Evening star. [volume] (Washington, D.C.) 1854-1972, 1931-07-19
Authority on Carriers Issues
Warning That Their Credit
Must Be Preserved.
POINTS TO INVESTMENT
STANDING OF SECURITIES
Believes Shares May Take Lead
in Any Advance Of the
Stock Market.
Special Dispatch to The Star.

Special Dispatch to The Star.
NEW YORK. July 18.-The financial
structure Of the United States is vitality
interviewer with railway credit and any
developments adversely affecting the
carriers hurts the entire Nation, says
j. w. Barriger, vice president Of In
ternational Carriers, Ltd, one Of the
pioneer investment trusts holding Amer
lean and foreign railroad securities.
Shares Of International Carriers, Ltd,
are listed on the New York and Lon
don stock exchanges.
Mr.. Barriger former railroad man
recognized as one Of the foremost au-
thoritieS on railroad financing, has just
returned to Wall Street from a survey
covering $4,000 miles Of the railroads
in the United States. When asked to
express his views regarding conditions
as he found them, Mr.. Barriger pre-
pared the following statement, which
covers the whole railroad situation
today:
THE impression Is prevalent that
American railroads have suffered more
seriously from the inroads of COM
petitive transport than from the depres-
sion. This erroneous premise leads to
the false conclusion that when prosper
ity returns, the railroads will not share
in it, and railway securities, as a group,
have lost their sound investment merit.
Industrial Indices.
"Indices Of industrial production have
fallen of somewhat more severely than
transportation produced by railways.
While many industries have been shut
down or have suffered drastic curtail-
ment Of output, shipments Of goods
from stocks have gone on. The class
of trafic most subject to loss to COM
petitive transport. that is carload mer-
chandise freight actually has shown
greater stability than any other COM
modify group.
Railway traffic has been slightly
better sustained than general business,
and as the carriers have not suffered a
major dedation Of the structure Of
prices paid for their services, their gross
revenues make less unfavorable COM
pariSon with recent years OF prosperity
than do the revenues Of industry in
general.
"The railways have been conspicuous
ly successful in reducing expenses while
maintaining service and property con-
ditions at the highest standards and
thus have experienced q smaller con-
traction in gross income available for
distribution to capital than have the
industrials, as whole. However, the
capital investment in industrial COM
panies Is largely represented by equity
securities, whereas. over half Of rail-
way capital Is bonds. This results in q
pyramid form of financial structure
which causes very rapid contraction
of the earning power of the equity
when the gross income falls on ma
terially.
Since 1t Is this margin Of safety Of
the earning power of stock which de-
termines the credit rating Of the senior
securities, the latter become seriously
impaired in value through contract OF
net income even though the 1unda-
mental security Of principal and in
come remains above suspicion. Railway
stocks and bonds comprise the largest
and most important group Of corporate
securities and their fundamental invest
ment merit has led to their having long
been the major investment media for
institutional funds. Hence the financial
structure Of the country is vitality in
terwoven with railway credit Any
major problem adversely affecting the
railways has an immediate adverse re-
percussion upon the economic welfare
Of the entire Nation and it Is OF vital
concern to take whatever action is re-
quired to correct the situation promptly.
Earning Power Vital.
"The current curtailed railway in
come must be restored to re-establish
the earning power necessary to sustain
the credit of the carriers. This will re-
establish the value of outstanding Sc
curities and permit the issuance OF 9TH
ers to finance the capital Improvements
which are essential both from the
standpoint of railway service and gen.
eral business.
Earning power during a period OF
curtailed traffic may be restored by
either raising rate or reducing wages.
The fomer Is the solution sought and
request for a horizontal increase OF Is
per cent in freight rates Is now before
the commission. The outcome Is
obviously problematical as Is the date
when the decision will be rendered.
However, 1t Is reassuring to find that
financial observers who are seldom In
clined toward taking an encouraging
view believe the railways viii secure
rate relief.
Some have pointed out the apparent
inconsistency Of rate increases at a
time when commodity prices have
fallen SO sharply. However. it should
be recalled that regulation itself IS
fundamentally . contradiction OF
economic law.
Regulation prevents the law Of sup
ply and demand operating to the bene-
fit Of the railways when traffic Is NOV
ing freely and the carriers might
readily prepare themselves for lean
years by moderate upward revision OF
rates. Hence it but follows that being
denied the opportunity to build up cash
Surpluses during years when the trafhc
would easily permit, railway rates must
move against the trend and 60 up when
business, and with it wholesale prices,
go down. This Is part Of the history OF
rate regulation.
Being Americas largest and longest
industry and issuing weekly
reports of traffic and monthly state
ments Of income and expenses-there
Is more public knowledge OF railway
securities than Of any other group.
May Lead Advance.
Accordingly, they have been most
sensitive to the downward revision OF
security values. Railway shares have
so accurately reflected the market
trend that they have acquired re-
newed barometric significance. Rail-
roads being an industry which operate
on the familiar principle Of increasing
returns show magnified losses when
traffic commences to fall of, but this
same law creates q very bright picture
when conditions mend. There Is much
to justify the expectation that railway
shares will lead and not lag any adj
vance In the general market. The rail-
ways have been Signally successful in
reducing unit costs. The economics
achieved Aay be considered as perma-