Institute of American Business
PUBLIC QUESTION SERIES
THE TRANSPORTATION ACT
Shall We Scrap It, or Give
Its Provisions a Fair Trial?
S. Davies Warfield Urges Cooperation Among Railroad
Executives in Securing Economies and Service
Possible of Attainment Under the Existing Law
*8?
ISSUED BY
THE INSTITUTE of AMERICAN BUSINESS
NEW YORK
Foreword
The Transportation Act of 1920 has become a major economic
issue. There are already many indications it will figure prominently
in the campaign of 1924.
A number of railroad executives in their annual reports have re¬
cently called upon the public to assist them in preserving the Act.
On the other hand, various organizations as well as a number of
men prominent in public life, have insisted that the Transportation
Act be repealed.
A position of more than equal interest has been stated by Mr. S.
Da vies Warfield, President of the Seaboard Air Line Railway, who in
his recent annual report to Seaboard stockholders, suggests that the
sensible thing to do with reference to the Transportation Act is for
the railroads to live up to the provisions of the Act Congress coupled
with the provisions the railroads now ask to be retained.
For two provisions of the Transportation Act—the ratemaking-
revenue section and the one giving the Interstate Commerce Commis¬
sion power to pool railroad equipment in emergencies and to make
arrangements for the joint use of facilities and equipment—Mr. War-
field and the National Association of Owners of Railroad Securities,
of which he is president, are mainly responsible.
The activities of Mr. Warfield in public and financial matters and
his large experience in rail transportation has afforded him unusual
opportunities for reaching conclusions respecting the present crisis.
He early took the position, which he has steadily maintained, that the
railroads are inter-dependent, each forming a part of a National system
of transportation and that adequate service and economic administra¬
tion can only be obtained through full recognition of these conditions.
As a corrolary of this principle, which has been enacted into law
and confirmed by the Supreme Court in the Wisconsin passenger fare
case, Mr. Warfield has contended for greater economies to the public
and to the shipper through an increased joint use of railroad terminals
and facilities. He holds that the emergencies of car shortage, which
the carriers now ask the Commission to relieve, could be permanently
avoided by common agreement among the railroads to pool cars of
agreed classes.
The services rendered by Mr. Warfield in the settlement of the
shopcrafts strike of last summer are still too fresh in the public mind
to need more than passing mention. He has broadly met the railroad
problem from the public standpoint, and to its various phases he brings
courage, energy and practical experience.
Mr. Warfield's suggestion, therefore, that the railroads are not
meeting their responsibilities under provisions of the Transportation
Act while asking that the Act be not amended, is not one that can be
lightly dismissed.
THE RAILROADS AND THE TRANS¬
PORTATION ACT
From the Annual Report of S. Davies War field, President
of the Seaboard Air Line Railway, to the stockholders of
that Company, May 21, 1923.
The Transportation
Act Imperiled
The Presidents of prominent railroads, in their annual reports,
recently called upon their stockholders to aid in requesting the next
Congress to preserve the Transportation Act of 1920 without amend¬
ment. This endorsement of the Act has particular reference to the
ratemaking-revenue and other provisions that were initiated and laid
before Congress by the National Association of Owners of Railroad
Securities of which your President is also President. This recognition
of the wisdom of your management in supporting the efforts of this
Association from the beginning should be gratifying to the stockholders
of this Company.
Railroad executives now urging endorsement of the Transporta¬
tion Act having opposed these fundamental provisions when originally
laid before Congress evidence a broad conception of duty, and the
stockholders of the Seaboard Air Line are asked to cooperate with
the security owners of those and other railroads in impressing upon
the new Congress the importance of maintaining the Transportation
Act, particularly in these essential features.
But while the cooperation of railroad stockholders is being re¬
quested in opposing amendments to fundamental features of the Trans¬
portation Act, the responsibilities Congress imposed upon the railroads
in that Act should not be lost sight of.
The ratemaking-revenue and other features of the Act,
now receiving the endorsement of the railroads, were granted
by Congress in recognition of the relation that one railroad
bears to another, each a part of a National system of trans¬
portation composed of a large number of individual railroads,
necessarily dependent upon each other.
Obligations laid
on the Railroads
Congress, therefore, in connection with the provisions named, spe¬
cifically provided in the Act that these nnter-carrier relations must be
also recognized by the railroads by bringing about the joint use of such
railroad equipment and facilities, without respect to ownership, that
would produce better service at reduced cost. The Interstate Com¬
merce Commission was accordingly authorized by the Act to provide
for joint facility uses and was empowered to name the terms and con¬
ditions under which they were to be brought about in default of agree¬
ment among the railroads.
Will not Congress, therefore, expect cooperation from the rail¬
roads in carrying out the constructive program required by the Act,
of which the ratemaking-revenue and the other provisions referred to
are only apart?
Can the railroads expect to continue in the enjoyment of the par¬
ticular provisions of the Act mentioned unless Congress can be assured
of the purpose and offered the means to carry out the intent of the
other provisions?
Can stockholders ask Congress to preserve the legislative railroad
status quo that is now being urged unless such assurances are given ?
Intent of the Law
Still Disregarded
Many instances are before the country—only recently serious
litigation was begun between a number of the more important carriers—
that give evidence of the lack of those inter-relations among the rail¬
roads which Congress expected the Transportation Act to establish,
essential to their own success and to economical and adequate trans¬
portation.
In asking cooperation to secure a fair trial of the Transportation
Act as it now stands, should the stockholders not be placed in position
to satisfactorily answer Members of Congress as to whether there is
an organization of the railroads such as will bring about the joint
facility uses Congress has required in the same Act containing the
provisions the carriers now ask to be let alone.
Being intimately associated with representations made before Con¬
gress when this legislation was advocated, your President feels that
the railroads cannot successfully ask for the preservation of one part
of the Act while avoiding the responsibilities entailed under the pro¬
visions of another part.
* * *
Serious Issues Raised in Plan for Consolidations
The stockholders of this Company have doubtless considered the
questions involved in the section of the Transportation Act that re¬
quires the Interstate Commerce Commission to make and promulgate
a plan for the consolidation of all the railroads of the country into a
few (in contemplation fifteen) large systems; that thereafter no rail¬
road will be permitted to consolidate with another unless conforming
to the plan determined by the Commission.
This policy presents two fundamental questions which
the public, as well as stockholders and security owners of all
railroads, should consider:
First, should not railroads be permitted to consolidate
from time to time under such plans or conditions as are proven
to be in the public interest and such as would be approved by
the Interstate Commerce Commission without respect to any
particular plan that may have been or be promulgated by that
body or by any other body ?
Second, are not the questions incident to the taking of
property involved such as may invite long litigation should
there be an attempted enforced consolidation of the railroads
of the country into a few very large systems limited to the
Commission's present ideas, as anticipated under the terms of
the Act or as it may be hereafter amended ?
Nation Developed
by Individual Initiative
This country was developed, in industry, in agriculture, and in
every pursuit of business, through the full play of incentive and initia¬
tive that has made our rapid development the wonder of the world.
When it is considered that two-thirds of the country's area yet awaits
to be fully developed, is it not well to carefully consider what would
be the effect of the proposed curtailment of railroad effort and facilities
upon further development?
Great seaports, commercial, manufacturing, mining and agricul¬
tural centers and communities have been built through the energy of
the developers of railroads, wherein they have located large under¬
takings in their constructive plans; their shops and other facilities for
the intense development of their territory. What effect will follow
the withdrawal of the policies—incident to the development of an in¬
dividual system of railroad—which have built up great commercial
and manufacturing centers should have serious consideration.
Permissive consolidations should be encouraged and take place as
necessity for them is proven. But the complete reversal of policy of
development proposed under the new order should give pause, at least
until the opportunity is afforded to work out the desired service and
economies through the establishment of the means to obtain more
extended use of existing facilities rather than bring about their en¬
forced concentration.
No Immediate Relief
Provided by Consolidations
The consolidation of all the railroads into, say, fifteen large sys¬
tems, concentrates the facilities of the hundreds of carriers that would
form these systems into fifteen "pools"; of cars, locomotives, terminals,
freight yards and other facilities formerly owned and operated by the
respective carriers. The railroads could bring about these joint uses
to a greater extent by common agreement to pool freight cars and as
to other joint uses, than would be attained through the enforced large
consolidation of the railroad corporations, such as is now proposed,
which in any event would require years to consummate. These con¬
solidations are to be based on the valuation now proceeding by the
Commission; and securities would be issued on that valuation.
The results hoped for could be largely and certainly more rapidly
attained without impairing the incentive and individual effort which has
been the mam factor in developing this country to an extent greater
than any other.
We have been compared with England in her recent plans of
consolidation. The State of Texas alone has a greater area of un¬
developed territory than the area of the entire British Isles; no com¬
parison can be made. England's available lands are settled, America's
are not; England is developed, the United States is not.
There is no insistent demand for the proposed large consolidations
excepting from those who find unwillingness on the part of the
railroads to fully cooperate with one another and see no means to secure
the economic results and service sought to be attained, other than
through consolidation. This is a tenable position and cannot be met
otherwise than by immediately establishing such a railroad agency as
would be empowered to bring about the joint facility uses that are
contemplated through corporate consolidation.
Railroad Isolation
No Longer Possible
When the railroads agreed upon the universal adoption of the
standard gauge of track long ago, their isolation ended; therefore, the
proposal to more intensively apply the relation of joint use of facilities
is neither novel nor radical. The requirements on an ordinary box
car are as universal as were those leading to the adoption of the stand¬
ard gauge for all tracks to enable such cars to be operated in the ex¬
change of traffic between carriers. Should ownership of such cars be
permitted to curtail their equitable distribution in the promotion of
service and economy?
The railroad agency proposed should be established by Congress
to bring about such inter-carrier relations as would make effective the
coordination of facilities, which from necessity should be the fore¬
runner to any consolidations such as would be proven to be in the
public interest. It is stated that it would require from five to ten years
to consummate the large consolidations proposed; so such an agency
in any event is necessary.
Watchful Waiting will
not Solve problem
These facts are presented in view of the critical conditions sur¬
rounding transportation legislation. The country is on notice that
Congress will legislate in respect to the railroads at the coming session.
Shall constructive measures be suggested to Congress to fully carry out
the purposes and intent of the Transportation Act of 1920 as to joint
facility uses—consolidations to be made permissive—and such as should
lead to the retention of those fundamental features in the Act for
which the railroads now appeal; or shall the railroads wait and see
what happens?
Your President believes that the railroad executives would as¬
sume a great personal responsibility in insisting upon a policy of watch¬
ful waiting in a legislative crisis. Such a policy would prove a ierious
menace to private operation, and there would eventually be greater
reasons for its reversal by the executives than in the case of the reversal
of their former opposition to the fundamental provisions of the Trans¬
portation Act, to which allusion has been made; but may not the time
and opportunity have passed?
The Association of security owners has offered constructive sug¬
gestions in the particulars discussed. A Conference Committee of
Eight has been appointed by the railroads to meet a Conference Com¬
mittee appointed by the Association of security owners. It is hoped
that a satisfactory result may be reached.