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

overcapacity of transportation facilities in peacetime is desirable and necessary to handle seasonal peak demands and desirable for economic growth. We had overcapacity in railroads going back to the 19th century when the railroad system was virtually synonomous with the national system of transportation. Previous serious conditions of overcapacity were associated with economic depressions such as that of the nineties and the thirties.

Today, in a time of relative high level of economic activity there is evidence of growing overcapacity in both passenger and freight transportation that has already reached serious proportions. In passenger service millions of automobiles each with passenger capacity of from five to eight move over our streets and highways carrying less than two passengers per car. On the same highway will be found buses with many empty seats and but few main route railroad passenger trains may be observed using more than a fraction of capacity. On the freight side, empty truck and rail car mileage and light loading have generally increased. Private carrier service is usually a one-way loaded service making for extensive empty truck mileage. Nevertheless, the principal burden of overcapacity falls on the common carrier who must maintain regular service despite unprofitable loadings and who moreover must maintain standby equipment and terminal capacity for peak seasons and emergencies.

Overcapacity means excessive plant and excessive standby equipment. We know from experience that in our expanding economy free entry and vigorous competition may lead to overexpansion among hopeful competitors. When the Government provides the whole investment in way facilities, as it does for three of the transport industries, overexpansion is to be expected.

The vast railroad system of the United States has contracted in mileage, but little if any in overall plant capacity since the midtwenties when it was at its peak, in real mileage, number of locomotives and number of cars and when it carried over 75 percent of intercity traffic. The capacity of way and structures of existing mileage has continued to increase through heavier tracks, lower gradients, central traffic control systems, automation of yards, etc. The number of locomotives as shown in table XI, page 73, in 1959 was approximately half the average number in the 1926-30 period but the total tractive power declined little until 1952. The 19 percent decrease in tractive power does not mean a substantial decrease in work capacity because of the substitution of diesel locomotives for steam which has occurred since 1949. These locomotives require less time out of service for maintenance, are more flexible in adapting units of power and in ability to maintain good operating speeds.

Table XII shows that total tonnage capacity of railroad cars has been generally maintained, in spite of decreasing number of cars, because of increases of average capacity of cars. It is, therefore, clear that the decline in the level of freight-ton mileage, as well as passenger miles has far exceeded adjustment of railroad plant capacity. The result is an unprecedented excess of plant and standby equipment in time of normal economic conditions. Mr. John Barriger has estimated 67,000 miles of railroads or 30 percent of the 225,000 miles of railroads carried but 2 percent of the ton-miles of railroad freight."

Barriger, John, op. cit., p. 7.

This amounts to less than 550 freight ton-miles per day. This is equivalent to only one full carload of heavy freight going 10 miles. Based on World War II performance the rail systems as a whole could probably handle 75 percent more traffic if its distribution were at all favorable.

All of the domestic common carriers of passengers have found the number of empty seat-miles increasing since 1946. The rate of increase has been most pronounced in railroad service causing the passenger deficit to climb from less than $200 million in 1946 to over $700 million in 1957.

Although bus service has improved in terms of seats and speed, the number of passenger miles in regular route service has declined since 1951. The average passenger load in buses (18-19) has not changed since 1949 but the average number of seats in each bus has increased from 35 in 1949 to 39 in 1959 due to widespread introduction of scenic-cruisers. This produces an 11.4 percent increase in unused seat-miles per bus.

Table XIII shows the increase in available seat-miles among domestic trunk and local airlines from 1946 to 1959 inclusive. While the available seat-miles increased from 7,490 million to 45,793 million, or almost 6 times, the revenue-passenger miles increased from 5,910 million to only 29,151 million, or a little over 5 times. The result has been an increase of empty seat-miles from 1,580,000 to 16,642,000 or by an increase of 15,062,000 empty seat-miles.

Table XIV compares domestic airline capacity with ton-miles performed. Passenger units are converted to tons on basis of 10 passengers equals one ton. The resulting load factor as shown in the last column shows a steady decline from 57.4 in 1952 to 52.9 in 1959.

Source: Eastern Railroad Presidents Conference, "Yearbook of Railroad Information," 1959 edition, p. 8.

•National Association of Motor Bus Operators, "Bus Facts," 28th edition, p. 14.

TABLE XII.-Total freight car capacity 1926-58-class I railroads

NOTE. This per-car increase occurred during a period when much shipper preference tends toward smaller, more frequent shipments.

Source: AAR, "Railroad Transportation: A Statistical Record 1921-57." "Yearbook of Railroad Information," 1959 edition.

TABLE XIII.—Trunk and local service air passenger capacity and utilization

Source: Air Transport Association, Air Transport Facts and Figures (annual).

TABLE XIV.-Revenue and available ton-miles U.S. domestic intercity air carriers (includes passenger and property capacity in revenue service)

Source: Air Transport Association, Air Transport Facts and Figures (annual).