(5) The Erie-Lackawanna Railroad Co. shall not do anything to restrain or curtail the right of industries now located on the Delaware, Lackawanna, and Western Railroad Co. to route traffic over any or all existing routes and gateways. (6) Any party or any person having an interest in the subject matter may at any future time make application for such modification of the above conditions, or any of them, as may be required in the public interest, and jurisdiction will be retained to reopen the proceeding on our own motion for the same purpose. The Commission pointed out that these restrictions had adequate precedent in prior decisions under section 5.54 (h.) Merger of Chicago Northwestern with Minneapolis & St. Louis (F.D. 21115 (1960)).—This merger was brought about by an unusual procedure of acquisition of the assets of the Minneapolis & St. Louis by the Chicago & Northwestern which was covered by the issuance of bonds not to exceed $17,441,600 at 6 percent by 25-year first mortgage bonds distributed pro rata to Minneapolis & St. Louis Railway Co. shareholders at the rate of $25 in principal amount of bonds for each share of stock and by the payment of $3,488,320 in cash. The property rights acquired include motor carrier operations of the Minneapolis & St. Louis which will permit an extension of the piggyback service of the Chicago & Northwestern, in which service it has been a pioneer. In this instance there was no opposition to the application. With the completion of the acquisition this year savings are anticipated of $12,800 a day with minimum annual savings of over $3 million. The combined road will be operated entirely as a unit. 3. Lack of adequate incentive In explaining the fact of little progress toward consolidation during the 40 long years of hoping in that direction, most reviewers have emphasized the obstacles which have been set forth in parts 1 and 2 above. However, this inquiry has led us to question this and to feel that the lack of adequate incentive has been the primary factor. Of course, the obstacles and objections recited above have been deterrents to initiative. Insofar as the entire record has been reviewed, and it is a very large one, the point stands out that the railroad industry has not had a strong interest in consolidation since the provision was inserted in the Transportation Act of 1920. The revival of activity in the past 3 to 4 years indicates the beginning of interest on the part of at least important segments of the industry. Why has there been this lack of incentive? As pointed out previously, the railroads had ceased to be a growth industry by the time the consolidation program was launched. The leading systems were well established and what added mileage they desired to control they set about to obtain through section 5(a) which until 1933 was outside the consolidation plan. There was, as we have seen, considerable activity through holding companies to acquire controls of other carriers, but much of this was to prevent the formation of a fifth trunkline in accordance with the consolidation plan adopted by the ICC in 1929. Railroad managers who affirmed that consolidation would mean the integration of existing facilities without employment of substantial Detroit, T. & I.R. Co. Control, 257 I.C.C. 455, Louisville & N.R. Co. Merger, 295 I.C.C. 457, and Norfolk & W. Ry. Co. Merger, 307 I.C.C. 401. capital investment to revamp the facilities, and with much reason, could see little advantage from the mere fact of integrated management. Those who have thought in larger terms of consolidation and who recognize that substantial capital investment would be required to provide far-reaching economies and service advantages were naturally reluctant to risk such an investment and to go through all the problems incident to consolidation in view of the uncertainty of adequate reward, because of the growing competition of other carriers which were receiving public aid while they were strictly regulated. Furthermore, in the light of growing competitive conditions, review of the record fully justifies the fear of the industry concerning the burden to be imposed upon it by compulsion to absorb properties which could not be operated profitably as part of a combined system. The original provisions of 1920 affirmed the need of preserving the entire mileage in the balanced systems that were to be established. This was further supported by reference to preserving channels of trade and competition. While these requirements of the act of 1920 have been set aside, there is no indication in later legislation that the abandonment of substantial mileage is recognized as a necessary aspect of revamping our national railroad system. We must recognize that it is not reasonable at this stage of the development of the various competing modes of transportation to expect or compel the absorption of mileage that no railroad wants. Until this is faced up to as being in line with the public interest there is little likelihood that we can present to the railroads an adequate incentive for widespread consolidation. 4. Opposition of labor Organized labor in the railroad industry, fearing the loss of jobs because of consolidation, has generally opposed the various proposals which have been made for consolidation of the railroads. There was no restrictive provision in the act of 1920 designed to protect labor, but in the amendments of 1933 and 1940 to section 5, strong protective measures were incorporated at the insistence of labor. In view of the fact that without consolidation employment on the railroads of the Nation has declined since 1920, except for temporary reversal of this trend during World War II, it is easy to understand why railroad labor has reacted as it has to proposals of consolidation. While reduction of jobs is not the direct objective of consolidation, it is bound to be a resultant of increased efficiency, unless a great expansion of traffic is contemplated. Because of the importance of general consolidation to the future health of the railroad industry by successfully meeting the competition of other modes of transportation, the longrun interests of labor would seem to be served by the accomplishment of general consolidation. However, there would be an interim of reduced employment and labor is justified in its contention that it should not be called upon to pay an undue share of the price of progress. Granting that the provision as it stands in the act of 1940, as it has been interpreted by the Commission, is a deterrent to voluntary consolidation, it would seem to be fundamentally justified. Recently in the ErieLackawanna merger case its Railway Labor Executives Association attempted to get the labor protection measure of the act of 1940, to mean the freezing of jobs rather than compensatory protection, and this in spite of adequate precedent for the latter interpretation.55 The appeal of the Commission's decision to the district court proved unavailing. Perhaps the only pertinent question to be asked, if we do get in a hurry about general consolidation in the public interest, is whether the railroad industry, by itself, should bear the entire burden of the 4-year adjustment of railroad labor to other employment or whether the unions and the Government should share the responsibility. 5. Negotiation difficulties (other than labor) Personal and institutional opposition to loss of independence is not only a barrier to railroad initiative in a decision to attempt consolidation, but also constitutes a major obstacle in its fruition. It is understandable that executives who have spent years to advance themselves in their particular railroad would be reluctant to risk a position they might or might not have in a consolidated system. After all, there can only be one president and one general counsel, etc., in the consolidated system. On the institutional side we find complexity of the financial structure as a characteristic of the railroad industry. There will be difficulties in the present financial positions where two or more major lines may be involved, as is currently reflected in the refusal of the C. & O. to consider merging with the New York Central. When the merger involves smaller roads the price demanded by the security holders of the smaller roads may be excessive and well beyond the present market value of securities. Involved debt structures and junior security holding groups make it difficult to obtain general agreement. Minority stockholders have been most persistent in objecting to recent mergers. For example, the approval of the Commission of the Erie-Delaware, Lackawanna & Western merger was appealed to a Federal court because some minority stockholders of the Lackawanna were opposed to terms respecting their stock. 6. Opposition of other carriers Until the last two important mergers, namely, the Norfolk & Western-Virginian and the Erie-Delaware, Lackawanna & Western, other nonparticipating railroads have intervened vigorously in opposing the proposed consolidation. There is apt to be some mileage in the merger which is considered very important to carriers not involved in the merger, especially where trackage rights are involved. More often there is the fear that the consolidation will deny a nonparticipating carrier its share of interchange traffic. This is a very important problem in bringing about consolidation on a case-by-case basis, in the absence of a general program which will cover a region. When consolidation is approached through a plan covering the whole area there arises a somewhat different problem. Intensive rivalry may exist between two major systems or perhaps three major systems in regard to the disposal of a given bridge or connecting line or it may relate to a carrier that originates a large volume of traffic for interchange. 55 252 I.C.C. 49, 252 I.C.C. 287 (1942); 257 I.C.C. 292 (1944); 257 I.C.C. 198 et seq. (1944); 257 I.C.C. 700, 704 et seq. (1944). 7. Opposition of local interests The opposition of local interests on the part of individuals, industries, organizations, or communities is one of the most significant political obstacles to a program of consolidation. It is related to the opposition of labor, because communities will protest the loss of payrolls incident to the loss of offices, shops, and yards. The loss of taxes may be a substantial consideration. Even where the community did not support the maintenance of existing facilities and services, the reduction may be opposed as a matter of course. The city of Nashville opposed the L. & N.-Chattanooga merger on the basis that it would reduce Nashville to a "one-railroad community." 56 This opposition, as the reference indicates, was carried to the Supreme Court of the United States. 8. Inequality-Reduction of competition An important, but perhaps less excusable obstacle, has been the opposition to any reduction of competition which would result from consolidation. One of the anomalies of our national regulatory policy arises from the fact that in the interest of efficiency we have accepted the elimination of competition and the creation of monopoly among many of our public utilities after having set up regulation considered adequate to protect the public. But in spite of the fact that the regulation of railroads is, if anything, more comprehensive, we have somehow held to the notion that we must preserve as much competition as possible in railroad transportation. Before there was effective regulation and before there was intensive and extensive competition from other modes, this attitude was justified, but that can hardly be said to be true since we began our efforts in 1920 to bring about general consolidation of the railroads. Section 7 of the Clayton Act gave the administration of that section to the ICC insofar as it applied to the railroad industry, recognizing that the Commission, with its broad powers of regulation, is in the best position to determine the public interest which might be affected by the combination of two or more railroads. Nevertheless, we find in the conditions prescribed by Congress in the act of 1920 that competition should be preserved as fully as possible in the formulation of the plan of consolidation and that existing routes and channels of trade would be preserved wherever practicable. The Commission has felt called upon to recognize this advice in favor of competition in a number of recent cases involving combination of carriers: (a) 271 I.C.C. 63 (1947) C.B. & Q. Control. 295 I.C.C. 425 (1956) Spokane International Railroad Co. Control. (c) 295 I.C.C. 787 (1958) Minneapolis, St. Paul & Sault Ste. Marie R. Co. Acquisition. In view of the virtually overwhelming competition the railroad finds for the preponderance of its valuable traffic, the adherence to this bias is most unjustified and is not in line with a proper conception of public interest. We find that communities and industries inject a fear of reduced competition and of dependence upon one railroad. It is notable that this argument is never applied to utilities generally. It is true that 56 154 F. Supp. 389 (1957). Affirmed at 355 U.S. 63 (1957). in the program of general consolidation only the larger towns and railroad terminal areas would be certain of the service of more than one railroad. However, there would be effective competition of another railroad system in the general area so that a secondary city or town with one railroad would get protection in regard to rate levels. Rates still would be made on a competitive basis for the region. An off-line railroad, by liberal provisions in regard to piggyback operations might actually provide both service and rate competition which would be effective. În the light-traffic areas highway competition is always effective. Where there would be certain currents of bulk traffic where a degree of monopoly would be possible, the public interest would be protected from unreasonable rates through the continuation of the sufficient powers of the Government to control discrimination in rates. 9. Discounting of economic claims The complete denial or discounting of the benefits of consolidation are often set forth by reluctant railroad management. At times this argument may be used to obscure the real reason for objection, nevertheless, it must be recognized that a substantial initial expense must be incurred in the employment of expert engineering and accounting firms to make extensive studies to determine the advantages that would arise from a proposed consolidation. Furthermore, it must be admitted that the full advantages of consolidation would not be realized for some years not only because of the 4-year protection for labor, but also because of the necessary realining and integrating of yards, terminals and communications systems, etc., which would be required to realize the more efficient and dependable service which the consolidation wouid make possible. Of course, there is always the uncertainty of paying an excessive price for the properties acquired only to find that economic recession or increased competition of other modes will come to pass. Some critics of general consolidation have very properly raised the question about the cost and quality of service of off-main-line points. That is to say, suppose that we have channeled our main traffic flows over the best possible routes between major cities, bringing about greater efficiency in service between these major centers. Would this not only serve to increase the number of off-main-line points which would require more rather than less branch line service which would be costly and perhaps of less quality than the present service? Railroad executives differ on this point. Perhaps only an intensive pilot study would give a satisfactory answer to this issue. Perhaps much of off-line service should be provided by highway transport. Some have opposed general consolidation because it would introduce too much rigidity into the railroad system. Again, this is an argument which shows its age. At the time the program began in 1920 this argument deserved real respect because the railroads were still in the period of growth and, therefore, would be making physical adjustments to new developments in the distribution of traffic and population. But as one looks to a national system which contemplates a substantial reduction in mileage (from 10,000 to 30,000 miles) it must be assumed that the railroad system has become a stable and established system and, therefore, a general consolidation that is right today will |