THE NEW ERA
0
OF TRANSPORTATION
An Address before the
Annual Meeting of
The National Industrial
Traffic League
At the Waldorf-Astoria Hotel, New York
November 18, 1920
By
LEWIS J. SPENGE
Director of Traffic of the Southern Pacific Company
1 'V
ISSUED BY
THE NATIONAL INDUSTRIAL TRAFFIC LEAGUE
1207 CONWAY BUILDING
CHICAGO
The New Era in Transportation
Mr. President and Gentlemen :
I am deeply sensible of the honor conferred upon
me by your invitation to be a guest of The National
Industrial Traffic League this evening, but am per¬
suaded to address you only by the assurance that I
am in the house of my friends.
The first Chapter of the railroad history of this
nation began with the period of initial development,
when every section of the country clamored for rail¬
roads, without questioning the terms upon which
they could be obtained or the rates that would be
charged for their service, and when every inducement
and encouragement to invest capital in railroad
enterprise was offered by the State and National
Governments; it ended when the anxiety for railroad
facilities had been sufficiently satisfied to become
outweighed by a greater interest in the cost of trans¬
portation, and a determination to eradicate the evils
of exploitation and discrimination which had grown
up, and to be superseded by a new conception of the
obligations of common carriers and the regulation to
which they should be subjected.
The Second Chapter is a record of restrictive
legislation which was primarily designed to correct
and prevent the evils which had come into existence,
but which in its subsequent development and admin¬
istration became so punitive and repressive as to
discourage enterprise; repel the investment of capital,
and retard railroad expansion.
The Third Chapter records the seizure of the rail¬
roads for the avowed purpose of facilitating partici-
1
pation in the World War, and the history of their
operation by the Government, which is fresh in your
memories.
In an address delivered to the Traffic Club of New
York, after the armistice, two years ago, it was my
privilege to draw attention to the pursuits of peace
by classifying the future operation of our transporta¬
tion systems as one of the most important problems
of reconstruction. My interpretation of public senti¬
ment was that any benefits which had accrued during
Federal control were entirely outweighed by the
handicaps attributable to the elimination of competi¬
tion; that the paramount desire of the public was a
restoration of the benefits of reasonable competition
in rates and service; the recognition of the shipper's
right to route his freight; the revival of the courtesy
and accommodation which are born of individual
initiative and competitive endeavor; and an impartial
consideration of rates by the Interstate Commerce
Commission, which would be fair alike to shippers
and carriers. It was pointed out that the elimination
of competition had been the avowed policy of the
Director General of Railroads, and was inherent in
Government ownership or any other form of unified
control and operation which had ever been proposed.
My hearers were reminded of the significance of the
seizure of the ocean cables after an armistice had been
concluded, and were warned against the propaganda
which had already begun in favor of continuing
Governmental control of the railroads after the accom¬
plishment of the avowed purpose for which they were
taken over. The question was asked why should
Governmental operation be continued for twenty-
one months after the proclamation of peace, or, for
any longer period of time than necessary to restore
the railroads to individual management in an orderly
way. It was asserted that the longer the transporta-
2
tion lines were continued under unified control and
operation the more completely their individualities
would be obliterated, their organizations disrupted,
and their credit impaired. The view was therefore
expressed that if unified control was not to be pro¬
longed for exploitation by the advocates of Govern¬
ment ownership the situation required prompt, con¬
certed and vigorous action by the public, and the people
were urged to awaken to their responsibility with the
assurance that both the President and the Congress
would respond to an unmistakable expression of public
sentiment. The necessity was also urged of such
comprehensive legislation as would assure the future
development of the railroads as useful instrumental¬
ities of commerce, and the suggestion made that such
legislation should provide a tribunal to deal with
wages, hours, and working conditions of employes,
and contain a mandate to the Interstate Commerce
Commission to readjust rates contemporaneously
with readjustments of wages.
Whether this call to arms had any influence upon
subsequent developments is not material. The
National Industrial Traffic League promptly inaugur¬
ated an intelligent and forceful campaign for the early
relinquishment of the railroads by the Government,
and the enactment of adequate legislation for their
future protection and operation. In this campaign
you were joined by the Traffic Club of New York
and the other traffic clubs of the country, as well
as by substantially all of the commercial organizations
of the country, and it never relaxed until the requisite
legislation had been enacted by Congress and the
railroads had been returned to private management.
When the railroads were returned their credit was
impaired; their net earnings barely more than suffi¬
cient to pay their operating expenses and wholly
insufficient to meet their fixed charges; their organ-
3
izations had been disrupted; their equipment was
scattered throughout the country, and was badly in
need of repair; their traffic was congested; their serv¬
ice was indifferent, and the efficiency of labor had
been reduced to a minimum.
These were the prevailing conditions when the
enactment of the Transportation Act of 1920 brought
us to the Fourth Chapter of our railroad history,
which is "The New Era of Transportation." Upon
its threshold stood the members of the Inter-
-state Commerce Commission, facing a new and con¬
structive railroad policy, which, as stated by Com¬
missioner McChord from the bench in the recent rate
case, had revolutionized regulatory legislation affect¬
ing the railroad industry, by recognizing the paramount
interest of the public to be the provision of adequate
transportation. Beside them stood the railroad
officers, looking into the future with hope, confidence
and courage; and beside them stood the users of the
railroads in confident expectation of the benefits to
accrue to the commerce of the country. It was clear
that all were facing in the same direction—mutually
appreciating that the paramount purpose of the law
could be accomplished only by the cooperation of all
the parties.
The restoration of railroad credit by the enactment
of the Transportation Act and the pursuit of a more
reasonable and enlightened policy of regulation must
be accepted as putting the chief responsibility upon
the carriers to accomplish the results which the new
national policy was designed to achieve.
WHAT RETURN TO PRIVATE MANAGEMENT
HAS ACCOMPLISHED
Therefore, it is timely to answer the query to what
extent have the carriers met their responsibility and
the shippers realized their expectations?
4
First: The benefits of competition in rates and
service have been restored; your right to route your
freight is again respected; individual initiative, courtesy
and accommodation have been revived; provision has
been made for adjustment of wages and labor disputes
which discomages future strikes without preventing
them by making them unnecessary; and an impartial
consideration of rates, fair alike to shippers and carriers,
is again assured.
Second : Realizing that the business of the country
could not wait for the delivery of new power and
equipment and the expansion of facilities, the rail¬
roads imdertook to substantially increase the effi¬
ciency of the existing plant, and the result may be
briefly stated in this way:
(a) On the first of March there were 8404 unserv¬
iceable freight locomotives, which represented 28.3%
of the total number owned, while there are now only
6118 locomotives unserviceable, which represents but
17.8% of the total number owned.
(b) In February of this year each freight car was
moved a daily average of 22.3 miles, while in August
each freight car was moved a daily average of 27.4
miles—an increase in efficiency of 23%.
(c) In February of this year the average load per
car was 28.3 tons, while in August the average load
per car was 29.8 tons—an increase in efficiency of 5%.
These increases in efficiency had the effect of adding
more than 600,000 cars to the available equipment
of the country, so that in August of this year more
freight was handled by the railroads than in any
previous August in our history of transportation;
and you will have observed the recent public statement
of Interstate Commerce Commissioner Aitchison that
the back-bone of the car shortage has been broken.
S
Third: During the first six months of private
management the restoration and maintenance of
existing equipment has cost $792,000,000, and during
the same period $569,000,000 were expended for main¬
tenance of way and structures, or, in other words,
for putting the physical property in condition to
perform more efficient freight and passenger service.
Fourth: On the first of January, 1920, locomotive
builders had on their books orders for 99 locomotives.
Notwithstanding the extraordinary prices which have
prevailed, and notwithstanding that the cost of borrow¬
ing money has substantially exceeded the maximum
rate of return allowed the railroads by the provisions
of the Transportation Act, the American and Canadian
railroads together have since ordered 1770 locomotives
at a cost of $106,000,000; they have ordered 73,593
freight cars, at a cost of $221,000,000; and they have
ordered 997 passenger cars at a cost of $23,000,000—
maliing an aggregate expenditure for power and equip¬
ment of $350,000,000.
Fifth: After the railroads had been taken over by
the Government, but were still being operated by their
former officers as agents of the Government, some
of the railroad executives initiated a movement to
abolish off-line traffic agencies in the belief that their
continuance would not be countenanced by the Gov¬
ernment under a unified system of operation. It was
my privilege to establish the contention that no such
action was required by the proclamation of the Presi¬
dent or by any orders which had been been issued or
expressions which had been made up to that time by
the Director General of Railroads, and to sustain
this contention by announcing the purpose of the
Southern Pacific Lines to continue all of such agencies.
Later, when the operation of the railroads had been
taken out of the hands of their officers, and the abolish-
6
ment of off-line agencies was taken up for considera¬
tion by the Railroad Administration, every inffuence
at my command was exerted to prevent the step
being taken, believing not only that it would be a
grave injustice to the men composing these organiza¬
tions, many of whom had spent their whole business
lives in the service, but that the shippers would be
deprived of one of their most useful mediums of daily
intercourse with the carriers and would be seriously
inconvenienced. Persuasion and argument availed
nothing, and I have always believed that the removal
of these cushions between the railroads and their
patrons was one of the most serious and far-reaching
mistakes of judgment and political expediency made
by the Railroad Administration. Therefore, some
lines even anticipated the return of the railroads on
March 1st by re-organizing their off-line traffic agencies
to be ready to function on that date; others re-organ¬
ized their forces during the next six months, and still
others after the expiration of the guaranty period,
so that the recruited forces now in the field have re¬
stored to their patrons a convenient medium of inter¬
course and accommodation.
Sixth : Freight train schedules have been materially
improved and are better maintained.
Seventh: Daily merchandise cars have been
extensively re-established.
Eighth : Systematic passing reports to shinpers are
being rapidly restored.
Ninth: Passenger train service will soon be as
satisfactory to the public as it was prior to Federal
control.
Tenth: Re-organization of the tariff bureaus
and creation of necessary expert rate committees and
administrative committees to deal with readjust-
7
ments and meet the current traffic problems of shippers
and carriers have been accomplished. Besides the
passenger organizations, which it is unnecessary to
enumerate, we now have in the West the Trans¬
continental Freight Bureau, the Southwestern Freight
Bureau, The Western Trunk Line Freight Bureau
and the Western Classification Committee; in the South
the Southern Freight Rate Committee and the Southern
Classification Committee; and in the East the Trunk
Line Committee, the Central Freight Committee,
the New England Committee, and the Official Classi¬
fication Committee—which embrace standing rate
committees, composed of experts who have no connec¬
tion with individual lines, thereby assuring every
rate proposition receiving the benefit of expert analysis
and unbiased judgment, which ought to be of in¬
calculable benefit to the shippers of the country as a
whole.
In addition to these there are two national commit¬
tees—one being the Consolidated Classification Com¬
mittee, composed of members of the three territorial
classification committees, who are charged with the
responsibility of ultimately unifying the classifications;
the other the National Perishable Freight Committee,
composed of men who have been trained in the pro¬
tection of perishable freight from the elements, and
a chairman, whose exclusive time is to be devoted to
the perfection and coordination of rates, rules and
practices affecting perishable freight, and the consider¬
ation of every proposition submitted by shippers
in connection therewith.
The standing rate committees are not clothed with
any power to make rates; it is their duty to give
every proposition the benefit of expert analysis and
make their recommendations to the traffic officers
of individual lines to guide them in their conclusions,
so that the organizations are thus safeguarded from
8
the dangers of bureaucracy, and the full right of
individual action is reserved to every line.
Recognizing the necessity of coordinating the activ¬
ities of these organizations and of dealing with inter-
territorial and nation-wide traffic propositions and
principles which affect the entire country, traffic
executive committees have been created in each of
the three territorial subdivisions of the country—
the Eastern Committee with Mr. George H. Ingalls
as Chairman; the Southern Committee with Mr.
Lincoln Green as Chairman; and the Western Com¬
mittee with your humble servant as Chairman. In
turn, an executive committee of the Consolidated
Classification Committee is composed of five dele¬
gates each from these three traffic executive commit¬
tees; and the National Perishable Freight Committee
is under the administrative direction of a committee
consisting of the chairmen of the Eastern, Southern
and Western Executive Committees.
These organizations, we believe, provide the most
competent, convenient and expeditious machinery
that can be created to deal with the traffic problems
of shippers and carriers.
PUBLIC OPINION VINDICATED
Gentlemen, if there has been any failure to thus
far accomplish anything which should have been
accomplished since the return of the railroads to their
owners, I am not here to excuse it by asserting that
more might have been accomplished if shippers had
utilized equipment more economically or efficiently.
I am here to remind you that the railroads were
relinquished by the Government in deference to a
crystalized public opinion that, with their credit
rehabilitated and fostered, and confidence restored,
adequate and satisfactory service would be best assured
under private management. I am here to claim that
9
public opinion has been already vindicated by the
progress—the substantial progress—that the rail¬
roads have made under private management, in spite
of their difficulties, and I am here to concede that
these results could not have been obtained without
the cordial cooperation of the shippers and especially
of this organization.
THE NATIONAL INDUSTRIAL TRAFFIC LEAGUE
The transportation question has become a national
question. The National Industrial Traffic League is a
national organization. It may have been primarily
created for the protection of its members in their
relations with the carriers, but if there are any railroad
executives or traffic officers who have failed to realize
its usefulness, jiot only as a medium of intercourse
for the carriers with the shippers, but as an invaluable
agency of assistance to the carriers, they should stop
and take their bearings. As a member of the execu¬
tive traffic committee which met with your committee
diuing the progress of the recent rate case, I can testify
to a breadth of view and a spirit of cooperation on
your part which every skeptical railroad officer should
have witnessed. Therefore, it is a great pleasure
to me to be the direct point of contact between your
organization and the transportation systems of the
country long enough to publicly and gratefully
acknowledge the invaluable service which you have
rendered to the railroads, in crystalizing public senti¬
ment against the perpetuation of Governmental
operation: in the passage by Congress of the most
constructive transportation legislation that has ever
been enacted; and in giving your affirmative support
to the apphcations of the carriers for the increased
revenue contemplated by the Transportation Act.
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THE FUTURE
Now, what of the future? The mental attitude
of railroad officers today was well expressed by one
of our late railroad wizards when he said that while
he always endeavored to avoid being dissatisfied
with results that had been accomplished, he never
permitted himself to be satisfied. There is still much
to be accomplished by the railroads, and no organiza¬
tion of men is better qualified than The National
Industrial Traffic League to set up the sign posts of
public opinion to guide us on our way.
While the new conception of regulation as expressed
by the Transportation Act has recognized adequate
transportation facilities and service as the paramount
necessities of the public, I am sure that the verdict
of shippers in favor of private management was
partly inspired by the expectation that a more business¬
like adjustment of rates would be promoted by private
management under the inspiration of individual
initiative and self-interest on the part of the several
carriers and their daiiy contact with and Intimate
knowiedge of commercial and industrial conditions
in their respective territories.
The shippers undoubtedly realized that under
private management the carriers would adjust their
rates to meet the necessities of commerce, while under
any system of unified Government operation the
commerce of the country would have to accommodate
itself to inflexible rates adjusted solely to meet revenue
requirements.
While the discretion of the carriers must be exer¬
cised within the limitations of the law, every carrier
is interested in stimulating the traffic of the section
which it can most advantageously serve, and nearly
every commodity rate is initiated by some interested
line even if it becomes effective by every available
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route and has the appearance of concerted action.
You and I are too close to the subject to subscribe
to the statement frequently made that there is no
longer any competition of rates.
The traffic machinery which I have described,
while subjecting rate adjustments to expert examina¬
tion to avoid destructive rates or wasteful transporta¬
tion—which in the last analysis becomes an un¬
warranted burden upon the public at large—is designed
to preserve all of the benefits of individual initiative
and competition among carriers.
I think that The National Industrial Traffic League
should have been formally notified of the completion
of our rate making machinery and supervisory traffic
organizations, in order that such questions might
have been brought directly to these organizations
as are contained in a resolution adopted at a meeting
of Western commercial organizations and shippers
and receivers of freight in Chicago, October 22nd,
and recently published in the Traffic World, to be
recommended for adoption by The National Industrial
Traffic League at its annual meeting, but which in
the meantime has been transmitted to the Associa¬
tion of Railway Executives. Whether your organ¬
ization has adopted or endorsed this resolution, I
am not aware, but inasmuch as it has come before you
it seems appropriate for me to briefly answer it in
this way:
First : The part taken by the shippers in advocating
important and essential provisions of the Trans¬
portation Act, and of The National Industrial Traffic
League in supporting the recent application of the
carriers before the Interstate Commerce Commission,
are not unappreciated. I have publicly acknowledged
them with an expression of gratitude.
Second: It is recognized that the recent horizontal
12
increase was supported by many shippers and granted
by the Commission with the understanding that such
readjustments as the facts might warrant would be
promptly undertaken and, as far as possible, made
without appeal to the Interstate Commerce Commis¬
sion.
Third: It is assumed that the dissatisfaction
expressed by this resolution does not apply to legiti¬
mate efforts to obtain increased revenue where it
can be shown that the revenue accruing to any group
of lines under the rates authorized in Ex Parte 74 is
insufficient to yield the result contemplated by the
Transportation Act, and that it is realized that the
rate readjustments to which preferred attention is
advocated cannot all be made by reductions without
impairing the aggregate revenue which the authorized
rates were designed to yield; but that the complaint
is directed against efforts to "put over" change after
change in individual rates, rules and practices which
are designed solely to secure further and unauthorized
increases of rates instead of proceeding with the re¬
adjustments contemolated by the carriers in their
application and by the Commission in its decision.
I have no knowledge of any such preconceived or con¬
certed efforts, and if they are made at this time I
consider it the duty of executive traffic officers to sup¬
press them.
Fourth: Stated in another and more direct way,
the carriers should give immediate and preferred
attention to the readjustments contemplated by their
application and the Commission's decision.
Fifth: So much of the resolution as protests
against a continuance of the general revision of con¬
solidated classification has been anticipated by the
executive committee of the Consolidated Classifica¬
tion Committee, which has adopted the policy that no
13
action be taken at this time as to items in Appendix
6 as a whole; that the Consolidated Classification
Committee shall proceed to handle in the regular way
applications from shippers including such other items
as may be affected by changes resulting from confer¬
ences with the shippers; and that beyond this scope
no further changes shall be made by the Consolidated
Classification Committee without definite approval
of a plan of procedure by the executive committee.
Before becoming impatient with any delay that may
ensue in the readjustments that are expected to follow
the horizontal increase of rates, permit me to urge
due consideration of the fact that the carriers must
proceed in a prudent, business-like way, that will
commend itself to the Interstate Commerce Commis¬
sion which must now share the responsibility of pre¬
serving sufficient revenue to provide adequate trans¬
portation, as contemplated by the law. When you
are reminded that it is yet difficult to forecast the
effect upon net revenues which the Commission, under
the Transportation Act, has undertaken to provide,
and that readjustments involve a multitude of prob¬
lems, affected by conflicting influences and conflicting
forces, of which mature study is necessary, many of
you gentlemen are sufficiently experienced to realize
the practical obstacles that are encountered from day
to day. However, it is not intended to excuse any
unnecessary delay which may ensue, and you may
repose confidence in the traffic officers of the railroads
doing everything that is consistent and practicable
to expedite equitable readjustments, for I recognize
that these readjustments are entitled to preferred
consideration by our rate committees and our traffic
organizations.
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COOPERATION BETWEEN SHIPPERS AND
CARRIERS
The cooperation that has been established between
The National Industrial Traffic League and the carriers
must not be, and shall not be, interrupted by any effort
of railroad officers to shirk the responsibility that is
now imposed upon them or by any failure to be guided
by considerations of public policy. In dealing with
the daily traffic problems that come before them
railroad officers must realize that there are conditions
under which changes may be inopportune that might
be unobjectionable at some other time; that they
must avoid relatively imimportant but very irritating
changes of existing practices, and that they must give
more thought to considerations of public policy. On
the other hand, it should not be assumed that railroad
officers are doing nothing of this kind, as many of you
know that we are preventing changes of this character
when they are brought to our attention, and those
of you who do know should not hesitate to inform
your associates in your councils, so that an unfair or
biased conclusion may not be reached.
Conscientious and competent railroad officers are
stimulated by the initiative that is permissible under
private management and are deeply concerned with
the estimation in which they are held by the public.
They realize that public opinion will hold them ac¬
countable for the fidelity and efficiency with which
their duties are performed, and that railroad policy
must, therefore, be subjected to the test of public
approval. Therefore, they cannot overestimate the
importance of a constant study and supervision of
every point of contact between the carrier and its
patrons; whether it be the politeness and attention
of an individual employee; the considerate handling
and prompt payment of a just claim; the furnishing
of a car with the promptness required to meet the
15
shipper's needs; or the correction of an inequality,
injustice or discrimination in rate adjustment. In¬
evitable failures to fully meet your expectations
will not be due to a lack of effort on our part, and you
may be assured that each discovered imperfection
will stimulate us to increased endeavor toward con¬
tinuous and progressive improvement.
It seems to me that the relations between The
National Industrial Traffic League and the railroad
officers should be conducted in a more direct and
intimate way. If it be found that equipment is not
being released by shippers as promptly as it might be,
or that cars are not be ing loaded as fully as they might
be, a direct or implied criticism from the housetops
should not be necessary, as the shippers fully realize
that their own interest in conserving the supply of
equipment is really paramount, and The National
Industrial Traffic League will be a ready and useful
medium through which the facts may be conveyed
to shippers, if brought to you in a more direct and
intimate way.
Likewise, the responsible traffic officers of the rail¬
roads and the traffic executive committees which have
been created will always welcome a direct expression
from The National Industrial Traffic League with
respect to any general policies that are being pursued
or that may be under consideration, and they will do
well to seek the counsel of such a representative
organization.
The National Industrial Traffic League and the
railroad officers of the country must not drift apart.
Never has there been so much in common between
the railroads and the users of the railroads, and their
mutual cooperation is indispensable. If you will
undertake on your part to perpetuate and strengthen
this cooperation, I pledge you my support of your
effort.
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