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secure the specific advantages as to reimbursement for diverted traffic, two days' free time, and otherwise, specified in the contract. Short line railroads which do not sign the contract of course do not receive the advantages of 'federal control'* specified in the Federal Control Act. While it will be the policy of the Railroad Administration to deal justly and fairly with nonsignatory as well as signatory railroads those who do not sign the contract but who accept the special advantages of two days' free time and reimbursement for traffic diversions in accordance with the terms of the contract will do so with the understanding that they waive all claims against the Government and will execute appropriate papers.

“For the purpose of finally removing the impression, which you state exists widely over the country that the Railroad Administration is unfriendly to short line railroads, I shall issue appropriate instructions to all officers and employees of the federally controlled lines directing them to give fair, just and friendly consideration to short line railroads.

In addition to the 133 short lines which, up to the end of 1919, had signed the cooperative contract, 49 had applied for and were granted leave to file waiver of claims in return for the advantages of an allowance of free time on freight cars and the promise of reimbursement for traffic diversions.f "The large majority declined to do so (to sign the contract) because they felt that it had serious legal defects and could not be enforced against the Government.""**

*This has particular reference to the guaranteed rental or "standard return."

+Annual report, Division of Law, 1919.
** Railroads and Government, E. H. Dixon, p. 132.

In addition to the forms of contract for Class 1 railroads and for the short lines, a special contract was prepared and executed by the Director General and the American Railway Express Company. That company was formed early in 1918 by the consolidation of the four principal competing express companies-Adams, American, Southern and Wells-Fargo. Subsequently the new company embraced practically all of the smaller express companies.

Prior to federal control each railroad granted a monopoly of the express traffic to one of the competing express companies. There were isolated instances in which a railroad had an express company as a subsidiary of its own. Each railroad made a contract with the company to which the express privilege was granted and endeavored, under the play of competition between the express companies, to obtain the best possible terms. The general practise was for the express company to collect or receive the express matter, load it into express or baggage cars at shipping points, care for it while en route and unload or deliver the shipments at destination. At large terminals the express company maintained its own organization and express messengers accompanied carload shipments. At small stations the express company paid extra compensation to railroad employees to look out for express company work and a similar plan applied to train baggagemen who acted for the express company in caring


for less-carload express shipments by baggage car. The railroad provided the cars and transported them in its express or passenger trains, and furnished the express company with necessary facilities at stations. The express company collected the revenues for the service, paid the railroad a stated percentage of gross receipts, and retained the remainder. The proportion paid to railroads ranged from 35% to 55%, with isolated cases outside of these usual limits.

When the railroads were taken over by the Government to be operated as one system under noncompetitive conditions, it was logical and inevitable that the express service should be similarly unified. Action toward that end was soon taken with the result already mentioned the formation of the American Railway Express Company.

The new company then entered into an agreement with the Director General (the initiative having been taken by the Railroad Administration) under which the American Railway Express Company would conduct the express business upon all lines under federal control substantially as was done under private operation except that certain restrictions as to routing which had applied under competitive conditions were removed and the service was effectively unified. As compensation for the privilege the express company agreed to pay the Director General 50.25% of the gross revenues received for the transportation of express matter over the railroads under federal control. This percentage was the average paid by all of the express companies to all of the railroads during the preceding 10 years. The remainder of the express earnings, after the payment of other expenses of the express company and a cumulative dividend of 5% on its capital stock of $30,000,000 (based on physical valuation), was to be divided between the express company, the Railroad Administration, and a guaranty fund, in accordance with an elaborate plan which was favorable to the Government.*

As no further reference to the express service will be made in this volume it may be noted here that the American Railway Express Company continued in existence after the expiration of federal control and that the arrangement under which a flat percentage of 50.25% gross receipts was paid to all railroads alike, instead of the former varying percentages according to bargaining power and competitive conditions, is still in effect (July, 1922). Obviously this is to the advantage of those roads which received less than 50.25% under pre-war conditions and to the disadvantage of those roads which received more. Negotiations are now under way for a revision of the individual contracts.

*Report of Director General to President, for first 7 months of federal control.




HE 26 months of federal control may be divided into 2 distinct periods in which the

conditions differed fundamentally. The first period was from January 1, 1918 to the signing of the armistice. During that period and until January 11, 1919, Mr. McAdoo was Director General. The second period was from the signing of the armistice until the end of federal control on March 1, 1920. During that time (except for the first 2 months) Mr. Walker D. Hines was Director General.

The first period was one of intensive military activity. The sole thought was to administer the railroads as an effective agency of the army and navy. Officers and employees were spurred by motives of patriotism. The public cheerfully accepted limited railroad service and cordially cooperated with the Administration in its efforts to produce the maximum of the kind of transportation most needed in the war. The fact that the railroads were functioning effectively and were breaking all records of transportation efficiency compensated the shipping and the traveling public for their sacrifices, and encouraged railroad officers and employees to do their utmost. Wages had been raised substantially; the high cost of

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