Evening star., 1932-10-10
RAILROAD ECONOMY
WILL AID Credit
Managements Of Carriers
Must Reduce Operating
Expenses, Says Observer.
BY CHARLES F. SPEARE.
scial DISPATCH To The Star

Special Dispatch to The Star.
NEW YORK, October 10.-There has
never been any doubt in this observer S
mind that the railroads would come
through their financial and traffic diff
ncultieS and that they would continue
to be the primary transportation agency
OF this country.
The low prices to which their securi-
ties declined early this year was phase
of the defeatist philosophy held by
large bodies Of security holders and en-
couraged by arguments Of many with
no conception, from study or travel, of
the scope of the American railroad sys-
tenn and the extent to which it is en-
trenched in the traffic centers of the
United States. 1t may also be said that
Whatever indications of future Govern
ment control or operation there may
nave been some months ago, these are
disappearing with the activities both of
railroad managers and of groups of rail-
road security holders to remove the
causes OF reduced net operating income
and stabilize the credit of the carriers.
Managements on Trial.
If the railroads of this country are
to be saved, their salvation must be ef-
1ected by their arrangements and by
their owners. Their stake in the situ-
alton is greater than that of any others.
Consequently they must do most to
protect 1t. This means that there must
be more cooperation on the part of
operating officials and more concessions
by holders of railroad securities. In
the East the former may be developed
out of the consolidation of the four
trunk lines; in the West by the appoint
ment OF "cZar" to act as an umpire
between roads that today are unneces-
E9ri1V Cip1jrichinn $lair
nueS by 1nslStence on services dispro-
portionate to the business in their ter
rltory and by various concessions to
shippers. producing the same effect on
rates as grow out of a direct cut in
their tariffs. It is possible to visualize
such correction of present day meth
odS as would save the carriers west of
the Mississippi an annual equivalent in
dollars equal to that from the various
consultations that have, from time to
time, been advocated for that section.
Necessity for this is even greater to-
day than ever before. as it is not rea-
sonable to expect that the present
schedules OF freight rates can continue
to stand up in the face of increasing
competition from other types of carriers
or against the common trend of COM
modify prices. Wherever and whenever
there Is resistance to the current rates
OF railroad wages there will be a cor
responding attempt to reduce the rates
for railroad services Horizontal in
creases in rates, that have temporarily
allevlated the credit position of the
railroads. are not likely to be repeated.
as they have been shown to be eco
nomically unsound since the last grant
OF this sort was made by the Inter-
state Commerce Commission in 1891
The compensations from this increase
nave been small in proportion to ex-
pectatlons. The principle of diminish
Ing returns from inflated rates has
worked out with considerable precision
IN this case.
Rate Reduction Needed.
1t has already been proved that in
order to attract passenger patronage
both OF long haul and short haul
character, rates must be materially re-
ouced and efforts made along the line
OF mass production of traffic at
slight return per passenger mile.
In view of the wave of economy
spreading over the country, with Quick
est and most positive results in local
administrations, relief from the heavy
load OF taxation may be sufficient to
compensate for the inevitable reduction
IN railroad rates. This and the bene-
nts OF greater coordination and CO.
operation between systems now engaged
In a ruinous competition and the SYM
pathy of legislative bodies toward the
railroad problem, as well as a check
on their financial operations by inter-
ested groups of security owners, hold
out the greatest promise for offsetting
permanent loss in earning power due
to competition with outside agencies.
The situation is not one that iusti-
fies the fear of an era of general re-
ceivership If it Is properly handled. Il
does involve the possibility of several
receiverships which could be limited
In their sentimental effect. It is nee
essary that the holder of railroad Junior
bonds show willingness to make a
concession to the permanently dimin-
1shed return on securities that were
created when there was no active COM
petitor to the steam carriers. This
competition today and tomorrow will
make unproductive thousands of miles
of branch lines, with all of their ap-
purtenances, as we'll as tie up great
deal of capital in surplus railroad
equipment.
Good grades of railroad bonds will
remain good. Moderately capitalized
railroads will pay moderate dividends.
Railroad securities will, more than
ever, become members Of an invest
ment rather than a speculative class
as. in the next few years, the various
efforts to solidify credit. rather than to
expand profits to shareholders, are
actively promoted.
(Copyright, 1927