Evening star., 1938-06-08
RAIL CRISIS LAID
TO TRAFFIC DROP
Decline in Average Revenue
Per Ton Mile Also Cited
by M. J. GormIey.
Specia nispa tch to The Star.

by M. J. GormIey.
Special Dispatch to The Star.
HOUSTON, Tex. June 8.-The
present critical financial condition of
the railroads is largely due to heavy
decrease in traffic and reduction in
the average revenue received for car
rying a ton of freight mile. M. J
Gormley, executive assistant, Associa-
ton of American Railroads, said to-
day in an address before the Kiwanis
Club here.
Mr. Gormley said the situation is
not due to any failure on the part
of the railroads to increase their eff
cheney and economy in operation or
to their fixed charges. which charges
are now less than In the years OF
greatest railroad prosperity.
'Since 1921" Mr.. Gormley said,
"there has been a decline in the ton
mile revenue, the average revenue in
1887 for carrying a ton of freight l
mile having been 0935 cents, compared
with 1.275 cents in 1921, or a reduc-
ton Of 26.7 per cent. This means
that II the same ton-mile revenue had
been in effect in 1887 as in 1921. rail-
way earnings would have been greater
by $1,226, 600, 900.
Started in 1922.
The drop in ton-mile revenue
started with the general rate reduc-
ton of 10 per cent in 1922. The rail-
roads are partly responsible for this.
by reason Of the fact that they made
a voluntary reduction of that amount
on agricultural. products. This was
followed. however, by an order of the
Interstate Commerce Commission re-
ducing all rates 10 per cent.
Time has proven that this reduc-
ton was very serious mistake. 1t
should have been well known at the
time the reduction became effective
on July 1. 1922, that it was necessary
for the railroads to increase and i'm
prove their equipment if the antici-
pated traf1c was to be properly han
died. The commission had plenty of
evidence Of this by reason of the in
sufhciency Of transportation in 1920.
In TACT. the commission on December
II. 1922, instituted general investi-
gaton concerning the adequacy of the
supply OF locomotives and freight cars
owned or used by the railroads. Why
reduction was made in the revenues
OF the carriers in the face of these
WeH-known facts is one of the mys-
teries of regulation"
Mr.. Gormley said the railroads were
SO concerned about this situation that
tney adopted in 1923 joint program
Tor the rehabilitation of the railroads
as the result of which they have snenr
approximately $1,000 900 900 to i'm
prove transportation service and re-
duce cost.
Shortages Eliminated,
"AS the result of these exnendi-
tures,' Mr. Gormley continued. 1.-THE
railroads have eliminated all car
shortages since 1928 and have pro-
vided the best transportation service
ever furnished the public in this
country. They also were able to hiring
ABOUT reduction in their. operating
cost best indicated by the fact that
II the 1887 traffic had been handled
on the 1928 unit basis cost, the cost
OF producing that service in 1897
would have been $500, o,742, 900 greater
than 1t actually was.
In spite of this record the reve-
nues OF the railroads today as q whole
are too low. This Is not due to anv
failure on their part to increase their
efficiency and economy in operation,
but is due largely to a heavy decrease
in traffic and a reduction in the ton
mile revenue"
Mr.. Gormley said that 81 Glass I
railroads are now in the hands of the
courts Thirty-four of these COM
panies. operating 1884 miles of road,
have become insolvent since 1929.
These "a carriers" Mr.. Gormley
added, reported a failure to earn
fixed charges for the calendar year
preceding receivership or trusteeship
by an aggregate of $78,577 900. Had
each of the "a companies continued to
receive the average revenue per ton
mile that was in effect in 1921, they
as a whole would have reported a
net income after fixed charges of
about $80,000,000. This does not
mean that each of the "a companies
would have avoided bankruptcy. but
large majority would
Urges Higher Rates.
"The money to be saved by consoli-
dations, combinations or any other
method, including such reduction in
fixed charges as may result from re-
organizations now in progress, is i'm
portant but will never solve the
railroad problem and put the railroads
on a basis where this continued un-
settled state Of the financial condi-
tionS Of the carriers will be removed
1t can only be done by an increase in
the price Of transportation. That
increase is just as badly needed by the
competitors Of the railroads as the
railroads themselves.
The statement is often made and,
certainly, without complete knowledge
OF the facts, that the solution Of the
railroad problem is in a large reduc-
ton in their fixed charges oy putting
them through the so-called wringer.
The relative burden of fixed charges
is less today than in the years Of
greatest railroad prosperity and is
considerably less than in any year
prior to 1917"
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