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Against these increases in revenue the railroads spent 155% more in maintenance of way; 186% more in maintenance of equipment; 165% more in transportation expenses; and 164% more in total operating expenses. The relation of these changes to net railway operating income may easily be comprehended when the more important items of the income account for Class 1 railroads are shown in terms of parts of each dollar of operating revenues in each of the two years. Here is the comparison: Item

1920

1916 Operating revenues

$1.000 $1.000 Operating expenses

.944

.654 Net operating revenue.

.056

.346 Taxes and miscellaneous.

.052

.055 Net operating income

.004

.291 Return on property investment.... 0.3% 5.3%

We need not here enter upon a full discussion of the details of operating expenses, but some of the striking features may be referred to. The effect of the higher wage rates and restrictive rules was particularly noticeable in equipment maintenance. The following figures tell their own story: Item

1920

1916 Repairs to steam locomotives $601,386,000 $177,186,000 Repairs to freight cars... 593,689,000 180,784,000 Repairs to passenger cars.. 100,585,000 34,545,000

These three items in 1920 were 239% greater than in 1916 and they account for over $900,000,000 of the total increases in operating expenses. A part of this increase may be attributed to the efforts of the railroads in the latter part of 1920 to catch up" on maintenance work deferred during the period of federal control and in 1917.

In transportation expenses the largest increase appeared in locomotive fuel, and there were heavy increases throughout the entire group of yard expenses. Enginehouse expenses, a labor item peculiarly affected by the national agreements, rose from $47,460,000 in 1916 to $170,445,000 in 1920, an increase of 259%. Loss and damage to freight showed the greatest percentage of increase among the large items—$120,663,000 in 1920, against $22,739,000 in 1916, a five-fold increase. This startling increase was due in part to the higher values of commodities lost or damaged, but was mainly the reflex of lowered morale among employees and an alarming increase in theft.

The statistics relating to employees and their compensation threw light on the whole subject. The average number of employees in 1920 was 2,012,706. The comparable figure for 1916 was 1,599,168. Their compensation in 1920 was $3,662,543,672. In 1916 it was $1,366,100,518. These figures indicate that the increase in the number of employees was 26% and that the increase in the total compensation was 168%. Stated in other terms, the 1920 labor share of revenue was 59.9 cents out of each dollar of operating revenues. In 1916 it was 40.8 cents.

CHAPTER XXIII

A REVIEW OF THE YEAR 1921

T

HE disappointing financial results of 1920, while discouraging to those who favored

private ownership and management of railroads, did not disturb their belief in the inherent soundness of the Transportation Act nor shake their faith in the ultimate restoration of railroad earning power and ability to serve the public satisfactorily. The year 1920 could not be regarded as a fair test of the new principles of federal regulation. So many unusual features were crowded into the 12 months that it was difficult and unsafe to draw any conclusions from the results. First, there was the transfer from federal to private control. Then came the 6 months of the guarantee period which may be regarded as a form of joint control, and then came 4 months in which the railroad companies were left entirely to their own resources under a new and higher scale of rates and wages. During the guarantee period the Labor Board had advanced wages 22%. The record of the first half of the year had been marred by serious strikes among yard employees.

These and other reasons were sufficient explanation for the alarmingly low net income of 1920. It was confidently expected that 1921, a full year of operation under the new law, and free from the first effects of the transition from federal to private control, would be encouraging and would vindicate the faith of those who regarded the passage of the Transportation Act as marking a new and better era in railroad affairs.

The results of the year, however, while much better than those of 1920, were discouraging. They failed to satisfy each of the three groups of interests which the Act was intended to protect. At the close of the year the general public was insisting that rates were too high and that they must be reduced without regard to railroad net income. Labor was aggrieved and in a rebellious mood because the Labor Board, in recognition of changed economic conditions, had taken away a part of the wage increases granted in 1920 and had eliminated or changed some of the restrictive working rules. Railroad security holders were disappointed because the net income of the roads was but slightly more than one-half of the sum which the rate increases of the previous year, under the rate-making rule of the Transportation Act, had contemplated. These security holders had had reason to expect that the properties would earn 6% on their value. The actual return was but 3.3%. The volume of tonnage was 23% less than in 1920, so that notwithstanding the substantial rate increases in effect throughout 1921, the freight revenue was 9.4% less in 1921 than in 1920. Inasmuch as the rate increases of 1920 had been predicated upon a volume of traffic greater than that which actually moved in 1921, and inasmuch further as the effect of the restrictive rules and the new wage rates had been underestimated, the income results of 1921 were bound to be disappointing. Of the two adverse influences the loss in traffic obviously was the more serious.

The extent of the 1920 advances in rates* startled the shipping and traveling public but the higher rates were accepted, as were other war-inflated costs, as phenomena of the period. Business was booming at the time and the effect of the greater transportation cost was not felt. In September and October 1920, the volume of freight traffic under the new rates was greater than ever before and all previous records in loaded cars per week were broken.

Beginning in December, 1920, however, a sharp recession set in, and by January, 1921, the full effect of the depression was apparent. Then it was that the demand for relief from high freight rates began to assume force. Throughout the early part of 1921 the carriers were besieged with requests for rate reductions and many such reductions were made. In the aggregate these individual downward adjustments were large but they were not general enough to meet the demand. Groups of shippers, such as those interested in live stock, building materials and agricultural products, exerted concerted pressure and the subject was given a strong political tinge. The Interstate Commerce Commission was petitioned to order general decreases, and the influence of the

* See Chapter XXII.

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