# The Truth About The Railroads/Chapter 3

III
THE CONSERVATION OF RAILWAY SERVICE
It is a hopeful sign that our people have realized the necessity for the conservation of the resources of the country. We have realized, and in parts of the country realized too late, that our timber-supply is not inexhaustible. The lack of conservation of the soil in the South was indirectly one of the causes bringing on the Civil War, and the proper conservation of the soil is one of the great questions before the country to-day. Year after year the necessity of stopping waste in the mining of coal has been pointed out, and now the country is paying attention to the care of its water-power; at the same time we are told that there is a limit to the amount of iron ore that can be reclaimed.
In naming the soil, timber, coal, ore, and ​power, we name the chief sources from which come nearly everything that enters into industry and commerce. Proper conservation of these great sources of supply necessarily means conservation of the various complicated processes of industry and commerce. Interwoven with these is a service to which, so far as I know, the term conservation has never been applied, and to the conservation of which the people of this country are giving scant attention. Yet without that service our soil, timber, coal, and ore would be of little use. The impairment of that service means that the benefit to be derived from the conservation of soil, and timber, coal, and ore will be lost. This service is that of transportation, and in the United States that service is performed chiefly by the railways, because in their marvelous development they have shown a greater ability to perform it economically than has any other agency.
To conserve, as defined by the Standard Dictionary, means “to keep from loss, decay, or injury; especially, to preserve in its existing ​state, from change or destruction.” We do not, of course, desire to keep our ore and coal in their existing state, because they must be used, but this does not mean that coal deposits and ore deposits should be exploited in excess of need, nor that the processes of mining should be wasteful. With proper care, soil and timber can be so conserved that neither the farm nor the forest will be destroyed. The conservation of such resources as these is not my subject, and the attention of the country is well aroused to the importance of proper care of these great primary sources of prosperity.
To all the processes of industry and commerce, the service of transportation is essential, and it is a plain duty of the people of this country to keep the railways from “loss, decay, or injury,” and to preserve them from destruction. This duty falls first upon those charged directly with the ownership, administration, and management of the railways, and in these recent years of rising expenses and taxes they have been obliged to skimp at every corner in order to make both ends meet, while at the ​same time the rate of interest on new capital has gone up, and federal and state commissions have reduced rates. The people are beginning to realize the fact that railroad-owners and managers need help.
The following figures, covering all the railroads in the United States, taken from reports filed with the Interstate Commerce Commission for a term of years, are interesting:—
COMPARISON OF RESULTS FROM REPORTS TO INTERSTATE COMMERCE COMMISSION :
| | 1906–7 | 1909–10 | 1910–11 | 1911–12 |
| Average miles operated | 227,454 | 230,052 | 243,229 | 246,511 |
| Total operating revenue | $2,589,105,000 | $2,787,266,136 | $2,818,780,398 | $2,873,279,985 |
| Total operating expenses | 1,748,515,000 | 1,847,159,773 | 1,935,511,581 | 1,990,061,981 |
| Net operating revenue | 840,5990,000 | 940,076,363 | 883,268,817 | 882,218,004 |
| Net revenue from outside operations | ……… | 2,684,892 | 2,072538 | 1,243,319 |
| Taxes | 80,312,000 | 104,144,076 | 103,108,490 | 121,797,743 |
| Net operating income | 760,278,000 | 838,617,180 | 776,232,865 | 762,663,579 |
For the year ending June 30, 1912 on 246,511 miles of railway the owners of the property received only two and one half million dollars ​more income than they did for the year ending June 30, 1907, on nearly 20,000 less miles of railroad. On a per-mile basis, the comparison is even more striking. The net operating income per mile of road after paying taxes was: —
| For the year ending June 30, 1907 | $3,342 |
| For the year ending June 30, 1910 | 3,508 |
| For the year ending June 30, 1911 | 3,188 |
| For the year ending June 30, 1912 | 3,094 |
and in the mean time the owners have put millions upon millions into improvements on existing roads, in addition to creating nearly 20,000 miles of new road. It is well, therefore, to bear in mind that in the railway business large increases in amount of property and in gross earnings do not necessarily mean increases in net earnings.
But the public may say that seven hundred and sixty millions of dollars is a staggering sum for the owners of railway property to receive, and that they are well paid. In the report of the Railway Securities Commission appointed by Mr. Taft, which made a most exhaustive examination of the whole subject of railway ​capitalization and the returns thereon, occurs the following paragraph:—
“Neither the rate of return actually received on the par value of American railroad bonds and stocks to-day, nor the security which can be offered for additional railroad investments in the future will make it easy to raise the needed amount of capital. The ratio of interest and dividends to outstanding bonds and stocks of American railroads is not quite 4½ per cent. In each case the average ratio of dividends to the capital of national banks is between 10 and 11 per cent. There is a widespread belief based on imperfect examination of the evidence that the amount of capital needed for the future development of our railroad system is small in proportion to that which has been required in the past; that the profits on such added investments of capital are reasonably well insured, and that we can therefore fix attention predominantly if not exclusively on the needs of the shipper without interfering with the necessary supply of new money from the investors.”
​In answer to this the public may say that the low return of 4½ per cent is applied to a capitalization that is unfair. Valuations of railway property have been made in a number of States by public authorities, with the result that in the States of Washington, South Dakota, Michigan, Minnesota, and Wisconsin the figures for the value of the railway property were $1,211,806,522 as compared with the aggregate gross capitalization of $1,210,999,033. In Minnesota the State made a valuation of the property of the Northern Pacific, Great Northern, and Minneapolis & St. Louis roads of $193,094,302, while the capitalization for the three roads in Minnesota was $155,051,909. Here are a few cases where governmental authority has made a valuation of the railroads, and in every case the value is more than the capitalization. Taking the country as a whole, there is no doubt but that the railroad properties to-day as going concerns are worth more than the par value of the capital standing in the hands of the public.
In all business transactions there are at ​least two parties, and if business is to succeed, there must be coöperation, fairness, and justice from each to the other. In the current talk of the day there are the Government and the railways, the people and the railways, the employees and the railways, and the shippers and the railways. And the railways, in a way, are under fire from the four great forces, the Government, the people, the employees, and the shippers.
Without attempting a long discussion over old contentions, or looking back to what the people ought to have done or what the railways ought not to have done in the past, I want to call your attention to some things in which the people, who need and use the railways, for whose service the railways are created, and who regulate the railways, can, with fairness and justice to themselves, be of assistance in conserving railway service for the common good.
The most important service performed by the railways is the transportation of freight. Not everybody has to travel, but everybody ​must have food, clothing, shelter, and fuel, and nearly all of the food, clothing, shelter, and fuel of the people of this country is carried all or part of the way from producer to consumer in freight-cars. The use that the railways make of their cars is, therefore, of the utmost importance, not only to the railways but to the people. When a freight-car is standing still, it is doing no good to the railway or to the people, but the railways have had to pay for that car, and a part of their capital is invested in it. When it is standing still, it is not earning anything on that capital, and as the capital of the railways is a part of the national wealth, the usefulness of the national wealth is impaired by the loss incurred through the idleness of the car. When a freight-car is waiting to be loaded by a shipper, or when it is waiting to be unloaded by a consignee, that car is not in the service of the people, whose demand for transportation is now in excess of the capacity of the railways to supply.
It would be a very happy condition if the ​railways always had enough cars, so that they could supply every shipper with an empty car whenever he wanted it and just as soon as he wanted it. They have not enough cars to meet this requirement at times of the heaviest business in the country, and it is not their fault that they have not. In fact, it would be an economic waste, taking the country as a whole, to have enough cars for the very highest amount of business; this would mean that many cars would be idle for several months of the year. There would be too much idle capital in such a plan.
On December 31, 1911, there were 2,160,408 freight-cars in the United States. At $800 a car this means a capital investment of $1,728,326,400. If this large amount of capital is not used steadily and economically, there is direct loss to the business of the country. But remember that the very livelihood of a railway company depends upon its obtaining the utmost possible service from its freight-cars, and there is no phase of operation to which a railway-manager gives more attention than to the ​most effective distribution and prompt handling of equipment. Every now and then there is complaint of a coal famine, and that there are not cars enough to move the coal-supply. In reply to such complaints, the railways say, with some justice, that if users of coal defer their orders until cold weather, they cannot reasonably expect the railways to move in a few weeks the coal which should have been shipped during a period of months and stored in yards or bins at various points of consumption. Crowding the shipments into a short period of time creates car-shortage and a congestion on tracks and in yards.
No less than shippers in the prompt loading of cars, can those who receive freight conserve railway service, and therefore the national wealth, by promptly unloading shipments received in carloads, and by promptly removing their freight from the station sheds when it comes in less than carloads. Carelessness about this is one of the evils at which the railways in former times connived under stress of competition. There was a time when a ​comsignee was allowed to hold a car as long as he liked. The retail dealer who received a car of coal used it as a warehouse until little by little the contents were sold. A factory receiving carloads of coal, cement, lime, lumber, or any other article, kept the cars on its sidings until the contents were needed. And so it has been with dealers in hay and grain and fruit and vegetables. That is, freight-cars were held and used as warehouses, thus preventing the use of the same car for its proper purposes. Such practice is most wasteful, and demurrage charges have been established in the hope that cars would be released more promptly. In the United States, as a rule, consignees are now allowed forty-eight hours In which to unload cars before any demurrage charge begins. In Germany, in times of increased business, consignees are obliged by a strictly enforced law to unload their cars within six hours. Notwithstanding this allowance of free time, which is more liberal in the United States than in any other country, commercial customs have grown up so that cars are retained at ​large terminals, and even at country stations, beyond the expiration of this time, being used as storage warehouses. This practice is expensive to the railways, because the demurrage payment does not begin to pay for the idleness of the car; and it is expensive for the shipping public, because it reduces the carrying capacity of the railways as a whole.
The owners of freight, therefore, have a responsibility for creating suitable facilities for loading and unloading freight promptly and for warehousing it in structures of their own, rather than in railway-cars, because the railway-car is the most expensive warehouse that can be used. A box- or a coal-car costs from $700 to $1000, and a refrigerator-car costs from $1200 to $1500. When one of these cars is placed upon a team-track in Minneapolis, for example, so that hay or grain or coal or fruit or meat can be unloaded, a piece of land sufficiently large for the car and team must be occupied, or at least 900 square feet. This land is generally in a part of the city where real estate is valuable and is worth from ​$1 to $5 a square foot. For the sake of example, say it is worth $2 a square foot, making the ground worth $1800. Here, then, is an investment for car and land of from $2500 to $3300. There are from 2500 to 3000 cubic feet of storage in a car, so that this storage space represents a capital investment of from $1 to $1.33 a cubic foot. A good warehouse several stories high could be built, using the same land area over and over again, for very much less per cubic foot, so that present commercial customs of permitting freight to be warehoused in cars are resulting in a serious economic waste to the country as a whole as well as to the railroads. Prompt loading and unloading of freight-cars is one way in which owners of freight can conserve railway service and in the long run help themselves.
The conservation of railway service has yet larger aspects. The moving of a freight-car from the place of shipment to its destination is the duty of the railway company, but it cannot perform that duty without adequate facilities. These facilities cannot be obtained unless the ​people of the country allow the railways such earnings as will enable them, not only to pay their expenses, but to attract the capital needed for the provision of such facilities, and for their extension to meet the demands of our growing country.
For the prompt movement of business, not only cars are necessary, but locomotives, sufficient trackage to move trains without delay, and terminal yards through which cars may be handled promptly, made up into trains, and dispatched. It has not been many years since there were more railway-tracks, more cars, and more locomotives than were needed, but now the situation has changed. In this rapidly developing country five years makes a difference, and ten years makes a very large difference.
Mr. William M. Acworth is a noted English authority on railway economics. About a year ago he said: “You American railroad officials ought to stop talking about double-tracking your roads as if that were the end of the improvement. The time will come when you ​will have not only double tracks, but you will have four, six, eight, ten, twelve tracks. We are at that stage in England to-day, and yet the railroad problem in England is nothing compared with the United States. Here your distances are so great, you have so far to move your traffic to get it to water, that it will become so dense that you will wonder why you talked about double tracks at all.”
Those of us who believe in the great growth of the United States realize that Mr. Acworth has not overdrawn the picture, and we realize how tremendous the problem is to get the money with which to do all the things that should be done in the way of giving safe and adequate transportation facilities.
Mr. Samuel W. Fairchild, Chairman of the Committee on Internal Trade and Improvements of the New York Chamber of Commerce, recently presented a very luminous report about the railroad situation. He says:—
“It is estimated that it will require in the next five years, to maintain railroad facilities equal to the enormous traffic of the country, ​the immense sum of $8,500,000,000. Some idea of the magnitude of this sum may be had from the fact that it is eight times the national debt, it is more than two and a half times the amount of money in circulation, it is equal to all the deposits in the national and state banks, and nearly equal to the entire money value of all the farm products of the country in one year. It is over three times the annual gross revenue of the railroads, and it amounts to nearly one half of the existing railway capital represented by stocks and bonds. The question of obtaining the $8,500,000,000 necessary to make railroad facilities equal to the expanding traffic of the country during the next five years, therefore, constitutes the most important problem now confronting business men.”
I have already quoted from the report of the Railway Securities Commission, showing the low rate of return on railway investments. That same Commission says: “A reasonable return is one which, under honest accounting and responsible management, will attract the ​amount of investors’ money needed for the development of our railroad facilities. If rates are going to be reduced whenever dividends exceed current rates of interest, investors will seek other fields where the hazard is less or the opportunity greater.” And again: “The necessary development of railroad facilities is now endangered by the reluctance of investors to purchase new issues of railroad securities in the amounts required. This reluctance is likely to continue until the American public understands the essential community of interest between shipper and investor and the folly of attempting to protect the one by taking away the rewards of good management from the other.” Mr. Fairchild, also, whom I have previously quoted, points out that the time has arrived when there should be some support of the railroads.
That the railways have been falling behind the business of the country is shown by statistics from the reports of the Bureau of Census and of the Interstate Commerce Commission. In the United States the value of the railways ​increased only about half as fast as the value of all property during the fifteen years from 1890 to 1904. In 1910 the capital value of agricultural property throughout the United States was 100.5 per cent greater than in 1900; the capital value of manufacturing property 105.3 per cent greater; but the cost of road and equipment of the railways was but 40.2 per cent greater. By capital value is meant book value, and not capitalization. For the ten years ending in 1910 there was an increase of 81.2 per cent in the gross value of manufactured products, with an increase of 105.3 per cent in manufacturing capital. During the same time there was an increase of 85 per cent in the total operating revenues of the railways, accompanied by an increase of only 40.2 per cent in the cost of road and equipment. This indicates that the railways are exhausting that margin of elasticity which they ought always to preserve in order to meet the demands of growing business like that of the present. It is to the interest of the people as a whole that the railways be kept at all times in a condition of ​“readiness to serve” and with an ability to carry the “peak load” without breakdown.
The percentage of net return on the capital value of the manufacturing industry was over twice as great in 1910 as the percentage of the net return on the cost of road and equipment of the railways. This disparity between the growth in capital value of agriculture and the capital value of the railways is greatest in that portion of the West where great extension of the railways and an increase in their facilities is necessary to keep them equal to the rapidly developing business. In 1910 in Colorado the value of farm lands and buildings was 284.1 per cent greater than in 1900; in Idaho, 479.1 per cent greater; in Montana, 305.7 per cent greater; in North Dakota, 313.9 per cent greater; in Oregon, 244.3 per cent greater; in South Dakota, 356.6 per cent greater; in Washington, 394.7 per cent greater; in Wyoming, 263.1 per cent greater. Yet in this time the gross capitalization of the railways in this western section increased no more than from 53 per cent in that district which includes the ​Dakotas to 87 per cent in that district which includes Wyoming and Montana.
The saying that you cannot “eat your cake and have it too” is true of the railroads and the people to-day. We cannot have the good service and facilities that we need, give employees the increasing wages they demand, pay the higher taxes imposed, keep rates down, and even reduce them farther; we cannot do all these things and still find investors who will furnish money for increased facilities.
The conservation of railway service is a great national question; the owners and managers of the railways are doing all they can, but the people must help. So while so much is being said and done about conservation of soil, of forest, of agriculture, of the boy and girl, and of human life, a little thought and attention should be given to the urgent necessity for the conservation of railway service. It must be protected and kept “from loss, decay, or injury.” Without proper conservation of this great service which supplements all the others, development will be checked. ​It is idle to blame the present owners and managers of the properties for errors of the past; the present and the future are the important points to consider.
The old nursery rhyme reads:—
“Old Mother Hubbard, Went to the cupboard, To get her poor dog a bone. But when she got there. The cupboard was bare, And so the poor dog got none.”
Uncle Sam should study his transportation machine and understand it better, and take steps to conserve it. If he does not he may find that in an effort to have cheap transportation he has not enough transportation, that his “cupboard is bare,” and that it will take him a very long time and a vast amount of money to get it well equipped again.