reflecting the inadequacy of earnings and nonavailability of equity capital to meet capital needs. The trend since 1946 is shown in table XVIII, page 80.

The airlines because of the elasticity of their market and essentially competitive nature should finance themselves largely through equity capital to be in sound condition. However, when the jet equipment now on order is delivered the debt capital is expected to exceed equity capital. The alternative is to pay very high for equity capital. The big four, it was estimated recently, must pay about 12.9 percent.'

TABLE XV.-Operating ratios of class I motor carriers 1946-59

NOTE.-Unofficial estimates for 1st half of 1960 indicate ratio is about 97 percent.

Source: American Trucking Associations, Inc., American trucking trends; financial and operating statistics, class I and II motor carriers of property, 1959.

TABLE XVI.-Railroad operating expenses 1946-59-class I and II (thousands)

Source: ICC, "Transport Statistics in the United States" 1958, table 155, p. 105. "Transport Economlcs," February 1960, p. 1.

"Law and Contemporary Problems," vol. XXIV, autumn 1959, No. 4, pt. I, "The Rate of Return in Air Transport," by Paul Howell, at p. 689.

1946 47 48 49 50 51 52 53 54 55 56 57 58 59

TABLE XVIII.-Trends in ratio of debt capital to total capital 1946-59

The several economic results of growing overcapacity when added up necessarily means increasing instability of the transport industries and a higher cost of transportation to the using public. We are riding the crest of a great wave of transportation development and service capacity now available to the traveler or the shipper. He enjoys a wide choice between several for-hire competitors and the use of private transportation. The question is how much further can we "afford" financially to go in this direction. Is there no limit to the proportion of our income going to meet transportation costs without raising the cost of living relative to income, restricting domestic markets and pricing ourselves out of the world market? Is there no limit to the real estate which we may take from productive agricultural and commercial use to build nontaxpaying belts of concrete for highways which accommodate more and more privately operated and lightly loaded automobiles and trucks?

8. The growing competitive struggle

Not directly a part of this chain reaction set forth above but concomitant with it is the matter of the increased competition that excessive social investment brings about. Competition within each mode has tended to decline as rate bureaus and carrier associations have become increasingly effective. Railroads' rate bureau activities, through the Reed Bulwinkle Act of 1948, have become immune to antitrust regulation. But expansion of transportation plant beyond rate of traffic growth, together with the rapid expansion of nonregulated carriage, has resulted in a new and increasingly serious situation of competition between the public for-hire carriers.

The postwar period of an expanding level of economic activity, unprecedented in duration without a serious recession or depression, has served to soften and obscure this development. We now have concrete evidence of a growing struggle approaching cutthroat proportions and which threatens the financial status of large segments of the transport system. The expanded defense effort incident to the Korean war encouraged some of the overexpansion, because for a time it assured a high level of utilization of plant and maintained the level of net income. It is during the last 5 years that the effects of the

trends become more obvious. Reduced net income of the railroad industry, increasing number of railroads operating at a deficit, a condition of severe distress in New England railroads, and the increasing level of operating ratios of most regulated interstate carriers, all reflect deteriorating financial conditions.

For the first quarter of 1960 the domestic trunkline air carriers experienced a $13.5 million loss compared to a $7.7 million profit for the same period last year. An already low load factor was made lower by adding 13 percent increase in seat-miles while passengermiles increased by 9 percent.

Rate cutting is the common symptom of growing carrier competition. In the 1870's and 1880's, cutthroat competition in railroad rates developed into full scale rate wars. Are we approaching another such situation-this time between modes, unless something is done to stop it?

It is significant that the complaints to the Interstate Commerce Commission relative to proposed reduced rates has increased from 510 in 1946 to 5,471 in 1959, and that the number of suspension cases on carrier complaints involving intermodal competition has increased greatly while shipper complaints have declined in number.

Over 95 percent of the rates protested in 1958 were proposed reductions and 90 percent of all instances were protested by carriers. As the competition has intensified, shipper protests have diminished naturally because of the emphasis on reduced rates.

The railroads, seeking more freedom in ratemaking where intermodal competitive rates were involved, obtained a measure of success in the 1958 amendment to part I of the act. Rate cutting directed at coastwise and intercoastal lines has resulted and carriers in these industries find their very existence in jeopardy after having spent millions for rail-car-ships and trailer-ships in the Atlantic and gulf coast trade.

The increasing severity of competition generates lower rates, which usually reduces gross and net income and therefore may contribute to the downward spiral.

CHAPTER 7. TRENDS PROJECTED TO 1975

As President Coolidge once said, "It is not so much where we are that counts, but where we are going." Present trends, under existing transportation policy, if extended to 1975 may well present the Nation with a very serious transportation situation. The projections are made to cover the next 15 years to 1975.

First is the trend in the comparative volume of freight traffic of regulated and unregulated intercity carriers. Chart X based on the ton-mile data of exhibit A shows the traffic volume of the 1946-59 and 1955-59 periods projected to 1975. It will be observed that both lines of the danger period trended upward with an expanding economy and an increasing population but that the rate of increase of unregulated traffic is greater than that of the regulated. Today approximately three-fourths of the intercity interstate freight carriage is by regulated carrier. The regulated public carriers are the base of our freight transportation system. By 1975, it will be observed, regulated carriage will represent but 61 percent on the basis of the