. The Chairman. Even then you did more than you did in the same 12 months immediately preceding, did you not? Mr. Smith. Cutting that off in March; yes, we did then. The Chairman. Yes. So that really the volume of traffic can not be said to account for the fact that you did not earn any money — I mean did not earn any net income ? Mr. Smith. It did not in this case. That is not the position we have taken, either, Senator. The Chairman. So you come back all the while, and must neces- sarily come back to the cost of earning that money. Mr. Smith. That is it exactly, Senator. That is just where we are. Senator Watson. That is all there is to it. Mr. Smith. That is all there is to the case. The Chairman. And your difficulty is not in lack of traffic, taking the year through, but your difficulty is that it costs you too much to do the business. Mr. Smith. Right. And I will show you later that we increased the car loading, and we increased the train loading, and we increased every factor of operation. We bettered the factors of operation. All these things that I have said are what have cost us this addi- tional money. Senator Pomerene. Mr. Smith, let me ask you another question. Your statement would indicate that during the year 1920 you hauled more cargo than you did during 1919. Mr. Smith. Right. Senator Pomerene. But as we understand the situation generally throughout' the country, there was a very great falling off in industrial activity. Now, do you mean to say that if there had been the same industrial activity during 1920 that there was during 1919, that you would have had very much more traffic than you did have ? Mr. Smith. Oh, we might have had it. I could not tell. ; Senator Pomerene. In other words, it seems to me- that the logical inference to be drawn from your statement is that along the lines of the New York Central there was just as much industrial activity during 1920 was there was during 1919, and that I do not understand. It seems to me that it is not in accord with what seems to be the general information on that subject. All industrial activity through- out the country— and I am speaking generally, when I say that — fell off very markedly during the last six months in 1920. Mr. Smith. WeQ., it did not up there. Either local or through, we had this tonnage. What affected us was the cost of doing it, due to the reasons that I have recited here in the last two days, and now as business drops off, taking the tonnage off of us> it is getting even worse. Digitized by Microsoft® RAILROAD REVENUES AND EXPENSES. 307 The Chairman-. Well, your traffic for January, 1921, was not very much, less than your traffic for January, 1920, was it ? Mr. Smith. About a million tons. ' The Chairman. Yes. Mr. Smith. It was about a million tons. Senator Pomerene. Give the totals for each of those months in 1920 and in 1921. Mr. Smith. It was 6,984,622 tons in January, 1921, and 7,875,389 tons in January, 1920. The Chairman. And the February comparison you may state again if you will. Mr. Smith. Five million seven hundred and ninety-seven thousand four hundred and seventy-six tons in February, 1921, and 7,770,547 tons in February, 1920. February got very bad. It is bad when you have that overhead to carry and lose that business. Now, I have the figures here on export trade. That is where things dropped. Senator Watson. Do you know about March, Mr. Smith ? Can you give us the figures for that month ? Mr. Smith. I haven't the figures for March here with me. March is just a little bit better than February. But I haven't the figures. But it is coming back very slowly; it is hardly perceptible. Senator Wolcott. Mr. Smith, you may have answered this question before, and if so, just tell me and I will look at the record. It is true that during the year ending March 1, 1921, the New York Central Railroad did not earn any net on its investment ? Mr. Smith. Net ? Senator Wolcott. Net income on its investment. Was there no . net revenue ? Mr. Smith. Yes; there was a net. Senator Wolcott. Can you state in percentage what you earned on your investment as capitalized on your books ? Mr. Smith. I can not recall the figures. I will have to get them for Sou, Senator. I haven't them here, and I haven't them in the record, ut I will be glad to get them and furnish them to you. Note. — Mr. Smith subsequently advised the committee that earnings for the period in question were 0.002 per cent upon investment. Senator Wolcott. I understood the chairman to ask the question whether it was not true that failure to earn net income had no con- nection with the increased traffic. I understood that to be the chair- man's question. The Chairman. No; what I said was that for the year ending March 1, 1921, the railroads did more business than thay did the 12 months immediately preceding. Senator Wolcott. Yes. Senator Pomerene. 1920. The Chairman. That is true. And that the railroads as a whole — I am not speaking about the New York Central — earned nothing during that year. Senator Wolcott. Yes. Well, I would like to have the witness insert in the record whether the New York Central earned a net income. The Chairman. I think the New York Central had a net mcome. Digitized by Microsoft® 308 RAILROAD REVENUES AND EXPENSES. Senator Wolcott. Did the New York Central have a net income, Mr. Smith? Mr. Smith. Yes; they had a net income, but I can not tell you just what it was. Senator Wolcott. You will put that in the record, will you, Mr. Smith? Mr. Smith. Yes. I just want, to call attention to the fact that in December, 1920, we had 9,086,634 tons, and in February, 1921, we had 5,797,476 tons. Senator Pomerene. That is for December, 1920? Mr. Smith. Yes, sir; December, 1920. And again, in October, 1920, we handled 11,680,286 tons, and in February, 1921, we handled only 5,797,476 tons. Now, if anything can be going to the rocks harder than that, you have got to find it. And let me say another word. The problem before the country is this: What are we going to do about it? And how are you going to fix it ? Because these railroads can not go very much further than they have gone now. The Chairman. Have you before you your net operating income for December, 1920? Mr. Smith. I have not, Senator. I haven't brought any of that, because it was not in this question. And I have tried to keep to that. I can readily get it. Senator Watson. Was any of that falling off in tonnage trans- ported due, in your judgment, to increased rates? Or is it all due to the general industrial condition of the country ? Mr. Smith. The general industrial condition of the country. You recall, Senator, that there was great agitation during 1920, at one period — I forget the months— that things were too high, and every- • thing had to be lowered and the cost had to come down. That played on the state of mind of the people, of course. The buyer stops right away and hesitates; he isn't going to buy. when prices are coming down lower. He is hesitating now. He has got an idea that rates have got to come down, and he is hesitating to ship. He is hesitating and holding off in buying coal, and all that sort of thing. The state of mind of thepeople is a great factor. Senator Pomerene. Well, may not the inference be drawn from your statement just made that if these rates were somewhat lower, it would increase the traffic, and thereby the general prosperity of the country would be reflected, to a great extent ? Senator Watson. That is the question that I was going to ask. Mr. Smith. Senator, I wish I had the power and the authority to try it out. I would like to see it tried out. I would like to let these railroads have the authority to make a special arrangement to move a million tons of grain, if you like, from anywhere to anywhere, and have them find a market. But of course you can move the coal, because if a fellow gets it cheap enough he will put it down on the ground against hauling it later on. But take anything that is merchantable, and which it is said we are holding up on account of the rates. I would like to see it tried out. I have no hesitancy in saying this, that rates have got to be adjusted, because, as you recall, we have lifted all of these rates by percentages for the last three years or more, and anyone knows that if you take 75 per cent of 15 cents and 75 per cent of 120 cents and jack them all up the same, you are going to get Digitized by Microsoft® RAILROAD REVENUES AND EXPENSES. a 09 the building pretty well out of balance, and it is going to tip over after a while, and therefore we have got to go back and scientifically or properly, at any event, readjust these rates. How, we are a country of great distances, and with this long haul at a ton-mile rate, the ton-mile gets too high — it naturally does as you fo a long distance — and when it gets to market you have got a pretty igh cost against yourself. On the other hand, a man shipping in a locality where it is a short haul and heavy terminals, the question of. whether he bears his fair share of the transportation of the country is a problem, bepause it costs as much to place a car to load and to place a car to unload if it is going. 10 miles or 50 miles, as it does if it ls.going a thousand miles or two thousand miles. And then generally those short hauls are in localities where the overhead is abnormally high. I wonder if we haven't got to come to the way they do in the other countries where the terminals have got to be figured and the charge made for that, and then split the line haul ? Senator Pomerene. What do you mean by that: Split the line haul? Mr. Smith. Split the line haul. For instance, I take your freight in New York. New York is an expensive place to live, and it is an expensive place to handle freight. It is an expensive place to do every- thing. And the same thing is true of New England. It is true of all places where there are great centers of activity. You have got to assess the terminal charge, and then split the line haul between there and Iowa, California, or wherever it is, because it doesn't mean so much after you get a car loaded on the wheels, if you could just keep it going. Senator Watson. By*splitting a line haul do you mean reducing it ? Mr. Smith. I mean splitting it between the carriers. I mean out- side of line haul. The Chairman. That is the way the rates are made abroad, isn't it ? Mr. Smith. Yes. The Chairman. The terminal charges, and the line haul. Mr. Smith. Yes. We demonstrated in the Government the cheap- est way. The way we met the situation in the demand for munitions and food on the other side was to get them into solid trains. We made solid trains up way west of Chicago, and we never broke the bulk or never broke the coupling of the trains unless something hap- pened to a particular car, until it was landed in New York alongside of the ship, or in Baltimore, or wherever it was going. That was the alternative of the priority car. Instead of having the priority car, we had a priority train of 75 cars, and that is the way that was done. Now about 85 per cent of this business is under commodity rates, might be called wholesale business, and about 15 per cent of it is retail. What I mean by retail is the short haul, less than carload stuff. There is a question in my mind whether a lot of that 15 per cent is compensatory, and if it is not, and if these heavy charges on terminals are not protected, then it affects this long haul, and we have got to figure some way to haul the wheat from Kansas to the market as we haul other things long distances for manufacture, and as we will have to haul exports, very likely, to the sea to compete with other activities. And to do that, we, or some one — and I won't say Digitized by Microsoft® 310 Rl4.IL.RO AD REVENUES AND EXPENSES. "we" — I think you have got us tied pretty tight; but whoever handles that halter has got to be allowed to permit latitude in read- justing this long and short haul business. You have got yotiir big markets and your consuming markets locally at one end of this country and your big agricultural producing centers at the other. The Chairman. It is fortunate that the Senator from Washington is not here. [Laughter.] Senator Watson. Yes ; it may be interesting to him. Let me ask you a hypothetical question. You hauled 1 1 ,000,000 tons in October, 1920, at existing rates. Did you make any money that month 1 Mr. Smith. Oh, yes; I think we made a little money. I forget just what we made. We have not made any money at all, Senator, to speak of; you can not make any money with these costs and at this rate, because we did not get, you know, this, rate in percentage that people generally believe we got. We did not get that. Senator Watson. What do you mean by that ? So far as the general public estimate is concerned ? You got the real rate that we understand you got, didn't you ? Mr. Smith. Ever since we started, as I recall it, in this rate raising, I think we got about an increase of 57 per cent, and I think our labor costs and other costs such as material costs, have gone up over 100 per cent. Senator Wolcott. You did not get the benefit of it, you mean ? Mr. Smith. We did not get the benefit of it. Senator Watson. Or net benefit. Mr. Smith. Yes. Senator Wolcott. No net benefit. Senator Watson. But what I am trying to get at is this : You hauled 11,000,000 tons in October. If you could haul 11,000,000 tons every month at existing transportation rates, would you make any money ? Mr. Smith. I think not. I will have to look over the figures, but I think not. Senator Watson. How much more than 11,000,000 tons can your road carry at full capacity ? Mr. Smith. I would not want to answer that. I would be only guessing at it, for I have not the figures with me. Senator Watson. What I am trying to get at is whether or riot, if you run at full capacity and haul all you can at existing transpor- tation rates, can you make any money? Mr. Smith. No; the cost is too high. Senator Watson. How can you fix it to make money ? As we say in Indiana, I want to put the grease where the squeak is. I want to find out where the squeak is, and what grease you propose to put in to stop it. Mr. Smith. Well, the squeak is that our cost factors are too high. I don't mean only labor, but our material is too high, and our fuel has been too high, and all of these things have gone up. Our taxes are awfully high. That goes along with the rest of it. I do not imagine they can be' reduced, but they are there. And they enter into the cost of this operation. And then our labor costs, as I say, are too high. I think labor on railroads should have liberal con- sideration. Digitized by Microsoft® RAILROAD REVENUES AND EXPENSES. 311 Senator "Watson. Well, now, let me ask you right there, is the wage paid the average man on the railroad out of line or proportion with the same wage paid a man doing the same kind of work or sim- ilar work in other branches ? Mr. Smith. Yes ; in some instances labor is out of line now. The mechanical hour is hardly measurable with the outside industries, because the mechanical hour and the piecework hour enter into that. I should say that we have gotten out of balance with the outside. Now, there was a time when that was the reverse. There was a time when these rates were held so low on us that a railroad was not paying its men fairly, but you — and I say "you" the people — did not give us money enough so we could, and the outside manufacturer and the person on the four corners outbid us for our labor, and we were always having an argument with our men, they wanting more, and we not being able to give it to them because we did not nave it; and that is not good, that is not a good situation, because we have fot to have harmony. Ninety-five per cent of this railroading is uman. The other 5 per cent is merely coal and steel, and it is not Worth anything if you do not get good men with it. Now, take the yardmaster who goes into a yard with 10,000 cars, and who is able to separate those 10,000 cars and make them up in order to send them all over this country, and get them in line to move, he is an executive, he is an organizer. And every man that is with him is an experienced workman. These men are more than average laborers. And when these men go into this train operation, and when they go into all of these activities in railroading, they are above the average in the way of labor, and they ought to have consideration, and they ought to be paid enough for their work. The only thing I think about regulation, gentlemen, is this : I think you have got us tied pretty tight. We do not have much latitude. We are not, any of us, going to railroad so much longer. But what made the railroads was vision, initiative, energy, study, competition, and what is in every man, if he has got any red blood in him: To beat the other fellow to it if he can. Now when you tie us up so there is nothing of that left, when we can not do any of that, why we just plod along like the plow horse hitched to the other one. The Chairman. Well, make that more specific, Mr. Smith. That is rather general. What particular restriction is now laid upon you which you think ought to be removed ? Senator Watson. That is exactly what I was going to ask. Mr. Smith. Well, I am not a lawyer, and while I have argued this with Col. Thorn and some others, they always point out to me that that is ,the law, and we can not help it, and so I bow and take the yoke and go along with it. I will have to have more time to do that, to get at just what changes ought to be made. It may be general, Senator; but I would like to see a freedom of activity al- lowed the railroads in this country. I do not mind regulation. I do not mind coming in and telling you what we have done, or why we have not done it. I do not mind a yard stick of duty laid on me, and if I do not do my duty, why do something with me. But we can not do much nowadays. If we want to buy anything, or if we want to get anything we have got to come down and have a long hearing before it is done. We must show all that there is to Digitized by Microsoft® 312 RAILROAD REVENUES AND EXPENSES. it. There is no activity left excepting to run the properties just as they are. The Chairman. But do you advocate the withdrawal of the super- visory power over the Interstate Commerce Commission over rates ? Mr. Smith. No, no; I think the Interstate Commerce Commission is a good thing. But I would like to see the Interstate Commerce Commission so placed that they could say to me, for instance, and to one of my western connections: "This is an emergency. Go ahead and put in a rate and see whether we can get this grain to market, and what is affecting it." But we can not do it. The Chairman. Well, do you advocate the abolition of the Labor Board ? Mr. Smith. No ; I think the Labor Board is a good thing. I would like to see the Labor Board situated so that it can function more rapidly, and perhaps it will when it gets more practice. I think the Labor Board is a good thing. The Chairman. Well, when all is said and done, those are the two restrictive things on the railroads: The one to supervise your rates, and therefore your revenues, and the other to fix the wages that you shall pay, and to that extent the expenditures. Mr. Smith. Yes; but that is the greater part of the expense. I have no quarrel with the transportation act, Senator, if that is what you refer to, particularly. I have no quarrel with the Labor Board. I think, as you say, it is a good thing. And the Interstate Commerce Commission is a necessary umpire in this game. But, to use a base- ball illustration, we are not allowed very much latitude on the bases, you know, or very much of that kind of thing. We are held up pretty tight. The Chairman. I am compelled to go to the Senate, and we may as well at this time adjourn until Monday at 10 o'clock. (Whereupon, at 11.50 o'clock a. m., Friday, May 20, 1921, an adjournment was taken until 10 o'clock p m., Monday, May 23, 1921.1 Digitized by Microsoft® RAILROAD REVENUES AND EXPENSES, monday, may 23, 1921. United States Senate, Committee on Interstate Commerce, Washington, D. C. The committee met, pursuant to adjournment, at 10 o'clock a. m.,. in room 410, Senate Office Building, Senator Albert B. Cummins (chairman) presiding. The Chairman. Before we begin the taking of further testimony, I desire to put into the record a letter which I have received from W. S. Stone, grand chief engineer Brotherhood of Locomotive Engineers; W. S. Carter, president Brotherhood of Locomotive Fire- men and Engineers; L. E. Sheppard, president Order of Railway Conductors; and W. G. Lee, president Brotherhood of Railway Trainmen. The substance of the letter is that they desire to be heard at some time during the inquiry, and I have told the gentleman who presented it that they would be heard, but the time could not be fixed just now. • The letter may be inserted in the record. (The letter referred to is here printed in full, as follows :) Cleveland, Ohio, May t9, 19S1. Hon. A. B. CuMMKNSj ■ Chairman Committee, on Interstate Commerce, Washington, D. C. . Dear Senator: After having knowledge of the matter presented to your committee by witnesses for the railroads, and learning therefrom that they are attempting to put the burden of the present financial condition of the railroads upon their employees, we have decided to request of your committee an opportunity to reply to this evi- dence, introduced against railroad employees that we represent. We also desire to present to your committee considerable data as to the causes of the present financial condition of the railroads which we have had prepared. In view of the fact that the Railroad Labor Board has announced a hearing on wage matters to begin at Chicago on June 6, and possibly continue the rest of that week, we would greatly appreciate an assignment for us to appear before your com- mittee that wUl not conflict with the hearings of the Railroad Labor Board. Very truly, yours, " ) W. S. Stone, Grand Chief Engineer Brotherhood of Locomotive Engineers. W. S. Carter,- President Brotherhood of Locomotive Firemen and Engineers. L. E. Sheppard, President Order of Railway Conductors. W. G. Lee, President Brotherhood of Railway Trainmen. The Chairman. Mr. Smith, you may resume your testimony now. 313 Digitized by Microsoft® 314 RAILROAD REVENUES AND EXPENSES. TESTIMONY OF A. H. SMITH, PRESIDENT NEW YORK CENTRAL LINES— Resumed. Mr. Smith. Before preceding, Mr. Chairman, on the general state- ment I wish to record this: That I understand that there are reports in the public press conveying the impression that in my testimony on Friday I complained of the Director General not paying us promptly for amounts advanced by us to pay his current bills, -which have come to us in the shape of overlaps from the period of Federal control, such as back pay and other items due from him. I did not intend to produce that impression. I believe he pays these over- lapped bills promptly. My complaint is our inability to collect other amounts which we claim he owes us for the use of our property under maintenance, etc. The Chairman. I have a letter from the Director General, which I will not put in the record now, but in which he speaks of your testimony in that respect, and in which he claims that the Govern- ment has always had in your hands a sufficient sum of money to pay all these claims for back pay, or pay of men during Federal control. What I am interested in more than anything else with regard to that subject is this : In your reports, did you charge back pay arising during Federal control and which you paid out of a trustee fund, or whatever fund you may have had, to your maintenance account, or your expense account; does that appear in the report that you made respecting the expenses of operation ? Senator Kellogg. At what time ? The Chairman. Of course, the roads began to operate on the 1st of March last year. Now, they have charged up a certain sum of money as paid out for operating expenses. Were those payments that you made on account of the Director General charged m that account ? Mr. Smith. They were charged in accordance with the regulations of the Interstate Commerce Commission, Senator. And so that there may be no confusion, and so that there may be no repetition) I have asked Mr. Wishart, who is our comptroller and who is well fortified with the details of what the rules require and what the regulations are, to be here ; and if you will permit it we will put him on the stand and let him tell it, so that it will be absolutely correct. Mr. Thom. He is here now. The Chairman. The payment that you made, for instance, that you mentioned, of $1,700 evidences back pay prior to the 1st of March, 1920, and ought not to have appeared anywhere as a part of your operating expenses, and my only inquiry is whether such a payment as that does appear in your operating expenses ? Mr. Smith. Of course, that was only one item, Mr. Chairman, and there are a great many of them, and in the aggregate it amounts to a large sum of money. And, therefore, I think it would be well if Mr. Wishart might explain it, so that there can be no misunderstand- ing. Of course, we had a peculiar condition in 1920; we had three periods of operation — Government, guaranty, and then four months of strictly private. The Chairman. You agree with me, do you not, that these pay- ments do not constitute any part of your operating expenses? Digitized by Microsoft® RAILROAD REVENUES AND EXPENSES. 315 Mr. Smith. I agree with you, Senator, that that portion or any part paid the men did not belong in that. I think, under the rules of accounting, that has to be entered in, and then charged back in some way; and Mr. Wishart can explain that. Senator Kellogg. That is entered in and charged back just exactly as though it was charged in in the first instance? Mr. Smith. I do not know, Senator. The Chairman. In this table you have put in there is a certain amount — for instance, maintenance of way and construction; a certain amount for equipment; a certain amount for transportation — that is, under the item of transportation. What I wanted to have made perfectly clear is that these payments that you made on ac- count of the Government, no matter from what fund they came, were not charged and do not appear in your operating expenses for the year beginning March 1, 1920. Senator Fernald. Mr. Chairman, if Mr. Wishart is right here, let us have that made clear now. Mr. Smith. It will be a good time to do it. The Chairman. Very well; let us clear it up now. You may be sworn, Mr. Wishart. TESTIMONY OF MR. W. C. WISHART, COMPTROLLER, NEW YORK CENTRAL LINES. (The witness was duly sworn by the chairman.) The Chairman. I do not think that you ought to interrupt the continuity of Mr. Smith's testimony in any other way than just to clear that one subject up. Mr. Wishart. There are always delayed items, both of expenses and revenues. The Interstate Commerce Commission is interested primarily in knowing what this property, as a railroad, does. Senator Kellogg. That has nothing to do with it. We know that. Mr. Wishart. There is a separation of responsibility for these expenses. We are required, if this is a delayed item, to include it in the expenses. The JDirector General established a trust fund, and he paid all these back pay awards that appeared in his period of operation, but they are included in the, current months in which they were paid;* Therefore, they are also delayed revenues The Chairman (interposing). What we want to know is, whether these payments which were made for back pay prior to the 1st of March, 1920, now appear in your operating expenses? Mr. Wishart. They do. The Chairman. As reported to the Interstate Commerce Com- mission ? Mr. Wishart. They do, but they are reported separately. The Chairman. They do appear ? Mr. Wishart. Yes, sir. Senator Kellogg. But in making up your final statement of what this property earned in that period, all these items appear as part of your expenses ? Mr. Wishart. In the report to the commission they do; yes, sii. The Chairman. Then you have a double charge to. your operating expenses ? Digitized by Microsoft® 316 RAILROAD REVENUES AND EXPENSES. Mr. Wishart. I would not say that, Senator, because there are undoubtedly other items that will be reported next year. There are always hang overs. The Chairman. But when you pay something on account of the Government out of a trust fund that has been created for that pur- pose, I am unable to see why that should appear in the operating expenses for the year 1920. Mr. Wishart. The year 1919 is closed, Senator; it is impossible to put it there. It is an operating expense, and so regarded. The Chairman. Now, we are trying to find out how much it cost your company to operate its property from the 1st of March, 1920, to the 1st of March, 1921. Now, it did not cost your company anything for this back pay 1 . Mr. Wishart. It did not cost our company anything. It might throw some light on it to say that when the director general took over our road he took over some $8,000,000, which he reported back. . The Chairman. So far as you know, all the railroads have been treated in the same way ? Mr. Wishart. Yes, sir. The Chairman. Then, in my judgment, your operating expenses are not as great as appear in your report. Mr. Thom. Nor are the operating expenses as great in 1919 as they should be, because the items should appear back there. The Chairman. But you had nothing to do with it; you did not operate it then. Mr. Thom. But when we come to a comparison of the two years, if we had included some of the 1920 in the 1919 reports, one of two results will follow: Either 1920 is too great, or 1919 is not large enough. The Chairman. That is what I say. Mr. Thom. I agree with you, Senator. The Chairman. You are putting in 1920 operating expenses that should appear in 1919. Mr. Thom. I am agreeing with you, Senator. Mr. Wishart. In the same way incidental expenses for the delayed reports and audits of the director general gives the reports for the same period. Senator Pomerene. Now, can you present to this committee a table of receipts and expenditures which are included in the year ending March 1, 1921, which should have been credited to the year ending March 1, 1920? Mr. Wishart. I should have to work that out. Senator Pomerene. It can be worked out, can it ? Mr. Wishart. Yes, sir. Senator Pomerene. This investigation should have the benefit of that. The Chairman. That is what we want. Mr. Wishart. I have here a statement up to the 1st of December. Senator Kellogg. There is no use going into it partially at this time. Mr. Wishart. I should have to analyze it. The Chairman. Will you get that for us ? Mr. Wishart. If you want it I shall be glad to get it. Digitized by Microsoft® RAILROAD REVENUES AND EXPENSES. 317 The Chairman. Please prepare a statement of that kind, so far as your road is concerned. Now, Mr. Smith, you may resume. TESTIMONY OF MR. A. H. SMITH, PRESIDENT HEW YORK CENTRAL LINES— Resumed. Mr. Smith. At the close of Friday's session I had just finished the freight tonnage for the months of January and February of 1919, 1920, and 1921. We now come to the passengers, The number of passengers for those two months as compared with the corresponding months in 1919 and 1920, was as follows: 1921 1920 1919 January . . February. 5,109,442 4,377,700 4,802,787 4,801,980 4,230,552 3,777,594 Coincidentally with this decline in the railroad tonnage there was a large decrease in the import and export traffic. While no separate statistics for the New York Central are available, the figures of the United States Department of Commerce show that the exports from the United States during January, 1921, decreased $67,823,632, as compared with January, 1920, and this decrease was in practically all commodities. The tonnage of the railways of the United States during that month decreased 33,624,131 tons. During February the exports' of the United States decreased $155,848,158, as compared with February, 1920. During March, 1921, the exports of the United States decreased $432,744,899, as compared with March, 1920. In the same periods — that is, the first three months of this year — in the same period the imports into the United States decreased in January $264,993,710, in February $252,877,183, and in March $271,934,495, as compared with the same months in 1920. According to these figures an important cause for the falling off in traffic was the falling off in foreign business. It is a matter of common knowledge that the rivers and harbors upon the eastern coast are filled with idle vessels and it is a fact that whereas prior to January 1, 1921, it Was necessary in order to avoid congestion of terminals for the railroads to issue permits to shippers desiring to export freight so that such freight would not be brought to the railroad terminals without a certainty of ships having been secured to carry the freight, after that time the permit system was abolished because so many more ships were offered than there was freight to carry. Other important causes of the decline in business had been in effect from a period antedating the rate advance of August, 1920. The Bank of England discount rate, which was raised from 5 to 6 per cent in November, 1919, was further advanced on April 15, 1920, to 7 per cent. The discount rates of the Federal reserve banks were sharply raised in February, 1920, becoming 6 per cent on agricultural and live-stock paper, and except in the Minneapolis district, 6 per cent on trade Digitized by Microsoft® 318 KAILKOAD REVENUES AND EXPENSES. acceptances. These rates were further advanced at various times throughout the year 1920. Although the advances were not uniform in all districts, the Boston, New York, and Chicago rate was raised in. January, 1920, to 7 per cent on trade acceptances, agricultural and live stock paper. In October, 1920, the Minneapolis rate was raised to 6£ per cent on trade acceptances, and to 7 per cent on agricultural and live stock paper. In December, 1920, the Atlanta bank raised the rate on trade acceptances, agricultural and live-stock paper to 7 per cent. These high discount rates obviously tended to curtail business;! Another cause was the propaganda against purchasing at high prices which spread through the country in the spring and summer of 1920, which led to a marked reduction in the purchase of commodities generally. It was well understood that the period of war inflation, would have to be followed by a period of deflation. The general causes producing this deflation were in effect and were mannesting; themselves prior to the rate increase of August, 1920, and it is not believed that this increase had any decided bearing upon the falling: off in business, which became apparent in January, 1921. Senator Pomeeene. Increase in what ? Mr. Smith. The general causes producing this deflation were in effect and were manifesting themselves prior to the rate increase of August, 1920, and it is not believed that this increase had any decided bearing upon the falling off in business, which became apparent in January, 1921; the freight rate increase. Senator Pomerene. The freight rate increases ? Mr. Smith. Yes. Senator Pomerene. Let me suggest, for the benefit of the record: You speak of the high rediscount rates of some of the banks. All of. the rates were not as high as 7 per cent, but this rediscount rate was advanced for the purpose of placing a check upon the inflation that ' was going on throughout the country, and that should be borne in mind. For instance, it was stated on the floor of the Senate one day that the rediscount rate in a Missouri bank was something like 15 per cent, as I recall. As a matter of fact, there was one note re- discounted, of about $2,000 in amount, at that rate. So let us get the exact fact with respect to that and not have it appear that all of these rediscount rates were at that rate. Mr. Smith. I did not put it that way. Senator Pomerene. No; I know you did not. Mr. Smith. I am not criticizing. We were trying to find out r looking back over 1920, and measuring what took place in that year—, an unusual year in the world — what caused this bottom to drop out' as it did in the last months of 1920 and the first months of 1921. The railroads get it last; the slowing down of business is so gradual that railroads find it last, The retailers stop buying, but the orders had been placed and the railroads were still moving up the vanguard of orders, and that ceased rather abruptly in the last of December. The Chairman. You are responding to the general charge that the- increase in freight rates which occurred about the 1st of September, 1920, was the; cause of the decrease in traffic which you experienced later in that year and during the first months of 1921. It,is alleged, and it is constantly repeated, that your freight rates are so, high that Digitized by Microsoft® RAILROAD REVENUES AND EXPENSES. 319 traffic will not move under them and that the reason that you did not move more traffic in those latter months of 1920 and the early months of 1921 was that the freight rates were so high that the commodities could not be transported from the point of origin to the point of sale. Mr. Smith. I recognize that point, and I said last week, I think,, that some rates were undoubtedly too high, and it is by reason of the fact that they were raised by the percentage way instead of lifting them as we ordinarily would. Senator Pomerene. Now, Mr. Smith, is that strictly accurate? Was not a large part of this increase in rates due to reclassification of rates, in part ; in other words, a certain kind of traffic would have a certain kind of classification ? Mr. Smith. Yes. Senator Pomerene. But the reclassification which was made in that part of the rate-making branch of the director general's office, caused the very large and unusual increase in the freight which that particular part of the traffic would have to bear ? Mr. Smith. That may be so, Senator; but I am not the best witness on that classification. I think probably that may be so. I would not be surprised if that were correct, but I am not familiar enough with what took place in the rate classification to tell. Mr. Chambers is here and is going to be on the stand, I think, and he is better informed on that. At any rate, there is no doubt we are out of bal- ance in many ways. And one does not have to know much about that, only to go around and experience some things. And what I meant to convey last week was that we will have to readjust some of these things; and we will have to readjust some of these charges, based upon some of these conditions at these great big centers of industry in the East. When I spoke the other day about the charge for the terminals, I meant that you can not load freight on land that is worth $150 an acre and unload it on land worth $1,000 an acre and balance it on the distance by which it is hauled. And then there are a great many rates, I think it will be found, that are too low; that do not bear a fair share or a fair proportion of the cost of transportation. That is, the short hauls, as well as the freight that takes considerable attention and brings very little back in money, and consequently what this does not pay has got to be assessed otherwise. These things have all got to be worked out with the commission. Each kind of traffic has got to carry the charges of this transporta- tion machine, and we have got to proportion it equitably and fairly between them; and whatever that fair apportionment is has got to be found, and I do not think we have it now. And that is why I wanted to get some latitude with the commission and with the rail- roads to work that thing out rapidly, because we can not wait. We have got to move fast. The Chairman. There is nothing to prevent that now, is there ? Mr. Smith. Well, yes. You see-^I do not know whether it is the law, or a rule, or how they get to it— but, you see, all rates can be suspended, and there is 30 days, as I recall it, right of suspension, with a hearing, and then if you try to do something to Cut a rate down you can not restore it; if you make a mistake in this railroad Digitized by Microsoft® 320 RAILROAD REVENUES AND EXPENSES. business and cut a rate down, you can not, without going through a lot of trouble, restore it or get it back again. The Chairman. The commission is not compelled to suspend a jrate which is made by the railroad company. Mr. Smith. No; but they do it, and they give an opportunity for everybody to be heard. There we are coming back to human nature again. As I said the other day, I would like to try out some of these merchandising problems, to see how much they could find a market for if the rate was off somewhat. And then we would .have to find some other way tojmt the rate up on these short hauls — on this short-haul business. We will come to a day when we will •coordinate more; on this mo tor- truck business, we are coordinating with them. We have got to have more coordination. I think we have got to go into what this bill provides for; that is, putting the properties together to spread the overhead. But that has to be handled very carefully, and that is a question of high mechanical skill, to join these properties together, to work it out. .Some are so weak that it will have to be carefully considered. It .has to be experimented with and tried out, rather than arbitrarily putting them together and saying they have got to go. Senator Kellogg. Mr. Smith, as I recollect, there were changes :in the classification during Government operation, and commodity urates made on particular articles, but when the commission came ito increase the rates last August or September, they did not reclassify^ they simply added a percentage. ' ; Mr. Smith. I think that is true, Senator. Just how far it went, I am not familiar with. To be candid, I did not pay any attention when the Government was in control what the rates were. We did not have to worry about it. Senator Kellogg. I will not go into that now. Mr. Smith. Now, your next question is the efficiency or ineffi- ciency of .railroad management during Federal control, and during ithe year beginning March 1, 1920, and the efficiency or inefficiency .of labor employed by the management during the same periods. That was your question. Possibly the only way to measure •efficiency is by measuring the transportation output as between any -two periods. The following might be used for such measure: 1. Revenue tons carried. 2. Eevenue tons carried 1 mile. 3. Tons per train. 4. Average loading per car. If we make the revenue tons per train the measure we find in 1920 -the New York Central Railroad carried 15.4 per cent more revenue itons than in 1919, and 0.5 per cent more than in 1917. The tons carried per tram on the New York Central were: 1915 :.... : . : 822 1916 847 1917 927 1918 : 975 1919 945 1920.. .'.' 990 -which is the highest in the six years recital. The Chairman. Do you mention these facts as indicating effi- ciency in management, or labor, or both? Digitized by Microsoft® RAILROAD REVENUES AND EXPENSES. 321 Mr. Smith. Both; you could not do anything on these railroads without labor, of course. It is a question of the result of effort on the part of everybody. The Chairman. You may give attention to it later, but that was the very crux of the whole inquiry. You might easily imagine that there might be an increase in traffic, attended with such a tremendous increase in cost that it would not indicate efficiency either in mah- agemen-'t or labor. Mr. Smith. True,. Senator, true. That is what happened in 1920;. we had lots of traffic, but it cost too much to handle it; we did not make any money. The Chairman. You mean last year ? Mr. Smith. Yes, sir. The Chairman. That is the whole point of the inquiry. Mr. Smith. It cost us too much to do it. I have tried to point out why it cost too much. Labor is higher than it has ever been. As I go back and look back 10 or 12 years, long before the Government took it under control, labor was lower and the rates were lower. But the whole, world is lifted up ; everybody is lifted everywhere, and therefore, we are in these periods of high cost. Materials were higher, as I have, recited, and tne flat situation is that we did a good big business, but it cost too muchj on account of these factors, to do it. And we have either got to get down our cost, or we can not live; the rates have got to come up, or we have got to get the cost down. The Chairman. I have heard it alleged that your expense for supervision was altogether too high in 1920; that you increased tremendously the number of so-called supervisory employees, or officials; what is your observation about that? Mr. Smith. Well, I have heard that. The figures will show what the supervision was. Of course, supervision went up in cost the way that other costs of labor increased, because you can not pay the captain less than you pay the private. Otherwise, he ceases to be a captain. When you lift all of these wages, you must increase your superintendence or your supervision, because it would not do; it would not be good sense to pay the workman that h& supervises more than you pay the superintendent -who supervises. Senator Pomerene. As a matter of fact, it was done. Mr. Smith. Yes; in some instances. Senator Kellogg. Mr. Smith, your supervision is by officers ? Mr. Smith. By officers; yes, sir. Senator Kellogg. And they are classified and pay rolls are filed with the Interstate Commerce Commission ? Mr. Smith, Yes, sir. Senator Kellogg. And they come under the classifications or salaries, in general, which were reported here by Mr. Kruttschnitt ? Mr. Smith. Yes, sir. Senator Kellogg. Very well; then, if the total salaries were eighty-two one-hundredths of 1 per cent of your operating expens.es, the cost of operation of your railroad could not have been lifted very much by that ? Mr. Smith.- No; very small. The cost of supervision, relatively, is very small. \ 63553— 21— Vol I 22 Digitized by Microsoft® 322 RAILROAD REVENUES AND EXPENSES. Senator Kellogg. Then can you give us, on your road, the per- centage of your operating expenses in salaries and which include this supervision spoken of ? Mr. Smith. Yes; I will file it with the reporter. We have it right here. (Note.— Mr. Smith subsequently advised the committee that sixty-three one hundredths. of 1 per cent was spent for salaries of officials.) Senator Kellogg. And divided as Mr. Kruttschnitt divided the general expenses of all the railroads in the United States ? Mr. Smith. Yes, sir. Senator Kellogg. Those are under the rules of the Interstate Commerce Commission ? Mr. Smith. Yes; all of this is under the rules of the Interstate Commerce Commission. (The statement referred to is in process of .preparation and will be printed in the permanent record.) Mr. Smith. I might say, of course, Senator, as you take away the piecework operation that we referred to, .you increase your super- vision, because whatever a man is doing by the piece, he is his own . supervisor. If I am running a wheel lathe and I am paid for what- ever number of wheels I turn in a day I do not require any supervision; I get paid for what I do. But if I am working by the hour, then I have to be supervised to see that I keep industrious, and you are bound to have more supervision in that way. All these things go according to the rules that you put down. But, even so, the super- vision is relatively very small for the aggregate of these properties, and remember that it is a business that goes on 24 hours for the 365 days of the year, and you have got to supervise it at night as well as in the daytime. The Chairman. You may proceed with your statement, Mr. Smith. Mr. Smith. The average load per car shows a progressive increase of— 1915, 22.5; 1916, 23.6; 1917, 26.5; 1918, 28.3; 1919, 26.1; 1920, 28.9 tons. The efficiency of a railroad depends upon its men principally. It is estimated that 95 per cent of railroading is human; it is a business of moving things; it is a live thing. At the close of Government control labor naturally desired to have rules and regulations set for their best interests for the future, and the corporations inherited what was awarded them. They are no different in this desire than labor in other endeavors. These men engaged in this special endeavor of handling transportation on which our country depends so greatly should receive an adequate wage. After compensation comes results — that is, what shall labor do for what it receives? And that is in a measure where our difficulties have been. It is a matter between management and labor, to be decided on its merits, and will no doubt now be taken care of as the United States Labor Board has decided the national agreements are to be canceled on July 1. From the foregoing statements and figures the following facts are stated and conclusions are drawn: For the year ending December 31, 1920, revenues increased 19.5 per cent over 1919. For the year ending December 31, 1920, oper- ating expenses increased 40.8 per cent over 1919. Digitized by Microsoft® RAILROAD REVENUES AND EXPENSES. 323 For the last four months of 1920 freight revenues increased 40.1 per cent over the corresponding months of 1919 and all revenues increased 29 per cent over the corresponding months. For the same four months operating expenses increased 1920 over 1919,43 percent. For the eight months from May 1, during which the increased wage order of the Labor Board was in effect, operating expenses increased 55.4 per cent. Of this increase 37.7 per cent is represented by labor. The remainder is accounted for by the increased cost of material and supplies. Neither traffic nor earnings decreased during 1920. The dimin- ished traffic in 1921 was caused by the general business depression. That depression apparently was not caused by increases in freight rates. Other cauges sufficiently powerful to cause the depression were operative before the increase m freight rates was made. The railroad management, hampered by the necessity of under- taking the operation of the property, burdened with the large ad- vances in expenses, with undermaintenance of way and equipment, and further burdened with the additional increase of expenses by reason of the orders of the Labor Board, moved all the tonnage that was offered during 1920, and endeavored to make substantial progress toward restoring the property to .the standard which the best judg- ment considered necessary to enable it to do properly and safely the business of the public. The enormous increases in operating expenses have been in the main due to the Great War. War necessities broke through and largely destroyed normal conditions in the industrial world. The materials of war had to be supplied at any cost of labor and material. This situation had to be met in the railroad world, and it was met. This statement does not attempt any apportionment of the respon- sibility. The war ended, but normal conditions could not at once be restored. That restoration can only come through time and patient effort, but prewar or normal conditions and a normal cost of living can only be restored by general reduction in the cost of both labor and material. That finishes my dirfict statement, gentlemen. The Chairman. Senator Fernald, will you inquire now? Senator Fernald. I believe I have no questions, Mr. Chairman. The Chairman. Senator Poindexter, do you care to inquire % Senator Poindexter. I believe I have no questions. The Chairman. Senator Pomerene ? Senator Pomerene. I do not think I care to ask anything just now. I may desire to later on. The Chairman. There is some information that I think the com- mittee would like to have that possibly you can furnish, or direct some one else to furnish. Your company makes a monthly report to the Interstate Commerce Commission of its operations, I think ? Mr. Smith. Yes, sir. The Chairman. That report shows, for the month, the operating revenues ? Mr. Smith. Yes, sir. The Chairman. And the operating expenses ? Mr. Smith. Yes, sir. The Chairman. And so on, until the net income is made to appear ? Mr. Smith. Yes, sir. Digitized by Microsoft® 324 RAILROAD REVENUES AND EXPENSES. The Chairman. I wish you would furnish, although I am quite sure you have not that with you now Mr. Smith (interposing). Possibly I have. I have some of it, Senator. The Chairman. I would like that monthly report for the 12 months beginning with the 1st of March, 1915, for 1916, 1917, and 1920. Mr. Smith. Just those four years ? The Chairman. 1915, 1916, 1917, and 1920; that is, the year be- ginning with the 1st of March, 1920. I want the committee to be able to compare your revenues for each of those months, by the month, and your expenses for each of those years, by the month. It has been said, and said very generally, that because the railroad companies had a guaranty from the 1st of March, 1920, until the 1st of September, 1920, they were somewhat reckless and improvi- dent with respect to their expenditures during that period, in view of the fact that their guaranty would protect them against any ex- penditures they might make; and I want that information, if you will, so that we can compare those various items. (Note. — The data requested will be found in the Appendix, pp. 15-16.) Senator Pomerene. Mr. Chairman, will you permit me to amend your suggestion by including the years 1918 and 1919.? That was during the period of Government operation. The Chairman. Precisely. That is quite proper that that should be included. I had expected to get that from the Interstate Com- merce Commission itself. However, if you have that Mr. Smith (interposing). Yes; I think it would be very proper if we should show it continuously from 1915 to 1920, beginning the year with the 1st of March. The Chairman. Yes. Mr. Smith. Instead of the fiscal year, beginning with the 1st of March for each of those years. The Chairman. Yes. Mr. Smith. I will be glad to do that. And will you also permit us to make a statement on the alleged improvident expenditures ? The Chairman. You mean to make it now, or put it in there ? Mr. Smith. Put it in there, because we shall have the figures right there. The Chairman. You shall have every opportunity, because we want to find the truth about this. Mr. Smith. And we are trying to help you. The Chairman. And this hearing will not close until every fact that we think is material to the investigation shall be developed. It is not like the trial of a lawsuit, where you have to close at a certain time; we do not intend to close this hearing until we know all there is to know about this situation. Mr. Smith. I appreciate that. The difficult thing is to know what the situation was m March, 1920, when these railroads came back. We tried to do it in figures. The equipment, and all those things' can be proven in figures, and we who are handling it know in fact, that they were not in position to proceed with the proper transportation of the country, and approaching, as we were, a winter again, why, we had to begin and do those things. It was the penalty of war, and the Government wore them out. We could not wait the six months until the guarantee was up. It is either chargeable to the corpora- Digitized by Microsoft® RAILROAD REVENUES AND EXPENSES. 325 tions, or it is chargeable to the Government. The Government said, and they said earnestly, and I believe without any question, they would take these properties and they would return them in as good condition as they took them It is like leasing a house from a man and tearing down all the partitions and wearing out all the utensils and changing his servants and altering their compensation and adding on additions and taking from, and then after you get all through, try to settle with him what took place and what you ought to pay him. As I said in the beginning, Senator, and I want to say now, these railroads were a great instrumentality, and I think they are entitled to liberal treatment on the part of the people of the United States who are served by them. And 1 do not mean the corporations. The cor- porations did contribute what capital they had in this and other machinery and tools, but I think the thing as a whole — the men who went into this thing; I do not question these men having this increase in wages during this war. There is a certain equity in the leveling process that we have all got to come to now in this country and in this world if we are going to get down and proceed as we were as quickly as possible after this dreadful catastrophe is over. We have all got to do our share. The railroads did considerable. I pointed out that the Government had failed to put in a sufficient number of ties in our railroads. It would have been suicide for me not to obtain those ties and put them in. You can not hold a train on the track at the speed you Want unless it is properly ballasted and has a sufficient number of ties. They did spend a lot oi money during the war on the track. Senator Poindextee. Who do you mean by "they" ? Mr. Smith. I. Senator Poindexter. You mean the railroad ? Mr. Smith. No; the (Sovernment. Senator Poindexter. The Government ? Mr. Smith. The Government. We spent a lot of money on the track. Senator Poindexter. The Government spent an adequate amount of money for maintenance ? Mr. Smith. No; not adequate. They did not maintain it. They could not. We had to take what was left; you know we had hun- dreds of women employed on the track. We all know that women can not do the heavy work of putting in the ties, and can not swing a spike maul. We put them to cleanmg the ditches, and that sort of work, but they are not good shovelers. The Chairman. They ought not to be. Mr. Smith. We had to take the old men and the boys and the women to do that work. Senator Poindextee. You were with the Railroad Administration ? Mr. Smith. Yes; I was. The Chairman. When I ask for this information, you will under- stand we do not prejudge this condition. It is for the purpose of allowing the people of this country to know what the situation has been and what it is now. Mr. Smith. I understand. I want to take this opportunity merely to get it out of my system. And I want to say one -other word, if I may: I want, before I leave, to again urge the appreciation of this fact, that the railroads are in a bad way now; it is not pleasant, and it has not been pleasant, for the railroad officers for a great many Digitized by Microsoft® 326 RAILROAD REVENUES AND EXPENSES. C' ; !\ '" .. ■ years to be down here all the time crying poverty and saying that this is bad and that is bad, and we have got to have help, and all that sort of thing. But I think the history of the whole railroad situation will show that the railroads have not had for a long time a sufficient amount of income to carry them along, one year with another, to lay up against the future, and in any event to-day it is in such a situation that we ought to take some very early steps to relieve that, one way or another, because what I am concerned about, gentlemen, is the return of prosperity, and I hope and I know^ in fact, that this country will return to great prosperity, because it always has, and there is nothing in the world that can stop it. But you want these transportation machines ready, and we ought to have them ready, and we will be down here and be challenged because we are not ready, and I tell you now we haven't the money to get them ready. And whatever the laws are — whether it is the law or the rule — I hope to see the day, as long as I am to railroad — I would like to see the day when I might be allowed the latitude of going ahead, quickly determining according to the conditions that, sur- round me. If I may use the simile of a ship, because this is a great big undertaking that is sailing through more or less troublesome waters and I am responsible for bringing the result, I can not change its course ; I can do very little with it, only sail along according to the chart that is laid down, according to which I shall sail that snip. I wish I were allowed more latitude to change her course or reef her sails as circumstances demand. And if you, by law, should place a yardstick of duty on me, so that if I do not perform my duty you could call me up, or any other corporation officer, or all of us, up and find out what is the matter with us. Because we are now told what we shall charge for what we sell; we manufacture transportation, and we sell transportation by the- ton, or by the mile,, and then we are told what we shall pay. And then it appears that we should change to the demands of business, whether it is the farmer with his grain) or the quarry with its stone, or the steel mill with its steel, or to meet the export situation, and whether we should do anything, it takes a long while to get that through, and the opportunity to do it some- times is passed because of the length of time consumed to get action. The Interstate Commerce Commission is a wonderful institution; it is a necessary institution, and I have got no argument with it. I would like to see it, if it has not now enough latitude, have enough given to it to go with us and do some of these things experimentally, And your Labor Board is a wise provision. I have never been clear in my own mind or able to reason it out — inasmuch as I look at it it is a United States court — and I have never been able in my own mind to reason out how we justify putting the advocates on the bench. I always thought they had to be on the other side of the bench, because in the last analysis the public pays the bills. I wanted to say that. Senator Pomerene. Let me ask you a question ? Mr. Smith. Yes. Senator Pomerene. You have spoken about your difficulties in financing, and so forth. I believe in the last few months your com- pany negotiated a large loan, did it not ? , Mr. Smith. Yes, sir. Senator Pomerene. What amount ? Digitized by Microsoft® RAILROAD REVENUES AND EXPENSES. 327 Mr. Smith. We borrowed $20,000,000 at one time, and we bor- rowed $8,000,000'here recently. Senator Pomerene. For what purpose was this, in a general way, Mr. Smith ? Mr. Smith. Well, this $8,000,000 recently, was to pay our bills. Senator Pomerene. And what was the $20,000,000 for? Mr. Smith. The $20,000,000 was to refund certain Senator Pomerene. Securities? Mr. Smith (continuing). Certain notes that we had put up during the Government control, as I recall it, and on which we were in- debted to the Government; notes coming due. Senator Pomerene. And what rate of interest did you have to pay on the $20,000,000 and on the $8,000,000 ? Mr. Smith. We paid 7 per cent on the $20,000,000 and 6 per cent on the $8,000,000. Senator Pomerene. And did you pay a commission in addition to that ? Mr. Smith. There was no commission on the $8,000,000.' There was a commission, I think, on the $20,000,000. Senator Pomerene. Of what amount? What was the commis- sion - on the $20,000,000 ? Mr. Smith. I do not remember exactly what it was, but I think it was one-quarter of 1 per cent. Senator Pomerene. Well, was that the best you could do in the money market ? Mr. Smith. Absolutely. Senator Pomerene. A year or two ago a great deal was said about the purchase of these railroads and paying for them in 4 per cent bonds. Do you think that was possible to do? Mr. Smith. No, sir; I do not. It would not be possible to do that. Senator Pomerene. Is it possible for you to get 4 per cent money now? Mr. Smith. Absolutely impossible. You can not get any money at that rate. Senator Pomerene. Is it likely to be possible to get.it at that rate in the near future ? Mr. Smith. I think not. Senator Pomerene. Do you see any prospect of paying off this 7 per cent loan at a lower rate ? Mr. Smith. I do not. I borrowed this $8,000,000 at 6 per cent on short-term paper. I think if I had to fund it for a longer period of time I could not get it, at the present price of money, for that on long time. I was able to get the $8,000,000 at 6 per cent because it was short time, and it was what you might call a bank aceommoda- tion to the railroad. We were doing business with these banks, and they favored us for a while as a customer, but if we went to fund that for a long time and tried to sell it to the public we could not get 6 per cent money, because the public won't take it up. , t Senator Pomerene. Now, in a general way reference was made, I think, by Mr. Willard. and by Mr. Kruttsehnitt to the necessity for further railroad development in this country. Do you feel that that is necessary along your lines ? Mr. Smith. Yes, sir. Digitized by Microsoft® 328 RAILROAD REVENUES AND EXPENSES. Senator Pomerene. And you have spoken about your liking to have more latitude or, in substance, you feel that you could do better if you had more latitude. Mr. Smith. Yes. Senator Pomerene. I am not quoting you accurately, and I do not mean to do it, but I am simply referring generally to the state- ment you made. Mr. Smith. Yes. Senator Pomerene. Now, supposing you were to go on and make the improvements that you feel are really necessary, about what amount of money do you think that you would require ? . Mr. Smith. Well, on the New York Central Kailroad we have spent in the past, before this depression took hold of us, $25,000,000 or $30,000,000 a year. It requires that much to replace and to expand the property where the weak links develop. Of course, in doing these things it would be folly to only replace what you have; you have got to expand your property, and you should look ahead, if you know how or can. If a man can look ahead 20 or 30 years, that is what he should do. Senator Pomerene. That, is, you want to make those present improvements looking toward the future development of the system and the needs of tra nsp ortation ? Mr. Smith. Yes. We have at Cleveland a very serious problem, which is now before the commission; and with the experience of the war and the knowledge that I have of that property up there, looking ahead 10 years I can see where the people in Ohio, the people in Cleveland, and the people east of that point, are going to be in difficulty, because of the impossibility of getting the traffic through Cleveland with any freedom; and the wisdom of the improvement there is to prepare for the future at that point. . Senator Pomerene. You need a new depot there ? Mr. Smith. Yes. Senator Pomerene. And another one at Toledo, I. believe? Mr. Smith. Yes. And another one at Syracuse and one at Buffalo,: Senator. .... Senator Pomerene. Yes; and I think your railroad ought to be ashamed of those depots. Mr. Smith. Yes; we hang our heads in shame and we put our hands in our pockets 'and we keep on being ashamed. We can not help it. The only thing I want to add to this question of freedom is this: I believe the best result will come in this life from letting any activity have freedom of action. Let these activities be known by their fruits, and put your regulation on a measurement of what they dp or what they do not do. I would like to take up a moment more on the question of freight cars. In freight cars we either have a feast, or a famine. When we have a famine there is a great cry for cars. Now there are a great many corporations in this country, and after we have ex- changed cars as freely and as efficiently as we can, there is still a shortage. It must be that; some one has not performed his duty. Now then, put the yardstick down on the fellow that did not per- form his duty and find out why he has not performed his duty under the franchise that he has been given, and ask him, "Why Digitized by Microsoft® < RAILROAD REVENUES AND EXPENSES. 329 don't you furnish these cars instead of begging and borrowing from your neighbor?" It is by the result they show that they have got to be measured. Senator Stanley. One question please, Mr. Smith. You speak with approval in a general way of the Labor Board; that is, as I understood you, you expressed the opinion that the advocate should be on the other side of the rail and not on the bench,; Is it your idea that the Labor Board as composed is, to a greater or less extent, biased in one way or the other I Mr. Smith. Well, as the Labor Board is built up it is composed of three ' members representing the public, three of the railroads, and three of labor. Now, if I was on that Labor Board representing the railroads — and I have been railroading now for 40 years — it would stand to reason that I would look at a questipn through the f lasses of the railroad officer, the railroad representative. It is uman nature. I could not help it. Senator Stanley. Yes; I see your point- Mr. Smith. And the same way in regard to the labor representa- tives. As I look at them, they are the advocates; the representa- tives of the railroads and the representatives of labor are the advo- cates. Really the only judge is some disinterested judge who can be convinced by facts and on that base his opinion, because whatT ever happens, Senator, the public is going to pay, whether the public pays it in one way or another. It is the public after all that is going to pay. I only mention that for this reason, Senator — that what we want is more rapidity of action. We want quicker action. We have got to move this machine faster, and we have got to get these decisions quicker, and naturally it seems after the case is closed that the Labor Board makes up its conclusions from the facts, and with the public representatives you have only got three minds or five minds to convince, and the more minds you have to convince, and the more argument you have in there, the longer it must delay the decision. Senator Stanley. In other words, two out of three of the judges on this , Labor Board, according to your contention, must hear a case that they have to a greater or less extent, prejudged, on account of their previous sympathies and activities ? Mr. Smith. It would seem so, yes; it would seem so to me. Senator Stanley. Now, when you have these differences of opinion as to the value of labor and the adequate wage to come before a board composed of the representatives of the roads, and the repre- sentatives of labor, is it true or not that the shortest way out of it is to adjust the scale, and if there is an increase, it is the duty of the Interstate Commerce Commission to see that you get a fairly compen- satory return, and this fixed charge, whatever it is, goes, as an item into that calculation, and if the rate is increased, for the time being the matter is adjusted, but if you keep on settling disputes in that way, is there any probability that, sooner or later, the burden will become greater than the traffic can bear, as the result of this general accumulation * Mr. Smith. It is likely to, Senator,; it is likely to. If there is not a coordination between the negative and the positive of the proposition', somewhere, one is likely to get away from the other. Digitized by Microsoft® / [ 530 RAILROAD REVENUES AND EXPENSES. Senator Stanley. What is your idea about the system that has been indorsed by a good many of these English trade papers, which, if I remember correctly, is a system of having both repre- sentatives of capital and labor, having the parties most directly interested, without any governmental intervention, voluntarily meet and adjust these differences ? Mr. Smith, Well, that is the way we always did it before the war. Senator Stanley. Well, do you think the old system is better or worse than the new? Mr. Smith. Well, I think we have gone along to the time when the differences are so many that we require some court of appeal in the interest of the public, to avoid disturbances. Senator Pomerene. Strikes or lockouts ? Mr. Smith. Strikes or lockouts, yes. Because this railroad trans- portation is peculiarly different than any other activity. It is some- thing that has to go on. You can not stop it. You have to run it whether you make money or lose money, and if you can not make money, why the sheriff gets it, or the court gets it, and they run it. And if you have trouble with your men you must try to run it anyway; in the interest of the public you must run it. I think we can get into very deep waters of consideration as to what we ought to do in the question of this peculiar relationship of transportation to the public and to our operation. As I said the other day with regard to these men that were in the transportation, they enter it in early life, and they keep at it all their life, and they are a part of it. They are more a part of it perhaps than anything else that has to do with public activities, and they are enti- tled to great consideration and fair treatment, and reasonable — I might say adequate — compensation. Now, men are bound to differ, and the more men there are the more -differences you will have and the more difficult it will be to get them to coordinate. ' Now, as we can not always agree, it is a great thing to have some public body, some authoritative body, to go to and lay our •differences before and get arbitration of a question. And then the act provides that if the public says — and the public does say, and hag said it in this court before now — "yes, they ought to have these things," the Interstate Commerce Commission is expected to put that into the rate and assess it accordingly. But the difference is that we get our rates too high, probably, because they must take into account what is going to happen, and the Interstate Commerce Commission .has to get the rate too high, and the shipping public can not stand it. Senator Kellogg. If you are through, Senator, I would like to ask him a question. Senator Stanley. There is just one other question. If there is no .eminent danger of this system resulting in an excessive rate, or if an excessive rate is not followed by disastrous consequences, the present arrangement is ideal in many respects ? Mr. Smith, Well, hardly that, Senator, because the present arrangement is not ideal at the moment. Senator Stanley. I do not contend that. Mr. Smith. I mean, the result of the attainment is not ideal. Senator Stanley. Well, I will qualify that statement : The present arrangement works satisfactorily in many respects. I did not mean to say it was ideal. It would be if there was no such thing as an Digitized by Microsoft® RAILROAD REVENUES AND EXPENSES. 331 •excessive freight rate. You could put it on the rate and go ahead. Is it your opinion that this court should be composed of men having no direct interest, no-pecuniary interest, in the business of transporta- tion, and no direct affiliation of any kind with any labor organization ? Mr. Smith. Naturally, to be lair judges they would have to be such persons as that. Senator Stanley. Now, a railroad is a quasi public corporation, of course. Does that make every employee of the road, just as it makes the president of the road, a quasi public servant? Mr. Smith. It seems so. That is what he is in fact. When he ■enters the service of a railroad company he becomes a qausi public servant, because he is serving the public. Senator Stanley. Do you believe that being in the public service in that way, like a soldier, to a certain extent, it authorizes the Gov- ernment to take such steps as to make his employment compulsory for a greater or a shorter length of time, as the demands of the public may require ? Mr. Smith. No; you can not, in my opinion, make a soldier out of a free citizen. It can not be done. The only thing that you can do, if you do anything in that direction, is to make it of interest to the man to remain in your quasi public service, and as long as he does that, and he does it faithfully, and carries out his obligation to the public, the public owes him equal consideration. Senator Stanley. In your opinion compulsory arbitration in this country is not feasible ? Mr. Smith. No, sir; I don't think that you can do those things. It is only by fair dealing, and by fair treatment, that you are going to get men to cooperate and there is no follower, Senator, in th& world, like a willing follower, and we have got to have him. willing, and we have got to nave him satisfied and contented. And likewise, if I may go so far as to say this, we also have got to have the investor willing and contented, or he is not going along,. and the trouble with him now is that he is not going with us because he is not contented. Senator Stanley. It is the esprit de corps in the service, from the president and the stockholders down, or up, as you choose to call it, clear on through to the employee in the humblest capacity, that makes railroading a success. i. Mr. -Smith. The greatest asset of the whole thing, and without it you can not have success, .-p Senator Stanley. That is all. Senator Kellogg. Well, compulsory arbitration simply means fixing wages by law, doesn't it, in the end ? Mr. Smith. Yes, sir. And it takes away from a man freedom, the being of what we are supposed to be. Senator Kellogg. That is what I meant. Senator Pomerene. One more question here. I want to pursue a little further the line of inquiry that Senator Stanley took up a minute ago> You spoke of the members of the Labor Board seeing through labor's glasses. I take it, of course, that that observation woulcF apply with equal force to the representatives of the railroads on the labor Board ? Mi'. Smith. That is what I meant to say, if I did not say it. That. is what I meant to say. Digitized by Microsoft® 332 RAILROAD REVENUES AND EXPENSES. Senator Pomerene. I have no doubt that that is what you meant to say. Mr. Smith. I did say so, I believe, and I repeat it. That would apply to both. Senator Pomerene. I have no doubt that is what you meant to say. Now, let us see : You have three men representing the public, but in these hearings witnesses are called on behalf of labor and on behalf of the railroads ? Mr. Smith. That is right. Senator Pomerene. No witnesses are called on behalf of the pub- lic, which pays the bill. Mr. Smith. There might be. Senator Pomerene. Should there be ? Mr. Smith. Well, you see, your Interstate Commerce Commission, which is going to say whether they will pay the bill or not, hears that side of it, I take it. Senator Pomerene. Well, in one sense of the word, but the obliga- tion is met by the Labor Board ? Mr. Smith. Well, properly they should be, but I would deplore their having to be heard, in a way, because of the time consumed. It takes us too long now. Senator Pomerene. I realize that there is that consideration, but this thought occurs to me: Would you think it advisable for the Interstate Commerce Commission to present their views with respect to the wisdom or unwisdom of increasing rates and thereby increasing the burden upon the public ? Mr. Smith. Yes, sir; inasmuch as they have got to be responsible for the other side they could interject their views, or properly be very fully advised as to why that came through as it did. Senator Pomerene. Do you see any impropriety in their represent- ing the public and presenting their views to the Labor Board? Mr. Smith. I do not; I do not. None whatever. Senator Pomerene. Now, of course, I think we all regret the great amount of time which was taken by this Labor Borad, but on the other hand, it seems to me that it must be said for the Labor Board that that was a new force taking up a new proposition, and the rail- roads of this country represent a tremendous plant, with an enormous army of men who are interested in this subject, and necessarily it would take 'some time to go into that subject. Mr. Smith. I quite agree, Senator, and I haven't any criticism of the time they consumed to try to get at the facts and to fairly hand down an opinion, because I have been on arbitration boards myself and I know what it means, and it is a long, tedious road you have to travel in order to get at that, and particularly when you have got to educate three people, at least, who are not familiar with the facts, and they have got to become familiar with the language, because those who present their propositions on these questions speak a lan- guage of their own many times in regard to different subjects. And so it is a very severe task to place upon them. But after all, if I may come back to it, while all of these things are going on the transportation machine is sinking. And we have got to get ready for the future. And I have no doubt that in the wisdom of the Interstate Commerce Commission they will undoubtedly figure it out, and it will be figured out, so that if they have not the Digitized by Microsoft® KAILROAD REVENUES AND EXPENSES. 333 authority they may be given the authority to coordinate and co- operate with us to try and get some rapid conclusion. And also, before leaving, I wish to again urge that the Government do everything that it ought to do in paying us, so that we may have money, and get these railroads in condition, because that is the alarming thing, in my mind, at the moment. So that we may have equipment and do the work that is necessary, so that when prosperity comes the rilroads of the country will be ready. Senator Stanley. Mr. Smith, just one other question. We have been talking here a great deal about an excessive freight rate. And the most serious condition confronting the railroads is the question as to whether we have not imposed a rate that is detrimental to pro- ductive and industrial enterprise of the country. When competitive conditions existed between the roads did that freedom of action on the part of different systems and that competition for business, automatically prevent the imposition for any great length of time, or over any great territory, of a manifestly excessive rate ? Mr. Smith. Looking back a good many years I should say it did not. Of course to-day, with these high cost factors, no railroad company, whether there was competition or not, whether the rail- road company was operated with free opportunity for individual action or not, could go ; very long when it cost the railroad more to do the work than it could do it for. I think we are going to get help from this cooperation of purpose that I spoke of, Senator, providing they are put together in a way that they ought to be put together, I mean, to find the lines of origination and discharge a movement with the least resistance, and providing we can find a way where you can financially put them together under some arrangement with the Interstate Commerce Commission, with the latitude of trying it out, so to speak, because no one wants to take a bankrupt concern. And yet whether they are bankrupt or whether they are not, they are physical parts in the general transportation system, and they have got to be worked to the best advantage for the general: good. Undoubtedly there are some rates that are too nigh. I run-a farm myself, and I have groaned a good deal when I have seen some of the rates. I run across some things that are out of balance, and so will every one. As I have gone around I have seen some instances where it was apparent that considering what a man received for .what he sold, and looking back to where he originated it, it was one unhappy moment for him when he started the venture, whether it be raising a hog or raising some other thing, and so it is natural that those things must be remedied in some way. Now, we are a country of very great distances. What we consume is largely raised 1,000 or 1,500 or 2,000 miles away from the point of consumption. Now, that is a long distance to haul that. But yet we ha^ e got to haul that and get it down there so that the man who raises it can live, and so that the man who consumes it may have it. There is a great deal in the way of distribution in this country that has got to be looked out for, and I think that is a field that has not been touched properly. I- know of cities in which I have been where it is apparent that a great deal could be done in that direction. But though we know what we could do from a railroad standpoint, we have not the money to do it, and then it would require cooperation; it would require the getting Digitized by Microsoft® 334 RAILKOAD REVENUES AND EXPENSES. together of a good many minds in this country to cooperate in doing- it. I am speaking quite generally. There are particulars that could be cited. The cost of distribution is too high, and that has got to- be taken care of. It is not all in the freight rate. I would like to have the opportunity of putting in rates on three or five days' notice, for instance, to do a certain thing when I meet it, and it looks as if we ought to do it, but you see if we ever get it down we can not put it back again. It is like somebody saying, " You can get in, but you can not get out." You can get it down, but you can not put it back, excepting by a long and tedious process, and there- fore one does not want to get it down; one can not afford to get it down. Is that allj The Chairman. That is all. Mr. Smith. Thank you. The Chairman. Call your next witness, Mr. Thorn. Mr. Thom. Mr. Howard Elliott. TESTIMONY OF MR. HOWARD ELLIOTT, CHAIRMAN NORTHERN PACIFIC RAILWAY CO., NEW YORK CITY. The Chairman. State your name and your official position, Mr. Elliott. Mr. Elliott. Howard Elliott, chairman Northern Pacific Kail- way Co. I have prepared, Mr. Chairman, certain notes which I shall follow more or less closely, and I have a number of duplicate sets which I can distribute, one set with all the exhibits to you, and one to the reporter, and duplicate sets without the exhibits to each one of the members of the committee. That may make it more easy for you to> follow my statement. The Chairman. Very well, Mr. Elliott, you may proceed. Mr. Elliott. Mr. Chairman, there is naturally a great deal of dis- cussion now when business is so depressed, and we have such very bad results from the operation of the railroads, about the transporta- tion act, and whether it is a wise or unwise measure, and whether it can accomplish what was expected. It seems to me that final judgment about this act would be very much like judging some great manufacturing plant before the plant had been furnished with the necessary raw material to be transformed! into the product. ■ As I look at it, the transportation act was to apply to something like normal conditions, and was not intended to be a "cure-all" for a* world-wide depression of unexpected severity in all kinds of business - The act did not undertake to create commerce; its object was to- insure to the public adequate means of transportation and to this end secure the safety of securities of sound railroads, which securities are held so widely by individuals, savings banks, and insurance com- panies; to- protect the existing transportation machine and to en- courage its development to meet the needs of the country; to regulate the transportation of commerce by railroads in such a way that those engaged m that business, either owners or employees, should, if pos- sible, have a fair return for services rendered to the public. Digitized by Microsoft® RAILROAD REVENUES AND EXPENSES. 335' One provision of the act provides that until March, 1922, the rates- shall be such that, as nearly as may be, there will be a return of 5£ f or 6 per cent on the fair valuation of the railroads, but the act did not and could not insure the business necessary to earn such return. After March, 1922, the commission is to determine the rate on the- fair value* which, in their judgment, will yield a fair, return. This provision is not a guaranty by the Government of a stated return (as some people think) but a declaration of principle that under reasonable business conditions railroad property in groups is- entitled to a fair return and rates will be allowed for that purpose; and if there is any excess above that reasonable return, for any road in a group, the owner shall have part and the Government part of the benefit of the general railroad situation. If the policy of extreme regulation of the railroads by the Govern- ment is to continue, as against the policy of greater freedom for private initiative and management, then this particular provision of the act is of great importance. The transportation act and the principles and rules contained therein are not responsible for the present unfortunate disappearance of railroad net earnings. . In human affairs we can lay out a plan, we can make a great- transportation act, we can plan a great factory, we can build a great ship, we can design a great engineering work. That is one part of the work. Then we have got to get men to supervise and carry out the rules and principles, and that is always a more difficult thing than the designing of the original plank So here, in the case of the transportation act, the carrying out of it is of great importance, and in some ways it is even more difficult than the original framing of the act. * And the Congress, the public, the railroads, and the labor organi- zations, should do all they can to help those upon whom the very great responsibility is imposed of administering the act. Two boards, with vast powers over the railroads, are set up; one dealing with rates and regulations affecting commercial questions, and the other with wages and rules about wages and working con- ditions. There are 11 men on one board and 9 on the other, and naturally in discussing the multitude of questions submitted, there are differences of opinion and much discussion, all of which makes for delay in arriving at decisions. In the case of the newly created Labor Board, it has had to feel its way and to develop its methods. If those* two powerful boards, one in Washington and one in Chicago, with no close relations between them and with no common authority over them, short of Congress, and with their large member- ship, should find that the questions submitted to them are so numer- ous that they are unable to act promptly and decisively, then no matter how good the fundamental principles of the act may be, there is danger that the full benefit of the law will not be obtained. I know that it is the earnest desire of the officers of the railroads to cooperate to the best of their ability, -"both individually and col- lectively, with the Commerce Commission and the Labor Board, to make the administration of the act effective and to obtain the results intended when the act became a law. Much has already been done in this direction, and the manage- ments of each road are all the time hard" at work on the home road, Digitized by Microsoft® 336 RAILROAD REVENUES AND EXPENSES. and through various associations of executives, operating and traffic officers, working together and with the commission and Labor Board to improve results and obtain, to as great a degree as practical, for all roads what the law calls for — "honest, efficient, and economical operation". Much has been done along this line in the last 10 years and further economies will be obtained slowly because capital is needed for labor-saving devices and improvements of all kinds, and men must be trained to use them, but there is no lack of interest or effort to obtain better results each month and each year. A railroad is a complicated and delicately adjusted manufacturing plant and its product is transportation, manufactured daily and in countless forms, and under widely varying conditions. Its product, however, must be used as produced; it can not be stored up for the future. Other people are manufacturing other commodities, gen- erally they can raise their prices in prosperous times and can store their products in poor times for future delivery, or close their plants entirely; the railroads has not been allowed to raise its prices to the extent that the manufacturers and producers have and it has noth- ing accumulated from the large business of the past few years to care for the present period, and it can not close down its plant. It is self-evident that- the railroad, manufacturing transportation, can not, on a falling business, long continue to be a solvent enter- prise if it can not, as other manufacturers do, have some control of its income and outgo and pay wages substantially on the same basis as may be paid by other employers in similar territory. This is not the case to-day, and the inability of the railroad to adjust promptly its costs to meet depressed business conditions is the chief cause of the present situation.* Some of the witnesses who have already testified have covered the question of increases in costs and expenses in great detail, and have shown very clearly how, in spite of an increase in gross revenue, there has been a heavy decrease m net, and only a negligible return upon the property. I am not attempting in the statements and testimony that I am submitting to cover the national situation, in the same detail as the others, but simply to supplement evidence already given about the railroad situation as a whole with some facts about one railroad. Any number of statements can be made to reinforce this evidence, and I am submitting a few examples that may be of interest to the committee, particularly to those members who are familiar with the northwestern part of the United States, with the standing of the Northern Pacific and with the position it has taken during the last 20 years in the development of the country between Lake Superior, Puget Sound, and the Columbia River. During the past 20 years, about $430,000,000 has been spent by the owners for additions, improvements, betterments, equipment, and new lines, so as to make a better transportation machine lor the development of the country, service to the people, and better working conditions for employees. Here are statements showing the general financial data for the Northern Pacific for the years ending thine 30, 1912, 1913, 1914, 1915, 1916, 1917, and for the calendar years ending December 31, 1918, 1919, and 1920; also figures for the month of February, ordinarily the poorest month, and for October, usually the best month, for the same fiscal years. Figures for the average of the three years i d Digitized by Microsoft® RAILROAD REVENUES AND EXPENSES. 337 with June 30, 1914, are given, also for the three years ending June 30, 1917, the so-called test period. It is interesting to compare some of the average figures for these two 3-year periods with the results for the years 1919 and 1920. (Note.— These tables are printed in the Appendix, facing p. 16.) They are as follows : First period. Second period. 1919 1920 Operating revenue Operating expenses Operating ratio. „ _-. . Transportation ratio Net railway operative income Income balance after interest and 7 per cent dividend . . < $70,111,933.62 43,022,796.93 61.36 31.86 24,667,774.81 3,097,689.17 $74,860,736.16 41,599,356.84 55.56 29.05 30,196,329.98 6,854,944:36 $101,474,988.80 78,672,509.37 77.53 37.71 15,104,113.74 16,597,407.53 $111,872,097.43 100,983,874.19 90.26 43 29 6, 737, 147.' 87 115,741,260.00 i Deficit. I have summarized those. The operating revenue for the first period was 170,111,933.62. The operating ratio was 61.36 per cent. That portion of the expenses used for what are called "transports^ tion expenses," was 31.86 in the first period. The railroad had left in the first period out of its operations $24,- 677,774.81. After adding to its net railway operating income other income from all sources, and then paying the interest on its bonds and a 7 per cent dividend on its stock, mat left in the first period $3,097,689.17. In, the second period, $6,854,944.36. In 1919 it fell short by $6,597,407.53, and in 1920 it was $15,741,260 short. And in 1919 and 1920 nothing is included for payments made by the Government under the contract allowance or the guaranty. The Chairman. You have included that ? Mr. Elliott. Have not included it. These are actual operations of the properties, if there had been no Government control or guar-' anty. Now, I want to call attention to one phase of this situation be- cause it has a bearing on some of the statenpnts made by Mr. Lauck. You will notice that the operating ratio for the test period and the transportation ratio for the test period show a marked improvement over the period ending June 30, 1914. The reason for that is that the Northern Pacific board has for years pursued a consistent policy of spending every dollar they had over and above the interest and the 7 per cent dividend, to improve the property and to make it as good as &ey could, consistent with the general character of the country, and not being extravagant and foolish and doing things too soon, so that the good results up to the year ending the test period were due in part to the constant additions to the property of all kinds of things that helped economical operation. For example, on April 14, 1921, out of 779 of the heavier type of engines owned, 613 had been equipped with superheaters, and the balance are being so equipped as fast as we feel we can spend the money, and practically all locomotives where it is justifiable to apply brick arches have the brick arches applied. In addition, we have pursued a consistent policy for years of put- ting in water-softening plants and filtration plants, tie-treating plants, used not only for treating ties but other forms of lumber, 63553-31-Vo! 1-^^ by Microsoft@ 338 RAILROAD REVENUES AND EXPENSES. such as stock car floors, which are subject to decay because of manure in them, bridge timbers, fence posts, etc. And we have pursued the policy of putting tie plates on every tie, and rail anchors are applied S ractically over the entire main line and very largely on branch nes, so as to preserve the timber. And studies are being made all the time by special committees as to better methods for handling materials and supplies, and for impro*3ijg the handling of less than carload business at large stations, and" also to simplify and make more efficient the system of cost accounting, so that the superinten- dents and the master mechanics and others on the divisions will know as promptly as possible what has been spent under his direc- tion, and ne is called to account if it seems that he has spent money unwisely or foolishly. The Chairman. Now Mr. Elliott, this table that you are speaking of now contains none of the operations of the C. B. & Q. Railroad ? Mr. Elliott. No, sir; the C, B. & Q. revenue comes in later, as I will show in a diagram that I. have, through the means of a dividend. The Chairman. Yes; but this is simply the operation of the Northern Pacific ? Mr, Elliott. Yes. And income balance, after interest at 7 per cent, means what the property had left as a going concern- I have treated this a little bit differently, perhaps, than some others. I have said here: The owners own this property. They operate it, and they get so much money. They perhaps rent out some property to somebody else, or they have some money in the bank, and. they get interest on it. From all the money that the owner got he had left in the first and second periods those sums after he had received his dividends, and in 1919 and in 1920 he went short the amounts given. But I bring that up to show you that, with this particular property the directors have been progressive and tried to make it a constantly improving machine, and up to the end of 1917 it, had done extremely well in reducing the unit cost. In these, statements, which I will give you as a matter of informa- tion, but which I will not submit for the record, it shows that in the years ending June 30, 19i5 and 1916, and the six months ending December 31, 1916, and the years ending December 31, 1917, 1918, 1919, and 1920, there was $45,209,066,56 spent on improving the property and trying to make it better. Senator Smith. Mr. Elliott, before you get away from the figures, that you gave as to the amount of deficit during 1919 and 1920 — that is, the amount that was lost by the road, taking it as though there was no Government control, and it is the amount that the Govern- ment is indebted to you under the guaranty ? Mr. Elliott. Well, I would not put it exactly that way, Senator Smith. The Government, under our contract, as you know, paid us a certain annual sum for the use of the property. This amount I read to you shows the amount that, the property failed to earn by its own operations, and whether it is exactly the amount the Government paid us for that year I could not say. We did get enough from the Government during these two years to maintain, our 7 per cent dividends. Senator Smith. That is, the amount that the Government was to pay you under the test period was not sufficient to cover what you actually lost ? Digitized by Microsoft® RAILROAD REVENUES AND EXPENSES. 339 Mr. Elliott. Oh. yes; it was sufficient. We had enough to pay our 7 per cent dividend. I could not tell you the exact .amount that was lost without checking back. This statement shows that the operating revenues of the property increased from the first period, $70,111,933.62, to $111,872,097.43 for 1920, but the ratio of operating expenses to earnings increased from 61.36 per cent to 90.26^er cent and the ratio of transportation expenses to revenues increased from 31.86 per cent to 43.29 per cent. The result was that while the property, for the period ending June 30, 1914, paid all of its expenses, taxes, interest, a 7 per cent dividend, and had $3,097,689.17 left, in the year 1920, with an increase of over $41,000,000 in gross revenue, the expenses had so increased that it failed to meet expenses, interest, taxes, and dividend charges by $15,741,260. The figures also show that the efforts of the company, its officers and men, to improve operating methods resulted in a reduction of the operating ratio in the second or test period to 55.56 per cent for all expenses and to 29.05 per cent for transportation expenses — an improvement over the first period — which, however, under Govern- ment wages, methods, etc., increased to 77.53 per cent and 37.71 per cent, respectively, for 1919, and to 90.26 per cent and 43.29 per cent, respectively, for 1920. This very great increase in the amount of each dollar of operating revenue used in operating expenses was, for reasons already fully explained by the previous witnesses, beyond the control of the railroad operating officers. Now, I want to call your attention to the fact that the poorer results in 1920, the $15,741,260 shortage as compared with the $6,597,407 shortage in 1919 and the $6,854,944.36 surplus in the test period, was- not due to a failure to use the physical features of this particular property to a good and liberal extent. So I have shown on this page certain test figures with which many of you are familiar, which indicate the use made of the railroad in performing its business. Now, the net ton miles per road mile you will notice in the test period were 1,218,310, and went up in 1919 to 1,310,924, and in 1920, to 1,364,961. Now, our object, of course, is to use our power and our cars and our terminals so we can handle just as much tonnage with a loco- motive as we can. The average gross tons per locomotive mile — and that means the weight of the cars as well as the lading in them — was 1,366.7 tons in the test period. That dropped to 1,347.6 in 1919 and went up again in 1920 to 1,350.5 tons — not very much difference. The average tons per loaded-car mile, which represents the lading in each car, is improved from 23.9 tons in the test period to 26.7 tons in 1919 and 27.3 tons in 1920. It is obvious, of course, that the higher percentage of load the live load bears to a dead load the better operation you have got, and those percentages — that is, the per cent oi net ton-miles to gross ton- miles — went up from 46.66 in the test period to 48.09 in 1919 and 48.74 in 1920. It is also obvious that we want to have two engines on a train as small a proportion of the time as we can — that is, try to do the work with one engine rather than putting on two — so we aim to avoid help- ing engines wherever we can, for that means more wages and more fuel. So the percentage of locomotive miles to train-miles in the Digitized by Microsoft® 340 RAILROAD REVENUES AND EXPENSES. test period was 111.41; went upinl919toll3.17, and then dropped in 1020 to 113.04 — not quite so good as the test period, but a little better in 1920 than in 1919. The same thing is true about the empty cars in their relation to the loaded cars. And this statement shows that the percentage of loaded cars to total cars was not quite so good in 1920 as in 1919, or the testperiod. ~ - The Chairman. Mr. Elliott, we will vh compelled to adjourn at this time until to-morrow morning at 10 o'clock. (Whereupon, at 11.55 o'clock a. m., Monday, May 23, 1921, an adjournment was taken until 10 o'clock a. m., Tuesday, May 24, 1921.) Digitized by Microsoft® RA1LK0AD REVENUES AND EXPENSES. TUESDAY, MAY 24, 1921. United States Senate, Committee on Interstate Commerce, Washington, D. C. The committee met, pursuant to adjournment, at 10 o'clock a. m., in room 410, Senate Office Building, Hon. Albert B. Cummins (chair- man) presiding. The Chairman. The committee will be in order. Mr. Elliott, you may resume your testimony. TESTIMONY OF MR. HOWARD ELLIOTT, CHAIRMAN NORTH- ERN PACIFIC RAILWAY CO.— Resumed. Mr. Elliott. Mr. Chairman, on yesterday, when you adjourned, I was presenting to the committee certain figures in regard to operating units. In the case of this particular property, the figures for units of service produced from the use of tracks, cars, and locomotives show, in the main, a steady improvement, as per the following figures : Test period. 1919 1920 I Net tons miles per road mile , Average gross tons per locomotive mile Average tons per loaded car mile Per cent of net ton miles to gross Per cent of locomotive miles to train miles Per cent of loaded to total car miles Average miles per freight car per day Net ton miles per car day 1,218,310 1,366.7 111.41 72.45 26.6 461 1,310,924 1,347.6 26.7 48.09 113. 17 71.20 27.5 1,364,961 1,350.5 27.3 - 48.74 113.04 70.58 32.9 633.7 It will be noted from this table that the amount of tonnage over each mile of track, the loadings of engines and of cars, and the movement per day of cars were petter in 1920 than in 1919, or than in the test period, clearly showing that if wages, working rules, and E rices of coal and other materials necessary to carry on the business ad been on the same bases as in the test period, the costs would have been lower in 1920 than in the test period. Volume of business. Tons carried Tons carried 1 mile (thousands) Passengers carried .'. . : Passengers carried 1 mile Tons per train-mile Test period. 24,751,652 7,895,097 8,606,082 610,554,814 709.5 1917 27,737,131 10,003,888 8,781,951 660,713,170 751.96 1919 25,600,948 8,639,664 8,633,586 748,635,597 732.9 1920 28,129,251 9,061,754 8,447,966 719,445,961 743.5 Digitized by Microsoft® 341 342 RAILROAD REVENUES AND EXPENSES. The financial results for February, a poor month, show as follows : First period. Second period. 1920 1921 Operating revenue , Operating expenses ........ ' Operating ratio Transportation ratio Net railway operating income Income balance after charges and one twelfth dividend $4,476,847.89 13,096,919.79 69.18 39. 82 31,208,234 34 i $619, 306. 93 $4,832,169.49 $3,073,489.86 63.60 37.01 11,567,849.80 1*441,674.61 $8,122,484,20 $6,673,100.69 82.16 44.27 $988,830.77 i $831, 306. 72 $5,770,155.89 $5,899,607.59 102.24 51.61 i $690, 581. 23 i $2, 602, 986. 52 1 Deficit. For month of October, as follows : First period. Second period. 1919 1920 Opera, .ing revenue Operating expenses.., Operating ratio Transportation ratio Net railway operating income Income balance after charges and 1/12 dividend ....-._. $7,400,158.86 3, 992, 114. 91 53.95 27.98 3,149,959.01 1,320,765.98 $7,151,215.43 3,635,035.45 50.83 25.81 3,190,297.77 1,147,122.60 $10,703,039.97 7,231,017.65 67.56 33.64 2, 201, 568! 36 338,478.60 $12,027,647.42 9,150.195.52 76. 08 37.56 2,613,644.15 629,100.70 It will be seen from these figures that never in February has the property been able to earn one-twelfth of its fixed charges and an- nual dividend, but the deficiency in the years 1920 and 1921 is far in excess of the average deficiency in previous years. In October it will be noted that the property has always earned its monthly proportion of interest and dividend with a handsome balance, which balance, however, in 1919 was about one-fourth of the test-period figure, while in 1920 it was something over half. In October, 1920, the volume of business handled by the company did not show as severe a shrinkage below the previous October, as is the case in February, 1921, compared with February, 1920. More marked, even, are the results in February. The transporta- tion ratio of 37.01 per cent for the test period increased to 44.27 per cent in 1920 and to 51.61 per cent in 1921. All operating expenses in the test period took 63.6 per cent, and this figure increased to 82.16 per cent in 1920 and to 102.24 per cent in 1921, when the entire effect was felt of the unfortunate rules and agreements and the very large increases in wages made by governmental authorities. A unit used for measuring the efficiency and economy of operation is the figure of "cost of handling 100 tons of freight 1 mile. This figure on the Northern Pacific shows as follows : For conducting transportation ^. .cents. For all operating expenses do Rate per ton-mile mills. 21.08 38.11 7.41 1919 32.87 65.26 9.61 39.79 80.47 10.33 Figures for the C, B. & Q. for the month of March, 1920, 1921, just received, show how the change in wages and fuel and material costs have increased this figure for that road. Digitized by Microsoft® RAILROAD REVENUES AND EXPENSES. • 343 March, 1920. March, 1821. For oonduet'ing transportation cents For all operating expenses do — 31.41 60.22 41.77 7114 These figures show in a striking manner that forces beyond control of the owners of the property have absorbed a constantly increasing proportion of the total operating revenues. Senator Kellogg. I notice that the traffic on the Northern Pacific and the Great Northern has dropped more than the average throughout the country; at least, that is the impression I have. What are the factors contributing to that — -lumber? Mr. Elliott. No; the reasons, Senator Kellogg, why in my judg- ment the decrease in the Northwest is greater than in other parts of the West, and I think in the East and perhaps also in the South, although the South has suffered pretty badly, are these: The grain crop has not moved entirely in that country, . so that the volume of earnings derived from gram has been less than in normal years. There has been a very limited movement of lumber; and as lumber is a large factor in the earnings of those railroads between Lake Superior and Puget Sound, that has affected them a good deal. Then, again, the general upheaval in North Dakota in the last four or five years, in social and political affairs, has had a bad effect upon the general financial standing of the State — upon the banks, for instance — and a great deal of moneybelonging to individuals has been tied up there, and the buying power of the people of that State has been reduced. Montana has suffered seriously in the last few years from dry weather and crop failures; and the copper mines have not done an active business, and that has affected the State of Montana. In Washington the large business is lumber, and, as already stated, that business has seriously decreased. So there is an accumulation of factors in that region between Lake Superior and Puget Sound that have affected materially the earnings of those northwestern railroads. Another thing, the fact that the railroads have not met quite to the extent that they formerly did the rates through the Panama Canal, either on coast to coast business or on oriental business, has had an effect in reducing the aggregate gross earnings. Senator Kellogg. The very large increase in traffic through the Panama Canal you think has affected the transcontinental lines ? Mr. Elliott. Yes, sir. Senator Fernald. Was there any shortage of cars during the year 1920 for the Dakotas? An article appeared recently in a magazine stating that much wheat in North Dakota would have been moved if they could have had transportation. Mr. Elliott. There was some shortage of cars for grain in the early months of the grain-moving season, July and August. One reason for that was the fact that under the necessities of war cars were not located where they belonged; and Mr. Willard pointed out how earnestly we tried to get grain cars to the West and coal cars to the East. That at one time did have some effect. Digitized by Microsoft® 344 - RAILROAD REVENUES AND EXPENSES. Senator Kellogg. There is no wheat moving from North Dakota in July or August ? Mr. Elliott. No; but there was from the Pacific coast States. The Chairman. When did the traffic in lumber begin to fall off ? Mr. Elliott. I can not answer that, Senator, in exact detail. The figures for the Northern Pacific in tonnage as a whole held up quite well until the latter part of the year. I have a statement here that evidences that pretty closely, but I have no figures that show in detail how that tonnage is made up. I can very readily get that for you and submit it later if you would like to have it. The Chairman. In a general way how was it ? Mr. Elliott. In a general way it began to run off at the end of the season. The Chairman. The purpose of the inquiry is to find out whether the traffic began to dimmish about the time the rates were increased. Mr. Elliott. My personal view about that is that the rates have had very little to do with any shortage in the movement of lumber. I h ve a letter that I happened to receive this morning from one of our officers at Seattle, who is extremely well posted on that whole situation, who is studying it very closely all the time, and I will read a part of it because it has a bearing on the question you ask. You know the lumber rate has been reduced somewhat quite recently from the Pacific coast to the Missouri River and Mississippi River Senator Kellogg. Do you mean since the general increase of last August? i Mr. Elliott. Yes, sir. I made inquiry as to what this particular man thought was the effect, and he said : With reference to your inquiry as to the extent to which I think the increased rates on lumber or other products in this territory have checked business, I can truly say that it has had little, if any, appreciable effect in that direction, and this opinion is almost daily confirmed in discussion with various interested shippers of different commodities. Take forest products, for instance. The reduction in selling prices during last year amounts to more than the entire freight rate to Missouri River territory, not- withstanding which there is a decreased movement. A year ago the ocean rate ftom Puget Sound to the Orient was $45 per thousand feet. To-day it is $10, but, lAttwithstanding this heavy reduction in the ocean rate, together with very much loweJRprices for the lumber, it has not stimulated the demand or increased the movement, indicating conclusively that there are other and more controlling factors determining the present situation. This is also true of many other commodities. The public generally are not yet satisfied to buy. Readjustment is necessarily a slow process, and out in this territory at least retailers are still endeavoring to hold up their prices until they can dispose of their high-priced stocks. However, I believe the situation is gradually improving. Generally speaking, we never had at this season of the year any better prospects for good crops of farm products of all kinds, and a very important feature of this situation in this respect is that they will produce such crops at a very much redueed cost. For instance, in the Yakima Valley: there is a surplus of labor at $40 per months while the prevailing rate last year was $75 per month. In addition to this the farmers themselves are doing more work, and this same situation extends to all districts. Senator Kellogg. It is a fact that the Weyerhauser Lumber Co. is building very large yards in Baltimore and purposes to ship all their lumber through the Panama Canal by water? Mr. Elliott. I nave been told that they are building very large ^ards, but I have no personal knowledge of the matter myself. I ave also been told that they and other Pacific coast shippers are Digitized by Microsoft® RAILROAD REVENUES AND EXPENSES. 34& preparing to send more lumber by water from coast to coast than ever before. The average number of tons of freight moved 1 mile in February for the four years 1917 to 1920, inclusive, was 602,796,000, and in February, 1921, there were handled only 311,300,000, about 52 per cent of the average. The average number of passengers oarried 1 mile in February for the above-mentioned years was 44,385,485, as against .38,363,176 in February, 1921, a reduction of about 14 per cent. The results for February, 1921, are instructive on this ques' tion of the test of the new law. I submit a statement showing the actual results in February, 1921, compared with the results for that month, if the ton miles and passenger miles had been equal to the average handled in Feb- ruary for the four years 1917 to 1920. In computing the freight earnings, the result obtained by applying the average ton mile rate of February, 1921, to the average ton mileage of the past four yeara has been reduced by $528,000, because with the larger volume of business, there would have been more low-grade commodities and more long-haul business and therefore a somewhat lower rate per ton mile. In other words, I tried to be conservative in making that estimate. The Chairman. I do not think I quite understand this "con- structive month." Explain that a little more. Mr. Elliott. If you will take the statement which you have before you you will see that the actual account for February, 1921, was this: Total operating revenues $5, 770, 000 Total operating expenses 5, 899, 000 As already stated the volume of business handled in February this year was far, far below the average volume of business handled • the previous four Februaries. The Chairman. The average of the previous four Februarys? Mr. Elliott. Yes. Then Thave taken ah average of the business for the previous four Februaries and applied to that average the rates for freight and for passenger for February, 1921, and added the proper amount to expenses to cover the cost of the increased business, and in this way created a constructive month. I have been very careful not to overstate it in any direction. For that reason, as I have already explained, I deducted $528,000 from the total earnings because I know we would not have received the same average rate per ton mile for all business moved in February, 1921, as received before for previous Februaries. When I did that I got a total operating revenue of $9,167,000 as against an actual revenue of $5,770,000; and I got total operating expenses of $7,476,000 as compared with actual operating expenses of $5,899,000, Further- more, I got an operating ratio of 81.55 per cent as compared with an actual operating ratio of 102124 per cent; and as compared with the operating ratio for the average of the four previous years of 78.92 per cent. So they are not very far apart. I also got a trans- portation ratio for the four previous Februaries of 46.01 per cent as against an actual transportation ratio of 51.61 per cent, or an average for the four years of 42.83 per cent. Digitized by Microsoft® 346 EAILEOAD REVENUES AND EXPENSES. Proceeding further I got a net revenue from .railway operations of $1,691,000 based on the four-year average as compared with a deficit of $129,000 for the actual results of February, 1921. Then deducting taxes and uncollectible railway revenue,, and adding equipment rents and joint facility rents I get a net railway operating income in the constructive February of $1,030,000 as compared with a deficit for the actual February of $690,000. In other words, it seems to me that the effect of the transporta- tion act on this particular property, if we had had the normal vol- ume of business upon which we based our calculations when we submitted to the Interstate Commerce Commission our statistics of what we needed in the way of rates, would have been that the situ- ation would practically have worked out. But with the redioiction in volume of business it could not work out. The Chairman. The conclusion from that particular comparison must be that your failure to earn anything in February of this year, in fact that you lost in February of this year, is due to a falling off in traffic? * . Mr. Elliott. Very largely. We had, in addition, a very good weather month in February of 1921, which helped us in our opera- tions. We had very little snow and very few storms, whereas ordi- narily we have a good deal of trouble. The Northern Pacific crosses four mountain ranges and we usually have a good deal of trouble at that time. I bring this up to show thait if we had had the average volume of business— and ordinarily we have a. little increase year by year as the population increases — we would have come out a little better than we actually did and approximately what we were doing in previous years. The Chairman. It occurs to me that that is not entirely consis- tent with the fact, which seems to be admitted, that the roads as a whole did more business in the last year than ever before, and not- withstanding the increased rates during a part of the year they came out without any net income. Mr. Elliott. Well, when you get back into the congested regions of the United States you have a much more difficult operating pro- blem than where the country is open, as in the case of the Northern Pacific; a very much more difficult problem, and the effect of the wage increases and higher costs on the small less-than-carload busi- ness is very much more serious than in the case of carload long-haul roads. Senator Smith. Have you given the committee the effect of the Volume of business done in the past year compared with former years on your particular railroad ? Mr, Elliott. Yes; I have given that in detail. Senator Smith. I was following up the suggestion made by the chairman that despite the increased volume of business done and the increased rates, as given in the testimony of the different execu- tives who have appeared here, there was still a deficit in the net return. You have indicated that your road suffered a deficit be- cause of the decreased volume of business ? Mr. Elliott. Well, I have taken this constructive month. I have also taken the actual figures for the month. There are other reasons Digitized by Microsoft® RAILROAD REVENUES AND EXPENSES. 347 that caused our expenses to go up beyond what would perhaps be quite normal if we had not had the aftermath of the war. Senator Smith. You show the volume of business done during the preceding year as compared with other years, do you ? Mr. Elliott. Yes; we show that. Senator Smith. Very well. I do not care to interrupt you any more there. Mr. Elliott. Continuing the explanation of this statement I will say that to the actual operating expenses have been added proper amounts to represent the increased expenses for handling the larger business, and larger allowances have been made for maintenance •expenses, which would have been allowed by the management if business and net earnings had been better. Taxes also have been increased, because of the larger volume of business. > Rentals, non- operating income, interest, and dividend appropriations are the same, as the larger volume of business would have made no material change in these accounts. The results for this "constructive February" show an operating ratio of 81.55, a transportation ratio of 46.01, as compared with the actual of 102.24 and 51.61, and as compared with the average of the four previous Februarys of 78.92 and 42.83. The net railway operating income would have been $1,030,000, as compared with a deficit of $690,000 and compared with $1,067,000 for the average for the four preceding Februarys. After making additions and deductions for non-operating income, interest, etc., the company in the "constructive February" failed to meet all obligations by $883,000 as compared with an actual deficit $2,603,000 and an average deficit for the four Februarys of $868,000. (The tabulated statement .furnished by the witness is as follows:) Income account, February, 1921. Freight revenue Passenger reven ue Mail, express, etc Other operating revenues.. Total operating revenues. Maintenance of way and structures.. Maintenance of equipment Depreciation on equipment Traffic Transportation Miscellaneous operations General Transportation for investment Total operating expenses. Operating ratio per cent. . Operating ratio, average 4 years do ^Transportation ratio do 'Transportation ratio, average for 4 years : do i Credit. Actual. »3, 982, 000 1, 255, 000 268,000 265, 000 5, 770, 000 845,000 1, 318, 000 287.000 115, 000 2, 078, 000 127, 000 ' 247,000 i 18, 000 5,899,000 102. 24 78.92 51.61 42.83 Estimated on basis of 4-year volume of business. $7, 182, 000 1, 452, 000 268, 000 265, 000 9, 167, 000 1, 000, 000 1, 500, 000 287, 000 115, 000 4, 218, 000 127, 000 247, 000 1 18, 000 7, 476, 000 81.55 "46.'6i Digitized by Microsoft® 348 KA1LK0AD UEVE2JUES AND EXPENSES. Income account, February, 1921 — Continued. Actual. Estimated on basis of > 4-year average volume of business. Net revenue from railway operations Taxes and uncollectible railway revenue Railway operating income Equipment rents Joint facility rents Net railway operating income Nonopera ting income Gross income Deductions— Interest and miscellaneous. Net income Dividend appropriation Income balance Average 4 years s Deficit. a 1129,000 773,000 * 902, 000 110,000 102,000 » 690, 000 589,000 > 101, 000 1, 055, 000 2 1,156,000 1,447,000 » 2, 603, 000 2 868,000 $1,691,000- 873,000' 818,00ff 110,000" 102,000 1,030,000 589,000 1,619,000 1,055,000 564,000 1,447,000' '883,000' Herewith is submitted a blueprint relative to the dollar of income' and dollar of expenses for the years 1917; 1919, and 1920. The dollar- of income has been prepared so as to show income received from all' sources within the control of the owner of the property and is not confined simply to income received from operations. The object of this is to show the resources of the owner to meet all of his obligations^ and what his property, as a whole, is producing as a going concern. From the 1917 income was deducted $5,385,635, the amount of an extra 10 per cent dividend on Chicago, Burlington & Quincy Kailroad stock, in order to make a fair comparison with the income in the other- two years. Nothing is included in the figures for the year 1920 be- cause of the guaranty payments. Some striking features of this diagram are: 32.68 per cent of all income paid direct to labor in 1917, 42.27 per cent in 1919, and 48.24- per cent in 1920. 22.34 per cent of all income paid for fuel, materials,.. and miscellaneous expenses (most of the cost of which is labor) in 1917 ;; 27.57 per cent in 1919, and 32.48 per cent in 1920. 12.65 per cent, of all income paid for interest in 1917; 10.80 per cent in 1919, an 9.7Q>> per cent in 1920. 24.90 per cent of total income available for addi- tions to the property and payments to stockholders in 1917; 9.55 per: cent in 1919, and only 1.29 per cent in 1920. The change in the relation between the proportion of total income- going to the pay roll and for the property and its shareholders i& shown in the diagram, and even more striking are the figures : 1917 1919 1920 Amount of income used for pay roll $31,658,202 24,117,050 147,616,438 10,762,593 S60,351,62r 1,618,7411 Amount of income available for improvements and dividends. . Total 55,775,252 58,379,031 61,970,368' Digitized by Microsoft® Digitized by Microsoft® NORTHERN PACIFIC RAILROAD DOLLAR Year 1917 Year 1313 Year IdZO 31 os Z.33 6-36 ///COME •86216.588 REVENUE. 2483/4/ EQUIPMENT i. JOINT lr\C. RCHT3 6.>iz.73i HON- OPERATING INCOME 3LS6Z4 60 our go 3li.58.Z0Z LABOR 804 6.98/ Pl/CL /3J3Z678 OTHER EXPEM5E5 CI /0.118 TATJ.3 Z83J675 IN CO MR CHARGES 1 ZZ53J46 INTEREST Z4jn.GS0 SURPLUS 96,862/16 I.IV/o 1316-31 Z S.77% &c~££i l IIZIS3 £7 2. 4-7-6 1 (,.438 3-706.7 SO I 1.34 9-3 2 / 1-000-738 Z.043A 09 1116 83 13 I Q.7bZ.5 9 3 lll.-653.S7l INCOMZ REVENUE. mum twcr s. joint fAc.mrn NOH- OPERATING, INCOME OUT OO LABOR Tim. OTplR EXPENSES TAUO IMCOMZ CHARGES INTEREST SURPLUS * lll.e53.6ZS s.57(,.oe o /JTTWTTTT 478% 5.82% 60JJ/.6Z7 i i-686.no Ze-7-f(,J37 io.io&t8i. Z6 4-0£\ rz./34JJ8 .'■618.741 IS SI 'Oil 60 Digitized by Miuiusuft® I To face page 348.) Digitized by Microsoft® RAILROAD REVENUES AND EXPENSES. 349 Senator Pomebene. What do you mean by " the proportion of total :income going to the shareholders" ? Do you mean dividends? Mr. Elliott. What I mean is this, that after paying all expenses — for, wages, materials, taxes, and interest, and the latter must be paid if the concern is to keep alive — there is left a sum of money for the stockholders, which they can use either for the betterment of their property or the payment of dividends. Senator Pomebene. You mean the net amount after paying all expenses for which the company is liable, including interest ? Mr. Elliott. Yes. That portion — and I want to make it clear — which belongs to the stockholders, and it may be used either for •dividends or for additions and betterments. Well managed com- panies always try to have a certain amount in addition to dividends with which to make betterments. I would like to say right at this point that we sometimes read in the newspapers about democratization of railroad ownership. This particular railroad to-day has over 36,000 shareholders, with an average holding of about 69 shares each which at present prices are worth about $5,000. Ordinarily this railroad has about 36,000 em- ployees, so that the shareholders, who created the property, and the officers and employees who work on it, very nearly balance. In addition, we have a very large number of bondholders. There is a very complete distribution of ownership, a class representing more citizens than do the workmen. Senator Pomebene. Since you say that let me put another ques- tion to you : The control of this property is in what proportion of its stockholders? Mr. Elliott. It is under the control of all of them. Senator Pomebene. I • know that, but what proportion of that total number could control it ? Mr. Elliott. Well, I do not know. We have half a dozen stock- holders who have substantial amounts of stock. We have one stock- holder, I think, who has 56,000 shares. Senator Pomebene. Is that the largest holding of any one stock- holder? Mr. Elliott. Yes, sir. Senator Pomebene. What is the total number of shares ? Mr. Elliott. Two million four hundred and eighty thousand shares. Senator Pomebene. All right. Mr. Elliott. The relation of the pay roll to total operating reve- .nues was: Per cent of payroll to total operating revenues: 1917,35.89: 1919. 4R.94- 1920, i;'.fn . Of the total income of the company in 1920, 10.6 per cent was -obtained from rents of property owned and from nonoperating income -derived from investments representing savings of the past 20 years, and it took 9.7 per cent of the total income to pay interest. If, therefore, these two sources of income had not been available, there would not have been enough derived from the operation of the prop- erty — without the Government guaranty — to pay the fixed charges •on the property. Digitized by Microsoft® 350 BALLROAD REVENUES AND EXPENSES. The diagram visualizes very clearly what the disturbance in methods of management, the increase in wages, the increase in the prices for materials, extreme governmental interference, and the general unset- tling influence of the war on: the morale and efficiency of working forces have done to the ea rning power of a good railroad with a long history of satisfactory service to its territory, and reasonable returns to its owners, due to careful management and good and loyal employees. Mr. Elliott. I now hand you a statement in detail showing how the Northern Pacific dollar was spent in 1917, 1919, and 1920. (The statement referred to is as follows:) Northern Pacific. Ry. Co.— How the Northern Pacific dollar was spent in 1917, 1919, and 1920. [Figures printed in italics indicate deficit.] 1917 1919 1920 Amount. Per cent. Amount. Per cent. Amount. Per cent. Total operating revenues (less un- collected) 188,216,588 31,656,202 8,046,981 8.002,047 : 5,590,631 6,910,728 100.0 35.9 9.1 9.1 6.3 7.8 $101,451,049 47,616,438 9,706,750 12,373,994 8,975,327 9,000,738 100.0 46.9 9.6 12.2 8.S 8.9 $111,853,629 60,351,827 11,886,110 16 163,120 12,583,017 10,108,686 100.0 Charges against operations: 54.0 10.6 14.5 Aliother operating expenses Railway tax accruals 11.2 9.0 28,007,999 2,483, 141 6,152,731 68.2 13,777,802 1,326,312 9,876,211 86.4 761, 069 5,976,080 7,250,051 99.3 Equipment and joint facilities, net 31.8 2.8 7.0 13.6 1.3 9.7 .7 5.3 Net income from other sources than 6.5 Gross income available for 36,653,871 51,332 12,253,148 232,343 17,360,000 41.6 1 13.9 .2 19.7 24,980,325 51,332 03,168,323 1,998,077 17,360,000 24.6 .1 12.0 1.9 17.1 14,017,200 51,322 12,134,438 212,699 17,360,000 VZ.& Capital charges: ■ .1 10.8 .2 Dividends declared (from in- i 15.5 6,757,050 33.9 8, 697, 407 31.1 15, 741, m 26.6 Remainder of gross income available for betterments, 7.7 e.s 14.1 Senator Fernald. In that calculation you do not deduct taxes or interest? Mr. Elliott. No. Senator Fernald. Why is a railroad any different from any other industrial institution ? Mr. Elliott. I do not think it is or should be. Senator Fernald. They are really a part of operating expenses,. are they not ? Mr. Elliott. Yes. Senator Fernald. I have not yet seen any good reason why they should not be taken into account in the operation of a railroad. Digitized by Microsoft® RAILROAD REVENUES AND EXPENSES. 351 Mr. Elliott. We do take them into account, Senator Fernald. In this dollar statement I treated the railroads as you speak of the matter. Senator Fernald. Interest is a part of the 1 overhead charge, the same as in the case of any other industry ? Mr. Elliott. Yes. Senator Fernald. And it belongs to the operating expense ac count? Mr. Elliott. Yes, sir; it must be paid. The Chairman. The Interstate Commerce Commission prescribes the form in which these reports shall be made, and I assume the reason some items are not reckoned in operating expenses is that the Interstate Commerce Commission has a different form of bookkeeping and does not put them into operating expenses. Senator Fernald. I understand that, and I suppose it would be sacrilege to mention that in connection with the Interstate Commerce Commission's plan, but clearly it seems to me it is a part of the operating expenses of the railroad- — for instance, taxes and interest. The Chatrman. The Interstate Commerce Commission does finally put them in the result, by calling it net operating income. That does not include interest, however, as I understand it. Mr. Elliott. No, sir. If you will look at the February account, which is shown in detail, you will note how it is made up, and it is made as Senator Cummins says — in exact accordance with the Interstate Commerce Commission's rule to show total operating revenues, total operating expenses, net revenue from railway opera- tions, and then we show taxes and uncollectible railway revenue ; — some small items that occur — and after deducting that you get a figure which the Interstate Commerce Commission describes as rail- way operating income. To that you add what you may get from rent of equipment to others. Some railroads pay out more than they take in, but in the case of the Northern Pacific we generally take in more than we pay out. In addition, we have rents for joint tracks and stations. So you finally get a figure which is called by the Interstate Commerce Commission net railway operating income, " which shows the result of the operation of the property and the use of its facilities by others. To that you add what you may get from outside sources, and that varies with the past history of any company. That gives what is called "gross income, " and from that, you deduct your interest charges, which gives you your net income, if there is anything left, which may be used for dividend appropriations or things of that kind. Senator Poindexter. What is the final amount ? Mr. Elliott. The final amount is "income balance" as they call it. Senator Fernald. And from that amount is deducted interest and taxes? Mr. Elliott. No; I have not made myself clear, possibly. You add your nonoperating income to what the Interstate Commerce Commission calls "net railway operating income," and you get a figure which they call "gross income." That is from all sources. From that you deduct your interest, and you get a figure which, is called "net income." Then you deduct your dividend appropriation, which gives you the final income balance. Digitized by Microsoft® 352 RAILROAD REVENUES AND EXPENSES. Senator FebnalD; Where do the taxes come in ? Mr. Elliott. After you get your net revenue from railway opera- tions you deduct your taxes. Then you get a figure called "railway operating income." Senator Fernald. Was that the system of bookkeeping used grior to the inauguration or creation of the system by the Interstate ommerce Commission ? Mr. Elliott. No; the railroads had different methods of keeping their accounts. And I think it was a very distinct advance in the practice when we got to a uniform system of accounts. I think there are some refinements in the accounts that have gone too far, and that the clerical labor incident to carrying out the orders of the Interstate Commerce Commission is greater than the benefits re- ceived from those very great refinements; But on the whole the ^uniform system of accounts has been a desirable thing. The Chairman. You may continue your statement. Mr. Elliott. Statements are herewith submitted in considerable -detail showing various units measuring the ; operations of the rail- road for the test period, for the years 1918 and 1919, and for the year •ending December 31, 1920. These statements show that the physical use and operating performance of the railroad in 1920 was equal to, .and in many items better than during the test period; and the same ■e&ttpared with 1919. This shows clearly that good use was madeof •every part of the plant, as already explained in the figures for density ■of traffic, car loading and movement, train loading,. etc., and indicate that the increases in expense do not come from mismanagement, but from higher costs for fuel and materials, increases in wages, and the .disturbing influences generally of the war affeeting, as they did, the morale and general effectiveness of large bodies of men in all walks of .life. The following figures are interesting on this point : Total expense per mile of road Average cost maintenance of way per mile of main track .Operating revenue per train mile •Operating expense per train mile 'Net operating revenue per train mile Test period. S6,4oa.ei 1,293.00 3.54 1.97 1.57 1919 Jll.934.71 2, 187. 32 4.79 3.71 1.08 1920 115,178.04 2,806.02 5.11 4.61 .50 4 The statements referred to are as follows :) Digitized by Microsoft® EAILKOAD BKVENUES AND EXPENSES. 353 ■gs. 3 &8afc8§38833*SBssagsi8Sssg3gss^*.*.^8g*sssa «* - •. •. -. - -f- r-i cn »co •> -oo •.■.n-.K-.n-> -eo . . ^* ■* ci u55S»200gO s^s^aYs s s § s ssf ™ sf s¥sf i s"s" Qeo 5DcMi>io«i •» ct. to io ^h r- oo 8IS|SaS®a8S"5iS*sasis8saa»gg823«»':ss38ft8$ ao £o CO CO Pi Ol o ©" i-Tef eo*£-~ pH 1H1-I1-ICN ocq£ »OinTJ)HN0 W eS r " rH ° l 3WeO»OC CO*OOD bos© ^aiSooSi^CjKooo 55 .5*egF- . . . o a> -co, p. >tCH _■* ■« *> •» •> -■ ». »c» • .onw»c\ CO rtUJNlOH ("-C^CQ _ .1—00 'SrfSS ssssssl a * eg ^i i-i as r» « wo .oor-osco - -CO * n ~ - ■— r-co-* o S"'*"S'' D " "" S" 0'*oji^cb'o«noi»oo« fc . 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CD CD CO 1-1 GN IN -JO lO w* tf cp SaM ^rHCD^eo «»cow*>-Ht-as 00 , oooaoscap CO est* P 2P ;-s i • SPsvSs 1 bjo S 9 A .S^-^ ifflgaaaaSMs : u) :?bSfi i|! •OS « 03 q o w a S5 ||la Us I g o a> © '■£:=} cav 2 « fl E lili 3-S'"'! ■a oji^ a 63553— 21— Vol I Digitized by Microsoft® 354 RAILROAD REVENUES AND EXPENSES. ^n 0»M*»(OarjQ®H««eoMO«i-((0^p t~r»i-iMN»ocooofl5Qiy5o» i ^os^«f , -cotOi-< ««..,-. .* ., -. -. ~ r. -.06 . . . .«h *. ssassss -1 Bo eg g th t; on f-j eg ^h eft ■* g o ec o » ^-i ^p ^*catb«o ■* oe >h og t- to t* . ° r rf s¥"3"3far$*' r s" a-ss CO^OOr-HODCOt-C^OllOtOCOt^^COCONf-COin . -,«_-.^---^_ K 0Q . . . . (— r-H „© »Hooc»tp^-iO(Mior-coio nohn coo SO l-H oo r- ■* O W3 tO i-H CD CD — i ©MOJr-tt- as'ssLr ass 5 lO r-t CCf-* U5 00 .-H OOHNOMSOONiOCQU '-(•tPUSep.cpc^COOOi'-tO coco .^Ntgcj . . .con . _, ^oo . . . . CO •— i ■•£• COiQ " no<-iN ^O B SS3S§^g^S a-THt-t-USiflrHOqacOCftS! T3 EH •I u ? 3 iOcsoQcniocQOQh-u3Cii-*cnOOOQQOeoC4Ceen vepf-QtHHioipoocoocomw wjo^too _,. sT^sf eT^"" 22 ©"as? sTyf'^" n d ^ s 0«NCOO<0 _ . cTcTfrf oTeJVf t*-"bo"V rH .H M iH T? C5 SO .-I NRICnOIV •— I, era. c HXOOiMNCOO -■ ■ > >, Digitized by Microsoft® RAILROAD REVENUES AND EXPENSES. 355 Another example of the effect of the increase in wages and costs of material is statement now submitted showing the hours of labor and the pay therefor for maintenance of equipment. During the test period the figures are as follows : Hours of labor. Total labor bill. Average per hour (cents). 4,953,881 5,893,274 1,590,033 $1,706,176 1,587,949 436,714 Total 12,437,188 3,729,839 29,;% In 1919. Locomotives Freight-train- cars Passenger-train cars Total In 1920. Locomotives: Freight-train cars Passenger-train cars Total 5,936,920 7,533,438 1,253,487 14,723,837 $3,587,242 5,084,379 855,075 9,526,696 64rf& 6,790,774 8,278,345 1,264,269 $5,002,266 6,418,675 16,333,388 12,401,287 75 T Vo The increases for 1920 over the test period and the jear 1919 are as follows : 1920 over test period. 1920 over 1919. An increase of hours of labor of An increase in total cost of An increase in hourly rate of . . Percent. 31.33 232.49 153.18 Per cent. 10.93 30.17 17.36 The changes in the prices of materials needed for repairs to equip- ment are shown by the following statement, which is based on the same quantities of material for, each period: Test period. 1919. Year Feb. 28, 1921. Locomotives Freight-train cars. . . Passenger-train cars $387,645.99 1,135,187.81 187,905.69 $742,619.66 1,964,130.51 302,617.68 $780,513.63 2,277,286.65 316,954.05 1,710,739.49 3,009,367.85 3,374,754.33 Calling the test period figures 100, then the. figures for 1919 repre- sent 175.9 per cent and for the year ending February 28, 1921, 197.3 per cent. Digitized by Microsoft® 356 RAILROAD -REVENUES AND EXPENSES. 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lCOiH«?P o ■* os >-i coco cs «o j r-fflOr-MiOOMCO wocQ^oseicccSao 2 go i> cs oia »o « d .naoHQOHtsica i-too ictoaa ioco-^i^oj — coco-? ^^—Tea'Q'co'iH'c^'co' H Digitized by Microsoft® 364 RAILROAD REVENUES AND EXPENSES. Mr. Elliott. On our particular road, yds. We have over 250 locomotives laid up in good order to-day ready for oncoming business. But if we should have in the autumn the kind of business we have in ordinary years, say from September to December, we would need those 250 engines to put matters in balance. Senator Pomerene. You are not embarrassed under present traffic conditions by the fact that there is this unusual number of locomotives in shops awaiting repairs ? Mr. Elliott. We are not embarrassed at all. Senator Pomerene. But you are concerned about future traffic ? Mr. Elliott. Yes, sir. The Chairman. We might as well have the reason for the failure of the railroad companies to get these engines in repair. You will need them at some time. Why have the railroads permitted the percentage to rise to such a point ? Mr. Elliott. It is permitted because the managers have upon them the obligations, if they can, to meet interest charges, let alone to try to keep up dividends in order to sustain their credits. And we have gone just as far as we dared in cutting down shop hours and expenses generally. The Chairman. That means you do not have the money ? Mr. Elliott. No; we can not use the same dollar to meet two different demands. Senator Pomerene. Suppose you were to go into the market to-day to get money to meet the conditions confronting you at what per cent could you get the money ? Mr. Elliott. It would be at varying rates, depending upon the credit of the individual carrier, Senator Pomerene. I speak of your company ?, Mr. Elliott. The Northern Pacific has just recently had to nego- tiate the largest industrial loan ever floated in this country, known as the Northern Pacific-Great Northern joint 6£ collateral, trust bonds. The Great Northern and the Northern Pacific have to pay on the 1st of July next $215,000,000, and they have been trying for over a year to get arrangements made whereby they could issue the necessary new securities for taking up that loan and having the money on hand with which to pay it on July 1. That transaction was finally worked out and completed about a week ago. It has very strong collateral back of it, besides the promise of the Great Northern ana the Northern Pacific, and that loan cost those companies 7.45 per cent . Senator Pomerene. That is, including commissions ? Mr. Elliott. That is everything; that means net cost. Senator Pomerene. Was that the best you could do ? Mr. Elliott. That was the very best we could do. Senator Poindexter. What was the rate of interest on the old obligation that is to be taken up ? Mr. Elliott. Four per cent. Senator Poindexter. There is a rise there of from 4 per cent to, 7 and a fraction per cent. What was that ? Mr. Elliott. Seven and forty-five hundredths. Senator Poindexter. What are these securities that you sp eak o that are back of the loan ? , Mr. Elliott. Back of the loan are 97 per cent of the stock of the Chicago, Burlington & Quincy, 1,658,674 shares; $33,000,000 of first and refunding mortgage bonds of the Northern Pacific, and $33,000, - Digitized by Microsoft® KAILKOAD REVENUES. AND, EXPENSES. 365 O00 of Great Northern mortgage bonds. Those are all back of the $230,000,000 of new bonds issued plus, of course, the promise of the Northern Pacific and the Great Northern to pay the interest and ;he principal. Senator Poindexteb. That is over' $60,000,000 of first mortgage bonds ? Mr. Elliott. $66,000,000. Senator Poindexteb. Besides the 97 per cent of the stock of the Chicago, Burlington & Quincy ? Mr. Elliott. Yes, sir. Senator Poindexteb. What was the date of the old obligation taken up by this new loan ? Mr. Elliott. July the 1st, 1901. Senator Pomeeene. And what length of time do these new securi- ties run ? Mr: Elliott. Fifteenyears. Senator Pomeeene. Fifteen years ? Mr. Elliott. Yes. Senator Pomeeene. And the rate of interest on these new securi- ties is what ? Mr. Elliott. The sate equated on the 15-year period figures 7.45. Senator Pomeeene. The rate of interest is 7.45 covering the entire period ? Mr. Elliott. They are 6^ per cent bonds but, equated over the period and at the price that they could be sold for, the rate figures 7.45,' and the flotation, as I say, was the largest industrial flotation in history of the country. The only loans larger than this loan were some of the foreign loans. Senator Poindextee. How does the rate of interest compare with the rate of interest on other large industrial loans ? Mr. Elliott. Well, it is less than the rate on some and a trifle more than the rate on others. Some small loans, not as large in amount as $230,000,000, have. been floated at a slightly less rate than that, but many have paid a higher rate. . Senator Pomeeene. Have you the privilege of redeeming the whole or any part of this loan before the 15 years are up ? Mr. Elliott. Yes; at any time we can call it in in blocks of $5,000,000, the idea being that conditions, might change so that we could reduce the rate of interest by a new financial transaction. Senator Feenald. Mr. Elliott, how do you expect to pay this interest? From what source do you expect to pay the interest on this loan ? Mr. Elliott. We expect the earnings of the Chicago, Burlington & Quincy on the 1,658,6,74 shares will pay the interest on the $230,- 000,000. 6£ per cent bonds. Senator Feenald. Suppose that for some reason you do not get any income out of the Chicago, Burlington & Quincy, you would have to pay it out of your revenue— from the revenue that you receive ? Mr. Elliott. We would have to pay it out of what we receive. Senator Feenald. In that event it would be charged against the operating expenses ? Mr- Elliott. Yes, sir. Senator Feenald. It would have to be paid out of the operating expenses, from the revenue that you receive? Digitized by Microsoft® 366 RAILROAD REVENUES AND EXPENSES. Mr. Elliott. Yes; it is a promise to pay by the two northern roads, and they hope, as owners of the Chicago, Burlington & Quincy Railroad, to get sufficient from the Burlington to meet it. Senator Fernald. Oh, doubtless you would; but in the event that you do not get it, you will have to pay it from your revenues ? Mr. Elliott. Yes. The Chairman. When the Chicago, Burlington & Quincy Rail- road fails to earn a fair return upon its stock the railroad business of this country will be about at an end, will it not ? Mr. Elliott. Yes, sir. And it will not be "about" at an end, but entirely at an end. : Senator Fernald. That is true of this particular case, but there are cases where there are railroads that do not get a revenue from such railroads as the Chicago, Burlington & Quincy. Mr. Elliott. Yes, sir. The Chairman. This transaction which you have just mentioned is the refunding of the obligations which the Northern Pacific and Oreat Northern Railroads entered into in purchasing the stock of the Chicago, Burlington & Quincy Railroad Co. in 1901 ? Mr. Elliott. Yes, sir. The Chairman. And that company has always been a very suc- cessful railroad, has it not, and operated as a very successful railroad ? Mr. Elliott. Yes, sir. The Chairman. And its capitalization is very low as compared with the value of its property, is it not? Mr. Elliott. Very low, mdeed. They have a book surplus of something like two hundred and forty odd million dollars. The Chairman. Yes. I am only suggesting that in order to- indicate that the Northern Pacific Railway is in no very great danger,, so far as that particular obligation is concerned. Senator Fernald. I realize that, Mr. Chairman, but we have- some small roads down in Maine that are not fortunate in having any Chicago/Burlington & Quincy stock, and we have to pay the interest on bonds just the same, and we pay it from our revenue. It has to- be charged up to the operating expenses. Mr. Elliott. I would like, Mr. Chairman, with your permission, as the question has been asked about that transaction, and it is somewhat national in character, to submit for the record these papers, in regard to the history of this transaction. The Chairman. In what connection ? Mr. Elliott. In connection with the questions asked about the refunding of these bonds. I would like to submit for the record these circulars that explain the whole thing in detail. The Chairman. Is it worth: while to print all this matter? Mr. Elliott. Well, I don't care anything about whether they are- printed or not, but as the question has been raised, I thought I would present them to the committee. Senator Fernald. Mr. Chairman, and Mr. Elliott, I did not wish to be understood as questioning the ability of the Northern Pacific; to pay on these bonds. The Chairman. You may hand them to the reporter, but unless the committee otherwise orders, they will not be printed, because I do not really think that that is material. (See note.) Note. — The papers referred to are not printed, but are on file with the committee. Digitized by Microsoft® RAILROAD REVENUES AND EXPENSES. 36T Mr. Elliott. Well, I don't care anything about it. I was going: to say that that transaction was, in a way, national in character,, because if there had been a failure on the part of these two Northern companies to bring about some plan for nandling those bonds, the- dislocation would have been very serious, and we were all very much disturbed about the matter, and began work on it over a year ago,* and we submitted a plan to the Interstate Commerce Commission about the 5th of last November, which in our judgment was much better than the plan finally adopted, and the Interstate Commerce- Commission, in accordance with the law, had public hearings, notified all of the States, and those hearings were held, as I recollect it, early in December. ' No stockholder, no security holder appeared to object in any way to the plan proposed by the management. No State appeared in opposition to the plan, except the State of Illinois, appeared through its attorney general and called attention to some constitutional questions in Illinois, but did not object to the theory of the plan. The State of Nebraska appeared, through its attorney general, and objected to the plan on the ground that it was a distribution of part of the Burlington surplus. The commission considered this matter with great care, and finally rendered a decision in the latter part of February, denying the applica- tion of the management, by a vote of five to four, admitting that the plan > was legal, Dut the five dissenting commissioners thought it- was unwise to try to refinance this very large transaction by any distribution of the Burlington's surplus. So the management then had the months of Mareh, April, May, and June in which to devise an entirely new plan, which we did, with this- result. In our judgment the original plan was a wiser one, would have produced lower rates of interest, and in consequence, a lower charge upon those three transportation systems, but the commission- did not agree with us, so we were thrown back to this plan. That incident is illustrative, to my mind, of one phase of the general situation, and that is the danger that regulation impinges- upon management. No one thought our plan was unlawful, but they did not like it. They thought their financial judgment as to- the way to do this was better than the financial judgment of those- who had spent years in the business, and a whole year discussing this- particular question, and of course, under the law, we bowed to their decision and went ahead on the new plan, which, however, in our judgment, meant a greater cost in refunding this issue than if we could have acted promptly at the time we wanted to, and have gotten the benefit of a very much better bond market in the month of January than we had later on. Senator Fernald. Approximately how much, Mr. Elliott, would have been saved, if your plan had been adopted 1 Mr. Elliott. We do not know exactly, of course, Senator Fernald, because we did not do it. Senator Fernald., I understand that, but approximately how much would have been saved, in your judgment ? Mr. Elliott. But the best estimate we could make indicated that between two and a half and three million dollars a year might have been saved in interest if we could have put it out under our plan, and put it in effect in the month of January. That is our best estimate, but of course we do not know; that is a supposition. Digitized by Microsoft® 368 RAILROAD REVENUES AND EXPENSES. The Chairman. Well, the Interstate Commerce Commission may or may not have made an error, but I' hope that you will remember that the railroad companies themselves were the most insistent upon giving the full and complete power to the Interstate Commerce Commission to approve or disapprove the issuance of railroad securi- ties. Mr. Elliott. I agree to it, Senator, and I am not bringing this iup as a matter of complaint. No one said this was unlawful. They merely expressed their opinion that they thought some other plan would be better. Senator Pomerene. I do not understand that you are criticising the legislation, Mr. Elliott. Mr. Elliott. No, sir; not at all; and I think it vastly better than the old plan where you had to go to 1 1 States in order to get approval) of the plan. But it does indicate the difficulties that we, all of us, are confronted with in this difficult situation, that sometimes delay,, and probably necessary delay, in handling these great questions, works badly. And these gentlemen that opposed our plan were perfectly sincere in it; they were just as sincere as we were in offering it, and their judgment in this particular case was derived from one set of facts, and ours from another. Senator Pomerene. The only difference between you and the Interstate Commerce Commission was then as to your judgment about the bond market ? Mr. Elliott. Well, no, as to the method, as to the kind of bonds to issue. Senator Fernald. Who conceived the plan of the first issue, Mr. Elliott, the 4 per cent ? The commission or the railroad ? Mr. Elliott. No, originally, in 1901 that purchase was worked out by the then representatives of the Burlington, Mr. Charles E. Perkins, Mr. James J. Hill, and the representatives of the Northern Pacific, and you probably remember when that purchase was made.. And at that time people felt so sure that the rate of interest on rail- way securities was not going to rise that they made the issue for 20 years, thinking that at the end of that time they could do better. Those upon -whom the responsibility rested at the end of 20 years wished that they had made it 40 years at that time instead of 20. But they thought they could refund at the end of 20 years on a better than 4 per cent basis or buy it in from time to time and cancel it in that way. Shall I proceed, Mr. Chairman ? The Chairman. Proceed. Mr. Elliott. I was talking, I think, about freight cars, and the effect of the changed condition on the repairs of freight cars. I have some figures showing this condition, as follows : The bad-order cars repaired during the test period on the Northern Pacific Eailway averaged in a year 737,816. In 1919 the number of bad-order cars repaired on the Northern Pacific was 745,598. In 1920 the number was 886,946. The daily average of bad-order cars on the line — that is to say, we could not repair every car the moment it was bad order, so we always had a certain number on hand— in the test period was 1,600. In 1919 the daily average of bad-order cars on the line was 2,142, And in 1920 it was 3,802. Digitized by Microsoft® RAILROAD REVENUES AND EXPENSES. 369 Senator Pomerene. Now, Mr. Elliott, the test period was 1915, 1916, and 1917? Mr. Elliott. Yes, sir. Senator Pomerene. Can you give the daily average of repaired cars during the year 1918 1 Mr. Elliott. I can give it, but I can not give it to you without some delay. I will give it to you later. Senator Pomerene. Well, I do not ask you to delay the proceedings now to get it; but I would like to be able to compare the number of cars that were repaired during Government control and during the years 1919 and 1920. Mr. Elliott. Yes. The Chairman. Does this mean, Mr. Elliott, your own cars on your own line ? Mr. Elliott. No, the cars on the road, the freight cars on the road. Some of them are our cars and some of them belong to other people. The Chairman. All the cars on your road, you mean ? Mr. Elliott. Yes, sir, all the cars on that road. I think, Senator Pomerene, I can give you that figure in a moment. Senator Pomekene. Well, don't stop to give it now, but put it in the record later. Mr. Elliott.- The total amount charged to freight-car repairs in the test period was $2,987,697. In 1919 the amount charged to freight-car repairs was $8,619,390. In 1920 it was $12,140,554. The average cost per car repaired in the test period was $4.05. In 1919 it wasi$11.96. In 1920 it was $13.60. That is the average cost. If you just put a handhold on a car, which might have only cost you a dollar, or if you put on a new door, which might have cost $10, or if you rebuilt the car, at a cost of $500, the average for the repairs was these figures given. Now, if you take the total amount you .s^pend and apply it to the number of cars that the Northern Pacific owned, which is the ordi- nary way of figuring what your freight cars cost you per car owned, the average amount spent on the cars owned, during the test period, was $62.43. Senator Pomerene. I do not quite understand that, Mr. Elliott. You say, "Average amount spent per car owned." What do you mean by cars owned ? Mr. Elliott. We assume that every railroad was maintaining its own cars, or the equivalent number. Now we owned, we will say, in the test period, 48,000 or 50,000 cars. Senator Pomerene. Then these figures have reference to the cars in fact owned by your company ? Mr. Elliott. These figures have reference to the cars owned by our company; yes. The Chairman. No matter where they were ? Mr. Elliott. No matter where they were. As I said, the average amount spent per car owned was $62.43 for the test period. In 1919 it was $173.32. In 1920 it was $247.39. 63553— 21— Vol T 25 Digitized by Microsoft® 370 RAILROAD REVENUES AND EXPENSES. The use made of all cars on the Northern Pacific, measured by miles run, is as follows: In the test period it was 466,846,125 freight car miles. In 1919 it was 455,018,106. In 1920 it was 471,103,719 miles. Not a very large difference in the' use made of the cars in those periods. Senator Pomerene. Now, let me ask you right there, Mr. Elliott, this question: Here, of course, is a very substantial difference as to the amount spent per car owned. Was that due to a worse state of repair in 1920, or to the increase in wage, or the increase in material, or to all of these things combined ? Mr. Elliott. Due to all combined, Senator. The cars, as has been explained by previous witnesses, were, in the exigencies of the war, distributed all over the United States. They went into service for which they were not always designed, and they got misuse. A Northern Pacific car that was down in Pittsburgh and was loaded up with a heavy casting received more severe use than it would have received if it was used out in the Dakotas, out in the West, in the handling of grain and lumber. And innumerable such examples could be given. So the cars were strained more during 1918 and 1919 than they were in the previous period. On March 1, 1920, when Government control ceased, we had only 26.9 per cent of Northern Pacific cars on Northern Pacific rails. The relocation of cars has now brought that percentage up, so that on May 1 we have 79.2 per cent of Northern Pacific cars on Northern Pacific rails. As these cars come back, the misuse or the overuse or the lack of care of the cars while on the other fellow's road — because he is not breaking his neck to do any more than he has to to get them back on the nome road — begin to develop the hidden defects, and the increased cost is shown in putting the cars back into the condition where they are satisfactory to the public. The Chairman. Does this item of $247.39 for 1920 include the purchase price of new cars in the stead of cars that had been scrapped ? Mr. Elliott. No, sir. The Chairman. Altogether upon repairs 1 Mr. Elliott. No new cars bought in 1920. It is only the bona fide repairs to existing cars. And the accounts are kept in each case, exactly as stated by the commission. Senator Pomerene. Where a car was scrapped, was any account taken of it by the commission ? Mr. Elliott. No; there is nothing charged in that case. That is a separate account. Well, to show you how seriously it has worked, we have to-day — and other roads, no doubt, are in much the same condition — too many bad-order freight cars on our rails for the gen- eral good of the future business; 13.8 pe- cent of our ownership is in bad order. Senator Pomerene. Thirteen per cent ? Mr. Elliott. Thirteen and eight-tenths per cent; yes, sir. Six thousand and twenty-five cars on May the 1st. Now, in what is called the northwestern district of the United States, which takes in the roads between Lake Superior and Puget Sound, the average is 13.3 per cent. In the United States as a whole the figure is 13^- per cent. Or there are something like 315,000 bad-order cars in the whole country. Digitized by Microsoft® BAILROAD KEVENUES AND EXPENSES. 37 1 Five per cent of bad-order cars is the normal limit. It is better to have it 4 per cent. But based on 5 per cent, the normal limit, we have to-day in the United States, about 200,000 bad-order freight cars in excess of the normal of 5 per cent, that must be picked up and put in shape to meet future business. Senator Poindextee. Did you state the per cent in the test period, Mr. Elliott? Mr. Elliott. Can I answer that, do you say ? Senator Poindextee. Well, did you state the per cent in the test period ? Mr. Elliott. No, sir; I did not. Senator Poindextee. The per cent at the present time is above normal ? Mr. Elliott. Yes. Senator Poindextee. You have not got thei figures for the period of Government operation ? Mr. Elliott. No, sir; I have not got them here. I can get those figures for you. Senator Poindextee. WelL that is not important. The Chairman. Well, the increase in the number of bad-order cars has been brought about partly, I suppose, by the closing of your shops and the dismissal of your men ? Mr. Elliott. Oh, yes. The same necessity as I explained about locomotives; we have been hoping that business would improve, and also that there would be some adjustment of wages, so that when we did start to make these heavy repairs they would De a little less costly than they are to-day. But I was going to tell you that we have to-day on the Northern Pacific tracks approximately 4,000 of what we call heavy bad-order cars. It will take to repair those bad-order cars one million and a half of dollars; it will take that much to repair those 4,000 cars. And as to the 200,000 cars, bad-order, in the United States, no one can say how much it will take, but they are the heavy bad-orders. I know that it will cost $900 and $1,000 to repair some of them; others less. But probably it will be at least an average of $400 a car. Senator Poindextee. Does that include the running gear of the cars as well as the body ? Mr. Elliott. Yes ; it includes everything to put them in first-class order. Senator Poindextee. All kept in the same account ? Mr. Elliott. Yes. So that is a point that is very important to the welfare of the roads, to try to get these cars just as we want to fet the engines in shape, in case we have, as we of course always ope we are going to have, a better business in the autumn, and in 1922. But I instance this great increase in cost, the higher wages, the higher cost of material, the fact that the cars were scattered all over the country and did not receive as good use as they did prior to the war, and it has all piled up in cumulative expense which is reflected in this particular road in that cost in 1920. The ability of the railroad to transport its business efficiently and cheaply depends, of course, very largely on keeping its locomotives in a reasonably good condition, and I nave prepared here a statement ' Digitized by Microsoft® 372 RAILROAD REVENUES AND EXPENSES.' for February, 1921, as compared with. February, 1920, and with the average Februarys of the test period> showing certain locomotive statistics. I selected February, 1921, because it is the last month for which the figures were' available, and that month, reflects the result of the various orders that have been made during the last few years about pay and overtime and working conditions. And also it is fair to say that in February, 1921, I think there has been some increase in the efficiency of the men. And that effi- ciency in February, 1921, is probably higher than it was in 1920. The figures are as follows : Number of engines In shop for heavy repairs : Amount expended for locomotive repairs Amount expended per engine owned Cost per mile run, freight..^ cents.. Cost per mile run, passenger do. J. Per mile run, yard do. . . Cost per tori of coal Engine failures J Miles run : Miles run per failure Amount expended per locomotive for repairs Engine failures per year v . Miles run ..t Miles run per failure Cost per ton of coal '. Test period. 108 $215,331 $159 59. 42 34.61 45.31 $2.62 54 2, 303, 248 42,651 $2, 112 640 30,050,344 46,954 $2.60 1920 111 $562,358 $400 96.93 58.56 84.76 $4.15 82 2,638,165 32,173 i S3, 948 1629 30,810,558 148,983 i$4.12 1921 142 $404,057 $278 124.46 71.21 110. 52 $5.79 39 1,897,335 48, 650 $4,386 2 673 '32,198,078 2 47,843 » $4. 69 i 1919. i 1920. I will comment on some of these figures. In the test period we expended for locomotive repairs $215,331. In February, 1920, we expended $562,358. In February, 1921, we only expended $404,057, because, for the reasons already discussed, we cut our shops down as far as we felt was safe. The amount expended per engine owned in the test period was $159. In February, 1920, it was $400. In February, 1921, it dropped to $278, because we were postponing the work. Now, this next set of figures indicates the cost to run each class of engines a mile, and that cost depends in part upon the general con- dition of the engines. The cost per mile per freight engine in the test period was 59.42 cents. In 1920 it was 96.93 cents. And in 1921 it was $1.2446. The cost per mile run, passenger engines, in the test period was 34.61 cents. In 1920 it was 58.56 cents. In 1921 it was 71.21 cents. The cost per mile run, yard engine, in the test period was 45.31 cents. In 1920 it was 84.76 cents. In 1921 it was $1.1052. In that cost per mile run are included the repairs and the wages and the fuel and the water and the oil and all those expenses that go jnto the actual cost of running an engine a mile. Digitized by Microsoft® RAILROAD REVENUES AND EXPENSES. 373 Now, just below those figures I show the number of engine failures in February during the test period, in 1920 and 1921. Senator Pomerene. What do you mean by "failures" ? Mr. Elliott. That means that the engine was not able to take its train into the terminal on time; it was not in good condition, or it had bad coal, or for some reason or another — not due to wreck — it could not perform. And if the engines are in bad condition you will have a good many engine failures; if the engines are in reasonably good condition you will have fewer engine failures. During the test period we had 54 engine failures. In 1920 it went up to 82 failures. In 1921 it went down to 39 failures. The number of miles run for each failure in the test period was 42,651. In 1920 it dropped to 32,173. In 1921 it went up to 48,650. Showing that our engines in 1920 were not in quite as good condi- tion as in the test period, and that we are picking up a little, and they are doing better right now. Now these costs have gone up not because the engines were in very poor condition, making therefore many failures, but simply because of the general increase in all kinds of prices and wages. The cost per ton of coal has gone up very materially. In the test period the cost per ton of coal was charged out at $2.62. In 1920 at $4.15. In 1921, at $5.79. The Chairman. Was this on your road alone ? Mr. Elliott. Yes, sir. I -am now giving you Northern Pacific figures alone. Senator Pomerene. How do you account for that enormous in- crease in 1921 over 1920 in coal? Mr. Elliott. That is due in part to the difficulties of the eastern roads in bringing coal up to the lower lake ports, and then taking it" on to Duluth and Superior, the head of the Lakes, and we had to pay very much higher prices in the summer of 1920, when the coal was delivered by water, than we did in the summer of 1919, so we were using, in February, 1921, for the eastern part of the Northern Pacific Railroad higher-priced eastern coal, and because of the 1 difficulty of fetting all of the eastern coal we needed, we had to go into Illinois and uy Illinois coal, which was higher priced than ever before. And we also in Montana and Washington, where we got coal for the middle and western end of the road, had to pay materially higher prices as the result of the wage award in the coal case, which was settled, as you remember, 18 months or so ago, and the wages were fixed until 1922. So the prices went up for those reasons. Now if you will look at the figures below those I have just given, Senator Pomerene, you will see that the cost per ton of coal for the test period was $2.60 for the whole year. For the whole year 1919 it was $4.12. And for the whole year 1920 it was $4.69. Of course for part of 1920 we were using coal bought in 1919 and carried on the docks in Duluth and used from January to May of 1920. Digitized by Microsoft® 374 RAILROAD REVENUES AND EXPENSES. I am giving you these figures, because to my mind they show that the increase in locomotive costs in 1921 has not been the result of poor management or the inability of the locomotive to handle the business, but is due to a higher cost of fuel, and material changes in working rules and conditions, and to increased wages. Following is a statement of fuel consumed by locomotives in revenue service in 1920, as compared with 1919 : Tons used Average price Value ,-. Revenue service locomotive-miles Number of tons used per 100 locomotive-miles. Cost per 100 locomotive-miles 1919 2, 353, 355 $4.12 $9,706,750, 29, 898, 564 7.86 S32. 46 1920 2, 532, 943 S4.69 $11, S86, 109 31,184,638 8.12 $38. 12 These figures show in detail the comparison between 1919 and 1920. The tons used in 1919 were 2,353,355. In 1920, 2,532,943. The average price in 1919 was S4.12, as against $4.69 in 1920. The value of the coal used in 1919 was $9,706,750, as against $11,886,109 in 1920. The revenue service locomotive miles in 1919 were 29,898,564, and increased to 31,184,638 in 1920. The number of tons used per 100 locomotive miles were 7.86 in 1919 as against 8.12 in 1920. And the cost per 100 locomotive miles which was, in 1919, $32.46, went up in 1920 to $38.12. We had, in 1920, more miscellaneous fuel which was not adjusted exactly to the engines, and that increased somewhat coal consump- ■ tion, and*increased the cost for that reason, and also the prices were somewhat higher. The Chairman. Do you include in the cost of coal anything for carrying the coal on your own rails to the points of consumption? Mr. Elliott. No, sir; none whatever. I desire also to submit a statement of the total number of officers and employees necessary to carry on the affairs of this company.- In 1917 the average number of officers and employees managing, maintaining, and operating the road was 31,887. A certain number of them worked by the day, and that added up to 1,312,420 days. Others worked by the hour, and that amounted to 91,710,810 hours. For that work there was paid $35,877,879. In 1919 there were employed 33,700 officers and employeesi The day men worked 1,296,092 days, and the hour men, 80,886,575 hours, and the compensation was $52,605,395. Senator Pombbene. Now, you had more officers and employees in 1919 than you had in 1917, and they did less hours work in 1919 than they did in 1917? Mr. Elliott. Yes, sir; that is because of the more general applica-* tion of the 8-hour day. In 1920 the average number of officers and employees was 35,553. The day men worked 1,371,933 days, and the hour men worked 86,058,373 hours, and the pay was $66,503,794. Digitized by Microsoft® RAILROAD REVENUES AND EXPENSES. 375 If, however, the wages fixed hy the Labor Board, and dated back to May 1, had been applied to the amount of hours and days, January to April, inclusive, the total annual compensation would have been $69,975,740, or very nearly double the amount of money for a smaller amount of time worked than in 1917. Senator Poindexter. Have you anywhere the total amount of money paid out by the railroads for back pay under that decision of the Labor Board ? Mr. Elliott. I haven't it with me here, Senator Poindexter. I think we can get it without much difficulty. Senator Pomerene. Do you mean the last decision ? Senator Poindexter. No, the first decision. Senator Pomerene. The first one ? Senator Poindexter. Yes. Senator Pomerene. During 1918? Senator Poindexter. Well, the decision was made, I think, in 1920. What was the date of that decision of the Labor Board ? Mr. Elliott. July 1, and dated back to the 1st of May. Senator Poindexter. What year ? Mr. Elliott. Mr. McAdoo's original order? Senator Poindexter. * Yes. Mr. Elliott. Well, I don't know exactly. Mr. Thom. I think it was in April, 1918. Mr. Elliott. It was in the early part of 1918, and dated back. The Chairman. It was made in May, 1918, and dated back to the 1st of January. Mr. Elliott. Yes, it applied to the whole year of 1918. Senator Poindexter. What was the date of the second order of the board ? Mr. Elliott. That was July 1, 1920, and dated back to May 1, 1920. Commenting on those hours and days of work, and the pay, we ran train miles in 1917 of 24,414,102. In 1919, 21,976,298. In 1920, 22,792,561. And the wage cost, that is, what we paid out in wages, divided by the total number of train miles run,, shows that the company ex- pended in wages for that service as follows : In 1917, $1.47 a mile. In 1919, $2.39 a mile. In 1920, $2.92 a mile. If decision No. 2 had been in effect for the entire year 1920 the wage payment would have been $3.07 in 1920. Now, some of these rules and regulations and orders changed the method of computing overtime, the method of measuring it, and that has had an effect on the total amount paid out for hours and days of labor, and I have a statement here which compares two periods a little different from the one above, but it is illustrative. Digitized by Microsoft® 376 KAILROAD REVENUES AND EXPEN.-IES. The statement is as follows : Overtime paid and charged to operating expenses, year ended Feb. 28, 1921, as compared with year:ended Oct. 31, 1919. Year slid- ing Oct. 31,1919. Year end- ing Feb. 28, 1921. Increases. Passenger trainmen Passenger enginemen Freight trainmen Freight enginemen Yardmen Operators, clerks, and station employees Total, transportation department.. Maintenance of way Shops Dirung-car department General office and miscellaneous Total $31,361 50,824 532,971 449,792 60, 736 391, 288 S44, 840 70, 141 726,289 621,857 91,304 512,648 $13, 479 19,317 « 193, 318 2 172,065 30, 568 121, 260 1, 516, 972 497,307 1,281,159 11,712 : 86, 685 2, 066, 9f 9 1,977,432 1,671,971 66,413 57, 488 550, 007 1,480,125 390, 812 54,701 1 29, 197 3, 393, 835 5,840,283 2, 446, 448 1 Decrease. 3 For less hours overtime. This increase is attributable to the following causes: Additional overtime worked $559, 618 National agreement and Federal wage orders , 998, 682 Decision No. 2 888, 148 We happened to have this statement prepared for another purpose but I will use it here. For the year ending October 31, 1919, the total amount paid out for overtime was $3,393,835. For the year ending February 28, 1921, the total amount paid out for overtime was $5,840,283, or an increase of $2,446,448. That increase, as nearly as we can calculate it, is attributed to the following causes : For additional overtime worked, $559,618. Because of time and one-half for overtime, etc., we had to pay out, $998,682, under the National Agreement and Federal wage orders. Under decision No. 2, this recent order of the Labor Board, $888,148. Or for what is called punitive overtime, $1,886,830. And that, of course, has had that much effect on the total expenses in 1920. Without reading it in detail, I have had prepared here a statement, for the benefit of the committee, showing some thirty classes of men and what they actually received per day and per hour based on the hours or days worked, and that divided into the total t amount of money paid out for those respective classes. That shows very markedly how much the pay has increased since 1916. There are nine cases in the list where the increases were less than 100 per cent, and 19 cases where the increases are over 100 per cent, running at the highest point to 229 per cent for car repairers, which indicates one reason why car repairs are so expensive. Comparing the third quarter of 1920, for which this calculation was made, with the whole year of 1919, there are quite marked increases there in every class. (The statement presented by Mr. Elliott is as follows :) Digitized by Microsoft® RAILROAD REVENUES AND EXPENSES. 877 Amounts paid certain classes of employees per day or hour, between 1916 and 1920. Item. 1916 1917 1918 1919 Second quarter. 1920 Third quarter. Increase, third quarter, 1920, over 1916. Section foremen per dav Section men per hour Other unskilled laborers do. . Carpenters do . . Painters and upholsterers do. . Airbrakemen do. . Car inspectors do. . CarreDairers do. . Telegraphers, clerks do. . A gent-telegraphers : do. . Station agents per day Station-service employees : per hour Enginehouse men do. . Freight engineers do. . Freight firemen do . . Freight conductors do. . Freight brakemen do. . Passenger engineer do. . Passenger firemen do. . Passenger conductors do. . Passenger brakemen do. . Yard engineers .do. . Yard firemen do. . Yard conductors do. . Yard brakemen do. . Machinists do. . Blacksmiths do . . Mechanics' helpers and apprentices do. . $2. 347 .178 -202 .265 .289 .248 .295 .254 1.290 .225 .187 .6'i9 .465 .549 .372 .977 .636 .819 .437 .447 .285 .408 .369 .457 .406 .231 S2. 742 .228 .234 .321 .315 .304 .327 .285 .330 .296 3.794 .273 .222 .753 .513 .619 .421 .984 .643 .867 .464 ' .557 .355 .509 .463 .512 .449 .261 S3. 782 .316 .345 .484 .563 .540 .600 .560 .508 .503 4.731 .377 .294. .874 :590 1.078 .815 .975 .610 .699 .501 .665 .628 .682 .665 .422 S3. 788 .405 .439 .574 .676 .654 .705 .661- .647 .650 5.740 .461 .445 1.020 .768 .789 .609 1.J93 .887 1.044 .673 .798 .587. .691 .655 .748 .730 .489 S4.295 .429 .455 .601 .673 .707 .742 .704 .609 .613 5.796 .496 .460 1.054 .785 .842 .648 1.240 .922 1.044 .716 .806 .600 .689 .649 .761 .740 .500 $5. 215 .500 .523 .706 .768 .822 .842 .816 .715 .699 6.394 .573 .530 1.180 .915 .936 .759 1.394 1.075 1.172 .813 .900 .694 .826 .762 .854, .847 .603 Per cent. 104.8 184.1 158.9 144.3 170.4 210.2 191.3 229.0 142.4 175.2 94.3 154.7 183.4 93.8 96.8 70.5 104.0 42.7 69.0 43.1 86.0 101.3 143.5 102.5 106.5 86.9 108.6 161.0 The previous witnesses have given some information as to how these changed rules seemed to produce conditions that are uneconom- ical, in causing pay to*be made, perhaps, for work that is not neces- sary. I requested one of the general superintendents of the New Haven Road, of which I am a director, to get me some examples in New England that would illustrate that, because he was a very well- posted man, and some of the details are quite pertinent. The examples I give are brought about through the increased rates, the changes in working conditions, the reclassification, and so forth. I asked him not to pick out cases that would be extreme, because I did not think that was fair, and he has picked out cases which he believes are fairly typical. A so-called inspector of locomotive front ends, prior to January 1, 1918, received 26 cents an hour for 84 hours a week, totaling $21.85. Being reclassified by the national agreement, his rate was made $41.65 for a week of but 49 hours, or 85 cents an hour, and he received $1,524.14 in back pay. At an engine terminal in New England, Italian laborers inspected locomotive front ends, and prior to January 1, 1918, were considered laborers, and the work laborers' work. Their rate was 21 cents for 10 hours a day, seven days a week, totaling $14.70. They were reclassified as boilermakers under the national agreement, receiving 85 cents an hour, time and a half Sundays, or $51 a week for eight hours daily. If they worked 10 hours as formerly their weekly pay would be $89.68. Prior to January 1, 1918, a machinist employed to make mechan- ical repairs on the trucks of electric locomotives received 37 cents an hour, but now receives 85 cents an hour, and this particular-man Digitized by Microsoft® 378 RAILROAD REVENUES AND EXPENSES. got $578.78 back pay. It is true that on the trucks of an electric locomotive there is a limited amount of wire work to be done, but it is very small. The work is more in the nature of car repairer. Senator Poindextee. Tp what date did that back pay relate ? Mr. Elliott. To January 1, 1918. Senator Poindextee. January 1 ? Mr. Elliott. Yes. Senator Poindextek. And what was the date of the decision, the order ? Mr. Elliott. Well, the first decision was in* May of 1918, and the national agreements were made late in the autumn of 1919, and the labor board's award in July of 1920. Senator Poindextee. But these figures that you are giving now were on the order of the director general ? Mr. Elliott. No; these figures are what he gets to-day as an accu- mulation of all of the different things that have been done, as com- pared to what was given him prior to January 1, 1918. Senator Poindextee. Those are the figures as to his wages ? Mr. Elliott. Yes. Senator Poindextee. But I am speaking about the back pay. Mr. Elliott. Well, it depends, of course, on when the adjustment was made. The adjustment took a long time. We took it up as fast as we could, but most of the adjustments under the 1918 order were made in 1918 or 1919. Most of the adjustments for 1919 were made in 1919 or early in 1920, and the adjustments under the labor board's award on July 1, 1920, were made in 1920. Senator Poindextee. The figures which you give include all the back pay that individuals received ? Mr. Elliott. The figures which I give include all the back pay that he was entitled to. Senator Poindextee. Including the several orders ? Mr. Elliott. Yes. Now an engine caller — which is a very simple business — used to be paid 24 cents an hour, or $20.15 for 84 hours a week prior to January 1, 1918, and he now receives 61 cents an hour for 48 hours, or $29.28 a week. And besides that this man got $646.89 back pay. A float-bridge operator who had been paid $28.25 a week to Janu- ary 1, 1918, now receives $54.90, and was granted $488.50 back pay. The New Haven road has to transfer a large amount of cars from its Harlem River yard across to the Pennsylvania and other depots on the Jersey shore, and the cars are put on what is called a "float bridge," which works up and down with the tide, and then they are slipped from that onto the barge. Prior to January 1, 1918, engine inspectors at an engine terminal were paid $27.70 for a week of 84 hours, or 33 cents an hour. They now receive $38.21 for a week of 49 hours, or 79 cents an hour. An agent at a small station received $15.50 a week prior to January 1, 1918; he was on duty 7 days a week and 12 hours a. day, but at a small station, as we all know, the agent does not have to work all the time. He is on duty, but he does not have hard work to do. He now receives $34.30 for 56 hours' work. His compensation now is 61.3 cents an hour; it formerly was 18.5 cents an hour. The agent at another small station received $17 a week, 7 days a week and 12 hours a day, prior to January 1, 1918. His present earnings for the same work are $53.62. b Digitized by Microsoft® RAILROAD REVENUES AND EXPENSES. 379 Senator Pomerene. Per week? Mr. Elliott. Yes, sir; per week. The application of what are called rules 2 and 7 of the so-called national agreement with employees represented by the railway employees department of the American Federation of Labor, and which became effective October 20, 1919, has been something of a hardship to the railroads in certain instances. Senator Pomerene. What were those rules ? Mr. Elliott. I am going to tell you what they are, Senator. Rule 2 places the starting time for a single shift not earlier than 7 nor later than 8 o'clock in the morning. That is when they are sup- posed to go to work. Rule 7 provides for payment of 1 hour's time for 40 minutes work or less, performed after the regular working time. It also provides for time for meals, following which, payment of a minimum of 5 hours for 3 hours and 20 minutes service or less. The case of a car inspector at an outlying terminal on the New Haven Road, which happened to be down on Cape Cod, is quite interesting and illustrates the application. It was necessary at this place, because of the desire of the public to have a train leaving there at 6.45 in the morning, for this car inspector to cover or inspect a passenger train at 6.45 a. m., and it was also necessary for him to do some work at 6.45 p. m. In 1917 this man received $3.69 for his day's work, and he was doing very little continuously; he did not have a very hard day's work, alth6ugh the hours were long, and he was paid on the basis of 33£ cents per hour. He now receives 80 cents an hour, or $6.40 for his regular 8-hour tour from 7 a. m., under rule 2, to 4 p. m. He also receives 5 hours' minimum pay for the 15 minutes' service in advance of 7 a. m., or $4. He receives also 1^ hours for the hour 4 p. m. to 5 p. m., or $1.20; and a 5 hours' minimum for service after the ninth hour — 5 p. m. to 6.45 p. m. — or $4, making his total daily compensation $15.60, as compared with his old rate of $3.69. On the Boston division of the New Haven Road alone — and that is the division coming out of Boston and going down toward Wil- limantic — during the period of 14 weeks from November 25, 1920, to March 3, 1921, in 333 cases covering 683f hours of actual work, 2,150 hours were paid for, or 1,466§ hours payment for which no corresponding service was rendered by the employee. In one of the car yards on the New Haven Road during a period for which check was made, 206 men were paid 6,210 hours at 80 cents an hour, although this represented but 1,247 actual hours of service, the rate being $3.98 an hour of actual work performed. Many increased labor costs were beyond the control of the operating officers. Compliance with supplements 15 and 16 to General Order 27, and interpretations and decisions necessitate the payment of time and a hah to yard engine and train men for 8 hours in addition to their regular 8-hour tour of duty when the man, on a relieving shift, reports late. A yard engineer regularly working from mid- night to 8 a. m., for instance, may be required to work or remain on duty until 8.12 a. m. because the engineer who succeeds him may, for some reason, be a trifle late. His usual rate of pay for 8 hours is $7.04; but for the 8 hours plus 12 minutes he receives $17.60. The Chairman. How much ? Mr. Elliott. $17.60. Digitized by Microsoft® 380 RAILROAD REVENUES AND EXPENSES. Senator Pomerene. For 12 minutes? Mr. Elliott. Yes. The second engineer get s his usual compensation. Senator Pomerene. Who prepared that rule ? ' Senator Fernald. I was about to ask that question. Mr. Elliott. It was prepared by the Federal Administration. I don't know who did it. Senator Fernald. Some commission that gave it very careful con- sideration, of course. Mr. Elliott. The second engineer gets his usual compensation,-; he comes on duty, and he gets his regular $7.04, so the road is com- pelled to pay out $10.56 for which it receives no service return. Senator Pomerene. Just because an engineer is late. Mr. Elliott. He may have been late for some reason beyond his control. I am not blaming him. Now, there is another rule called rule 66 of the national agreement with clerks and others, which became effective January 1, 1920, and that rule made it mandatory that you should use a divisor of 306 to get the daily rate of a man that had heretofore been paid practically by the year. A man got so much a month, and twelve times that for the year. The daily rate, if he worked every day was theoretically arrived at by using 365 as the divisor, but this new rule made it 306. And I do not, myself, approve of men having to work every day, but it is necessary in some cases, and ordinarily the Sunday work is not so very arduous — it is sometimes — but the result of using that change in the divisor,, of 306 instead of 365, is shown as follows: There was a certain clerk on the New Haven Railroad who, in 1917, received $3 for working a 10-hour day, 7 days a week. Now, he- receives as daily earnings,, for the same number of hours, $8.30. Senator Pomerene. $8.30 a day ? Mr. Elliott. Yes, sir. Senator Pomerene. For how many hours ? Mr. Elliott. He receives $8/30 a day for working a 10-hour day- He has overtime. He receives $8.30. Now, the interpretation of this rule, according to a careful calcu- lation which' was made by the New Haven Railroad recently, added to its pay roll $420,000 a year. The heavy burden to the road of the increased rates and the new methods of computation increases the cost on branch lines, where there is very little train service, but a long stretch of time in doing the service, because of very light business. It is difficult to meet it on the branch line. A typical case is that of a crew consisting of an engineer, a fireman, a conductor, a train man and a flagman — five men. They were 14 hours and 40 minutes on duty — that is, the time they were on duty in going from the starting point down to the end of this little branch, making two round trips, but doing very light work. They used to receive compensation in the aggregate of $26.99 in 1915; this was increased to $33.61 in 1917, and to 868.83 at present rates. Senator Kellogg. $68.83 for what? Mr. Elliott. For the day's work, 14 hours and 40 minutes of the engineer, the fireman, and the crew. Senator Pomerene. Of the whole crew ? Mr. Elliott. Of the whole crew. Digitized by Microsoft® RAILROAD REVENUES AND EXPENSES. 381 An engineer running passenger trains between two New England terminals on April 16, 1921, received $8.26 for 4 hours and 50 minutes actual work, on the basis of a full eight-hour day at $6.56 plus one hour additional for switching and one hour for coaling the engine, making his actual compensation $1.03 an hour on the basis of eight hours, and $1.72 per hour for the actual number of hours worked. A fireman on a passenger train April 8, 1921, was on duty 3 hours and 12 minutes. Because he threw a switch he received an addi- tional hour's pay. * His compensation was $5.12 for the minimum day, plus 66 cents, a total of $5.78, or $1.81 per hour for actual time worked. A conductor on a passenger train running into a terminal — and this train happened to be one from New Haven to New York — being delayed, left his train at a station 7 miles outside of New York on the elevated track there known as One hundred and twenty-fifth Street. The conductor had to go home immediately on account of some trouble at home. He turned his train over to his assistant, known as a ticket collector, who continued on to the terminal, as he would have done in any event. Although he performed no unusual service, the ticket collector was paid $9.10, the conductor's rate for his entire day, instead of his regular rate of $7.54. He received $1.16 for being called something else during a period of 11 minutes. A brakeman was dismissed for causing a passenger-train collision. Notwithstanding his generally unsatisfactory services prior to this occurrence, he was ordered remstated by an administration board, and was given about $1,600 for lost time, no allowance being per- mitted for money he earned while out of the railroad's service. Shortly after his reinstatement he was again dismissed for leaving without notice. * A yard engineer in a small yard, prior to January 1, 1918, received $4.10 for 10 hours daily work, and now gets $9.90 for same work. A crossing flagman, working 12 hours a day, prior to January 1, 1918, received $2 a day, but is now paid $5.70 for the same service. Now, these various cases — and I am not saying that some of the former rules may not have been unjust and wrong — -evidence in a feneral way what has already been shown by Mr. Kruttschnitt, Mr. Millard, and Mr. Smith. The Chairman. The committee will now stand adjourned until to-morrow morning at 10 o'clock. (Whereupon, at 11.55 o'clock a. m., May 24, 1921, an adjournment was taken until 10 o'clock a. m., Wednesday, May 25, 1921.) Digitized by Microsoft® Digitized by Microsoft® RAILROAD REVENUES AND EXPENSES. wednesday, may 25, 1921. United States Senate, Committee on Interstate Commerce, Washington, D. , C. The committee met, pursuant to adjournment at 10 o'clock a. m., in ro&m 410, Senate Office Building, Senator Albert B. Cummins (chairman) presiding. The Chairman. The committee will come to order. You may resume your statement, Mr. Elliott. TESTIMONY OF MR. HOWARD ELLIOTT, CHAIRMAN NORTH- ERN PACIFIC RAILWAY CO.— Resumed. Mr. Elliott. You have asked once or twice, Senator Cummins, for some income account statements for the year ending February 28, 1921. Simply as a matter of information I had such a statement compiled for the Northern Pacific Railway Co., and will give you a copy and put it in the record if you so desire. The Chairman. Mr. Elliott, is this statement similar to the sum- mary issued for the calendar year? Mr. Elliott. Yes, sir; along the same basis. It is merely offered for information. The Chairman. This statement will be incorporated in the record at this point. (The statement referred to is as follows:) NORTHERN PACIFIC RAILWAY COMPANY — INCOME ACCOUNT FOR YEAR ENDED FEB. 28, 1921, EXCLUSIVE OF FEDERAL LAPOVER8 AND GOVERNMENT GUARANTY. Operating revenues: Freight $75, 395, 511. 98 Passenger .*...■ 21, 053, 558. 56 Mail ' 1, 619, 998. 27 Express 2, 173, 012. 56 All other operating revenue 5, 443, 208. 17 Total 105, 685, 289. 54 Operating expenses: Maintenance of way and structures 20, 336, 0] 0. 67 Maintenance of equipment 24, 873, 679. 31 Traffic: : 1, 197, 774. 19 Transportation. 45, 988, 740. 36 Miscellaneous operations 2, 124, 380. 83 General 3, 209, 314. 98 Transportation for investment — credit 488, 597. 65 Total 97, 24] 302. 69 i $137,700.10 back mail pay applicable to year 1917 eliininMed. 080 Digitized by Microsoft® 384 REVENUE REVENUES AND EXPENSES. Operating ratio $92. 10 Transportation ratio 43. 51 Net operating revenue 8, 443, 986. 85 Taxes and uncollectible revenues.. .' 9, 735, 178. 94 Bailway operating income a 1, 291, 192. 09 Equipment rents— net ,. . . .'.... 3,816,839.90 Joint facility rents— net ' 1, 118, 265. 21 Net railway operating income 3, 643. 913. 02 Nonoperating income , . . 7, 144, 508. 96 Gross income 10,788,421.98 Income deductions: , i* Interest on funded debt 12,204 144.87 Miscellaneous, 232,045.62 Total income deductions 12 436, 190. 49 Net income 2 1,647, 768 51 Dividend appropriation 17, 360 000. 00 Income balance 2 19.007. 768 51 Mr. Elliott. The statements I have already submitted, Mr. Chair- man, and the testiomony I have given, have a bearing on the first, second, and fourth paragraphs of Senate resolution No. 23. Speaking for the Northern Pacific and considering the first par- fraph of the resolution, the increase in expenses and the consequent ecrease in net earnings are due almost entirely to causes beyond the control of the management, and what is true for the Northern Pacific is true for other roads ; namely, to— The increases in wages brought about by war conditions and by orders of agencies of the United States Government. The more general application of the 8-hour day, greater payments for punitive overtime, changes in rules and working Conditions, all as a result of governmental action and orders, and also to the general disturbed morale incident to the upheaval of the World War. The increase in prices — over which the carrier could have very little control — of fuel and materials due in part to higher wages paid for the production of said fuel and materials, and to the excessive demand for, them during the war period and for some time after. The increases in taxes, affecting all business and individuals. The increase in the volume of passenger-train service given in 1920 as compared with 1919, because of the desire of the railroad manage- ments to restore, in part, the unexcelled service given prior to the war or prior to Federal control. While it is true advanced interstate rates were authorized, taking effect September 1, such rates were only in effect for one-third of the year in interstate business, and on intrastate business were in effect less than one-third of the year in all of the States traversed by this company's lines, and in one State, namely, North Dakota, the new rates, are not in effect to-day. Therefore, the increased revenues derived from these new rates were not sufficient to offset the increase in expenses due to the causes already given or to produce the result anticipated. The wage award of July 1, retroactive to May 1, increased wages for four months on the Northern Pacific $3,818,033, for which there was no corresponding increase in rates. » Deficit. , Digitized by Microsoft® RAILROAD REVENUES AND EXPENSES. 385 Some comment has been made about maintenance of way expenses, and I had that question looked into for the Northern Pacific Kailway. Maintenance of way increased in 1920 over 1919, $4,780,000. This was brought about "by the following conditions The Chairman (interposing) . You are not speaking now about the year ending February 28 ? Mr. Elliott. No, sir; I am speaking about the calendar year now; but the figures I think would not be substantially different. As I have already said the policy of the directors of the Northern Pacific Railway Co. was to put the railroad in the very best possible condition for use during the war, and they turned over a very good railroad machine, upon which fact the regional director commented a good many times. The railroad of the Northern Pacific was undermaintained during the period of Federal control and sustained itself, in part, because of the very high standard of maintenance in years gone by and the unusually good condition in which it was when it was turned over to the Government on January 1, 1918. The wages under the labor board's award, retroactive to. May 1, 1920, were on a much higher basis than in 1919, together with time and a half for overtime for all maintenarice-of-way employees^ The cost of much material used in 1920 was, on the whole, higher than in 1919. When the properties were turned back to the companies, and to the Northern Pacific Co., the managements had a very proper and praiseworthy desire to restore them as quickly as possible to a condi- tion to serve the public thoroughly well, on the theory that in the autumn of 1920 there would be a very good business, and it was most desirable to have maintenance work well out of the way, thus fermitting the maximum attention to the moving of the business, t is well known that in maintenance-of-way practice, in most parts of the United States at least, a very considerable part of the work must be done between April 1 and October 1. For these reasons maintenance work was pressed vigorously in 1920. I now submit a statement showing in detail the accounts, increases, and decreases in 1920 over 1919. (The statement referred to is here printed in full in' the record, as follows :) INCREASE IN MAINTENANCE OF WAY AND STRUCTURE EXPENSES. 1920 over 1919: Superintendence $256, 732. 05 Roadway maintenance 782, 721. 02 Tunnels and subways ': ' 110, 707. 24 Bridges, trestles, and culverts 680, 113. 78 Ties 573, 403. 54 Rails '305,846.69 Other track material 125, 530. 98 Ballast • 83, 596. 28 Track-laying and surfacing 1, 830, 516. 60 Right of way fences 44, 497. 10 Snow and sand fences and snow sheds 4, 687. 03 Crossings and signs... '. .. 80, 745. 13 Station and office buildings 224, 298. 35 Roadway buildings , 53,740.44 i Denotes decrease. 63553— 21— Vol I •_'(.; Digitized by Microsoft® 386 RAILROAD REVENUES AND EXPENSES. 1920 over 1919— Continued. Water stations ' $8, 530. 30 Fuel stations Ml, 831. 64 Shop and engine houses 135,304.36 Wharves and docks 15,585.60 Coal and ore wharves * 5, 757. 49 Telegraph and telephone lines 5, 717. 38 Signals and interlocked 60, 733. 59 Miscellaneous structures '1) 609.87 Paving 12,986.11 Roadway machines 25, 089. 41 Small tools and supplies - 84, 407. 30 Removing snow, ice, and sand 1 72, 679. 16 Assessments for public improvements 7, 141. 34 Injuries to persons 70, 846. 45 Insurance 17, 691. 83 Stationery and printing 5, 217. 84 Other expenses . 14, 755. 99 Maintaining joint tracks, yards, and other facilities — Dr 232, 229. 08 Maintaining joint tracks, yards, and other facilities — Or ' 101, 299. 64 Total 4, 780, 494. 57 Due to: Labor, additional time worked 970, 000. 00 Labor, increased rates ■ 2, 415, 000. 00 Ties, increased price 583, 000. 00 Other material, prices, and quantities 668, 000. 00 Retirements 61, 000^.00 Miscellaneous .' 83, 000. 00 Total 4, 780, 000. 00 1 Hours of labor. Amount. Average per hour. Year 1919:' 590,128 2,693,704 18,686,451 $376,017 1,402,875 7,576,894 Cents. 63.72 52.09 40.55 21, 970, 283 9,355,786 42.58 ear 1920: 606,608 3,077,768 19,445,285 506,772 1,964,744 9, 447, 083 83.53 63.84 48.58 23, 129, 661 11,918,599 51.53 Per cent. Increase in rate per hour 21. 02 Increase in hours worked 6.28 Increase in wages paid 27. 39 The Chairman. This is a comparison with 1919, is it? Mr. Elliott. Yes, sir. The Chairman. You have spoken about the Northern Pacific as one railroad during Federal control which was well maintained ? Mr. Elliott. No; -was undermaintained. The Chairman. Oh, do you say that it was undermaintained ? Mr. Elliott. Yes, sir. The Chairman. You have settled with the Government with respect to the undermaintenance, haven't you ? Mr. Elliott. Yes, sir. ~ 1 Denotes decrease. Digitized by Microsoft® RAILROAD REVENUES AND EXPENSES. 387 The Chairman. How much did the Government pay you on account of undermaintenance during Federal control ? Mr. Elliott. We do not know, because the Government was unwilling to specify in detail how they arrived at the various items. We tabulated our claims in great detail, and suggested to the Director General that we go down the list, taking up item 1, say, and discuss- ing that, and then item 2, and discussing that, and all the way down the list. But this he declined to do, saying he had not done it with any of the railroads. So we, rightly or wrongly, tried it out as might be done in the case of any general matter, and we received 19,000,000 in cash, with the agreement from the Director General that the differences between his account and ours as to stocks of material received and returned should be settled for later when the final check was completed. We claimed that the Government owed us $3,700,000 on material account, and he allowed us in the $9,000,000 the sum of $1,000,000,. the difference of $2,700,000 remaining open. We think we can prove that a large part of the $2,700,000 difference is justly due us, and our agreement is that if it proves up we are to have the additional amount. The Chairman. In your settlement you did not separate the claim for undermaintenance from the inventory, did you ? Mr. Elliott. Yes; the inventory was separate, but the Director General allowed in the $9,000,000 the sum of $1,000,000 as repre- senting material and the other $8,000,000 might be said to represent undermaintenance of equipment and undermaintenance of way and some other accounts for fuel and various other items. We did not think that was entirely fair to the railroad company, but yet we thought that on the whole it might be better to make the settlement and get it behind us.' The Chairman. Your road, I take it, then, is not up to the point in maintenance that existed when the Government took it Over in 1918 ? Mr. Elliott. No, sir. But we hope that the general course of business will be such that we can eventually, not right away but eventually, spend a substantial part of this $9,000,000 to restore it to what we call the -'Northern Pacific standard." The Chairman. All right. ^ Mr/ Elliott. Mr. Thorn calls my attention to one matter that came up in our negotiations with Mr. Davis, the Director General, who, by the way, you know is an old, old friend of mine, as we both lived in Keokuk for a good many years. The Chairman. Yes; we both know him very well. Mr. Elliott. He bore down a good deal in the settlement on the fact that there was not enough money in sight to make all settlements with all the railroads on anything near the basis that the railroads were using in presenting their claims. We claimed that that was not his part of the job; that his part of the job was to make a fair settle- ment and then it was for the Congress to decide whether the money was to be provided. But he laid a great deal of stress on that point. And also, as you probably know, there is a conflict about the inter- pretation of the reparation, or maintenance clause in the contract between the railroads and the Government, the railroads putting one interpretation on it and the director general another. That matter is still being discussed by the railroads, and, I understand, by the Interstate Commerce Commission. Digitized by Microsoft® 388 RAILROAD REVENUES AND EXPENSES. The Chairman. At this point it might be well if you would state what the aggregate of the claim of the Northern Pacific was. Mr. Elliott. We claimed about $22,000,000 all told, and we hope we are going to get about $11,500,000. The Chairman. So really you have settled for about 50 cents on the dollar? Mr. Elliott. Just about. The sticking point was the inability of the Northern Pacific or the director general to prove up in detail the damage to equipment. We claimed our equipment was damaged, I think, around 15,800,000, or I should say undermaintained rather than damaged. The director general had a claim against us alleging overmaintenance. Our lawyers all stated that it was going to be extremely difficult, if we went into court on that subject, to' prove, say, that car No. 60750 was undermaintained to the extent of $100; that we could not make the proof. The cars were scattered more or less when turned over to the director general, and no actual detailed inventory of the condition of each car was had. The Chairman. Is the equipment of your road in better condition to-day than when returned to you by the Government ? Mr. Elliott. The railroad is, and our locomotives are, but the freight cars are not, because we have not had the .time to catch up. The Chairman. Do you attribute any part of the excess cost of maintenance during the year ending February 28, 1921, as compared with the calendar year 1919, to the undermaintenance ? Mr. Elliott. Yes, sir. As I stated a minute ago, we worked very hard to try to bring our property back during the summer of 1920 because we were very hopeful we were going to have a great big business — and other railroads were much in the same situation. Our company bought and had delivered in the autumn of 1920 some 71 powerful locomotives on the theory that there was going to be a good business. Our judgment turned out to be wrong, however. We thought when the war was over, the United States being the only solvent nation, there was going to be good business, that business would begin to pick up, but it went the other way. We did not buy any freight cars but we did buy locomotives, and we did try to get our track and structures back into more nearly normal condition, so that we could go into the autumn free to do this increased business that we expected. The Chairman. While your traffic did not reach your expectations it was greater than it had been the previous year ? Mr. Elliott. Yes, sir; slightly. The Chairman. You may resume your statement. Senator Pomerene. How do you account for that situation ? Mr. Elliott. For the traffic being greater, do you mean ? Senator Pomerene. Yes. Mr. Elliott. Well, the war activities were still going along more or less, and business had not begun to shrink in our section of the country until about the 1st of December. Ordinarily there is an increase in the western part of the country each year in the volume of units, unless we have a very serious crop failure. We had a very fair volume of business all during 1920 until about the 1st of Decem- ber, and then it began to show a sharp drop. I account for the situation by reason of the fact that business began to fall off in other directions and this growing feeling of uncertainty about world conditions. Digitized by Microsoft® RAILROAD REVENUES AND EXPENSES. 389 Senator, Eomerene. Business began to fall off the latter part of last year quite a good deal in some sections ? Mr. Elliott. Yes, sir; but it held up with us until, I think it was, about the middle of November. The Chairman. You may resume your statement. Mr. Elliott. As to paragraph 4 of the resolution about efficiency, I think it is proper to say that the officers of the railroad of every rank were, during the war and the period of Federal control, as patriotic and as energetic and helpful in doing their allotted tasks as any class of men in the United States. They were, however, disturbed over a change in their relation to the properties where many of them had spent their lives; they did not know what their relations were to be in the future; their powers and responsibilities were ohanged and in some cases reduced; deci- sions that they formerly could make promptly were made at some point off the road or in Washington; discipline was weakened; and there was an increasing tendency to long-distance management, and the affection and pride of the officer in his particular road was weak- ened by telling him he did not work for that road but for a part of a United States system of railroads. In an effort to save a relatively small amount in supervision, men were given more territory and spread out too thin. All of this had some effect on the mind and courage of the officers, and we all know that suspense and uncertainty have a disturbing effect in efficiency. But in spite of it all, the officers, of the railroads did splendid work during the period of Federal control, and they are " on their toes " now to get the best results they can since the proper- ties came back to the owners. The two million or more men on the roads are good average patri- otic American citizens who are swayed by the same emotions and influenced by the same world currents as are a like number of men in other industrial pursuits. A very large number of them, espe- cially the older ones, have a great pride in doing good work and a high regard for the roads on which they work, and they regret extremely the changes that developed during the war and Federal control. . It is a matter of common knowledge that the tremendous demands from the Allies in 1915 and 1916 for war materials of all kinds, fuel and food — and then our own needs in 1917 and 1918 — resulted in a shortage of many things and made it necessary to do almost any- thing to get results. Prices soared ; wages in all walks of life increased ; the cost-plus theory of letting contracts took down the bars as to expenses, and there was a period of inflation, extravagance, and excitement that affected everybody to a greater or less degree. The railroad employee felt it, especially the younger men, and there is no doubt but that these conditions affected the morale of the men and weakened the esprit de corps. In addition "leadership," so important in any undertaking, was changed and men, to a much less extent than formerly, looked to the officers! on their division or on their road for reward for good work or punishment for bad. They rather looked to some more distant person or board in Washington and to the head of their union. Digitized by Microsoft® 390 RAILROAD REVENUES AND EXPENSES. The relation between the men and management, which should be close, cooperative and friendly, without interference from outside if the best results for the country are to be obtained, was not so close as in prewar times. There was less interest, there was more slack and careless work and not as high efficiency as prior to the war. This condition was not peculiar to the railroad employee; everyone knows that it existed in the household, the store, the office, on the farm, in the factory, and the mine, as well as on the railroad. It had a marked effect on the cost of everything and on the cost of maintaining and operating the railroads. It is difficult to measure that cost in dollars and cents and operating officers have verying opinions in accordance with their personal experience and the part of the country in which they worked. Generally the conditions were better the farther away you got from Washington, and from those manufacturing and shipbuilding regions where the necessities of the war required that production be speeded up regardless of costs. Senator Pomerene. What do you mean by the expression that "work was better the farther away you got from Washington" ? Mr. Elliott. Well, I mean, Senator Pomerene — because you were in Washington all the time, and .1 was here for four or five months — that the situation was this Senator Pomerene (interposing). Yes; I know that, and I might regard that as a reflection upon myself. Mr. Elliott. Hardly that, Senator; but I mean that the spirit in the air down here was: We will spend whatever is necessary to get a thing out of the way. Money did not cut any particular figure. The feeling was that the Federal administration was the whole thing, and that weakened the power of the local officer on his own division. Senator Pomerene. You are confining yourself to the Railroad Administration, are you ? Mr. Elliott. Yes, sir. Senator Pomerene. All right. Mr. Elliott. Now, Mr. Chairman and gentlemen of the committee, I want to say for those men, in spite of that condition, that they were good average American citizens, and that they did hard work during the war and in carrying on the operation of the railroads. It cost more and you can not blame them for accepting whatever was given to them. But they were affected by these world-wide conditions, this world-wide disturbance that had affected everybody else, and because of the methods that grew up during the war it is going to take time to get them changed around and back to a more efficient and economical basis. Estimates have been made that efficiency at times was only 50 per cent of the best prewar record, and from that up to 65 per cent, 75 per cent, and 80 per cent, and in some cases were 100 per cent, but the consensus of opinion is that there was a noticeable reduction on the whole. Officers and men since Federal control have slowly been getting together again and the disturbed conditions developed during the war and Federal control are improving, and began to change for the better in the autumn of 1920, when it was evident that the man wanted the job rather than the job the man. Digitized by Microsoft® RAILROAD REVENUES AND EXPENSES. 391 Senator Pomerene. You have confined your remarks within the last few minutes largely to the officer class, and you speak of their getting together and improving conditions. Is not that true also of the men themselves ? Mr. Elliott. Yes, sir; I so stated, Senator Pomerene. I said "officers and men." Senator Pomerene. I did not catch that. Mr. Elliott. Railroads acquire habits and character just as indi- viduals do, and speaking about results and conditions on a road like the Northern Pacific, it is fair to point out that the company has been fortunate in having a stable management for more than 20 years, with a wise and resourceful board of directors, officers growing up on ,the road and familiar with it and the country; and of equal importance and even greater importance, to a large degree a good class of em- ployees, loyal to the company and to their fellows. There are, of course, in any large body of men, some foolish ones — even wicked ones who want to make trouble, but I believe that on this road the men would have been glad if the Northern Pacific had not been taken over by the Government and men and management could have settled their affairs together, and that they would like to do so now. I believe this is true of some other roads of which I have some knowl- edge. A large majority of the men out there, far removed from this in- fluence in Washington we have just discussed, were not excited. They were willing to go right ahead and do their work with the manage- ments of the railroads and win the war. I think that was true of tht men generally out in the country west of the Mississippi River; there was no trouble, and everything was going along very well, and we could have done 50 per* cent more business if we had had to do it. And I now want to submit two charts The Chairman (interposing) . I would like to submit a suggestion at this point: It is charged that a very considerable part of the ex- pense of doing the work since the railroads were returned, to their owners as compared with the expense before is due to the failure on the part of the railroad companies to preserve a fair degree of unifi- cation in the movement of traffic, a unification that was, of course, a distinguishing characteristic of Federal operation. What have you to say about that ? Mr. Elliott. I take it, Senator, you mean by unification, the unification of certain facilities that could be used in commerce ? The Chairman. Yes; I said in traffic. Mr. Elliott. There were some unifications that were made during Federal control that have ceased since, and some produced savings and others produced expense as the unified arrangement cost more than the individual arrangement. There is a chance for some saving in unification, and that matter is being studied very carefully to-day by a special committee of railroad officers, who are collecting all the data about it to see if we can bring about unification here or there that does not now exist and that-will produce a saving of expense. We found, as I recollect, at Seattle, where an effort was made toward consolidation and unification, that as a result the expense was greater than when each railroad was running its own terminal and doing the best it could to reduce expenses. We have unified Digitized by Microsoft® 392 RAILROAD REVENUES AND EXPENSES. {>assenger facilities at a great many places, and we had some unified reight facilities; but ordinarily a freight terminal is developed to handle a particular business, the business of the railroad that de- veloped it; and the course of railroad earnings during the last two years has indicated that the most of the freight terminals, during the time of heavy business, are taxed to do the work of the railroad for which built. They are like hands and feet to the railroad, and if you cripple them they can not hold the railroad up. But these matters are being studied now in order to see if any more unifications can be made than now exist. It is being studied by a committee of the Eailroad Executives' Association. We are getting a complete list of every place in the United States where there is to-day unification, either in the use of a passenger station or a freight yard or a little country station, or the common use of tracks, every place where there is unification, 'and when we get that we are going to go on and see whether there are other places where unification could be made successful. It is quite easy to take a map and say: Here are two railroads and we can put these things together and save a lot of money. But when you go on the ground and take into consideration the existing con- ditions, the situation of the railroads affected, you may find it a place where it will mean a greater expense than as at present conducted. Railroad managements are keenly alive to that situation. Like a great many other things we have been struggling with since Federal control ceased we are trying to pick up conditions and improve them. You will realize that it has been a large task to get things going again since Federal control ceased. Senator Pomeeene. You said a moment ago that some of these unifications had ceased; what, for instance? Mr. Elliott. Well, we did have in parts of the country unified ticket offices. Since Government control ceased some of that unifica- tion has, ceased, because the unified ticket office is one of the things the public rather complained about during Federal control, and the railroads, in their anxiety to try to show that private management , and control was more responsive to the public demands have gradu- ally opened their own offices, where they can give the highest attention, to the intending passenger or intending shipper, and can give him thu maximum of service. Under unified freight and passenger ticket offices the public was not given the same service it was formerly given, because a man representing all the railroads was not as keen to give individual service as when he represented one road and .was very anxious to get a man's business. There has been a certain amount of cessation of thati The total amount of this unification I can not tell you in dollars and cents; while substantial, yet in my judgment it is not such a large sum as to represent a big element in railroad operating costs. The Chairman. Aside from any common use of terminals, which I assume you have under consideration now ? Mr. Elliott. Yes, sir. The Chairman. One of the things which have frequently been spoken of here is the use of your freight equipment, your freight cars, etc., using them without distinction as to ownership. I would like your opinion as to the economy of that use of freight cars. Digitized by Microsoft® RAILROAD REVENUES AND EXPENSES. 393 Mr. Elliott. The railroads have a general custom, as you know, of letting their freight cars be used in common to a certain extent. Of course, a railroad that has bought a certain amount of equip- ment to serve the territory in which that road is, needs that equip- ment when the business exists in that particular territory. And as the owner has to spend the money for the cars for that terri- tory, in tight times he does not feel that he ought to let his cars go away to serve some other section which has not provided the neces- sary number of cars. Under certain conditions we have done this. We pooled cars at one time in order to expedite the movement of coal. At times we have pooled box cars to expedite certain other movements. But on the whole the railroads feel, and I feel, that if a railroad, say, has provided 50,000 cars to supply the States between Lake Superior and Puget Sound, it is the duty of that railroad to have those cars there to serve its people. It has held out to its people that it h«,s the cars to handle the freight, and the engines to move the cars, and if those cars are taken, say, to Texas, that rail- road is failing in its duty to its territory. I would say that it is a very big question and there are two sides to it. The Chairman. Some close observers, as you know, have sug- gested that the freight equipment of the country should be transferred to an independent organization that would control its use throughout the whole country and see to its use without reference to ownership; that is, there would then be no independent ownership, and that in that way the railroad companies could "serve the whole country much more efficiently and with less equipment than would be required under separate ownership. Have you given thought to that plan of reducing expenses ? Mr. Elliott. Not recently, Senator, because, as I say, I in common with others, have been busy on other questions. It is, of course, a possibility that a plan like that can be worked out. And yet my judgment is that it is very doubtful whether you would get any better results than under the present plan, where the Interstate Commerce Commission has, under the transportation act, authority to move engines and cars around to meet an emergency, and for which we have our own committee here in Washington to work with the Inter- state Commerce Commission and make use of equipment just as you mention. I believe you will get much better results to let an indi- vidual railroad have its own cars, have an adequate supply and main- tain them in good shape, than if they were thrown into a common pot. The Chairman. Nearly everyone who has .appeared before the committee so far has remarked upon the effect of Federal control with reference to freight equipment, or a part of it, being where it ought not to have been in order to take care of the business of the country to best advantage. Was that due to the indiscriminate use of freight equipment without regard to ownership, or was it due to the peculiar conditions growing out of the war ? Mr. Elliott. Both. The exigencies of the war, of course, required that all rules be broken if the directing powers thought better results could be obtained by so breaking them; and that did bring about a very wide distribution of the equipment, wider, in my judgment, than was absolutely necessary. So that the exigencies of the war did have a great deal to do with that; and also the direction from the top, I think, spread the cars about more than was necessary on the Digitized by Microsoft® 394 RAILEOAD REVENUES AND EXPENSES. theory that the Federal administration had, you know, that this was one railroad system. And they held the opinion, I think, that this condition was going to last a great deal longer than it did. You will remember at your hearing two years ago the Director General recommended extending Federal control five years. I think that spirit ran through the Federal administration more or less — that this i was more or less a continuous arrangement and therefore the cars should be used everywhere. But the existing cars are built in such a way that they were better designed, perhaps, for one section than for another. Cars for western roads are designed for the purposes of those roads, and cars for east- ern roads are designed for the purposes of those roads. The Chairman. Very well, you may continue your statement. . Mr. Elliott. I desire to submit two charts that relate" Jto the national railroad situation, and show in graphic form what has happened since 1912. The first chart I shall discuss is the one where the colored diagrams are of varying lengths, headed "Railway operating revenue and how it was expended, 1912-1920," drawn to scale, so that the -varying lengths of these colored lines represent each year from 1912 to 1920, and show the relative difference in the gross revenue of those years. I have had placed upon the chart the money figures representing labor, fuel, materials, supplies, and miscellaneous; loss and damage, injuries to persons, and insurance; depreciation and retirement; taxes; hire of equipment and joint facility rents; and also the balance left to represent return upon the investment. In addition, for your convenience, I have had shown some salient figures representing physical performance — net tons carried, net ton-miles, passengers carried, passenger-miles. And, Senator Fernald, you will notice at the lower right-hand corner the interest charges are placed, com- pared with the net return on the investment. - Now, the striking thing about this chart, of course, is the red part of the lines which represents the labor cost. That has grown up as has been previously explained. The blue part at the extreme right of the lines represents the return on the investment, and that has been shrinking since 1916, until in 1920 it is a very small sum indeed. Mr. Thom. And appropriately represented in blue, I might suggest. Mr. Elliott. Yes. --,, v Senator Pomerene. In order that the record may be clear, does the blue represent the amount earned on the complete investment? Mr. Elliott. Yes, sir. Senator Pomerene. That embraces stocks and bonds ? Mr. Elliott. Yes, sir; the amount available to pay interest and dividends and make betterments and improvements out of surplus. The chart shows that in 1920 there was $61,928,626 available for that purpose; but included in 1920 was the back mail pay for the years 1918 and 1919, amounting to $64,508,260. ' """} Senator Pomerene. That covers what years ? ; ■ ' : Mr. Elliott. The back mail pay included in the figures for Janu- ary, 1920, was for 1918 and 1919, accruing during Federal control and carried by them in January, 1920. Senator Pomerene. Without the earnings for that mail pay there would have been a deficit? Mr. Elliott. Yes, sir; there would have been a slight deficit. Digitized by Microsoft® Digitized by Microsoft® Railway Operating Revenue and How it was Expended, 1912 - 1920 (RAILWAYS OF CLASS I) FISCAL 1912 GROSS REVENUES » 2,005.006,544 - OPERATING FIPEN56S , TAxFi * RXNfS * 7 0<)fc iZX.H. , T/\^f.^ & Kit>n> *z 5*i. 7*4.907 GROSS REVENUES * J.596,065,766 OWWTlNO eirttOE^, TfljLf^ 4 Rfhr-, ♦lSife7fll.l«— TAXES GROSS REVENUES ' 4,014,142,74 6 opFRflnrii EfPttoes, TA. » R£nT<; * 3 oeo,»73, 977 u 1912 -'224,516,528 1313- 241,538314 1914- 235,231481 1315-208,968351 1916-226,880,054 1916-250,544,842 1917 - 393,929,538 1918-50(1225,205 1919-474,174752 192) -672,691,964 BlZ-%7693.820 1913 - 75,769,17 7 1914 - 81,451, 896 1915 - 73,732,159 1916 - 67,820,899 1916 - 71,175,856 1917 - 31,396,709 1918 - 110,688,906 1919 - 154,408,092 132) - 188,569459 1312 -'109,445,407 013 - IIB,38b,8S9 1914- 135,572,575 1315 -133,276,330 1316 -145,517034 1916 -I57JI3.372 1317 -213,920,095 1916 - 223,175,379 1919 - 232,601, 396 1920-278,868668 I GROSS REVENUES '4,680,953,480 OPTRATwifi t*PErOEl. TAKES • RXNT} ** 24?-, SW.fll? OROSS REVENUES '5,144,795,154 -- OPERATING EXPENSES, TflxES» RENTS ♦ ♦ fc»9, fllO.ZOI GROSS REVENUES '6,171,493.301 MATERIAL SUPPLIES { etMISC. 1912-366,045,450 1313-432,700,102 1914 -458,111,430 1915-447 843,266 1916- 433, 486, 382 1316-448,113,629 1917-469,812,140 1918-638720,651 1919-802,628,983 1920 -1,064 994,880 I DEPRECIATION 8, ' RETIREMENTS I HIRE OF EQUIP AND JOINT <, FACILITY RENTS 1912 1913 1914 1915 1916 1916 1917 1916 1919 1920 V 1312 1513 1514 1915 1316 I3IG 1317 1916 1315 1920 -'71,122,327 - 84783,585 - 91,284870 - 101,036,360 - 117,411,680 - 119,785,157 - 115,404,666 - 119, 233, 70S -126,252,105 - 145,252339 ■'27961,343 ■ 28,900358 ■ 31,312,425 • 33,371,353 - 39,508,340 - 41,471,373 - 36,128,666 - 36,527,480 - 56,576,401 - 60,751,014 RETURN ON INVESTMENT I3t2 -* 708,454383 1313 - 787,610,435 1914 - 661,016,147 1915 - 683,104833 DI6 - 384,674959 1916 - 1,040,084517 1317 - 934,068,770 1518 - 636,568603 1919- 454 384953 1320 - 61,328,626 D NET TOW C/HRIFD (Rev. ind Non-Rev.) 1912- 1 892 246 748 1913- 2 150 546 926 1914- 2 069 932 056 1915- 1 904 798 711 1916. 2 337 480 717 1916- 2 426 557 938 1917- 2 518 132 432 1918- 2 540 853 830 1919- 2 234 561 696 1920- 2 499 312 672 NET TON-KHXS (Rev. and Non-Rev.) 1912-286 473 628 198 1913-328 059 528 693 1914-313 957 749 718 1915-302 786 500 454 1916-373 516 310 356 1916-396 365 917 082 1917-430 319 014 635 1918-440 001 713 665 1919-395 679 051 729 1920-449 292 355 000 usmm «mro 1912- 944 265 173 1913- 983 692 468 1914- 1 002 850 385 1915- 936 368 539 1916- 968 887 957 1916- 1917- 1918- 1919- 1920- 1 005 954 777 1 066 638 474 1 084 997 896 1 177 820 454 1 234 222 889 1912- 32 316 262 549 1913- 33 875 083 958 1914- 34 566 985 414 1915- 31 789 928 187 1916- 33 645 908 150 1916- 34 585 952 026 1917- 39 476 858 549 1918- 42 676 579 199 1919- 46 358 303 740 1920- 46 724 680 O00 aaaai nunnKa 1912- 1913- 1914- 1915- 1916- 1916- 1917- 1918- 1919- 1920- (376 391 409 414 414 421 419 426 446 •450 617 403 180 505 254 865 538 932 414 437 S21 992 010 295 399 493 812 052 000 000 Partially estlmat«d OPERATING EXPENSES, TR*E5*AEnT4 * fa, 109,564 t.75 Digitized by Microsoft® Distribution of each Dollar of Railway Operating Revenue, 1312° 1920 (RAILWAYS OF CfcASS I) 43.1 * 6.0 * 1913 1914 1915 1916 CALENDAR 1916 1917 1918 1919 1920 LABOt 43Jj 4 4.1 41.5 * 40.4* 40.6* 43.3* 53.fc* 55.3* 13.8* ZJjt 15+ 3.9 j 1.0* yi Zb.lt 7.a* 13.9* 2.5* 2.7* 3.6* OT* 25.3* 15.1* 2.7* 3.0* 4.5* 10* 7.3* I5.fe* 2.5* 3.5* 4.6* 1.2* 12.8* 2.0* 3.5* 4.3* 1.2* 23.8* 7.0* 9.8* \l.Z* 1.2+ 2.9* S3* M* 23.3* 13.1* U.+ ZA+ 4.b+ 0.6* 13.1* D ■3.1 + '5.6* 3.1* 2.4* 4.5* I.I* 8.8* 17.3 + MATERIAL, L0JS«MMA6E Misp&sbft® TAXES HIRE-EMIR RETURN AND JOINT ON FACILITY RENTS IWESTOENT 3.0* ZAi 4.S* L0*U)# Digitized by Microsoft® RAILROAD REVENUES AND EXPENSES. 395 Senator Wolcott. Were the mail-pay earnings for 1920 included also in the figures $61,928,626 ? Mr. Elliott. Yes, sir. We had the new mail-pay basis after some date in 1920, but I do not now remember the exact date. The back mail-pay decision gave the railroads mail pay since about 1916; and the back mail pay for the years 1916 and 1917 — well, the method of handling that, I think, is still under discussion by the Interstate Commerce Commission and probably will be carried to profit and loss account as it does not belong to the operations for 1920 or 1921, nor did it belong to the United States Government. So they did not take it into the years 1918 and 1919 or the first two months of 1920. I might add that that back mail pay went to November 1, 1916, Mr. Thom tells me. That is the time to which it was made retro- active. The second chart is designed to show the dollar as distinguished irom the first chart which shows the total number of dollars. The second chart is headed "Distribution of each dollar of railway oper- ating revenue, 1912-1920 (railways of Class I)." So the second chart shows even more graphically, perhaps, than the first chart how the different expenditures with reference to the dollar compared year by year; and you can see that in 1912, for example, it took 43.1 cents out of the dollar for labor; and in 1919, 55.3 cents; and in 1920, 59.9 cents. For the calendar year 1916 fuel took 7 cents out of the dollar, and in 1920 it took 10.9 cents. And then the colors in the lines show material, supplies, and mis- cellaneous; loss and damage, injuries to persons, and insurance; depreciation «,nd retirements; taxes; hire of equipment and joint facility rents; and return on investment. Materials, supplies, and miscellaneous in 1917, for the calendar year, took 12.2 cents out of each dollar, and in 1920 took 17.3 cents out of each dollar. And so it goes all the way through. The blue portions of the lines, at the extreme right, represent the amount left out of the dollar of operating revenues and available to the owner for paying interest or dividends. The best year as to that you will notice was the fiscal year 1916, when 29.1 cents was available, and then the calendar year 1916 was a close second, and it began to run down until the last year prior to federal control there was 23.3 cents available for this purpose, and in 1920 there was only 1 cent on the dollar available. Senator Pomerene. I suppose it will be almost impossible to have these charts printed as a part of the record, but it seems to me it would be enlightening if the figures which are contained on both these charts could be tabulated and incorporated in Mr. Elliott's testimony. I ask that that be done. Mr. Elliott. That will be very satisfactory to me, Senator. And we can furnish you just as many of these charts as the committee wishes. The Chairman. If you can furnish extra copies of these charts they can be bound in the record. Mr. Thom. How many do you want, Mr. Chairman ? The Chairman. If we could have extra copies of these diagrams, as well as of some others you have furnished in colors, and could put into, say, 50 of the printed copies of the record, that would be enough to distribute among those who care to study the matter. Digitized by Microsoft® 396 RAILROAD REVENUES AND EXPENSES. Mr. Thom. We ean furnish more than that. We have 600 printed already. Senator Fernald. I would think each Member of the House and Senate ought to have a copy. Senator Pomerene. These charts certainly will be very helpful to anybody who is studying this question. The Chairman. We will have them bound into as many printed copies of the record as the charts may be supplied. Mr. Thom. We will send you 500, if you desire. The Chairman. We will not print 500 copies, I imagine. Mr. Elliott. Suppose we leave it this way: We will send you 600 copies of these charts now, and if the committee think at any time that is not enough, Mr. Thom will furnish you as many more as you may desire. The Chairman. These hearings are printed regularly, and when once printed we could not bind them in very well. , Suppose you furnish as many as you can, say, 100 copies, and we will nave them inserted at the proper place and bound in: Mr. Thom. All right; we will do that. Mr. Elliott. In connection with this second chart I desire to make a statement relative to the figures I submitted on yesterday of a constructive month of February for the Northern Pacific Rail- way. You asked me a question, Mr. Chairman, if the Northern Pacific Eailway in February was able to make a showing, by apply- ing present rates and present costs to a volume of business, sub- stantially equal to that of the last four Februaries, then why for the year 1920, when there was a larger volume of business than in the previous years, the railroad as a whole should not have shown a better result. I omitted in answer to your question to point out this fact to you: That in the year 1920 the interstate rates were increased for four months only, and for eight months there was no increase in those rates. That as to intrastate rates, they were not increased even for four months, because, as you know, in many States they delayed following out the orders of the Interstate Com- merce Commission that the intrastate rates were to be brought up to a level with the interstate rates. So, taking the railroads as a whole, in 1920 they did not have the same conditions as applied with my constructive month of February; they had the higher ex- f'ense for eight months of the year, and they had the higher rates or four months only on a part of their business. They also faced a falling off in business in the latter part of 1920 when they did not have the higher rates. I wanted to make that a little clearer to you. The Chairman. Very well. You may continue your statement. Mr. Elliott. It may be well when discussing the rate situation to consider briefly what was done about this after the transportation act became a law. The carriers at once began to consider methods for obtaining a higher level of rates so that the roads could be self- supporting. / Mr. Thom. I would like to have the record here show that Mr. Elliott was chairman of the committee having in charge the question of securing an advance of rates, and therefore he speaks with that knowledge of what was going on. The Chairman. Very well. Digitized by Microsoft® RAILROAD REVENUES AND EXPENSES. 397 Mr. Elliott. Informal conferences were held with the Commerce ■Commission to decide as to the method of procedure. The carriers did not know whether, under the act, the commission would initiate the rates or whether they wished the carriers to do so. The carriers hardships. That has been going on to a very much greater extent than the public generally knows,, and Mr. Chambers will be in a position to tell the committee of th&t. Senator Smith. I would like to state in this connection that a similar condition exists in my State as, that to which Senator Pome- rene refers. I took several of these specific cases up with the Inter- state Commerce Commission, and at first they informed me that there was a certain rule by which these, cases were brought to the attention of the Interstate Commerce Commission, and that they would in the due course of time reach these cases and seek an adjust- ment. But the thing got so acute, and the maladjustment was so glarMg, and the freight rates were so high, that I got specific data as to what the freight rate was on certain articles, and subsequent to the initiation of this matter they suggested that the shippers affected in these local communities more or less all over the State, on the more bulky traffic generally, get together and see if they could not make suggestions for adjustment and have adjustment made. I have received some letters since then, saying that the matter is now in the process of adjustment — that is, that they are seeking adjust- ment — -but I have just received from my office a moment ago a letter saying that the conclusions that they have reached on the joint rates between certain of the small roads and the trunk lines are still such as to discourage the shipment. I have said this much to show that even the Interstate Commerce Commission is advising along tihe line which you have already suggested. What the outcome is to be I do not know. Mr. Elliott. I think, Senator Smith, and the other Senators, you could get a good deal of light on this subject from the Inter- state Commerce Commission. They know a lot about it, and we are in touch with them, and we are trying, all of us, to work this rate thing out to conform with the transportation act. Senator Pomerene. If the. railroads and the shippers can get together and agree upon these propositions I have no doubt there will be little trouble with the Interstate Commerce Commission, but of course if they do not agree, and it comes to a question of a hearing, it is going to take considerable time. That is one of the difficulties. And the season for road building and house building is moving along pretty rapidly, and I hope that these matters can be hurried up. 63553— 21— Vol I 27 Digitized by Microsoft® 402 RAILROAD REVENUES' AND EXPENSES. Senator Smith. May I just add this : To show what is causing, in my opinion, a great deal of this comment — and it is justified, because the bulk of the revenues of roads must come more or less from the Ipcal hauls— I will cite a case in point. I received information to the effect that on a 13-mile haul down in my State for a carload of pulp wood, the freight charges were $90. For a 19-mile haul the charge was $140. Now those facts were submitted and sent to the Inter- state Commerce Commission, and attorneys were employed to see if there could not be a rebate made. I had correspondence with them, and subsequent letters to the effect that they were adjusting this, and I received a letter this morning to the effect that having figured it upon what they considered was the rate through — fftie joint rate and the local rate^getting it all together and adjusting it, that they had figured down to about $8.40 a car for pulp wood, which left them right about where they began. That is the last letter that I had. And outside of that, it was all right, until they could get it still further adjusted. . Now these are the kinds of things that are causing most of this comment. Of course when rates have gone up 40 to 5(> per cent, and the tendency of the price of the thing is the other, way, you are between two horses running in different directions, and tied to both, and something has got to Dreak somewhere. That is what' is the matter with that. Senator Pomerene. Were those rates interstate or intrastate, Senator Smith ? Senator Smith. They were interstate. They were shipped to Sumpter for final landing up in Virginia somewhere. The Chairman. I suspect that we will not be able to do anything with particular rates by any action of the committee. This problem, is rather a difficult one. Senator Smith. Well, something particular has got to be done,, whether it is on particular rates or what it is. The Chairman. Well, whenever the Congress is willing to make an appropriation to help sustain the railroads, or another appropriation, why I think then we can consider the general reduction of rates,, but With a situation in which there is no net income shown for the oper- ation during the last year, it is quite obvious that rates can not be reduced, so that the income will be reduced, or they must cease functioning. Proceed, Mr. Elliott. Mr. Elliott. I have some comment on that very point, Senator. The railroad managers are keen for business and have always attempted to make rates as low as they* could, so as to obtain tjne widest distribution of commodities in this Country of great distances, but as they are responsible for the maintenance of their properties, they are and must ne limited by this responsibility and not reduce rates simply to increase gross earnings, if the gross earnings at reduced rates mean no net earnings or a loss, > To ask the railroads to do this is, in 'the long run, a dangerous policy for the general development of the country. This is a policy that leads either to bankruptcy of a large number of roads and will do more harm because of the un- settling influence to the entire financial situation, reacting again on every business man and farmer in the country, than a policy that maintains "rates even, if they are higher than the individual freight Digitized by Microsoft® RAILROAD REVENUES AND EXPENSES. 403 payer thinks they should be, so that the roads can at least pay fixed charges and a reasonable amount in addition. Or it means a policy that the Treasury of the country shall make up any shortage of net earnings with a consequent increase in taxes* which to my mind is equally dangerous to the welfare of the country and its people. As a matter of fact, the transportation act is against both of these policies and declares that payments for transportation shall be sufficient to support and expand the railroads without calling upon the Treasury. Railroads are the basis of our national transportation system and first in importance to the country. Waterways and highways are very important and all three should be protected, developed, and co-- ordinated. Obviously if there were no railroads the commerce of the country would be confined to the seacoast, the Great Lakes, a limited number of navigable streams, and to the area that could be served by motor trucks. I believe in the development of the waterways and high- ways, but to subsidize them from the State and Nationaltreasunes and at the same time tax and restrict the railroads in their develop- ment does not seem to be a sound national policy. Our national railroads had an earning power in the year 1917 of about $1,000,000,000 — not enough for the best growth of the system — and after 26 months' operation by the Government, were returned with earning power almost gone and physical condition impaired. As the primary form of transportation, the roads must be strength- ened and helped and the transportation act was passed for that purpose — to use the Governmental power and the taxes of the people to reduce the earnings of the railroads by furnishing waterways and highways without charge to the users increases the difficulty of making the transportation act a success. On the one hand to say to the railroad that it must continue to serve the country without adequate rates and pay very heavy taxes, and' on the other hand to say to the motor truck that roads will be provided free over which the motor truck shall operate without regulation and without paying maintenance of the nighways, and that waterways shall be provided free on which ships may move without charge, seems illogical. The entire transportation scheme should be treated alike by the Government and the users of waterways and highways should con- tribute something for their use and maintenance. ' In a number of States now that policy about highways has gradually been developing, and Minnesota is one State where taxfes have been collected from the motor trucks to help pay for the maintenance of the highways. The same thing is discussed in Pennsylvania, and I think in Massachusetts. So that theory is being gradually developed in some of the States. But it does seem as if the man who uses the motor truck ought to contribute in some way for the maintenance of the highway over which the motor truck runs. '•'X want to comment a minute on the long and short, haul situation, because it has a very vital effect on a road like the Northern Pacific, and on all the transcontinental roads. The situation of the Northern Pacific and of other transcontinental roads is peculiar. They were suffering,' prior to Federal control, from restriction . on business handled in competition ; with ocean carriers. These restrictions have not been removed or lessened; On a road like the Northern Digitized by Microsoft® 404 RAILROAD REVENUES AND EXPENSES. Pacific the earnings on this class of business have been from $10,- 000,000 to $15,000,000 a year, and if this source of revenue is taken away then rates must be higher to the people of the Western States on some other kinds of business. Too rigid an observance of the loiig-and-short haul principle will deprive the transcontinental carriers of business which they can carry as extra business, and also it will work in the direction of concentrating business on the sea- coast, and do harm to the manufacturing and industrial plants of the country between the Allegheny and the Rocky Mountains. Ships can be employed anywhere. If they are not needed in the coast-to-eoast trade they can be used in foreign: trade. But a rail- road must stay where it is put, and must handle the business for which it is designed and built. It seems to me that sooner or later the inconsistency of the present policy will be recognized, and that objections will be made to the use of the taxes for the building and operation of ships through the Panama Canal and the remission of canal tolls on coast-to-coast traffic while the people, especially the producers in the Western States, will be forced to pay higher rates on their products to make up the loss. Now, as I say, I believe thoroughly in the development of every form of transportation, and if the railroads can not survive in competi- tion with newer forms, why they will have to go, but the develop- ment of these newer forms of transportation, it seems to me, should not be at the expense of the general public, but be paid for by the shippers and users of the newer forms. The gradual development of the law since 1887 has been in the direction of encouraging and protecting the buyer of transportation and safeguarding him from possible injustice, extortion, and unwise financing on the part of the producer of the transportation. Admit- ting for the sake of argument that this course was necessary, the time has come when the producer of the transportation must be protected and encouraged or he will be unable to furnish the transportation needed by the buyer at any price. The transportation act is a protecting and encouraging measure and reflects a growing public opinion that legislation has gone too far in reducing the earning power of the carriers. The recent repeal of the full-crew law in Pennsylvania is another indication of this. I believe the transportation act should be given a fair trial under more normal business conditions than exist to-day, and that be- fore making changes it should have such fair test. Regulation of private corporations serving the public is neces- sary, but I believe that the best results can be obtained for the public by allowing the individual, in any kind of business, the maxi- mum freedom of action consistent with due protection of the public interest. Regulation of those who elect to work for those quasi-public corporations is also necessary in the public interest. The Hepburn Act of 1906 took away from the railway owner and manager the right to make effective the price at which he should sell his service to the country. The Commerce Commission found itself subjected to pressure of 100,000,000 buyers of transporta- tion, who thought that their true interest was in getting the lowest Digitized by Microsoft® EAILKOAD REVENUES AND EXPENSES. 405 rates, regardless of the effect on the seller of the transportation. The influence of the great body of buyers has been more powerful in the past than that of the smaller number of sellers, and the gen- eral tendency has been toward rates . entirely too low to maintain the railroads properly, pay satisfactory wages, and make such return to the owners that they can continue in the business and increase their plants. Congress recognized this situation in the rule of rate making in the new law, which gives the commission instructions and support in allowing rates that will enable the owner to carry on the business and furnish the necessary transportation to the public. With a more normal volume of business it is reasonable to believe that this principle in the law will produce the results anticipated. ■ Congress also in passing the act reflected the opinion of the coun- try that it wanted its railroads owned and managed by private individuals. Imposing this responsibility upon the owner necessarily carries with it the idea that he shall be allowed reasonable freedom to act so as to produce the results expected from him. In interpreting and administering the law, it is certainly a sound policy to give the owner, who is responsible for the results, the maximum of freedom consistent with the public interest, so that the undoubted talents and ability of the American business man can be exercised. I believe that the tendency of the laws and the administration of the transportation act, and, if it should be found necessary, any new legislation, should be along the line of permitting the owner and manager to utilize to the highest extent compatible with the public, interest his- vision, enterprise, judgment, initiative, and skill. In creating our railroad system the work was done through the courage, brains, and money of the individual man, who developed a wonderful transportation machine with the lowest rates, the best service, and the highest wages of any railroad system in the world. I believe the owner and manager can. continue to do this if his activi- ties are not curtailed too much. That the sentiment of the country is in favor of individual initia- tive is shown by the following resolutions adopted by the United States Chamber of Commerce at its annual meeting in Atlantic City on April 28, 1921. The membership of the chamber is made up of 1,000 chambers of commerce and 450 trade associations in every State and Territory. These 1,450 organizations have 810,000 members and there are nearly 15,000 individual members of the national body, or a total of 825,000 representing business of every kind in all parts of the country. The resolutions are as follows : PRINCIPLES OF AMERICAN ENTERPRISE. V , 1. This chamber believes that the relation of Government toward industry and commerce is primarily that of preserving equality of opportunity for all — an equal chance to every citizen to win his position in accordance with his character, ability, and efforts.. Individual initiative, strengthened by education, safeguarded by publicity, stimu- lated by active and free competition, is the guarantee of sound national progress. Laws and administrative a< to should touch business enterprise with great care and only to preserve a fair field to all. Digitized by Microsoft® ' 406 RAILROAD REVENUES AND EXPENSES. 2. A wholesome standard of living is essential to general contentment. Thai, standard depends upon the intelligence, industry, and thrift of the individual citizen and improves as the total production of the country increases; hence, restriction of production or obstruction to distribution must necessarily undermine that standard, resulting in injury to all citizens of every class. We therefore condemn avoidable strikes, lockouts, and all combinations that needlessly limit output or curtail distribution on the part of the workers, owners, or managers of industry. 3. Tho foundation of all enterprise is primarily that of service to the community, and this service is most effective under private initiative. The community's valua- tion of that service, and its reward for it, are most fairlv expressed when secured by individual initiative under conditions of free competition. The value of and the reward for such service can not be safely apportioned by the arbitrary decisions of Government agencies. RAILROAD TRANSPORTATION. Safe and adequate rail transportation at the lowest rates consistent with fair wage,s to.employees and with just returns to the owners and also sufficient to insure constant growth and improvement in facilities is essential to the upbuilding of the Nation. Reasonable returns on the fair value of the railway systems of the country are nec- essary not only as an act of justice to the owners but also to attract new money for expansion and to promote the safety of railwav securities, in which, to a large extent, are invested the assets of savings banks and insurance companies, in the stability of which the hard-working and thrifty of our population' are so vitally interested . Manifestly proper aggregate earnings must be maintained, but rates and the re- lation of rates between various commodities, particularly the products of agriculture, should be established with great care and, in case of proved inequality, secure prompt correction. In a country of great distances like the United States it is very important for the farmer, the laborer, the miner, the merchant, the manufacturer — in fact, every pro- ducer and every consumer — to have the widest distribution of commodities, and the railway system is the backbone of production and distribution, with which other forms of transportation should be coordinated to the end that lowest rates, consistent with progressive development of facilities, may be obtained. The unrivaled railway system of the United States was created through the courage, energy, brains, and money of individuals. Managed and operated by its owners, transportation has been furnished to the people of this country of better quality and at lower rates than in any other nation. The Nation, speaking through the last Congress, decided that it wishes its railway system owned and operated by individual citizens subject to regulation by Federal and State authority and that it does not want Government ownership or operation. The Chamber of Commerce of the United States reiterates its opposition to Govern- ment ownership or operation. It believes that regulation is reasonable only when it is not so restrictive as to cripple.initiative and when it permits prompt action by those responsible for results. Unduly restrictive laws retard the railways rather than assist them to meet the needs of our increasing population and commerce and, in the long run, work in the direction of increased rather than reduced rates. The Chairman. Mr. Elliott, you are speaking very generally. Mr. Elliott. Yes, sir. The Chairman. And it is pretty hard for me, at least, to under^ stand what is in your mind. Do you want Congress to abolish the labor board ? Mr. Elliott. No, sir. I will give you my specific suggestions. in a very few moments. The Chairman. Do you want us to take away from the Interstate Commerce Commission the right to fix rates ? Mr. Elliott. No, sir; I want to take away the right to suspend rates. The Chairman. Well, wherein is this larger opportunity for initiative ? Mr. Elliott. If you will permit me, Senator, I will give you something on that in detail in just a moment. Digitized by Microsoft® RAILROAD REVENUES AND EXPENSES. 407 Senator Kellogg. What is that? Mr. Elliott. I will give you something about that in a few moments, on the points that Senator Cummins mentioned. The United States Chamber of Commerce in these resolutions passed a resolution about railway transportation which commented upon the fact that individual initiative should be allowed some more play, and the significance of these resolutions is that this organization, representing the business men of the country, did take up the question and were of the opinion that there should be a little more freedom in business management and in railroad management; that the ten- dency to governmental regulation had gone too far. And the same thing was taken up at the recent meeting of the American Bankers' Association. They went into the whole situation of the work of the individual in great detail, showing a growing tendency in the public mind that the interference by Government in business may have gone too far. Now, in regard to the specific questions, Senator Cummins, that were asked of me— and I noticed that several questions were asked of other witnesses as to what, if any, suggestion they had to make — I have some thoughts concerning them, and I have jotted down here some things that occur to me, not because I am a railroad man, but because, in common with other citizens, I want to do what little I can do to help in this very difficult situation which we are in. And at the risk of talking for a minute about myself I will state what I have done in the past 40 years, showing what my experience was in arriving at the views that Inow have. I naturally have some views on the subject, after an experience of 23 years with the C, B. & Q., and am moderately familiar with the situation between Chicago, the Mississippi Valley, and the Rocky Mountains; ten years on the Northern Pacific, with an intimate knowledge of the situation between the Twin Cities, Lake Superior, and Puget Sound; four years in executive charge of the New Haven System, with. the complicated problems in New England, and four years again as chairman of the Northern Pacific and at the same time a director of the New Haven and in touch with the general conditions there; eight months in 1917 on the Railroad War Board, and four months in Washington doing special work for the Federal Railroad Administration. Views developed during this experience are purely personal and do not represent any policy of any board of directors or of any group of executives. There is nothing very new about them, as they have been stated by myself and others in the last 20 years many times, and most of them were presented to the House and Senate committee a year ago. Senator Pomerene. I see you were a part of the Washington administration. Mr. Elliott. Yes, sir; for four months. I got away, though. As I have already stated, I believe the wise course is to give the transportation act a fair trial under conditions that are more nearly normal in the world than they are to-day. Since 1887 — 33 years, or a generation in time — the action of the country has been to restrict and repress the railroads. The transportation act reflects the view- point that, as a national policy, this repressive policy has gone too far. The act is undoubtedly a substantial advance over the re- pressive policy on which the former conception of regulation rested, Digitized by Microsoft® 40& RAILROAD REVENUES AXD EXPENSES. for it recognizes the fact that adequate transportation is absolutely necessary in the public interest, that the public interest will not- per- mit this industry to be starved to death, that it must be supported, and that it should be supported by those who use it and not out of the public Treasury by the general taxpayers. It undertakes to establish means to secure and provide for all this. Producing and selling transportation is business ; there is nothing mysterious about it; but it is a very complicated business, and men engaged in it must be in a position to act promptly if the business is to succeed. If its income is too small, the successful manager must be able to take steps at once to increase it and not be delayed' until disaster comes. If its expenses are too large under the conditions which are at the moment controlling, there must be a power in the management to reduce them without waiting until bankruptcy overtakes the enterprise. In other words, successful management is dependent upon the ability to meet business and economic conditions with reasonable promptness as they arise and can not wait indefinitely for relief, because relief may come too late. As applied to the railroads, these general principles must be worked out in complete recognition of the fact that instrumentalities as important to the public as the railroads are, must be subject to a reasonable amount of regulation by law. I believe, therefore, that it is in the interest of all the people for the lawmakers to study the subject of regulation, with a view of giving to management the power of prompter action, and of using the regu- latory powers in a supervisory and corrective way, rather than to prevent any action until governmental approval is first obtained. If the management does wrong, overrule it and make it do right, but do not prevent it from acting until the approval and permission of a regulating authority can be obtained. In an effort to cure alleged abuses, the people in the last 40 years have been inclined to lose sight of the really marvelous work done in creating the American railroad system. They have been too ready to magnify the "penny" of error and failure and minimize the "dollar" of success and accomplishment. It is a very grave question whether regulation has not been over- done, encroaching on the field of management, and, by dividing re- sponsibility and checking initiative, done more to increase costs and therefore rates than would have been the case with more freedom of action permitted. It should be borne in mind that ever since the passage of the Hep- burn Act in 1906 railroad managers have felt that the railroad's were facing very great difficulties in sustaining themselves; again and again, the managers asked that rates be increased, but increases allowed were not sufficient to meet the situation, and the matured views of the owners and managers as to the needs of the roads did not prevaiL Inasmuch as the Interstate Commerce Commission, under the new transportation law, control the aggregate earnings of the railroads, and there is a limitation upon the rates to produce that aggregate, and a provision for subdividing the earnings, if there is any excess, it would seem as if there was no longer any need of the Hepburn Act. Better and more prompt results for the public could be obtained if railroad managements, familiar with all local conditions, studying Digitized by Microsoft® KAILEOAD REVENUES AND EXPENSES. 409 constantly their business, and trying to expand it, should be allowed to make rates effective, subject to investigation and review by the commission and to be set aside only after such review if found in any way contrary to public policy, and due reparation then made. The labor board has been empowered to take' up and settle disputes about wages, and about rules if a dispute about rules threatens strikes. Here is a tribunal set up by the Congress for the purpose of handling any labor disputes, and prompt action is very necessary; also the hands of the labor board should not be tied by a mandatory statute, such as the Adamson law, and I believe, in the interest of the public, that law should be repealed. The public are allowed to appeal to the Commerce Commission if they think rates are too high. I believe the public should be allowed to appeal to the labor board if they think wages (ultimately paid by the public) are too high. Let the railroad managements and the men get together and try to settle their differences, and authorize the railroads to name the rates of pay and working conditions, subject to review by the labor board, and subject to reparation if the railroads should do anything that was unfair. The railroad has to work 24 hours a day, 365 days in the year, and there are entirely different conditions in different parts of the country. It would seem as if it was a mistake to attempt to enforce so-called standardization of all wages and rules, which standard, so far as pay is concerned, is a misnomer, because by giving a man the same rate in a little town in northern Vermont that he gets on the outskirts of New York is really paying the New York man less than the Vermont man, because the latter can live more cheaply. Let labor organizations be incorporated and state clearly in the charters what is intended. They should be bodies that could sue and be sued, and there should be the same publicity of all their transac- tions as there is about the transactions of the railroads, reporting the number of members, amount of money received, distribution in detail; in a general way, have just as much information filed with Government authorities as there is by the carriers. If disputes threaten a strike, let the FederaL Government, possibly the Secretary of Labor, frame a form of questions about which the strike vote is to be taken, and not let that question be framed by either the labor organization or the railroads. Have the ballot handled by the Sec- retary of Labor, and the vote should be secret — neither the railroads nor the labor organizations to know how any man votes — the Secre- tary of Labor to count the ballots and announce the result. Unless at least 75 per cent of all employees in the craft about which there is a dispute voted to strike (not 75 per cent of the ballots cast), then the strike vote is not carried. If 75 per cent of all employees vote to strike, then a strike not to begin until 30 days' notice has been given. Under such plans, the public would be protected, because the owner and manager would always, in naming his prices or rates, have in mind the fact that if he went too far, his price or rate could be set aside by the commission and reparation made. He would also have the Labor Board's power to reckon with if he attempted to be unfair in his wage adjustments and rules, and here again make reparation if he did 1 wrong. Digitized by Microsoft® 410 RAILROAD REVENUES AND EXPENSES. In other words, restore to the owner and manager some of the functions surrounding other business and which, when exercised in the upbuilding of the railroads in years gone, produced a most remarkable transportation machine with the lowest rates in any country, the highest wages in any country and the best service in any country. The war and the interference by the Government in this delicately adjusted transportation machine have produced conditions resulting in greatly increased charges and poorer service to the public, and a checking of development so necessary for the next uplift in business. The effect of the enlarged railway wages and reduced hours in agricultural communities and of the employment of unnecessary men has been bad on the ability of the farmer to get men to work for the production of crops. The Adamson law, the so-called, mis- named "Full crew" laws, and other regulations limiting output, take men out of the fields when they are needed for farm work and increase the price paid by the farmer for producing the food of the country, and it would be better to eliminate such laws and let the practice develop by negotiation that can take account of different kinds of work, different climatic and geographical conditions, but subject at all times to the power of the Labor Board to correct any abuses. The following quotation from a recent article by ex-President Taf t about management and men working together is interesting as coming from a general student of the situation and one without prejudice. This is written some time ago, before March 4. ■''■'■ The present administration, by' forcing the Adamson law through, and by its subse- quent administration of the railways, enthroned the national leaders of the railway labor organizations in power. The framing, execution, and construction of labor provisions and regulations .in the railroad administration were largely intrusted to labor leaders, and there wa9 no active interest really adverse to that of, the labor organizations in the Government operation. During the war such a condition had to be endured, but now the situation is different. The railroad executives, restored to possession of the properties and responsible for their efficient and economic managp- ment, are seeking a readjustment and a basis for operating the properties in which much-needed discipline and a fairly proportionate rate of wages may be restored and maintained. They propose that each company shall be permitted to deal collectively with the men in its employ and shall not be required to deal in the first instance with' the national heads of the labor organizations. This is a real collective bargaining. The principle is that the employer and the body of his employees shall come as near together as possible in their conferences, so that looking into each others', eyes and hear- ing each others' voices, so to speak, they may have a clear_ understanding, each of the other's position and condition. The primary unit of action is the shop or railroad system in which the dispute arises. This has never been denied until now by either aide. And again he says : Experience shows that with full liberty to deal with their respective employees.by themselves, many railway executives can fully and satisfactorily adjust working conditions and wages, too. In such matters, local self-government is the essence of collective bargaining and not a straw should be put in the way of it. '"' ' Very large responsibilities and powers have been given to the Interstate Commerce Commission and the Labor Board, and, as I said earlier in my testimony, they should have the cooperation of all and be provided with sufficient appropriations and help so that the responsible heads are not so overburdened that they can not take up and dispose of large and important questions promptly. ' Digitized by Microsoft® RAILROAD REVENUES AND EXPENSES. 411 I believe, the administration of the law could be made more prompt and effective if the two boards could report to some common executive authority. ( I believe the whole question of transportation by rail, water, motor truck, etc., is so important, so interwoven with the fabric of American life, that better results would be obtained if there was a secretary of transportation, who would be on an equality with the Postmaster General, the Secretary of Labor, the Secretary of Com- merce, and the Secretary of Agriculture in discussing national ques- tions in which transportation is so important. He would be a defender of the principles of adequate transportation and in time help to make the best use of the primary form of transportation — the railroad — and coordinate with it the motor truck and the waterway. The problem is to do justice to shippers, employees, and owners without unduly restricting the power of management to act promptly on important matters. This is the problem of Congress, and if the future indicates that changes are necessary in the law or in methods of administering it, I believe it will be well to consider these sugges- tions. But first give the transportation act a fair trial and back up. the Commission and Labor Board. We talk about frozen credit and we have a frozen transportation system that helps to keep credit frozen and retards the growth of the country. Action and courage and vision are needed now and imperatively needed. I believe the country is going to come out all right in the long run, but the next 90 days, the next six months, possibly the next year, are critical, and all hands must help. I have an abiding faith in the good sense and judgment of the American people if they can thor- oughly understand any given situation.. But the idea has been too prevalent that the railroads, like the Government, can perform mira- cles and spend money without . stint and not have any increase in rates or in taxes. I believe this investigation will do much good by showing the real situation and helping the people to Understand and form a correct opinion. I believe if the railroad owners and managers will be allowed a little more liberty of action, that in the long run better results will be obtained for the whole people. The Chairman. Senator Pomerene, will you inquire of the witness ? Senator Pomerene. No; I think I have nothing to ask now. The Chairman. Senator Wolcott ? Senator Wolcott. I have nothing, Mr. Chairman. The Chairman. Senator Fernald ? Senator Fernald. Nothing at all. The Chairman. Senator Kellogg ? Senator Kellogg. I don't care to ask any questions now. The Chairman. I would make the same request of you, Mr. Elliott, that I did of Mr. Smith with regard to furnishing the monthly reports of the Northern Pacific for from March .1 to September 1, in 1915, 1916, 1917, and 1920. (See note.) (Note. — This request was withdrawn.) Mr. Elliott. You don't want 1919? Digitized by Microsoft® 412 RAILROAD REVENUES AND EXPENSES. The Chairman. Well, I left out 1918 and 1919 because they were years of Federal control, but I would be very glad to have them, if you have them. Senator Pomerene. I think it Would be better to put them in. Mr. Elliott. We can do it very readily. ' Senator Pomerene. I suggest that he incorporate the findings for those years, too. The Chairman. Yes. Mr. Elliott. That is from March to September ? The Chairman. March 1st. I want the material on hand to meet the charge — and if it proves the charge, well and good ; if it does not prove the charge, welt and good — the charge being that from March 1, 1920, to September 1, 1920; the railroads expended an abnormal and unnecessary sum for maintenance of way and structures and maintenance of equipment, and so on, because they were covered by the guaranty of the Government during that period. Mr. Thom. Mr. Chairman, I think it ought also to be borne in mind in connection with that, that the transportation act distinctly declares that any amount that was expended for maintenance oyer and above the sum fixed by that act, should be borne by the carriers and not by the Government. The Chairman. The law so declares ? Mr. Thom. Yes. The Chairman. And, of course, we are all supposed to be familiar with it. I do not know whether we are or not. Then, one or two other questions. As I understand you, your insistence upon further freedom or more freedom in the management of your properties is specifically^ that when you want to reduce wages or adjust wages you may be permitted to do it, and have the readjust- ment go into effect before the Labor Board passes on a dispute? Mr. Elliott. If we can do it ; yes, sir. The Chairman. Yes. So much' now for the operation of the Labor Board. And that you think you ought to be permitted to put into effect new rates, either freight or passenger rates; without interference on the part of the Interstate Commerce Commission, to be examined only upon the application or complaint of some one who is interested in those rates ? Mr. Elliott. No ; I would not go as far as that. I think we ought to have the right to make our rate after our study, and then make it effective, and then it be examined by the commission either on its own initiation or upon complaint by anybody. The Chairman. I accept that modification, because I had that in my mind, the power of initiation on the part of the commission. Mr. Elliott. Yes. The Chairman. But you believe that you ought to be able to put these rates in effect and they should remain in effect until set asjde by some order of the commission after a hearing and examination ? Mr. Elliott. Yes. My reason for that is that I think, Senator, in the interest of the people of the country we will get much, prompter action. Senator Pomerene mentioned a condition in Ohio ; that, kind of thing would be adjusted more promptly if the railroads felt that they had the right to act. Digitized by Microsoft® RAILROAD REVENUES AND EXPENSES. 413 The Chairman. Well, do you believe that there ought to be the privilege of concerted action on the part of the railroad companies, and that these rates should be filed after something in the nature of an agreement between the railroad companies ? Mr. Elliott. Well, I think it would be desirable. I do not want to dislocate the whole rate machinery. The Chairman. So you really want the antitrust law repealed in that respect, and the power of suspension on the part of the Inter- state Commerce Commission taken away ? Mr. Elliott. Yes, sir; because your transportation act says in the aggregate how much earnings they are to have. The Chairman. Yes. Mr. Elliott.' Now, the railroad manager, who is studying his business every day in the year, who knows the conditions, who knows what his shippers want, who knows them individually and personally, is the man, I think, who can best form an opinion as to what will be to the interest of his territory. I do not mean that the commission could not do the same thing; but they have not got the time. It is an impossible job. And it is resulting in a hesitation about getting anything done rapidly. There is no criticism in that of the com- mission. They are working as hard as morfal men can and their office is very much overburdened, but the thing is so tremendous, and the conditions are so different in Oregon from what they are n Florida, and in Maine from what they are in Texas, that I believe you would get better results if you gave the owners a little more latitude as you do with other business, but holding a club over them all the time, for the Interstate Commerce Commission can say, "Now, if you do anything that is unfair you will be made to pay for it," and also the Labor Board can say, "If you do anything that is unfair you will have to pay for it." The Chairman. Precisely. Mr. Elliott. Senator Pomerene requested at the hearing on Tuesday some figures about the average number of bad-order cars on the line for several years. The following statement shows the bad orders for the years ending June 30, 1915, 1916, and 1917, and the average for the test period. Also for the years 1918 and 1920: Average number of bad-order cars on hand each day: Year ending June 30, 1915 2, 119 Year ending June 30, 1916 1, 251 Year ending June 30, 1917 1, 430 Average per day, test period 1, 600 Year 1918 2, 013 Year 1919 2, 142 Year 1920 3, 802 The Chairman. Mr. Thorn, have you any further witnesses ? Mr. Thom. Yes. The Chairman. The committee will stand adjourned until 10 o'clock to-morrow morning. (Whereupon, at 11.50 o clock a. m., Wednesday, May 25, 1921, an adjournment was taken until 10 o'clock a. m., Thursday, May 26, 1921.) Digitized by Microsoft® Digitized by Microsoft® RAILROAD REVENUES AND JBXPENSES.' THURSDAY, MAY 26, 1921. United States Senate, Committee on Interstate Commerce, Washington, D. C. v The committee met, pursuant to adjournment, at 10 o'clock a. m., in room 410, Senate Office Building, Senator Albert B. Cummins (chairman) presiding. The Chairman. Is Mr. Byram to be the next witness, Mr. Thorn? Mr. Thom. Yes, Mr. Chairman. But before he begins let me say that several members of the committee requested of Mr. Kruttschnitt certain information, and I 'would like now to present his answers to those inquiries. Of course, if it is desired, he will appear in person, but I imagine you will find the data all here, and I just pre- sent it for the record. The Chairman. It will be incorporated as a part of Mr. Krutt- schnitt's testimony. (The information requested of Mr. Kruttschnitt, together with statements in detail, are printed in the appendix, pt. 1.) The Chairman. Mr. Byram, you will be sworn. TESTIMONY OF MR. HARRY E. BYRAM, PRESIDENT CHICAGO, MILWAUKEE & ST. PAUL RAILWAY CO. The witness was duly sworn by the chairman. The Chairman. State your name and position, please. Mr. Btram. Harry E. Byram, president Chicago, Milwaukee & St. Paul Eailroad. The Chairman. You may proceed with your statement. Mr. Btram. The situation of the railroads of the United States in general has been so fully and comprehensively covered by state- ments previously presented, and in which I concur, that I will not take up the time of the committee by repeating what already has been presented as to the general situation, but will confine this state- ment to the situation in the western and northwestern parts of the country as reflected in the operations of the Chicago, Milwaukee & St. Paul Kailway Co. It will be my purpose to submit statistics and other data which will reflect as accurately as possible the effect of the unusual condi- tions affecting railroad operation that have prevailed during the five calendar years 1916 to 1920, inclusive. It would seem that a com- parison of the operating results of the year 1916 with the year 1920 415 Digitized by Microsoft® 416 RAILROAD REVENUES AND EXPENSES. would more nearly reflect the extraordinary differences in expenses and earnings than in any of the intervening years, because 1920 fig- ures include more of the cumulative effect of all the wage increases placed upon the railroads since January 1, 1917, when the Adamson Act took effect, and of the costly changes in practices and working conditions inaugurated during Federal control, while 1916 was the last full year which was not actually affected by war' conditions. Unusual efforts have been made since Federal control terminated to curtail expenses in every way possible, and it will be the purpose of this statement to illustrate in various ways that these efforts have been productive of results. It is regretted that the attitude of some of those who speak for railroad employees of the country does not tend to promote good service.; For some time past efforts have -apparently been made to develop a belief on the part of the public as well as railroad em- ployees that the responsible, officers of the railroads were not operat- ing th«m efficiently and economically, and it is greatly to the credit of the rank and file of employees of the railroads of the country that they have not been misled by these false doctrines, as is shown by' the general willingness to cooperate with the managements of the rail- roads in bringing about the necessary efficiency and economy in their operation which prevails at the present time, as has 'been repeatedly stated by the! railroad executives at this hearing. I shall endeavor to show that the charges frequently and recently made by those critics, that the railroad managers, are not alert in en- deavoring to prevent wasteful practices and. install economical meth- ods are not correct, at least so far as this railroad is concerned, and I have reason to believe that similar efforts are made by the man- agers of the other railroads. I now present a statement showing condensed operating statistics of the Chicago, Milwaukee. & St. Paul Railway Co. for the year ending December 31, and covering years 1916, 1917, 1918, 1919, and 1920. (The statement referred to is as follows:) Digitized by Microsoft® RAILKOAD REVENUES AND EXPENSES. 417 §§ SJ33 SS3 ills fc-O is P ifllOON * OOCQH ION Js^ s"3 moo SraSSw 8382 HOO -co .So oooon l>CD CO cs ef °v°. o> t-o -. 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P PPh Digitized by Microsoft® RAILROAD REVENUES AND EXPENSKS. 419 The statement I have submitted shows : Total operating revenue : 1920 $168, 158, 734. 15 1916 110, 609, 688. 86 Increase 57, 549, 045. 29 Total operating expenses : 1920 1 164, 697, 120. 98 1916 73, 765, 051. 05 Increase 90, 932, 069. 93 Line No. 2 of the foregoing statement in detail shows the total operating expenses and indicates an increase in 1920 over 1916 of $90,932,069.93, while the net operating revenue decreased from $36,844,637.81 to $3,461,613.17. Total pay roll : 1920 *. $110, 515, 490. 55 1916 49, 210, 073. 12 Increase 61, 305, 417. 43 The total pay roll — line No. 4 — in 1920 over 1916 increased $61,305,417.43. Average number of employees : 1920 62,384 1916 51,319 Increase 11,065 The average number of employees — line No. 5 — increased in 1920 over 1916 approximately 11.000 or 21.56 per cent. Senator Kellogg. Was there any increase in the mileage of your railroad ? * Mr. Byram. No. Senator Feknald. What was the cause of that great increase in the number of employees? Mr. Btram. Various things, but principally because of the appli- caton of the 8-hour day to great numbers of employees who for- merly worked 10 and 12 hours, making it necessary to employ three men to do a 24-hour trick where formerly two men did it. Per cent of pay roll to total operating revenue : 1920 65.72 1916 44.49 Increase . 21.23 The per cent of pay roll to total operating revenue — line No. 6 of tabulated statement— increased from 44.49 in 1916 to 65.72 in 1920. Total freight ton miles : 1920_ 12, 966, 285, 687 1916 12, 237, 311, 524 Increase 728, 974, 163 The total freight ton miles, which is a fair measure of the business transacted — line No. 7 of tabulated statement — increased in 1920 over 1916. only 5.96 per cent. These figures indicate that although approximately the same freight ton miles were moved in both of these years 11,000 more men were required to perform the Digitized by Microsoft® 420 BAILROAD REVENUES AND EXPENSES. service and it cost approximately $60,000,000 more on the pay roll to pay them. The items of labor and fuel constitute 80.044 per cent of the cost of operating the railroad, these two items absorbing approximately $135,000,000 of the total of $164,000,000 operating expenses for the year 1920, and the next part of the exhibit — lines 13 to 16 of the tabulated statement — is designed to show the enormous increase in the cost of fuel, which increased from $11,797,880.72 in 1916 to $23,796,922.14, although approximately 250,000 tons less were used in 1920. Average cost per ton of fuel: 1920 :_. _ $4.72590 ' 1916_ J. 1 2. 23070 Increased „^_ 2.49520 Lines 17 to 20 of the tabulated statement show the average cost per tbri of fuel which shows a similar increase. If we had been able to huy the coal used in 1920 at the price of coal in 1916 we would have saved $11,999,031.42. , The Chairman. Do you say it cost you less for fuel in 1920 than it did in 1916? Mr. Byeam. No, sir; it cost more but we used less of it. Senator Feenald. It cost twice as much ? Mr. Byeam. Yes, sir. The Chaieman. Where do you show that on your statement? Mr. Byeam. It will be found on lines 13 to 16. The Chaieman. Is that the total of fuel in tons ? Mr. Byeam. Yes, sir. The Chaieman. Is the qil reduced to tons? Mr. Byeam. Yes, sir. The Chaieman. You ; used in 1916 5,000,000 tons? Mr. Byeam. Five million two hundred and eighty-nine thousand tons. The Chaieman. You did not use quite so much as that in 1920? Mr. Byeam. No, sir. Senator Kellogg. . But it cost twice as much per ton ? Mr. Byeam. Yes, sir. The Chaieman. Yes; that is true I see here, and your tonTmiles were practically the same. Mr. Byeam. Yes, sir. There is quite a singular thing in the per- formance of this railroad in that in each year's performance it was about the same, 12,000,000;000 ton-miles. That shows the continuing increased cost of everything to do the same amount of work; as be- tween those two years we performed father more service in 1920, or handled more ton-miles. The Chaieman. But the cost of fuel doubled? . Mr. Byeam. Yes, sir ; but we used it more efficiently or with some increased efficiency, at least, because we used 250,000 tons less to per- form a slightly increased service. The Chairman. All right. You may continue your statement. Mr. Byram. One of the factors of efficiency is in the increased loading of cars, and I have figures to show that. : ' The balance of the figures are designed to show that the usual measures of efficiency, viz, increased trainload, increased carload, de- creased locomotive miBs^feeeMxp MfcrmfoftlEper ton of fuel used, etc., RAILROAD REVENUES AND EXPENSES. 421 were present in 1920, but, by reason of the increased cost of labor and material and the failure to increase freight and passenger rates as operating costs increased, defeated the efforts of the operating de- partment, and instead of producing increased net revenue, which effi- cient operation ought to produce, the opposite result developed, and, as shown above v the net operating revenue actually decreased from $36,844,637 in 1916 to $3,461,613 in 1920, > Loaded car miles: 1920 ,-h. a 508, 791, 737 1916 _-,--!- -, 592,113,791 Decrease— 83, 322, 054 Empty car miles : 1920 1_ ^ u.^ 229,496,075 1916 w ^j. 225, 394, 150 Increase 4,101,925 Average tons per car per mile : 1920 .—-■ -1 __: , . 25. 485 1916—., , .— 20.667 Increase _ 4. 818 Taking up the details — lines 22 to 25 of the tabulated statement — we find that the loaded car miles, decreased 83,322,054 miles, while the empty car miles increased 4,101,925 miles ; but the average number of tons in each loaded car per mile — line 31 of the tabulated statement — - increased from. 20. 667, in 1916 to 25.485 in 1920, or 23.31 per cent, an item of efficiency that should have produced net revenue : Total passenger locomotive miles : 1920 l , _, 16, 897, 163 1916— T * . Trr _ r . 18,186,754 Decrease— i '— 1, 289, 591 Total passengers moved 1 mile: 1920 , ,-^-pl, 050, 521, 0J2 1916 — — 921, 993, 832 Increase , _; ^ 128, 527, 180 Senator Kellogg. Is that total passenger miles or passenger loco- motive miles? Mr. Btkam. I show total passenger locomotive miles, and also total passengers moved 1 mile. I will Show later on that we carried more passengers., so that we had some efficiency in passenger service. There was a very marked decrease, in that part of the operations, with a small increase in the number carried. The total passenger locomotive miles — line 26 of the tabulated statement— decreased from 18,186,754 in 1916 to 16,897,163 in 1920, notwithstanding the fact that the total passengers moved 1 mile — line 8 of the tahiilated statement — shows an increase of 128,527,180. Total freighjt locomotive miles : . 1920 t— 21 > 169 > 426 1916 _—_ ^-'_ii__ _-_^ 25, 275, 283 Decrease _" *. *. 4, 105, 857 Trainload tons : , , . , 1920 — v— — 620.04 1916 — ' — --- 503.23 ' 1 ,» r-7T f ; f Increase 116. 81 Digitized by Microsoft® 422 RAILROAD REVENUES AND EXPENSES. 1 This would mean practically that many freight train miles! That efficiency in the operation of freight trains, which I will explain later, produced an increase in the train loads. The total freight locomotive miles— line 27 of the tabulated state- ment—shows a decrease of 4,105,857 in 1920 under 1916. This reduc- tion in freight locomotive miles is reflected in the increase in train load— line 30 of the tabulated statement— from 503.23 in 1916 to 620.04 in 1920, or 23.28 per cent. Senator Pomerene. How many cars do you count for a train? Mr. Byram. We do not measure trains by number of cars. Sentor Pomerene. But about how many ? Mr. Byram. Oh, 35 or 40, on the average, but that is brought down by the branch-line trains, where we have few cars to handle. On the main-line trains we haul 75 or 80. Senator Pomekene. Your increase per train would be from two to three tons per car ? Mr. Byram:. No, sir. We show that in 1916 the average tons per car mile was 20,667, while in 1920 it was 25,485, or an increase of 4.81 tons per car per mile. Senator Pomerene. All right. Mr. Byram. I believe these figures show conclusively that the measures of efficiency which usually are applied to the operation of railroads and which normally tend -to produce net operating reve- nue, failed of their usual result because of conditions Which were be- yond the control of the operating staff because of the abnormally increased cost and inadequate addition to the revenue by means of increased freight and passenger rates. As to cooperation between the managements of railroads and their employees for producing efficiency: The following quotation was taken from the introduction of the testimony of Mr. W. Jett Lauck before the United States Bailroad Labor Board on the " Inadequacies of Railway Management," part 1, and having reference to the subject above : No far-reaching improvements in railroad efficiency are possible without close cooperation between the managements of the raHroads and, their employees. Without the good will of their men, without a high level of morale and enthu- siasm devoted to a common end, the improvements of service and the reduction 1 of cost can not be achieved. If the two great elements of railroad operation, management and workers, are to be forever at loggerheads, each pulling against the other, each mistrusting and condemning the other, each trying to wring^ con : cessions which the other is reluctant to grant, the outlook for eliminating the many wastes revealed in the foregoing pages is dark indeed. We agree with the principle advocated in this quotation because the officers and employees of the Chicago, Milwaukee & St. Paul Railway Co. for several years, and particularly of late, have been carrying out the principle of cooperation and study, mutually, in find- ing and practicing economies and improved practices. Committees 1 have been formed of officers and employees on every division, and at the larger stations and terminals, with regular dates for meeting, usually monthly, to study the details of operation in each particular locality and the situation as a whole for the purpose of eliminating waste and generally promoting efficiency, and it is a pleasure to state that the various campaigns inaugurated to save fuel and sup- plies and to avoid wasteful practices have been promptly, intelli- Digitized by Microsoft® BAILROAD REVENUES AND EXPENSES. 423 gently, and earnestly supported by the employees generally in all classes of service, indicating that the officers and employees of this company are having no difficulty in working out a program in coop- eration and harmony. A, few of the committees are cited as follows : As to standardization: Three committees of six members each were appointed in August, 1920, to consider the establishment and maintenance of standard materials and practices, keeping in touch with the general practices on other, roads and performances on this road. These committees are : Committee on motive power standards, committee on car standards, committee on maintenance of way standards. These committees report to a* general committee on standards, con- sisting of chief engineer, as chairman; assistant to president, pur- chases ; assistant to president, accounts ; vice president, Seattle ; gen- eral manager, Chicago ; general superintendent motive power. At the time of the establishment of these committees a letter was addressed to all employees explaining the purpose of the committees and asking for suggestions and recommendations from any employee on any subject having to do with the railroad, and in line with good order and- discipline. Many subjects have been suggested and care- fully investigated by the various committees, all of them tending to produce improved methods and efficiency. The Chaibman. I wish you would state in a general way how these committees are made up. Mr. Bybam. These particular committees are made up of junior officers in the various departments. In the supervising committee there were no employees, but in many of the other committtes I am going to speak of there, were employees. Senator Poindexter. How were the committees of employees se- lected? Mrl Btbam. Selected locally by the members of the committees, by their chairmen. The officers had no part in the working committees on the divisions at all, except as visitors or observers. As to division " get together " meetings and general current econo- mies : During the forepart of the year 1919 the management arranged for each division to hold monthly or semimonthly gatherings, which were designated as " efficiency and economy " meetings. Committees were appointed on each division, and meetings were presided over by an employee acting as chairman, elected by the members. Officials of the company held no office in these committees, but the meetings were attended by the superintendent, trainmaster, master mechanic, general car foreman, roadmaster, chief carpenter, and chief dis- patcher. , • . The purpose of the meetings was clearly explained to the em- ployees, and they were given to understand that the fundamental principle and purpose was the solicitation of ideas from the men who were ! engaged in actual operation of the property where wasteful practices might be noticed by the men in their everyday work and eliminated. ; ' ' The meetings also served to get the local officers better acquainted with the men and were frequently designated as " get-together meet- ings." Constructive criticism was invited for the good of the serv- Digitized by Microsoft® 424 RAILROAD REVENUES AND EXPENSES. ice. and through this policy many improvements in practice were brought about, improper handling and use of materials pointed otat, and in such cases corrective measures would be taken by the superin- tendent, master mechanic, or other officer, through his personal at- tendance at the meeting or through the minutes of the meetings, which were printed and. sent to eaeh member of the committee and tbe local officers. : To create greater interest in the economical operation of the prop- erty a campaign was inaugurated last year toward the elimination of all' waste, the reclaiming of all usable material, the use of secondhand material for repairs instead of new, the saving and segregating of all scrap material, and employees in every department were requested to furnish their superior officer monthly a letter outlining suggestions that occurred to them whereby a saving in material and labor could be accomplished. > The employees were also asked to include in their monthly letters specific cases where economy had been practiced by them in labor or material, so that the benefit of any new idea could be passed around to other employees. *ft The response received to the request above outlined was very satis- factory, and thousands of letters have since been received monthly from employees outlining the savings which they have accomplished, and many good suggestions also are contained in their reports. On the receipt of the savings letters' from employees the local officers acknowledge their receipt^ andi the employees' are commended* for any activity which has conserved material or labor. Each month the employees' letters are , consolidated in the division superintendents' and master mechanics' offices, and a copy of each letter is forwarded tc the general manager, assistant general manager, and< other general officers, where they are personally reviewed by those officers, and letters of appreciation are directed to the departments whose eco- nomical activities have been vigorously pursued. As to fuel economy: During the year 1920 this company paid but $23,796,922.14 for fuel. The management was very much concerned over these -high figures and all officers were instructed to check up the situation carefully and see that no waste of fuel was permitted. A& was done in previous campaigns, the local officers called meetr ings of employees which were largely attended by the men in engine, train, and yard service. The expenditure involved in supplying the railroad with fuel, and comments of the general officers, were placed before the men and discussions held, committees were elected by the employees and " coal conservation " organizations arranged on each division, an engineman or fireman: acting as chairman. These com- mittees, formed voluntarily, were very active and their suggestions were placed on bulletin boards for the information of all employees. With the. interest in conservation displayed by the employees who are actually handling fuel the campaign igi bringing good 'results, which are bound to influence our expenditures for this material. For the year 1919 the average number of pounds of coal required to move a locomotive 1 mile in freight service was 250 ; for the 1 year 1920, 243; for January, 1921, 235; and for February, 1921, 231 pounds. This reflects the feenefttis we have obtained from the activi- 1 ties of these men in trying to save fuel. Their efforts are further I reflected in the fact that in 1920, jjotwithstanding the difficulties of \ operation, the saving was 250,000 tons as compared with 1916. Digitized by Microsoft® RAILKOAD REVENUES AND EXPENSES. 425 Senator Kellogg. What difficulties do you mean ? Mr. Byram. Various difficulties ; such as the outlaw strike, etc. Senator Poindextek. Do you burn oil at all ? Mr. Bybam., Yes, sir; we burn oil in the western part of our ter- ritory, in the timber country, for protection against setting out fires. The Chairman. Ordinarily, the number of pounds of coal required to move a locpmotive 1 mile in freight service in January and Feb- ruary would be ; greater than the average number of ; pounds used throughout tjie year, would it not ? Mr. Byram. Yes, sir ; but last January and February were un- usually favorable. There was no winter weather at all, so that that condition had its influence as well on the saving in coal, I should imagine. But we are sure we are getting results from the efforts of the men in trying to save fuel. As to engine failures : Daily telegraph reports are made of fail- ures of engines, and each case is thoroughly and carefully investi- gated by the motive-power department and remedies or discipline applied with a view to preventing avoidable failures. The effect of this has been to reduce the average failures per month from 466 in 1919 to 364 in 1920, and for the first three months of 1921 to 160 in January, 92 in February, and 87 in March. As to efficiency reports: A monthly report of efficiency, compris- ing statements from each operating division, covering a number of the principal transportation functions, is prepared by the gen- eral managers within a few days after the close of each month,, and copies indicating relative efficiency of the various divisions in each function, are, mailed promptly to the local officers. This report has resulted in friendly competition among the divi- sions for first place in performance records and is considered a very helpful addition to the general statistics furnished in regular course. As to miles per car per day: During the summer of 1920, while business was good and cars in demand, a drive to increase th& mileage of freight cars brought very satisfactory results. The miles per day, which had been running about 22, were brought up to about 3& in September and October, when the demands were heaviest. Since then the great slump in business has made it impracticable to continue this mileage, as cars have been plentiful. This figure does not mean merely the mileage made, by each car while in motion, but includes all the time consumed in loading and unloading, switching, on repair tracks, etc. Senator Kellogg. Does that mean the, mileage of all cars? Mr. Bybam. Of all cars on, the railroad; yes, sir. It covers those standing on sidetracks and not in use, though, of pourse, there are not many such .when business is good. As to committee on forms and stationery : A committee was formed about two years ago to make a study of the use of forms and blanks and general stationery. They found that many forms could be dis- continued, having outlived their, usefulness ; also a consolidation of two or more reports could be accomplished by having one blank answer the purpose. By this committee we have .been able, to dis- pense, with a. large number of forms, 1 reducing the amount of material carried in our, stationery stock, as well as the post, of compiling the data at the various sources, and economies have been effected by the- use of less expensive stationery for different purposes. Digitized by Microsoft® 426 RAILROAD REVENUES AND EXPENSES. When it is considered that the expenditure during 1920 for sta- tionery and printing amounted to $224,000 it will be seen that there is a large field for the work of this committee. As to less than carload freight loading : In 1916 a committee on maximum car loading was appointed on this road, comprising the general freight agent, the freight auditor, the car accountant, the general supervisor of transportation, and the superintendent of trans- portation, with the freight claim agent as chairman. The efforts of this committee were applied toward securing maximum carloads, both of bulk commodities and merchandise, loaded by our own em- ployees particularly. This work was largely conducted through bur local agents, and the following figures show the results accomplished at seven of our representative stations : " Average per oar. 1916 1920 1 ■ i }r.j'.; Increase. Aberdeen Pounds. ' 7,500 9,874 11,748 7,064 11,500 8,900 10,200 Pounds'. 13,000 Mi 650 17,820 15,253 18,643 15,111 15,330 Pounds. 5,500 9,776 ' 6,072 8,189 7,143 6,211 5,130 Per cent. 73.3 Chicago 99.0 51:6 Kansas City 115.9 62.1 Savanna 69.8 50.3 This produces a more economical use of cars. As tq savings in per diem: At the termination of Federal control this road owned 61,468 cars, of which it had 19,456 on its own rails, and also had 75,683 foreign per diem cars, making a total of 95>,139 cars, or 33,671 more than owned, at a per diem rate of $1 per car per day. On March 1, 1921, 43,610 owned cars were on its own rails and 16,851 foreign cars, making a total of 59,751, or a decrease in total number of 36,388 cars in the year ; so that instead of having a debt each day for per diem amounting to $33,671, as, of March 1, 1920, the account practically was even on March 1, 1921. As to water stations: Special attention has been given the treat- ment of water in districts where difficulties in operation have been encountered due to bad water and insufficient supply. An engineer of distinction in this field has devoted his entire time to the subject, and as fast as possible under prevailing conditions water-treating plants have been completed and put in operation. In the last year such plants have been made available at seven important stations. Additional plants are under way at eight points and improvements in existing facilities at a large number of other stations. Water treatment involves removing the incrusting solids from" the water before delivery to the locomotive, and produces large savings in boiler repairs and fuel combustion. As to reclamation and scrap sales: The practice of reclaiming waste material has been followed for years on this road, as on others, with beneficial results. A monthly record is kept of the amount of material reclaimed and used over again, which shows that during the last two years $2,268,000 has been realized by the reclamation of Digitized by Microsoft® EA1LK0AD REVENUES AND EXPENSES. 427 castings, forgings, springs, bearings, babbitt, hose couplings, brake beams, etc., most of this material being recovered from the scrap pile and at a small cost put in shape for use again. In addition to this economy during the same period over $5,400,000 was realized from the sale of scrap material. Committees were organized some years ago to look after these par- ticular matters, and inspectors are "going over the road constantly, supervising and encouraging these economies. As to power-plant operation: We instituted in 1920 a report for checking this cost and supervising the work to bring about a reduc- tion of cost to a uniform basis by keeping a record of number of tons of coal used at each power plant, the cost per boiler horsepower, the cost of handling cinders, firing, etc., and the cost of such labor per boiler horsepower. We have also instituted reports for supervising the cost per ton of handling coal, with a view of reducing the expense. During this period numerous investigations were made of the amount of water consumed, with a view to stopping waste at shops. As to water waste: This question was very thoroughly canvassed early in 1919 by engineers assigned to this work by the engineering department, and circulars were issued requesting the cooperation of employees toward eliminating waste of water, citing particular uses to be watched carefully in shops, roundhouses, yards, and other facilities. Representatives of the several departments are giving the matter attention currently, and it is felt that waste of water has been practically eliminated. As to shop machinery and tools : In the effort to increase the effi- ciency of shops and roundhouses the following purchases of shop tools and machinery have been made : 1916 $31, 362 1917 91, 061 1918 188, 260 1919 435, 479 1920 148, 656 These were principally labor-saving tools and machinery designed to increase the output, such as welders, hoists, presses, lathes, jacks, dies, pneumatic tools, monorails, etc. These improvements form a part of a comprehensive plan that will be carried out as money is available. These are capital expenditures paid for by the company. Senator Feknald. In 1916 the amount expended for shop ma- chinery and tools was $31,362. Was that about the average from 1912 to 1916? _ ' Mr. Bteam. I could not answer that definitely, Senator Fernald, but that is not a large amount ; it is not enough. Senator Fernald. It is a very small amount compared with the amount expended in 1920 is why I ask if that is about the normal amount you expended from 1912 to 1916. Mr. Bykam. I have not the figures for the period from 1912 to 1916. Senator Poindextee. Was this large amount in 1920 expended by the Government? Mr. Btkam. No, sir; by the company. All these are capital ex- penditures, made by the company. They are additions made to the property. Digitized by Microsoft® 428 RAILROAD REVENUES AND EXPENSES. As to locomotives, I show the following : ; . , ■.'■'lo i-,i Year. Locomo- tives- . , retired. Locdmo- tives.pur- chased. Year. ' Locomo- tives retired. Locpmo- tivos"pur- chased. 1916 1 47 142 67 45 9 26 207 1917 1918 283 285 1919 25 * ,. '*#&• Senator Poindextee. What do you mean by "retired,"? . i Mr. Bybam. They are discarded, scrapped. They are obsolete. Senator Poindextee. They are torn down ? Mr. Bybam. Yes, sir ; and sold for scrap. But the, replacement qf those retired locomotives, which were of too small capacity compared with larger locomotives, made a very decided increase in tractive effort. The Chaibman. How much of that was charged to operating ex- penses? Mr. Bybam. None of it. They were charged to capital expendi- tures. The intention was to increase the capacity of the railroad. While the figures I have given show that we only purchased three more' locomotives in that period than were retired, yet on account of the greater tractive power of the locomotives purchased we inr creased the tractive effort very materially. Senator Pomerene. Is that increase in capacity or in actual haulage? / Mr. Bybam. It is both. This reflects in an increase of ability to haul cars, capacity to do that. The increase in the train load, which I showed a while ago, indicates the benefit we got from the purchase of. the larger locomotives. The decrease in freight train miles also reflects this increased capacity, because these locomotives can haul larger loads, and we do not have to run so many trains in order to do the same amount of business. In that connection I will give you a further statement : <■■■ Year. Total tractive effort of locomotives. ' December 31: j Pounds. 1916 .; ! 59,086,311 1917 '. : 58,567,679 1918 59,878,766 1919 .- 1 62,516,865 1920 ;. 67,134,775 Average trac- tive effort per locomotive. Pounds. 29,781 30,252 32,437 33,756 35,002 These figures show that notwithstanding the number of locomo- tives has riot materially been increased, the total capacity of all loco- motives has steadily and substantially increased. This is due to the fact that the locomotives that were retired were obsolete and of small capacity and have been replaced by modern freight locomotives of large capacity. . The superheating of locomotives has been alluded ; to as a method of increasing efficiency and economy— in which Ave concur— andi the Digitized by Microsoft® RAILROAD REVENUES AND EXPENSES. 429 following 'statistics show the progress that has been made in this direction: _ Number of locomotives xear: ■ • superheated. 1916 15 1917 11 1918 62 1919 ^ r : 54 1920 .,.> 96 Total (five years) 238 The Chaibman. What do you mean by " superheating of locomo- tives"? , Mr. Byram. It is a system of flues arranged in the boiler, by which the steam is passed through two sets of flues and is superheated, so thatthe expansion when, it gets into the cylinder is greater. It mjakes for a better use of the steam. Senator Stanley. What temperature does it heat it to? Mr. Byram. I do not remember, but to a very high temperature. Automatic stokers also are necessary for efficiency and economy on the larger types of locomotives, and the following figures show the number of automatic stokers applied to the locomotives owned by this company during the years in question : ._. ; ... , . . Number of automatic ■lear: stokers applied. 1917 __' - 8 1918—,- u^___ c ^ ^ ^ 84 1919 _„ L -_, 63 1920 • 76 Total (five years): ___"_ ■ : ___!_____ 231 The cost of applying an automatic stoker to a locomotive amounts to about $2,500. That is a capital charge, too. Senator Stanley. Does that do away with any labor? You have to have a fireman just the same, do you hot? Mr. Byram:. Yes, sir; Wt it does do away with a great deal of labpr and makes it possible to maintain a uniform steam pressure on a large locomotive. The automatic stoker never gets tired on a long run, while a fireman does, and he is not as efficient on the latter part of the run. The automatic stoker makes 'it possible to get a greater amount of work out of a locomotive without overworking the fireman. It is being adopted now on all large locomotives. I do not suppose there are any new locomotives now being built of the large type that have not an automatic stoker on them. As to freight cars: Freight cars are constantly being retired on account of decay and obsolescence. The cars retired usually are of small capacity and are replaced with modern steel-frame cars of large capacity. The following figures show the freight cars retired and also new cars purchased by this company during the five years in question : Year. 1916 1917. 1918, 1919 Freight cars retired. Freight ears purchased. "'••' ' 1/490 2,342 5,303 ' ' 2,880 2 , 573 2,113 1,759 2,704 Year. 1920. Total (5 years). Freight cars retired. Digitized by Microsoft® 3,569 15.584 Freight cars purchased. 4,008 13,157 430 RAILROAD REVENUES AND EXPENSES. The following figure's show that although 2,427 more freight Cars were retired than replaced the total capacity of all cars has in- creased, and the average capacity per car has increased from 35.17 to 39.10 tons: Year. Total capacity of freight cars (tons). Average capacity per freight car (tons). Year. Total capacity of freight cars (tons). Average capacity perfeight car (tons). Dec. 31: 1916...... :. 2, 188, 596 2, 284, 170 2,298,975 35.17 36.83 37.76 Deo. 31— Continued. 1919 2,092,015 2,391,675 34.45- 1917 1920. 39. 10' The Chairman. Was the cost of these cars chargedi to capital account? ; • ; Mr. Byram. Yes, sk. 4 n d I might add that of 100,00(h cars built by the Federal Railroad Administration we bought 4,000. The Chairman. But no part of that cost goes into operating {ex- penses? , : L Mr. Byram. No, sir ; no part at all. It is all capital expendi* tures. ; Senator Pomerene. What did you pay for those 4,000 cars you got from the Federal Railroad Administration? Mr. Byram. We have not got it figured out exactly yet. We agreed to pay a maximum of $3,050 apiece, and it looks as though they were going to cost between $2,700 and $2,800 apiece. Senator Pomerene. Do you build any cars yourself ? Mr. Byram. No, sir. Senator Pomerene. How dpes that price compare with prevailing prices at the present time ? Mr. Byram. Well, there are hot any accurate figures on prevail- ing prices at this time, because nobody is buying any cars now. There have not been any actual transactions made that I know of;, but I should think we ought to be able to buy these cars at some- where around $2,000 apiece now. The Chairman. Those are the cars that you took from the Gov- ernment ? Mr. Byram. Yes, sir. The Chairman. Under your contract with the Government or as claimed by the Government? Mr. Byram. I beg pardon? The Chairman. The Government bought those cars and claimed you were under obligation to take them, did it not, or did it? Mr. Byram. Well, we did not need any pressure to get us to take them. We needed cars, and that was the only opportunity we had to get them. The Chairman. I mean as to price. Mr. Byram. They were supposed to be sold to us at what they cost the Government. But the Government did not know then, and does not know yet, exactly what they did cost. There are some factors that have not been determined. But we had a maximum price which we did agree to pay of $3,050 per car. Senator PomeRene. What do you mean by "undetermined fac- tors"? Digitized by Microsoft® EAILKOAD REVENUES AND EXPENSES, 431 Mx. Bykam. Some overhead factors; of the builders of the cars that have. not been ■worked ,out as yet. , Mr. Thom. There has not been a final settlement between the Gov- ernment and the car builders yet. . Senator Pomerene. Does that mean that those cars were not built at a contract price? Mr. Byram. I, think they were not. . . Senator Pomerene. Was it on the cost-plus plan ? Mr. Btsam. Well, not exactly on the cost-plus plan. There was a limited profit, I think, ajipwed to the builders by the, Government; that is, they were to do the work at cost plusj but with some limitation as to the amount of the profit they were to make, as to the overhead they were to charge, and so on. Senator Pomerene. What was that limit ? Mr. Byram. I do not know. I am only telling you what I have understood. I .have not seen the contract; That was made by the Government and the car builders and we did not see that contract. In addition to the new freight cars purchased more than 5,000 cars were, overhauled during 1919 and 1920, and improved draft mem- bers, roofs, ends, etc., were applied at an average expense of approxi- mately $1,000 per car, or a total of $5,000,000. This was done to bring this equipment up to traffic requirements, reduce the mainte- nance, post, and eliminate, so far as possible, the days lost on repair tracks and loss and damage to lading. Senator Pomerene. What do you mean by the words "improved draft members " ? Mr. Byram. That is the drawbar and its attachments. Even with so large an expense for this heavy work, the benefits were immediate, as the' 1920 repair charges were less than those for 1919, reflecting the improved condition of the freight equipment caused by retiring old cars of small capacity and replacing them with new cars of greater capacity and the rebuilding and strengthening of cars suitable for such improvements. You were asking about the cost of cars. To show the increase in the cost of cars, I will say that before the war we used to buy a steel- frame box car very similar to the cars the Government bought for us for $1,000 or less. Using that as a comparison, it will give you an illustration of the increase in cost of new cars now. Senator Pomerene, Did you say $1,000 per car or less was the cost then? Mr. Byram. Yes, sir. Senator Pomerene. And was it the same kind of car that you got from the Government ? Mr. Byram. Yes, sir. Senator Pomerene. For which you thought the cost would be about $2,700? Mr. Byram. Yes, sir. Senator Pomerene. And now that car can be bought, you think, for about $2,000? Mr. Byram. I think so; yes, sir. Of course, the price has de- creased since the war, as in the case of other things, but is still very much higher than the cost before the war. Senator Stanley. Is that decrease due to a reduction in the price of steel? Digitized by Microsoft® 432 BAILEOAD REVENUES AND EXPENSES. Mr. Btram. Yes, sir ; and other material. And to further show you the effect of that situation, we used to get money for 4£ percent, and at that time the money with which to buy a $1,000 car cost us $45 a year in the way of interest. Now, at $2,500 per car and interest of 8 per cent, the cost is fire or six times as much for interest alone to own a car than was the case before the war. Senator Pomerene, Have you secured any loan of money re- cently ? Mr. Btram. Not from the public. All such money as we haye borrowed has been gotten 1 from the loan fund. Senator Pomerene. What loan fund? Mr. Btram. From the revolving fund under control of the Inter- state Commerce Commission. Senator Pomerene. Are you paying 8 per cent for that money? Mr. Btram. No ; 6 per cent. Senator Pomerene. Why are you making comparisons on an 8 per cent basis then ? Mr. Btram. Because if we had to go into the public market to get money with which to buy cars that money would cost us around 1\ or 8 per cent. Senator Kellogg. The Pennsylvania Railroad paid 7$ per cent for its large loan? •■■.>■><<; Mr. Btram. Yes, sir. That is an indication of the very materially increased burden on the railroad in order to own equipment. When vou reflect that 10,000, 15,000; or 20,000 cars may involve sums run- ning into $25,000,000 to $50,000,000, with an interest charge of double' what it was before the war, you will see what it means. The cost is pyramided by the fact that the car cost a great deal more and the money cost a great deal more. Senator Pomerene. Can not you get 4 per cent money now ? Mr. Btram. Not now ; no, sir. As to financial results. I have now gone over in what I fear may be wearisome detail all the various tests of efficiency which are' usually applied to management of railroads except one, and have shown by the operations of this railroad that it meets successfully every one of these tests except the one I have so far omitted. The omitted test is the test of net financial results. It is obvious from our reports and from the foregoing statement that the net financial results of our operations have been most disappointing. As the operations of the road have measured up to the usual tests of effi- ciency, it is a great disappointment to find that this efficiency of man- agement has not been reflected in satisfactory financial results, and the facts, I submit, fully justify us in seeking the cause in forces beyond our control. It is not far to seek. We find it in the expense account, which is, to a very large extent, determined by the Govern- ment and not by the company and to a substantial extent also by economic conditions fixing the prices of materials and supplies, and thus also beyond the control of the company. The railroad problem is, in my opinion, comparatively simple, and its solution is not difficult, or at least would not be, if it, were possible to apply ordinary business methods to its solution. But, unlike other businesses, a railroad can not shut up shop when' business is bad, and there are certain fixed expenditures for main- Digitized by Microsoft® RAILROAD REVENUES AND EXPENSES. 433 tenance and operation which can not be reduced to correspond with the decreased traffic, as well as various other needs of the public which must be served whether at a loss or not. The railroad business differs from other businesses in three re- spects — 1. Its operations are measured by its duties to the public instead of the commercial demand for its product — transportation. 2. The price at which its transportation is to be sold is controlled by an agency of the Government, State, or Federal. 3. The wages of its employees are fixed by another branch of the Government. At the present time it is costing the railroads more to produce transportation than they can sell it for. Therefore, we must either increase the selling price or reduce the cost. It is obviously impos- sible at this time to increase the selling price of transportation above the present general level ; therefore, we must reduce the cost. There are two ways of doing this — one is to increase efficiency and the other is to reduce expenses. It has been shown by various statistics presented here that while there is always room for improvement the railroads of this country are functioning effectively and efficiently. Immense opportunity is available for further increasing economy of operation by large in- vestments in reducing grades, putting in double track, improving and increasing terminal facilities, adding additional cars and loco- motives, modernizing and improving existing equipment, installa- tion of automatic signals and safety devices, enlarging shops and engine houses, purchase of new and improved shop tools and ma- chinery, and in many other ways, all of which require the investment of immense sums of new capital, which can not be obtained unless the net earnings of the railroads are such as to satisfy investors that such investments in railroad securities would be safe and productive. At the present time, because of the disappearing net earnings of the railroads generally, money for improvements can not be bor- rowed except at rates considerably above the rate permitted by the transportation act to be earned on the value of the improvement. Therefore it would seem that the need of the immediate situation requires a reduction in operating costs, and that fuel and labor, which absorb 80 per cent of the total operating costs, should bear the larger portion of the reduction. Fuel and other supplies are already coming down, and the United States Eailroad Labor Board has announced that in the near future it will order an adjustment of wages downward. These two fea- tures of the situation are encouraging, and with the return of the normal volume of traffic of the country the financial condition of the railroads should be materially improved, depending largely upon the extent of reduction made by the Labor Board in the war-time wages of railroad employees. As to freight rates, much has been said recently about reducing freight rates, and the prevailing impression seems to be that they are °-enerally too high ; but when it is considered that the average gross earnings of the railroads of the United States as a whole for haulin"- a ton of freight 1 mile since September, 1920, when the last raise in freight rates took effect, has been only 1.217 cents per 63553 _2i-voi i-j^erf by Microsoft ® 434 RAILROAD REVENUES AND EXPENSES. ton per mile, it will be seen that freight transportation probably is the cheapest commodity in the country, notwithstanding the large shrinkage which has taken place in other commodities. In no other business activity can so much service be had for such a small outlay.' Consider the impossibility of hauling a ton of coal or brick or lumber 1 mile in a wagon or auto truck over high- ways maintained by the State for a little more than 1 cent. This is what the railroads are doing, and maintaining their own highways besides. But the vast volume of traffic, the large units in which it is carried, and the immense distances it is transported in this great country have caused many of our citizens to lose sight of the astonishingly low price which the railroads receive for their freight service when reduced to the unit of moving a ton of freight 1 mile instead of the usual figures of billions of ton miles and mil- lions of dollars. Since the earnings of the railroads of the country on the present rate basis are inadequate to meet their requirements it is obvious that, no general reduction in rates can be considered until the cost of operation can be reduced sufficiently to assure the railroads at least the net return authorized by the transportation act. Senator Pomerene. I note that in discussing the question of freight rates you deal in generalities alone. I wish you would go somewhat more into the question as to the effect of the reclassifica- tion, of traffic which was made and the effect of this increase on that reclassification. And then tell us whether or not there should not be some special reductions, and when I say " special reductions " I mean substantial reductions in some of the commodity freight rates. You refer in your statement, for instance, to brick ; and I take it that building material may he in substantially the same class. I would like to have your views on that matter ? Mr. Byram. Well, there was not any reclassification made when the last advance was made, on which the present complaint seems to be based, and that was the advance put into effect last September. Senator Pomerene. There was a reclassification, however r by the Director General's office? . Mr. Byram. Yes. Senator Pomerene. And, of , course, those horizontal increases very materially affected the freight rates as compared to what they were before the reclassification was made. Mr. Byram. Yes. As- 1 remember it the effect of reclassifying the particular commodities you speak of — sand, gravel, and brick, but particularly sand and gravel — was to add a flat rate per hundred pounds to the rate and not a percentage. I think the reason for it was that it was believed the rates then were too low for that com- modity, less than it was entitled to pay. But I might add that I did not have anything to do with arriving at that conclusion, and therefore I could not say what the reason was. I think though you are right in saying that there was an advance on some commodities greater than on many other commodi- ties, but it was done during Federal control and handled in Wash- ington, and I do not know what reason led to the conclusion reached. Senator Pomerene. Are you saying that in defense of what the Government did or giving it as an excuse for present conditions? Digitized by Microsoft® RAILROAD REVENUES AND EXPENSES. 435 Mr. Byram. Neither one. I am not making any comment on it, because I do not feel qualified to make any comment on it, and I say that for the reason that I do not know enough about it. Senator Pomerene. Tell me what, in your judgment, ought to be done about that matter? y' Mr. Byram. I think some rates on those particular commqdities are not too high now for the service performed, especially around these big terminals, where the most of them are used and where we move them for 25 or 30 or 50 miles into a terminal like Chicago, say, and then switch them around such an expensive terminal for 25 miles or more, over several railroads, and get them on th6 team track ? where they are to be used. The expense of <$ie terminal service is very much greater than any lower rate would justify. The most of the material of this character is used •in building construction and usually in large places, where it costs a large part of the rate in doing the switching service after you get the commodities to their destination. The Chairman. Senator Stanley, any questions ? Senator Stanley. I believe not. The Chairman. Senator Myers, any questions? Senator Myers. I think not. The Chairman. Senator Poindexter, have you any questions I Senator Poindexter. Mr. Byram, you mentioned Mr. Lauck's statement. A great deal of publicity was given to Mr. Lauck's statement made before the Labor Board to the effect that the rail- roads were wastefully and extravagantly and inefficiently managed, and consequently undue burdens were imposed on the public. What have you to say about his statement in general ? Mr. Byram. I think it is incorrect. I have tried to show in a good deal of detail in my statement what we are doing on our particular railroad to accomplish exactly what it was said there we should ac- complish. And I believe that we are not any more active than other railroads are in the same direction. Senator Poindexter. What is the state of business on your railroad at the present time as to earnings and profits ? Mr. Byram. We are running behind ; we are not making operating expenses and taxes. Senator Pomerene. You are not doing what ? Mr. Byram. We are hot earning our operating expenses and taxes at the present time, and have not been doing, so since the 1st ' of January. I think we are about $4,000,000 behind. Senator Poindexter. How does the volume of business to-day com- : pare with that of about a year ago ? Mr. Byram. It is about 50 per cent less. Senator Poindexter. That is all. The Chairman. It is 50 per cent less in what period?^ Mr. Byram. We will say that these first three months* as compared with last year the falling off in business is about 50 per cent. Senator Poindexter. What I had in mind was the business at the present moment compared with the business of a year ago? Mr. Byram. Yes ; that is the answer to that question. The Chairman. Senator Kellogg, any questions ? Senator Kellogg. I notice that the railroads in your district, called the North Pacific lines, have perhaps suffered a larger decrease Digitized by Microsoft® 436 RAILROAD REVENUES AND EXPENSES. since January 1 in their tonnage* than is general throughout the country. Is that so? Mr. Btram. Yes ; I think that is so. Senator Kellogg. Is that due to some extent to an apparent cessa- tion in the buying of lumber? Mr. Btram. That is the larger part of it. The lumber business constitutes a large part of the traffic from that .territory. Senator Kellogg. Is it partly due to the crop failure in Montana ? Mr. Btram. Yes. , Senator Kellogg. And to a cessation in the production of copper ? Mr. Btram. Yes'. The activities around Butte and Anaconda, where the most of the copper production is, are almost at a standstill, and have been for several months. Senator Kellogg. Those conditions you think are somewhat tem- porary ? Mr. Btkam. Oh, yes. Senator Kellogg. Are they beginning to improve at the present time ? Mr. Btkam. There is no increase in the copper industry ; that has not started. There is a little improvement in the loading of lumber. Whether that is seasonal — and I imagine it is seasonal, because springtime is when the demand for most of the lumber begins — I say, whether that is a seasonal demand or it will continue to improve we are not certain about at this time. Senator Kellogg. I noticed that the copper interests got together and raised $40,000,000 to see if they could sell some copper abroad. They have not sold it, have they ? Mr. Btkam. I have not heard of it if they have. They still have it out there, anyway. Senator Kellogg. I so understood. I noticed, the other day in the newspaper that the transcontinental lines were considering a reduc- tion of transcontinental rates to meet the Panama Canal competition. Do you know anything about that ? Mr. Btkam. No, sir ; I do not. My first information about it was in the papers. I have been away from home for 10 days and prob- ably have missed that. Senator Kellogg. The canal competition in the last year has been growing very rapidly, has it not ? Mr. Btkam. Yes, sir. Senator Kellogg. The tonnage handled through the canal has been growing rapidly? Mr. Btram. Yes, sir ; and the increased number of ships available for any kind of water traffic has greatly increased the competition by way of the canal from .Pacific-coast points, and at almost any rate. Senator Kellogg. You said the present rate per ton per mile was about 1.23 cents, did you not? Mr. Btram. 1.21 cents. Senator Kellogg. Yes ; 1.21 cents per ton per mile. Mr. Btram. Yes, sir. Senator Kellogg. That would be practically the present rate per ton per mile on all railroads of the United States, under the present rates; would it not ? Mr. Btram. Yes, sir; that is figured on the earnings that have been made since the new rates took effect. Digitized by Microsoft® Digitized by Microsoft® 437a railroad revenues and expenses. Receipts per ton-mile and receipts per passenger-mile, years 1882 to 1920, inclusive. Year ended June 30— 18821 1883 1 18841 18851 18871.. 1889. 1890. 1891. 1894. 1895. 1900 1901 1902 1903 1904 1905. :.... 1906 1907 1908 1909 1910 1911 1912 1913 1914 1915 1916 Year ended Dec. 31— 1916 1917 1918 1919 1920 Receipts per ton- mile. All roads Class I roads. Receipts perpassen- f»er-mile r All roads. Cents. 2.514 2.422 2.356 2.198 2.181 2.276 2.349 2.165 2.167 2.142 2.126 2.108 1.986 2.040 2.019 2.022 1.973 1.925 2.003 2.013 1.986 2.006 2.006 1.962 2.003 2.014 1.937 1.928 1.938 1.974 1.987 (?) h (.') (?) Class I roads. Cents. ( ! ) (?) (?) I') h (») (•) & TO TO TO (?) s to Deficit. (Sovirce: Annual reports of the Chicago, Milwaukee* St. Paul Railway Co. to the Interstate Commerce Commission. Data for years 1918 and 1919 are for Federal operation.) i 6dbeau of Railway Economics, Washington, D. ft, May US, 19S1: Digitized by Microsoft® BAILBOAD SEVENTIES, AND EXPENSES. 439b 4 I I S € 13 CO S a 3 s I S $ onhmanBh ■*,h osr-tNcq© <>i t- cc to iri o> *o c-i gss-a* isasss CO^i-HC >r» corn WH t-r-ooi-i'^coco' od tJ gj 3; os oo os w oooo>noo»* t~ «S OS t- CO i-H i-H ■* ** i-H i-h CO .-I Soe co os >n m iq ~< 0»NHOf-00N c> t— eo ao'A eo m -^ _i rH CO i-i 00 to M ■* LOOOQO «e<3HNOit90 mTuftfJ'kffeo'^rt^ i-Hp Hrt co* ss £§ CON ONfflS od irit-5 e-i i—S r-^ oi 58 togs os *oow osotocn coioco 00 OS CO 00 co to CO OSOi WW«DiftH S" 00 CO t^ 00 OS ■* NNO'Ortffl pJONHNCO® ■ cTuf t-Tr>r>J'eC o? ^J 0)00 oo *o co as CD CD OS OO CO* OS 00 OIONHHQN ■* OS CN CO O CO 00 o'eS'ui'oi'ao'aS'us assays™ *2 CM t- O "* t--OS tj* m r- oC' co •-< <-< (©"gTuf'^rio'orco' OO) f 0C IQ lO 'O r-COi-HH r-t_, COCO? I>OSO CO Wtf r-eoiH OOH -Tor-*" oso-^v ■II s 111 bO > * to I III | StfP lai o -re Srtja frS.8 PI M 3* 43 O 03 t* 07*0 So P' to h£ ■* «o ga t- *n co co OS Q tN ^ "* eo t- to 56 co i-t .h osffio^ooo r« CO i-H 00 IT— CO OS CO IN iO eNOSiH OCt^rH CO SO to OS SO 388 coVi> kSVT HflJ'i rs os ^ 00 CM ?cooo t-t- 3 COCO ■#Ost- 00 CD S3 t-tO cocT J CD OS 5r-»o 5'O rt oosco iOtO,_ ■a in" ©CSi-H tNoor- sis of §» fl^ o r aci o S^ X fi S-S ^ ""'S rt.S *fc o & - origin to final desti- nation is protected. '"' , ' This arrangement permits the millers at intermediate points to purchase grain, stop it at their mills, grind it, and ship the product thereof not on the suni of the rates in and the 1 rates out but on the through rate from point of origin of the grain to' the ultimate desti- nation of the product, provided this transaction takes place within one year following the date of the initial movement. This is a very valuable privilege in marketing grain, and although the rates were advanced on August 26, 1920, these advances have not been applied on any grain which was in transit prior to that date. It can be safely said that there is no other commodity transported on which the rail carriers afford greater privileges or perform more service under the through rate. _ No other commodity requires so much care by the carriers in providing what may 1 be called a perfect car for the prevention of losses in transit, and even with the utmost care heavy losses inevitably result. It may be added here that farm products Digitized by Microsoft® RAILROAD SEVENTIES AND EXPENSES. 461 generally have (always been the special care of the carriers, as the; movement of such commodities means so much to them. < The average haul and the average charge per hundred for the country as a whole are as follows : , , Average haul. , Avoragerate. Vii :-,<■"' .!..■•■■ ■; ■ Grain, miles. Flour, ' miles. i Grain per 100 pounds. Flour per 100 pounds. 498 630 Ctnlt: ' 24. ,8 Cents. 29.25 Senator Fernald. Per hundred? Mr. Chambers. Per hundred. That table shows a freight rate of 15 cents per bushel on wheat. The movement in tons of grain and grain products for each quarter of 1920, during the last of which quarters the higher rates were in effect, was as follows : Grain and grain products: First quarter, 18,425,211 tons; second quarter, j 14,284,051 tons; third quarter, 19,251,813 tons; and fourth quarter, 18,043,760 tons. Senator Pdmerene. Now, is there any special reason for that great falling off in the second quarter, or is ;thart usual? The Chairman. That is seasonal. Senator Pomeeene. There is very little difference between the first, third, and fourth quarters, but a substantial difference in the second quarter. Senator Poindexter. What year is that? Senator Pomeeene. 1920. Mr. Chambers. The second quarter ends about the shipments of grain for the season. Senator Kellogg. Are those quarters of the calendar year ? Mr. Chambers. Quarters for the calendar year ; yes, sir. Senator Kellogg. That is, April, May, and June, the second quar- ter, would be the lightest shipment 'of any of the grain products ? Mr. Chambers. Yes.;' that is the end of the grain year. Senator Pomerene. So that that falling off is usual, is it; it is not exceptional in this particular year? That is what I am trying to "get at. Mr. Chambers. I would sky not. The exports and imports of wheat in bushels for three years, ending with 1920, during the last quarter of 1920 the higher rate being in effect, were as follows: 1918 1919 1920 Exports. Imports. Bushels. 111,177,103 17,035,986 Bushels. 148,086,479 7,910,701 Bushels. 218,280,231 35,848,648- Senator KellogcJ. Mr. Chambers, so far as the exports were con- cerned, they were, bf course, free and unaffected. But so far as the' imports were concerned in 1918 and in 1919 they were practically prohibited on account of a law of the British Government's order* Digitized by Microsoft® 462 RAILROAD REVENUES AND EXPENSES. in council as to the use of Canadian grain in Great Britain, so that the imports for those years were largely shipments through the United States, were they not; but in 1920, when these duties were all taken off and when the orders were changed, Canadian grain came in here in the last quarter of 1920 very rapidly ? Mr. Chambers, Yes ; I understand that to be the case. I think it was largely used by the United States millers. Senator Kellogg. Yes. Senator Pomerene. And shipped abroad, was it ? Mr. Chambers. The flour? Senator Pomerene. Yes. Mr. Chambers. It was made into flour. Senator Pomerene. But the flour was shipped abroad ? Senator Kellogg. Oh, yes. Mr. Chambers. Very likely. . Senator Kellogg. The surplus oi it. Comparing December, 1919, with December,, 1920, the exports and imports of wheat were as follows : Exports.. Imports. . 1919 Bushels. 9,519,706 309, 182 1920 Bushels. 25,896,270 11,275,104 The average fluctuation weekly in the price of wheat at Chicago in 1919 and 1920 was nearly 10 cents per hundred. The monthly and yearly fluctuations in price of grains, of course, amounts to many times the increase in freight rates. As I remarked first in dealing with the subject of grain, all irregu- larities of recognized rate relation have been worked out by. the carriers to the satisfaction of shippers; and the experience shows that the thing to do is to leave any remaining adjustments to be worked out by the cooperation of the carriers, the shippers," and, the Interstate Commerce Commission. My consideration of the grain subject convinces me that the freight rate has not impeded the movement of grain. Fruits and vegetables : The markets of the common vegetables, such as potatoes, onions, and cabbage, are well established and the distribution usually follows normal and well understood trade chan- nels. Potatoes, onions, and eabbage make up the greater portion of the total vegetable; tonnage of tbe country and are produced every- where. The Government market reports show all markets well stocked with these vegetables and at times overstocked. Potatoes, onions, and cabbage carry the lower vegetable rates. This, traffic shows a substantial increase in movement over last season under the higrher freight rates this season. The winter producing sections for higher class vegetables are Florida, California, and Texas. These sections go to markets largely east of the Mississippi River and north of the Ohio. The extreme eastern markets of New York, Boston, and Philadelphia take a very considerable part of these vegetables. California and Florida, for example, ship celery, cauliftower, asparagus, and lettuce to all the Digitized by Microsoft® BAILEOAD REVENUES AND EXPENSES. - 463 large markets in the Middle West and Eastern territory. These high grade vegetables require the very highest class of service. The movement shows about the same average of increase as in the case of the lower class of vegetables. These vegetable shippers have com- plained to the carriers and the Interstate Commerce Commission that the rates applied are excessive. The Commission has given some informal consideration to the complaint. The carriers also have held conferences with the shippers and the matter is now under consideration for final disposition. Florida and California citrus fruit shippers have complained to the carriers and the Interstate Commerce Commission that prices received at destinations are not equal to cost, of production and cost of transportation combined. The interested carriers have had several conferences with the citrus fruit shippers in regard to the volume of the rate now charged, but as yet. no definite action has been taken. The Interstate Commerce Commission, however, has lately instituted a very far-reaching informal investigation of the conditions in the citrus-fruit, deciduous-fruit, and vegetable industry of the entire Pacific coast, which is welcomed by the carriers and which will elicit facts upon which final disposition will be made. The commission has already given informal consideration to the rates on fruits and vege- tables out of Texas and Florida. The following, taken from the rec- ords of the United States Bureau of Markets, shows the movement of fruits and vegetables from the three winter producing sections (California, Florida, and Texas) for the months October, 1920, to March, 1921, inclusive, as compared with the same period 1919-20. I will say that October is the beginning of the year, for the winter fruits and vegetables, either October 1 or November 1. First I will take California. The number of carloads of lemons, 1920-21, was 2,700; for 1919-20, 2,429 carloads. Oranges and grape- fruits, 1920-21, 12,269 carloads; for 1919-20, 12,650 carloads. De- ciduous fruits, 1920-21, 11,886 carloads; 1919-20. . 10,252 carloads. Vegetables, 1920-21, 22,190 carloads ; 1919-20, 19,630 carloads. The total number of carloads from California in the period 1920-21 was 49,045. The total number during the period 1919-20 was 44,961 carloads. The number of carloads of oranges and grapefruits from Florida during 1920-21 was 22,364; during 1919*20, 18,195 carloads. Vege- tables from Florida, 1920-21, 9,020 carloads; 1919-20, 9,954 carloads. The total number of carloads from Florida, 1920-21, was 31.384; 1919-20- the total was 28,149. From Texas the number of carloads of vegetables during 1920-21 was 4,029 ; during 1919-20, 3,815 carloads. All of the foregoing movement in 1920-21 was under the advanced rates. The Chairman. Mr. Chambers, that deserves a moment's consid- eration, to sum it up. In the latter period, which is the period of higher rates, there moved from California 4^000 carloads more than in the former period. Mr. Chambers. That is correct. The Chairman. And from Florida there moved in the latter period about 3,000 cars more than in the former period. Mr. Chambers. That is correct. Digitized by Microsoft® 464 - RAILROAD REVENUES- AND' EXPENSES. The Chairman. And from Texas {here moved about 200 cars 'More in the latter period than in the former? .. Mr. Chambers, Yes, sir. The Chairman. That is rather contrary to our understanding that the markets have riot been supplied with these fruits and vegetables during the period of higher rates. " . Mr. Chambers. The markets have been fully supplied ever since the season opened, according to my information. My contract with the situation convinces me of that. Mr. Thom. The movement has been greater, on the average, under the higher rate than tinder the lower. The Chairman. It may be that the larger supply that is indicated by the movement will account for the lower price. I do not know. I simply wanted to call attention to that, because there is a very gen- eral inisapprehension with regard to the movement of these fruits and vegetables duringthe period of high freight rate. Senator Stanley. Well, has that kept Up during this period ? Mr. Chambers. The production of vegetables in the winter season has been greater during this season of 1920-1921 than it has been pre- viously. '•/'■'■ Senator Fernald. In making your statement,' Mr. Chambers, you stated that the carriers hadwelcomed this investigation that had been going on as to these rates by the Interstate Commerce Commission. Would the carriers welcome a reduction' in rates? Mr. Chambers. They would not. Senator Fernald. So the whole question hinges upon the revenue that you are to receive. That is the real fact in the case; that in order to make a lower rate; or in order that a lower rate would be welcomed by the carriers, you must have an increase in your revenue, and there is not much use td talk about lowering the rates until there is a change in conditions, is there? Mr. Chambers. I agree fully with you about that. But here is the situation with respect to the fruits and vegetables. These producers come to us and say, " Our product is ready for market. It has got to go or else it will rot on the ground, and no matter what your freight rate is. we have got to get something out of it." They say, "We are not receiving in the markets enough to pay the actual '-cost, combined with the freight rate. And that, therefore, the rates are unduly bur- densome, arid if continued*, are going to set our industries back, stop the planting in other years for the future." Now, a very considerable amount of lemons are moving f rOm the Pacific coast points via the water route, now, and some oranges are moving via the water route. They are trying to figure but a service that will carry safely both lemons and oranges. Now, we are up against that situation looking to the future. ••.. Senator Fernald. It is a consummatiori devoutely to be wished for, and I agree with you absolutely, Mr. Chambers, and it is very necessary that .these rates be lowered. Mr. Chambers. Now, here is the siutation in regard to these fruits and vegetables. The shipper comes- in and he presents his ' situation to us and says, "Here is what it is costing me," and the railroad traffic man is up against, deciding what is' to be done in that" case. Now, of course, we do not want to see those industries go back in Digitized by Microsoft® BAILBOAD SEVENTIES AND EXPENSES. 466 California or in Florida. We do not want the acreage to be reduced. We want rather to encourage it. , And, of course, if the situation is as bad as they say, why something may be done. ?,-. Senator Fernald. It may he done when conditions are changed so that it can be done. Mr. Chambers. The way we approach it is this, Senator. Are those fruit and vegetable shippers bearing any more than they should reasonably bear in the readjustment that is taking place in all lines of business ? Now, if they are getting cost, if they are not losing any money, then we should not reduce these rates. If they are not get- ting their cost, and as a result thereof are likely to neglect their orchards to the point where they will go back, why then some consid-. eration should be given to their application. Senator Pomerene. Do. you share the opinion that was expressed by, I think, Mr. Kruttschnitt here, that the difficulty from the stand- point of the producers was rather ( with the wolesalers and commission merchants and the retail merchants in cutting down the prices which they paid, and on the other hand, adding to the prices which the con- sumers must pay, than will the transportation rates? Mr. Chambers. I think the trouble about the high prices in the fruits and. vegetables to the consumers is with the retailer, That is my experience. . -. ■,-,•■. * Senator Pomerene. Well, then, what explanation have you to make of these cases — I think they may perhaps be called isolated cases — which have been presented of shipments from Florida to the northern markets in which the shipper practically received nothing ■after the freight rates were, paid? What explanation have you to make of that, Mr. Chambers ? Mr. Chambers. Well, Senator, you can realize how that will hap- pen under any system of rates. When they overstock these markets, offering more on the market than the market will take, why of course down will come the price, and some one is going to be left with his shipment not gold at the end of the day, or at the. end of two or three days. Senator Pomerene. Which, to some extent, justifies the movement in favor of better marketing Conditions. Mr., Chambers. Yes. ; Senator Pomerene. I think that is true, and I have= known of iso- lated cases for 25 or 30 years of the same kind, and thev had very little to do with the freight rates. I think that is so. But at the same time as to, Florida, those conditions do prevail. Mr. Chambers. Well, take these winter vegetables, Florida, Cali- fornia, and Texas all shipping to the same markets. Probably one set of shippers does not know, what the others are sending; they may be sending the same kind of products. So that when the ship- ments, from, all three of these territories arrive at the markets, whv. there will be more of these products than the markets will take for a day or maybe for a week, and oftentimes they have to put the products in cold storage in order to get something out of them. That is a, matter of common knowledge. There should be a better market- ing system. Senator Pomerene. Now, let me just ask another question for information here: Have your statisticians made a study covering a Digitized by Microsoft® 466 RAILROAD REVENUES AND EXPENSES. period of years of the ratio of transportation charges to these .sell* ing charges to the wholesaler or consignee, so as to give us the bene- fit of the comparisons between the price of the article' when it is sold, let us say, or delivered to the consignee, and these traffic rates for the several years? Mr. Chambers. I do not believe we have made up any such show- ing. We have some figures on the relation of the rates to commodity prices, but they do not go into all of the commodities. Senator Pomerene. Well, it occurred to me that that would have dome bearing or shed some light upon the question as to whether or not these rates influenced the sale. Mr. Thom. We have a table oh that, Senator. Senator Pomerene. Very well. Senator Fernald. Well, that is a matter over which the railroads could have no control, could they, Mr. Chambers? You are glad to take all the freight that is offered you, of any character, that can pay the freight charges on it; you are glad to take 1 car or 1^)00 cars? Mr. Chambers. Well, Senator, we are always after more business. Senator Fernald. That must be regulated at the other end, Out- side of any railroad control or management? Mr. Chambers. That is correct — that is, as to the marketing of it, and the volume going into the different markets. Senator Fernald. Yes. Mr. Chambers. Some of the producers' organizations have that pretty well in hand, but the fruit and vegetable situation is an open proposition. ■ l! Senator Fernald. That is entirely outside of any duty on the part of the railroad ? Mr. Chambers. Yes, sir. Senator Stanley. Mr. Chambers, you said awhile back, as I Un- derstood you, that the producers of winter fruits were selling them for less than the cost of production. Will it not be necessary for the producers of these winter vegetables to get a profit above the actual cost of production in order to keep them in business ? Mr. Chambers. Well, we have thought this way about it, that we are hardly getting our cost in handling the product, and that for this season say the producer should bear a share of the burdens that are bound to come in this readjustment period. Senator Stanlet. Well, if you are hauling fruit from Florida, which is a 1,200-mile haul, at approximately the cost of the service, how can you haul 3,000 miles, from the Pacific Coast, without an actual loss, at approximately the same figure? Mr. Chambers. Well, those rates have been related as they are to- day — except, of course, when the percentage increase changed that relation — for a good many years, and under normal conditions there is a fair profit in handling the fruit and vegetable business from California. And the rates from California are higher, of course, than the rates from Florida. Senator Stanley. Well, the rates you read here are approximately the same. There was a difference of probably 10 cents a hundred pounds, or may be 15 cents a hundred pounds. Mr. Chambers. No ; there is a greater difference than that. Senator Stanley. More than that? Digitized by Microsoft® RAILROAD REVENUES AND, EXPENSES. 467 Mr. Chambers. More than that. : Senator Stanley. My impression, from hearing the figures read, was that there was comparatively little difference in rate between the haul from some point in California to New York and, some shipping point in Florida to New York. Mr. Chambers. No ; the rates from California to New York on citrus fruit — that is, on oranges — is $1.92, and from Florida to New York it is $1.32. Senator Kellogg. Sixty cents difference. Mr. Chambers. Yes; a difference of 60 cents. That is it, if I remember right. Senator Stanley. And the haul from California to New York is about two and a half times as great as from Florida to New York. Mr. Chambers. Yes. Senator Stanley. The rate per ton-mile is about one-half from California what it is from Florida. Mr. Chambers. It is 1,172 miles from Florida and 3,069 miles from- California; Senator Stanley. Have you on that table, Mr. Chambers, the rate per ton-mile for the two hauls, from California and, from Florida '( Mr. Chambers. I have not. Senator Stanley. Well, the rate per ton-mile from California is less than half the rate from Florida. Mr. Chambers. Well, of course, the whole rate structure is made up in that way all over the country. You do not figure these com- modity rates on the mileage basis. Senator' Stanley. I know that. Mr. Chambers. Mileage is not controlling. You have got to fix a rate that will move the traffic. Senator Stanley. Well, I understand that all rates, to a greater or less extent, are fixed that way. For instance, the rates on the load of a blast furnace, on the coke and limestone and ore,' used to be based primarily on the cost at the furnace rather than on the cost of the service. For instance, if the blast furnace was near the ore fields, they would charge a lower rate on the ore in order to equalize the higher rate on coke or limestone, and if the blast furnace was nearer the coal mines the roads did the same thing in regard to the coke, so as to make the cost of loading those two furnaces the same without regard to the cost of the service. Now, I don't know whether it is feasible or not, but it strikes me that perhaps the roads are not called upon to exercise that discre- tion in keeping alive various businesses or keeping open various markets. That if a market is not accessible by virtue of its natural conditions, why, it would be just as well for the railroads not to reach it and to give the public the benefit of the economies incident to the shorter haul. Mr. Chambers. If any system of rates on that basis was in effect in the past, why it does not apply now. That is all done away with. There is no such basis for the rates to the furnaces now. Senator Stanley. I understand that. I understand that thor- oughly. I am not even making a suggestion. But it strikes me that here is where our trouble is: We have no legislative objective so far; at least, I do not see it exactly, and you are trying and we are try- Digitized by Microsoft® 468 RAILROAD REVENUES AND EXPENSES. ing to find some way to remedy this condition. The public is com- plaining of a freight rate that is too onerous for the businessito bear in many cases. The shippers are saying that the cost of trans- portation is absorbing all the legitimate profits of the business. The railroads are saying that the cost of operation is absorbing the legitimate profits of business.' Now, we are trying 'to find where we can secure some economy in the operation of the railroads, in labor costs, in transportation charges, etc., and I have been wonder- ing whether or not a departure along rthat line and a study by the railroads of the propriety of utilizing a shorter haul should not be made. In other words, if you find you can make a fair profit on a 1,100-mile haul for citrus fruits and deciduous fruits and winter vegetables from Texas and Florida to the New York market, it is not necessary that the railroads should haul at a loss from California to New York to prevent the New York market from utilizing water rates even for imported vegetables. It is very well to encourage the fruit grower of California, but he ought not to be encouraged to the point where the consumers of the United States shall pay an inordinate price for an essential food product. It is better that there should be less fruit raised in California, and that we all get the necessities of life at a more reasonable price. ■ ' : Mr. Chambers. Well, your suggestion would be toward a mileage basis of rates, and that, in my ; judgment, would never do. 1 You would set back the commercial activities of the whole country. Senator Stanley. Suppose you did. • -V ■ r Mr. Chambers. These long hauls going into the markets in com* petition with the short hauls certainly do not increase the price to the consumer, because that long-haul shipper must make the same price as the short-haul shipper in order to sell in the markets. Senator Stanley. Well, that' might or : might not be true., 'hit would depend on where you made your rate. If you get a compent satory rate for your service out of California, you are necessarily bound, as it strikes me, to get more than a compensatory rate for one- third the haul at the same price. I am speaking as a layman, how- ever ; I am not an expert on the cost of service. • > Mr. Chambers. Of course the volume has got a good deal to do with it, but; if you should shut California out of the New. York market on vegetables, say, why then you would not have as large a supply of vegetables for that market as you have got to-day. And would not that have a tendency to. increase the price ? Senator Stanley. In New; York? , ij Mr. Chambers. Yes. Do you not think that the more sources-, of supply you have competing in different markets, the better it is for the consumer in the way of price? >.• ■ •/> Senator Stanley. No ; I think if you would lower your rate out of Florida, if it is more than a compensatory rate, and out of Texas^ with the opportunities that New York has to get the same fruits from Italy and from Spain, that you would probably get cheaper fruits in New York, even though a California fruit grower did not reach it on account of the excessive overland haul. Mr. Chambers. Well, I think you, can probably recollect when Spain and France and other foreign countries supplied the entire raisin consumption of this country. Digitized by Microsoft® EAILEOAD REVENUES AND EXPENSES. 469 And also the prunes; those countries supplied the prunes for our country, and Italy and Sicily supplied the lemons. And they supplied various other fruits and food products. Those are now being produced in this country, and the foreign product is being driven out entirely. California supplies the entire United States ■with its raisins and prunes. Now, if you do not make a. rate that will bring those products into this thickly settled part of the United States, where will you get your supply from? From the foreign ■countries again. Senator Stanley. Well, do:you mean to state that the cost of pro*- duction of those products is greater in these foreign countries than it is in this country? < '< Mr. Chambers. No. .,:>,... Senator Stanley. They produce them more cheaply in these for- eign countries, as I understand. Mr. Chambers. Yes. : : Senator Stanley. We have to put a duty! on these products, and if we put a duty on them thej' will still come in at the same price; the fruit grower of Sicily and the fruit grower of Spain is bound to meet the market in the United States, and the cost of that fruit in New York is not fixed by the price of imported fruits, it is fixed by the cost of transportating it from California and from Florida, plus n fair profit to the producer ; that is what fixes the price there. Mr. Chambers. Well now, that combination has got to be used in meeting competition. Senator Stanley. No;. the foreign competition is bound to meet ■our combination. They fix' the price on those things. Mr. Chambers. I think it would be of more benefit to this country to have the producers of this country supply the entire consumption rather than foreign countries. It helps the railroads of the country and it helps the producers. Senator Stanley. Certainly, that is right, if we do not have to pass the hat around to the consumer. But the consumer is growing weary of making an eleemosynary institution out of every producer. It seems that every producer has the right to make the consumer pay him, either in freight rates or some other way, for more than he would get in a market based upon the fair cost for the service. Mr. Chambers. But if you should raise the rate from California •on raisins, for example, and either compel the California man to pay ■$1 a hundred more, say, or force him out of this eastern market en- tirely, do you not think the foreign producer would increase his price ? " ■ Senator Stanley. No ; I do not. Mr. Chambers. He would have no competition. He would have the markets for himself. The Chairman. I am afraid you are drifting into a discussion of the tariff. • Senator Stanley. I do not want to discuss the tariff in this hear- ing, but' what I was driving at is this, that I believe it is incumbent upon this investigation to ascertain whether the rate from Florida to New York is a fair rate, or whether the rate from California is a ^compensatory rate, because they are either hauling at a loss from Digitized by Microsoft® 470 EAILEOAD REVENUES AND EXPENSES, California, and in that event they are making it up somewhere else, or else they are hauling at a more than compensatory rate from Florida and Texas. . . * The Chairman. Of course that is a pretty serious question. Senator Stanley. That is what we want to drive at. I do not want to interject the tariff into the discussion, but I believe it is incum- bent upon us to ascertain these things. The Chairman. The whole commodity-rate structure is made up upon the theory of allowing the producing regions to reach markets upon the same terms, without much regard to the distance of the pro- ducing regions from the market. '■/ Senator Stanley. Exactly, Mr. Chairman, and that is one thing', I believe, which this committee ought to investigate. . t _ . Senator , .Kellogg. Well, the Interstate Commerce Commission have been investigating it for 20 years. ;• Mr. Chambers. The Interstate Commerce Commission have .been investigating this, and the rates are based upon their investiga- tions. Senator Kellogg. And they state always and unequivocally < that you can not have a mileage rate, and it is the experience of business men and railroads that that is so. And occasionally a theorist comes along with a mileage rate, but nobody ever pays any attention to it. Senator Stanley. Well, I am not contending, Senator, for an arbi- trary or a flat mileage rate. There is a difference between a fair ad- justment between a long and a short haul, and a determination by the carrier to adjust his rates to the assumed needs of certain businesses without regard to the cost of the service. You can go too far the other way. Mr. Chambers. Senator, the Interstate Commerce Commission have passed upon the rates on citrus fruits from Florida and Cali- fornia to all of the territory in the United States several times. The Chairman. I think I goti into more trouble than I have ever had upon any one occasion, by asserting long ago that the creamery in New Hampshire should be able to get its butter to Boston cheaper than the creamery in Iowa. I never have got over that, quite. , Senator Poindexter. That is because you live in Iowa. The Chairman. That is because I live in Iowa. These commodity rates are very interesting subjects for study. Mr. Chambers. Well, they are never made without regard to the cost of the service. Senator Pombrene. Sometimes they give more regard, though, to the cost of service than they do at, other times. I referred} to the apples, etc., that come from Senator Poindexter's State to my State, and they pay more freight to my State than they do, when they go through to New York, and I would like you, Senator Poindexter, to settle that question. Senator Poindexter. Well, Mr. Chambers has already declared against discrimination, and wants to give them all an equal chance. I am in favor of that. Mr. Chambers. The yield of apples in Washington, Oregon, and Idaho, the three large producing territories for western apples, amounted to the following : Digitized by Microsoft® RAILROAD REVENUES AND EXPENSES. 471 In 1920, in the State of Washington, 3,623,000 barrels. In 1919, 6,817,000 barrels. ; . In the State of Oregon, in 1920, 800,000 barrels. In 1919, 1,357,000 In the State of Idaho, in 1920, 781,000 barrels. In 1919, 1,058,000 barrels. Mr. Thgm. That is the year. Senator Kellogg. Is that the yield for the year ? Mr. Chambers. The yield for the year. Senator Kellogg. The whole year, the calendar year ? Mr. Chambers. Yes, sir. Senator Stanley. That is based on barrels ? Mr. Chambers. Yes. Senator Stanley. Now, most of those apples,' howeyer, are packed in boxes, are they not ? ' Mr. Chambers. Well, they rate them on the basis of a barrel. Senator Stanley. That is just the measure? Mr. Chambers. Yes. Senator Kellogg. Well, why were the statistics made up on the other fruits and vegetables on the basis of from October to March for each year, and apples not made up on the same basis ? Mr. Thom. This is the yield ; this is not the movement, Senator. Mr. Chambers. The yield of apples. Senator Kellogg. This is only the yield ? Mr. Chambers. Yes, Senator Stanley. That is the total yield, Mr. Chambers ? Mr. Chambers. Yes. Practically all of the apples from the Northwestern States de- scribed above have been marketed, with the exception of some small apples which can not find a ready sale in the East. , While it is true that the freight rate has considerably advanced, yet the advance in freight rates has not kept pace with the increase in the farm values of the apples, according to Government reports. Although the crop in the West in 192Q was much smaller than in 1919, the total production of commercial apples of the United States in 1920 was probably the largest ever known, or 36,272,000 barrels, compared with 26,223^000 barrels in 1,919. As most of the western apples must find their markets in the East, largely in the States where there is the greatest local production of apples, it will be seen that the western apples have been able to find a ready, market at good prices, notwithstanding the immense crop in the territory where they are marketed and the advance in freight rates. The movement in tons of fresh fruits and vegetables for each quarter of 1920, during the last of which quarters the higher rates were in effect, was as f ollpws : Fruits and! vegetables. Tone. First quarter 2, 301, 651 Second quarter >__^^_, _■ — : 2, 248, 547 Third quarter „ ^__„^_^1___^_^ _- 3, 553, 533 Fourth quarter— _1_1 — 4; 902, 455 Senator Kellqgg. Now, that, is a quarter of a calendar year ? Mr. Chambers. Yes, sir. Digitized by Microsoft® 472 RAILROAD REVENUES AND EXPENSES. . Senator Kellogg. Well, now, why do 'you not compare the months from October to March of 1920-21 with those of 1919-20; as you? did on the other fruits and vegetable®?; ;i •. •< • ■ --. r. vanced rates were in effect, were as follows: - : - ; Tons. First quarter -r- TT - 15. 766,002 Second Quarter — --' 25, 967, 45? Third quarter -ILL 30, 548, 043 Senator Pomerejste. Now, do you mean by this just what you did in other branches of this subject — commercial tonnage? , Mr. Chambers. Yes, sir. ; Senator Pomerene. That is, it does not include such gravel ,or crushed rock as each road would use on its own right of way? Mr, Chambersi., No, sir; it does not .include, any company ma- terials. Fourth quarter, 26,232,054 tons. The drayage charge at Washington for hauling sand, gravel, and crushed rock within the city limits is 50 cents per ton the first mile or less and 10 centg per ton for each additional quarter of a mile, the drayage charge for a mile and a half being as high as the freight rate for the average rail haul in the eastern district. Cement, brick, and plaster. These commodities move in large volume and generally for comparatively short distances. Manufac- turing plants are scattered throughout the whole country ; many are close to large consuming markets. There is a substantial movement now and has been right along. The movement in tons of cement, brick, lime, and plaster for each quarter of 1920, during the last of which quarters the higher rates were in effect, was as follows: Tons. First quarter --L, '--iLL-'.U.Jj 6, 517, 819 Second quarter .i___ __: L_t ^_'l_LLUi< .. 9, 119, 590 Third quarter : __.^ 10, 843, 710 Fourth quarter , _, 8, 242,, 843 Senator Poindexter. Do you attribute that falling off in the fourth quarter to the higher rates? ■. , Mr. Chambers. Well, the fourth quarter is always the lighter, quarter, because it takes in part of the winter, but undoubtedly con- ditions had something to do with the fourth quarter. The building was not so great. Senator Kellogg. We ought to get comparisons between the same time of year, the same season, in 1920 and 1919, in order to get at the accurate situation as to the effect of these rates on all of these com- modities where th ey a re greatly affected by seasonal movements. Mr. Chambers. Well, 1 would say that that was not very much affected in the fourth quarter, because December is always the low month, on account, of course, of the beginning of winter. This shows you the form in which the Interstate Commerce Commission ha/S made up these figures (exhibiting table), and 1920 is the first year, and we have to depend upon them for getting general statistics/ We can get them from the railroad records. . , / Mr. Thom. I understand the fact to be that never until 1920 did the Interstate Commerce Commission put these figures into quarters. In 1920 they have put these figures into quarters. The Chairman. Proceed. Digitized by Microsoft® RAILROAD REVENUES AND EXPENSES. 47$ Mr. Chambers. Live stock. Shippers have complained about the rates, particularly those on the long hauls on Range cattle from the southwestern ranges to the northwest pastures. At a recent confer- ence between the interstate Commerce Commission, live stock ship- pers, and, interested carriers, an understanding was reached to modify the rates upon these range cattle, and the agreement has been carried out and the reduced rates are now in effect. It was an emergency proposition, but by the cooperation of the Interstate Commerce Com- mission the rates were quickly made effective. The following are the average haul and the charge on live stock in the different sections : Average rate (per ton). Eastern district Southern district Western district The live-stock movement in tons for each quarter of 1920, during the last of which quarters the higher rates authorized by Ex parte 74 were in effect, was as follows; Cattle and calves, hogs, sheep &hd goats. Tons. First quarter 4, 189, 653 Second quarter _ 3, 859, 101 Third quarter _______________ :_' 3, 906, 899 Fourth quarter , 4, 612, 508 The Chairman. Well* Mr. Chambers, why is it that with the aver^ age haul substantially the, same the average rate in the western dis- trict is 5,9 cents a ton higher than in, the southern district? Mr. Chambers. That is the way the, sates run generally, Mr. Chairn,ah.i The rates in the South are higher than in the East. The Chairman. No ; the rates: in the West are higher than they are in the ■ South; ; ,^,, Mr. Chambers. The rates in the West are higher than they are in the South ; yes. The Chairman. Why should tha^ be \ ( :c Mr. Chambers. Well, of course, the South does not produce so much live stock. The Chairman. You have just as good roads in the West as they have in the South. Mr. Chambers. The South, of course, does not produce very much live stock. I do not know just why that difference is, except that is the way the rates are made up. And they do not have such long hauls. The Chairman. Well, the average haul is within 4 miles of being the same. Just 4 miles difference. Mr. Chambers. Yes; I see. Senator Pomerene. Four miles less in the western district than it is in the southern. Mr. Chambers. Yes ; 4 miles less in the western district than it is in the southern district. 63553— 21— Vol I 32 Digitized by Microsoft® 476 RAILROAD REVENUES AND EXPENSES. Senator Pomerene. Yes. The Chairman. And yet 1 the average rate is 59 cents more. Why should that be? Mr. Chambers. I did not analyze that. There is very little live- stock business in the South; They are just beginning to ' produce live stock. The Chairman. Well, that is all the greater reason why the rate in the West should be less than the rate in the South. Mr. Chambers. These, of course, are at best just approximate fig- ures. They are not accurate. It is impossible to get them accurate. Senator Poindexter. Could you look up that question that Senator Cummins asked you, and see why that is ? Mr. Chambers. Yes, Senator. I will be very glad to do so. Senator Poindexter. I wish you would look that up. I would' like to get some understanding of it. Mr. Chambers. I will be pleased to do it. And, of course, the West is not so thickly populated. . . I want to read a telegram which I received about the emergency rate on range cattle. It will be enlightening to the committee on the general subject. [Reading:] -. -I - ' ' :..,-.. ' if' 1 - '■ '■''' During past 10 days have had opportunity of visit with bankers, commission men, and cattlemen, and the consensus of opinion is that the effect of the emergency rate on range cattle movement is psychological rather than actual. The estimates range from 10 to 20 per cent of movement (brought about by rea- son of the rate reduction, but greater part of this from drought stricken terri- tory in southwestern Texas and southern New Mexico. The cattle from Pan- handle of Texas ranges moving to Kansas grass were, of course, benefited., but the movement was not increased by reason of the reduction. The total move- ment only 75 per cent of last year, and we believe the liquidation of outstand- ing paper insisted upon by loan companies, has had more effect upon the move- men than reduced rates. Senator Poindexter. Who is that telegram from? Mr. Chambers. It is dated Amarillo, Tex., May 25; addressed to Edward Chambers, vice president Santa Fe Railway, care of Wash- ington Hotel, Washington, D. C., and signed by T. B. Gallagher. The Chairman. At this point, if there be no objection on the part of the members of the committee, we will stand adjourned until Tuesday morning next; at 10 o'clock. (Whereupon, at 11.50 a. m., May 27, 1921, an adjournment was taken until 10 o'clock a. m., Tuesday, May 81, 1921.) Digitized by Microsoft® RAILROAD REVENUES AND EXPENSES. TUESDAY, MAY 31, 1921. United States Senate, Committee on Interstate Commerce, Washington, D. O. The pommittee met, pursuant to adjournment, at 10 o'clock a. m. r in room 410, Senate Office Building, Senator Albert B. Cummins (chairman) presiding. The Chairman. The committee will be in order. Mr. Chambers, you may resume your testimony. TESTIMONY OF MR. EDWARD CHAMBERS, VICE PRESIDENT OF THE ATCHISON, TOPEKA & SANTA FE RAILWAY SYS- TEM — Resumed. Mr. Chambers. Mr. Chairman, you asked for an explanation as to why the average rate on live stock in the South was less than in the West. I have made inquiry and find that the general scale of live- stock rates in the South are on a lower level than in the West. Of course, the volume is very much less in the South; it is about 1,200,000 tons against 11,000,000 in the West. As a further explanation of the .live-stock rate situation in the South, I have a telegram here that I would like to read [reading] ; Edward Chambers, Care Washington Hotel, Washington; D. C Practically all lines in the South have for a long time considered live-stock rates inthis territory too Tow, and a special committee has been at work for several months revising them to a materially higher scale, though we will hardly attempt to make the advance just at this time for reasons which you will fully appreciate. Do not know of any traffic in the South on which the rates are relatively as low, all factors considered, as on live stock. D. M. Goodwin, Freight Traffic' Manager Louisville- Nashville Railroad. The Chairman. It seems to me that the fact being that the volume of traffic of live stock in the West is greater than that in the South you would have lower rates in the West. Mr. Chambers. The traffic density in the South generally is much greater than in the West. Mr. Thom. You mean the general traffic density? Mr. Chambers. Yes. The Chairman. You mean by density of traffic the traffic in a given area ? Mr. Chambers. No; traffic per mile of railroad tonnage handled.' The Chairman. Very well. Mr. Chambers. Senator Kellogg asked for some information on movement of apples from Washington and Oregon, In looking up , v ,. ii; ,,, :i , 477 Digitized by Microsoft® 478 RAILROAD REVENUES AND EXPENSES. the information he desired I ran across some very interesting data taken from reports of the Department of Agriculture. It shows production, distribution and general marketing of apples over the entire United States, making a separate showing for each producing section. It covers the peridd of the 1919-20 season and the ^920-21 season up to date. There is a great deal of detail to it and I will read it if you care to have me do so. Senator Kellogg. I do not care to have it read. If you will just furnish it for our information that will cover our needs I think. , Mr. Chambers. As I have said this is a statement of production, movement and marketing of apples, seasons 1919-20 and 1920-21. The latest information on the storage of apples segregated by dis- tricts, that I have been able to obtain are figures showing the cold storage holdings as of March 1, 1921, as compared with the same date, 1920, and cover both eastern barreled apples, as well as western boxed apples. The information is procured from the records obtained by the United States Department of Agriculture, Bureau of Markets, and is generally conceded to be approximately correct, due to the fact that during the period of the war, all cold storage houses in the United States were required to report stocks of food on hand monthly under the emergency food control act and it is my understanding that these storage firms are continuing their reports to the bureau. New England. . Middle Atlantic. South Atlantic. North Central east. ' North ' Central west. South Central. Western north. Western, south. Western boxed apples in stor- llar. 1,1921.. Mar. 1, 1920 .. 89,604 79,779 1,010,174 1,036,916 108,073 94,967 643,900 847,585 ' 531,849 ■ 655, 172 321,126 329,304 1,241,688 1,207,447 .875,788 981,123 9,825 13,106 34,241 f 26,742 961,696 528,739 203,685 378,979 257,298 123,323 154,428 178,868 ', 8,178 53,722 57,884 105, 335 Barreled apples . in storage: ' Mar. 1, 1921. . 80,192 68,007 375,822 200,744 Mar. 1, 1920. . 12,185 432,957 175,078 121,681 24,440 4, 162 New England: Maine, New Hampshire, Vermont, Connecticut, Massachusetts, Rhode Island. Middle Atlantic: Pennsylvania, New Jersey, New Yorkj Delaware, Maryland, District of Columbia; Virginia, West Virginia. South Atlantic: North and South Carolina, Florida, Georgia, Alabama, Kentucky. Louisiana; Ten- nessee, Mississippi. " ! •''".' ' ' > f ' ■ North Central East: Ohio, Michigan, Wisconsin, Indiana, Illin ois. Iowa. North Central West: Minnesota, Nebraska, Missouri, North and South Dakota. South Central: Oklahoma, Texas, Colorado-; Arkansas, New Mexico. , Western North: Oregon, Washington, Idaho, Montana, Wyoming. Western South: California, Arizona, Nevada, Utah. The above total indicates a decrease in the cold-storage holdings of western boxed apples amounting to 410,191 boxes, and an increase in the holdings of eastern barreled apples stock amounting to 713,299 barrels. You will notice a decrease in the western boxed apples in storage under the column "Western South," amounting to 105,305 boxes. These are California apples in storage at San Francisco and Watspn- ville. As you probably know, a barrel of apples is the equivalent of three boxes Of the western standard. Digitized by Microsoft® RAILROAD REVENUES AND EXPENSES. 478 Statement of barreled apples in storage includes only holdings of cold-storage firms and does not cover stock on hand at producing points awaiting shipment. To give you an idea of the monthly consumption of boxed apples at about this time of the year, on March 1, 1921, there were 4,822,202 boxes of apples in storage, while on February 1 there were 6,265,664 boxes in storage, denoting that 1,443,462 boxes went into consump- tion during the month of March this year. In 1920, on March 1, there were 5,330,785 boxes in storage. On February 1, 1920, there were 7,296,332, boxes in storage, denoting that the consumption during the month of March, 1920, was 1,965,547 boxes. To further indicate a comparison of the total production of the entire United States both of eastern barreled apples and western boxed apples, and also as an indication of i the rate of movement at the pres- ent time, this year as compared with last, I am quoting below a state- ment which is self-explanatory: Shipping districts and approximate shipping seasons. Week Mar. 20-26 inclusive, this season. Week Mar. 20-26 inclusive, last Previous week' this season. Total this season to date. Total last to date. Total last season. APPLES, CABLOADS. Boxed-apple -States: California, July 1-June 30 Colorado, July 1-June 30 Idaho, Aug. 1-May 31. Montana, Aug. 15-Feb. 28 : : New Mexico, Aug. 1-Feb. 28 „ P . Oregon, July 15-May 30 „. . Utah, Sept. 20-Mar. 15 7.C Washington, July 1-June 30. . Total- Barreled-apple States: Arkansas, June 20-Apr. 15 Illinois, July Wurie 30 Indiana,; July it-June. 30 Kentucky, Sept. 1-Mar. 31 Maine, Sept. 1-Apr. 30 Maryland, July 15-Mar. 31 Massachusetts, Sept. 15-Mar. 31 . . Michigan, July 15-Apr. 15 Missouri, July 1-June 30 New Hampshire, Sept. 1-Mar. 15. . New Jersey, July 1-AprI 15 New York, July 1-June 30 North Carolina, Aug. 15-Dec. 31... Ohio, July 15-Mar_31, Pennsylvania, July 15-Apr. 30 Virginia, Jury 1-June' 30. . j. West Virginia, July t-June 30. Wisconsin, Aug. iEHHar. 31 . '. Sections through shipping Total. 85 '530 4 31 3 1 25 1 320 4,114 2,779 2,684 408 143 2,851 572 18,847 4,032 3,224 3,740 485 959 5,125 199 24,664 4,153 3; 225 3,943 ' 500 9,59 5,443 199 27,167 631 394 32,398 42,428 45,589 14 3 457 274 1 580 2,566 3,050 :*99 3 : 187. 936 1 459 5)646 1,-446 203 767 29,232 580 523 2,487 7,709 4,350 55. 2,031 4,523 2,812 86 8 2,298 562 405 3,432 1,970 506 737 9,041 150 253 1,256 6,865 2,769 20 1,782 4,553 2,937 117 8 2,343 564 407 3,435 2,086 507 737 10, 271 150 255 1,266 7,075 2,849 20 1,782 420 791 62,430 39, 475 41, 362 The : above statement is complete for the entire United States and is based upon telegraphic figures submitted by the common carriers of the country to the United States Department of Agriculture on a daily basis by operating railroad divisions, and is in my opinion 95 pej cent correct. This latter statement, I believe, is quite illuminative and is in- dicative of the reasons why the apple market is in its present condi- tion. Digitized by Microsoft® 480 RAILBOAD REVENUES AMD EXPENSES. You will note that last season out of a total of 45,589 cars for the season complete, 42,428 cars had moved into channels of distribution, while up to March 29 this season only 32,398 cars have moved, and that for the week March 20 to 26, the rate of movement was 631 cars, while for the corresponding week this year only 369 cars moved. Diametrically opposed to this situation is the condition prevail- ing in the barreled apple situation, which shows that out of &• total movement for the season 1919-20, 41,362 carloads of barreled 'apples moved during the complete season, and up to March 29 of last year 39,475 carloads had moved into channels of distribution, while this year up to March 29, there have already been moved 62;431 rarloads of barreled apples, or 23,955 more carloads moved up to March 29 this year than last, and for the week March 20 to 26, in- clusive, last season, only 420 cars moved, while this season there was a movement of 589 cars for the same week. I would like to draw your special attention to the situation pre- vailing in the State of New York on barreled apples, and especially figures denoting the velocity of movement for the week March 20 to 26 this year, as compared with last. During 1919-20 season the States of Washington, Oregon, Idaho, and Montana during the month of April shipped 1,227 carloads, and during the month of May 559 carloads, or a total of 1,786 cars. •. "The cold storage holding report quoted first in this memorandum shows in States under the column "Western North" hold 1,241,688 boxes and at 756 boxes per car denotes holdings to the extent of 1,630 cars. ■ : For your further information, I am quoting below a statement showing the jobbing range of prices at various destination markets as of March 21 this year, compared with the same date 1 year' ago, covering both New York Baldwins in barrels, and Northwestern extra fancy Winesaps in boxes, both of which are representative of the prevailing market prices on all varieties. The markets against which no prices are shown under ;the boxed-apple range of quota- tions indicates that there were not sufficient sales in carload quanti- ties to establish market. Prices to jobbers in carload or large quantities. Market. Mar. 21, 1921. Mar. 21, 1920. New York "A-2J Baldwins" in barrels: $5.00 5.50 5.00 5.50 4.75 5.00 5.50 '6.25 5. 50 $5. 50 6.00 5.50 0.00 5.25, 5.50 6.00 5.60 6.00 5.50 6.00 4.50 S8.50 . ,7,'fe.oo 9.00 8.50 8.00 ,' 9.50 9.00 8.50 8.75 9.00 9.00 7.50 7.5ft 3:75 4.00 3.75 3.25 3.50 9.50 • : ,8.00 ;\ ,8.00 4.00 4.25 4.25 5.75 3.25 Northwestern extra fancy Winesaps, rjqxes: NewYork . ..... Philadelphia 3.50 3.75 3.50 3.25 3.50 3.75 3.25 2.75 3.50 4.25 3.75 4.00 3 50 3.50 3.75 3. 75 Digitized by Microsoft® BAHJtOAD REVENUES ANB EXPENSES. 481 From the above it must be evident, considering the quantity of barreled stock being disposed of at the principal eastern markets at a price of .approximately; $5 per barrel, and further, considering the fact that one barret of apples represents three boxes, pf, northwestern stock, that the sale of , even extra fancy northwestern boxed apples at prices ranging from $4 to $3.25 must necessarily be greatly retarded on. account of the great quantities of barreled apples on hand. Now it has been reported, and it is, I understand, a fact that over 80 per cent of the remaining boxed apple stock on hand in the north- west runs to small sizes or, what is known as 5-tier and C-grade stock, which can not, in the face of existing conditions, bring prices in eastern, -markets anywhere near approaching priees prevailing last -, season, on account of the fact that in the East last year the markets were practically bare of barreled apple stock. Another feature in connection with this year's apple situation is the fact that last year at this time the apples remaining in storage in the northwestern States were in the hands of or owned by eastern distributors, and they were moving them out of the Northwest at the rate that the demand in the East called for. It is my understanding that; this, year the situation is exactly the reverse; the apples remaining on hand in the Northwest this season are owned ■ by the growers, and there is no, f . o. b; market, which clearly indicates that in order to dispose of the remaining 5-tier and C-grade stock in the Northwest, the western shippers will have to move same on consignment. Please bear in mind that the range of quotations at eastern markets shown above, viz, from $4 to $3.25 per box, is for the extra fancy variety, and not 5-tier or C grade. Following are comparative figures of cold-storage holdings, both eastern barreled and northwestern boxed stock, by districts, as of April 1, 1921, versus same date last year: WJ ,8!/ T> New England. Middle Atlantic. South Atlantic. North Central East. North Central West. South Central. Western North. Western South. Western bosed apples in storage: Apr. 1,1921 Apr. 1,1920...... 64, 081 51,391 577,311 596, 890 ' 81,379 72,681 in , cf . 487, 901 . '476,939 411, 910 382, 499 273. 671 218, 750! 951,741 662, 666 626, 236 519, 58k Increase 12, 690 ±0, 421 9, 698 10, 962 29,411 54, 921 289, 075 106, 648 Barreled apples in storage: ' ' Apr.1,1921 Apr. 1,1920 ■ 38,868 30, 597 434,, 636 260, 198 188, 918 143, 260 254,431 156, 686 88,418 92,007 29, 508, . 8,271 174,438 45, 658 3, 589 5, 155 From the above tabulation it will be noted that there is an increase in the cold-storage holdings of boxed apples in the consuming dis- tricts of 233,751 boxes, notwithstanding the fact that the total crop production of boxed apples for the 1920-21 season was fully 8,391,600 boxes Jess than the season 1919-20. By consuming districts I have reference to the New England States, Middle Atlantic States, South Digitized by Microsoft® 482 EAILKOAD KEVEHTHES ANT) EX*»E»£E#. Atlantic States, North Central East States, North Central West States, and South Central States. I have not included the Western South States in this analysis for the reason that the 626,236 boxes Shown on hand in that district includes possibly about 200,000 boxes of California stock, the balance being Oregon and Washington apples held in storage at California and Arizona.points. On March 1, 1921, there were 4,822,202 boxes of apples in storage in all districts, including producing points, and on April 1, 1921, this number was Teduced to 3,474,230 boxes, denoting that during the month of March 1,347,972 boxes moved into channels of consumption. To reflect the present situation, the consumption for the month of April should be deducted, but those figures can only be estimated at about 1,250,000 boxes, which would leave approximately 2,224,230 boxes in storage as of May 1, 1921. During the month of April there were approximately 900 carloads of boxed apples moved from the producing sections in Washington, Oregon, and Idaho, which is equivalent to 680,400 boxes. By deduct- ing this figure from the storage holdings in the district under the caption "Western North" reported as of April 1, 1921, leaves 271,341 boxes, or approximately 360 carloads still in storage at producing points that must move prior to June 1 in order to clean up. The entire crop of boxed apples for the 1920-21 season is arrived at by adding to the 33,241 carloads already shipped up to April 1, which figure includes approximately' '8,000 carloads shipped by the States of California, Colorado, and New Mexico, 1,250 carloads which were still in storage in the "Western North" States as of April 1, 1921, being Oregon, Washington, Idaho, Montana, Utah, and Wyoming, making the total production of boxed apples in 1920-21, 34,491 carloads, or approximately 26,078,196 boxes. There was a total shipment of 45,591 carloads of boxed apples in the 1919-20 season from all boxed apple producing States, or a total production of approximately 35,466,795 boxes. Therefore, there has been a decrease in the crop production , of boxed apples this season (1920-21) equal to 11,100 carloads, or approximately 8,391,600 boxes. Opposed to the situation in the boxed apple production is the tremendous increase in the barreled apple crop in the eastern States this year. Up to April 1, 1921,, there had already been shipped ftom the barreled apple producing States 64,970 carloads,and it is expected that the final total will reach 70,000 carloads. During the entire 1919-20 season there were only 41,362 carloads of barreled apples shipped, which shows an increased production this season of approxi- mately 28,638 carloads. Digitized by Microsoft® RAILROAD REVENUES AND EXPENSES. 483 Comparative velocity of carload movement of barreled versus boxed apples for the 5-weeb period, Mar. 27 to May 8, or since request for temporary emergency, rate was declined. 5 weeks, Mar. 27 to May 6 (inclu- ' • sive), this sea- son. 5 weeks, Mar. 27 to ; May 5 (incte sive), last sea- son. Total this season to date. Total last season to same date. Total last season. Boxedapple States: 95 4 36 2 4 53 1 1,110 75 1 29 4,226 2,801 2,725 412 147 2,921 573 20,054 4,107 3,225 3,795 500 959 5,279 199 26,033 4 153 3,225 3 943 500 959 110 5,443 199 Utah 1,350 27, 169 Total 1,305 1,565 33, 859 44,097 45, 591 Bar-releqVapple States: Including Arkansas, Illinois, Indiana, Maine, Maryland, Michigan, Missouri, New Jersey, New York, Pennsylvania, Virginia, West Vir- ginia, and all other States through shipping. .. 1,735 1,128 65,987 40,603 41, 362 In analyzing the above statement, your special attention is directed to the following: First. That there was an increase this year over last in the move- ment of barreled apples during the five-week period involved, of 607 carloads. Second. That 95 per cent of this increased movement is confined to the States of New York, Virginia, and West Virginia. Third. That during the same five-week period there was a decrease in the shipments of boxed apples this year under last of 240 carloads. Fourth. That on May 5, 1920, there still remained in the State of Washington 1,136 carloads of apples, and in the State of Oregon 164 carloads, in the State of Idaho 148 carloads, or in the three States a total of 1,448 carloads, all of which were disposed of by June 30, 1920. Fifth. That this year, on May 5, according to reports as shown by the storage holdings, there are only 360 carloads yet to move, prac- tically all of which are in the Yakima section. On May 2 there were still from 450 to 500 cars left in storage in the Yakima district. Press report indicates that Wenatchee still has on hand about 100 carloads; which would make a total, using the maximum figures, of 604 cars yet to move. Comparative range of jobbing prices. by week at principal eastern markets, covering Ntw York Baldwins, grade A, 2%-inch size, in barrels, versus northwestern extra fancy Winer 8aps„ medium or large sizes, in boxes, from week ending March 21 to week ending May 21 . APPLES— NEW YORK BALDWINS, A 2J INCH, IN BARRELS. Week ending- Market. Mar. 28. One year ago. Apr. 4. One year ago. • Apr. 11. One year ago. $6.00-16.50 6.50- 6,75 '6.00-6.50 $6.00 6.00 6.25 $5.25- 5.75 5.75 6.00- 6.25 6.00-6.50 $5.76r<6.00 5.75^6.00 5.75-6.00 5.50- 6.00 5. 50- 5. 75 5.75- 6. 00i 4. 50- 5. TO 5.25 5. 75- 6. 00 $10,00 $9. 00 $6. 00-$8. 00 Pittsburgh 5.75 7.00^7.25 6. 00- 6. 50 5.00 5. 75- 6. 00 10. 00 9.50 $8. 00- 8. 25 8.25- 8.50 9.00 $8. 00- 8. 50 8.50^ 8.75 7.50- 8.00 8.00- 8.50 5. 75- 6. 00 7. 50- 8. 00 7. 50^ 8. 66 Digitized by Microsoft® 484 BAILEOAD BEVENUES ABT> EXPENSES. Comparative range of jobbing prices by niieek at principal eastern markets, covering New York Baldwins, grade A, i\-inch size, inbarrels, versus northwestern extra fancy Wine- saps, medium or large sizes, in boxes, from week ending March %1 to week ending May Zl — Continued. APPLES— NEW YORK BALDWINS ,A 2J INCH, IN BARBELS— Continued. Market. ' Week ending- Apr. 18. 1 year ago. Apr. 25. 1 year ago, May 2. . 1 year ago. 16.00 6.00 6.25 15.25-5.75 5.75 6. 00- 6! 25 6. 00- 6. 50 $6. 00-S6. 50 6. 50- 6. 75 6.00-6.50 »6. 50-17. 00 7. 00- 7. 25 6. 00- 6. 50 5.50-6.75 6. 25- 6. SO 7.75 6. 25- 6. SO 5. 50- 6. 00 5.75-6.00 J10.00 S9.00 411.00 > Pittsburgh. . .' .... 10.00 9.50 JS. 00- 8. 25 5.75 7.00-7.25 6.00- 6.50 5.00 5.75-6.00 •1 .11,00 10.50 $8. 00- 8. 50 8.50- 8.75 7.50- 8.00 $8.00- 8.50 8.25 5.75-6.00 7.50- 8.00 7.50- 8.00 Apples — northwestern extra fancy Winesaps — medium to large sizes — boxes. New York Philadelphia Baltimore I. Pittsburgh Chicago Kansas City Week ending- Apr. 4. 1 year ago. Apr. 11. 1 year ago. Apr. 18. $3.50-15.00 1.75-3.25 2.75-3.75 2. 25- 3. 50 3.50-4.00 34. 00-S4. 25 3. 50- 4. 00 3. 50- 3. 75 3. 50- 3. 75 3. 75- 4. 00 S3. 50-15. 00 3. 50-, 4. 00 3. 00- 3. 50 ,2. 25- 3. 75 3. 25- 3. 50 3. 50- 4. 00 $4. 25-S4. 50 3. 25- 3. 90 3. 00- 3. 50 3. 50- 3. 75 3. 75- 4.00 $3. 50-14. 75 2. 20- 4. 00 2. 25- 4. 00 2. 25- 3. 50 2. 50- 3. 75 3,50-4.00 1 year ago. 34. 50-S5. 00 2. 50- .3. 75 3, 50- 3. 75 • 4. 00- 4. 25 3.50- 3. 75 4. 00- 4. 50 Week ending — Apr. 25. 1 year ago. May 2. 1 year ago. New York. . Philadelphia Baltimore. . . Pittsburgh.. Chicago Kansas City. 13. 00-13. 50 2.65-3.50 2.50- 3.50 2. 25- 3. 75 2.75- 4.00 3.50- 4.00 I4.75-J5.25 4.00- 4.50 S3.00-S5.00 1. 85- 3; 50 *4.75-$5.25 5.00-5.25 4.25 3. 50- 3. 75 1. 75- 2. 50 2.75- 3.75 3.50- 4.00 4. 25- 4. 75 3.75-4.25 3.50^ 3.75 From the above it "will be noted that there has been a slight in- crease in the jobbing prices on barreled apple stock at the principal markets from a maximum of about $5.50 per barrel on March 21 to $7.75 per barrel on May 2 in the Chicago market, while the jobbing prices for northwestern fancy winesaps, medium to lafge sizes, for the past five«weeks in some markets have remained stationary j in others a sharp decline is noted. As stated before, practically all of the remaining stock consists. of 5-tier and C grade apples; in other words, small sizes, and the f . o. b. market in Yakima at the present time for C grade stock has been as low as $1.40 per box, while considerable quantity of the 5-tier stock could not find buyers at prices running as low as 90 cents per box. An attempt was made to dispose; of some of the small size applies in the coast markets, but after representatives from Yakima 1 made a thorough canvass of the situation it was found that the coast markets Were loaded up with large quantities of small size apples still in storage, Digitized by Microsoft® RAILROAD REVENUES AND EXPENSES. 485 and it was concluded that there could: be no hope of moving any of the remaining small apples through coast cities. 1. Overproduction of eastern barreled apples. 2. General business and financial depression and the shutting down of large industries employing a great number of men where small size apples are extensively used for lunch boxes. 3. Overproduction of small size oranges and tremendous campaign on the part of California citrus interests to dispose of small size stock by intensive advertising and publicity. Small size oranges took the place of small apples on peddler wagons, which is a big outlet at this time of the year. "4. High f. o. b. quotations by growers early part of the shipping season, which retarded purchases by eastern distributors for specu- lation. The Chairman. Have you any information with you in regard to the increase of rates on livestock as compared with 1915?. Mr. Chambers. I think I can state from memory just about what the increases have been since 1916. The Chairman. What have they been ? Mr. Chambers. The Railroad Administration increase was 25 per cent, with a maximum of 7 cents per hundred pounds. There- fore the long hauls on the 25-cent basis would reach about that, but 7 cents per hundred pounds was as high as we went with any increase. My recollection is that on the average the livestock rates were increased about 15 per cent. The Chairman. In 1920 they were increased how much? Mr. Chambers. In 1920 in the West they were increased 25 per cent, in the Pacific territory; and 35 per cent in the balance of the West. * The Chairman. Then, beginning with 1916, that would mean, first, you say 15 per cent, then 25 per cent of 115 per cent? Mr. Chambers. Yes. : The Chairman. Which would make an increase of something like 50 per cent? Mr. Chambers. Yes, sir; approximately that I would say. The Chairman. The complaints that come to me are to the effect that the increase has been much more than that. I have not looked into the matter but that is the situation as presented. Mr. Chambers. I am fairly familiar with the rates on livestock all over the United States, and I do' not know of any other increases that have been made in livestock rates than what I have stated. Mr. Thom. Mr. Chairman, I suppose it is apparent to everyone but if you have no objection I would like for the statement to go into the record that in territories where there is greater density of traffic the general level of rates is likely to be lower than in territory where the density of traffic is smaller. That is so, isn't it, Mr. Chambers ? Mr. Chambers. That is correct. Senator PomeKene. If you are inserting matter in the record I have something I would like to put in the record at this point on a matter which was testified to last week. I called attention to some of the rates to and from the Pacific coast. The memorandum which I have, was furnished to former 1 Congressman Welty, by the Inter- state Commerce Commission, covering freight rates for 1921. The Chairman. To the Pacific coast? * Digitized by Microsoft® 486 RAILROAD REVENUES AN© EXPENSES. r" Senator Pomerene; Yes; to and from th« Pacific coast. From Pacific coast points the freight rate, per 100 pounds — and these rates are all based on 100 pounds — on apples, to New Orleans is $1,05; to Boston 75 cents; to Columbus, Indianapolis, Lansing, Lexington, Ky., Chicago, and Kansas City., 1.66$, >■ On fresh fruits from Seattle to Boston $1.25. To the same citi«s I have just named in the Middle West $2.08$. '■■ On lemons fromSan Francisco to New Orleans 70 cents; to Boston $1.25; and to Columbus and these other Middle West cities $1.66$. On oranges from. San Francisco to New Orleans 80 cents; to Boston $1.40; to Columbus and these other Middle West cities $1,92. On canned fish and fruits from Pacific coast points to New Orleans 65 cents; to Boston 65 cents; to Columbus and other Middle West cities named, including Kansas City, $1.20$. Dried fruits from Paoifie> coast points to New Orleans 65 cents; to Boston $1; to Columbus and other cities in the Middle West that, il have named $1.66$. Senator Kellogg. What about manufactured commodities from the east to San Francisco and Seattle ? Senator Pomebene. I am going to give that, Senator. Senator Kellogg. All right. , Senator Pomerene. On manufactured articles to San Francisco and Seattle, say, agricultural implements, from Boston, $1.70; from New Orleans $1.25; from Lexington, Cincinnati, Lima, Toledo, Ohio; Lansing, Mich.; Indianapolis to San Francisco and Seattle $1.76$. From Chicago to San Francisco and Seattle $2.66$. From Kansas Citv to San Francisco and Seattle $2.38$. On machinery and parts thereof to San Francisco and Seattle from Boston $2; from New Orleans $1.06; from Lexington, Cincinnati/ Lima, Toledo, Lansing, and Indianapolis $3.03$; from Chicago to San Francisco and Seattle $2.95$; from Kansas City to San Francisco; and Seattle $2.66$. . v On stoves to San Francisco and Seattle from Boston $1.75; from New Orleans 94 cents. From Lexington, Cincinnati, Lima, Toledo, Lansing, and Indianapolis $2.50; from Chicago $2.42; from Kansas City $2.16$. On paint to San Francisco and Seattle from Boston $1 ; from Lex- ington, Cincinnati, Lima, Toledo, Lansing, Indianapolis $1.58$:; from Chicago $1.50; from Kansas City $1.43- Senator Kellogg. The other rates were not stated, but the rates.on fruit that you gave are those not water rates % , - Mr. Chambers. The Senator has quoted water rates. Senator Kellogg. And he has not the rail rates ? Mr. Chambers. He has rail rates from interior territory and water rates from the Atlantic Seaboard. At least, that is the way I inter- pret the statement from which he has read. Senator Pomerene. I do not understand as to that. I am not prepared to say that you are right or wrong; they may be water rates, around through the canal. , < ; , ,.-. Mr. Chambers. Thatds correct, certainly as to lemons and oranges. The rate as to oranges is $1.92 and as to lemons $1.66. . Senator Pomerene. It happens that, on all manufactured products from the. Middle West to the Pacific coast cities, and on fruits, etc., Digitized by Microsoft® RAILROAD REVENUES AKD EXPENSES. 481 \ from the far West to those places the rates are very, very much higher than to the coast cities. Mr. Chambers. I recognize in your statement water rates east bound on canned goods and on dried fruits and, of course, those rates apply to Atlantic seaboard ports only. I will state fox your information that the transcontinental lines are now working out a system of rates, all rail, that will reasonably meet that competition. Senator Pomerene. I hope they may succeed. Mr. Chambers. We will, and will also* apply the rates as a maximum from the intermediate points. ' The Chairman. The rates west from the intermediate points are the same as from the Atlantic coast to the Pacific coast? Mr. Chambers. That is the method of making those rates. The Chairman. How far do you run those rates west? Mr. Chambers. They run west until the normal rate is reached, hut it appMes, of course, only on certain commodities— for instance, ■cereals. We do not make it on the general line of traffic. Of course, it is also necessary to get relief from the Interstate Commerce Com- mission in order to protect our intermediate revenues. The Chairman. Ihave a table of something of that kind, showing a very great disparitj^ of rates from the Pacific coast to Cincinnati and other points in thie West, as compared with rates to the Atlantic ■coast. I am not sure whether they are rail rates or water rates. ; Mr. Chambers. They are rail rates. The rail rates as compared with water rates show that way. The rail rates to Cincinnati and New York are now the same. : ■' ; . Senator Pomerene. Let me put tho question in another way. Are the rail rates from New York, let us say on agricultural imple- atoents, to San Francisco the same as from Cincinnati to San Francisco ? Mr. Chambers. No, sir; they are higher to-da3 T from New York: to San Francisco all rail than from Cincinnati to Sail Francisco all rail. Senator Kellogg. Then the rates given in the statement read 'by Senator Pomerene must be water rates ? ' Mr. Chambers. Yes, sir; Senator Pomerene has read the water rates. In order to understand the' situation, to get the all-rail rates to meet the water rates, from New York to San Francisco, we do not attempt to meet absolutely the water rate, but we take that rate and apply it as the maximum from intermediate points of origin as you go westward, so that Chicago, Kansas City, Cincinnati, and Indianapolis get the same rate as New York. In other words, they get the rate that we determine is necessary to meet the water com-r petition at New York and the place of, manufacture dn the interior on an equality as nearly as possible as compared with manufacturers on the Atlantic seaboard shipping by water. - Senator Kellogg. You say that to-day the New York rates are higher than in the interior ? • Air. Chambers. Yes, sir; just at this time. We are trying to meet that situation. The Chairman. But you do not attempt to put down your rail rate from the Atlantic coast to the Pacific coast so that it will be exactly equal to the water rate ? Mr. Chambers. No, sir; because rail service is more valuable than water service. , Digitized by Microsoft® 4:88- RAILROAD REVENUES AND EXPENSES. / The Chairman.. Your . policy -will be to> substantially at least, carry that rate level from the East as far into the West as Chicago ? Mr. Chambers. Yes; clear through. Wherever the normal rate is higher as you go westward this rate will apply to displace it on the particular commodity on which it is placed. The Chairman". That means, substantially, that you carry your stuff from New York and Boston and Philadelphia to Chicago, for nothing? ■ - Mr. Chambers. Well, tha't is one way of figuring it probably, but that is not the practical way to look at iti We have a lot of cars coming into this territory' that we desire to load. The Chairman. That brings up the old question about competi- tion between water carriage and land carriage; Mr. Chambers. I have some statements here that I am going to present after a while comparing competition between water carriers and rail carriers which I think will make it clear as toi why that adjustment is a reasonable adjustment. , >, Senator Pomerene. Will you undertake to persuade the! i Ohio- manufacturers that they do not look at it in a practical way ? Mr. Chambers. I think they do; they will be shut out of the Pacific coast markets unless we readjust their rates. Senator Pomerene. If you- will just readjust them^ then all right. Mr. Chambers. Well, we realize that. We could* not afford to ignore that situation. We have got to meet those rates by way of our own self-protection. The Chairman. Are you adjusting your rates so that the manu- facturer can ship from -Columbus to New York and then from New York to San Francisco ? Mr. Chambers. No, sir; those are normal rates. That is not being done. The Chairman. You may proceed. Mr. Chambers. As to building operations: The conditions in the building industry throughout the country are practically uniform. In' the cities on the Pacific coast and throughout the West, South, and East conditions appear to be about the same. The general report is that a comparatively small amount of building is being done. At San Francisco, Seattle, and Portland, where lumber isi at the door, conditions are the same as at Kansas City, Omaha, Chicago, or Cleveland. For example, Chicago has plants within its city limits which produce all kinds of structural iron and steel; likewise cement, brick, lime, sand, gravel, and crushed rock, and building conditions are no different in Chicago than in the' other places mentioned. As an illustration on the relation of freight rates to building enter- prises a careful study recently made of the materials going into a typical brick house of six rooms and bath in Philadelphia with the freight charges from the usual sources of supply of materials shows that the freight charges amount to approximately $370 on a house costing $8,100 to ! btiild' in 1920. " < •-"•/ • ! In St.Pbul'the estimated freight charge on all material entering into the construction of a frame dwelling house costing $5,000 or $6,<000 ! would aggregate ''about* $580. In making this estimate the points of shipment used are those where such materials are produced Digitized by Microsoft® RAILROAD REVENUES AND EXPENSES. 489 inlarge volume, and where the selling price is based, such as: Lumber fromi Everett, Wash.; pressed brick from St. Louis; oak flooring from Little Rock, Ark.; electric and plumbing fixtures from Pittsburgh; heating and radiation from Detroit, etc. Senator Pomerene. Are those estimates made by your office? Mr. Chambers. Yes; and I can give you the details, if you desire them. Senator Pomerene. I do not care for them. I simply want to know what the authority for them is. I may want the details later. As to road-making material, which consists of gravel, crushed rock, cement, and asphalt: Complaint has been made in a general way that the present freight rates are prohibiting road construction. Senator Pomerene. May I ask you another question there, so that I may follow you 1 . . Mr. Chambers. Certainly. Senator Pomerene. You give- the freight rates on these various articles which go into a frame dwelling house, say,, at St. Paul. Do Jou. mean that such articles are the same as would go. into a brick ouse in Philadelphia ? Mr. Chambers. No, sir; those rates, just relate to the St. Paul market. Senator PomErene. All right. The costs of a standard concrete highway, in accordance with the published requirements of the Minnesota Highway Department, and according to the figures published by the Northwestern Association of General Contractors, taking as an example the Itasca County, Minn., road, are as follows: ■ ■ • Grading, average cost per mile $16, 000 Freight cm grading equipment to and from job...;.: per cent.. 2. 4 Freight on culvert pipe, bridge material, etc. . do 1. 5 Total do.... 3.9= 624 Concrete pavement to be put in later will cost, per mile. .'.'.' . . 37,000 Freight charges on pavement material, etc per cent. . 1. 9= 703 Total cost of road per mile. , 53, 0QO Total freight cpst. -'-,---. - - .......... .per cent. . 2. 5= 1, 327 Senator Pomerene. Now, Mr. Chambers, as of what- time are you making those figures I . ,- ; , Mr. Chambers. As of the present. . The;CHAiRMAN. Let us emphasize that for a moment : ; You have a road costing $53,000 a mile with a transportation cost of $1,327. Mr. Chambers. Yes, sir. Senator Pomerene. That is 2\ per cent % Mr. Chambers. Yes, sir. The Chairman. Have you anything to show what that freight cost would have been in 1916 ? . Mr., Chambers. I have not. I think I have some details to show what it was in 1918. That was the closest I had,; The Chairman. Very well, go ahead with your statement. Mr. Chambers. The same published . report shows that, the cost of laying one course concrete pavement, using railway track for haulage, is $3.61 per square yard, of which materials represent $li.73 per square yard, or 47.8 per cent; labor 63 cents, or 17.5 per cent; depreciation, 8*6 per cent;; contingencies, 5.6 per; cent; in- terest, 3.6 per cent; taxes, 0.2 percent; general expenses, 2.9 per cent; Digitized by Microsoft® 490 RAILROAD REVENUES AND EXPENSES; " storage, 1.5 per cent; insurance, 0.5 per cent; bond, 1.7 per cent; freight* 1.9 per cent; camp site etc., 0.8 percent; repairs, 5.3 percent; fuel and oil, 2.1 per cent. These bids are made on 21 miles of pave- ment, no part of which will be farther than 3^ miles from the rail- way site. The source of supply of material, except steel, shall be at such distance from the unloading plant that a 5-cent per hundred freight rate will apply on sand and rock. To take an example' in the East, the figures given by the Highway Commission of Pennsylvania for roads in that State are as follows; Total cost of reinforced concrete road with hill-side brick on grades, built with light grading and local materials, $58,000 per mile, made up of the following items : Freight charges* $6,000 per mile, or 10 per cent; materials, $15,- 000 per mile, or 26 per cent; grading, $9,000 per mile, or 15 per cent; labor, $13,500 per mile, or 24 per cent; profit, insurance etc., $14,500 per mile, or 25 per cent. - It can readily be seen that the freight rate is not. an undue pro* portion of the total cost of the road. These roads do not always pay freight charges. Often the materials, except cement, are close to the work and hauled by trucks. When the railroad is used the volume is usually large and is moved by rail close to the work. The very conditions surrounding the operation compel the minimum rates on most of the materials. Senator Pomerene. Let us analyze that for a moment: You say that of ten these materials are clase to the job and therate or freight charge is 10 per cent of the total in Pennsylvania ? Mr. Chambers. This is the maximum charge for building roads in Pennsylvania. Senator Pomerene. In the Minnesota case, where the total cost of building a road is $53,000 per mile, your total freight cost is only 2 i per cent ? Mr. Chambers. Yes; but you will notice in the Pennsylvania case the road is brick, and bricks are very heavy. The most of the rpads is Pennsylvania, especially on the side hills, are built of brick, and of course freight charges are considerable on that ! because it is a heavy article. Senator Pomerene. Bricks are not very much heavier than con- crete ? Mr. Chambers. No; but you have the maximum, haul in the case of the Pennsylvania roads; There is not much level territory in Pennsylvania; it is almost all hilly. I can give you further details if you desire them. .-,.'!.. Senator Pomerene. I was impressed with the fact that with what ' you ; say is a short haul in Minnesota your freight rates! are practically one-fourth what they are in Pennsylvania ? ' Mr. Chambers. That may have been because of the source of supply of the materials. Mr. Thom. The statement is that the materials close to the works are usually hauled by trucks. Senator Pomerene. But you are talking about freight charges ; that is not trucking. Mr. Chambers. What I gave you for Minnesota is the average cost of constructing highways in that State, and I think that can be shown. i Digitized by Microsoft® RAILROAD REVENUES AND EXPENSES. 491 ■ > Senator Pomerene. Of course I realize there is a difference in local conditions, but that is a big difference Which you show there. Mr. Chambers. Practically all materials are closer in the case of Minnesota than in Pennsylvania, especially for sand and gravel. We tried to get these figures representative for the section. Senator Pomerene. All right. ' The Chairman. You may continue your statement. Mr. Chambers. The rates on iron ore from the heaviest shipping ranges, the Mesabi, Vermilion, and Cuyuna, in Minnesota and Wisconsin and Michigan, were not advanced August 26, 1920, under ex parte 74, to the Upper Lake ports, but they did receive an advance in 1918 under General Order 28 of the Railroad Administration. The rates from Wisconsin and Michigan ranges were advanced this spring and there were also advances under ex parte 74 from the Lake Erie ports to the furnaces. Ore is sold delivered at Lake Erie gorts, and the statement below shows the price at Lake Erie of iessemer and non-Bessemer ores for the years 1893 to 1920, in- clusive, with the rail rates to Lake Superior and the vessel rates from Lake Superior to Lake Erie: Price at Lake Erie ports. Kail rates to Lake Supe^ rior 1 . Lake rates, Lake Supe- rior to Lake Erie. . Year. Price at Lake Erie ports. Rail rates ' to Lake Supe- rior. Lake rates, Lake Year. Besse- mer. :N.on- 7 Besse- mer. Besse- mer. Non- Besse- mer. Supe- rior to Lake Erie. 1893 $3.75 2.30-2.50 . i 2.35 3.35 • 2.40 2.00 2.15 4.65 2.77 3.25 4.00 3.00 3.50 4.00 $2.95 2.25 1.90 2.10 2.00 1.70 1.90 3.75 2.40 2.75 3.20 2.65 3.00 3.50 Cents. 80 80 80 80 80' 80 80 80 80 80 80 80 80 80 Cents. 88 79 96 91 63 .,,61 95' 105 84 76 83 70 76 75 1907 $4.75 4.25 4.25 4.75 4.25 3.50 4.15 3.50 3.45 4.20 5.70 6. 15-6. 40 6.20 7.20 $4.00 3.50 3.50 4.00 3.50 2.85 3.40 2.85 2.80 3.55 5.05 5.50-5.75 5.55 6.55 Cents. 80 80 80 80 80 60 60 60 60-55 55 55-63J 63i-100 100 100 Cents. 75 1894 1908 65 1895 19P9 '•': 65 1896 . 1910 ' 70 1897.; 1911 60 1898. . 1912 50 1899. .. . 1913 55 1900 1914 50 1901 1915 50 1902 1916 60 1903 . 1917 100 1904. 1918 110 1905 . 1919 80 1906. .. 1920 110 Senator Pomerene. Do you mean that those prices are the prices of ore at the lake ports during those years ? Mr. Chambers. Yes, sir; that is the base. Senator Poindexter. What do you mean by lake ports — the water rates ? Mr. Chambers. Yes, sir. The above indicates that, after deducting the present rail rate to Lake Superior and the lake rate to Lake Erie, the producer receives a much higher net price for his ore than in former years. Senator Watson. Do you know what per cent of the ores taken out of the Mesabi range are hauled by rail? Senator Kellogg. None are hauled by rail. Mr. Chambers. , We have a rail haul up to the Lake Superior port. "..'.,' Senator Watson. Is it all hauled by lake service ? 63553— 21— Vol T 33 Digitized by Microsoft® 492 RAILROAD REVENUES AND EXPENSES. Senator Kellogg. Senator Watson wants to know whether there is a rail haul from Lake Superior down to the eastern furnaces? Mr. Chambers. No, sir; none at all. The shipments of ore, of courseware greatly affected by the pre- vailing industrial . conditions, especially with the steel production. For several years past shipments were as follows, in tons : Statement of iron ore in, long tons, shipped froml ranges in Minnesota, Wisconsin, and Michigan (upper peninsula) during calendar years 1911 to 1920, inclusive. Eange. 1913 1914 1915 Marquette Menominie Gogebic Vermillion Mesabi Miscellaneous Cuyuna Total Range Marquette Menominie Gogebic Vermillion Mesabi Miscellaneous Cuyuna.. Total 2,833,116 3, 911, 174 2,603,318 1,088,930 22, 093, 532 115,629 147,431 4,202,308 4, 711, 440 4,996,498 1,844,981 32,047,409 104,031 305, 111 3,966,680 4,965,604 4,531,558 1,566,600 34, 038, 643 145,010 733,021 2,491,857 3, 221, 258 3,568,482 1,016,993 21,465,967 105, 765 859,404 4,105,378 4,982,626 5,477,767 1,733,595 29,756,689 80,583 1,136,113 32,793,130 48,211,778 49,947,116 32, 729, 726 47,272,751 1916 1917 1919 1920 5,396,007 6,464,363 8, 489, 685 1,947,200 42,525,612 219,381 1,716,218 4,874,150 6, 045, 750 7i981,684 1, 530, 692 41,445,211 136,632 2,422,884 4,354,207 6, 378, 698 7,936,701 1,192,908 40,396,711 98,057 2, 478, 800 2, 992, 212 4, 442, 868 6, 230, 839 929, 049 31,997,699 359,990 1, 859, 865 4,608,323 6,562,106 8, 763, 332 . 1,007,435 37)149,277 129,571 2, 191, 528 66,658,466 64,437,003 62, 836, 082 48, 812, 522 60,411,572 The movement, in tons, of iron ore and other ores for the entire United States for each of the quarters of 1920, during the last quarter of which the higher rates were in eff eot, were as follows : First quarter. Second quarter. Third quarter. Fourth quarter. 3,215,109 5,219,500 24,183,287 6,355,047 37,487,357 6,283,422 20,605,039 3,843,791 Total , 8,434,609 30,538,334 43,770,779 24,448,830 Total for year, 107,192,S30 tons. Those figures show that of the total iron ore movement over 60 per cent is produced in the Northwest. The foregoing shows that freight rates had no effect upon the movement of iron ore. At the present time there is a very light movement of ore, due to the very large quantity moved last year, a large portion of which is still on the docks at the Lake Erie ports, mainly caused by the decline in steel production, a very small proportion of the furnaces being in .operation at this time. Senator Pomerene. You say here that these figures are the average for the four quarters of 1920. .That means iron ore throughout the country, does it ? Mr. Chambers. Yes, sir. Digitized by Microsoft® RAILROAD REVENUES AND EXPENSES. 493 SenatoT Pombrene. Of course there is no lake oi'e that comes down during 'the first quarter of the year ? ■ Mr. Chambers. No. Senator Pomerene. I was trying to account for the 3,215,109 tons of iron ore handled during the first quarter of the year. Mr. Chambers. The showing takes in all ores. As to the passenger fares^while there has been considerable com- plaint about the increased passenger fares, the increase has not seriously affected passenger travel. Undoubtedly the increased fares have caused some let-up in travel, but a reduction of the fares at this time would not increase the travel sufficiently to offset what would be lost by the reduction. The falling off has been as great in the short hauls as in the longer hauls,- For example,,in the haul of 100 miles (coach travel) the increase was only 60 cents, which, I believe, did not seriously affect the ordinary travel. The present policy of the railroads to make special fares for ex- cursions and to summer jand winter tourist resorts is satisfactory, both to the public and the railroads. The number of passengers carried for the last four months of 1920, when the higher fares were in effect, in comparison with the last four months of 1919, was as follows: Last four months 1919 398, 576, 087 Last four months 1920 399, 435, 875 As showing the trend of passenger business the following earnings are given for the first two months of 1921 in -comparison with the same months of 1920: • ;.• :'•>; -,>!(.■-«( j. <* :';»■ January. February. 1920 '. $91,874,146 105,295,673 $82,671,063 1921.. ; 88,492,533 There has been considerable objection raised to the so-called Pull- man surcharge, .principally because of the fact that it is a new appli- cation in this country of a theory of passenger-fare making which prevails in other countries and is applied on steamships as well as railroads. , The passenger earnings of a Pullman car are practically limited to 32 passenger fares, while a coach costing; one-half the price of a Pullman and weighing a third less will accommodate from 70 to 80 persons. ' In other words, the carrier must haul two and one-half Pullman cars to accommodate the load of. a passenger coach. The surcharge of 50 per cent of the cost of the Pullman ticket is a com- paratively small charge for the additional space occupied and the comfort given to the passenger, and it has not lessened to any con- siderable: extent passenger travel. ■ ' fi As to the Panama Canal: Domestic freight tonnage moving be- tween Atlantic and Pacific ports through the Panama Canal in ves- sels controlled by the United States Shipping Board and independent concerns ' is ' mcreasihg rapidly. The rates have been going down steadily for the psist three or four months, /and there .is very active and rather .severe, competition between the independent carriers and the vessels '^operated by the United States Shipping Board. This Digitized by Microsoft® 494 RAILROAD REVENUES AND EXPENSES. traffic, in both directions, is largely taken away from the all-rail lines. For many years past (except during the war) there has been active competition for this traffic between the all-rail lines and the steamship lines operating between the Atlantic and Pacific ports. Before the opening of the Panama Canal the water carriers operated via Cape Horn and in connection with raU lines across the Isthmus of Panama and also across the Isthmus of Tehuantepec. In connection with the Isthmian railways named freight had to be transferred at both the Atlantic and Pacific ports. The route by Cape Horn was direct sailing between the Atlantic and the Pacific, but of course it was much longer. The sailings now are entirely by the Panama Canal, which avoids transfer en route and gives the shortest distance; therefore the water service to-day is more valuable than ever before. Competition between water carriers themselves has already brought rates down to an unremunerative basis, and unless something be done to stabilize the water rates it is certain that competition will force them still lower and make an unprofitable, and consequently less dependable water service, and such competition will be unfair to the raillines. The Chairman. What do you mean by "unfair to the rail lines?" Mr. Chambeks. I mean this, that the water carriers are left free. They are not regulated in any way; their rates are not under the jurisdiction of the Interstate Commerce Commission. Senator Poindexter. But they are under the jurisdiction of the Shipping Board ? Mr. Ohambers. No; the Shipping Board's own rates are under its jurisdiction, but the independent water carriers are free to make whatever rates they choose. The Chairman. Do you think there ought to be a minimum rate prescribed by some authority for water carriers ? Mr. Chambers. I believe water rates ought to be reasonably pre- scribed, and that rate applied for all shipments by water, that is, domestic shipments. Senator Kellogg. Do you mean in the coast to coast trade ? Mr. Chambers. Yes, sir. Senator Poindexter. Are not you mistaken about the jurisdiction of the Shipping Board ? Mr. Chambers, No, sir. The Chairman. Do you make that statement upon the ground that in the long run the public will be better served by lower rates if there should be regulation, or do you put it upon the ground that fairness to the, land carriers requires a minimum rate? Mr. Chambers. I put it on both grounds. I think the public will be better served and at lower rates; that is, the value of the service will be worth the difference between the unregulated ratej where a tramp boat can go in at any time and take the desirable traffic and leave the, other, and then go somewhere else on the next trip instead of sailing regularly, at which would be produced by regular rates and regular service. , The Chairman. You are not an advocate of the policy of sustaining the rail lines by requiring water carriers to charge more than a reasonable rate, are you? Mr. Chambers, No, sir. I do not ask that the water carriers charge more than a reasonable rate, but I think the rate should be stabilized in some way so that it will not be fluctuating up and down. Digitized by Microsoft® RAILROAD REVENUES AND EXPENSES. 495: The Chairman. You realize that the cost of transportation is less by water than by land, and you therefore expect that such com- modities as can be fairly carried by water will be carried by water ? Mr. Chambers. Yes, sir; and I want to see them get the benefit of water-service rates that will be reasonable by water service. Of course it will be lower than the rail rate. Senator Poindexter. How have the other roads that have met that problem on the Great Lakes and the Erie Canal. gotten along? I heard Mr. Thorn make a statement at one time, and it impressed me very much, and the statement was that the rail rates from west of the mountains to the Atlantic seaboard all the way from the Canadian border to the boundary between Virginia and North Caro- lina, were based upon the rate by the lake and the Erie Canal. How have the railroads dealt with and met and competed with that water service under the conditions which you say affect you as to the Panama Canal ? Mr. Chambers. The regular, water lines on the Great Lakes handle their traffic under joint rail- and water rates., There is an agreed differential below the all-rail rate for the water and rail service, and the great bulk of the traffic is handled in that way. Those rates are regulated; they are under the jurisdiction of the Interstate Cpm- merce Commission, except Senator Poindexter (interposing). The water rate independent of the rail rate; that is, the water rate alone, is not under the jurist diction of the Interstate Commerce Commission. » Mr. Chambers. No; but you will find a very light tonnage being handled exclusively by water lines in competition with rail lines on the Great Lakes, as well as on the rivers or anywhere else. The great bulk of the traffic* on the inland waterways is handled under joint raU and water rates. Senator Kellogg. Speaking of the Panama Canal, the interior country, say Ohio, Indiana, and the central western, would not get much of their traffic moved by way of the canal, would they? „ I mean from coast to coast ? Mr. Chambers. Not very much; those sections might get some. Senator Kellogg. If you take off the toll and tax the American people to pay what is now being paid by the collection of tolls, that would be in the nature of another subsidy to the coast to coast traffic, wouldn't it ? Mr. Chambers. It would be. Senator Kellogg. Will you tell me how much benefit our Central West, from Ohio to the Rocky Mountains, would get out of that? Mr. Chambers. I would say that practically west of Pittsburgh and Buffalo the section would get very little benefit out of the Panama Canal. Senator Kellogg. I mean practical benefit ? Mr. Chambers. Yes. Senator Kellogg. Of course it is a benefit to the whole country. Mr. Chambers. I am speaking about freight charges. Senator Kellogg. Yes; that is what I am speaking about. Mr. Chambers. The rail lines, especially in the West, have been a necessity for the development of the country. The water carriers, have not developed any considerable traffic between the Atlantic Digitized by Microsoft® 496 RAILROAD REVENUES AND EXPENSES. and Pacific ports in their years of operation. I want to say right here that the water carriers between the Atlantic and 'Pacific ports, handling domestic traffic, handle the same line of traffic that the' all-rail lines handle. Their business has been secured -by taking business aWay from the all-rail lines. It is the same way in the opposite direction, eastbound. In all toy experience in dealing with ' water service between the Atlantic and Pacific coasts I do not know of any traffic as to which I would say the water lines are; responsible for its development, except this late movement of lumber that is beginning to come to the Atlantic ports. Their westbound cargo - has been general merchandise: They carry everything the rail lines' > carry, and the rail lines can carry everything that they carry. That ' is true of operations in both directions. The business secured in the ; past and the traffic they are securing to-day is what has been devel-i. oped by the all-rail lines. Necessarily, we expect this water service 1 ; to continue and to take a share of the traffic adj acent to the coast, . especially of the heavier commodities, that move more readily by water; but it would seem in the public interest; as well as hvthe inter- ; est of the competing rail lines, that the water rates be stabilized and' that the Interstate Commerce Commission be given jurisdiction over them. "' We also feel that for the use of the Panama Canal such charges should be made as wouldpay the interest On the investment and the expenses of operation. While it is true that the principal reason for > the construction 6f the canal was for war or defensive purposes, and it was a necessity which we all recognize for the protection of our coun- try, its use by commercial vessels, especially in domestic traffic be- tween the two coasts, and in competition with the transcontinental lines, should pay a fair proportion of the expense of maintenance and ' interest on the investment in this waterway. The rail lines pay .. millions of dollars in taxes on their right of way, and it would hardly be considered fair to permit the water lines competing with them to > make use of this costly right of way by water without paying any • portion of the cost of it. ■ '-' ■*."■•<>■■■ ; While the manufacturer on the Atlantic and Pacific coast' should be given every benefit of his water location, his advantage • should not be increased by still further reducing his cost of dis'tributipil. at; the expense of the interior manufacturer, who will have : to pay his ■' share of taxation necessary in case the canal is not made ; self->' supporting. The yrater lines should not be restricted as to rate competition between ports in this country and foreign countries where they are in active competition with the vessels of foreign nations. : But be- tween ports of the United States, where they are privileged to handle: business without competition of foreign carriers, there is no logical '> reason why their rates should not be 'under the jurisdiction of the Interstate Commerce Commission, as are those of the rail 1 carriers with whom they compete. The Chairman, Mr. Chambers, have you made a computation- that would indicate how much the water rates would have to De increased, through the Panama Canal, if they were compelled to pay their- pro- portionate cost of constructing the canal, and by that I mean interest! upon the cost of constructing the canal, as well as the cost of main-: taining it ? Digitized by Microsoft® RAILROAD. REVENUES AND EXPENSES. 497 Mr. Chambers. Well, I do not have in mind that'we would, put. the whole burden upon this coast-to-coast service, but that it should pay its fair proportion of the cost. The Chairman. I am speaking of a fair proportion. Mr. Chambers. I have not made any computation of that. The Chairman. You do not know what that would be ? ■- ■ Mr. Chambers. No. The Chairman. That would be very interesting if we might dis- cover how much per ton, for instance, water carriers would have to pay for going through this canal. ' Mr. Chambers. I think, Mr. Chairman, the Shipping Board can readily give you that information. •; Senator Kellogg. It is proposed that we take off. the toll entirely and let them pay nothing, as I understand it. The Chairman. Yes; there are propositions of that kind I believe now being made. But I would like to know, taking the tonnage Eassing through the Panama Canal and that part of it which could 1 e regulated by the United States, how much would have to be paid by the water carriers for going through the canal. I think we would find it to be quite a sum of money. ' Mr. Chambers. I suppose that would be based on the entire ton- nage moving through the canal. The Chairman. I Understand that. There is a certain portion of the tonnage passing through the Panama Canal that we could not regulate at all so far as rates on freight charges are concerned. We could, I suppose, attach a duty or fee for going through the canal. '■* Mr. Chambers. But, Mr. Chairman, the tolls to-day, I think, come very nearly paying the cost of maintenance. The Chairman. Yes; 1 very recently. Mr. Chambers. Just for maintenance. Senator Pomerene. Not including interest? Mr. Chambers, No; I suppose, it does not include interest. My impression is that it would not be a very large sum per ton on freight, however. Senator Kellogg. The interest charge alone would be from $15,000,000 to $20,000,000 a year. Mr. Thom. About $25,000,000 I think. Mr. Chairman, we will make some effort to get some statistics on that matter and give them to you. , Senator POmerene. The total cost of the canal in round numbers was $360,000,000, wasn't it ? The Chairman. I think a little more than that. , . Mr. Chambers. Reasonable rates for service on the water would then be prescribed by the commission. Such rates would yields a profit and support a regular, dependable service. This would be far preferable to spasmodic reductions in the water rates, which, would,; result in embarrassment to competing water and rail carriers and make the service far less reliable and less satisfactory, and which would allow tramp steamers to come in for a brief period, and take away desirable water, business and more or less, demoralize the rates and — as has been the practice in the past — leave. the coast to coast business when they found better paying tonnage elsewhere.- In suggesting this we. have in mind also that some consideration' should be given the interior coast and.intermountain territories, as Digitized by Microsoft® 498 RAILROAD REVENUES AND EXPENSES. well as to the other sections of the country nor adjacent to either the Atlantic or the Pacific, which receive practically no benefit from the water service. It would be only fair, therefore, that the water service should be self-supporting, with rates published .under rules and regulations of the Interstate Commerce Commission. The rail rates necessary to meet this competition would thereby be stabilized, which would be desirable from a commercial standpoint as well as from that of the rail carriers. The United States Shipping Board has encouraged service between the Atlantic and Pacific ports and is supporting a regular line via the Panama Canal. Such regular service is of great benefit to the shipper adjacent to the coast, and the competition would not be objectionable to the all-rail carriers if rates were under the jurisdiction of the Interstate Commerce Commission, which would not only be a pro- tection to the revenues of the all-rail lines, but would also avoid the loss which the United States Shipping Board is now suffering in the handling of this coast to coast traffic in competition with other water carriers, a loss which must be met by taxation. We understand that to-day these coast to coast water rates do not yield the operating cost. I guess that is well known. Senator Poindexter. Of course that is an unnatural economic condition, and could not last. Mr. Chambers. I want to read what the Interstate Commerce Commission have said on the competition between the all-rail carriers and the all-water carriers between the Atlantic and Pacific ports. And I will read from 32 I. C. C. 618. Senator Pomerene. When was this delivered? Mr. Chambers. This was decided on January 29, 1915. The commission said as follows: The carriers are not asking authority to make lower rates from the Atlantic seaboard than from intermediate points, for the very obvious reason that were the rates so adjusted the Pacific coast would soon be supplying itself from the Atlantic seaboard with many of the articles which are at present snipped from the interior territory. By maintaining higher rates from the intermediate territory than from the Atlantic seaboard the railroads would concentrate a large part of the business on the Atlantic seaboard in territory contiguous to the sea. The carriers have therefore asked for no such relief. Can it be said that their rates should be so made, and that they should be asking for such authority? What interest would be served by lower rates from the eastern seaboard to the Pacific coast than from Chicago? Clearly not the carriers' interests. Any such adjustment of rates would be altogether adverse to the interests of the carriers and would almost inevitably result in their hauling much freight from the seaboard to the Pacific coast which they now haul from intermediate^ points such as Chicago, a shorter distance, at a less expense. The same policy would result also in serious injury to many of the industries located at interior points which have, under equal rates, built up a large and profitable business on the Pacific coast. Many articles are produced and manufactured both in the interior and on the Atlantic seaboard. Only a certain quantity of theBe manufac- tured articles can at present be consumed on the Pacific coast. Any rate adjust- ment that tends to stimulate the movement of these articles from the Atlantic sea- board will to the same extent decrease the movement from Chicago and other inter- mediate points. The principal beneficiaries of suoh an adjustment of rates would be the shippers on or near the Atlantic seaboard to whom would be given a monopoly of many articles in the markets of the Pacific coast. It is clear that the carriers' interest and the interests of the major part of the public servedlie in the direction of the maintenance of rates from the intermediate points no higher than from the Atlantic coast. The intent of the fourth section and the aim of the commission in enforcing its provisions is to reduce discriminations,, not to augment them. Discriminations of vast importance against intermediate points of origin would be created by the establishment of lower rates from the Atlantic seaboard to the Pacific coast than from intermediate points. Digitized by Microsoft® RAILROAD REVENUES AND EXPENSES. 499 Senator Poindexter. What case is that which you refer to ? Mr. Chambers. Commodity rates to Pacific coast terminals and intermediate points; 32 I. C. C. And from the same case, on page 621, I will read what the com- mission said. Senator Pomerene. But the fact remains that notwithstanding that observation they have not been living up to it always. The rates have been lower to the coast from the interior than they are, let us say, from Ohio to Boise City, and the intermountain regions. Mr. Chambers. Yes; this refers to the Pacific coast territory, the territory where the water lines compete. The commission said, on page 621 : It has been suggested that the construction of the Panama Canal by the Government of the United States is indicative of a governmental policy to secure all of this coast- to-coast business for the water lines, and that no adjustment of rates by the rail lines should be permitted which will take away traffic from the ocean carriers which nor- mally might be carried by them. This suggestion, however, loses force under the consideration that the Panama Canal is but one of. the agencies of transportation that the Government of the United States has fostered between the Atlantic coast and the Pacific. The Government has from the beginning of railroad construction in the United States encouraged their construction and operation by private capital and enterprise. Some of these transcontinental lineB would not have been built had it not been for the liberality of the Government extended to them at the time of their construction. As we view it, the Panama Canal is to be one of the agencies of trans- portation between the East and the West, but not necessarily the sole carrier of the coast-to-coast business. If the railroads are able to make such rates from the Atlantic seaboard to the Pacific coast as will hold to their lines some portion of this traffic with profit to themselves, they should be permitted so to do. The acceptance of this traffic will add something to their net revenues, and to that extent decrease and not increase the burden that must be borne by other traffic. It will also give the shippers at the coast points the benefits of an additional and a competitive service. I will now read from the case decided June 30, 1917 (46 I. C. C, 268). The argument advanced by the water lines, if carried to its logical c6nclusion, means in effect that all traffic which may be hauled by water carriers should be reserved for their exclusive handling. The rail carriers can not maintain, under ordinary circumstances, a level of rates between the Atlantic and Pacific coasts, between the north Atlantic ports and ports on the south Atlantic or Gulf coast or between points on the Pacific coast that will be successful in securing any consid- erable amount of traffic in competition with water carriers without fourth section relief. We are of the opinion that the best interests of the public, of the transcon- tinental carriers, and of these intermountain cities in particular, will be served by a policy that permits the transcontinental carriers to share with the water lines in the traffic to and from the Pacific coast ports. The lower rates to the ports, however, when necessary, must not be lower than the competition of the boats makes necessary, and must be high enough to cover, and that by a safe margin, actual out of pocket costs of securing and handling the traffic. The shippers at the coast are thereby given the benefit of competing routes and competing markets of supply. The rail- roads are enabled to fill up their trains with traffic which, although not highly profita- ble, yields a revenue materially greater than the out of pocket costs of securing and handling the traffic, thereby adding to the net revenues of the carriers and to that extent lightening the transportation burden borne by other localities. These transcontinental railroads can fairly expect such consideration as will permit them to continue to earn a reasonable return upon their property devoted to public use. jf governmental control is so exercised as to prevent them from securing any considerable share of the business to and from the terminals and the largest possible return therefrom, such return must be derived from the other communities along their lines. It is perfectly clear that the Pacific coast cities have always paid lower transportation rates than they would have paid were it not for the facilities they have enjoyed for bringing manufactured articles from the eastern manufacturing districts and for sending East the products of the coast States by water. It is also clear that Digitized by Microsoft® 500 RAILROAD REVENUES AND EXPENSES. the intermountain section of the country has paid and now pays rates for the trans- portation, of these manufactured articles which are higher proportionately than is paid by the coast cities and probably higher than it would be necessary to main- tain if the rates to the coast cities could be maintained at a level more nearly pro- portionate to the service given. The Chairman. Mr. Chambers, the committee is rather familiar with that general .subject, and if you would mark the passages from these decisions that you desire to have put in the record I think it would abbreviate the matter somewhat. Mr. Chambers. I think that is all I have that I wish to read from these Interstate Commerce Commission decisions. Depressed business and railroad rates: The present depression in business, while distressing, is no different from depressions in the past. We had one in a smaller degree in 1907. There was a great depression in 1893. None of these depressions was preceded by any general advance of freight rates and passenger fares. We had . been warned to expect the present period of liquidation and the consequent depression as an aftermath of the World War. In 1914, just prior to the commencement of the war, there was a de- pression in business in this country of several months' duration,, which had become very severe, especially in the industrial sections in the East, and promised to be of long duration and great severity, but it was cut short and turned into a period of prosperity by the heavy purchases from this country by France, England, Italy, and the other allies. A very severe depression followed the armistice, in November, 1918, during which the tonnage of the carriers fell off considerably. It lasted until the following June. Senator Poindexter. When do you look for a revival of busi- ness ? Mr. Chambers. Well, I think business is coming along slowly, very slowly, but I think I can see some improvement. Senator PorNDEXTER. There is an improvement now, is there not? Mr. Chambers. There is some improvement; yes. The improve- ment is not very great, but I think I can see some improvement. In conclusion, I suggest that if all doubt as to the likelihood of a general reduction in freight rates, should be removed, it would have a tendency to stabilize purchases at the present levels. The uncer- tainty as to the freight rates has caused hesitation among purchasers and others on the chance of some general action. It must be clear to. all that no general reduction in either freight rates or passenger fares can be made at this time without serious results to the railroads. It is as much to the interest of the public as a whole that railroads have sufficient revenue as it is to the individual railroad. Shippers' complaints of rate adjustments should first go to the carriers inter- ested and the. carrier and shipper should together endeavor satis- factorily to work them out. Any disagreements can be promptly handled by the Interstate Commerce Commission. I am satisfied that if this is done the situation will gradually improve. Wherever the rate is found to be prohibitory or unduly burdensome it is being modified. The carriers are just as anxious to do this as the shippers are to have it done. I feel that what I have presented sustains the claims with which I started — that is, that the advance of rates authorized by the Inter- state Commerce Commission in Ex Patre 74 did not operate seriously Digitized by Microsoft® RAILROAD SEVENTIES AND EXPENSES. 501 to impede the traffic of the country, referred to in point 3 of the Senate resolution, and that therefore no occasion exists for any general action, as indicated in point 5, toward reducing rates by either the Congress or the commission. Indeed, as before mentioned, it is not practicable to make any general reduction in rates until the railroads of the country have been put in a going condition, either by a reduction of expenses, or by an increase of tonnage, or by both. The Chairman. Mr. Pomerene, will you inquire of the witness? Senator Pomerene. No; I think I have nothing further. The Chairman. Mr. Poindexter ? Senator Poindexter. I have no questions. The Chairman. Mr. Watson ? Senator Watson. No; I have nothing. The Chairman. Mr. Kellogg? Senator Kellogg. No. The Chairman. Mr. Fernald ? Senator Fernald. Nothing at all, sir. Senator Pomerene. There is just this one question. I take it, in view of your quotations from the Interstate Commerce Commission reports, that you, in a general way, concede the necessity of making some readjustment of these rates as between rates from the interior to the intermountain region, and from the interior to the Pacific coast, or from the interior to the Atlantic coast, as compared with the far West and the Atlantic coast ? Mr. Chambers. That is, I see the necessity of making some changes in the rates from this eastern territory in order to compete with the water carriers, and also from the Pacific coast territory to this eastern territory, and those rates, of course, should be maximum at the intermediate points of origin. Senator Pomerene. And also would you not extend that just a little farther so as to enable the business man who lives in the in- terior to compete with the business man who is on the coast ? Mr. Chambers. Well, that is another question, Senator, Senator Pomerene. Of course, it is another question, but I want to see what your answer is. Senator Poindexter. I think it is just the same question. Mr. Chambers. Unless compelled otherwise, we charge the interior shipper in the West the normal rate, a fully reasonable rate, and we only go down below a fully reasonable rate when we are compelled to do it by competition, and in cases of that kind we get authority to carry such an adjustment from the Interstate Commerce Com- mission. Senator Poindexter. Well, you can not do that now because the law requires the rates to be compensatory. Mr. Chambers. Well, we never publish any rate that we do not think we make some money out of. The Chairman. Mr. Chambers, in the reports which your company has made to the Interstate Commerce Commission for the year 1920 3tnd that part of 1921 that has so far elapsed, you did not include in your operating revenues any sums paid by the Government or to be paid by the Government under the guaranty running from the 1st of March, 1920, to the 1st of September, 1920, did you? Digitized by Microsoft® 502 RAILROAD REVENUES AND EXPENSES. Mr. Chambers. I am not familiar with that part of our operation sufficiently to answer that, Senator. The Chairman. Well, you understand from what has already de- veloped here that taking the railroads as a whole, whether you look at them during the calendar year of 1920 or from the 1st of March, 1920, to the 1st of March, 1921, the net income from operation was negligible ? Mr. Chambers. Yes, sir; I know that part of it. The Chairman. Well, you know then, do you not, whether there was included in those reports, in order to ascertain the result, the money that came from the Government under its guaranty ? ' Senator Kellogg. Well, of course, we all know it could not be included, because the law did not permit it to be included. The Chairman. Well, I simply wanted it to appear. He knows what the outcome was with his own company. Mr. Chambers. Well, I should say it was not included, because it is mainly costs — the basis. The Chairman. And of course, therefore, these reports that have been put in evidence, and with which we are very familiar, rather exaggerate the condition — not improperly so ; I do not mean to say that there has been any want of accuracy in making the report — • because during the year 1920 you either have received or you will receive a very Targe sum of money from the Government. And there- fore your case is not quite so bad as it would appear from these records, is it ? Mr. Chambers. Well, I do not believe I could discuss that, Mr. Chairman. I am not sufficiently familiar with those details. I have not had to handle them. The Chairman. Well, you would not call the payment of four or five or six hundred million dollars a detail, would you ? Mr. Chambers. No. Well, sir, millions now do not mean very much. The Chairman. I have forgotten whether I have asked you to hand to the reporter your monthly reports showing your expenditures for maintenance and operation during the first six months after the road was returned to you and a similar report or series of reports for 1917, 1918, and 1919. I have forgotten whether I have asked you for that. Mr. Thom. You have not asked for those reports of this witness/ Mr. Chairman. The Chairman. I want those reports put in. You may not have personal familiarity with them, but then you have them at your command, I am sure. Will you do that ? Mr. Chambers. I will be glad to attend to that, Mr. Chairman; yes, sir. Note. — This request was withdrawn. The Chairman. That is all. Mr. Thom, will you call your next witness. Mr. Thom. Mr. Ilea. TESTIMONY OF MR. SAMUEL REA, PRESIDENT OF THE PENN- SYLVANIA RAILROAD CO. (The witness was duly sworn by the chairman.) The Chairman. Will you please proceed and make your statement, Mr. Rea. Digitized by Microsoft® RAILROAD REVENUES AND, EXPENSES. 503 Mr. Rea. Mr. Chairman and gentlemen of the committee, wi,th your permission I desire to make the following statement : You have had very fully explained to you statements of the reve- nues and expenses of the railroads for a series of years, including the various increases and decreases. I indorse , the testimony already given as the general experience of the Pennsylvania system, which carries about 12 per cent of the ton-miles and 15 per cent of the passenger-miles of the country. I feel, however, that this inquiry would not be complete without drawing your attention to some im- portant questions which directly affect the present condition of the railroads and their immediate outlook, especially in this period of a very i severe business depression. Your committee very properly exansdned the results of recent years, for it is clear that if the net returns of the carriers had been ample during the past decade they would now be able to go through the existing depression without serious detriment to their own credit and to the country. The property investment returns of the carriers of the United States are indices to the situation, and these returns have been inadequate. They are as follows: All railroads in the United States: Per cent. 1913 , 5.01 1914 4.12 1915 ....,:...'..* 4.17 1916.... : 6.17 1917 .:'......! ....... 5.31 1918 , ■■. 3.60 1919 ... 2.64 1920 33 In 1916 the railroads enjoyed heavy traffic and were operated prac- tically to capacity, and therefore with the greatest economy, because material 'and labor costs had not then reached war levels. The returns earned from operations for the years 1918 to 1920 can not be taken as indicative for the reason that the traffic rates were not adjusted to meet the current costs. In those years the railroad com- panies had the benefit of the rental under the Federal-control con- tract, and the guaranty under the transportation act provided they realize such rental and guaranty by actual payment. So far there are serious unsettled questions as to actual settlements for both periods. Unless a fair interpretation ig given to the Federal control and transportation acts and the Federal-control contract and of the conditions under which the railroads were taken over by the Presi- dent, the amounts of Federal-control and guaranty-period compen- sation will prove theories and not actualities, because they will not be paid to the railroads, and the cost, either in whole or in part, of restoring the properties and the disorganized organizations will be placed on the corporations, which would be an injustice and would endanger their financial condition. These questions are more fully referred to hereafter. In many particulars the present position of the railroad companies and their lack of traffic is due to world-wide conditions, which prevail also in the other industries as well as in the railroad business. But the difference between these industries and the railroads in meeting those conditions is that the industries had the advantage of sharing in the high prices and profits of the war period, and at present the Digitized by Microsoft® 504 RAILROAD REVENUES AND EXPENSES. industries have the power to fix their prices and wages, and to shut down their plant if the business or profits do not warrant their operation. The railroads, however, were in the war period restricted to the returns of the test period, and even under the transportation act are not allowed to retain the profits made under reasonable rates if in excess of 6 per cent on their property investment — if they happen to be so fortunate as, to obtain that result — but are required by law to divide the so-called excess with the Government, and hence are largely prevented from fortifying themselves to the fullest extent to meet depressions. Although the railroads were granted higher rates, effective August 26, 1920, yet since that date they have proven to be insufficient to cover their costs and yield a fair return. Though, many railroads are facing financial difficulties, they can not promptly reduce wages nor change the wasteful working conditions to the level of the going wages and working conditions of the industries through the territory they serve. That must be done by the Labor Board. By Federal law the rates were to be fixed to produce a fair return, yet the railroads are apparently unable to insist upon compliance with that law so long as supply and demand restrict production and consumption and reduce the volume of traffic. The railroads, therefore, must get the requi- site financial results to allow them to exist, by postponing all capital expenditures, by curtailing employment, by shutting down all possi- ble activities on the road and in the shops and offices, by stopping; the purchase and use of supplies, by postponing for the present, even though they will cost more later, all maintenance or replace- ment expenditures except those requisite for safety. Railroad managements, while trying to operate and maintain good service under these conditions, are striving to fulfill their responsibilities to the investors who furnished the moneys to. provide the transportation properties and service. These investors and owners did not receive any higher returns to meet war costs as did the railroad employees through higher wages, and the farms and' industries through higher prices and greater profits. Railroads and the Nation must still rely on the investors to continue their railroad investment and furnish additional capital in the future, provided the country can retain the railroad investors' confidence through equitable treatment. They must have some definite assurance that, although they can not obtain one penny out of railroad revenues until the railroads pay (1) wages, (2) taxes, and (3) materials and all other expenses of operation, yet the railroads are still backed by law and public opinion, so that the railroad investment will be preserved under railroad regulation and a fair return eventually paid. These in- vestors and owners must further believe that the State authorities--^- although many have been or are still resisting rate increases— will be fair, and the employees as a whole will be 1 reasonable in their demands, and will eventually have the interest of the country and owners at heart, although their leaders may be unwise in insisting on a continuation of high wages, and the wasteful national agreements and working conditions in this period of war adjustment and depres- sion, when, such a course is restricting business and is forcing unem- ployment. ; 1 Digitized by Microsoft® RAIUIOAD REVENUES AND EXPENSES. 505 Neither individuals, railroad corporations, nor governments can escape paying the cost of postwar adjustment. The optimism and confidence I nave in the justness of public opinion, and equitable treatment of the railroads by the Federal and State Governments, and in the eventual common sense and loyalty of railroad employees, do not change my belief that the situation must be adjusted, and that adjustment can not be effected without a sacrifice in which all must bear a part. The sooner we realize this, the quicker will normal conditions be reached. Senator Watson. Will you tell what you mean by that, Mr. Rea ? Mr. Rea. Which? Senator Watson. Well, that is a generalization. Mr. Rea. Yes, sir; that is a generalization. Senator Watson. That is a generalization with regard to sacri- fices. Will you come to that point after a while and tell what you mean by that ? Mr. Rea. Well, that is a general statement. Senator Watson. I understand that. Mr. Rea. I think further on I take that up, Senator. Senator Watson. Very well. ^ Mr. Rea. Results under transportation act : The transportation act became effective March 1, 1920, and was designed as a constructive measure to strengthen the financial position of the railroads and enable them to continue a high standard transportation service. Rates were to be made for two years from that date to produce a property investment return to the railroads of the country as a whole, or m groups, of 5.5 per cent or 6 per cent on the valuation of the property as determined by the Interstate Commerce Commission. The act also provided that wages could not be reduced prior to Sep- tember 1, 1920, and also authorized guaranteed payments to the carriers for the use of their property during the same six months. In other words, the law specifically recognized the six months' period as one in which the financial and physical conditions and working organisations of the carriers would have to undergo adjustments. It is therefore clear that the operating returns for the year 1920 could scarcely be expected to produce a return at the rate even of 5.5 per cent on the valuation of the carriers, and that was the reason for, fixing a guaranteed return for six months. The obstacles to pro- ducing even the 5.5 per cent return were, that wages were increased by action of the Labor Board, effective May 1, 1920, and the war working conditions were continued in effect; and the rates were not increased until August 26, 1920, and many of them have not yet been increased; due to State laws or State commissions. Further, there was the unauthorized strike of April, 1920, and higher costs for labor and materials existed through the greater part of the year. Altogether it was a period of readjustment from war conditions. But from September 1, 1920, when rates as well as wages had been increased, there should be a better basis for judging the results of the transportation act if traffic had continued normal. The return earned by all the railroads of the country for the six months ended February 28, 1921, was only at the rate of about 2.5 per cent per annum, on the value of the property devoted to public use, against a mandatory minimum return of 5.5 per cent; but the transportation act alone can scarcely be blamed for the defi- Digitized by Microsoft® 506 RAILBOAD REVENUES AND EXPENSES. ciencies of return which reflect a worldwide business depression— for one-half of this period very severe. It will be found by experience that, compared with war conditions, when we supplied all the world, our production is materially in excess of average consumption,, so that production, prices, and consumption all need adjustment, and the railroads are bearing part of the costly loss of traffic, incidental to these conditions. Admitting that the transportation act can hot be blamed for the deficiencies in railroad returns, and for the weak financial condition in which the railroads have been placed; yet the facts can not be overlooked (1) that in the six months period ended February, 1921, when the full results of both the increased wages and the increased rates were in effect, the return earned by the railroads on the property investment, as determined by the Interstate Commerce Commission, was at the rate of only about 2.5 per cent per annum, and (2) that the railroads failed by $313,565,368 in these six months to earn the return at the rate of 6 per cent per annum authorized by the trans- portation act; (3) the railroads are not earning fixed charges and fully maintaining their properties; (4) they are short of working capital and are still in a business depression — one of the worst in their experience. While we hope that the bottom has been reached, I would point out that there can be no resumption of railroad pros- perity until there has been an increase in the movement of coal, coke, ir-on, steel, and other building construction materials and heavy products. The mines, industries, and farms of the country must rise and fall together; one can not be made prosperous or continue pros- perous at the expense of another. Manifestly, in view of these con- ditions as to operating expenses and the necessity to pay taxes, fixed charges, and sustain the credit of the railroads, it became an imper- ative necessity to reduce labor costs and enforce the serious retrench- ments to which I have referred. Therefore the real railroad problem at present is to put the carriers in a position to meet their obligations and support their investment during the period of depression. To save many of them from bank- ruptcy, a prompt and adequate reduction in wages is essential, as well as the abolition of the wasteful national agreements and the substitution therefor of agreements with the employees that will pro- mote greater efficiency and provide reasonable working conditions, so that the wages and working conditions will correspond generally to present conditions. It is not a question of any controversy with employees or labor unions, and it originates from no desire to see that railroad meij are not paid adequate wages, because that would be hurtful to the railroad business and cause the better men to go into other industries; but it is clearly a condition where the dollars earned are not sufficient to pay the wages, maintain the property, and also enable the companies to meet their obligations. The property investment return for the clendar year 1916 enabled the railroads to exist and meet their obligations. It snowed a return of 6.17 per cent, and a large volume of traffic was carried with great efficiency and economy, because the war levels of wages and prices had not been reached. In that year out of every dollar of revenue earned, 40.8 cents were paid to labor, but in 1920, 59.9 cents out of every dollar were so paid. In 1916, after paying for materials, taxes, and rents for equipment and joint facilities, 28.9 cents were left out Digitized by Microsoft® RAILROAD REVENUES AND EXPENSES. 507 of every dollar earned to pay fixed charges and a return upon the investment, but in 1920 only 1 cent was left. Therefore the fixed compensation for the first eight months of the year saved most of the roads from bankruptcy. Senator Pomerene. Do you mean the calendar year, Mr. Rea? You say in 1920. Mr. Rea. Yes, sir; the calendar year. Taking the last quarter of 1920, when rates as well as wages had been adjusted, it required 55.1 cents out of every dollar of revenue to meet the pay rolls. The total pay-roll compensation rose from $1,468,576,000 in 1916 to $3,698,- 216,000 in 1920, and the average annual compensation per employe© rose from $892 in 1916 to $1,820 in 1920. If the labor board award had been effective from January 1, 1920, instead of May 1, 1920, the average annual compensation per employee would have been"$l,926, an increase over 1916 of 115.92 per cent. Under the conditions outlined it is clear that no horizontal or general reduction in rates can be granted until such time as the net railway operating income of the railroads shows a very substantial improvement over the results now obtaining, which are at present insufficient to meet their fixed charges and usual dividends, and also until the railroads have restored any inadequacy of maintenance. Otherwise the railroads, having no margin of past or present profits, the standard of their property and equipment will be so undermined that it will take many years to recover. Further, until the foregoing economies are effected, a general rate reduction would not be in the public interest, as it would force the railroads to produce and sell transportation for less than cost, and it is extremely doubtful if it would stimulate production or increase purchases of goods by the public. In addition, so long as the railroads can not earn a fair return, and are much below the 5.5 per cent return on the value of their property as contemplated by the transportation act, and have no cash surplus from the previous years, there must be a deficiency in transportation facilities, equipment, and service, and the cost of that deficiecny to the public is much greater than the continuation of transportation rates that give some fair measure of profits. Under such conditions it is evident that no steps should be left untaken which will strengthen the financial position of the railroads > as it is evident that while rates should not be reduced, it is equally evident that they can not be increased under existing conditions. Therefore, I feel sure from the inquiries directly made in this hearing that this committee will be interested in any suggestions that will ameliorate the financial position of the railroads, especially such measures as may be carried out without placing a further burden on general business. There has never been a doubt in my mind of the intention of Congress to authorize prompt and fair compensation settlements with the railroads for the Federal control period, and for the guaranty period. The Government assumed the possession, use, and control of the railroads, and used them as if it owned. them, during the war period. It also made large capital expenditures thereon, amounting to about $1,200,000,000 to win the war, and at a time when the cost 63553— 21— Vol I 34 Digitized by Microsoft® 508 RAILROAD REVENUES AND EXPENSES. of labor and materials was the highest. These capital expenditures must be assumed and paid by the railroads, with interest. Almost $400,000,000 of the above capital expenditure was for equipment allocated to the railroads, and was funded by the Govern- ment through the National Equipment Trusts, negotiated with each of the railroads, which require the railroads to pay back to the Government these capital expenditures for equipment during a period of 15 years, with interest at 6 per cent per annum. This left about $800,000,000 of capital expenditures, chiefly for road and facilities, to be funded by the carriers. It will be recalled that under the terms of the transportation act discretion was conferred upon the President to fund all these expenditures, but the right was conferred upon him with certain limitation^ to offset against such expenditures, amounts due by the Railroad Administration to the carriers on other accounts for the Federal control period, and this right will, by an understanding with individual carriers and under the terms of the act, be exercised by the administration. However, under the different conditions that now exist, these arrangements should be altered if the carriers can not meet them, as it is impossible for the railroads to sell securities and pay off all these capital expenditures at present, and they have a shortage of working capital and practi- cally no surplus earnings. Unless such funding is required a con- siderable part of the capital expenditures for additions and better- ments made during Federal control will in effect be paid for through the application of what may be regarded as current funds due to the railroad companies, now urgently needed by them for current purposes. In view of the present situation of the railroad companies, and having regard to the emergency which now exists, I suggest that the President should, in the public interest, exercise his discretion so as to permit the funding of the entire expenditures of the character referred to which were made during the period of Federal control. Expenditures for additions and betterments are capital expenditures and they ought to be treated as such in the final disposition of the accounts covering the period of Federal control and should not conse- quently be taken care of even in part by the application thereto of current funds or by withholding any part of the amounts due to the carriers for the Federal-control period. The railroads themselves would have been obligated to raise the capital in advance of making such addition and betterment expenditures, or else the work Would not have been done, and the Government — without loss to itself and receiving a good interest return— should be willing to fund these expenditures instead of withholding the cash that the railroads need badly to meet current requirements and help them to surmount this difficult period. I, therefore, respectfully suggest, unless the President will so exercise that discretion, your consideration of an amendment of the transportation act which will direct the funding of all expenditures for additions and betterments made during the period of Federal control. In making this suggestion I am following the provisions of Senate bill 3288, of the Sixty-sixth Congress, first session, which was intro- duced by Senator Cummins, in October, 1919, except that I suggest 15 years instead of the 10 years mentioned therein. Unfortunately this section was amended in conference. Experience has since justi- Digitized by Microsoft® RAILROAD REVENUES AND EXPENSES. 509 fied the view held at that time by the chairman and members of this committee. I quote section 2, first paragraph, as follows: _ The indebtedness of any carrier corporation to the United States, existing at the time of Federal control is relinquished, incurred for additions and betterments made during Federal control, or for advances made by the United States or incurred to pay off any carrier's indebtedness properly chargeable to capital account, shall, at the request of the carrier, be extended for a period of 10 years, or a shorter period, at the option of the carrier, with interest at the rate of 6 per cent per annum, payable semiannually on the first days of January and July of each year. Said indebtedness shall be evidenced, if practicable, by the first mortgage bonds of the carrier; b this is impracticable, then in such form as shall be prescribed by the President. The Chairman. We will not be able to finish this morning, Mr. Rea, so if it is not inconvenient to the members of the committee we will adjourn at this time. Senator Watson. I would like to ask him a question before you adjourn. Do you take up specifically the present condition of the Pennsylvania Railroad System to show how it now compares with what it was before the period of Federal control, and then make spe- cific suggestions as to what you think is necessary in order to re- habilitate the Pennsylvania Railroad System and put it back on its feet? ' V l Mr. Rea. No, Mr. Senator; I do not deal with the Pennsylvania Railroad specifically. Senator Watson. You do not ? You just deal generally with all the railroads ? Mr. Rea. Yes; because the railroad situation is pretty much the same, and the statistics have been given for all. I am prepared to answer any questions that the committee may want to ask. I have got all of our data here and will be ready to respond if, after I am through with my statement, we have not said enough. The Chairman. The committee will now stand adjourned until 10 o'clock to-morrow morning. (Whereupon, at 11.50 o'clock a. m., Tuesday, May 31, 1921, an adjournment was taken until 10 o'clock a. m., Wednesday, June 1, 1921.) Digitized by Microsoft® Digitized by Microsoft® EAILEOAD REVENUES AND EXPENSES. WEDNESDAY, JUNE 1, 1021. United States Senate, Committee on Interstate Commerce, Washington, D. C. The committee met, pursuant to adjournment on yesterday, at 10 o'clock a. m. in room 410, Senate Office Building, Senator Albert B. Cummins (chairman) presiding. The Chairman. The committee will be in order. Mr. Rea, we will proceed with your testimony. TESTIMONY OF MR. SAMUEL REA, PRESIDENT OF THE PENN- SYLVANIA RAILROAD CO.— Resumed. Mr. Rea. I wish now to take up the Federal control act and con- tract differences, which should be decided. I also suggest; as further relief, a change in the act equally neces- sary and equitable to both the Government and the railroads — -i. e., an amendment which will assure the observance of the recommenda- tions made by the President at the time he took the railroads over, viz, that the railway properties will be maintained during the period of Federal control m as good repair and as complete equipment as when taken over by the* Government, and, further, that investors in railway securities might rest assured that their rights and interests would be as scrupulously looked after by the Government as they could be by the directors of the several railway, systems, which in effect means a full observance of the similar provisions of the Federal control act. The seriousness of that situation is indicated in the recent statement by the Director General as of May 1, 1921, of the condition of the United States Railroad Administration in the mat- ter of liquidating questions in dispute arising out of or incident to Federal control, which statement I submit herewith and which is, I think, of sufficient importance to form part of the records of this hearing. (The statement referred to is as follows :) [Letter from the Director General of Railroads to the chairman Committee on Appropriations, House of Representatives, transmitting a statement (as of May 1, 1921) of the condition of the United States Rail- road Administration in the matter of liquidating questions in dispute arising out of or incident to Fed- eral control.] Letter of Transmittal. United States Railroad Administration, Washington, D. C, May 5, 1921. Hon. James W. Good, Chairman Committee on Appropriations, House of Representatives, Washington, D. C. My Dear Mr. Good: Replying to your favor of the 21st ultimo, requesting a general statement of the financial situation of the Railroad Administration, as to the funds available to complete settlements to be made with the carriers of claims "arising 511 Digitized by Microsoft® 512 RAILROAD REVENUES AND EXPENSES. out of or incident to Federal control," and also asking an estimate, if possible, as to additional amounts, if any, in excess of existing appropriations, that will be necessary to complete such final adjustments, I am attaching hereto a detailed statement of the situation as it at this time exists. . As to the final amount of claims that will be filed, and the amount of funds necessary to complete the final adjustments, both of these items must necessarily be estimates of the claims that will be eventually filed and the amount that will be necessary to to complete final settlements. In addition to the uncertainty involved in the inability to definitely state the amounts just suggested the final liability of the Railroad Administration will neces- sarily depend upon the determination by the courts of important differences that now exist between the Railroad Administration and the carriers. These differences very largely involve the construction of what is known as the upkeep section of the standard contract, and refer specially to the disputed items of maintenance, repair, renewal, retirement, and depreciation. The complex and variant character of the formulas upon which the claims filed on final settlement have been prepared, and the unexpected excessive amounts of these claims, has required time to properly examine and analyze each claim. The results of the final settlements which have been made amply justify the time and expense required in making these examinatidns. Any additional or more detailed information which you or your committee may desire will be promptly furnished upon application. Yours, very truly, Jambs 0. Davis, Director General. Statement of the Condition of the United States Railroad Administration in the Matter of Liquidating Questions in Dispute Arising out of or Inci- dent to Federal Control. i. number of properties under federal control with which adjustments must be made, and amount of claim filed. There were 555 separate properties taken over by the Government. The standard contracts, however, include with various companies certain subsidiary lines, so that the total number of adjustments that must be made with lines under Federal control aggregate 445. These are divided as follows: First-class roads „ 161 Second and third class 'roads 110 Terminal and switching roads , 174 In addition to the roads above described there are 855 short lines, each making claim that it was under Federal control from January 1 to June 30, 1918, on which latter date most of them were formally relinquished; The status of these short lines with the Railroad Administration has been a matter of dispute, and will be more particularly discussed in another paragraph of this statement. There are also a substantial number and amount of maritime claims growing out of the taking over and operation of steamship lines connected with railroad operation. Up to this time 73 first-class roads have filed their claims on final settlement, 30 second and third class roads, and 46 terminal and switching companies, making the . total number of claims filed 149. These claims, as filed, represent about 33.5 per cent in number and about 58.5 per cent if measured by mileage. I think it fair to say that the claims as filed will represent about 50 per cent of the aggregate amount that will be finally claimed by the carriers. , The total amount of the claims filed to date is $633,708,281. If the claims yet to be filed are prepared on the same general lines as those already filed, the total claims presented on final settlement will aggregate a little more than $1,250,000,000. In addition to the claims of the carriers on final settlement, there are claims for damages arising out of what is known as the Minnesota forest fires; the claims of some 855 short lines; the lap-over obligations of the Railroad Administeation in the matter of loss and damage, personal injuries, fire losses, labor claims, overcharges, and taxes arising out of Federal control, and also a balance due on account of the contracts and operation of the inland waterways, it being provided in section 201. of the transporta- tion act that the Railroad Administration shall pay out of its appropriation liabilities arising out of the completion subsequent to the termination of Federal control of contracts entered into prior to March 1, 1920, and operating obligations arising prior to the same date in the matter of inland waterways. Digitized by Microsoft® RAILROAD REVENUES AND EXPENSES. 513 Reparation claims and judgments, awards, and decrees against the administration are not included in this estimate for the reason that provision is made for the payment of these claims in paragraph (e) of section 206 and paragraph (e) of section 210 of the transportation act, reparation claims being more particularly referred to in the section of this report immediately following. Up to May 1,' 1921, the Railroad Administration has made final settlements with 47 roads, of which 19 were first class, 11 second and third class roads, and 17 switching and terminal companies. Forty-four of the roads settled with had claims amounting to $96,821,801 and were allowed in final settlement $42,286,914, or 43.68 per cent of amount claimed. The other three, being debtor companies, and having claims amounting to $27,219,066, were disposed of by funding on account of additions and betterments to amount of $6,800,000. The funding obligations are represented by notes of the companies, running 10 years from March 1, 1920, secured by first-mortgage bonds as collateral. The limited number of adjustments so far concluded is accounted for by the fact that during the calendar year 1920 comparatively few claims on final settlement were filed, and the further fact that the claims that have been filed are so much larger than was anticipated and upon such variant and complicated formulas, especially as to maintenance, that reasonable time is required for the analysis of each claim. ■ II. CLAIMS OF THIRD PERSONS AGAINST THE RAILROAD ADMINISTRATION, BEING ADDITIONAL TO THOSE SET IIP BY THE CARRIERS ON PINAL SETTLEMENT. It may be of interest to give you a short summary of the nature and character of the claims of third persons against the Railroad Administration, separate and apart from the claims of the carriers, based on the operation of the property during the period of Federal control. (a) Reparation.— In a schedule of rates as complex as the one under which the American railroads- operate, many inequalities, mistakes, and misunderstandings naturally arise, and there are inevitably many inherent inequalities. A horizontal increase of rates, such as the Director "General made during the period of Federal control, as set out in the provisions of General Order No. 28, when applied to the innumerable classifications and combinations of joint,- community, territorial, and other rates, exaggerated the existing inequalities and 'increased the controversies ap between the shippers and the administration. ' There are now pending before the Interstate Commerce Commission over 2,000 formal complaints for reparation against the Director General. There are also over 10,000 informal complaints that have been filed with the Interstate Commerce Com- mission. All of these complaints involve unknown amounts, for the reason that a complaint filed for a single shipment may be duplicated in innumerable instances in other parts of the country and may involve a tremendous tonnage movement. Provision for the payment of these claims is made in paragraph (e) of section 206 and paragraph fe) of section 210 as above set out, but attention is called to this matter for the reason that the Railroad Administration has supervision over same. Under the standard contract, these formal and informal complaints should be defended for the administration by the individual carriers, but in many cases no one carrier is solely responsible for the defense of any one complaint, and, because of competitive traffic reasons and, in some instances, intimate relations between the carriers and the complaining shippers, it has been deemed essential that, where the facts justify it, the administration should undertake the defense of_ these claims, and that has been provided for by a special department of the Division of Law of the Railroad Administration. The result of the disputes so far disposed of in this matter has amply justified this practice on the part of the administration. ■• (6) Lap-over claims for personal injury, loss and damage, overcharge, labor, fire losses, and taxes. A very large number and amount of claims for personal injury, loss and damage, overcharge, labor, fire losses, and taxes were left over as a result of Federal operation: These claims are liabilities of the Director General, growing out of Federal operation, which must be adjusted by the Railroad. Administration. Some idea of the volume and magnitude of these claims can be drawn from the fact that for the year ending December 31, 1917, the railroads operated in the United States killed 6,739 persons and injured 20,351, and during the same period paid out for loss and damage claims $35,382,012: in 1918, paid out $55,734,150, and in 1919, $104,243,782. The increase in loss and damage claims, I assume, should be largely accounted for by the increased volume and value of the tonnage hauled. Digitized by Microsoft® 514 RAILBOAD REVENUES AND EXPENSES. Tie gross income of these properties from transportation for the year immediately preceding Federal control was about 14,000,000,000. The number of individual transactions which made this tremendous total and the controversies arising from same are almost beyond comprehension. For the purpose of expediting the adjustment of these claims, regional offices have been established in some of the principal railroad centers of the United States, where the supervision of these claims is being cared for. Since the end of Federal control, the larger claims of the character above described have been adjusted through these regional offices at the rate of about $2,000,000 per month. These claims are now reducing in number, and the regional organization should be terminated within a very short time. (c) Short lines. — There are 855 what are generally known as short-line railroads. These are the roads provided for in section 204 of the transportation act, whereby ad- justment of deficit in railroad operating income may be made by the Interstate Com- merce Commission, during the period of Federal control, when the particular road "was not under Federal operation." The status of these short lines with the Railroad Administration has been the sub- ject of continuous controversy since the inception of Federal control. In the early part of the period of Federal control the Railroad Administration held such lines were not so operated by the Government as to entitle them to make any claim against the Administration for either operating deficit or compensation. Under the provisions of section 14 of the Federal control act, most, if not all, of these short lines, were formally and in writing relinquished by the Federal Administration on or before June 30, 1918. The question as to whether or not these roads were under Federal control and opera- tion during the six months' period from January 1 to June 30, 1918, has been recently decided by referees, appointed by the Interstate Commerce Commission, and also by the Interstate Commerce Commission, both tribunals holding that the short-line roads were under Federal control and operation from January 1 to June 30, 1918. If the decision of the Interstate Commerce Commission is sustained the short lines will have a claim against the Railroad Administration for the six months ending June 30, 1918, for Federal control and operation. Whatever amount may be necessary to adjust the short-line claims — and this has been variously estimated at from $15,000,000 to $25,000,000 — will be in addition to the amount considered by former Director General Hines in his statement, in April, 1920, to the Appropriation Committee. (a) Minnesota forest fires. — In October, 1918, a most devastating fire occurred in the forest regions of Minnesota. Roughly speaking, some 1,500 square miles of territory was burned over; 4,000 homes and 5,000 barns were burned, and a number of good- sized towns wholly destroyed; 450 people lost their lives, and some 2,000 people re- ceived persprial injuries sufficient to require medical attention. The burned area is served by the Great Northern, the Soo Line, and the Duluth, Missabe & Northern Railroads, all of them at the time of the fire under Federal control. During the conflagration the wind was blowing at a velocity of from 50 to 70 miles per hour,' and, as a result of this hurricane, an irresistible and devastating conflagra- tion occurred, which swept the area of country above described. The money loss has been variously estimated at from $25,000,000 to $40,000,000. Originally it was not supposed there was any ground upon which a liability against the Railroad Administration could be sustained, for the reason that there were a very large number of independent fires, many known not to have been set out by any rail- road and others of unknown origin, and it was believed to be impossible to attribute the loss directly to any particular fire or fires set out by the operation of the railroads, the existing hurricane and the large number of independent fires prohibiting any definite location as to liability. The Supreme Court of Minnesota, in the recent case of Anderson v. Director General of Railroads (179 N. W., 48), held that, if a fire started by a railroad united with a fire or fires of other or unknown origin, it was a question of fact for a jury to determine whether or not the fire started by the railroad was a material or substantial element in creating the damage; and, if so, the defendant railroad, so starting the fire, would be liable. In addition, the court held that, although there was a hurricane blowing, except for which the separate fires mentioned would not have spread and united as they did, the great conflagration could not be considered an act of God. , This ruling has. resulted in the institution of some 5,000 cases against the Railroad Administration in the State courts of Minnesota, and so far quite a number of judg- ments have been renderedagainst the administration in the lower courts on account of these claims. It is the opinion of the law department of the Railroad Administration that, by reason of the very large number of persons interested, it will be comparatively easy for attorneys who are efficient in that line to obtain sufficient evidence to make substantially all of these claims a jury question. Digitized by Microsoft® RAILROAD REVENUES AND EXPENSES. 515 An unfortunate feature of this controversy is the fact that most of the claimants have entered into written contingent-fee contracts with a limited number of lawyers. The State courts of Minnesota sustain contracts of the character entered into, and of any sum paid, either as the result of judgments or by voluntary payments, the actual claimants will not receive more than two- thirds of the amount involved. If the Rail- road Administration is finally compelled to pay judgment or adjust these claims, the aggregate amount of attorneys' fees that would be allowed under theEe contracts would be out of all proportion to the actual services that it will te necessary for the attorneys to perform. The damages resulting from this fire were not considered at the time the appropria- tion to enable the Railroad Administration to adjust its liabilities was made, and the ultimate plan to be adopted by the administration on this very complicated question is one which will require very careful consideration. (e) Inland waterways. — Under the provisions of section 201 of the transportation act the inland canal and coastwise waterways, which, during the period of Federal control, had been under the jurisdiction of the Railroad Administration, were, at the end of Federal control, transferred to the Secretary of War, said section providing that the Secretary of War shall assume and carry out unfinished contracts, and that the Rail- road Administration must pay out of its funds "all payments under the terms of such contracts " (contracts made by the Railroad Administration prior to the termination of Federal control), and all claims "arising out of the operation of such transportation facilities by or through the President prior to the termination of Federal control." At the time the last appropriation was made for the Railroad Administration it was estimated that the liabilities of the inland waterways, which the Railroad Adminis- tration must pay, would aggregate $3,479,011. Up to this time the administration has been obliged to pay an aggregate on this account of $4,592,896.99, or the amount of $1,113,885.99 in excess of the estimate at the time the appropriation was made, and I am advised that the additional amount that the Railroad Administration will be obliged to pay on account of the inland waterways will aggregate at least $1,500,000,, so that the liability of the Railroad Administration in this connection will be over $2,500,000 more than was originally estimated. The additional claims are largely accounted for by reason of changes made in the specifications of the contracts and the increased cost of labor. III. SUMMARY OP LIABILITIES, ASSETS, AND ESTIMATES MADE BY FORMER DTRECTOR 1 GENERAL HINES. In April, 1920, former Director General Walker D. Hines and his staff appeared before a subcommittee of the House Committee on Appropriations and at some length went into the details of the financial condition of .the Railroad Administration. The statements made at that hearing were printed as a House document, and generally distributed to the public. Mr. Hinefe, in his statement to the Committee on Appropriations, estimated the operating loss of the Government for the period of .Federal control at $900,478,756.56. This estimate did not include claims of short line railroads, Minnesota forest fire losses, or a sufficient sum for lap-over loss and damage, personal injury, ordinary fire losses, taxes, labor, overcharge, and inland waterways claims, all of which constitute general expenses of the Railroad Administration, and must be considered in estimating any .loss that will finally result to the Government because of Federal control. A reason- able-estimate of the amount necessary to liquidate these claims is $100,000,000. In addition to the claims of third persons, above referred to, Mr. Hines failed to make v allowance for compensation of noncontract roads in excess of the standard return, undermaintenance of way and structures and equipment, fire losses of carriers' property, and additions and betterments made solely for war purposes, the cost of such additions and betterments being originally charged to the individual carriersj but which, upon return to private control, and being found useless to the carrier, must be borne by the Administration. The adjustment of these latter claims may- require the additional sum of $200,000,000. All of these items of expense were either not considered by Mr. Hines or under- estimated, and, as they properly come under the head of the general operating expenses incurred by the Government, the operating loss in excess of Mr. HineB' estimate will be some $300,000,000, or instead of an operating loss to the Government during the period of Federal control, as estimated by Mr. Hines, of $900,000,000, it will be more nearly $1,200,000,000. It must be borne in mind that this estimate is based on making settlement upon the administration's construction of the upkeep section of the standard contract. Should the Supreme Court ultimately approve the carrier's contention in regard to mainte- Digitized by Microsoft® 516 RAILROAD REVENUES AND EXPENSES. nance, as set out«n said upkeep section, the liability of the Railroad Administration would be very largely increased. Calling special attention to the claims for undermaintenance, of the claims already filed, aggregating $633,000,000, $183,000,000 is for undermaintenance of way and $176,000,000 is for undermaintenance of equipment, making a total claim for under- maintenance, in the claims already filed, of $359,000,000. As the claims now filed represent only about 50 per cent of all the claims, it is probable that the claims for undermaintenance will run between $700,000,000 and $800,000,000; the Railroad Administration records fail to support claims for overmaintenance sufficient in amount to offset these amounts, and it is quite evident that some allowance must be made on account of undermaintenance. The Railroad Administration now has to its credit, in available cash, $228,977,311.46. TMb is made up of balance of appropriations of February 28, 1920, and May 8, 1920; money in the hands of the Treasurer of the United States Railroad Administration; amount due from the Post Office Department, which was included in the recent deficiency appropriation bill, and the estimated amount in the hands of the treasurers «f the carrier corporations, acting as trustees in liquidating the small claims growing out of Federal control. In addition to the foregoing there is an indefinite and indeterminate amount due the Railroad Administration in the way of uncollected assets, such as freight bills, traffic balances with non-Federal carriers, claims for demurrage, and amounts due from the War and Navy Departments, the Shipping Board, and other governmental agencies. It is impossible to state with any degree of accuracy the cash value of these claims, as many of them are in dispute, but the liabilities of the administration in the matter of loss and damage, personal injury, overcharge, fire losses, labor claims, and the like will be in excess of this indeterminate amount. Your attention is particularly called to certain assets, growing out of settlements final or partial already made, held by the Railroad Administration in the way of . obligations of the various railway corporations. These assets are most of them in the them in the form of definite, negotiable obligations, bearing annual interest, and either evidenced by equipment trust obligations, which carry with then a lien on the equip- ment, or secured by mortgage bonds of the various companies, deposited as collateral. A general description ofthese obligations is as follows: Bonds $26,695,000.00 Notes 1 -. 92, 762, 038. 08 Receivers' certificates 1, 400, 000. 00 Equipment trust obligations 310, 073, 100. 00 Making a total of 430, 930, 138. 08 The notes above described include a loan to the New York, New Haven & Hartford Railroad Co., made in the early part of Federal control, and heretofore fully explained ti Congress bv former Director Generals. This note is secured by mortgage bonds as collateral. The balance of the notes represent obligations given by sundry lines for additions and betterments, the refunding notes being also secured by the mortgage bonds of the several companies executing same. The equipment trust obligations represent the sale by the Railroad Adminstration to the carriers of 100,000 freight cars and 2,000 locomotives constructed under orders of the Federal Administration during the period of Federal control and allocated to the various carriers. The bonds held by the Railroad Administration are largely first mortgage bonds of the Boston & Maine ' Railroad, taken by the Administration in an effort to assist in the reorganization of that company. As subsequent settlements are made additional obligations of debtor roads will be taken and held by the Railroad Administration, such indebtedness being for purposes provided for and in accordance with the transportation act. If the railroad companies are solvent, then these obligations should be worth their face value, with accrued interest, and if the Railroad Administration could cash, as the necessity arises, a sufficient amount of these securities, it has in all probability assets considerably more than sufficient to pay all of its obligations. If, instead of making a direct appropriation for the use of the Railroad Administra- tion, the Secretary of the Treasury could be authorized, upon a proper showing of necessity, to take over at their face value, from time to time, 8u<5h amounts of the obligations of the railroads held by the Railroad Administration as, may be required to complete the liquidation, the liabilities of the Railroad Administration could be adjusted without a direct appropriation in its favor. If an arrangement of this kind is not feasible, an additional appropriation of $200,- 000,000 will be required to continue the Railroad Administration liquidation up to the end of the fiscal year 1922. Digitized by Microsoft® RAILEOAD REVENUES AND EXPENSES. 517 IV. DIFFERENCES BETWEEN THE RAILEOAD ADMINISTRATION AND THE CARRIERS. Serious differences of opinion have arisen as between the carriers and the adminis- tration concerning the construction of certain provisions of the standard contract. The most substantial contention which has developed is in the construction of section 5 of the standard contract, which refers to upkeep and involves the matter of main- tenance, repair, renewal, retirement, and depreciation. Briefly, it is the contention of the administration that the proviso in paragraph (a) of section 5 recognized the impossibility in these various matters of determining by what is known as a physical comparison, as between the commencement of Federal control and its termination, the amount of maintenance, repair, renewal, retirement, and depreciation that the Government was liable for, and that this section provided for adjusting these differ- ences by what is known as the accounting method, whereby the liability of the Rail- road Administration was limited to the expenditure for labor and material, after equating as to the prices thereof, or the payment into funds of the same amount that the carriers expended for the same purposes during the test period , and that such an accounting, using the language of paragraph (a) of section 5, "shall be taken as a full compliance with the foregoing covenant." The carriers, on the other hand, relying on certain statements contained in the President's message accompanying the President's proclamation taking over 'the properties, and also certain general language of the Federal control act and expres- sions contained in paragraph (c) of section 5 of the contract, contend that they are entitled to a physical comparison, to the end that their property shall be returned at the termination of Federal control "in substantially as good repair and in substantially as complete equipment as it was at the beginning of Federal control." These differences of construction will amount to several hundred million dollars. v. SUMMARY. I have no desire to exaggerate the importance or the complexities of making this final adjustment of the 26 months of Federal control and operation of the transporta- tion systems of the country. It is undoubtedly the greatest adjustment between one tenant and over five hundred landlords that has ever occurred. A brief repetition of familiar figures emphasizes this. The railroads constituted an immense' industrial plant, comprising, in round num- bers, 250,000 miles of main line, with all of the innumerable structures which go to make up an operating railroad — shops, yards, roundhouses, machine shops, store- houses, bridges, and the like; 2,500,000 freight cars, in all stages of repair; 66,000 locomotives; 55,000 passenger cars; some $600,000,000 of materials and supplies scattered over the many lines of road, with no inventory taken at the time; 555 separate companies, with nearly 2,000,000 employees; the gross earnings of the prop- erties for the year ending December 31, 1917, over $4,000,000,000, with net earnings for the same period of nearly $1,000,000,000, and the entire value of the property estimated at from $15,000,000,000 to $20,000,000,000. This property was operated under the abnormal conditions of a world war. The demand for labor and materials in all industrial enterprises was greatly in excess of the supply. In the effort to com- bine this stupendous aggregate of independent lines into a single and coordinating concern much of the operating property of the individual carriers was inextricably intermingled. This adjustment and straightening out of this wonderful adventure on the part of the Government presents for solution novel, complex, and important questions wholly without precedent. The Government took this great plant overnight. It was taken at a time when serious and almost unprecedented winter weather greatly embarrassed and increased the expense of operation, and at a time when congestion of traffic, largely brought about by unusual exigencies in the business incident to the war, and priority orders of war material intended for export, had in effect practically broken down the ordi- nary efficiency of railroad transportation, especially those eastern lines connecting with Atlantic ports. The property was in all stages of obsolesence. - It was taken under a proclamation issued by the President, who, in a statement of even date with the proclamation, declared that lie would recommend to Congress the passage of a law providing "that the railwav properties will be maintained during the period of Federal control in substantially as good repair and as complete equipment as when taken over by the Government. " The Congress, following this recommendation, in the Federal control act provided that the standard contract should contain such provisions "as may be requisite in order that the property of each carrier may be returned to it in substantially as good Digitized by Microsoft® 51$ RAH.BOAD REVENUES AND EXPENSES. repair and in substantially as complete equipment as it was in at the beginning of Federal control. " Most of the roads entered inio standard contracts, the terms of which attempt to provide rules by which the questions of upkeep shall be determined . It is differences of opinion as to the construction of these rules from which arise most of the controver- sies between the Railroad Administration and the carriers in carrying out final settle- ments. In conclusion, I want to suggest and emphasize thatin reaching final settlements the disputes to be adjusted between the carriers and the administration are not mere matters of accounting, to be settled by the application of fixed and definite rules that may be followed by accountants or statisticians, but every settlement presents serious practical questions, many of them new and novel, that can only be fairly determined by men on both sides who have had actual and extensive railroad experience in the field. w If you or your committee desire any additional information I will be glad to furnish same upon application, or, if you prefer, appear before you in person and explain more in detail the progress we are making in our efforts to carry out the mandate of Congress to "adjust, settle, liquidate, and wind up all matters, including compensa- tion, and all questions and disputes of whatsoever nature arising out of or incident to> Federal control. " Respectfully submitted. Jambs C. Davis, Director General. Mr. Rea. In regard to differences of opinion respecting mainte- nance of the railroads he states [reading] : The Congress, following this recommendation, in the Federal control act provided that the standard contract should contain such provisions "as may be requisite in. order that the property of each carrier may be returned to it in substantially as good repair and in substantially as complete equipment as it was in at the beginning of Federal control." Most of the roads entered into standard contracts, the terms of which attempt to- provide rules by which the questions of upkeep shall be determined. It is differences of opinion as to the construction of these rules from which arise most of the controver- sies between the Railroad" Administration and the carriers in carrying out final settlements. In conclusion, I want to suggest and emphasize that in reaching final settlements the disputes to be adjusted between the carriers and the administration are not merely matters of accounting, to be settled by the application of fixed and definite rules that may be followed by accountants or statisticians, but every settlement presents serious practical questions, many of them new and novel, that can only be fairly determined by men on both sides who have had actual and extensive railroad experience in the? field. The attitude of the director general is not complained of, and he aptly describes the matter when he says [reading] : This adjustment and straightening out of this wonderful adventure on the part of the Government presents for solution novel, complex, and important questions- wholly without precedent. The Chairman. I want you to be perfectly clear upon that point. You do not suggest that the Government should disregard the terms- of the contract entered into between the railroads and the Govern- ment respecting the maintenance or upkeep of the railroad proper- ties, do you ? Mr. Rea. No, sir; unless in effect it attempts to supersede the? acts of Congress. The Chairman. If the railroads entered into a contract with the Government — which they were at liberty to do or to refuse to do — - I assume that the attitude of the railroads is that they are content with that contract and its proper interpretation. Mr. Rea. Well, I can not say that we were ever content with the contract, Mr. Chairman. However, we are willing to stand by the contract, of course; we are not attempting to repudiate the contract. Digitized by Microsoft® RAILROAD REVENUES AND EXPENSES. 519 The Chairman. I assumed that the railroads were willing or expected to abide by the terms of the contract so far as this particular question is concerned, and that it is only a question of the proper construction of the contract in the light of the circumstances sur- rounding its execution ? Mr. Thom. That is our position. Mr. Rea. That is right; that is our position, Mr. Chairman. The Chairman. I wanted that 1 to be perfectly clear in the record. Mr. Rea. Yes, sir. But we may well ask what is to be the financial condition of the railroads while final conclusions are being reached ? The committee may recall, in this connection, the extensive nego- tiations over the standard contract, and the differences of opinion which have since arisen, to which the director general refers in his statement, as to the meaning to be placed upon the words " cost of labor" in the maintenance provisions of this contract. It has been the view of the Railroad Administration, long before the present director general was appointed, that the pledge of the President will have been redeemed, and the Federal control act and contract observed, if it is shown that, having regard to the reduced purchas- ing price of the dollar in the Federal control period, relatively as many dollars were spent upon the property by the director general as were spent by the corporation in the so-called test period. The railroads believe that it can be shown that the same amount of physical reparation was not produced by the dollars expended in the Federal control period as in the test period, and therefore the ? ledge of the President and of Congress had not been made good, he Railroad Administration, however, holds the view, if I correctly understand their position, that the test of the performance of the pledge is the number*of dollars spent for labor, taken in conjunction, of course, with the material applied, in the two periods for main- tenance purposes. The carriers contend that the "cost of labor" is the cost to do the same amount of physical maintenance or reparation in the Federal- control period as compared withthe cost to do the same work in the test period. For instance, the railroads contend that if it cost 30 cents to place a tie in the test period and took an hour's time, the carrier is entitled to have a tie placed in the Federal-control period whether it takes two or more hours, and that the full cost to place the tie shall be the measure and not the time involved in placing it in the test period. Under the Railroad Administration's view the carriers should be allowed one hour at the present rate of wages under their interpretation of the act and contract, if I correctly understand their position. To illustrate further what is meant by the "cost of labor versus the "price of labor," two requirements of the national agreements cost the railroads an amount estimated at $30,000,000 in 1920, representing time paid for and not worked, and is included in the " price of labor." Those two rules are part of the national agree- ment with the shop crafts — which agreements did not exist during the test period — and require that a man shall be paid one hour each week for checking in to work and checking out from work; and be allowed 20 minutes for meals where eight hours of continuous work is required. Senator Kellogg. Do you mean 20 minutes out of the eight hours ? Digitized by Microsoft® 520 RAILROAD REVENUES AND EXPENSES. Mr. Rea. Yes, sir. The annual average of crosstie renewals for roads covering 93 per cent of total maintenance of way expenses, excluding labor, were : Test period, 83,885,000 ties '. $58, 135, 00O 1918, 69,327,000 ties 62, 886, 00O 1919, 73,398,000 ties 84,156,000 1920, 77,015,000 ties 107,772,000 These crosstie renewals in 1918 and 1919 were 25,000,000 ties below the test-period average, sufficient to lay nearly 9,000 miles of track. Rail renewals during the two years of Federal control were short 440,230 tons, or 11 per cent below the test period. There was also a shortage of 1,816,100 cubic yards of stone, gravel, and other ballast materials. While the railroads will no doubt be conceded this short- age of materials, yet unless the full labor cost of the installation of such materials is also conceded, there will be a consequent loss which would be passed to the railroaa companies by a misinterpretation of the contract, and a failure to redeem the President's promise and comply with the act of Congress as to the return of these properties in as good condition as when taken over. The Chairman. Mr. Rea, at that point you find a difference be- tween the words "cost of labor" and "price of labor," I assume? Mr. Rea. Yes, sir. /The Chairman. The Railroad Administration is willing, as I under- stand it, to make an allowance for the difference in the scale of wages or the price of labor but is not willing to give you an allowance for the inefficiency of labor. That is the real controversy between the railroad companies and the Government, is it not ? Mr. Rea. Yes, sir; call it what you may — ineffectual hours o^ inefficiency of labor. Mr. Thom. You might call it unproductivity of labor. Mr. Rea. Yes; or unproductivity of labor. Senator Kellogg. I do not just understand your statement on' pages 20 and 21. Do you mean to say that the Railroad Administra- tion claims that during Government operation all they had to do was to spend the same amount in dollars on track and equipment ? Mr. Rea. Equated dollars, having regard to the purchasing price of the dollar. The Chairman. I do not know what the attitude of the Railroad Administration is about it. I have had several discussions about the matter with the director general, and the director general claims that if wages, for instance, were double the wages paid during the test period, that then if they spent twice as much during any given period for maintenance, that that answers the terms of the contract mto which the railroads entered with the Government; whereas the railroads claim that the director general must not only make allow- ance for the increase in wages but must make an allowance for the inefficiency of the work actually performed in the same number of hours by labor. Senator Kellogg. The same rule applies as to the value of ma- terial, of course. The Chairman. I do not think there is very much controversy about material. That is a matter largely of inventory. Senator Kellogg. Then the railroads claim that the same amount of physical maintenance should take place during Government con- trol irrespective of cost ? Digitized by Microsoft® RAILROAD REVENUES AND EXPENSES. 521 The Chairman. That is the claim of the railroads, and that makes the difference between the railroads' position and the Government's position of $800,000,000 or $900,000,000. Senator Pomerene. If I may put it in another way, then the dif- ference is practically this : That if they have spent the same number of dollars that the railroads ordinarily would spend, the Government would regard its obligation as completed whether that expenditure produced the same units of work or not ? The Chairman. Yes; the Railroad Administration claims that all it must do is to make allowance for the difference in the pay of the men; and it claims that position not so much under the terms of the act as under the terms of the contract into which the railroads entered with the Government. There was a formula agreed upon by which this maintenance could be ascertained, and the Kailroad Admin- istration claims that it is following the formula agreed upon by the railroads. On the other hand, the railroads claim that by the use of the words "cost of labor" it was intended to require the Government to accomplish the same results; that is, to secure the same amount of physical reparation that was secured by that amount of labor during the test period. Senator Watson. Regardless of dollars of cost ? Senator Kellogg. Then, Mr. Rea, if I understand you correctly, the Pennsylvania Railroad claims that if its years of experience, which include the test period, showed that it required so many ties, so much ballast, so much equipment and material to keep the railroad up to standard, the Government was obligated during its period of operation to put that number of ties in, renew that amount of equip- ment, and furnish that quantity of ballast, so as to keep the railroad at the same physical cqndition it was in when the Government took it over. Is that your position ? Mr. Rea. Yes, sir; and if they failed to do that they must account for it in the equivalent of dollars. Senator Kellogg. Have you the form of contract under which that ■ particular question arose ? , Mr. Thom. Yes, sir. Senator Kellogg. Can you put it in the record ? Mr. Thom. Yes, sir. May I read it into the record ? The Chairman. This is a law question and I suppose you may do so. Mr. Thom. I want also to make a statement, because there has been a good deal said by the members of the committee, and when the members of the Senate are reading about this matter I would like to have it in the record so they will know our position. The Chairman. That is entirely proper. STATEMENT BY ME. ALFRED P. THOM, GENERAL COUNSEL FOR THE ASSOCIATION OF RAILWAY EXECUTIVES. Mr. Thom. I have before me the agreement between the Director General of Railroads and the Pennsylvania Railroad Co. and other affiliated corporations, of date December 30, 1918. The clause gov- erning the upkeep of the carriers referred to is section 5. This is the standard contract. I will read same into the record [reading] : Digitized by Microsoft® 522 RAILROAD REVENUES AND EXPENSES. SECTION 5. UPKEEP. Sec. 5 (a). During the*period of Federal control the director general shall, annually, as nearly as practicable, expend and charge to railway operating expenses, either in payments for labor and material or by payments into funds, such sums for the main- tenance, repair, renewal, retirement, and depreciation of the property described in paragraph (a) of section 2 hereof. And that is a description of the property taken over, gentlemen of the committee. as may be requisite in order that such property may be returned to the companies at the end of Federal control in substantially as good repair and in substantially as complete equipment as it was on January 1, 1918: Provided, however, That the annual expenditure and charges for such purposes during the period of Federal control on such property and the fair distribution thereof over the same, or the payment into funds of an amount equal in the aggregate (subject to the adjustments provided in paragraph (c) and to the provisions of paragraph (e) of this section) to the average annual expenditure and charges for such purposes included under the_ accounting rules of the commission in railway operating expenses during the test period, less the cost of fire insurance included therein, shall be taken as a full compliance with the foregoing covenant. Paragraph (c) just referred to in this proviso, is as follows: (c) In comparing the amounts expended and charged under the provisipns of paragraphs (a) and (b) of this section with the amounts expended and charged dur- ing the test period, due allowance shall be made for any difference that may exist between the cost of labor and materials and between the amount of property taken over and the average for the test period, and, as to paragraph (a), for any difference in use between that of the test period and during Federal control which in the opin- ion of the commission is substantial enough to be considered, so that the result shall be, as nearly as practicable, the same relative amount, character, and durability of physical reparation. Paragraph (e) just referred to in paragraph (a) need not be read into the record at this time because it has no bearing on the ques- tion which we are discussing. It relates merely to what shall be allowed in the case of destruction of property from ordinary or extraordinary causes. But the two sections read are the sections particularly applicable here. Mr. Chairman and gentlemen of the committee, the claim of the railroads is this: The President in the statement which he issued accompanying his proclamation taking over the railroads promised to recommend to the Congress that the Government give to the carriers certain guaranties as follows : First, of course, that the railroad properties will be maintained during the period of Federal control in as good .repair and as complete equipment as when taken over by the Government; and, second, that the roads shall receive a net operation income equal in each case to the average net income of the three years preceding June 30 1917. •*■-©., In redeeming this promise, the President in his message to the Congress, recommended that the carriers — Should receive from the Government an unqualified guaranty that their proper- ties will be maintained throughout the period of Federal control in as good repair and as complete equipment as at present, and that the several roads will receive under Federal management such compensation as is equitable and just alike to their owners and to the general public. In his proclamation of the 26th of December, 1917, taking over the railroads, the President gave the following instructions to the director general: Digitized by Microsoft® EAILKOAD REVENUES AND EXPENSES. 523 The director shall, as soon as may be after having assumed such possession and control, enter upon negotiations with the several companies looking to agreements for just and reasonable compensation for the possession, use, and control of their respective properties on the basis of an annual guaranteed compensation above ac- cruing depreciation and the maintenance of their properties equivalent, as nearly as may be, to the average of the net operating income thereof for the three-year period ending June 30, 1917, the results of such negotiations to be reported to me for such action as may be appropriate and IaHWuI. The President in his statement accompanying his proclamation further said : * Investors in railway securities may rest assured that their rights and interests will be as scrupulously looked after by the Government as they could be by the directors of the several railway systems. Thereupon the Congress, in response to the recommendation of the President, passed the Federal control act, and section 1 of that act provided as follows : Every such agreement— And meaning by that, compensation agreement — shall also contain adequate and appropriate provisions for the maintenance, repair, renewals, and depreciation of the property, for the creation of any reserves or reserve funds found necessary in connection therewith, and for such accounting and adjust- ments and charges and payments, both during and at the end of Federal control as may be requisite in order that the property of each carrier may be returned to it in substantially as good repair and in substantially as complete equipment as it was in at the beginning of Federal control. That was the act of Congress. The railroads claimed that the director general Senator Pomerene (interposing) . Let me ask you right there : Is it your claim that there is any conflict between the provision of the agreement which you b&ve read and the several messages of the President and the legislation by the Congress t Mr. Thom. No, sir. We claim there is no difference between the contract and what I have read; the director general claims there is. That is the difference between us. Senator Pomerene. Is there any litigation pending which author- izes a construction of this agreement ? Mr. Thom. There is none pending. The Chairman. I will call the Director General of Railroads before we are through, because he has a right to state his case Senator Pomerene. Surely. v The Chairman. But at this point I think I ought to say that the director general does not suggest that there is any conflict, and does not claim that there is any conflict between the contract and the statute or the proclamation of the President. He does, however, claim that the railroads entered into an agreement with him, or at least with the former director general, in which they established a certain formula, or rule, for the ascertainment of maintenance and upkeep, and that the railroads are bound by that formula, and that the maintenance must be determined according to its terms. It is not quite fair to the director general to say that there is any conflict between the statute and the contract. Senator Pomerene. Senator Cummins, do I understand that the formula to which you refer is that contained in the contract? The Chairman. It is the proviso that was read by Mr. Thom a few minutes ago, which is an extract from the contract. 63553— 21— Vol I— —35,. . . ... _ Digitized by Microsoft® 524 RAILROAD REVENUES *AND EXPENSES. Mr. Thom. Mr. Chairman, of course you appreciate that I do not for a moment want to put the director general in any attitude which he does not occupy. What I said was more my interpreta- tion of the effect of his position than of his expression, but I think I should justify myself by saying this: The director general, as I shall proceed to show in a moment, claims that if what you call the formula here works out so that there is no physical reparation what- ever, and therefore that what the President promised; and what the Congress enacted is not to be realized in actual results, he is hot responsible for it- We claim that the contract, if properly con- strued, is in exact conformity with the act of Congress, the formula and all, and in. exact conformity with the pledges of the President. I, of course, want to be understood beyond any peradventure of doubt , . . , Senator Pomerene (interposing). Mr. Chairman, I think I ought to say in justice to myself here that I asked these questions for the purpose of eliciting the position taken by Mr. Thoni. I did not mtend by anything I said or by any questions I propounded to in- dicate that I had any preconceived opinion about the matter at all. I have simply the opinion that there is a controversy on this sub- ject, the nature of Which I do not know. The Chairman. I understand. . I assume that this committee will .not attempt, to settle that ^controversy; we can not decide who is right or who is wrong with respect to the interpretation of the contract. ;-,■',' :>.•„ ' Senator Pomerene. No. Mr v Thom. I think it fair to say that the result of the contention of.. the director general is that he is not responsible for physical reparation if.he spends a certain amount of money; The Chairman. I think that. is a fair statement of his position as I, understand it., , Mr., Thom. That, is all I intended to say. ■ The Chairman. I wanted to make it perfectly clear because I have had a good deal of discussion with the director general with regard to the matter. To eliminate all . the complications, from the committee his position I take it is this : That if the, railroad companies had agreed with the Government that the expenditure of the same amount of money that had been spent upon maintenance during the test period should be regarded as compliance, with the Government's obligation to return the pro- perty in as good condition as when taken, that that would settle the matter without regard to the effect of the expenditures upon physi- cal reparations; if there was a very decided increase in wages, that when he makes allowance for that increase in wages the Government has complied with its contract. . Mr. Thom. May I proceed, Mr. Chairman? , ., The Chairman. You may proceed. Mr. Thom. I want to ask the committee to firmly fix in their minds that what I am saying is directed to a proper construction of the contract. We claim that a proper construction of this contract carries out the act of Congress and redeems the pledges of the President. I have read what the President said and what the Con- gress enacted to call attention to this fact, that the director general then in negotiating with the carriers had the limitations upon his Digitized by Microsoft® RAILROAD REVENUES AND EXPENSES. 525 authority which his principal, the President, had placed upon that authority, and which the Congress of the United States enacting the law had placed upon the President and also upon the director general, and that the contract must be construed in . the light of those instructions of his principal and those instructions of the act of Congress. I am laying aside the question of whether the director general could have validly disobeyed and disregarded the act of Congress or had disregarded his instructions. I am addressing what I have to say entirely to the question of how what he did should be construed. Senator Pomereste. The form of this contract, I take it, was approved by the President, was it not ? Mr. Thom. I do not remember whether it was actually approved by him, except through his agents. Senator Pomerene. The director general was the President's alter ego as far as the administration of the railroads was concerned ? Mr. Thom. He was his agent; yes, sir. Having read to you the act of Congress and the pledges of the President, I call attention to what the contract is, and that has been read into the record. It will be noted from that contract that its main provision is almost in the terms of the act of Congress. I will read it again: During the period of Federal control the Director General shall, annually, as nearly as practicable, expend and charge to railway operating expenses, either in payments for labor and materials or by payments into funds, such sums for maintenance, repair, renewal, retirement, and depreciation of the property described in paragraph (a) of section 2 hereof, as may be requisite in order that such property may be returned to the companies at the end of Federal control in substantially as good repair and in substantially as complete equipment as it was on January 1, 1918. . There, can be no doubt that that means the same thing that the act of Congress means, and the same thing that the pledges of the President meant. So we have on the face of this contract, in its inception, an expressed purpose to carry out the act of Congress and to redeem the pledges of the President. We come to the proviso which the chairman has referred to as a formula to ascertain whether or not that has been done. The formula is an agreed method of ascertaining whether or not the director gen- eral has redeemed his contract to keep these properties in repair and return them in repair. Let us see what the terms of that formula are : He is to expend on the property as much money as the carriers expended on the average in the test period, and to fairly distribute it over the property, by the express terms of the formula, the fair dis- tribution of it over the property having reference to physical condi- tion and not merely to expenditure of the money; and the amount of • money he is to expend must be adjusted to the different levels of the eost of labor and the cost of material during Federal control. And not only that, but the contract provides that that shall be done so that the result shall be, as nearly as practicable, the same relative amount, character, and durability of physical reparation. That is in the formula. That is in addition to the main contract. So the for- mula was that the director general was to expend upon the prop- erties as much money as the carriers spent, adjusted to the different levels of costs of labor and material at the later period, and must expend it so that the relative amount, character, and durability of physical reparation shall be the same. Digitized by Microsoft® 526 RAILROAD REVENUES AND EXPENSES. Every gentleman sitting around this table is a lawyer, and I lay down this canon of construction: That the agent of the President, acting under an act of Congress as well as under the instructions from his principal, will not be construed to have violated those instructions and to have departed from the act of Congress unless there is no other interpretation which can reasonably be put upon the contract. If he by any construction of the contract$,outside, now, of the question of his power to depart from the act of Congress — if there is any con- struction of this contract, any reasonable construction of it, which will put what he did in conformity with his instructions and in con- formity with the act of Congress, that construction must be adopted. The contention of the director general disregards the expression "cost of labor," in the first place. The history of these negotiations is that the carriers undertook to insist on the inclusion of the terms providing for the difference in efficiency of labor, in express terms, and that was refused by the director general. The director general undertook to introduce into the contract the term "price of labor," and that was rejected by the carriers. And in the place of the terms which he rejected, "inefficiency of labor," and in the place of the terms which we rejected, "price of labor," both sides agreed upon the term "cost of labor," and that is in the contract. Cost of labor is manifestly different from price of labor. It is in this record, Mr. Chairman, that the director general was obliged to employ women instead of men; was obliged to employ boys instead of men; was obliged to employ old men instead of young men; and was obliged to employ inexperienced men in place of experienced men. The director general claimed by way of results that if he paid a woman for an hour's work a certain price that he could place that over against an hour's work of an efficient man in the test period; that he could put a boy's work against a man's work; that he could put an old man's work against a young man's work; and that he could put an inexperienced man's work against an experienced man's work, and measure it all in hours. Another result: He claims that if during the test period on a certain section of a railroad it was found that for a series of years it was neces- sary to put in 10,000 ties, and he bought 10,000 ties and "employed labor for the same number of hours that formerly put in 10,000 ties, and even though women were putting them in and boys were putting them in and it took twice that number of hours, that his contract was fulfilled when he put in 5,000 ties and left the other 5,000 ties on the side of the railroad. In other words, the construction of the director general of this formula is that he is not responsible for results in maintenance, but that all he has to do is to expend a certain amount of money at the different price of labor per hour. He is not responsible if the money is wasted instead of bemg applied to the property. In other words, he is not responsible for applied maintenance. He is only responsible for theoretical maintenance. The Chairman. Mr. Thorn, it was not my purpose in interrupting the testimony of Mr. Eea to do mone than to allow you to state the issue. Mr. Thom. I know, your honor. I am nearly through and if you will just let me finish it now, it may save time hereafter. Digitized by Microsoft® EAILEOAD REVENUES AND EXPENSES. 527 Then his interpretation involves the reading of these words, which are in the contract: "So that the result shall do, as nearly as practi- cable, the same relative amount, character, and durability of physical reparation" as meaning without regard to the amount, character, and durability of physical reparation. He says he is not responsible for that at all. Now, those are the differences between us. We feel that the contract required that there shall be an ascertainment of the differ- ence in the cost of labor and the difference in the cost of materials, and that we are entitled to that, and that applied in this way. Suppose we have a unit of 10,000 ties to be applied upon the track, and we find out what it costs to put the 10,000 ties in the track during the Federal control period, and the difference is the cost of labor. We carry that through all the physical units that can be applied, and we adopt that ratio as the determination of the difference in the cost of labor during Federal control over what it was during the test period. The Chairman. Now, Mr. Rea, you may proceed. TESTIMONY OF MR. REA— Continued. Mr. Rea. It can not be too strongly pointed out that the view of the Director General results in theoretical maintenance only — that is, in materials not applied to or in place on the property — while both the President and the act of Congress promised and required that the property should be actually and not theoretically maintained. If, however, the contract can be said to justify the view of the Railroad Administration, notwithstanding it specifically requires that the cost of labor must be dealt with, and also requires physical reparation, and not merely a dollar test covering only the price of labor, then in the interest of right and justice Congress should clarify the Federal control contract provisions as to maintenance, which the director general points out as the chief cause for difference of opinion between the Railroad Administration and the carriers, and which he intimates can only be finally determined by the Supreme Court. This, I feel, could, if necessary, be covered by an amendment to the transportation act to the effect that the extent of the physical reparation should be the measure of the performance of the Presi- dent's pledge; but even here I am advised that no amendment is required, as the President's authority is already ample under the transportation act. Further, I suggest this because, based on the director general's report as to settlements, it may take about three and one-half years more to review all claims, and if appeal must be made to the Supreme Court to decide the meaning of the Federal control act and contract as* they may apply to the different conditions and questions on each road, it may take many more years. The essence of that situation is that many of the roads will be forced to accept much less than they are entitled to and accept the burden, hoping to work it off in succeed- ing years. In making this suggestion I am at the serious disadvantage of not knowing the actual condition of the claims made by the railroads, both those having Federal control contracts and those not having Federal control contracts; nor the physical reparation in ties, rails, Digitized by Microsoft® 528 RAILROAD REVENUES AND EXPENSES. ballast, stations, shops, and other structures, or in locomotives, passenger cars, and freight cars, which they will claim as due them; but the Director General's figures, based on the claims already pre- sented, state it is probable that the undermaintenance claims will run between $700,000,000 and $800,000,000. He further stated that of the claims of all kinds ,already presented, covering 44 roads out of about 445 roads and systems with standard contracts, those allowed in final settlement aggregate 43.68 per cent of the amount claimed. I am convinced from talks with other railroad executives that this question of undermaintenance is a live one, combined with the failure to fund all capital expenditures, and the delay in settle- ments to be made for the guaranty period to which I will refer, is at the root of the weakness of railroad credit because all of these ques- tions deprive the railroads of the ready cash to meet current require- ments and to place their property in efficient condition. The main point to my mind is that the situation will not be met merely by legal argument but that substantial justice should be done to the railroads through the fulfillment of the President's recommendations and the act of Congress by insuring the return to the owners of their property and equipment in substantially as good condition as when they were taken over by the Government, and as that has not been done they should be properly compensated. Unless this is done, then I want to make it clear that, for the Federal control period and the guaranty period, they will not receive what was promised them by the President and Congress. I am asking for a fulfillment of the promises, and nothing more. Senator Pomerene. Mr. Rea, let me interrupt you a moment. I confess I do not quite see the force of your ' suggestion that there should be an amendment to the transportation act if you are per- fectly clear about the construction that should be placed upon this. In other words, if there is a serious doubt about it the Congress of the United States might take a position in entire accord with the contention made by the Director General; then where would you be ? Mr. Rea. Well, Mr. Senator, I propose that because of the delay. The railroads can not live through a delay of three to five years under present conditions, and therefore I thought if Congress did take our view they might cure it in that way, unless we could get it settled more promptly otherwise. Was that all, sir? Senator Pomerene. That is all. Mr. Rea. Settlements for the guaranty period. These sugges- tions, of course, apply to both the Federal control and guaranty periods. The transportation act seemed to give the broadest power to the Interstate Commerce Commission to make settlements for the guaranty period, and also to determine the expenses. Unfor- tunately this section of the act, in authorizing compensation to the railroads and in dealing with maintenance, made reference to the terms of the Federal control contracts, and leads us into practically the\same difficulties of interpretation as in the Federal control settlements, and that while the Railroad Administration hesitates to settle, the Interstate Commerce Commission may be discouraged in using the broader powers of settlement for the guaranty period conferred on it by the transportation act. The Chairman. Just a moment, Mr. Rea. By the guaranty period you are referring to the period from the 1st of March, 1920, to the 1st of September, 1920 ? Digitized by Microsoft® RAILROAD REVENUES AND EXPENSES. , 529 Mr. Eea. Yes, sir. , The Chairman. The Interstate Commerce Commission has not decided the question which, Mr. Thorn has just presented, has it ? Mr. Rea. No, sir. The Chairman. That is all. Mr. Rea. I hope I am not mistaken in this view as to the guaranty period settlement. The final result means that the conditions pre-? vailing during the guaranty period are not to be fully taken into account. In addition to the maintenance expenses, other expenses should be, viewed with a full consideration of the conditions existing in the guaranty period. I have reference particularly to the extra items of cost such as the unauthorized strike of April, 1920, which affected railroad traffic for several months before the congestion eased off; the return of large numbers of cars scattered all through the country to the home railroads; and other causes of increased costs in that period which should be recognized. Despite all these conditions the public service rendered showed improvement and greater efficiency, and, while the business lasted, each month was showing a betterment of operating conditions compared with the preceding period of Federal control. Here was a transition period from war to peace designedly selected by Congress to assist the railroads in adjusting their conditions at the end of Federal control, and in reestablishing their working organ- izations and credit on a peace basis^ and yet the net result of the act, if interpreted as suggested, will not enable the railroads to secure the result intended to he realized. Instead the result will be that the railroads shall not be fully compensated for their expenses during this period, but that when they receive the guaranty for six months, as established by what I regard as a misconception of the transporta- tion act, they must at their own cost pay a portion of the expenses of operation and maintenance during the guaranty period, because the expenses are out of line when an attempt is made to adjust such expenses with one-half of the average annual expenses of the test period. If such an interpretation is allowed to stand it will be seen that the intention of Congress would be negatived, and the benefits that it intended to confer would not be realized, and that provisions of the act by which all surplus operating earnings were to be turned over to the Government for the guarantyperiod, and the deficits were to be paid by the Government for that period, would be rendered null and void. As this is so far from the intention of those who insisted upon the passage of the transportation act, and its consequences are so wide- spread to the country at large and to the railroads themselves, then, if the Interstate Commerce Commission can not so exercise the discretion given them by what I regard as the true intention of that act, the passage of an amendment which would enable the real purpose "of the transportation act to be made effective seems impera- tively necessary and just. It is estimated that this would repay to the railroads several hundreds of millions of money actually expended for operating and maintenance purposes in the guaranty period, which they believe are at present not being paid because of a clear misinterpretation of the law. These measures of relief would be carried out with marked benefit in^strengthening the credit and financial condition of the railroads. Digitized by Microsoft® 530 RAILROAD REVENUES AND EXPENSES. To continue the present situation under existing conditions when their transportation returns are insufficient is not merely exhaust- ing their credit, but deprives them of cash essential to meet their requirements, and is making them a serious obstacle to the resump- tion of normal business and prosperity. The Chairman. Mr. Rea, at that point I wish you would make it a little clearer to the committee just what you mean by the mis- conception of the transportation act on the part of the Interstate Commerce Commission, or possible misconception.' If your roads were undermaintained during Federal control you will be compen- sated for the undermaintenance, and you will be in" the position, theoretically at least, of beginning on the 1st of March, 1920, with roads fully maintained. Now, do you mean that the Interstate Commerce Commission for the period from the 1st of March, 1920 to the 1st of September, 1920, should allow you overmaintenance in order to compensate for the undermaintenance of the Federal control period ? > Mr. Rea. No, sir. I could explain that to you, Mr. Chairman. The Chairman. If the commission allows you overmaintenance for that period, and you received your pay for the former period, you would be twice paid for the same expenses ? Mr. Rea. You would. The Chairman. You, of course, recognize that that would not be just to the Government ? Mr. Rea. Quite right; you are right. The Chairman. Then what do you mean by the possible miscon- ception ? Mr. Rea. First of all, the lack of settlement, or lack of reaching a determination; the delay. The Chairman. Oh, I perceive. Mr. Rea. And the difference in the interpretation which I assume must exist or they would have reached a conclusion. The Chairman. Well, do you mean that there is a difference of opinion among the members of the Interstate Commerce Commission / with regard to that subject? Mr. Rea. Yes; they have not reached a conclusion, and mean- while the railroads are in distress. The Chairman. That is very likely. I wanted it to be entirely clear just what you did mean. Mr. Rea. Yes, sir. In conclusion, I wish to say that the benefit of a fair and prompt interpretation of the President's proclamation, the Federal control act and contract, and the transportation act is very evident. In offering these various suggestions of relief to the railroads relative to the funding of the war capital expenditures and the removal of differences of opinion that prevent prompt and fair settle- ments for the Federal control and guaranty periods I do not think that I have suggested anything which is not in the public interest and which ought not to be willingly acquiesced in. If the present \ conditions had been anticipated I can not doubt that Congress would have dealt even more liberally with the railroad companies than has been done in the transportation act. I feel that to fail to deal with these suggestions, under present conditions, is to jeopardize the credit of many of the railroads that might be avoided by equitable and Digitized by Microsoft® RAILROAD REVENUES AND EXPENSES. 531 .prompt settlement for the Federal control and guaranty periods which would tide them over until business has been restored to normal conditions. I would be negligent of what I conceive to be to the real interest of the country in this difficult transportation situa- tion, and to the investors in the railroads, if I did not bring this situation, without criticism of any Government officer or depart- ment but because of real force of existing conditions, to your attention. The Chairman. Senator La Follette, will you inquire of the witness ? Senator La Follette. Not at this time. The Chairman. Senator Pomerene ? Senator Pomerene. No; I do not think so, Mr. Chairman. Senator La Follette. I will ask Mr. Thorn if he will give me the copy of that contract from which he read that formula. Mr. Thom. Yes, sir; I will give it to you, Senator. I do not have it in the room now, but I will bring you one. The Chairman. Senator Watson » Senator Watson. What would it cost the Government for under- maintenance, if- your suggestion was followed out ? Mr. Rea. Well, Senator, I have already stated that I have not the figures for it. Senator Watson. Yes; you stated that. Mr. Rea. I want to make the best explanation I can on it. I have already stated that I regret that I have not the figures for under- maintenance claims, but the director general's statement shows that he estimates that if the contention of the railroads for a fair settlement is adopted, the undermaintenance claims will run between §700,000,000 and $80Q,000,000. I am not willing to commit myself to these figures. The first step in this proposition is to decide what is an equitable interpretation of the contract, to meet the promise and recommendation of the President and the provisions of the Federal control act requiring the property and equipment to be re- turned to their owners in substantially as good repair and substan- tially as complete equipment as when they were taken over under Federal control. I do not want to see any railroad paid a single penny beyond that to which it is clearly entitled. You see from that that it is impossible for me to give you any other estimate than that which was suggested by the director general. Senator Watson. What would it mean to the Pennsylvania Rail- road System, Mr. Rea ? Mr. Rea. Well, I think I could tell what our own claim is, Senator. The Chairman. I think, if I may suggest, that that question ought to be clearly Understood, because it is a very important one. Does Mr. Rea understand from the inquiry of the Senator from Indiana that the $700,000,000 or $800,000,000 is the difference between the view of the Director General and the railroad ? Mr. Rea. That is what I understand. The Chairman. Or whether it is the total sum claimed for under- maintenance ? Senator Watson. No; I understand that the between $700,000,000 and $800,000,000 was in excess of what the Director General thinks should be allowed ? Digitized by Microsoft® 532 RAILROAD REVENUES AND EXPENSES. Mr. Rea. That is not quite my understanding, Senator. I am only quoting from the Director General that, measuring the two inter- pretations of the act, he thought the difference would be $700,000,000 or $800,000,000. The Chairman. The fact is that many of the railroads have not presented their claims. For instance, I was told by the Director General yesterday that the Atchison, Topeka & Santa Fe Railroad had just filed its claim. Senator Watson. The Director General told me that the New York Central had never filed a claim, at least it had never filed its 1917 inventory and its 1920 inventory up to this time. The Chairman. We are very much in the dark with regard to what the aggregate of the claims will be. Mr. Rea. I have got a memorandum for our own lines, if you would like to hear that. Senator Pomerene. Yes; I would be glad to hear it. The Chairman. Yes ; proceed. Mr. Rea. The following memorandum is made up for, the Penn- sylvania System on its undermaintenance claims : Our estimate of undermaintenance for roadway and structures is in the neighborhood of $40y000,000. Omitting any allowance for maintenance on the increased property investment made during Federal control, we used for replacement in the test period an average number of ties per annum exceeding 6,677,000. In 1918, only 4,444,000 ties were used; in 1919, 5,327,000; and in 1920, 5,258,000, The average tonnage of rails used for replacement in the test period was 263,676 tons per annum. In 1918, 164,328 tons were used; in 1919, 188,395 tons; and in 1920, 215,617 tons. This illustrates the situation on the Pennsylvania System, and shows the general experi-. ence throughout the country, indicating that there is an undermain- tenance claim for roadway and structures. As to maintenance of equipment, the final estimate is not yet concluded, but due to the policy inaugurated by the director general several months before the end of Federal control, ordering severe retrenchments in maintenance expenses, no doubt undermaintenance will be found in equipment. Our properties were returned to us in a disorganized condition, and with evident undermaintenance, and in spite of the foregoing difficulties we tried in the guaranty period to meet the necessities of the situation by getting the road and equip- ment into usable shape for safety as soon as possible. We were con- fronted by a record movement of traffic and a shortage of railroad facilities, and we put our whole energies to improving the transporta- tion records of past years, notwithstanding these difficulties, because the situation demanded it. The properties had been returned to us under the transportation act to operate and maintain them at the normal standard but not exceeding it, because the return was made under two very explicit provisions of the transportation act which would have put upon the railraods the burden of any overmain- tenance. This was a burden which we were not in a position to assume and, therefore, had every disposition to avoid. I think that covers it, Mr. Chairman. The Chairman. Is that all, Mr. Rea? Mr. Rea. Yes, that is all I have, Mr. Chairman. The Chairman. Very well, thank you, Mr. Rea. Digitized by Microsoft® RAILROAD REVENUES AND EXPENSES. 533 Senator Watson. Did you intend to adjourn now, Mr. Chairman ? The Chairman. I did not intend to. Senator Pomerene. The Senate session begins this morning at 11 o'clock. It is now that time. The Chairman. Do you desire to attend, or shall we go on ? I am very anxious to go on as rapidly as we can. Senator Watson. I think we ought to go on, Mr. Chairman. The Chairman. Very well, if there is no objection on the part of the members of the committee we will continue this hearing. Will you call your next witness, Mr. Thorn. Mr. Thom. The next witness, Mr. Chairman, will be Mr. John G. Walber, who will testify as to the history of the labor rules during Federal control and since. STATEMENT OF ME. JOHN G. WALBER, SECRETARY OF THE BUREAU OF INFORMATION OF THE EASTERN RAILROADS. The witness was duly sworn by the chairman. The Chairman. Mr. Walber, state your name and what official position you hold, if any. Mr. Walber. John G. Walber, secretary of the Bureau of Informa- tion of the Eastern Railroads. Mr. Chairman, Mr. Thom suggests that it might be well that I ex- plain' that during the period of Federal control I was connected with the Railroad Administration. For a part of the first year (1918) I was a member of Board of Adjustment No. 1, and the last three months I was directly connected with the eastern region, handling labor matters for the eastern region, and from January 15, 1919, until the termination of Federal control I was the labor assistant in the division of operations. Mr. Thom. And what have you been since ? Mr. Walber. Since that time I have resumed my work as secre- tary of the bureau of information of the eastern railroads. Mr. Thom. What is that bureau ? Mr. Walber. The bureau is an association of the eastern rail- roads organized in 1914,. to act as what might be termed a clearing house of labor matters in the eastern territories, the railroads using that bureau for the purpose of disseminating information for the use of the different railroads. Practically all my time in the last year has been spent out in Chicago before the United States Labor Board on the various matters there. Mr. Chairman, and gentlemen of the committee, a number of inquiries in regard to labor conditions having been made by different members of this committee during the course of these hearings, it has been considered that it might be helpful if a brief outline were submitted of the conditions and the manner of meeting them imme-> diately prior to and during the period of Federal control of the rail- roads. Prior to 1916, in which year the engine and train service organiza- tions submitted demands upon the railroads for the eight-hour day with time and one-half for overtime, which resulted in the passage of the Adamson law in September, 1916, effective January 1, 1917, the only general wage movements in the eastern territory were those which resulted in the arbitration proceedings affecting locomotive Digitized by Microsoft® 534 RAILROAD REVENUES AND EXPENSES. engineers, which were held in the year 1912, and arbitrations affect- ing locomotive firemen and conductors and trainmen which were held in the year 1913. All other classes of employees were dealt wi$i on the individual properties, and, as up to 1916 the wage movements had run in cycles, generally as one general class was increased adjust- ments were made for the other classes. In the eastern territory, schedules or agreements covering classes, of employees now represented by the Brotherhood bf Eailroad Clerks were in effect on only six railroads, on four of- those railroads they covered only clerical forces in local freight offices and yards, and on two railroads they also covered other station employees such as laborers, crossing watchmen, etc. Senator Watson. When was that ? Mr. Walber. Prior to January 1, 1918. That was the situation in 1917, Senator. Senator Watson. And what railroads were those ? Mr. Walber. I can give them to you later, Senator. I have them, in another collection. Senator Watson. Very well; that is satisfactory. Mr. Thom. In the eastern territory. Mr. Walber. They are only in the eastern territory, though. Senator Watson. The eastern territory ? Mr. Walber. Yes; I speak more particularly of the eastern terri- tory , because I am more familiar with that than I am with, the country generally. In the eastern territory, for the maintenance-of-way department only four schedules were in effect. Two of these schedules applied only to section foremen, work-train foremen, etc., while the other two, in addition to the foremen, also covered section men, and maintenance-of-way mechanics, such as carpenters, masons, painters, and similar classes. Thirty-six of the eastern railroads had schedules negotiated with representatives of the telegraphers, 23 with machinists, 19 with boiler makers, 13 with blacksmiths, 11 with sheet-metal workers, 4 with electrical workers, and 19 with car men. I might say in that connection that we figure there are 54 eastern railroads, so this will give you an idea of the proportion that had the schedules. To the extent that organizations represented the classes of em- ployees the rates of pay of the respective classes were fixed by negotiation between the managements and the representatives of the employees. On the other railroads it is a fair statement that as increases were made for individual classes similar adjustments were made for other classes. The effect 6f the development of war industries and the require- ments for increased forces in industrial pursuits, commencing with the latter part of the year 1916, resulted in repeated demands from various classes of railroad employees for increases in pay. Ordinary labor engaged on tracks and at freight houses, .engine, terminals, etc., was repeatedly increased within the 18 months prior to Federal control. Other classes, while not increased to the same extent as. common labor, received varying increases to the extent that the resources of the railroads would permit, but at the time the rail- roads were taken over by the Government requests for further Digitized by Microsoft® RAILROAD REVENUES AND EXPENSES. 535 increases were pending from the conductors and trainmen on all eastern railroads and from the shop crafts and telegraphers on numerous individual railroads. Upon the announcement of the railroads being taken over, all classes of employees formulated requests for increases. Under date of January 18, 1918, the Director General, in his General Order No. 5, announced the creation of a Eailroad Wage Commission consisting of Hon. Franklin K. Lane, Secretary of the Interior; Hon. Charles C. McChord, member of the Interstate Commerce Commission; Hon. J. Harry Covington, chief justice of the supreme court, District of Columbia, and the Hon. William R. Wilcox of New York. Shortly after its creation the commission began hearings on behalf of all classes of railroad employees, land under date of April 30, 1918, submitted its recommendations to the Director General, which, in general, were embodied in General Order No. 27 dated May 25, 1918. This general order granted graduated increases to be applied to the rates in effect December 31, 1915, which date was fixed according to my information, in order to overcome the variable adjustments which had been made in the scales of pay of not only different classes of employees on individual railroads, but also on the different railroads between that date and December 31, 1917. It is obvious that hav- ing provided for applying the awarded increases to the individual rates which were in effect on December 31, 1915, no standardization of rates was recommended. In testifying before the House Appropriations Committee on April 8, 1920, the Director General stated that the increases resulting from this order would amount to $360,000,000 per annum. Immediately after the promulgation of General Order No. 27 the federated shop crafts notified the Director General of their dissatis- faction with its provisions as affecting the shop crafts. As a result of their protest instructions were issued by the Director General under date of June 15, .1918, to all the railroads withholding the application of the order to those classes, and among the first duties undertaken by the Board of Railroad Wages and Working Conditions, the announcement of the creation of which was contained in General Order No. 27, was the reconsideration of the order affecting the mechanical department employees. Senator Pomerene. Have you got the names of the members of that board, Mr. Walber ? Mr. Walber. The names of the members of the Board of Railroad Wages and Working Conditions ? Senator Pomerene. Yes. Mr. Walber. \I can give them to you, Senator Pomerene. Senator Pomerene. J wish you would insert them in the record. Mr. Walber. Very well. The managerial representatives con- sisted of Mr. F. F. Gaines, who was a motive-power man from one of the southeastern railroads — I think the Central Railroad of Georgia; Mr. W. E. Morse, who had been connected with a number of western railroads in the transportation department, at one time being con- nected with the Chicago & North Western Railway, and I think immediately prior to Federal control he was connected with the Den- ver & Salt Lake Railroad; and Mr. Charles E. Lindsay, who had been connected with the New York Central Railroad in the engineering department. ■* Digitized by Microsoft® l 536 RAILROAD REVENUES AND EXPENSES. The employees were represented by Mr. George H. Sines, vice president of the Brotherhood of Railroad Trainmen; Mr. A. O. Whar- ton, president of the railway employees' department of the American Federation of Labor; and Mr. John J. Dermody, a vice president of the Order of Railroad Telegraphers. After the receipt of their report the Director General issued sup- plement No. 4 to General Order No. 27, which was dated July 25, 1918. In addition to putting into effect the eight-hour day on all railroads at all points, and for all classes of shop crafts, with tune and one-half for overtime and Sundays and certain designated holidays effective August 1, 1918, and the increases for the different classes to be effective from January 1, 1918, it also provided minute designa- tions of the work to be performed by the respective mechanics, that is, machinists* boiler makers, blacksmiths, sheet metal workers/ electrical workers first and second class, and car men, together with their helpers and apprentices. This was the beginning of reclassifi- cation of employees in the mechanical department. Senator Kellogg, Was that based on that report of that com- mittee ? , Mr. Walbee. The classification of the employees in supplement No. 4, I am not sure* Senator, whether that was embodied in the report of the Board of Railroad Wages and Working Conditions, or whether those definitions were afterwards included in the Central Railroad Administration. I am not clear on that, but I can verify that, if you wish, sir. Senator Kellogg. Very well. Mr. Walber. I recall that while I was with the Railroad Ad- ministration I tried to find the original report from the Board of Railroad Wages and Working Conditions, but I was unable to locate it. The order itself was drawn up on an inspection trip which the Director General was making throughout the West, and I repeatedly heard that it had been drawn up at Glacier National Park, and some- how the files were lost and no one was able, to find the original report of the Board of Railroad Wages and Working Conditions. Senator Kellogg. You do not know whether it was unanimous or not, do you ? Mr. Walber. I do not know. I will try to obtain that, Senator. Senator Pomerene. What report is that ? . Senator Kellogg. The report of the board. Mr. Walber. The report of the Board of Railroad Wages and Working' Conditions to the Director General. The Director General did not, in all cases, issue the report as recommended to him. Fre- quently it was modified after the board made its report. He re- served the right in all cases to review their action. /Their action was not final in any case. Senator Watson. Were there any increases or reclassifications amounting to anything before that board reported ? Mr. Walber. No, sir. Senator Pomerene. Did that board provide these reclassifica- tions ? Mr. Walber. That was the question Senator Kellogg asked me, and I told him I would try to look it up. I was unable to find the original report from the Board of Railroad Wages and Working Conditions, Senator. It was misplaced somewhere, no doubt be- Digitized by Microsoft® RAILROAD REVENUES AND EXPENSES. 537 cause it was made on one of these long trips which they made, and lost. Senator Pomerene. I would like very much to have that reclassi- fication, report. (Note.— This report was subsequently furnished, but not printed as a part of the record.) Mr.. Walber. I will endeavor to find it. All those files have now been sent to the United States Labor Board in Chicago, so it will be hardly possible to find it here in Washington, but I intend to be out in Chicago early next week, and I will endeavor to look it up. Senator Watson. Wouldn't one of these members, say Mr. Wilcox, have it ? Mr. Walber. Oh, the report of the Lane Commission, I have a copy of that in the files. Senator Kellogg. We have that. Mr. Walber. Yes, I have a copy of that. Senator Watson. That is all right. Mr. Walber. But I mean the report of the Board, of Railroad Wages and Working Conditions. Senator Watson. -Yes. If they did not have the original report, what did they work by? Did they have alterations and additions and amendments to the thing, that were handed in? Mr. Walber. Yes; the director general and his staff had the report from the Board of Railroad Wages and Working Conditions, but just what modifications .were made in that report I am not prepared to say. Senator Watson. How can we get at the original ? Mr. Walber. I think I may be able to obtain a copy from one of the members of the board. They each had their separate files, and I think I may be able to find one in that way. Under the schedules in effect in 1917, as previously mentioned, uniform hours for all the different classes of employees were not in effect. The 8-hour day was not in effect on any road, ex- cepting three New England lines, where it applied on Saturdays only. On other working days the 9-hour day was in effect, i. e., 9 hours work within a spread of 10, allowing 1 hour for meals for machinists, boiler makers, and blacksmiths, and the so-called metal trades. Even for these classes exceptions applied at the engine terminals where in the preponderance of cases the 10-hour day was in effect, with considerable other exceptions under which overtime did not accrue after 12 hours. In the car department for car re- pairers the 10-hour day was generally in effect, and for car inspec- tors the 12-hour day. These limits for the day indicate the time after which punitive overtime was allowed. On certain other railroads which had no schedules, punitive overtime was not paid, but the hours of service shown for the rail- roads having schedules generally applied. I have in mind there the Pennsylvania and the Philadelphia & Reading Railroads particularly. * The uniform application of the 8-hour day to all these different classes of employees working under different conditions such as exist in the general repair shops, commonly known as "back shops," as compared with the engine terminals, -car repairers working on designa- Digitized by Microsoft® 538 KAILKOAD REVENUES AND EXPENSES. ted repair tracks as distinguished from car repairers and car inspectors working on trains and cars in transit, 'produced very pronounce^ distortions in the monthly earnings of these different classes of employees themselves and also in comparison with other classes of employees, resulting in outspoken dissatisfaction, as evidenced by the records before the Board of Railroad Wages and Working Con- ditions. The car inspectors and car repairers working on cars in transit had been quite generally paid on a monthly basis, which com- pensated for all services rendered, i. e., they did not receive overtime. The conditions under which these men had to work were not capable of very much change, i. e., in the way of rearranging their hours on duty. The result was that notwithstanding a penalty was imposed upon their working in excess of eight hours and on Sundays and holidays the penalty could not be avoided and it simply resulted in an increase in wages. The increase in the average annual compen- sation per employee of these classes according to the figures of the Interstate Commerce Commission, is as follows: Per Cent. Car inspectors, 1918 -over 1916 226. 5 Car repairers, 1918 over 1916 208 Another far-reaching effect of this supplement was produced by the minute specifications of work constituting that of the several crafts. As previously stated, a number of eastern railroads in 1917 had schedules negotiated with the several Organizations. Each of these schedules contained certain provisions as to the qualifications of the respective mechanics and the performance of which constituted the work of the respective classes. No two schedules were alike in this respect, and none of the schedules contained such minute specifi- cations as were provided in supplement No. 4. Under each schedule, work which had formerly been performed by helpers and men who were recognized as lower grade mechanics of the respective classes, even though carrying the craft designations, had been paid for at rates lower than the recognized journeymen's rates. Therefore, a comparison between the journeymen's rates in 1917 and the jour- neymen's rates under the supplement do not portray a true repre- sentation of the increases in pay and Consequent increases in expenses resulting from the supplement. In addition, work which had or- dinarily been performed by laborers, and paid the laborers' rate, was required to be performed by mechanics' helpers. Instances will be cited by Mr. Whiter in connection with the national agreements which continued conditions introduced on the eastern rauroads by supplement No. 4. As showing the range of rates in effect in the eastern territory in 1917, I submit tables which were compiled from reports received from the railroads in 1917, when readjustments were made in the rates. These show the latest rates in effect prior to December 31, 1917, consequently the effective dates of all the rates are not uni- form. For the metal trades, the skilled occupations were confined to the machinists, boiler makers, and blacksmiths. In 1917 it was not considered that there were sufficiently large numbers of employees performing the work which is now classified as that of sheet metal workers and electricians to justify their segregation. The work was, in most cases, performed by machinists or blacksmiths, but where the separate crafts were recognized, the rates were usually adjusted Digitized by Microsoft® ^ RAILROAD REVENUES AND EXPENSES. 539 upon the same general bases as were fixed for the machinists, boiler makers, and blacksmiths. These tables do not include all the rates paid on the individual railroads; only the minimum, maximum, and preponderating rates are included. Numerous rates within the spread of the minimum and maximum rates were paid. It would have made a very vol- uminous exhibit to have included all of them, but it is believed that the range of rates is ample to show the almost complete absence of uniformity. In these statements, the eastern territory is divided into 12 zones, which comprehend distinctive commercial and competitive condi- tions : Zone 1. New England territory. Zone 2. New York electric territory. Zone 3. New York terminal district — excluding electric territory. Zone 4. New York, New Jersey, and Pennsylvania; lines east of Rochester, excluding zones 3 and 5. Zone 5. Buffalo territory. Zone 6. Lake Erie territory; Erie to Detroit; north of- and includ- ing main line Pittsburgh, Fort Wayne, and Chicago, excluding zones 7 and 9. Zone 7. Chicago territory?— west portion Chicago lines. Zone 8. Philadelphia and Baltimore. Zone 9. Pittsburgh territory. • Zone 10. Wheeling territory; south of main line Pittsburgh, Port Wayne & Chicago. ' Zone 11. Ohio Valley; Ohio and Indiana, South Pittsburgh, Fort Wayne & Chicago; Illinois lines to Peoria, excluding zones 9 and 10. Zone 12. St. Louis territory; lines to St. Louis, southern Illinois. I will put these two tables referred to in the record. The Chairman. They may be admitted. (The two tables presented by Mr. Walber are as follows :) 63553-5-21— Vol I- 36 Digitized by Microsoft® 540 RAIUtOAD REVENUES AND EXPENSES. ll i & •O S 'Sin^uapiiodejj ■nmnitxBpi •gift itn S9 S ;9§§9§Sii 83588 3398 S3 SSSSSSSSSSSS •Tununinjn SOffiNtQ'OlD MMMNMM S ' ' ' ■*«TOCO CONW c$c3<§SS(p lOOOCOTO 5NMW 00 CD TOCO i l x ps a** iw ••8 II ■SfLj o ■s . ll. 8-8 **.&* Mg|H; feSs 1 2£ '2« . 0, iB5 8.2 ?j3 -flO' gtimmSo'isszgwfcssiSgn CI o o Digitized by Microsoft® I > ! ■a 5 1 - M OJ I* ■A* '"S5 Era °a ll oS? Ef-8 (8 ffl Ori n - ^7. 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The distinctive commercial conditions in each one of those zones described there, I think, are well known, and in the past the railroads felt that those conditions would largely control the rates of pay they would have to pay for various classes of employees. It was not considered that there was any occasion for the New England line to take into consideration the rates paid down in southern Illi- nois, for instance, and vice versa. The men in their service did not meet those competitive conditions, and therefore we divided the eastern territory up in this manner. Senator WATSoN r You say on these tables : "Minimum, maximum, and preponderating hourly rates in effect prior to Federal control." Does that mean in the year prior to Federal control, or two years ? Mr. Walber. In the year 1917. There were various adjustments made during that year, Senator, and these are the highest rates that had been authorized prior to January 1, 1918. The Chairman. And these are rates per hour? Mr. Walber. The hourly rates; yes, sir. You see it takes two sheets to show the 12 groups. At the bottom of the second sheet, Senator, you will find, under the blacksmiths, boiler makers, and ma- chinists, that the different rates that are printed in this table are superseded by one rate under supplement No. 4, 68 cents. Senator Pomerene. What is the date of that ? Mr. Walber. Effective January 1, 1918; issued July 25, but retro- active to January 1. Senator Pomerene. That was the date of the general standardi- zation, then, of wages ? Mr. Walber. Yes, sir. Then under the national agreement the 72-cent rate became effective. Senator Pomerene. I have not examined those tables. Do you mean to say that that is confined to blacksmiths, boiler makers, and machinists ? Mr. Walber. These three columns contain blacksmiths, boiler makers, and machinists. As I have explained, Senator, we did not segregate in those days the sheet-metal workers, the electrical work- ers, and such, because we did not consider that there were enough in those classes to justify the segregation. Senator Pomerene. Well, tjiis does not apply, then, to the train- men? Mr. Walber. Oh, no, sir. 1 deal with each one separately as I go through. These are what are known as the shop crafts. The Chairman. The table at the top shows the character of the employee. Senator Pomerene. Yes, I see. Senator Watson. These rates became effective January 1, 1918, and are still in effect ? Mr. Walker. Well, in the last line, decision No. 2, are shown the current rates. Those are the rates that were granted last year by the United States Kailroad Labor Board under decision No. 2. Supplement No. 4 was effective January 1, 1918. Addendum No. 2 to supplement No. 4 was effective September 1, 1918. • The national agreement was effective May 1, 1919. Decision No. 2, May 1, 1920. Digitized by Microsoft® RAILROAD REVENUES AND EXPENSES. 555 The Chairman. What was the date of the national agreement ? Mr. Walber. The national agreement was executed September 20, 1919. The rates of pay per day therein were made retroactive to May 1, 1919, but the rules were effective September 20, 1919. Senator Watson. Now, let us get that again. Supplement No. 4: Those rates became effective, you say, January 1, 1918 ? Mr. Walber. Correct. Senator Watson. And then addendum No. 2 to supplement No. 4 became effective September 1, 1918? Mr. Walber. Correct. Senator Watson. And then the national agreemen f May 1, 1919? Mr. Walber. Correct. Senator Watson. And then the decision No. 2, May 1, 1920? Mr. Walber. Correct. Senator Watson. All right. , Mr: Thom. But the rules under the national agreement did not go into' effect until September, 1919 ? Mr. Walber. Yes. I am only dealing with the rates, Col. Thom. Mr. Thom. I know, but I want that distinction made. Mr. Walber. Yes. These tables show: 1. Very few railroads paid the same rates for machinists, boiler- makers, and blacksmiths. You will find with respect )to each of the rates shown the minimum, maximum, and preponderating rates. If you will read the rates up and down you will find what I am talking about; you will find very little similarity between the rates paid. If you will read them crosswise, you will find the rates for the crafts, and you will find that therew«,s very little similarity in the rates for the respective crafts. 2. Pronounced variations in the minimum, maximum, and pre- ponderating rates not only as between the different zones, but also on the railroads within each zone. The variations apply for each of the classes of employment included in the tables. 3. In connection with "welders": The comparison of their rates with any of the occupations included in the tables plainly show that the work was not considered as requiring any special skill. Under supplement No. 4 , their rate was brought up to that fixed for the skilled workmen. Notwithstanding under the national agreement dated September 20, 1919, an apprentice may perform this work in the last year of his apprenticeship, that agreement further established a differential of 5 cents per hour above the rates for the respective crafts, and forbids using a welder, on the work of more than one craft. ■> The welders are shown next to painters, and right next to the helpers on the sheet, and you will see there the comparison with the rates for skilled crafts, boiler makers, blacksmiths, and machinists, and in many cases they did not even receive the rate of the journey- ' man mechanic. Notwithstanding that a differential was created under the national agreement. Addendum No. 2 brought them up to the rate of a journeyman, the 68-cent rate, which was the journey- man's rate, while the national agreement gave them a 5-cent differ- ential above the journeyman's rate, or more than a 5-cent differen- tial — a 9-cent differential, making their rate 77 cents, and in decision No. 2|they got a 5-cent differential above the journeyman's rate, making their rate 90 cents. 63553— 21— Vol I— =37... .. ... „_ Digitized by Microsoft® 556 RAILROAD REVENUES AND EXPENSES. Senator Watson. How are those •'■ increases brought about? By the agitation of some particular group and certain representatives appointed by them to see the director general, or were there inter- mediate agencies used ? Mr. Walber. No; the process, Senator, during Federal control, was approximately this : The organizations formulated their de- mands and filed them with the Direc^pE General. He then would submit them to the Board of Railroad -Wages and Working Condi- tions, who would fix dates for hearing, and took their own means of assembling the necessary information. It is pretty hard at this date to look back and put yourselves in the position we were all in during the war and during the period of Federal control. The pressure that was on the Railroad Adminis- tration, due to the demands of outside industries, the loss of railroad employees from the service, the necessity for prompt action, made it absolutely impossible for the board to go into these matters as exhaustively as you can do in the present situatipn. The lack of data, the time necessary to assemble the data, made it necessary for them to adopt short-cut methods, and any way, to get the results, and as one railroad man I am here to say that I have the utmost sympathy for the conditions under which the Railroad Labor Board had to do its work. And I have not the least criticism of what they did. I think in many respects they did a remarkable job con- sidering the conditions under which they had to work. What I am saying here is not in any critical sense at all. I am trying simply to state the facts and state the situation. Senator Watson. Did the director general make increases that were not recommended by the Board of Railroad Wages and Work- ing Conditions ? Mr. Walber. I am inclined to think that there was a divided recommendation from the managerial and the labor representatives on the Board of Railroad Wages and Working Conditions when Supplement No. 4 was submitted, and it became necessary then for the Director General to settle that division between the members of his board, and one part of it — the managerial representatives, as I recall — made a lesser recommendation than the labor representatives. Senator Watson. Mr. Hines was director general then? Mr. Walber. No; Mr. McAdoo was. Senator Watson. Mr. McAdoo was still director general ? Mr. Walber. Yes. I am depending on my memory, Senator; but I think I am approximately correct, According to , the figures whicih the labor representatives worked up, the director general would have been justified in granting a 72-cent rate at that time; and if I remember correctly the managerial representatives recommended some rate less than what was author- ized, namely, the 68-cent rate, and in order to conform with the general policy which had been adopted, of granting increases of approximately $25 a month, which, for the 1 working hours, produced an hourly rate of 13 cents, they established a minimum basic rate of 55 cents per hour before they applied the increase of 13 cents, so as to produce the 68-cent rate. I am very sure it was not a unanimous report from the Board of Railroad Wages and Working Conditions. Senator Watson. Was that the only instance in which there was any division ? Digitized by Microsoft® RAILROAD REVENUES AND EXPENSES. 557 Mr. Walber. Oh, no; I think in almost all cases there were divisions. Senator Watson. In almost all cases there were divisions ? Mr. Walber. Yes. Senator Watson. And the director general finally settled them? Mr. Walber. He had to settle them. As previously stated, it igmy understanding that the Lane com- mission adopted December 31, 1915, as the basic date for the appli- cation of their increases in order to compensate for the lack of uni- formity in the adjustments which had been made between that date and December 31, 1917. When the Railroad Administration decided to standardize the rates for all the skilled crafts and also for the entire country and to change the basic date basing the increases on rates in effect December 31, 1917, or as they stated, January 1, 1918, prior to the application of General Order No. 27, it became necessary for them to make some provision to overcome the differences in treatment within those two years, and the lack of uniformity in the rates paid on the several railroads and also the different rates for the different crafts. For the machinists, blacksmiths, boiler makers, sheet-metal workers, electrical workers, and molders, supplement No. 4 provided that all prior rates would be brought up to a basic minimum of 55 cents per hour to which was added an increase- of 13 cents, making the rate 68 cents per hour. For the car men and second-class elec- trical workers, supplement No. 4 established a basic minimum rate to and including the first three years; 5 cents per hour for the first six months of the fourth year, and 7£ cents per hour for the last six months of the fourth year. The supplement also contained a reference (Art. II, sec. 1 (c)) that further provisions would be made for men of exceptional skill who were doing special high-grade work which had theretofore enjoyed a differential. In conformity with this provision addendum No. 2 was issued under date of September 1, 1918, which provided a differen- tial of 2\ cents per hour above the minimum for boilermakers per- forming the work of flangers and layers-out and also for hammer- smiths working out of heavy furnaces and for frame fire blacksmiths, cabinetmakers, coach and locomotive carpenters, upholsterers, plan- ing-mill men and millwrights, pattern makers, passenger-train steel- car body builders and repairers ; air-brake rack men, coach and loco- motive painters performing varnishing, surfacing, lettering, and dec- orating, silver and nickel platers and buffers, oxyaeetylene, thermit, and electric welders were increased to the rate of 68 cents per hour. That is the journeyman's rate. Freight-train steel-car builders and repairers were increased to the rate of 63 cents per hour instead of the rate of 58 cents per hour for ordinary car men. Thirty-five interpretations were made to this order by the Director General, in addition to which there was one amendment and two addenda. ^ Senator Watson. Do you know how those rates compared with rates paid in similar occupations and employment outside of the rail- road service ? Digitized by Microsoft® 558 railroad revenues and expenses. Mr. Walber. The Kailroad Administratidn at various times en- deavored to ascertain these rates. It was very difficult to obtain the rates from the industries. They withheld the information. They were driven to using the Department of Labor figures very largely, which covered only the union scales, and the figures of the Depart- ment of Labor, according to my recollection, were published only semiannually. They got out a bulletift^every six months. The Chairman. With the consent of the committee, we will now adjourn until 10 o'clock to-morrow. (Whereupon, at 11.45 o'clock a. m., June 1, 1921, an adjournment was taken until 10 o'clock a. m ; , Thursday, June 2, 1921.) Digitized by Microsoft® LIST OF WITNESSES. Page. Brock, George E 926 Byram, Harry E 415 Chambers, Edward 441 Colston, W. A 950 Elliott, Howard 334 Fisher, Walter L 970 Holmes, Hugh A 1012 Johnston, Forney 852, 871 Kruttschnitt, Julius 8 Ludlow, Edwin 855 Pulleyn, John J 995 Rea, Samuel 502, 527 Smith, Alfred H 240, 317 Stillwell, Lewis B » 929 Thorn, Alfred P 521 Walber, John G 533 Wallace, John F 902 Warfield, S. Davies 797 Wettling, L. E , 660 Whiter, E. T 593 Willard, Daniel '. 138 Williams, William Henry 756 Wishart, W. C » 315 i Digitized by Microsoft® Digitized by Microsoft® INDEX A. Accounting: . Page. Refinements of, as prescribed by Interstate Commerce Commission, bene- ' fits (Elliott) • . , 352 Uniform system of, desirable (Elliott) , 352 Accumulation of cars: Not moving currently, 1918-1921 (Willard); . ... ... .\V .Chart facing 143 Operating expenses increased due to ' ' outlaw strike " cause of (Willard) .... 143 Adamsonlaw: r- Effect of, upon expenses of the New York Central Railroad (Smith). v. . . . 249 Repeal of, advocated (Elliott) ':'■: .■ ...'. 409 Additions and betterments: Amount expended by the Baltimore & Ohio Railroad, July 1, 1910 to December 31, 1920 (Willard) ,1 189 Building of western extension to Chicago, Milwaukee & St. Paul Railway, •■ advantages derived (Byram) .- 438 Funding of all expenditures for, made durjng period of Federal control, advocated (Rea) : ; :.i... 508 Necessity for further development of railroads (Smith) . . '. 327 Northern Pacific Railway Co., sums expended for (Elliott). , : 336 Adjustment boards, efficient and economical operations affected by decisions rendered by (Whiter) 607 Adjustment of rates. (See Rates, fares, and charges.) Advance in rates. (See Rates, fares, and charges.) Advertisements, newspaper, carried during 1919 and 1920 for purpose of securing labor (Smith) *...".'.' ; 293 Agencies: Establishment of, for ascertainment of economic data as to relations of freight rates to cost of manufacture or production and to price of com- modities, approved (Warfield).:.: I ...:. 803 Financing of equipment through, advocated (Warfield) 819 Procuring of equipment to meet seasonal or abnormal requirements from a central agency operating without profit, suggested (Warfield) 818 Agreements. (See Contracts; National agreements.) Air-brake men. (See Brakemen.) American Manufacturers' Association, charter of (Holmes) , Page 18 of Appendix following 1032 American Railway Association: Activities of (Willard). 200 Articles of organization and by-laws (Willard) 196-199 Board of Directors, executive and advisory committees of (Willard) 203 Cost of maintaining (Willard) , - • - • 200 Plan of organization (Willard) i Chart facing 195 Announcement of ' purposes qf National Association of Owners of Railroad Securities, issued August, 1917. 849 Antitrust laws: Operation of Clayton Act has taken from managements of railroads men of large business affairs whose experience would be of service (Warfield) . . 812 Repeal of, advocated (Elliott) 413 Apples: Cold storage holdings — Eastern barreled and northwestern boxed stock, by districts, as of April 1, 1921, and April 1, 1920 (Chambers) 481 March 1, 1920 and 1921 (Chambers) 478 Comparative velocity of carload movement of barreled versus boxed apples for 5-week period,, March 27 to May 3, or since request for tempo- rary emergency rate was declined (Chambers) 483 m Digitized by Microsoft® IV INDEX. Apples — Continued. Page. Jobbing prices at principal eastern markets, comparative ranges (Cham- bers) . 483-484 Prices to jobbers in carload or large quantities as of March 21, 1920, and March 21, 1921 ( Chambers) 480 Apprentices and helpers: Average compensation and number of, in eastern territory and for United States as a whole, showing per cent of inc-r-ease 1918 over 1916 (Walber) . . 563 Number of, limited by national agreements (Whiter) 637 Pennsylvania System, statement showing number of, as of March, 1921 (Whiter) ■. 643 Ratio of ,. in respective crafts limited to not more than one to every five. , mechanics (Whiter) 639 y Arbitration, compulsory: < Denned (Smith) , 331 . ; Not feasible in this country (Smith).... 1 . .. v 331 Arehes, locomotive: , ■> ■ : Defined (Smith) 302 Numher of engines equipped with — New Y6rk Central Railroad (Smith) -^ - 301 Northern Pacific Railway, as of April 14, 1921 (Elliott) 337 Automatic stokers, (gee Stokers.) B. Back pay. (See Wages.) Bad order cars: Abnormal number of (Elliott) - 370-371 Cost of repairing (Willard). .,.,.'. 218-219 Five per cent the normal limit (Elliott) 371 Increase in number, 1921 over 1918, causes (Willard) , , 167 Number of, much greater at termination of Federal control than at beginning; cause — Kruittschnitt....'. , 69 Williams : ■ ■ . 766 Repaired, Northern Pacific Railway (Elliott). 368 Responsibility for large number of, due to changed methods during Federal control (Willard) 145 Rules of Master Car Builders for inspection of, departed from during Fed- eral control (Willard) 146 Baggagemen, rates of pav, December, 1917; January 1, 1918; January 1, 1919; , and May 1, 1920 (Smith) 270, 271 Ballast: : Average number of cubic yards for three-year test period compared with total for 1920 (Kruttschmitt) r 128 Average price of, 1917-1920 (Smith) , . 272 Baltimore & Ohio Railroad, cost of operating private cars on (Willard) Facing 206 Bankruptcy, reduction in wages and abolition of national agreements necessary to save many roads from (Rea) .... 506 Banks: Fall in clearings of, March compared with August, 1920 (Kruttsqhnitt) . , . . 46 Savings — Important source for absorption of railroad securities (Pulleyn) 995 Certificates of National Railway Service Corporation made safe and available for investment would give large outlet for such issues (Pulleyn). .'...., , 996 National Railway Service Corporation certificates in sum of $100,000,000 . could be taken by, with proper safeguards (Brock) 947 Railroad securities held largely by (Brock) 927 Securities of National Railway Service Corporation being made legal investment for (Brock) 927 Betterments. (See Additions and betterments.) Bills proposed by National Association of Owners of Railroad Securities: Corporation bill: To incorporate the National Railway Service Corporation and to define its powers and duties, and for other purposes. 837 Organization bill: To. further economies and efficiency in railroad transpor- tation .. . . ; 841 Black list, none conducted by railroads (Whiter)... ........ .......' . . 633 Digitized by Microsoft® INDEX. * V Blacksmiths: Page. Average compensation and number oi employees in eastern territory and for United btates as a whole, showing per cent of increase 1918 over 1916 (Walber) 563 Wages of, dissimilarity in rates of, for different railroads (Walber).. 555 Board of Economics and Engineering: • . Attitude of carriers toward, satisfactory (Warfield) 825 Composition of (Warfield) 822, 833 Cooperation of, with Interstate Commerce Commission (Warfield} 824 Duties and functions of (Warfield) .' 823 Efficiency and large savings through (Warfield) ' . '..;....., 823 Instrumentality free from entangling alliances (Warfield) . ; : 823 Investigations of, will be of value to the Interstate Commerce Commission (Warfield)^ ; 823 Members of — Experience and qualifications (Warfield) 833-836 Unconnected with railroad companies or financial institutions (Wart field) i ..,■... 1 „■ . . 823 Purpose of (Warfield) , 827 Subjects under investigation by (Warfield) ' 830 Boat lines: Competition between all rail carriers and boat lines operating via Panama Canal (Chambers) 493 -494 Keen competition, water carriers operating via Panama Canal have brought rates down to unremunerative basis (Chambers) ; ' 494 Light tonnage being handled exclusively by water lines in competition with rail lines on the Great Lakes (Chambers) j... 495 Policy of sustaining rail lines by requiring water carriers to charge more than a reasonable rate, not advocated (Chambers) 494 Boilermakers: . Average compensation and number of employees in eastern territory and for United States as a whole, showing per cent of increase 1918 over 1916 ' ' (Walber) : 563 Wages of, dissimilarity in rates of, for different railroads (Walber) 555 Bonded debt, inability* of a large proportion of railroads to earn interest on; causes (Warfield) 799 Bondholders, rights of ; in the administration of the railroads (Fisher) 975 Bonds. (See Stocks and bonds.) Brakemen: Average compensation and number of, in eastern territory : and for United States as a whole, showing per cent of increase 1918 over 1916 (Walber) . 563 Bates of pay, December, 1917; January 1, 1918; January 1, 1919; and May 1, 1920 (Smith) 1 270, 272 Brick. (See Cement, brick, and plaster.) Brock, XJeorge E., statement of. ... : 926 Building enterprises, relation of freight rates to (Chambers) 488 Business depression: Advance in rates have retarded business more than any other element in 1 connection with business institutions (Holmes) . . . ■ i 1018 Bank clearings, fall in, March compared with August, 1920 (Kruttschnitt) . . 46 Causes of (Elliott) . . . ' :•. 1 398 Construction of new buildings, year 1920 (Kruttschnitt) 46 Curtailment of business due to high discount rates (Smith) 4 318 Decrease in employment, beginning with June, 1920 (Kruttschnitt) 46 Deflation and fall in prices caused by war conditions (Kruttschnitt) 47 Disarrangement of industry brought about by the war (Kruttschnitt) 46 Effect of reduction in rates on stimulation of business highly speculative (Kruttsehintt),. : 88 Failures reported, 1920 (Kruttschnitt) 46 Inability of Europe to purchase goods, potent factor in bringing about (Kruttschnitt).... : ...;.....'....; "....., - 47 Increased rates not the- cause of — Elliott. 398 Kruttschnitt. 45 ! Smith 323 Warfield 802 Digitized by Microsoft® VI * INDEX. Business depression — Continued. Page. Investments must be supported'and carriers put in position to meet their obligations during period of (Rea). ....-■.' .' 506 Railroads not responsible for (Kruttschnitt) 46 Stoppage of buying has caused an oversupply of ships (Kruttschnitt) 47 Wholesale prices, drop in, following May, 1920j causes (Kruttschnitt) .... 46 Byram, Harry E., testimony of ...,...,. .' < .< 415 C. Canada: ; Operation of railroads at a tremendous loss (Smith) 244 Percentage of railroad mileage owned by the Government (Smith).: 244 Car distribution: -,-..., Cars in the country poorly distributed at end of Federal control (Willard) . '•'. 141 Faulty at termination of Federal control, remedy pursued by Interstate ' Commerce Commission (Kruttschnitt). . ■,*. .■.■■ ..... . ... . . 11 Car inspectors. (See Inspectors.) , ,'. Cardot shipments, freight rates for, should be based upon cars being loaded to )» weight capacity or cubical content capacity (Williams) '. '778 Car miles, class I railways, United States, 1912 to 1920 (Wettling) 734-737 Cars off line: ; ' Extent to which cars sent from home lines during Federal control, and work ■ done for their restoration (Kruttschnitt) . , 11 Percentage of, when roads released from Federal control (Willard), 145-146 Relocation of equipment after termination of Federal control, reasons for (Willard) 165-166 Repairs made to, only to extent of making them fit to run (Kruttschnitt) . . 70 Car repairers. (See Repairers.) Car Service Committee, purpose and work of (Willard) ■. , .< 140 Cement, brick, and plaster, movement in tons for each quarter of 1920 (Cham- bers). .^ l 474 Chambers, Edward, statement of.. . 441 Charter, of National Railway Service Corporation, State of Maryland ....:. 1009 Chicago Junction Railroad. ...... Evidence i of 'impracticability of coordinationg railroad, terminals, yards; ,. and facilities through present associations of railway executives (Wallace) . 920 Intervention petition filed by eight trunk lines asking joint use of, ; and > opposing its purchase by New York Central — an, example of impossi- bility or executives association functioning in producing coordinated economies (Wallace) , 914 Chicago, Milwaukee & St. Paul Railway Co.: Building of weBtern extension, advantages derived (Byram) 438 Campaign conducted for purpose of obtaining economy in use of fuel (Byram) i 424 Condensed operating statistics, 1916-1 920 (Byram) 417-422 Development and. improvement of water stations (Byram) 426 Economies practiced in the use of forms and stationery (Byram) 425 Engine failures, efforts toward reduction of (Byrain). 425 Financial results (Byram) ,. ■ . 432-433 Freight cars-- , . ; Retired and purchased, 1916-1920 (Byram) '. .: 429 Total and average capacity of, 1916-1920 (Byram). . .....,- 430 - Fuel purchased by, in year 1920 (Byram)'. 424 Income account — 1916 to 1920 (Byram) Table 439-A March to August, 1916 (Byram). Table 439-B March to August, 1920 (Byram) Table 439-C Less than carload freight loading, average per car 1916 as compared with 1920 (Byram) 426 Locomotives of— . Equipped with automatic stokers, 1917-1920 (Byram) 429 Retired and purchased, 1916-1920 (Byram) 428 Power plant, operation of (Byram) 427 Purchases of shop machinery and tools, 1916-1920 (Byram.) it. . 427 Reclamation and scrap sales (Byram) .' 426, Revenues of, insufficient to pay dividends on common stock since 1917 (Byram) 440 Digitized by Microsoft® INDEX. VII Chicago, Milwaukee & St. Paul Railway Co.— Continued. : Page- Superheating of locomotive, number of engines equipped , 1916-1920 (Byram) ' 429 Total and tractive effort of, locomotives, 1916 compared with 1920 ( Byram) . 428 Waterwaste, efforts toward elimination of (Byram) 427 Chicago Terminal situation (Wallace) :....'. : 903 Circumstances and conditions adversely affecting results of railway operations of 1920 (Williams) ....:..... '. 759-760 Class legislation, wage fixing by Government most objectionable type of (Ewell) Page 21 of Appendix following 1032 Class rates. (See Bates, fares, and charges.) Clayton Act. (See Antitrust laws.) , ' : Clerks, wages of (Walber). . , . '. I . ,. : -. '. , 585 Coal and coke. (See Fuel.) ; ' " Cold storage. (See Storage.) Colston, W. A., statement of '..'.'.: '. .'. . . ,■ , : . . 950 Commercial depression. (See Business depression.) Commodity Rates. (See Rates, fares, and charges.) Commodity Rates to Pacific Coast Terminals (32 I. P. C, 611). /Chambers) 498 Common carriers, motor vehicles, to extent they are operated for profit in car- , riage of freight and passengers (Kruttschnitt) '.:.: 41 Company shops. (See Shops.) Compensation. (Sec Wages.) Competition: "'■' Consolidated companies should not reach suph proportions as would re- strain initiative and not give sufficient latitude for competitive service held within bounds of reason and economy (Warfield) 804 Motor vehicles, 'loss of revenue to carriers due to (Kruttschnitt) .......'.'.'.' 40 Present association of railroad officials bearing highly competitive relations can not produce economies now essential through cooperative and joint facility uses (Fisher) 991 Voluntary associations or organizations unable to function owing to competi- tive relations between railroads (Johnston) 892 Water — Development of inland waterwavs, effect of upon rail carriers (Krutt- schnitt) " : . . . .-. ...<:■ 39 Effect of, via Panama Canal on revenues and traffic of rail carriers (Kruttschnitt) : ,.,..' 33, Expressions from reports of the Commission bii competition between' all-rail and all-water carriers between the Altantic and Facific ports (Chambers) , : 498 ' Inability of rail carriers to meet, via Panama Canal (Kruttschnitt). . .'. 33-34 Light tonnage being handled exclusively by water lines in competition with rail lines oh the Great Lakes (Chambers) : 495 Rates brought down to unremunerative basis due to keen competition between water carriers operating via Fanama Canal (Chambers) 494 Via Panama Canal, meeting of, by all-rail lines (Chambers) '..■ 493-494 Compulsory arbitration . , (See Arbitration . ) Conductors, rates of pay, December, 1917; January 1, 1918; January 1, 1919; and May 1, 1920 (Smith) ..-, 268, 271 Congestion: Accumulation of cars not moving currently, 1918-1921 (Willard) Chart facing 143 Operating expenses increased due to accumulation of cars caused by "out- law strike" (Willard)::..... :_■ 143 Consolidation: Consolidated companies should not reach such proportions as would restrain initiative and not give sufficient, latitude for competitive service held within bounds of reason and economy (Warfield) 804 General plan of, being worked out by the Interstate Commerce Commission (Warfield) : . . : 806 Indorsement of group organization of carriers to produce economies (Col- ston) ...... : : 967 Parties affected by (Warfield) '•: 829 Permission with approval of the Interstate Commerce Commission, de- sirable (Warfield) 804 Prohibited until the Interstate Commerce Commission makes a country- wide plan (Warfield) : , .... j ....'., . 806 : :■>. >- i • ■!. I 'ill,) - .. Digitized by Microsoft® VIII INDEX. Consolidation — Continued. Page. Reduction of costs could be accomplished by ( War-field) 804 Relation of physical valuation to (Warfield) 804 Ticket offices, " adopted during Federal control, abolition after return of roads to private ownership (Elliott) -. 392 Construction of new buildings, decrease in, year 1920 (Kruttschnitt) 46 Contracts. (See afoo National agreements.) Advantages of long-term contracts fpr purchases of fuel (Ludlow) 8fi2 Chief executives of earners charged with responsibility of making (Willard) . 221 Differences between carriers and Director General over interpretation of, for upkeep of carriers during Federal control (Thorn) 521-527 Express, loss sustained by carriers due to (Williams) 764 Railroad, not made by directors (Willard) . . .----—. ^21 Statutory provision requiring court' or receiver in event of receivership to continue agreements made by carriers in the purchase of equipment, desirable (Johnston) 878 Suggestions of Security Owners Association for receivers of Federal courts to continue carriers' agreements have important bearing on Service Cor- poration issues (Brock) , - 928 Trust agreements, two forms of, conditional sale basis and lease basis (John- ston) '. - 853 Cooperation: Board of Economics and Engineering with Interstate Commerce Commis- sion (Warfield)..! . 824 Managements of railroads and their employees for producing efficiency and economy (Byram) P . ■■■■■ 422-425 Results of, between carriers and shippers in restoring relationships and removing discriminations arising from Ex Parte 74 (Chambers) 442 Copper, cessation in production of, decrease in volume of traffic due to (Byram) . 436 . Cost of labor. (See Labor.) Cost of living, changes in, 1913-1921 (Kruttschnitt) Chart 29-B Craftsmen, statement showing number of, on Pennsylvania system, March, 1921 (Whiter) '. 643 Crop failure, decrease in volume of traffic due to (Byram) 436 Crushed rock. (See Sand, gravel, and crushed rock.) D. Damaged cars. (See Bad-order cars.) Decrease in rates. (See Rates, fares, and charges.) Deficit: Failure to increase rateB in proportion to increased operating expenses cause of, during Federal control (Willard). .'. 139 Greater the operation of roads, greater the deficit under present basis (Willard) 152 Railroad Administration attempted to make up in the la ( tter part of 1919 deficiency in earlier part of the year (Wettling) 676 Delaware & Hudson Company: Analysis of operating expenses (Williams) Tables Nos. 5 and 6 facing 795 Analysis of operations in 1920 compared with 1919, showing units of material and labor, rates, increases and decreases due to change in rates, and increases and decreases due to quantity (Williams) . , 782 Comparison of incidental revenues, 1920 compared with 1919 (Williams) . . 795 Maintenance of equipments- Classification of expenditures by primary accounts (Williams), Table No. 2 facing 784 Increases due to cost (Williams) Table No. 3 facing 784 Labor costs (Williams) Table No. 5 facing 784 Labor costs by primary accounts (Williams) 785 Material costs (Williams) Table No. 6 facing 784 . Material costs by primary accounts (Williams) 786 Maintenance of way and structures — : Analysis of labor and material costs (Williams) Table No. 1 facing 784 Increase due to cost (Williams) 783 Classification of expenditures by primary accounts (Williams), Table facing 782 Increase due to increased maintenance (Williams). .Table No. 4 facing 784 Net railway operating income as defined in the Federal Control Act, monthly average during test period (Williams) 780-781 Digitized by Microsoft® INDEX. IX Delaware & Hudson Company — Continued. Pa s e - ' Revenue freight carried — 1915-1917 (Williams) <;.... Table No. 2 facing 795 1918-1920 (Williams) ■.;..; ...Table No. 1 facing 795 Years ended October 31, 1919, February 28, 1921, together with per- centage of increase or decrease (Williams) Table No. 3 facing 795 Statistics of rail line operations (Williams) Table No. 4 facing 795 Transportation — rail line — Freight service performance (Williams) 790 Fuel costs (Williams) 789 Increases due to costs (Williams) ..:.. Table facing 786 Increases due to increased traffic (Williams) 787 Labor by employees (Williams) Table facing 788 Locomotive and train costs (Williams) 792 Passenger service performance (Williams) , 791 Revenue traffic, passenger and freight (Williams) 793-794 Statistics of performance (Williams) x . 788 Density of traffic. (See Volume of traffic.) < Depreciation: Neglect during Federal control one of causes of present condition of roads (KruttBchnitt) i , 62 Relative traffic units, aggregate wages, operating income, and deprecia- tion of the dollar, all railroads, 1900-1920 (Kruttschnitt) (Chart) 29-F Director General. (See Federal control.) Directors, railroad, contracts and purchases not made by (Willard) 221 Discount rates, high curtailment of business due to (Smith) 318 Discrimination, conditions under which highways are constructed discrimina- tive against railroads (Kruttschnitt) ; .. ,,i:.- 40 Distance, rates not fixed according to (Chambers) 467 Dividends, Chicago, Milwaukee & St. Paul Railway Co., earnings of, insuffi- cient to pay, on common stock sinee 1917 (Byram).. , 440 E. Economies: Bill to further economics and efficiency in railway transportation — Organi- zation Bill (Warfield)-. 841-843 Cooperation between managements of railroads and their emplovees for the production of (Byram) ." 422-425 Cooperative development and operation of teitainals essential to (Wallace) . 903 Extensive production of, through Board of Economics and Engineering (Warfield) 823 Fuel, campaign conducted by Chicago, Milwaukee & St. Paul Railway Co. (Byram) ..... 424 Indorsement of group organization of carriers to produce (Colston).. 967 Institution of, through fair readjustment of wages (Warfield) '. . . 802 Intervening petition of eight trunk line roads asking joint use of Chicago Junction Railway and opposing its purchase by New York Central — an example of impossibility of executives' association functioning in producing coordinated economies (Wallace) . ; .' . . . I . . 914 Joint use of terminals (Wallace) 1 -* 923 Operation of railroads have not been with all the economy that the situation is capable of (Warfield) 827 Practiced and in force now to a greater extent than ever (Kruttschnitt) . . . 101 Present association of railroad officials bearing highly competitive rela- tions can not produce economies now essential through cooperative and joint facility uses (Fisher).. 991 Private operation can endure only because and when made more efficient and economical than by the Government (Fieher) 971 Proposals made to meet present conditions (Warfield) 806 Provisions of bill for effective organization of carriers ^Johnston)...... 887 Securing of, boards and committees (Warfield) .'I 816 Suggested bills to further (Warfield) '. 832 Efficiency: Bill to further, in railway transportation — Organization Bill (Warfield) . - 841-843 Cooperation between the managements of railroads and their employees for producing (Byram) ... . . 422-425 Digitized' by Microsoft® X INDEX. Efficiency — Continued. Page. Decline in, due effects of to world war (Elliott) '390 Efforts of roads to restore their properties to high degree of, obtaining prior to the world war (Wettling) 663 Employees, 1917 compared with 1920, New York Central Railroad (Smith) 304 Incentive toward, destroyed through classification rules of national agree- ments (Whiter) 643 Increase in revenue freight and passenger miles per mile of railroad, 1912 compared with 1920, indicate that management has become more and more efficient (Wettling) 693 Lack of, during year 1920, causes (Willard) 163 Obtaining of, through Board of Economics and Engineering (Warfield) 823 Officers and employees of railroads during the world war (Elliott) 389 Private operation can endure only because and when made more efficient and economical than by the Government (Fisher) . * . , 971 Provisions of bill for effective organization of carriers (Johnston) 887 Suggested bills to further (Warfield) 832 Eight-hour day, riever applicable to section men prior to Federal control (Kruttschnitt) 119 Electricians, average compensation and number of employees in eastern, territory and for United States as a whole showing per cent of increase, 1918 over 1916 (Walber; 563 Electricity, conversion of present steam systems into electric systems to effect saving in fuel (Ludlow) ... .. 870 Elliott, Howard, testimony of 334 Employees, railroad: Aggregate number of, about 2,000,000 (Willard) 142 Allocation of railway gross revenue to, class I roads (Kruttschnitt) chart 29-E Average compensation, per hour or per day, class I roads, for years 1916— i 1920, by class of employees (Wettling) 748-749 Class I roads, number of, and compensation— ,...-. 1912 to 1920 (Wettling) Table following 731 1916 to 1920 (Wettling) , 744 1916 to 1920, by class of employees (Wettling) Table No. 1 following, , 745 1917 to 1920, by class of employees, . , .Table H of appendix following , , 1032 Classes of, affected by the national agreements promulgated during Fed- eral control (Smith) , ,•*••». 277 Compensation, class I roads, based upon what wages for 1920 would have been had Labor Board award (decision , No. 2) been in effect during ., entire year (Wettling) » Table No. 1 following 751 Compensation of, 1916-1920 (Willard) 227 Delaware & Hudson Co., transportation — rail line, labor by employees (Williams) Table facing 788 Efficiency of — 1917 compared with 1920, New York Central Railroad (Smith) 304 During world war and period of Federal control (Elliott) 389 Hours or days worked, class I roads, for years 1916 to 1920, by class of employees (Wettling) .., , 750-751 Hours or days worked and compensation, classified by general expense account, class I roads, 1920 compared i with 1917 and 1919, . Table G of Appendix following 1032 Interest of, loss during Federal control (Kruttschnitt) 69 Locomotive department of company shops, number of, years 1918, 1919. and 1920, compared (Smith). 298 Loss in effectiveness of labor, due to operation of the national agreements (Smith) 277 Minimum,, maximum, and preponderating rates of wages in effect prior to Federal control, for certain employees in the car and locomotive depart- ments (Walber) : „ 540-553 Number of hours or days worked, total compensation, and average com- pensation per employee, class I roads, fourth quarter, 1920 (Wettling) • Table No. 1 following 751 Percentage of increase in number of, and their aggregate compensation by classes, class I roads — 1920 compared with 1916 (Wettling)..,.., .,' Chart No. 2 following 745 1920 compared with 1917 Chart facing page 8 of Appendix following 1032 Police department, wages of ("Walber) 1 577 Quasi-public servants (Smith) 331 Digitized by Microsoft® INDEX. XI Employees, railroad — Continued. Page. - Tftailway performance related to road train service employee hours, calendar '" years 1916 T 1920, class I roads (Wettling) 745 Reclassification of, under national agreements, resulted in number being required to do work formerly done by one (Smith) 278 ' Regulation of those who work for quasi-public corporations necessary (Elliott)... 404 Statement of classes, omitted from "estimate of classes of employees whose wage scales were standardized during Federal control" (Walber) Table.. 592-A Total number of, necessary to carry on the affairs of the Northern Pacific Railway (Elliott) 374 Employment, decrease in, beginning with June, 1920 (Kruttschnitt).: .;. 46 Empty movement, freight cars: 1918, 1919, and 1920, compared (Kruttschnitt). ',:..'. 11 1920 compared with 1919, New York Central Railroad (Smith) 276 Engine and train service, wages of employees (Walber) 577 Engine failures. (See Locomotives.) Engineers, rates of pay, January 1, 1918, January 1, 1919, and May 1, 1920 (Smith) 267, 268, 270' Engines. (See Locomotives.) England: Government operation of roads in (Smith) 244 Operation of roads in, at a tremendous loss (Smith) 243-244 Equipment: Benefits derived by other carriers financing equipment at less cost through standard of cost of money set by the National Railway Service Corpora- tion (Colston) ; 962 Comprehensive means of supplying (Warfield) 818 Construction of, by proper distribution of metal adding strength, but less 1 I weight, with resultant savings thereby (Stillwell) 937 Cost of freight cars, present and prior to world war compared (Byram) 431 Damaged cars when roads returned to private control greater than when taken over by Government (Kruttschnitt) 69 Deficiency of maintenance on all classes of, during Federal control; effect (Williams) 767 Depleted condition of, after termination of Federal control (Willard).. . . 144-145 Fabulous savings made in, way of increasing efficiency of (Krattschnitt). - 72 Financing of all carriers by turning over to National Railway Service Corporation of assets now held and frozen in hands of Treasury and other governmental agencies (Colston) 957, 966 Financing of, through agencies, advocated (Warfield) 819 General accumulation all oars not moving currently, 1918-1921 (Willard), Chart facing 143 In service of class I railways, United States, 1912 to 1920 (Wettling), Table following 731 Inspection of, by Service Corporation during and after construction and handling of repairs (Stillwell) 934, 945 Maintenance of — . - Comparison of cost of repairs to locomotives, freight cars, passenger cars, and total maintenance of equipment charges divided be- tween labor, material, depreciation* retirements, and miscellaneous (Wettling) 742-743 Damaged ears when roads returned to 1 private control greater than when taken over by Government (Kruttschnitt) 69 Deficiency of, on all classes during Federal control; effect (Williams). 767 Delaware & Hudson Company — Classification of expenditures by primary accounts (Williams), - Table No. 2 facing 784 Increases due to cost (Williams) , .Table No. 3 facing i 784 Increases -due to increased cost of maintenance (Williams), Table No. 4 facing i 784 Labor costs (Williams) Table No. 5 facing 784 Labor costs by primary accounts (Williams) 785 Material costs (Williams) Table No. 6 facing 784 Material costs by primary accounts (Williams) 786 Depleted condition of equipment at termination of Federal control (Willard) ...;^'.v. 144-145 Digitized by Microsoft® il!> XII INDKX. Equipment — Continued. Maintenance of-MSontinued. Page. Increased coat of, following termination of Federal control (Smith) . . . 280 Marked decrease in expenditures; causes (Wettling).... 664 New York Central Railroad, increase' in cost of, 1918 over 1917 (Smith.) . 249 Northern Pacific Railway Companyrr- Data relative to (Elliott) 362 Hours of labor and pay therefor (Elliott) — 355 Reduction in, on certain alternative bases of reduction in labor and material costs • Table K of appendix following 1032 Rehabilitation of freight-car equipment after reorganization of Wa- bash Railway (Williams)... ■; . . . . ...» 769 Undermaintenance of equipment during Federal control — Kruttschnitt - >..'. ...^ ^..- 69 Willard..., ..-.:>. ,....: 163 Meetings with representatives of equipment .manufacturing companies to standardize (Stillwell) 1 941 National Railway Service Corporation of material benefit in enabling car- riers to purchase (Colston) 957, 962 Necessity for Federal incorporation of National Railway Service Corpora- tion for supplying of, to carriers (Johnston)...-. ... . 873 New, amount expended by Baltimore & Ohio Railroad for, July 1, 1910, to December 31, 1920 (Willard) , 189 Pooling of, disapproved (Elliott) 393 Procuring of, to meet normal requirements only, suggested (Warfield) .> 818 Prolonging life of, by inspection (Stillwell) . . . ." , 933 Purchased during Federal control, less than during private operation (Willard) 163 Retired and purchased freight cars, 1916-1920, Chicago, Milwaukee & St. Paul Railway Co. (Byram) 429 Rolling stock treated as common property and not kept up during Federal control (Kruttschnitt) , 69 Saving in cost of money to carriers financing through National Railway Service Corporation (Colston) ■.. '■.... 958 Seasonal, or abnormal requirements, supplying of, from central agency oper- ating without profit (Warfield)... ,. 818 Standardization of — National Railway Service Corporation to set standard for the country (Stillwell). . . 930 Savings effected by (Stillwell) 932 Statutory provision requiring court or receiver in event of receivership to continue agreements made by carriers in the purchase of, desirable (Johnston) ; 878 Total and average capacity of freight cars, 1916-1920, Chicago, Milwaukee & St. Paul Railway Co. (Byram) 430 Undermaintained' during period of Federal control (Willard) - 163 Esch-Cummins Act. (See Transportation act.) Ewell, Joseph E., statement of Page 20 of appendix following 1032 Excessive rates. (See Rates, fares, and charges.) Excursion fares. (See Rates, fares, and charges.) Executives, chief, charged with responsibility of making contracts and pur- chases (Willard) . ... , 221 Expedited movement, pooling of equipment for purpose of (Elliott) ' 393 Expenses. (See Revenues and expenses.) Experiments, promotion of traffic, roads not backward in indulging in, when prosperous (Kruttschnitt) 89 ^ Export traffic: Decrease in, January, 1921, as compared with January, 1920 (Smith) 317 Domestic rice, dried fruit, and canned salmon during September, October, and November, 1920, compared with same period 1919 (Kruttschnitt)... 49 Foreign commerce, decrease in, important cause of reduction in rail traf- fic (Smith) 317 Wheat, in bushels, years 1918, 1919, and 1920 (Chambers) 461 Express contracts. (See Contracts.) ; Express rates. (See Rates, fares, and charges.) Extensions. (See Additions and betterments.) Extravagance in expenditures, prevented by Transportation Act, 1920 (Krutt- schnitt) 98 Digitized by Microsoft® INDEX. XIW P. Facilities: Page. Chicago Junction Railroad, evidence of impracticability of coordinating, through present associations of railway executives (Wallace) 920 Preseut associition of railroad officials bearing highly competitive relations can not produce economies now essential through cooperative and joint • uses of (Fisher) 991 Failures, business, year 1920, as reported by Dun & Co. (Kruttschnitt) .... 46 Federal control: . . , Abolition of piecework during; order of Director General (Whiter) , 603 Bad-order cars, number of, much greater at termination of, than at begin- ning; cause (Williams) . 766 Cars sent from home lines during, and extent of work done for their restoration- (Kruttschnitt) 11 Curtailment of passenger-train service during (Kruttschnitt) 10 Damaged cars, number of, greater when roads returned to private, control than when taken over by Government (Kruttschnitt)... .■ 69 Decisions, adjudications, and orders made under, responsible for a great deal of preserrt expenses (Kruttschnitt) , , 88 Deficiency of maintenance on all classes of equipment during; effect (Williams) r ......... 767 Deficit duiing, failure to increase rates in proportion to increased operating expenses, cause of (Willard) . . 139 Depleted condition of cars after termination of (Willard) 144-145 Differences between carriers and Director General over interpretation of contracts for upkeep of carriers (Thorn) 521-527 Disagreement between carriers and Railroad Administration as to replace- ment of materials and supplies (Smith) 241-242 Discontinuance of unnecessary passenger trains by the Director General during the war in order to move troops (Willard) , 151 Earning power of roads practically annihilated upon relinquishment of roads from (Elliott) ,. r 399 Effect of Director General order No. 27 upon wages and labor conditions, New York Central Railroad (Smith) 252 Efficiency of officers and employees of railroads during period of (Elliott) . 389 Eight-hour day and overtime never applicable to section men prior to (Kruttschnitt). 119 Equipment purchased during, less than during private control (Willard) . . 163 Estimate of classes of employees whose wage scales were standardized during, number of employees, and their compensation for year 1920 (Walber) 589 Establishment of 8-hour day by Director General, for section men with punitive overtime added largely to expenses (Kruttschnitt) 119 Estimated loss to Government due to, ascertained to be $1,200,000,000 (Kruttschnitt) 117 Examples of excessive wages paid labor during (Kruttschnitt) 18 Few roads returned with maintenance kept to standard (Warfield) 799 Financial condition of roads due to burdens placed by (Kruttschnitt) .i.. 94 Funding of all expenditures for additions and betterments made during period of, advocated (Rea) 508 Increased operating expenses inherited from, reduction in, during 1920 (Kruttschnitt) .*. 28 Interest of employees in railroad property during, loss of (Kruttschnitt) . 69 Interpretation placed upon cost of labor by Director General (Rea) ...... i 518-519 Letter from Director General to Committee on Appropriatipns, transmitting . statement (as of May 1, 1921) of condition of Railroad . Administration in matter of liquidating questions in dispute arising out of, or incidental to (Rea)., 5U-518 Level of rates prior to, not enough to sustain carriers (filliott) 399 Loss in effectiveness of labor, due to operation of the. national agree- . ments promulgated during (Smith) 277 Material reduction in quality of ties acquired during (Williams) 765 Neglect during, one cause of present condition of roads (Kruttschnitt). . i . . 62 Northern Pacific Railway Co., undermaintained during period of (Elliott) . . 385 Officers and employees of roads under, showing salaries, wages, and com- pensation as of Januajy 1, 1919 (Willard) 209-217 63553— 21— Vol I 38 Digitized by Microsoft® XIV INDEX. Federal control — Continued. Page. Q?3"it3i viti:ut 1-3; udtD in livid aal properties during; period of (Willard). 163 Orders of Director General limiting expenditures during period of; effect (Williams) . 763 Overlapped bills promptly paid by director general (Smith) 314 Passenger service better and more adequate after termination of (Krutt- schnitt) 10 Percentage of cars offline when roads released from (Willard) 145-146 Percentage of locomotives in repair shops or awaiting repairs at termination of (Williams)..' 765 Poor distribution of cars at termination of (Willard) 141 Position assumed by Director General, with respect to time and half for overtime (Walber) 580-581 Practice of purchasing ties from farmers along rights of way abandoned by Director General; effect (Williams) 765 Protests to Federal Director of condition in which lines were allowed to lapse (Kruttschnitt) 63-69 Relation of shop miles to service miles during period of (Smith) 294 Relatively little or no insurance carried by Director General during (Wil- liams).. . 764 Relocation and return of equipment after termination of, reasons for (Willard). 165-166 Responsibility for large number of bad-order cars caused by changed methods under (Willard).. 145 Revenue tons per train during, compared with year 1920 (Kruttschnitt) . . 11 Roads returned to private owners in run-down condition (Wettling) 663 Rolling stock during, treated as common property (Kruttschnitt) 69 Rules of Master Car Builders for inspection of bad-order cars departed from during (Willard) 146 Statement of classes of employees omitted from "estimate of classes of employees whose wage scales were standardized during" (Wabler) Table. 592-A Ties purchased during, number of, materially reduced (Williams) 765 Undermaintenance of equipment during — Kruttschnitt 69 Willard 163 Williams. 768 Unification of ticket offices under, abolition of, after return of roads to private ownership (Elliott) 392 Unified arrangement during, cost more than individual arrangement (Elliott) 391 Unusual efforts made since termination of, to curtail expenses (Byram) . . . 416 Federated shop crafts, purpose and intention of, to hold out for principles of national agreements (Whiter) 657 Financing of carriers, necessity for Federal incorporation of National Railway Service Corporation for purpose of (Johnston) .- 873 Firemen, rates of pay, December, 1917; January 1, 1918; January 1, 1919; and • May 1, 1920 (Smith) 268, 271 Fisher, Walter L., testimony of :i 970 Flagmen, rates of pay of, December, 1917; January 1, 1918; January 1, 1919; and May 1, 1920 (Smith). 270, 271 Foreign commerce. (See Export traffic.) Foremen: Performance of mechanic's work by, railroads should have right to require (Whiter) 625 Positions occupied by hourly rated employees, instances where wages paid were more than rate of, for time occupying the foreman's position (Whiter) 628-629 Prohibited from performing work of mechanics under national agreements (Whiter) : 625-627 Roads should be free to select from whatever source they choose (Whiter) . 627 Fostering commerce: Experiments for promotion of' traffic, roads not backward in indulging in, when prosperous (Kruttschnitt) 89 Prosperity of roads built up on theory of' making rates that encourage and produce traffic (Kruttschnitt) ", 79 France, operation of roads iu, at a tremendous loss (Smith) 244 Freedom of action, necessity for (Smith) 328 Digitized by Microsoft® INDEX. XV Page. Freight car performance, statistics of, December, 1920 (Willard) 231-237 Freight cars. (See Equipment.) Fruits and vegetables: Apples, yield of, in States of Washington, Oregon and Idaho, 1920 com- pared with 1919 (Chambers) 470-471 Carloads shipped from California, Florida, and Texas, 1920-21 compared with 1919-20 (Chambers) 463 High price of to consumers is with retailers (Chambers) 465 Movement of, in tons for each quarter of 1920 (Chambers) 471 Reduction in rates on, would not be welcomed by carriers (Chambers). . .'. 464 Fuel: Advantages of storage to the railroads (Ludlow) 858 Amount expended out of everv dollar for, 1916 compared with 1920 (Wettling) ." 696 Bituminous coal, production of, during 1920, second largest in the history • of the country (Williams) 773 Coal and coke furnish 40 per cent of the commercial tonnage moved by railroads of the United States (Chambers) ■ 451 Consumed by locomotives in revenue service, 1920 compared with 1919 (Elliott) 374 Consumed by New York Central Railroad, 1919 compared with 1920 (Smith) , 275, 276 Conversion of present steam systems into electric systems to effect saving in (Ludlow) 870 Cooperation with coal operators in purchases of railroad fuel (Ludlow) 861 Costs, Delaware & Hudson Co., transportation-rail line (Williams) 789 Establishment of groups or joint purchase of coal for railroad requirements, saving effected (Ludlow) 869 Estimated savins: on, contemplated for year 1921, New York Central Railroad (Smith) 273 Freight rate does not show any unreasonable relation to delivered price of coal and coke, or prevent resumption of industrial operation or move- ment (Chambers) „ 452 Fuel Administration work in economic coal purchases (Ludlow) 858 Group buying, advantages*of coordinating the purchasing of fuel supplies for the railroads (Ludlow) 851, 856, 857 High cost of, increase in expenses due to (Elliott) ■;, 352 Increases in cost of — 1920 over 1916 (Willard) 172 Causes (Smith) 252 New York Central Railroad — 1918 over 1917 (Smith) 250 1920 over 1919 (Smith) •. 252 Increase in locomotive costs for 1921, due io high cost of (Elliott) 374 Larger portion of reduction in operating costs should be borne by fuel and labor (Byram) 433 Long-term contracts for purchases of; advantages (Ludlow) 862 Movements of coal and coke for each quarter of 1920 shown (Chambers). . • 452 Purchased by Chicago, Milwaukee & St. Paul Railway Co., year 1920 (Byram) , 424 Situation in regard to (Ludlow) — T . . 856 Storage for domestic use not practicable (Ludlow) 't 860 Storage of, and advantages to the railroads (Ludlow) J. t '. 858 Sums expended for, 1916 to 1920, inclusive (Smith) 273 Uniform grade of, required by locomotives (Ludlow) 857 G. Government operation : ( , Private operation, can endure only because and when made more efficient and economical than by the Government (Fisher) 971 Railroads in England (Smith) - ,,. - - 244 Transportation essentially a function of the Government (Fisher) — 971 Government ownership: , . ,. Alternative of relief under the Transporljation Act, 1920, or the Government carrying on the transportation business ( Warfield) 803 i":V Percentage of railroad .mileage in Canada owned by the Government (Smith) Digitized 'hy Microsoft®' T ■' 2U XVI INDEX. Government ownership — -Continued. Page. Purchase of roads and payment in 4 per cent bonds, impossible (Smith) . . 327 Railroads in England, not owned by the Government (Smith) 244 Unwise and unnecessary (Warfield) , . 803 Government regulation: Encroachment of governmental authority in matters relating to railroad operations; causes (Warfield) 804 Gradually extended and built up because of nonaction by. the railroads (Warfield) 822 Grain: Adjustments of grain rates following increases allowed in Ex Parte 74', (Chambers) ' 459 Exports and imports of wheat in bushels, 1918, 1919, and 1920 (Chambers) . 461 Irregularities of recognized rate relationships have been worked out by carriers to the satisfaction of shippers (Chambers) 462 Movement of, not impeded by freight rates (Chambers) 462 Storage and milling in transit privileges, most favorably accorded (Cham- bers) , , 459 Gravel. (See Sand, gravel,,and crushed rock.) Great Lakes, light tonnage being handled exclusively by water lines upon, in competition with rail lines (Chambers).. 495 Grouping. (See Consolidation.) i Guaranty, roads not made careless in way of operating expenses by rates fixed by Commission to yield 5£ per cent return on investment (Kruttschnitt) 86 Guaranty period, settlements for (Rea) 528 H. Helpers. (See Apprentices,) High prices. (See Prices.) Highways: Amounts expended on, 1917-1921 ('Kruttschnitt) 56 Conditions under which constructed, discriminative against railroads (Kruttschnitt) ...... 40 Destruction of, by freight-carrying motor vehicles (Kruttschnitt) i 40-43 Freight rate not an undue proportion of the total cost of (Chambers) 490 Legislation pending for construction of (Kruttschnitt) 40 Standard concrete, cost of (Chambers) 489 Use of, by motor vehicles for common carrier purposeSj without proper regulations and adequate tolls should be stopped (Kruttschnitt) 56 Users of, should contribute for their maintenance (Elliott) 403 Holmes, Hugh A., testimony of : 1012 Hours of service : Employees, class I roads, fourth quarter, 1920 (Wettling) . . Table I following 751 Hours or days worked by employees, class I roads, for years 1916 and 1920, by class of employee (Wettling) , 750-751 I. Import traffic: Corn from South America 4,000,000 bushels in year 1920 (Willard) : 155 Wheat, in bushels, years 1918, 1919, and 1920 (Chambers) 461 Improvements. (See Additions and betterments.) Income account: Chicago, Milwaukee & St. Paul Railway Company — 1916 to 1920 (Byram) Table. 439-A March to August, 1916 (Byram). : Table 439-B March to August, 1920 (Byram) Table 439-C Class I roads and large switching and terminal companies, year ended February, 1921, compared with 1920 (Willard) 221-223 United States — Calendar year 1920 compared with year 1919, with 2 months of Federal control and 8 months of the guaranty period shown seperately, class I roads and large switching and terminal companies (Wet- tling) Facing 708 Class I railways, 1912 to 1920 (Wettling) 728-729 Month of March, 3 months ended March, and 7 months ended March 31, 1921, compared with corresponding periods of previous yeara-^class I roads, and large switching and terminal companies (Wettling) 714 Digitized by Microsoft® INDEX. xvn Income account — Continued. United States— Continued. Pa 6 e - Year ended February, 1921, compared with corresponding period ending February, 1920, with 6 months ended August 31 (guaranty period) shown separately — class I roads and large switching and terminal companies (Wettling) 712 Increased rates. (See Hates, fares, and charges.) Inland waterways: ■' "' ' Built or improved at public expense, should be made to carry themselves as to interest on cost and maintenance by regulation of common-carrier traffic on them and by imposing adequate tolls (Kruttschnitt) 57 Bulk of traffic on, handled under joint rail and water rates (Chambers) 495 Improvement and development of, effect upon rail carriers (Kruttschnitt). 39 Inspection of equipment, prolonging life of equipment by inspection (Stillwell) 930 Inspectors, car, average compensation and number of, in eastern territory and for United States as a whole, showing per centage increase 1918 over 1916 (Walber) 563 Insurance, relatively little or none carried by Director General (Williams) 764 Interest: Cargo tonnage carried, tolls paid, and interest charges for the Panama Canal (Wettling) - - - -, 754 Inability of a large proportion of railroads of country to earn, on bonded debt; causes (Warfield) 799 Interstate Commerce OommissiQn: Abrogation of power to fix rates, not advocated (Elliott) 406 Administration of the law could be made more prompt and effective by requiring a report to some executive authority (Elliott) 411 Consolidation of railroads with approval of, desirable (Warfield) 804 Consolidations prohibited until country-wide plan adopted by (Warfield) . . 806 Disagreements as to adjustment of rates can be promptly handled by (Cham- bers) 500 Expressions from reports of, on competition between all-rail and all-water carriers between the Atlantic and Pacific ports (Chambers). 498 Faulty car distribution, method of remedy pursued by (Kruttschnitt) 11 General plan of consolidation being worked out by (Warfield) 806 Jurisdiction of, over water jates, advocated (Chambers) 496 Necessary institution (Smito.).,.. : 326 Power of suspension of rates should be taken from (Elliott) 406, 413 Rates fixed by, to yield 5£ per cent return on investment did not produce results (Kruttschnitt)....- 86 Regulation and supervision by, have reached nearly to the point of opera- tion (Warfield).. 822 Report of, on railroad revenue and expeditures give conclusive evidence of the necessity for reduction in wages (Warfield) 808 Supervisory power overrates, abrogation of, not advocated (Smith).. 312 Traffic problems should be worked out by allowing carriers to deal directly with shippers, aided where necessary by (Chambers) 443 Valuation of carriers placed at $18,900,000,000 by (Kruttschnitt) 97 Investment, National Railway Service Corporation securities being made legal investment for savings banks (Brock) 927 Iron ore. (See Ore.) J. Johnston, Forney, statement of '. - 852, 871, 885 Joint rates. (See Rates, fares, arid charges.) Junk, scrap sales and economies derived from reclamation of, Chicago, Milwau- kee & St. Paul Railway Co. (Byrafo) - 426 Jurisdiction of Commission: Revocation of suspension power, advocated (Elliott) 406, 413 Water rates should be placed under (Chambers) 466 K.' Kruttschnitt, Julius, testimony of - - 8 Digitized by Microsoft® xvin INDEX. L. I^abor (see also Employees; Wages): Page. Advertisements carried in newspapers during 1919 and 1920 to secure (Smith) 29.? Changes in working ruleB and conditions cause of high locomotive costs for ■ 1921 (Elliott) 37t Cost of, interpretation placed upon term by Director General and carriers (Rea) , 518-510 Efforts made during 1919 and 1920 to increase shop output (Smith) 293 Larger portion of reduction in operating costs should be Dome by (Byram) . 433 Liberal consideration should be given to (Smith) 31 1 Organized, incorporation of, advocated (Elliott) , 409 Unskilled, employment of, by roads at rates others are paying would save approximately $600,000 a day (Rruttschnitt) 1 02 Labor adjustments. (See Wages.) •Labor Board: Abolition of, not advocated — • Elliott 406 Smith'. 312 Warfield 809 Administration of the law could be made more prompt and effective by requiring a report to some executive authority (Elliott) 411 Composition of men having no direct interest in transportation business or direct affiliation with any labor organization, .advocated (Smith) , . . . 33 1 Creation of, wise provision of Transportation Act (Kruttschnitt) 113 Criticism of delaying decisions unwarranted (Whiter) - . .--,->«,--, 657 Delay in deciding questions submitted attributed to personnel (Krutt- , schnitt) , , , 82 Hands of, should not be tied by mandatory statute, such as the Adamson . Law (Elliott) .. 409 Increase in compensation of railroad employees resulting from decision No, 2, rendered July 20, 1920 (Willard) , 176-179 Increase in wages, New York Central Railroad, for year 1920, growing out of decision rendered in July, 1920 (Smith) 251-252, 264 Necessity for prompt action by (Elliott) 409 Nothing contained in Transportation Act or national agreements giving Labor Board authority to prohibit railroads from paying on basis of . piecework (Whiter) 617 Public should be allowed to appeal to, if they think wages too high (Elliott) . 409 Return to piecework basis prevented by action of (Whiter) . , . . . 614 Theory of, cojf^ect, but actions too long delayed (Kruttschnitt). ., Ill Threatened strike prevented by creation of (Kruttschnitt) 113 Work of, handled promptly (Whiter) 656 Labor disputes, strikes threatened by, proposed method of balloting upon under supervision of Federal Government (Elliott) ,.'.. 409 Laborers, classification of, as mechanics under unreasonable classification rules of national agreements (Whiter) 645 Less than carload traffic, most expensive to handle (Chambers) 445 Level of rates. (See Rates, fares, and charges.) Line haul rates. (See Rates, fares, and charges.) Live Stock: Average haul and charge on, in different sections of the country (Chambers) 475 Movement in tons for each quarter of 1920 (Chambers) ^ . . . 475 Loading: , Average number of tons per loaded freight car, years 1917, 1918, 1919, 1920, compared (Kruttschnitt). ....... .,.. 11 Fabulous savings made in way of increasing trainloads (Kruttschnitt) 72 Freight rates for car-lot shipments should be based upon cars being loaded to weight capacity or cubical content capacity (Williams) 778 Increase in, indication of business improvement ' (Kruttschnitt) 84^85 Less than carload freight, increase in, 1920 over 1916, Chicago, Milwaukee' ' &St. Paul Railway Co. (Byram) 426 Loaded car mileage, years 1918, 1919, and 1920, compared (Kruttschnitt). . 11 Revenue cars loaded, 1918-1921 (Willard) Chart facing 167 Weekly statement of revenue cars loaded, September 1920-April 1921 ' (Kruttschnitt) ; - 106 Digitized by* Microsoft® INDEX. XIX Loans to carriers: . Page, National Railway , Service Corporation of material benefit in enabling carriers to purchase equipment that could not otherwise finance it (Colston) 957, 962 Revolving fund, to National Railway Service Corporation- Colston , ' 956 Johnston ...:........... 852 Locomotive Jttile3, class I railways, United States 1912 to 1920'(Wettling) 734-737 Locomotives: Antiquated, fabulous savings made by replacing with new and more power- ful ones (Kruttschnitt) 72 Applying automatic stokers to, cost (Byram) 429 Arched, defined (Smith) , , . . . 302 Automatic stokers necessary for efficiency and economy on larger types of (Byram) 429 Company shops for repair of, number of employees, years 1918, 1919, and 1920, compared (Smith) = 298 Data relative to, Northern Pacific Railway Co. (Elliott) 356-361 Equipped with automatic stokers 1917-1920, Chicago, Milwaukee & St. Paul Railway Co. (Byram) ■ 429 Expenses entering into, repairs in company shops ( Smith) 299 Failures of, Chicago, Milwaukee & St. Paul Railway Co. (Byram) 425 Fuel consumed by, in revenue service 1920 compared with 1919 (Elliott) . . 374 Increase in costs for 1921, causes (Elliott) i~... j..... 374 Mileage of, replacement by repairs (Smith) % 286 Number of, undergoing repairs as of December 31, 1920 (Smith) , 285 Number repaired, year 1920, New York Central Railroad (Smith) 282 Percentage of, in repair shops or awaiting repairs at termination of Federal control (Williams) , 765 Repairs to, work not desired by outside shops (Smith) 300 Retired and purchased, 1916-1920, Chicago, Milwaukee & St. Paul Railway Co. (Byram) , , , 428 Shop miles repaired in contract shops during year 1920 (Smith) , 289 Statistics concerning, test period, 1920 and 1921 compared (Elliott) 372 Superheated and arched — . New York Central Rajlroad (Smith) , 301 Northern Pacific Railroad, as of April 14, 1921 (Elliott) 337 Superheating of— Defined — Byram , 429 Smith , . , 302 Number of engines equipped, 1916-1920, Chicago, Milwaukee & St. Paul Railway Co. (Byram) 429 Tabulation of mileages made by (Smith) 286 Total and average tractive efforts of, 1916, compared with 1920, Chicago, Milwaukee & §t< Paul Railway Co. (Byram) 428 Undermaintenance of, during Federal control, Wabash Railroad (Will- iams) r , . . . 767-768 Uniform grade of fuel required by (Ludlow) 857 Long and short haul, effect of too rigid observance (Elliott) 404 Low rates. (See Rates, fares, and charges.) Ludlow, Edwin,. testimony of..., , 855 Lumber: , Adjustment of rates on, following increased rates under Ex Parte 74 (Cham- bers)..:.... : 452-453 Advance in rates did not prohibit the movement of (Chambers) , . . 459 Average revenue per ton, for the United States as a whole (Chambers) 453 Principal sources of supply in the United States (Chambers) 452 M. Machinists: Average compensation and number of employees in eastern territory and for United States as;a whole showing percentage of increase, 1918 over 1916 (Walber) 563 Wages of, dissimilarity in rates of, for different railroads (Walber) 555 Mail pay, effect of, upon revenues of carriers (Elliott) ..:.... 394-395 Maintenance of equipment, • (See Equipment.) Digitized by Microsoft® XX INDEX. Maintenance of way and structures: Page. Amounts charged into accounts, 1917 and 1919 compared with 1920 (Krutt- Bclinitt) 134 ' . Comparison of selected physical units applied and total charges to, account for all class I roads of United States answering questionnaire, issued March 21,' 1921—93 per cent of total (Wettling) - . 740 Delaware & Hudson Company — Analysis of labqr and material Costs (Williams) Table No. 1 facing 784 Classification of expenditures by primary accounts (Williams), : »>■ ' Table facing 782 Increase due to cost (Williams) 783 Increase due to increased maintenance (Williams). 784 • Increase in expenses, 1920 over 1919 (Elliott) -. 385-386 Maintenance of way— Average price per gross ton of new steel rails charged into accounts, 1919 and 1920 (Erattschhitt) . ...... : '. :-..... .... 132 Cost of labor and material, 1918-1920 (Kruttschnitt).... . . .' - . . , 118 Expenses for years ending March 1, 1920 and 1921 (Kruttschnitt). - , . 124 Hours for days) expended in, by the five classes of employees wholly or principally engaged in such work (Kruttschnitt) 128 Increased cost of, following termination of Federal control (Smith). . 279 Letters of protest to Federal Director, made during Federal control, of condition in which lines were allowed to lapse (Kruttschnitt). ... 63-69 Marked decrease in maintenance expenditures; causes (Wettling) .... 664 New York Central Railroad, increase in wages chargeable to account of, 1918 over 1917 (Smith) r . . . : 249 Northern Pacific Railway, policy of directors in regard to (Elliott) ... 385 Objectionable and restrictive rules in national agreements covering" employees (Whiter) , ' 651 Percentage of expenditures for year 1920 (Wettling). . .... - 689 Reduction in, on certain alternative bases of reduction in labor and material costs Table K of Appendix following 1032 Wages of employees (Walber) : . . . : 585 Work done on, greater in 1920 than 1919 (Willard). ' 162 Marketing system, necessity for betterment pf (Chambers) : !...-. 465 Markets, policy of railroads to make rates to enable shipper to reach (Krutt- schnitt) : .........: : 79 Master Car Builders' rules, inspection of cars, departed from during Federal control (Willard) 146 Materials and supplies: Abnormal increase in costs due to increase in prices of (Wettling) 663 Amount paid out of every dollar for, during 1920 (Kruttschnitt) 13 Class I railroads, amount charged to expenses, 1920 compared with 1919 (Willard) 226 Costs for 1917 and 1920, with some comparisons for 1921, Table J of appendix following 1032 Disagreement between carriers and Railroad Administration as to replace- ment of (Smith) 241-242 Higher prices for, cause of increased expenses 1920 over 1919 (Willard).... 152 Increase in cost of, effect (Elliott) .'...• 355 Increase in cost of, for roads and structures and equipment from Mav, 1916, to May, 1920 (Kruttschnitt) "130-131 Increase in expenses due to high cost of (Elliott) 352 Maintenance of way, cost of * 1918-1920 (Kruttschnitt) i 118 Purchase of, not made by railroad directors (Willard) 221 Reduction in maintenance of way, maintenance of equipment, and trans- portation expenses on certain alternative bases of reduction in labor and • material costs Table K of appendix following 1032 Shop repairs, cost of, per 1,000 miles, Wabash Railroad (Williams) 769 Mechanics, classification of laborers as, under unreasonable rules of national agreements (Whiter) , 645 Memorandum of railroad securities represented by National Association ©I Owners of Railroad Securities and by institutions signing memorial presented by association to Congress, August^ 1919 ,.:.,. 847 Middlemen: Examples of excess profits made by (Kruttschnitt) 52-54 Propaganda conducted by, for reduction in freight rates (Kruttschnitt) . . . 51-54 Digitized by Microsoft® INDEX. XXI Mileage: ' Page. Increase in, of railways operated, 1845-1920 (Kruttschnitt) Chart 29-1 1 Not controlling in fixing of rates (Chambers) 467 Mileage rates. (See Rates, fares, and charges.) Milling in transit. (See Transit arrangements.) Mismanagement, increases in expenses or locomotive costs in 1921 not due to (Elliott) 352, 374 Money: Depreciation in purchasing power of the dollar, all railroads, 1900-1920 (Kruttschnitt) Chart 29-F Distribution of each dollar of railway operating revenue, 1912-1920 (Elliott)...... Chart facing 395. Northern Pacific Railroad dollar (Elliott) , . , Chart facing 348 Railway dollar, where it went (Kruttschnitt.) . , Chart 29-C, 29-D Motor transportation, users of highways should contribute for their main- ' tenance (Elliott) 403- Motor vehicles: Common carriers to extent they are operated for profit in carriage of freight and passengers (Kruttschnitt) 41 Competition of rail carriers with (Kruttschnitt) 40 Favored at expense of general public ( Kruttschnitt) 41 Freight carrying, destruction of highways by ( Kruttschnitt) . . ■. 40-43 Loss of revenue to carriers due to competition of (Kruttschnitt) . . f 40 Taxes on freight and passengers should be paid by, commensurate to injury to roads (Kruttschnitt) 40 Use of, for common carrier purposes without adequate tolls and proper regulations should be stopped (Kruttschnitt) 56 Mutual savings banks. (See Banks.) N. National agreements: Abnormal increase in costs due to (Wettling)...... 663 Abolition of, necessary to save many roads from bankruptcy (Rea) 506 Apprentices, number of, limited by (Whiter)....... 637 Buden of, to railroads, at least $300,000,000 per annum (Whiter) 658 Classes of employees afiected by, promulgated during Federal control (Smith) 277 Classification of common laborers as mechanics under rules of (Whiter) . . . 645 Classification rules of, cost of operation increased due to (Whiter) 645 Continuation of, disapproved ( Warfield) 810 Effect of, upon wages and classifications of labor (Smith) 262-265 Estimate of Gen. Atterbury showing cost of, to railroads (Whiter) 595 Examples of injustice to railroads in payment of exorbitant wages due to rules of, governing overtime (Whiter) 605-612 Foremen prohibited from performing work of mechanics under rules of (Whiter) - 625-627 Formulation of, responsibility for (Whiter) 649 Honest, efficient, and economical management interfered with as a result of (Whiter) < 655 Incentive toward efficiency destroyed through (Whiter) 643 Increased costs caused by amounts paid for hours not worked (Smith) 278 Loss in effectiveness of labor due to operation of (Smith) 277 Maintenance of way employees, objectionable and restrictive rules govern- ing (Whiter) 651 Nothing contained in, giving Labor Board authority to prohibit railroads from paying on basis of piecework (Whiter) 617 Purpose and intention of federated shop crafts to hold out for principles of (Whiter) ;■■■;;.• 657 Railroads must, in defense of themselves and public, resist continuance of (Whiter) - 658 Reclassification of employees under, resulted in number of employees feeing required to do work formerly done by one (Smith) 278 Reclassifications under, purpose of, to increase wages (Smith). 254 Seniority rule, injustice and inefficiency due to operation of (Whiter). . . 619-621 Wages of employees regardless of hours', 1917 and 1920, classes covered by (Whiter).... • 596 Digitized by Microsoft® XXII INDEX. National Association of Owners of Railroad Securities: Page. Announcements sent to owners of securities relative to protection and stabilization of the securities of the carriers of the country (Warfield). 849-851 Bills proposed by — Corporation bill: To incorporate the National Railway Service Cor- poration and to define its powers and duties, and for other purposes. 837 Organization bill: To further economies and efficiency in railroad transportation 841 Chart of railroad organization suggested by the association, and chart of duties of committees advisory to the group boards under the organization proposed j 1 Facing > 1008 Indorsement of proposals for group organizations of carriers and of National Railway Service Corporation (Pulleyn) 996 Memorandum of railroad securities represented by, and by institutions signing memorial presented to Congress, August, 1919 .... s, 847 Organization of, a hopeful sign (Fisher) 972 Proposals of, afford necessary machinery (Fisher) 993 Security holdings represented by (Warfield) 847-849 Tentative statement by the association presented to Senator Cummins, chairman of Senate Committee on Interstate Commerce, March 21, 1921. . 996 National Railway Service Board, composition of (Warfield) 821 National Railway Service Corporation: Benefits derived by other carriers financing equipment at less cost .through standard of cost of money Bet by (Colston) i. 962 Bill for incorporation of, and to define its power and duties and for other purposes — corporation bill (Warfield) 837-841 Certificates of, made safe and available for sayings banks investment would give large outlet for such issues (Pulleyn) 996 Charter of, State of Maryland 1009 Extension of powers, advocated (Colston) 965 Financing of all carriers by use of assets now held and frozen in hands of Treasury and other governmental agencies, suggested (Colston) , 957, 966 Formation and activities of (Warfield) , 818 Indorsement of (Pulleyn) , . 996 Inspection of equipment by, during and after construction and handling . of equipment repairs (Stillwell) 934, 945 Loans to, from revolving fund — Colston. , 956 Johnston ,.-.-- , 852 Material benefit in enabling carriers to purchase equipment that could not otherwise finance it (Colston) 957, 962 Necessity for Federal incorporation of, for supplying equipment and financing railroads (Johnston) . 873 Saving in cost of money to carriers financing through (Colston) 958 Savings banks yearly could take $100,000,000 of certificates of, with proper > safeguards (Brock) „ 927 Securities of, being made legal investment for savings banks (Brock) 927 Standards of eq oipment for country to be set by (Stillwell) 930 Suggestions of Security Owners Association for receivers of Federal courts to continue carriers' agreements have important bearing on certificate issues of (Brock) 928 Net railway operating income. (See Operating income.) New York Central Railroad: Effect of Adamson Law upon expenses of (Smith) ,,.. 249 Intervention petition filed by eight trunk lines asking joint use of Chicago Junction Railway, and opposing its purchase by, an example of impossi- bility of executives association functioning in producing coordinated economies (Wallace) 914 Net railway operating income of roads constituting the present system reported to the Commission on monthly reports of revenues and expenses for years ended February, 1916-1921 (Smith), Table following page 16 of appendix following 1032 Operating results, month of April, 1921 (Smith), Page 15 of appendix following 1032 Operating revenues and expenses 1919-1921 (Smith) Chart facing 246 Revenues and expenditures of, 1913-1920 (Smith) 245-248 Summary of operations 1917 to 1920, inclusive (Smith) Chart facing 246 Digitized by Microsoft® INDEX. XXIII Northern Pacific Railway Company: Page. Annual freight statistics (Elliott) 353-354 Data relative to maintenance of equipment (Elliott) ■■ - 362 Decrease in volume of traffic in territory traversed bv; causes (Elliott). . . 343 Dollar of (Elliott).'. ". ." Chart facing 348 Financial data — 1915-1920 Tables, appendix following 1032. , February and October, 1919 and 1920, compared (Elliott) 342 Years ending June 30, 1912-1920 (Elliott) .' 336-337 How the Northern Pacific dollar was spent in 1917, 1919, and 1920 (Elliott) . 350 Income account — February, 1.921 (Elliott) '. 347-348 Year ended February 28. 1921, exclusive of Federal lapovers and Government guaranty (Elliott) 383 • Locomotive data, annual (Elliott') 3"36 — 361 Maintenance of way of, policy of directors in regard to (Elliott) , 385 Overtime wages paid and charged to operating expenses, vear ended Feb- ruary 28, 1.921, as compared with year ended October 31,' 1919 (Elliott). . 376 Ratio of operating expenses to revenues (Elliott) 339 • Relation of payroll to total operating revenues. 1917. 1919. and 1920 (Elliott). . . . ." ' ' 349 Repairs made to bad-order cars (Elliott) 368 Shareholders of. number (Elliott) 349 Total number of employees necessary to earn' on the affairs of (Elliott). . . 374 Undermaintained during period of Federal control (Elliott) > 385 O. Obligations of carriers, material assistance in present emergency if means adopted for funding of, to Railroad Administration (Warfield) 832 Office cars, operation and use of (Willard) . .•.....:......;.... 206-207 Officers, railroad, efficiency of, during world war and period of Federal control (Elliott) 389 Oil, consumed by the New York Central Railroad, 1919 compared with 1920 (Smith) 275,276 Open-hearth rails. (See Rajls.) Operating expenses. (See Revenues and expenses.) Operating income: Class I railways, 1912 to 1920 (Willard) 184 Distribution of, class I roads, 1912 to 1920 (Wettling) 730-731 Distribution of the railway dollar, 1912-1920 (Elliott) Chart facing 395 Expenditure of, 1912-1920 (Elliott) . . . : Chart facing 394 Net railway operating income — 1913-1921, class I roads (Cummins) 3-5 1919 as compared with 1920 (Kruttschnitt) 12 12 months ended February 28, 1921, class I roads (Willard) '. 224-225 Calendar years 1916-1920, and period September to December of 1920, with train-mile averages, class I roads, United States (Wettling) . . 738-739 Class II and III roads, calendar year 1920 (Kruttschnitt) 124 Compared with 6 per cent on valuation, class I roads and large switch- 1 ing andi terminal companies, September, 1920, to March. 1921, districts in accordance with Ex Parte 74 groupings (Wettling) 715 Delaware & Hudson Co., as denned in the Federal Control Act- monthly average during test period (Williams) 780-781 New York Central Railroad system reported to the Interstate Com- merce Commission on monthly reports of revenues and expenses for years ended February, 1916-1921 (Smith), Table following page 16 of Appendix following 1032 Reduction in, 1920 under 1916 (Willard). .. . 172 Relative traffic units, aggregate wages, operating income, and depre- ciation Of the dollar, all railroads, 1900-1920 (Kruttschnitt)... Chart 29-F Operating statistics. (See Statistics.) ' Operations of all class I roads,. 1916-1920 (Kruttschnitt) Chart 29-H Ore, iron : Freight rates have no effect upon movement of (Chambers) „... 492 Movement, in tons, for the entire United States for each of the quarters of 1920 (Chambers). 492 Digitized by Microsoft® XXIV INDEX. Ore, iron — Continued. Page. Price at Lake Erie of Bessemer and non-Bessemer ores for years 1893 to 1920, with rail rates to Lake Superior and vessel rates from Lake Supe- rior to Lake Brie (Chambers) 491 Statement of, in long tons, shipped from ranges in Minnesota, Wisconsin, and Michigan during calendar years 1911 to 1920 (Chambers) 492 "Organized labor. (See Labor.) Outlaw strike. (See Strike.) Outside shops. (See Shops.) Overlapped bills, prompt payment of, by Director General (Smith) 314 Overtime. (See Wages.) P. Panama Canal: Cargo tonnage carried, tolls paid, and interest charges for (Wettling) 754 Charges for use of, should be such as would pay the interest on investment and expenses of operation (Chambers) 496 Competition between all-rail carriers and boat lines operating via (Cham- bers) 493-494 Effect of competition via, on revenues and traffic of rail carriers (Krutt- schnitt) 33 Keen competition between water carriers operating via, have brought rates down to unremunerative basis (Chambers) 494 ' Tolls for Government-owned ships passing through, should not be abolished (Kruttschnitt) 57 Volume of traffic moving through, 1920-1921 (Kruttschnitt) 33 Passenger fares. (See Rates, fares, and charges.) Passenger miles, revenue, by months, December, 1917, to February, 1921 (Wett ing) 719 Passenger service : Better and more adequate after Federal control (Kruttschnitt) 10 Curtailed during Federal control (Kruttschnitt) 10 Earnings for first two months of 1921 compared with same months of 1920 (Chambers) 493 Largest volume of passenger traffic handled in year 1920 (Kruttschnitt) . . . , 10 Number of passengers carried last four months of 1920 compared with last four months of 1919 (Chambers) 493 Practically no overtime connected with (Smith) 270 Revenue passengers carried 1920 compared with 1919, New York Central Railroad (Smith) 277 Ton-miles, class I roads, 1916 to 1920, inclusive (Willard) - , 150 Unnecessary, discontinued during the war in order to move troops (Willard). 151 Volume of traffic New York Central Railroad, 1919 compared with 1920, given by months (Smith) 305 Pennsylvania Railroad system, undermaintenance claims of (Rea) 532 Piecework: Abolition of, "cause of increased costs (Smith) 295 Better and harder work under (Whiter) 600 Concerns outside railroads operating on piecework basis (Whiter) 602 Decrease in production due to abolition of (Whiter) 604 Elimination of — Large factor in increasing cost and decreasing output (Smith). 287 Objected to (Smith)... 292 Freight car repair average hourly piecework earnings under piecework schedules in effect on various roads (Whiter) Chart facing 604 Interference with economy of operation due to elimination of (Whiter) , , 597-598 Nothing in Transportation Act or national agreements giving Labor Board authority to prohibit railroads from paying on basis of (Whiter) 617 Order of Director General abolishing (Whiter) -.--.-- *>03 Percentage of, together with amount of money expended, compared 'with daywork, Pennsylvania system, December, 1917 and 1920 (Whiter)... 641-642 Return to basis of, prevented by action of Labor Board (Whiter) 614 Standard by which amount of work done in car department could be measured, taken away by abolition of (Smith) 303-304 Plaster. (See Cement, brick, and plaster.) Police department employees. (See Employees.) Pooling of equipment: Disapproved (Elliott) 393 Expediting movement of traffic by (Elliott) 393 Digitized by Microsoft® INDEX. XXV Page. • Power plants, operation of, Chicago, Milwaukee & St Paul Railway Co. (Byram) 427 Presidents, railroad, salaries of, exorbitant, general impression and attitude of public (Willard) ' 204-205 'Price. (See Value of commodity.) Principals of American enterprise, resolutions adopted by the United States Chamber of Commerce relative to (Elliott) i ..... 1 405-406 Private cars: Cost of operation, Baltimore & Ohio Railroad (Willard) Facing 206 Operation and use of so-called "official" or "office" cars (Willard 206-207 Private operation, can endure only because and when made more efficient and economical than by the Government (Fisher) 971 Profit: V Allocation of, on production and ultimate sale of products to the consumer (Kruttschnitt) 78 Freight not being carried at sufficient profit at present time (Willard) 152 None made by railroads in 1918, 1919, and 1920 (Elliott) . 399 Promotion of traffic, experiments for, roads not backward in indulging in when prosperous (Kruttschnitt) j 89 Prosperity: Built up on theory of railroads making rates that encourage and produce traffic (Kruttschnitt) : r 79 Most succes.sf.ul year railroads ever had occurred in calendar year 1916 (Wettling).'. 690 Pulleyn, John J., testimony of 995 Pullman service, surcharge upon, has not lessened passenger travel to any considerable extent (Chambers) ,. 493 Q- Qsuai-public servant, employees of railroads (Smith) '.' 331 R. Rail and water rates. (See Rates, fares, and charges.) Rails: Bessemer, monthly aveVage price of, at mill, 1910-1920 (Kruttschnitt) 133 Cost of, years 1917-1920 (Smith) 272 Increase in price of, 1920 over 1917 and 1919 (Smith) 272 New, average price per gross ton charged into maintenance of way accounts in 1919 and 1920 (Kruttschnitt).. 132 Open hearth — Exclusive use of — Kruttschnitt 132 Smith. 272 Safer and -less liable to sudden break (Kruttschnitt) r 132 Replacements — Average annual performance prior to Federal control necessary to uphold standard of maintenance (Smith) 279 Class I carriers, years 1917 and 1920 (Kruttschnitt) 128 Railroad Administration, material assistance in present emergency if means adopted to fund obligations of carriers to ( Warfield) 832 Railroad business, differences between, and other businesses (Byram) 433 Railway Boards of Adjustment. (See Adjustment boards.) Railway performance, related to road train service employee hours, calendar years 1916-1920, class I roads (Wettling) i.«. 745 Bates, fares, and charges: Adjustment of — Agreements between carriers and shippers for (Elliott)v 400-401 * Complaints as to, should first go to carriers and endeavor made to satisfactorily work them out (Chambers) ■.■ 500 Disagreements! can be promptly handled by the Interstate Commerce Commission (Chambers) 500 Grain rates, following increases allowed in Ex Parte 74 (Chambers). . . 459 Irregularities of recognized rate relationships on grain have been worked out by carriers to the satisfaction of shippers (Chambers) 462 Lumber rate adjustments following increased rates under Ex Parte 74 (Chambers) ........; , . . , : . 452-153 Digitized by Microsoft® XXVI INDEX. Rates, fares, and charges — Continued. Adjustment of — Continued. Plage. Necessity for readjustment (Smith) 308-309 1 Reductions in rates necessary to bring about, going on daily by dealings directly between shipper and carrier (Chambers) .' 442 Results of cooperation between carriers and shippers in restoring relationships and removing discriminations (Chambers) 442 Basis of cost must come down if rates do not go up (Willard) 152 Car-lot shipments should be based upon cars being loaded to weight capacity or cubical content capacity (Williams).; '. 778 Changes in, 1900-1921 (Kruttschnitt) Chart facing 28 Class rates, variations existing and lack of uniformity (Chambers) 44ft Commodity rates-*- Approximately 85 per cent of the traffic of the country moves under (Chambers) 44$ Development of far western section of the United States' from isolated grazing region to agricultural area due to adjustment of (Chambers) . . 451 Decrease in — Institution of economies by fair-wage readjustments would bring about, with normal business conditions (Warfield) 802' Reduction in wages can not entirely supply means to meet demands for (Warfield) 821 Excess of what traffic will bear, defined (Willard) 150' Excessive, some rates too high (Smith) ..:...'.. 333' Excursion fares, policy of railroads to make,, to summer and winter tourist ' resorts, satisfactory to both public and carriers (Chambers) -• 493' Express rates, number of, as low, or lower than freight rate (Williams) 759 Fixing of — Abrogation of powers of Commission, not advocated (Elliott) 40K Mileage not controlling (Chambers). 467 Freight not being carried at sufficient profit at present time (Willard) 152' Freight rates — Movement of iron ore hot affected by (Chambers) 492 Not an undue proportion of the total cost of highways (Chambers) 490' Physical valuation, relation of, to freight rates (Warfield) 804 Relation of, to building enterprises (Chambers) 488 Relative increase in, compared with increased commodity prices 1913- 1921 (Wettling) : 753 Unreasonable relation' to delivered price of coal and coke or preven- tion of industrial operation or movement, not shown by (Chambers) . 452' Increase in — Benefit of, not derived by railroads (Smith) 310' Beyond what traffic will bear, unnecessary for the success of private ownership (Willard) 150 Business depression not caused by — Smith ! ; . '. 323 Warfield : 802: Business retarded by (Holmes) '. 1018 Cost of commodities only slightly affected by (Williams) 772. Diminished volume of traffic not caused by (Chambers) 441 Effect of— Upon prices of commodities (Williams) 772, 775' Was not to shut off any particular kind of traffic (Wettling) 684-685 Failure to provide, in proportion to increased operating expenses, cause of deficit during Federal control (Willard) ..... i 139' Impossible under existing conditions (Rea) 507 Insufficiency of, granted by the Commission, to cover costs and yield ' a fair return — Kruttschnitt L ' '.■ : 32 Rea ■...„■ 504 Less than carload rate increases has not disturbed the sources of dis- tribution (Chambers) 445 Memorandum showing effect of increased rates and increased basis of operating expense in effect for the year 1920 applied to the business of 1916 (Willard) 185-186- Movement of lumber not prohibited by (Chambers) : . : 459 Negligible element in the decrease in the volume of business (Elliott) . 398- Digitized by Microsoft® INDEX. XXVII Rates, fares, and charges — Continued. • Increase in— Continued. Page. . PasBenger travel not seriously affected by (Chambers) 493 Percentages of ; not as high as percentage increase in prices of labor or commodities (Willard) 153 Price of commodities not appreciably affected by (Williams) 775 Provided by the Transportation Act amounted to only 8 per cent for the year (Kruttschnitt) 110 Relative increases in freight rates, compared with increased com- modity 'prices (Wettling) - - - 753 Retarded business more than any other element in connection with business institutions (Holmes) : - 1018 Revenue received by carriers under, less than under rates formerly in effect; cause due to diminished volume of traffic (Wettling) 678 Shortages in lumber movement not caused by (Elliott) :.. 344 Statement showing effect of 40 per cent increase in freight rates upon certain articles of food and clothing — Exhibits 4 and 5 (Williams) . . 775-776 Traffic of the country not impeded by (Chambers) 500-501 Under Ex Parte 74, results flowing from (Willard) 174 Volume of business not appreciably affected by (Williams) 772 Joint, bulk of traffic on inland waterways handled under joint rail and water rates (Chambers) 495 Less than carload rates, increase in, has not disturbed the sources of di- tribution (Chambers) 445 Level of — Lower in territories where there is a greater density of traffic (Cham- bers) i 485 Prior to Federal control, not enough to sustain carriers (Elliott) 399 Line haul, splitting of, defined (Smith ) : 309 Low rates — Keen competition between water carriers operating via Panama Canal have brought rates down to unreinunerative basis (Chambers).. . . . . 494 Many rates do not bear a fair share of cost of transportation (Smith). . . 319 Ocean tonnage at lowest point in historv notwithstanding (Krutt- schnitt) ". . 47 Railroad manaeers have always attempted to make rates as low as they could (Elliott). . '. 402 Mileage, disapproved (Chambers) 4C8 Movement of grain not impeded by (Chambers) 462 Never kept pare with costs or other increases that have come about (Wettling) 702 Ore rates, price at Lake Erie of Bessemer and non-Bessemer ores, years 1893 to 1920. with rail rates to Lake Superior and vepsel rates from Lake Supe- rior to Lake Erie (Chambers). .; 491 Passenger fares — Increase in, has not seriously affected passenger travel (Chambers). . . 493 Policv of railroads to make special fares for excursions and to Bummer and winter tourist resorts satisfactory both to public and railroads (Chambers). '. 493 Reduction in, would not increase travel sufficiently to offset what would be Idst by the reduction (Chambers)' 493 Present — Do not constitute an overcharge on part of railroads (KruttBchnitt) ... 73 Insufficient to permit roads to continue under private ownership (Willard) ". 152 Maintenance of, pending results under Transportation Act, 1920, advo- cated (Elliott) '. '. 399 Kot excessive under existing conditions (Chambers) 442 Prosperity of country built on theory of, that will encourage and produce traffic ('Kruttschnitt). ..... .; .... . .* 79 Rail and water rates, joint, bulk of traffic on inland waterways handled under (Chambers). : : .' 495 Railroad managers have always attempted to make rates as low as thev could (Elliott). ;..,.:...: ". 402 Reduction in — Deflation of railroad prices 1 or rates, no basis for at present time (Elliott).. 399 Disapproved (Chambers) 441-442 Economical and psychological conditions will not be solved by (Elliott) 398 Digitized by Microsoft® XXVIII INDEX. Hates, fares, and charges — Continued. Reduction in — Continued. Page. Effect of. On stimulation of business highly speculative (Kruttschnitt) . 88 Effect of, upon railroads (Elliott) , 398-399 Fruits and vegetables, would not be welcomed by carriers (Chambers) . 464 General, can not be considered until coat of operation can be reduced sufficiently to assure net return authorized by the Transportation Act, 1920(Byram) ....',, 434 General, can not be granted until net railway operating income shows substantial improvement over results now obtaining (Rea) 507 Impracticable until railroads put in a goiuar "ondition, either by a re- duction of expenses, increase of tonnage, or both (Chambers) . 501 Increase in revenue necessary before consideration can be given to (Chambers) t 464 Increased revenue or net profits from, would not be instantaneous (Kruttschnitt) , 100 Indefensible and impossible until operating costs reduced sufficiently to insure adequate and steady net income (Kruttschnitt) 47 Necessary to bring about readjustments going on daily by dealings directly between shipper and carrier. (Chambers)... 442 Not opposed, where necessary (Kruttschnitt) 90 Passenger fare reduction would not increase travel sufficiently to offset what would be lost by the reduction (Chambers) - ; 493 Proof should be asked from those applying for, that increased traffic would follow (Kruttschnitt) 90 Propaganda conducted by middlemen for (Kruttschnitt) 51-54 Railroads would be forced to produce and sell transportation for less than cost under (Rea). ..■: 507 Serious results to railroads would follow at this time (Chambers) 500 Stimulation of production or increase in purchases of goods by public doubtful under (Rea) 507 Sudden horizontal decrease would lead to nation-wide unrest (Krutt- schnitt) ; 47 Sufficient stimulation of traffic to produjce revenue needed would not result (Chambers) , . . . .. 442 Relation of present freight rates from representative points of origin to Chicago to wholesale prices of various articles at Chicago (Williams) 774 Relation of, to — Building enterprises (Chambers) 488 Commerce (Warfield). . ... . 803 Physical valuation (Warfield) 804 Relative increase in freight rates compared with increased commodity prices, 1913-1921 (Wettling) . . . . , 753 Sand, gravel, and crushed rock, average for different sections Of the country (Chambers) 473 Seasonal, ; effect of, upon revenues of carriers (Kruttschnitt) 92 Stabilized rates, water carriers, for prevention of fluctuation, advocated (Chambers).-. . , .. 494 Supervisory power of Interstate Commerce Commission over, abrogation of, not advocated (Smith) ... 312 Suspension of, Interstate Commerce Commission's power over, abrogation of, advocated (Elliott) : 406, 413 TJnremunerative rates, keen competition between water carriers operating via Panama Canal have brought rates down to unremunerative basis (Chambers) ■ 494 Water rates^- • .):,.'■ ■ ,, v Coast to coast, ought to be reasonably prescribed (Chambers) . 494 Jurisdiction of Interstate Commerce Commission, over, advocated ( (Chambers)......-...:.... 496 Ocean tonnage at lowest point in history notwithstanding low rates (Kruttschnitt) ....... - 47 Policy of sustaining rail lines by requiring water carriers to charge more than a reasonable rate, net advocated (Chambers) 494 Stabilization of, to prevent fluctuation, advocated (Chambers) 494 Rea, Samuel, testimony of - - . - . 502 Receivership, statutory provision requiring court or receiver in event of, to continue agreements made by carriers in the purchase of equipment, desirable • (Johnston) . , 878 Digitized by Microsoft® INDEX. XXIX Reduction in rates. (See Rates, fares, and charges.) Page. Relation of freight charges to average commodity prices (Kruttschnitt) 55 Relationship of rates. (See Rates, lares, and charges.) Rents, analysis of operating expenses, taxes, and rents, for year 1920 (Krutt- schnitt) '.' '. 16 Repairers, car, average compensation and number of, in eastern territory and for United States as a whole, showing percentage of increase, 1918 over 1916 (Walber) 563 Repairs: Bad-order cars — Cost of (Willard) 218-219 Northern Pacific Railway (Elliott) 368 Cars off line repaired only to extent of making them fit to run (Krutt- schnitt) 70 Contracts entered into between Wabash Railway Co. and car manufac- turers covering heavy and rebuilt repairs, 1916 to 1919, together with gross cost covering same (Williams) 771 Equipment, inspection of, by Service Corporation during and after handling of (StiUwell) . . . .' 934, 94& Freight and passenger cars, Wabash Railway, undermaintenance during Federal control (Williams) 76& Freight cars — Average hourly piece-work earnings under piece-work schedules in effect on various roads (Whiter). ..." Chart facing 604 Deferring of, during 1918, justifiable (Wi lard) 145 Effect of changed conditions upon (Elliott) 368 Locomotive — Expenses entering into — company shopB (Smith) 299 Number of locomotives undergoing repairs as of December 31, 1920 (Smith) v.';. 285 Replacement "of mileage by (Smith) . ", 286 Work not desired by outside shops (Smith) 300 Year 1920, New York Central Railroad (Smith) 282 Shop, cost of labor and material applied per 1,000 miles, Wabash Railway (Williams) 769 Retailers, high prices of commodities caused by — Chambers .*. 465 Kruttschnitt . . , 78-79 Return on'investment: . Deficiencies in, Transportation Act not responsible for (Rea) 505-506 Definite net revenue essential to adequate transportation (Warfield) 801 Inadequacy of (Rea) . 503 Increased rates insufficient to yield fair (Rea) . . .'. 504 Percentage of, all railroads in the United States, 1913 to 1920 (Rea) 503: Present, considerably less than essential (Warfield) , 802' Provisions of Transportation Act with respect to, most helpful in sustain- ing credit of carriers (Willard) 142 Rates fixed by Interstate Commerce Commission to yield 5£ per cent return has not produced results (Kruttschnitt).. -86 Roads not made careless in way of operating expenses by rates fixed by Interstate Commerce Commission to yield 5J per cent return (Krutt- schnitt) . .• 86 Transportation Act, 1920, implies no obligation on part of Government to supply difference between what carriers earn and what act permits them to earn (Warfield) '. 802 Transportation systems of country can not be maintained and give adequate service under a return less than that provided in the Esch-Cummins Act (Warfield) 801 Revenues and expenses: 1913-1917 ; class I roads, excluding switching and terminal companies (Cummins) 6-7' 1913-1921, class I roads (Cummins) J ,. 3-5, 1918-1921, class I steam roads, including switching and terminal compa- nies (Cummins). *". 1920 as compared with 1919, operating results (Kruttschnitt) 12 Calendar years 1916-1920, and period September to December of 1920, with train-mile averages, class I roads, United, States (Wettling) 738-739' 63553— 21— Vol I 89 Digitized by Microsoft® XXX INDEX. Revenues and expenses — Continued. Page. Class II and III roads, calendar year 1920 (Kruttschnitt) 124 Effect of increased transportation charges and increased bases of expense, year 1920, applied to the total business of the eastern carriers during 1916 (Willard) 170 Expenses — 1919andl920, class I roads (Willard) • 151 1920 and 1917, by primary accounts, class I roads, Table I of appendix following 1032 Analysis of operating expenses, taxes, and rents for year 1920 (Krutt- schnitt) 16 Cost of labor largest contributing cause to abnormal amount of (Krutt- schnitt) , 14 Delaware & Hudson Co., analysis of operating expenses (Williams), Tables 5 and 6, facing 795 Distribution of, class I roads, 1917 to 1920 (Kruttschnitt) 103 Earnings of many roads during first months of 1921 insufficient to meet (Kruttschnitt) , 96 Extravagance in expenditures prevented by Transportation Act, 1920 (Kruttschnitt) 98 Inherited from Federal control, reduction in, during 1920 (Krutt- schnitt) 28 Memorandum showing effect- of increased rates and increased basis of expense in effect for year 1920 applied to the business of 1916 (Will- ard) 185-186 Necessity for reduction in, apparent "if roads are to be successful in their operation (Cummins) 5 Primary accounts of, years 1920 and 1919, of 192 class I roads — (Kruttschnitt) 125-127 (Wettling) 709-711 Reduction in, positive, certain, and only way to save the railroads (Kruttechnitt) 101 Reduction in rates indefensible and impossible until reduced suffi.- cently to insure adequate and steady net income (Kruttschnitt) ... 47 Statement showing the progressive upward trend in wages and ex- penses in relation to service performed and revenue received, years 1916 to 1920, inclusive (Willard) 173 Total of 82.5 cents out of every dollar of, for year 1920 was paid out at prices directly fixed by the Government (Kruttschnitt) 14 Wages constitute 64 per cent of (Kruttschnitt) 13 New York Central Railroad, 1913-1920 (Smith) 245-248 Operating statistics, class I roads, 1916-1920 (Kruttschnitt) 24 Revenues — 1920 as compared with 1919, Class I roads (Kruttschnitt) 32 Allocation of railway gross, to employees and security holders, class I roads (Kruttschnitt) Chart 29-E Distribution of the railway dollar, 1912-1920 (Elliott). . .Chart facing 395 Gross, increased less than 54 per cent, 1920 over 1917 (Kruttschnitt) . . 15 Income account, class I roads, and large switching and terminal com- panies (Kruttschnitt) ' 24 Income of class I roads for years ended June 30, 1912 and 1916, and for the years ended December 31, 1916, to 1920, inclusive, and for 12 months ended February 28, 1921 (Willard) 168 Increase in, 1920 over 1916 (Willard) 172 Passenger, four months, September-December, 1920, compared with same months of 1919 (Wettling) 722-723 Railway operating revenue and how it was expended, 1912-1920 (Elliott).. Chart facing 394 Receipts per ton-mile and per passenger-mile, all roads and class I roads, 1882-1920 (Byram) Table facing 437 Summary, 12 months ended with December, 1919-20, steam roads in the United States, including 188 class I roads and 15 switching and terminal companies {Wettling) - - 708 Revolving fund, loans to National Railway Service Corporation from (Col- ston) 956 Rolling stock. (See Equipment.) Digitized by Microsoft® INDEX. XXXI s. Salaries. (See Wages.) Page. Sand, gravel, and crushed rock: Average haul and rate in different sections of the country (Chambers) 473 Tonnage hauled in each quarter of 1920 (Chambers) 474 Savings banks. (See Banks.) Seasonal rates. (See Rates, fares, and charges.) Secretary of Transportation, creation of, advocated (Elliott) 411 Section men: Decision of Director General establishing eight-hour day for, with punitive overtime, added largely to expenses ( Kruttschnitt) 119 Eight-hour day and overtime never applicable to, prior to Federal control (Kruttaehnitt) 119 Securities: Allocation of railway gross revenue to holders of, class I roads (Krutt- schnitt) Chart 29-E Announcements sent to owners of, by National Association of Owners of Railroad Securities relative to protection and stabilization of carriers' securities (Warfield) 849-851 Certificates of National Railway Service Corporation made safe and avail- able for savings banks investment would give large outlet for such issues (Pulleyn) 996 Dividends on stocks of carriers, not obligatory (Kruttschnitt) 95 Earnings in first six months of 1921 insufficient to pay interest upon bonds (Kruttschnitt) 96 Holders of, not only bondholders but also stockholders (Kruttschnitt) 95-96 Interest on bonds — Approximately $400,000,000 (Kruttschnitt) 96 Must be paid (Kruttschnitt) _ : 95 Memorandum of railroad, represented by National Association of Owners of Railroad Securities, and by institutions signing memorial presented to Congress August, 1919 847 National Railway Service Corporation securities being made legal invest- ment for savings banks (Brock) 927 Purchase of roads and payment in 4 per cent bonds impossible (Smith) 327 Railroad, held largely by»mutual savings banks (Brock) '. 927 Represented by National Association of Owners of Railroad Securities (Warfield)-...: 847-849 Rights of bondholders in the administration of the railroads (Fisher) 975 Savings banks an important source for absorption of — Brock 927 Pulleyn 995 Shareholders, Northern Pacific Railroad Co., number of (Elliott) 349 Suggestions of Security Owners Association for receivers of Federal courts to continue carriers' agreements have important bearing on service corpora- tion issues (Brock) i : - - 928 Self-determination, railroads only instrumentalities of business that are denied right of , as ito methods of conducting their own business (Warfield) . — 798 Seniority, injustice and inefficiency due to operation of rule under national agreements (Whiter) , 619-621 , Service miles, relation of, to shop miles (Smith) 294 Shareholders, Northern Pacific Railroad Co., number of (Elliott) , 349 Shipping Board, expenditures of, to January 1, 1921 (Kruttschnitt) 57 Ships, oversupply of, caused by stoppage of buying (Kruttschnitt) 47 Shop machinerv and tools, purchases of, Chicago, Milwaukee & St. Paul Railway Co., 1916-1920 (Byram) - 427 Shop miles: Locomotives repaired in contract shops during year 1920 (Smith) 289 Relation of, to service miles (Smith) , 294 Shopmen, national agreements for, responsibility for formulation of (Whiter) . . 649 Shops, company: Employees in locomotive department of, years 1918, 1919, and 1920, com- pared ( Smith) - _ 298 Expenses entering into repair of locomotives in (Smith) — 299 Shops, outside, work- of repairing locomotives not desired by (Smith) 300 Sleeping and parlor car employees, wages of (Walber) 577 Smith, Alfred H.; testimony of ^ . 7 . 240 Digitized by Microsoft® XXXII INDEX. Page- Snow, removal of, cost to New York Central Railroad, for first three months of 1920 (Smith) 274 Splitting of line haul rates, defined (Smith) 309 Stabilized rates. (See Rates, fares, and charges.) Standardization of equipment: Meeting with representatives of ^quipmen1; manufacturing companies for purpose of (Stmwell) 941 National Railway Service Corporation to set standard for the country (StiUwell) 930 Savings to be effected through (Stillwell) 932 Standardization of wages. (See Wages.) State commissions, unremunerative passenger service, erection of new passenger stations, and other expenditures required by, should be deferred (Williams) . . 77S Stationery, economies in use of, Chicago, Milwaukee & St. Paul Railway Co. (Byram) 425 Stations, passenger, erection of, required by State commissions, should be deferred/ (Williams) 778 Statistics: Operating — Class I roads, 1916-1920 (Kruttschnitt) Chart 29-G Passenger, four months of September-December, 1920, compared with same months of 1919 (Wettling) 722-723 Per ton per mile, four months, September-December, 1920, compared with same months of 1919 (Wettling) 724-725 Traffic, United States- Calendar year 1920 compared with calendar year 1919, with the two months of Federal control and the six months of the guaranty period shown separately, class I roads (Wettling) 716-717 Class I railways, 1912 to 1920 (Wettling) Table following 731 Month of March, three months ended March, and seven months ended March 31, 1921, compared with corresponding period of previous year, class I roads (Wettling) Table No. 2 following 717 September, October, November, and December, 1920, compared with corresponding months of 1919, class I roads (Wettling) 720-72] Year ended February, 1921. compared with the corresponding period ended February, 1920, with the six months ended Au- gust 31 (guaranty period) shown separately, class I roads (Wettling) , . .Table No. 1 following , 717 Stillwell, Lewis B., testimony of 929 Stimulation of traffic, sufficient to produce revenue needed would not result from a reduction in rates (Chambers) 442 Stocks and bonds. (See Securities.) Stokers, automatic: Application to locomotives, cost (Byram). . .'. 429 Efficiency of (Byram) 429 Necessary for efficiency and economy on larger types of locomotives (Byram) , 429 Number of, applied to locomotives, 1917-1920, Chicago, Milwaukee & St. Paul Railway Co. (Byram) 429 Storage: Apple holdings in cold storage (Chambers) 478, 481 Fuel- Advantages of, to railroads (Ludlow) 858 Impracticability of storage for domestic use (Ludlow) 860 Grain accorded the most favorable of storage and milling in transit privi- leges (Chambers) 459 Strikes: Difficulties encountered during 1919 and 1920 as a result of (Smith) 293 Outlaw or switchmen's— Cost of transportation affected by, but not quantity (Smith) 305 Disorganization of business caused by (Kruttschnitt) US Effect of, on accumulation of loads (Willard) 143 Operations, effect upon (Smith) 274 Tonnage moved by New York Central during (Smith) 275 Prevention of, by creation of Labor Board (Kruttschnitt) 113- Proposed method of balloting upon, under supervision of Federal Govern- ment (Elliott) 409 Digitized by Microsoft® INDEX. XXXIII Structures. (See Maintenance of way and structures.) Page. Superheating of locomotives. (See Locomotives.) Supplies. (See Materials and supplies.) Surcharges, pullman service, passenger travel not lessened to any considerable extent due to (Chambers) 493 Suspension of rates. (See Rates, fares, and charges.) Switchmen's strike. (See Strikes.) System, unified arrangement under Federal control, cost greater than individual arrangement (Elliott) 391 T. Taxes: » Analysis of operating expenses, taxes and rents, for year 1920 (Krutt- schnitt) 16 Cost of transportation — rates or taxation ( Warfield) 799 Distribution of, class I roads, 1917 to 1920 (Kruttschnitt) 103 Imposed upon class I carriers, 1912 compared with 1920 (Wettling) 692 Terminals: Chicago Junction Railroad, evidence of impracticability of coordinating, through present associations of railway executives (Wallace) 920 Chicago terminal situation (Wallace) 903 Cooperative development and operation of, essential to economy (Wallace) . 903 Economies by joint use of (Wallace) 923 Elements essential to be considered in solving railroad terminal problem (Wallace).. . . , 923 Joint use of. benefits to public and railroads (Wallace) 924 Thorn, Alfred P., statement of 521 Ticket offices, unification of, under Federal control, abolition after roads re- turned to private ownership (Elliott) 392 Ties: Average price of — ■ 1917-1920 (Smith) 272 1919 compared with 1920 (Kruttschnitt) 121 Material reduction in quality of, acquired during Federal control (Williams) 765 Number of, purchased during Federal control materially reduced (Williams) 765 Practice of purchasing, from farmers along rights of way abandoned by Director General; effect (Williams) 765 Replacement of — Average annual performance prior to Federal control necessary to uphold standard of maintenance (Smith) 279 Class I carriers, years 1917 and 1920 (Kruttschnitt) 128 Tolls: Abolition of, Government-owned ships, passing through the Panama Canal, not advocated (Kruttschnitt) - 57 Cargo tonnage carried, tolls paid and interest charges for the Panama Canal (Wettling) 754 Ton-mile revenue: Net, class I roads, last four months of 1919 and 1920 (Kruttschnitt) 47 Percentage of, 1920 over 1917, compared with average monthly pay of all employees, New York Central Railroad (Smith) 304 September, October, November, and December, 1920, compared with same months of 1919 (Wettling) 724-725 Tonnage. (See Volume of traffic.) Traffic statistics. (See Statistics.) Train-mile costs, three times as much to run a train-mile in 1920 as in 1916 (Wettling) 696 Train mileage: Averages of, calendar years 1916-1920, and period September to December of 1920, class I roads, United States (Wettling) 7 ?? _7 ?2 Class I railways, United States, 1912 to 1920 (Wettling) 734-737 Miles per freight car per day, years 1917, 1918, 1919, and 1920, compared (Kruttschnitt) 11 Transcontinental rates (46 I . C . C . , 236) (Chambers) - - - - - ■ : - - 498 Transit arrangements, grain accorded the most favorable of storage and milling in transit privileges (Chambers) 459 Transportation, essentially a governmental function (Fisher) 971 Digitized by Microsoft® XXXIV INDEX. Transportation Act, 1920: Page. Amendment to section 210, passed June 2, 1920 1012 Coordination of carriers made possible by (Willard) 140 Creation of Labor Board, wise provision of (Kruttschnitt) 113 Deficiencies in railroad returns can not be blamed upon (Rea) 505-506 Extravagant and reckless expenditures prevented by (Kruttschnitt) 98 Fair trial should be given, under normal business conditions (Elliott) 404 Future successful operation of railroads as 'privately owned and operated properties made possible by (Willard) : - - 202 General reduction in rates can not be considered until cost of operation can be reduced sufficiently to assure the net return authorized by (Byram)....: '. 434 Impairment of provisions, would be a menace to the successful operation of the transportation systems of the country (Warfield) 832 Increased rates provided by, amounted to only 8 per cent for the year (Kruttschnitt).-. HO Labor adjustment provision, functioning very slowly (Kruttschnitt) 72 Modification of, until fair chance given to prove what it can do, disapproved (Kruttschnitt) 99 Not a failure (Kruttschnitt) 110 Nothing contained in, giving Labor Board authority to prohibit railroads from paying wages on basis of piecework (Whiter) 617 Only really constructive measure roads have ever had (Kruttschnitt) 71-72 Opportunity to show its merits has not been given (Kruttschnitt) 71 Present rates should be maintained pending results under (Elliott) 399 Provision with respect to rate of return most helpful in sustaining credit of carriers (Willard) 142 Purpose of (Elliott) 334 Results obtained under (Rea) , 505 Transportation systems of country can not be maintained and give ade- quate service under a return less than that provided in (Warfield) 801 Unfortunate disappearance of net earnings not caused by (Elliott) 335 Unsatisfactory application of provisions due to condition in which carriers returned and the general after-war readjustments (Warfield) 832 Trust agreements, two forms of, conditional sale basis and lease basis (Johnston) 853 U. Undermaintenance : Claims of the Pennsylvania system (Rea) 532 Deficiency of maintenance on all classes of equipment during Federal con- trol ; effect (Williams) 767 Efforts of roads to restore their properties to high degree of efficiency ob- taining prior to the world war (Wettling) 663 Few roads returned with maintenance kept up to standard (Warfield) .... 799 Freight and passenger car repairs, Wabash Railway, during period of Fed- eral control (Williams) 768 Locomotives, Wabash Railway, during Federal control (Williams) 767 Orders of Director General limiting expenditures during period of Federal control; effect (Williams) 763 Roads returned to private owners on March I, 1920, in run-down condition (Wettling) 663 Subnormal, during 1919, cause of, Wabash Railway (Williams) 769 Unification: Arrangement during Federal control, cost greater than individual arrange- ment (Elliott) :...... :. 391 Efforts being made toward (Elliott) 391-392 Ticket offices, abolition of, after termination of Federal control (Elliott) . . 392 Uniform system of accounts, desirable (Elliott) 352 United States Chamber of Commerce, resolutions adopted by, relative to the principals of American enterprise (Elliott) '. 405-406 Unremunerative rates. (See Rates, fares, and charges.) Unskilled labor. (See Labor.) V. Valuation of carriers: Estimate of, placed by the Interstate Commerce Commission, at $18,900,- 000,000 (Kruttschnitt). 97 Digitized by Microsoft® INDEX. XXXV Valuation of carriers — Continued. Page. Net railway operating income compared with 6 per cent on valuation — class I roads and large switching and terminal companies, September, 1920, to March, 1921 — districts in accordance with Ex Parte 74 groupings (Wettling) 715 Purposes served by (Warfield) 804 Relation of physical valuation to rates and consolidation (Warfield) 804 Value of commodities: Apples — Comparative range of jobbing prices at principal eastern markets (Chambers) 483-484 Prices of apples to jobbers, in carloads or large quantities, as of March 21, 1920, and March 21, 1921 (Chambers) ' 480 Change in prices — 1900-1921 (Kruttschnitt) Chart facing 28 Effect upon business and volume of traffic (Williams) 773-774 Drop in wholesale prices of commodities following May, 1920; causes (Kruttschnitt) 46 Fruitsand vegetables, price to consumers controlled by retailera (Chambers) 465 High prices, retailers and intermediates who put goods in cities to blame (Kruttschnitt) 78-79 Increase in rates so small they can not be said to account for appreciable amount of change in prices of commodities (Williams) 775 Relation of present freight rates from representative points of origin to Chi- cago to wholesale prices of various articles at Chicago; Exhibit No. 3 (Wil- liams) 774 Wholesale prices of commodities, 1914-1921 (Kruttschnitt) (Chart) 29-A Vegetables. See Fruits and vegetables. Volume of traffic : Cargo tonnage carried, tolls paid, and interest charges for the Panama Canal ( Wettling) 754 Cement, brick, and plaster, movement in tons for each quarter of 1920 (Chambers) 474 Coal and coke — Furnish 40 per cent of the commercial tonnage moved by railroads of the United States (Chambers) 451 Movements for each quarter of year 1920 shown (Chambers) 452 Decrease in — Cessation in production of copper, contributing cause of (Byram) 436 Crop failure cause of (Byram) 436 Expenses do not drop as rapidly or as sharply with (Wettling). . . . .... 678 Increases in rates permitted by the Interstate Commerce Commission not the cause of (Chambers) - 441 Northwestern section of the country; causes (Elliott) 343 Revenue received by carriers under increased rates less than under rates formerly in effect, cause due to (Wettling) _. . . . 678 Shortages in lumber movement not caused by increased rates (Elliott) 344 Delaware & Hudson Co., transportation— rail line— increase due to in- creased traffic (Williams) 787 Effect of decrease in prices upon (Williams) 773-774 Expenses do not drop as rapidly or as sharply with decreasing traffic (Wet- tling) 678 Failure of New York Central Railroad to earn net income not due to lack of traffic (Smith) 305 Freight and passenger, largest ever handled was during year 1920 (Krutt- schnitt) : 10 Freight traffic, New York Central Railroad, 1919 as compared with 1920, by months (Smith) 304 Fruits and vegetables — Carloads shipped from California, Florida, and Texas, 1920-21, com- pared with 1919-20 (Chambers) 463 Movement of, in tons, for each quarter of 1920 (Chambers) 471 General level of rates lower in territories where there is a greater density of traffic (Chambers) 485 Handled in 192Q largest in the history of the railroads (Willard) 151 Increase in, 1920 over 1017 and 1919 (Kruttschnitt) . : 136 Digitized by Microsoft® XXXVI INDEX. Volume of traffic — Continued. Page. Iron ore, statement of, in long tons, shipped from ranges in Minnesota, Wisconsin, and Michigan during calendar years 1911 to 1920 (Chambers). 492 Live stock, movement in tons for each quarter of 1920 (Chambers) 475 Moving through Panama Canal, 1920-21 (Kruttschnitt) , 33 New York Central Railroad, 1919 as compared with 1920, by months (Smith) 304-305 Ore, movement, in tons, entire United States, for each of the quarters of 1920 (Chambers) 492 Passengers, number carried for last four months of 1920, compared with last four months of 1919 (Chambers) 493 Proof should be asked of those applying for reductions in rates that increased traffic would follow (Kruttschnitt) 90 Reflected in rise and fall of business conditions (Kruttschnitt) 94 Revenue received by carriers under increased rates less than under rates formerly in effect; cause due to diminished (Wettlihg) 678 Revenue tons per freight train greater in 1920 than in any previous year (Kruttschnitt) , 11 Sand, gravel, and crushed rock, tonnage hauled in each quarter, of year ' 1920 (Chambers) 474 Shortages in lumber movement not caused by increased rates (Elliott) 344 Tonnage moved by the New York Central Railroad — During outlaw strike in April, 1919 (Smith) 275 May to December, 1919, compared with 1920 (Smith) 275 Tons of revenue freight originating on roads, by commodity, class I roads, 1912 to 1920 (Wettling) Table following 725 W. Wabash Railway Company: Contracts entered into with car manufacturers covering heavy and rebuilt repairs, 1916 to 1919, together with gross cost covering same (Williams). . 771 Net ton-miles of revenue and nonrevenue freight, 1917-1919, and year 1920 (Williams) 772 Rehabilitation of freight-car equipment after reorganization (Williams) . . . 769 Wages: 1916 to 1920, class I roads, by class of employees (Wettling'), Table No. 1 following 745 Abnormal increase in costs due to labor award of July 20, 1920, retroactive to May 1, 1919 (Wettling) 663 Adjustment of, by Government, bad policy (EWell), Page 21 of appendix following 1032 Adjustment provision of Transportation Act, 1920, repeal of, advocated (Ewell) Page 22 of appendix following 1032 Aggregate compensation of each class of railway employees in 1920 (con- structive year), showing amount payable at 1916 rates and amount due to increased wage rates since 1916 (Wettling) Chart No. 2 following 751 Amounts paid certain classes of employees per day or hour, 1916-1920 (Elliott) 377 Amounts paid out of every dollar for, 1916 compared with 1920 (Willard) . . 142 Average compensation of employees per hour or per day, class I roads, for years 1916-1920, by class of employees ( Wettling)... i 748, 749 Back pay made prior to March, 1920, reported in operating expenses (Wis- hart) i 315 Baggagemen, rates of pay of, December, 1917; January 1, 1918; January 1, 1919; and May 1, 1920 (Smith). 270, 271 Brakemen, rates of pay of, December, 1917; January 1, 1918; January 1, 1919; and May 1, 1920 (Smith).... 270, 272 Changes in— 1900-1921 (Kruttschnitt) Chart facing 28 1913-1921 (Kruttschnitt) .(Chart) 29-B Class I roads in 1920, exceeded gross operating expenses of 1916 and 1917, respectively (Wettling) 696 Classes of employees omitted from "estimate of classes of employees whose wage Bcales were standardized during Federal control" (Walber). Table 592-A Clerks (Walber) 585 Digitized by Microsoft® INDEX. XXXVI [ Wages — Continued. Page. Compensation of railroad employees 1916-1920 (Willard) 227 Conductors, December, 1917; January 1, 1918; January 1, 1919; and May 1, 1920 (Smith) 268, 271 Constitute 64 per cent of operating expenses (Kruttschnitt) 13 Continuation of national agreements, disapproved (Warfield) 810 Cost of labor, largest contributing cause to abnormal amount of railway operating expenses (Kruttschnitt) 14 Decrease in rates could be brought about with normal business conditions by a fair wage readjustment (Warfield) 802 Delay in deciding pending decisions before Labor Board attributed to personnel (Kruttschnitt) 82 Direct andindirect cost of labor, defined (Kruttschnitt) 14 Effect of national agreements upon wages and classifications of labor (Smith) 252-265 Employees and their compensation — 1912 to 1920, class I roads (Wettling) Table following 731 1916 to 1920, classl roads (Wettling) 744 1917 to 1920, class I roads, by class of employees, Table H of appendix following 1032 1917 and 1920, regardless of hours, classes covered by nation! agree- ments (Whiter) 596 Based upon what wages for 1920 would have been had Labor Board award (decision No. 2) been in effect during entire year (Wettling), Table No. 1 following 751 Employment of unskilled labor by carriers at rates others are paying would save approximately- $600,000 per day (Kruttschnitt) 102 Engine and train service employees (Walber) 577 Engineers, rates of pay, December, 1917; January 1, 1918; January 1, 1919; and May 1, 1920 (Smith) - - 267, 268, 270 Estimate of classes of employees whose wage scales were standardized dur- ing Federal control — number of employees and their compensation for year 1920 (Walber) , . . 589 Estimate of Gen. Atterbury showing cost of national agreements to rail- roads (Whiter) 595 Excessive sums paid lab&r during Federal control, examples of (Krutt- schnitt) 18 Firemen, rates of pay, December, 1917; January 1, 1918; January 1, 1919; and May 1, 1920 (Smith) „ - - - - . 268, 271 Fixing of, by Government, most objectionable type of class legislation 1 (Ewell) Page 21 of Appendix following 1032 Flagmen, rates of pay of, December, 1917; January 1, 1918; January 1, 1 919; and May 1, 1920 (Smith) 270, 272 High, cause of increased expenses, 19.20 over 1919 (Willard) 152 History of direct cost of labor (Kruttschnitt) 14 Hours of labor and pay therefor for maintenance of equipment, Northern Pacific Railway Co. (Elliott) 355 Hours or days worked and compensation of railway employees classified by general expense account, class I roads, 1920 compared with 1917 and 1919 Table G of appendix following 1032 Inability of railroads to grant increases commensurate with other indus- tries; causes (Willard) 164r-165 Increase in — 1916 to 1920 (Rea) 5 °7 1920 over 1916 (Willard) AV/-"\ V„a Cause of high increase in locomotive costs, 1921 (Elliott) 374 Effect of (Elliott) 355 Increase in expenses due to (Elliott) - 352 New York Central Railroad, for year 1920, growing out of decision of the Labor Board rendered July 20, 1920 (Smith) 251-252, 264 Resulting from decision No. 2 of the Labor Board, rendered July 20, 1920 (Willard) .-.-'-'- 176-179 . Increased costs caused by national agreements by payment of amounts for hours not worked (Smith) ." 278 Injustice to railroads due to rules of national agreements for overtime, ex- amples of (Whiter) 605-612 Institution of economies through fair readjustment of (Warfield) 802 Digitized by Microsoft® / XXXVIII INDEX. Wages — Continued. Page. Labor adjustment provision of Transportation Act, 1920, functioning very slowly (Kruttschnitt) 72 Labor bill actually paid in 1920, more than three times that paid in 1912 (Wettling) . 696 Labor costs to class I carriers greater in 1920 than in 1917 by more than 115 per cent (Kruttschnitt) 15 Liberal consideration should be given railroad labor (Smith) 311 Machinists, boilermakers, and blacksmiths, dissimilarity in rates of, for different railroads (Walber) 555 Maintenance of wav employees— Kruttschnitt. .'. 118 Walber : 585 Maximum, minimum, and preponderating rates in effect prior to Federal control for certain emplovees in the car and locomotive departments (Walber) 540-553 - Methods of determining (Ewell) Page 20, appendix following 1032 Minimum rates of, destruction of relations between different positions (Walber) 576 New York Central Railroad — Amount in cents per dollar paid for, 1916-1920 (Smith) 265 Effect of Director General's order No. 27 upon wages and labor con- ditions (Smith) 252 Increase in, for year 1920, growing out of decision of the Labor Board rendered July 20, 1920 (Smith): 251-252, 264 Maintenance of way account, increase in, 1918 over 1917 (Smith) 249 Overtime wages paid, year 1920 (Smith) .- 278 Percentage of ton-mile revenue, 1920 over 1917, compared with average monthly pay of all employees (Smith) 304 Punitive overtime, cost of, for year 1920 (Smith) 269 Nothing contained in Transportation Act, 1920, or national agreements giving Labor Board authority to prohibit roads from paying on basis of piecework (Whiter) 617 Number of employees, average annual compensation, engine and train service classes, class I roads, 1920 compared with 1916; (Walber).. 583-584 Officers and employees of roads under Federal control as of January 1, 1919 (Willard) 209-217 Overtime — Baltimore & Ohio Railroad, to trainmen, trackmen, and other em- ployees (Willard) 161 Examples of injustice to railroads in payment of exorbitant wages, due to rules of national agreements governing (Whiter) 605-612 Never applicable, to section men prior to Federal control (Kruttschnitt) 119 New York Central Railroad, for year 1920 (Smith) 278 Paid and charged to operating expenses, year ended February 28, 1921, as compared with year ended October 31, 1919, Northern Pacific Railway Co. (Elliott) 376 Position assumed by the Director General with respect to (Walber) . . 580-581 . Practically none in the passenger service (Smith) 270 Punitive — Cost of, to the New York Central Railroad, for year 1920 (Smith) . 269 Objected to (Smith) 269-270 Trainmen, trackmen, and other employees, Baltimore & Ohio Rail- road (Willard) -. 161 Payment of, for work not performed under so-called "call rule" (Whiter). 608 Per cent of total wages to revenue, 1916-1920 (Kruttschnitt) 29-30 Percentage of increase in number of railway employees and their aggregate compensation, by classes, class I roads— 1920 compared with 1916 (Wettling) Chart No. 2/following 745 1920 compared with 1917.Chart facing page 8 of Appendix following 1032 Police department employees (Walber) .' 577 Positions occupied by hourly rated employees, instances where paid more than foreman's rate for time occupying the foreman's position (Whiter). . 628-629 Progressive upward trend in wages and expenses in relation to service performed and revenue received, years 1916 to 1920, inclusive; (Willard) 173 Public should be allowed to appeal to the Labor Board if they think wages too high (Elliott) 409 Digitized by Microsoft® INDEX. XXXIX Wages — Continued. Page- Punitive overtime- Cost of, to the New York Central Railroad, for year 1920 (Smith) 269 _ Objected to (Smith) 269-270 Railroad presidents, exorbitant, general impression and attitude of public (Willard) . 204-205 Reclassifications under national agreements, purpose of to increase (Smith) . 254 Reduction in — , Essential to save many roads from bankruptcy (Rea) 506 Means to meet demands for decreased rates can not entirely be sup- plied by (Warfield) 821 Report of the Interstate Commerce Commission, of railroad revenues and expenditures give conclusive evidence of necessity for (War- field) 808 Relation of pay roll to total operating revenues, 1917, 1919, and 1920, Northern Pacific Railway Co. (Elliott) 349 Relative traffic units, aggregate wages, operating income, and depreciation of the dollar, all railroads, 1900-1920 (Kruttschnitt) Chart 29-F Sleeping and parlor car employees (Walber) t 577 Standardization of — Elliott 409 Willard - 227-228 Statements showing by occupation number of positions paid less than 25 cents per hour; 25 cents and less than 26 cents, etc., as of December 31, 1917, and November 1, 1919, covering railroads in eastern region (Wal- ber) . 571-575 Total compensation and average compensation per employee, class I roads, fourth quarter, 1920 (Wettling) Table No. 1 following 751 Typical examples of how changed rules produced uneconomical conditions in causing pay to be made for unnecessary work (Elliott) 377-381 Welders, comparison of, with rates paid skilled crafts (Walber) 555 World war, effect upon wages and labor conditions (Kruttschnitt) 47 Yard service employees (Walber) 579 Walber, John G., statement of 533 Walkouts. (See Strikes.) Wallace, John F., statement oi 902 War. (See World war.) Warfield, S. Davies, testimony of 797 Water carriers. (See Boat lines.) Water competition. (See Competition.) Water rates. (See Rates, fares, and charges.) Water stations, development and improvement of, Chicago, Milwaukee & St. Paul Railway Co. (Byram) - 426 Water transportation, Government should be kept out of the business of oper- ating steamships (Kruttschnitt) - - - - - - - - - - 57 Water waste, efforts toward elimination of, Chicago, Milwaukee & St. Paul Rail- way Co. (Byram) 427 iV pjit n pi* lntprf pvptio (* ' Cost of removing snow for first three months of 1920, New York Central Railroad (Smith) -.- - - • - - - 274 Effect of severe cold weather upon train movements (Smith) 274 Welders, wages of, compared with rates paid skilled crafts (Walber) 555 Wettling, L. E., testimony of 66 ° What traffic will bear: Rate in excess of, defined (Willard) 15 " Unnecessary to raise rates beyond, to make private ownership a success (Willard) 150 Whiter, E. T., statement of byi Wholesale price. (See Value of commodities.) Willard, Daniel: Information filed by, in regard to cost of operating private cars on the Baltimore & Ohio Railroad Facing 206 Statement of 1|° Williams, William Henry, statement of £t>t> Wishart, W. O, testimony of d15 Digitized by Microsoft® XL INDEX. World war: p age. Condition of roads due to economic changes brought about by (Willard) . . 139 Decline in efficiency due to (Elliott) . 390 Disarrangement of industry brought about by (Kruttschnitt) 46 Discontinuance of unnecessary passenger trains during, in order to move troops (Willard) 151 Disturbed conditions arising from (Elliott) 389-390 • Effect of, upon prices (Kruttschnitt) ■ 46-47 Efficiency of officers and employees of railroads during (Elliott) 389 Efforts of roads to restore their properties to high degree of efficiency ob- taining prior to (Wettling) 663 Increase in expenses due to disturbing influences caused by — Elliott 352 Smith 323 Prior to, railroads of the United States furnished the most economical transportation in the world (Smith) 240 Rules and regulations adopted during, should be changed (Smith) 291 Y. Yard-service employees, wages of (Walber) '. 5T9- Yards, Chicago Junction Railroad, evidence of impracticability of coordinat- ing use of, through present associations of railway executives (Wallace) 920 o Digitized by Microsoft® Digitized by Microsoft® Digitized by Microsoft® Digitized by Microsoft® Digitized by Microsoft® HE* (LI \ Digitized by Microsoft® Jl .- by Mi&rosofti