CHART I Relative Position of Railroads in Intercity PASSENGER 1946 47 48 49 50 51 52 53 54 55 56 57 58 59 B. ABSOLUTE DECLINE OF TRAFFIC AND REVENUE It is the absolute rather than the relative position of the railroad industry that threatens its future. In a growing economy like ours it is conceivable that the railroad industry could stand indefinitely a loss of relative position in the Nation's transport systems if its total business continued to grow. As we have seen, the decline in the absolute passenger traffic volume began years ago and has come to impose a great financial burden on the industry. But serious as it is, it is not in itself the chief threat to continuance of privately owned and operated railroads. Rather, it is the trend of total freight traffic volume and revenue, always the chief source of railroad income, that gives cause for serious concern and which will in the long run probably decide the issue of privately owned railroads. 1. Passenger traffic-Long-run trends Railroad passenger traffic which approximated 40 billion passengermiles in 1926, because of private auto competition and the great business depression of the thirties, declined to an alltime low of 17.3 billion passenger-miles in 1933. It recovered to 24.8 billion in 1940. War demands and gas rationing caused a sharp revival during World War II resulting in an alltime high of 97.7 billion passenger-miles in 1944. However, the decline resumed after the war and now passenger traffic is about 22 billion passenger miles. Since 1946 the passenger traffic deficit as reported by the railroads (discussed in part V, chapter 5) has increased from $139,776,000 in 1946 to $723,670,000 in 1957. Because of more liberal policy in train service abandonment of the Transportation Act of 1958, the deficit has been reduced to about $540 million despite continued decline of total traffic. The decline is expected to continue at a slow pace and it is doubtful if the deficit can be substantially reduced as erosion of traffic and dropping of scheduled trains continue, unless the railroads can shift much of the burden of commuter train service to the public. 2. Freight traffic-Long-run trends Until the recent past World War II period the ton-miles of revenue freight originated by the American railroads generally increased from decade to decade as the national economy and population expanded. Sharp declines accompanied periods of marked economic depression and sharp increases accompanied periods of war emergencies. In terms of billions of ton-miles, the railroad reached a 200-300 billion level in the first decade of the 20th century, a 300-400 billion level in the second decade, and a 400-500 billion level in the third decade. After a severe drop to a 300-400 billion level in the thirties, because of the great depression, the volume reached the 600 billion level by 1942. Traffic exceeded 700 billion in the war years of 1943 and 1944. Since World War II our economy has resumed its peacetime growth but between 1946 and 1957, the volume leveled off, varying from 534 to 664 billion ton-miles, this latter peak figure appearing in the year 1947. Since 1957 the level has dropped and has remained below the 600 billion ton-mile level. The trend of the last 5 years, 1956 to 1959, inclusive, is of special interest and will be described later. Is there a condition of crisis, present or impending in the railroad industry? In the hearings conducted by this committee early in 1958, railroad executives were inclined to emphasize the precarious and critical situation which confronted them. Some saw certain bankruptcy confronting the industry. The year 1958 saw a further decline in traffic and revenue but business recovery in 1959 brought some increase in freight traffic and revenue. The rate of return which has been low for many years-far below the standard of 6 percent, has declined from 4.22 percent in 1958 to 2.72 percent in 1959. For the 12 months ending in April 1960, the rate was 2.63 percent. As of June 1, 1960, there are no class I railroads in receivership. However, a large percent of the mileage in the Northeast, including most of the New England roads, the Pennsylvania and the Baltimore & Ohio ran deficits during the first quarter of 1960. The picture of declining revenues and increasing costs, presented in the 1957 hearings has continued and indeed worsened. The following pages, supported by tables and graphs, present some detail respecting the most recent developments in the traffic and revenue position of the railroad industry, particularly of the class I carriers. Table VIII and chart VI present the trends in freight ton loaded ton-miles performed and freight revenue in 1940 and since 1946. TABLE VIII.—Trends in freight traffic-class I railroads (years 1940, 1946–59) Source: ICC, Transport Statistics in the United States. Car Service Division, Association of American Railroads. 1959, Moody's Transportation Manual 1960, p. a13. TABLE IX.-Trends in net income-line-haul railroads and their lessor subsidiaries (1940, 1946–59) Source: ICC, Annual Reports (55th, 71st, and 72d), table III. "Transport Economics," August 1960. 0 1940 '46 '47 '48 '49 '50 '51 '52 '53 '54 '55 '56 '57 '58 '59 A downward trend of railroad freight traffic and freight revenue since 1956 is observed and took place during a period of expanding economic activity except for the mild recessions of 1949 and 1957-58, and during a period of expanding traffic for other modes of transportation. This is perhaps the most significant statistic before us. The traffic and revenue data for 1960 to date confirm the validity of this apparent trend of a loss averaging about 3 percent per year since 1955. The railroads for some time have been losing their relative position in freight traffic, but until now except for recessions and depressions there has always been an upward trend in the absolute volume of freight traffic. Net income is a primary index of the health of an enterprise or of an industry. Table IX and chart VII set forth the trend in net income for class I railroads from 1940 to 1959 omitting the years 194145 because of the abnormal traffic conditions caused by World War II. The table and chart show an upward trend from 1940 to 1955 with a downward trend since then. The postwar upward trend reflects a mild increase in freight volume 1946-55. It was aided by a series of rate level increases. The downward trend since 1955, involving a drop in net income from $927 million to $578 million, reflects increas |