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better than earn their fixed charges, and a substantial number failed to earn their operating expenses and taxes.

The startling lack of earning power in 1920 was the result of several causes. Among them may be listed the effect of the transfer from federal to private control, the serious "outlaw" strikes in April and May, the efforts to "catch up" on deferred maintenance, the substantial wage increases which took effect four months before the rate increase began to add to revenues, and the national agreements which applied to payroll expense throughout the entire year. The higher freight and passenger rates were in effect only during the last four months of the year, but the new wage rates applied to the operating expenses of eight months, and the higher fuel and other material costs burdened expenses throughout the entire twelve months.

A comparison of railroad operating performance in 1920 with that of 1916, the year before the United States entered the war, is of interest. Such questions as these may be answered. In what respects were there differences in trackage and equipment? What was the total transportation product in the two years? What was the relative degree of train operating efficiency? To what extent did rate advances keep pace with rising costs? In what elements of expenses did the greater increases occur?

In so far as trackage and equipment are concerned the differences between 1920 and 1916 were

slight. The normal rate of additions and betterments to railroad property, arrested early in the last decade by the diminishing rate of return upon railroad investment, was almost stopped when the European war started in 1914, and when the United States entered the conflict in 1917, it was financially impracticable to resume it. The few additions made to railroad facilities during the period of federal control were dictated in the main by the needs of war traffic. The road miles of Class 1 companies in 1920 were but 2% more than those of 1916, and the miles of total trackage (including additional mains, sidings and yards) were but 4% greater. As to equipment, the situation was but little different. The number of locomotives available in 1920 was about 6% greater than in 1916. The number of freight cars had increased about 22% and the number of passenger cars was about 32% greater. It should be noted, however, that both as to locomotives and cars the normal rate of retiring those of obsolete type had not been maintained during the fouryear period, and the inventory of 1920 contained many units of equipment which were inefficient and which normally would have been replaced several years earlier by new units of modern design.

Having in mind the relatively slight increase in trackage and equipment it is interesting to note that the railroads in their first year of resumed private management produced 21% more revenue *See Chapter II, page 19.

ton-miles and 39% more passenger-miles than in 1916, the pre-war year taken for comparison. The revenue ton-miles of 1920 were 410,306,000,000. In 1916 they were 339,870,000,000. The passenger-miles of 1920 were 46,849,000,000. In 1916 they were 33,646,000,000. The traffic of 1920 exceeded that of 1918, the first year of federal control, in which all previous records to that time had been broken.

As evidence of the efficiency of management in 1920 it may be noted that the 21% additional tonmiles in that year were produced with relatively little increase in freight train-miles. The freight train-miles of 1920 were 594,000,000. In 1916 they were 585,000,000. The increase, therefore, was but 1.5%. This favorable performance was made possible by better car loading and better train loading. The average car-load increased from 22.41 tons in 1916 to 26.72 tons in 1920, and the average train-load increased from 545 tons to 647 tons.

The 1920 train efficiency was even more striking in the passenger service, but in this case it called for some sacrifice on the part of the traveling public. The increase of 39% in passenger-miles was accomplished with actually less passenger train-miles. The mileage of passenger and mixed trains in 1920 was 587,000,000. In 1916 it was 599,000,000. This saving was the result of reducing competitive service and of cutting off trains that were not paying their operating expenses. Drastic reductions were made during federal control so as to release trackage and equipment for

the more important freight service. While many of the discontinued trains were restored in 1919 and 1920, the time tables of 1920 had actually less trains than in 1916. In 1920 the average passenger train-load was 80 passengers. In 1916 the average was 56.

With these remarkable gains in train loading it would be natural to look for lower unit costs in operation. These economies, however, had little effect in offsetting the rising costs of material and labor. Nor were these costs met by the advances in freight and passenger rates. Comparing 1916 with 1920 these, in very brief terms, were the significant results:

Operating revenues increased from $3,382,000,000 to $6,178,000,000, a gain of 82%.

Operating expenses rose from $2,211,000,000 to $5,831,000,000, an increase of 164%.

Net operating revenue fell from $1,170,000,000 to $347,000,000, a loss of 70%.

After deduction of taxes and miscellaneous items the net operating income from which interest charges and dividends are paid shrunk from $984,000,000 to $62,000,000,* a loss of 94%.

The net operating income of 1916 was equivalent to a return of 5.3% on the investment in railroad property. In 1920, with an investment 12% greater than in 1916, the return on the investment was but 0.3%.

The explanation of the alarming loss in net income is found in operating expenses. These *See foot-note, page 246.

were seriously inflated by war prices, war wage rates, and by unfairly restrictive working rules adopted during federal control. The rules, particularly those in the national agreement, bore with exceptional force upon maintenance expenses. The abolition of piece-work in shops was another important factor.

During federal control, freight and passenger rates were increased about 25%. In the latter part of August, 1920, a further increase of about 35% was authorized by the Interstate Commerce Commission. The increases last named were in effect but four months in 1920, so that their full effect was not reflected in the average revenue per unit of service for the entire year. In 1920 the railroads collected 1.052 cents per ton-mile. In 1916 the average was 0.707 cents. The revenue per passenger-mile in 1920 was 2.75 cents. In 1916 it was 2.00 cents. These units, of course, take account both of increased rates and of changes in the nature of the traffic. They indicate that in 1920, compared with 1916, the railroads collected 49% more per ton-mile and 37% more per passenger-mile. These, combined with the increase of 21% in ton-miles and 39% in passenger-miles, brought about the average of 82% increase in total operating revenues.

*This does not mean that the average increase in rates was but 49%. As a matter of fact it was greater. But in 1920, the commodities which move under low rates made up a greater proportion of the total tonnage. This change had the effect of pulling down the average revenue per ton-mile and of obscuring the full effect of the rate increases.

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