ing costs and declining traffic, which were not offset by further rate increases which occurred during the period. While there has been a decline in net revenue in each major region since 1955 the amount of decline varies widely among them. For the Pochahontas region it was very slight, from $110 million to $109 million. For the southern region the drop was from $154 million to $102 million. For the western region it was from $424 million to $334 million. But for the eastern region the drop was from $239 million to $33 million. This reveals the truly critical condition that exists in the eastern region. CHAPTER 5. CAUSES OF DECLINE OF COMMON CARRIER'S POSITION 1. Technological developments The decline of the importance of railroad transportation is due in part to the great advancement in the technology of other modes: motor, water, air, and pipeline since the decade of the 1920's. Larger and more efficient equipment made its appearance each year and these carriers, not burdened by fixed investment in way and structures were able to rapidly replace old with new and better facilities. As these modes developed they were in position to offer a serviceprice combination to various important segments of traffic that the railroads were unable to match. For example, long before the refrigerator truck was a major factor, overnight trucks made great inroads in rail traffic that required the time and expense of refrigerator car service. 2. Trends in patterns of commerce There have been developments in the patterns of business location and practices that favored other modes. Generating stations of superpower systems have favored water location not only for water supply but also to obtain water delivery of coal. Sulfur, oil, refineries, aluminum, and steel plants, among other heavy industries, have developed along major navigable waters. These developments have cost the railroads much heavy commodity traffic. The increasing trend toward small inventory practice in the field of manufactures and merchandising favors the highway truck and airplane in providing more frequent and more dependable delivery of smaller shipments of manufactured goods. 3. Growth of nonregulated carriage The growth of nonregulated carriers during the past two decades has been phenomenal as shown in table I. These carriers include private carriers of all kinds, water carriers engaged in exempt bulk commodities, and exempt carriers of agricultural products. All of them have been aided and encouraged by more and improved publicly provided highways and waterways. They have benefited by the advancing technology mentioned above. The use of the trip lease has been exploited by private and exempt motor carriers, often because of inadequate enforcement, to carry commodities not exempt by law at rates that the regulated carriers could not meet. Labor costs have mounted rapidly since 1946 for all the regulated carriers who pay union wages. The nonregulated carriers generally have nonunion. crew members. The owner-driver truck operator finds himself in a better competitive position with every rise in union wage rates. With large modern equipment, without restraint as to route or rates, he is in position to threaten a regulated carrier respecting any traffic he can conveniently handle. 4. Increasing public investment in transportation facilities While the prospects for obtaining adequate private capital for common carriers has become a very doubtful matter, nonregulated carriers have benefited by an ever-increasing amount of public investment in transport facilities. In the days when railroads dominated the Nation's intercity transportation service, we were constantly conscious of the great investment which this industry required to serve the Nation. Since 1916, the Federal Government has embarked on everexpanding programs of improvements in the highway, waterways, and airway transportation facilities. The Federal Highway Act of 1916 provided for matching of State funds on a 50-50 basis in the development of an interstate system. This program has been extended over the years notably in the Highway Act of 1921 and the Federal-Aid Highway Act of 1956. The latter act multiplied the scope of Federal expenditures and provides for 90 percent contribution of the Federal Government for the primary Interstate System. In 1920, the Congress, in the Rivers and Harbors Act of that year, inaugurated an expanding program of expenditures on waterway improvements that has continued. In 1925 the Kelley Act began the program of mail subsidy and in 1926 Congress passed the Air Commerce Act providing for Federal responsibility in the construction, maintenance and operation of an airway system. This was but the beginning of what was to become a major aid program. As shown in table X, the cumulative total of Federal expenditures in highways, airways and waterways has come to approximate $23 billion or two-thirds of the huge private investment in the railroad system of the Nation and, when the present highway program is completed, will equal or exceed that amount. If State expenditures were included the total public investment in intercity way facilities would substantially exceed the private investment in rail and pipeline ways and structures. The trend of annual Federal promotion of the three modes; namely, air, water, and highway, 1940–60, is shown in chart VIII. TABLE X.-Annual magnitude of 3 major Federal promotional programs for transportation, 1946–59, representing Federal highway authorizations, Federal aviation obligations, and rivers and harbors appropiations Source: Data compiled by transportation study group from information provided by various Federal agencies. $MILLIONS 3,600 3,400 3,200 3,000 CHART VI Annual Magnitude of Three Major Federal Promotional 69 5. Inequitable and destructive regulation of common carriers While providing ever better waterways and highways over which the preponderance of users are the private and exempt for-hire carriers, the extensive framework of restrictive regulations has been largely continued. The Transportation Act of 1958 provided some relaxation respecting ratemaking and passenger train abandonment. Added to this, regulatory restrictions have been the postwar passenger and freight excise taxes imposed on common carriers. These regulatory policies will be examined in later sections of this report. The restrictive policies that handicap common carriers are the following: (1) While railroads must, and common carrier truck lines may approximate coverage of full costs by revenue received, this is not true of airlines and of many unregulated surface carriers. (2) Common carriers of one mode are restricted in acquisition of facilities of other modes to supplement its operations in order to increase quality service and overall efficiency. (3) Many restrictions are placed on consolidation of carriers of like mode. (4) Restrictions on motor carrier certificates relative to— (a) Commodities carried. (b) Direction of haul. (c) Highway used between points and points served in a given route or area. (5) Unqualified authority to regulate maximum rates. These restrictions represent failure to recognize the passing of the monopoly position of railroad transportation, and the advantages of more economic carrier service which can be made possible by extension of service by combination with like or unlike modes. The imposition of the excise taxes was based on another erroneous assumptionnamely, that common carriers transport virtually all intercity passengers and freight. 6. Management Management of common carriers, particularly of the railroads, has been criticized for lack of vision, courage and efficiency and, therefore, is regarded in some quarters as a major cause for the decline of the industry's position. The substantial reduction in the proportion of debt capital between the years 1937 and 1947 and the rapid dieselization in the early fifties were achievements of great moment. Other developments in recent years confirm the fact that some of the best business leadership among industry executives can be found in railroad management. That there is a wide range of quality in railroad management as in any other major enterprise is to be expected. Perhaps in general the industry has focused too much on obstruction of competitors and not enough on bold constructive measures. It is indeed unfortunate that the National Railroad Adjustment Boards which have responsibility for the carrier agency may interpret agreements and work rules without regard to carrier ability to cover avoidable costs; whereas another agency independently controls rates and income of the carriers. High wage rates and burdensome work rules primarily result from union-management bargaining. Nevertheless, too much blame can be put on both regu lation and labor. The fact remains that the more prosperous roads and some of those in the South and West, which have been fairly prosperous in the postwar period have had to live with these same regulatory and labor arrangements as has the rest of the industry. It follows that the first four causes must be considered as the more fundamental. CHAPTER 6. SOME ECONOMIC RESULTS OF DECLINE OF COMMON CARRIERS What have been and what will be the results of these trends? These are the basic questions. Are we headed for a less than adequate system or lack of system of transportation? Can we accommodate the mass movements of passengers and freight between major centers as our population and economy grow? Will our unlimited growth of private and exempt carriage at the expense of common carriers provide adequate service for the relatively few large shippers and more prosperous persons but entirely inadequate for the many? Finally, would such a structure of transport facilities involve excessive social investment and higher operating expenses so that ton-mile and passenger-mile costs will increase and thereby hinder economic growth? What are the specific results of the trends set forth above? 1. Increased social investment in transportation service When we add the increasing investment in motor vehicles, aircraft and pipelines, and watercraft to Federal outlays, the total investment reaches fantastic proportions, and since 1946, has expanded several times as fast as the gross national product as shown in chart XII, page 87. As shown in chart XIV, page 89, the total investment rate exceeds the rate of increase of the ton-miles of freight and passenger-miles, even when adjustment is made for change of price level. It is a significant fact that in the past 30 years the principal investment in intercity way facilities has shifted from a private to a public basis, and that the proportion of public investment is continuing to increase. This trend has encouraged expansion in these publicly aided transport industries. The result of expansion of carrier investment and capacity at a rate that so far exceeds the growth of gross national product and traffic volume naturally has resulted in an excess of transport capacity that is unequaled in this century except during the major economic depressions of the thirties. Already, decreased utilization of transportation plant has reached unusual proportions, and competition between carriers consequently has increased. 2. Growing overcapacity and underutilization of U.S. transportation plant The results of excessive social investment include (1) growing overcapacity and underutilization; (2) reduction of scheduled service; (3) inadequate earnings; (4) undermaintenance of way and equipment; (5) higher financing costs; and (6) higher transportation costs to the public. These results as of recent date will be briefly reviewed. The inevitable result of expansion of transportation facilities at a rate that exceeds public needs and demands is growing overcapacity and consequent underutilization of the transportation plant. Some |