CARRIERS: When If Ever a Profit?

One night last week the members of the New York Railroad Club sat down to their 67th annual dinner in Manhattan's Hotel Commodore. For topflight railroad executives it was a relatively cheery meal. They were still chortling because freight carloadings rose 30% between Sept. 9 and Oct. 21 —the largest increase over the shortest period in U. S. history. Phrases like "this augurs well" cropped up in more than one of the evening's speeches. But to thoughtful men among them, the carloading boom was an ugly fact to face. For it demonstrated that their huge industry cannot make a respectable profit even when business is booming.

Of the 139 Class I roads,* about one-third (including 20 in bankruptcy) are unable to meet their fixed charges on bonds and preferred stock. Another third is little better off. Only eight Class I roads have bonds outstanding which are gilt-edged enough to be marked with Moody's Aaa (Pennsylvania, Norfolk & Western, Chesapeake & Ohio, Union Pacific, Wheeling & Lake Erie, Virginian, Detroit & Toledo Shore Line, Richmond Fredericksburg & Potomac).

Complaints. Railroad men have many a complaint against the economic conspiracy which has ruined their business. One big complaint is against the tremendous rise in taxes and wages which they have to pay. In 1916 taxes took 4.4% of gross operating revenues. By 1938 the tax percentage had gone up to 9.5%, $340,781,954. Wages took 28.3% of gross revenues in 1916. But in 1938 employes got close to 50% of the roads' $3,565,000,000 gross.

Other industries have borne similar loads of taxes and wages but few have had to face such entrenched unions as the railroad brotherhoods, which resolutely resist the march of technological progress. Even when improvements sped up schedules the brotherhoods prevented any savings and successfully insisted on "featherbedding" which means paying crews on a mileage basis. They draw eight hours pay for 100 miles on a freight, 150 miles on a passenger train. Many "featherbed" crews now draw eight hours pay for runs of less than four hours.

Meanwhile barge competition heavily subsidized by the Government undercuts railroad rates on many inland waterways. Trucks—which until recently did not have the handicap of being under Government regulation—meanwhile cut into freight traffic, and pipelines took a flood of oil (1938's total: 1,158,000,000 bbls.) that railroads would have liked to have in their tank cars. At the same time automobiles and motorbuses cut passenger traffic particularly on short runs, and finally airplanes arrived to cut long distance Pullman travel.