Trains

SENSATIONAL journalism is not our bent, so we were obliged to take issue recently with a reader, newly employed by Santa Fe, who felt that we've been painting an unnecessarily black picture of the industry in these columns. Quite naturally impressed by the Atchison's plant and vigor, he felt that it would be proper for us to accent the positive and eliminate the negative. It struck us that a few questions and answers might clarify the railroad scene as we enter 1962. For instance:

Is railroading in trouble or actually on the brink of bankruptcy?

Somewhere in between. Last year the railroads' rate of return on net investment (which has been sliding without respite since 1955) was 1.97 per cent. not only their poorest performance since 1938 but only a hair better than the 1931-1935 depression years' average of 1.94 per cent. No other major industry earns so little on its property.

But doesn't regional performance vary widely?

Yes. But the individual trends remain the same. Also, though there are more than 100 class 1 railroads with revenues of 4 million dollars a year or more, all are interdependent members through freight-car interchange of an industry doing a 48-state-wide business. It is surely unrealistic to assume that Government would nationalize on a piecemeal basis should the roads in the East collapse, say, even though those in the West retained their solvency. Publicly owned CN and privately owned CP do coexist in Canada but scarcely to the advantage of either. Anyway, the regional rates of return on investment are these:

Is management largely responsible for I the relatively poor showing of the East?

As a rule, no. Indeed, Eastern railroads consistently earned more than the industry average until World War II. The Eastern decline of our time is attributed to many things. Eastern roads carry more passengers and, because of the proximity of population centers, maintain more freight yards; both circumstances boost payroll costs which, in the East, account for 52.4 cents out of each revenue dollar vs. 49.9 cents for the U. S. as a whole. Taxes are higher in the East, so high in New Jersey, for example, that not a

single road can make money on its intrastate operations there. Again, the East is heavily dependent upon the steel mills which in turn (1) have suffered from foreign competition in recent years, and (2) possess greater access to river, lake, and highway carriers than mills elsewhere. Finally, the East as a region has not experienced the postwar economic growth of other areas such as the Far West, South, and Gulf Coast.

But didn't a third of U. S. mileage enter bankruptcy during the depression and recover?

Yes but then the entire nation, not just the railroads, was in economic trouble. Investors bought the securities of reorganized lines on the assumption that their future earnings would parallel national recovery. Today it's different. No internal financial revamp of New Haven, for example, can possibly alter the external circumstances which forced it into bankruptcy last year.

What price mergers?

They could effect very real savings by elimination of either duplicating or unnecessary plant (e.g., 10 per cent of rail route-miles in the U. S. carry half our ton-miles). Annual pre-tax savings of the five big mergers which the I.C.C. is hearing or soon will (i.e., NYC+PRR, the Hill Lines, C&O+B&O, Coast LineSeaboard, and N&W-NKP-Wabash) would total at least 225 million dollars. Total railroad net income for all roads last year was only 390 million. Yet it is doubtful if any large merger will receive an I.C.C. permit before the last half of this year if then. The Commission itself seems favorably inclined but the Justice Department, Brotherhoods, and many Congressmen seem dead set against almost any consolidation proposal, and the railroads have not helped themselves by defaulting on a common-sense over-all merger blueprint in favor of voluntary marriages that often as not tread on too many toes. Mergers, then, are fine in principle but hard to practice. Also, unless the basic ills of railroading are resolved, merger savings will eventually evaporate into the same inflationary spiral that exhausted diesel savings. Who can save the industry?

Congress. The legislative branch of the Federal Government could ease or resolve the railroad dilemma this year by tightening up on private transportation and instructing the I.C.C. to regulate all common carriers alike as well as less; imposing user-charges on Governmentsponsored transport facilities; and/or allowing the creation of total transportation companies which could operate air, rail, road, and water services. Yet Congress, with little if any instruction from three

UNSCHEDULED STOP

My favorite story about the great trai Art Dubin chronicles on pages 16-33 con cerns my grandfather, Dr. G. Campbel Morgan, who traveled the length an breadth of the continent in the 1920's in conference work as a Bible expositor. Hi home at that time was Winona Lake, Ind site of the great church encampmen grounds, and once he had occasion to dis cuss New York travel plans with the evan gelist Billy Sunday. "Come along wit me," said Billy. "I'm catching the Broad way." Impossible! PRR's finest didn' pause between Englewood and Ft. Wayn for anyone. Except for Billy Sunday, as developed, for on the appointed afternoo No. 28 smoked to a stop not in the timetable then or now.

Kalmbach Publishing Co. 1962. Title reg. Pat. Of Published monthly by Kalmbach Publishing Co., 102 N. 7th St., Milwaukee 3, Wis., U.S.A. BRoadwa 2-2060, Western Union and cable address: KALPU Milwaukee. A. C. Kalmbach, President. Joseph O'Hearn, General Sales Manager. Ward Zimmer. A vertising Manager. TRAINS assumes no responsibilit for the safe return of unsolicited editorial materia Acceptable photographs are held in files and are pai for upon publication. Second-class postage paid a Milwaukee, Wis. Printed in U.S. A YEARLY SUBSCRIPTION, $6; 2 YEARS, $11: YEARS, $15. For life, $60. Outside the America 50 cents a year additional (for life, $5 additional

Chief Executives, has passed only minor remedial legislation since 1945 despite exposure to seven major transportation studies, and at least one of these bills hasn't taken hold. The Transportation Act of 1958 specifically instructed the I.C.C. to allow those rates which reflect a carrier's inherent advantages, and for a while thereafter the Commission SO ruled. Yet in recent months the regulatory body has become increasingly restrictive, disallowing several rail rate proposals on grounds that their effect would be to injure or destroy road or water conpetition. The ability of the railroads to make money with such rates was not questioned. Politically speaking, of course, Congress is under great pressure to preserve the status quo, and as yet the industry has not allocated the necessary money to mount an effective public information program-the A.A.R.'s Magna Carta effort notwithstanding.

What about the work-rules issue? The Presidential Commission has concluded its hearings and will issue its report very soon. Recommendations are binding on neither the carriers nor the unions but should have a profound influence upon opinion at all levels.

How about President Kennedy?

He requested and has received a transport report from Secretary of Commerce Luther Hodges. As yet nobody has revealed the contents of the report; less, of course, is known about what reaction the President will have or what action Congress would take on any recommendations he might make.

What are the symptoms of the carriers' illness and its seriousness?

A thousand and one things, not all of them in the headlines. For example, investor disinterest (Wall Street has few, if any, analysts who can afford to work on railroad securities full time); the state of the railroad supply industry (in 1960 carbuilders could have produced “without sweat" 120,000 cars, actually built less than 20,000); Congressional apathy over the collapse of New Haven; the frantic merge-or-die nature of such Eastern consolidation proceedings as PRR+Lehigh Valley; inadequate research (the industry needs a fully automatic coupler which contains air brake lines, yet has neither a working prototype nor the money to finance a quick changeover); the number of loans, now totaling 153 million dollars, which the railroads could not have secured from private financing without I.C.C. guarantees; the rise of nonregulated carriage (which now accounts for a fourth of intercity freight ton-miles and could hit 40 per cent by 1975); aging equipment (average age of freight cars is 19 years, 10,000 diesel units are ripe for upgrading, production of noncommuter passenger equipment virtually ceased years ago); and so forth. However, it may be intelligently argued that abandonment of NYO&W, much of the passenger service cutback, sale of surplus property, and like activity was inevitable and does not necessarily constitute evidence of disease.

What will happen?

In the East (where almost half of the 40 class 1 roads operated in the red for

the first eight months of 1961) the current chaos implies wholesale bankruptcy in the event of a prolonged recession. Even if the rails aren't allowed to diversify into other modes of transport and equitable user-charges aren't placed on their competition, a regulatory change permitting the industry rate-making freedom could postpone the danger indefinitely. Failing that, though, and assuming many more New Havens, we must reckon with some kind of Government intervention. Outright public ownership is politically remote. More likely would be some sort of subsidy - say, tax forgiveness, low-interest loans, Government assumption of maintenance of way expenses (which would tend to equate the rails and their competition, who neither build nor maintain their right of way), or outright purchase and lease-back of fixed facilities. Worth remembering, too, is the fact that previous railroad crises have spurred demands for I.C.C.-authored master merger plans. It could happen again.

Rutland ...

.. another NYO&W? In 1955 a railroad trade magazine splashed on its cover a color photo of green-and-yellow hood units leading green-and-yellow box cars across a truss bridge, to kick off a lead story entitled "The Modern Rutland - Green Mountain Miracle." Less than a month before Christmas 1961 Rutland Railway filed a petition with the I.C.C. to abandon its entire 331.7-mile operation in the states of Vermont and New York. The apparent revival of the 1950's had collapsed. Who, if anyone, was directly responsible remained an unpublished tale as snow fell on unplowed rails.

Rutland has never been a gold mine, of course. For generations the centuryold line was the unwanted stepchild of such competitors as Central Vermont and New York Central. Outright abandonment seemed inevitable when the road slid into a 12-year bankruptcy in 1938, and when the property was reorganized in 1950 its plant was in mint condition to antiquarians. Except for four Alco 4-8-2's with 1946 data plates, there wasn't an engine or a freight car under 25 years of age on the roster; a vintage passenger service accounted for half of all trainmiles and lost nearly $400,000 a year; and the operating ratio stood at 94.17 per cent. At the time TRAINS Suggested with not quite mock seriousness that the Government finance the Rutland as an operating museum piece, "so unstained by progress" Iwas the company.

But progress did come. Rutland dieselized with 16 Alco hood units, cut off passenger service (in the wake of a

three-week strike in 1953), trimmed the payroll from over 1100 to fewer than 500 employees, bought more than 400 new freight cars, and beginning in 1955entered a five-year period of solvency.

In spite of dog-eat-dog competition for business (45 per cent of its traffic is received from and delivered to connections), Rutland held its own, ran on time, and looked toward completion of the nearby St. Lawrence Seaway to boost on-line industrialization.

But last year Rutland, minus the management team that had hauled it into the black, posted a 100.78 per cent operating ratio and lost $369,525. Labor bitterness climaxed in a strike by operating employees September 25, 1961, which shut down all service. The present owners decided October 23 to apply for abandonment but did not actually file until December 1, when management rejected a proposal by Secretary of Labor Goldberg to arbitrate the strike issues. No attempt has been made to sell the road as an operating entity since the owners feel it could not break even in the foreseeable future, much less make money.

Vermont, in which 213 of the Rutland's miles are located, is having Coverdale & Colpitts survey the line's economic worth to determine whether it would prove worth anyone's while to pay the road's estimated salvage value of 5.7 million dollars and crank up its green-and-yellow hood units again.

Wishbone railroad

Chicago-headquartered 862-mile Chicago & Eastern Illinois now knows what it's like to be a wishbone. Its fork-shaped route out of Chicago reaches to (1) St. Louis and Thebes, Ill., both gateway ininterchange points with Missouri Pacific: and (2) Evansville, Ind., where connection is made with Louisville & Nashville. Both connections want control of C&EL L&N has purchased 27.5 per cent of C&EI common, and Mopac has bought 17.3 per cent of C&EI common plus 31.3 per cent of its Class A shares. Both buyers lack a direct entrance into Chicago, neither wants to share control of C&EI (although L&N has hinted that it would if necessary), and nobody has suggested the obvious alternative of simply dividing C&EI up the middle and parceling out its St. Louis-Thebes and Evansville mains to the appropriate connections (with dual ownership of the first 81.8 miles out of Chicago to Woodland, Ill., where the lines divide). Meanwhile, Illinois Central -in no mood to see either L&N or Mopac get a Windy City foothold - has blandly proposed that it "be permitted to share control of the C&EI equally with the L&N and MP and with such other roads