a less extensive network closely tailored to public demand. The Commission has made such suggestions in several recent annual reports.3 TABLE 7.-Increasing rail load factors by increasing car capacity and improving dispatch control-Based on actual 1955 traffic, revenues, and expenses Intercity First class car 1. Present operation: (a) Average number of seats.. (b) Average number of passengers (c) Actual load factor (percent seats occupied). (e) Break-even load factor.. Total seat-miles operated (billions). (g) Total car-miles operated (millions). (i) Expense per seat-mile (cents). (h) Expense per car-mile (cents).. 2. If present equipment is dispatched to achieve load factors comparable to air and bus: (a) Average number of seats (compare line 1(a)).. 80.0 36.0 (b) Car-miles required, 1955 traffic, scheduled load factors of 50 and 60 (c) Cumulative reduction of car-miles by proposed increases in load (e) Load factor-Present percentage of seat occupancy (line 1(c)). 4. Financial results of proposed changes (Nos. 2 and 3): (a) Proposed average passengers per car (at 50 to 60 percent load factor).. Present car-mile expense plus 20 percent (cents). Break-even load factors 80-seat and 36-seat cars with existing passenger (d) Manpower.—We hesitate to refer to manpower as a "cost control" problem but wages and related payroll costs (taxes for railroad retirement program, etc.) amount to two-thirds of total railroad operating expenses. No data is available distributing labor cost between freight and passenger services but it is very conservative to conclude that the passenger portion is at least 66 percent since shorter trains and more intensive maintenance would increase the relative labor requirement for passenger service. In most industries the manpower cost component would be considered a reasonably controllable expense. However, the position of railway labor, particularly road train service employees, has become so fixed that there is presently little control of this expense short of discontinuing the service (or turning to automatic train control; the Testimony of Howard Freas, Chairman, before Subcommittee on Surface Transportation, U.S. Senate Committee on Interstate and Foreign Commerce, pt. 3, p. 1945. Nelson, James C., op. cit., p. 473. latter is feasible and is being tested in the New York subway system's Grand Central-Times Square shuttle train). The recent impacts of labor costs were pointed out by the ICC and its examiner during the recent passenger deficit investigation. Examiner Hosmer found: Because of the serious decline in passenger traffic from 1947 to 1957, the increases in wages paid to engine and train employees had a much greater impact on passenger service than on freight service. The increase in gross ton-miles per hour of employee in freight service * * * increased 63 percent from 1947 to 1957. In the case of passenger train service, employees, the increase in gross ton-miles*** was 19 percent *** (converted to dollars) the ratio of gross ton-miles per dollar of freight service compensation was reduced *** 16 percent, 1947 to 1957. For the passenger service, however, the decline was * * 42 percent. The Commission's report comments on the impact of specific increases: " 6 An important element of the cost of passenger-train operation is the compensation of engine and train employees engaged in road service *** Wage payments to these employees in 1957 amounted to 17.5 percent of solely related passenger expenses. * * * The sum paid represented an increase of 22 percent in the compensation of these employees since 1947. The increase in all other solely related expenses for the same period was 7 percent. The State commissioners made this finding: 7 It is a practice of the operating brotherhoods to limit the mileage a member employee can run in road service in a month. Generally, regular passenger train enginemen and firemen are permitted to make no more than 4,800 miles each month and passenger trainmen are subject to a maximum generally not exceeding 5,500 miles per month. The earnings of individual employees are, therefore, limited by these mileage restrictions under which an employee can frequently receive his maximum allowed monthly earnings within 15 working days or less. It has come to the committee's attention that crew complements in excess of the number actually needed, required either by State law or by contract, have greatly restricted the use of railway diesel cars (Budd cars). The actual number of train-miles recorded for motorcar trains declined from 36 million in 1949 to 25 million in 1959. In terms of flexibility and low nonlabor operating costs these cars could offer improved and possibly profitable rail passenger service on selected routes. This seems to be a clear case of where the public has been denied service and younger union members denied jobs because of discontinuances due to unreasonably high labor costs. (For an exception see pt. V, ch. 7, and for specific examples of the effect of present work rules, see part VII, ch. 7.) 8 It is clear that the union strategy since 1930 has been to keep the maximum possible number of employees on the rail payroll, even to the extent of using State laws under the guise of safety, and through bargaining and use of strikes to obtain the highest possible rates for each piece of work so that each man might make a reasonable wage in a relatively few working hours per month. This strategy has actually resulted in raising costs to the point where thousands of employees are being laid off as service is discontinued or new devices such as push-button freight yards come into use. The total number 5 Hosmer's report, docket 31954, op. cit., p. 14. ICC report, docket 31954, op. cit., p. 30. National Association of Railroad and Utility Commissioners, Report of Railway Passenger Deficit Committee, 1952. New York State Public Service Commission, report of the investigation of the full crew laws, secs. 54 a, b, and c, of the railroad law. Jan. 26. 1960. of railroad employees declined from 1,192,019 in 1949 to 815,509 in 1959. That the chosen policies of the unions have had this effect has been stated in Presidential Emergency Board and arbitration proceedings." We hope that the unions will enter into the work of the forthcoming Advisory Commission on Work Rules in a spirit of adjusting these rules in such a way as to preserve a reasonable number of job permanently through stemming service discontinuences based on cost. It is clear that each working employee can have a secure future and a higher income than at present under soundly conceived working rules. We think the comments of Dr. James C. Nelson in his recent railroad study for the Brookings Institution are a good summation.10 In conclusion the evidence assembled, although not definitive, is enough to indicate that one important source of railway inefficiency and high costs lies in management's failure to insist that unneeded employment of labor be eliminated. In a later paragraph discussing the beneficiaries of the gains made in railroad productivity (distribution of these gains among shippers, stockholders, the corporations, and labor) he comments: The evidence also shows that another substantial part of the gains from greater rail productivity and efficiency have gone to labor. In most postwar years, total wages, and total wages plus payroll taxes, have been consuming larger percentages of operating revenues than in prewar years. 11 (e) Dining car service.-The "Passenger Traffic Study" made by the railroad industry in 1946 " says that dining car service has lost money at least since 1918. It did not even make money in the halcyon year of 1943.12 In 1955 it was credited with a $143.5 million share of the total railroad passenger deficit.13 This service seems clearly to be a case where a deficit was long ago accepted by management. Either management has made insufficient efforts at controlling costs, and testing passenger feeding innovations or like airline baggage handling, this is a problem without a remedy. (f) Branch lines. While branch lines are rightly a sore subject among the railroaders because of the extensive regulatory litigation over service reductions and abandonments, they constitute a case where either railroads have not been cost minded, or else have simply not had data which called these costs to management's attention. The ICC Bureau of Transport Economics and Statistics released a study of the branch line problem in 1945 ("Railroad Abandonments," January 1945) in which they commented, after noting a large number of abandonments in the 1930's due to increasing motor competition: Some abandoned railroad mileage has never been profitable and presumably should never have been built. Other lines became unprofitable when their primary source of traffic dried up or were tapped by competing carriers. • Presidential Emergency Board No. 130, 1960. Transcript p. 983. Mr. Benjamin Aaron (member of the Board): "Mr. Oliver, could I ask you just this question: Do you consider the secular decrease in employment a reversible trend or inevitable?" Mr. Eli Oliver (witness of nonoperating rail unions): "I think it is inevitable." Union attitudes are further discussed in pt. V, ch. 7. 10 Nelson, James C., op. cit., p. 279. 11 Association of American Railroads, "Passenger Traffic Study," one of a series made by the Railroad Committee for the Study of Transportation, March 1946, p. 204. 12 Ibid. 18 ICC examiner's renort, docket 31954, op. cit. The ICC approved 1,059 abandonments out of 1,128 applied for in the years 1935-43. However, the amount of low density rail line still operated during World War II shows in the maximum passenger load factor achieved during the war-54.8 percent in 1944.14 Since the bus load factor was 95 percent 15 and the airline load factor was 89.4 percent in 1944,16 it is apparent that the railroads operated much lightly used service. This was undoubtedly a wartime advantage but the existence of such service through the depression raises important questions about control of costs, or the provision of data to show the net income of track segments. That branch line economics are still troublesome for some railroads may be noted from the recent ICC report on the New Haven." The Commission found that one-third of the road-miles accounted for 80 percent of the gross freight revenue and that there were 1,200 miles of very light density line. Commissioner Webb and Examiner Ries disagreed with the management's claims that most of this mileage was really recovering the incremental costs of rendering the service. The report suggests that the New Haven management make a thorough study of all light density lines to establish their relative economic value. (g) Trend of fixed costs.As trains are discontinued there will be a tendency for the less variable portions of fixed costs to rise, as they must be spread over fewer units of traffic or service. Although carmile costs are presently rising, car-mile revenues are increasing more rapidly. If this favorable trend should reverse, the stage will be set for a sharp acceleration of service discontinuances. Table 8 illustrates some aspects of this relationship. Since time was not available to examine and segregate several hundred separate expense accounts the only fixed expense categories segregated are rents, taxes, and deTABLE 8.-Current revenue and expense trends per train-mile, class I railroad passenger service Source: Interstate Commerce Commission Transport Statistics of the United States. 14 Nelson, James C., "Railroad Transportation and Public Policy," Brookings Institution, 1959, table 16, p. 455. 15 Calculated from "Bus Facts," 28th edition, National Association of Motor Bus Owners. 18 Federal Aviation Agency, "Statistical Handbook of Aviation," 1960 ed. 17 Interstate Commerce Commission, "Report on Passenger Fares, New York, New Haven & Hartford Railroad Co.," docket No. 33332, reported Nov. 21, 1960. preciation. Table 8 reveals that railroad management is making a strong effort to maximize unit (car-mile) revenues and to control unit expenses. The less variable portion of these expenses will become an increasing problem. As service is retrenched property must be disposed of. The extent to which any particular item of expense is variable is a factor of (a) the amount of the change in production or sales and (b) time. The true variable expenses are directly related to production, or may be quickly reduced. Some expenses are variable_only if complete disposal of the business or property is possible. Property taxes and depreciation continue until the property is sold or junked. While the above comments and suggestions go rather far into the province of railroad management they are raised to stimulate thought and serious consideration of needed changes. It is opportune to quote a noted railroad economist at this point. In his paper, "The Creation of Growth in Rail Transport," 18 Herbert O. Whitten, senior consultant in revenue research of the Chesapeake & Ohio said, after enumerating the many current rail studies by Government and other public groups: What major railroad effort in this country is being made to study objectively the economic forces at work which have created this situation? To the best of my knowledge, NONE. It appears that the railroad industry may find itself in the position of a hospitalized patient who is operated upon by doctors not of his own choosing. This might prove to be painful and perhaps disastrously fatal. E. THE FUTURE MARKET FOR RAILROAD AND OTHER PASSENGER SERVICES In order to make a firm and specific statement describing the future market for rail traffic, we would have to know the facts about that market for the present and recent past. It has already been estab Presented to Railway Systems & Procedures Association, Feb. 2, 1960, Chicago, Ill. |