Data relating to increases in prices of materials and supplies appear on page 3 of Appendix III. The upward trend of traffic during the war, and its decline since 1944, are shown for Class I railroads in the following table: Since June 1945, in the case of freight traffic, and since December 1945, in the case of passenger traffic, the unusual demands for rail transportation to meet the nation's military requirements have been diminishing rapidly. While freight traffic in 1945 was less than in 1943 and 1944, and passenger traffic slightly less than in 1944, nevertheless traffic for the year 1945 as a whole remained substantially at wartime levels. In 1946, however, as the unusual demands of the war disappear and traffic resumes its normal pattern, both freight and passenger traffic will show a drastic decline from the 1945 wartime level. Even in 1946 traffic will be at a high level as comtrasted with anything experienced prior to World War II. Freight traffic of Class I railroads probably will exceed 23 percent the 447,321,561,000 revenue ton-miles handled in 1929, the highest prewar year. And passenger traffic will be about 39 percent greater than the 46,848,668,000 revenue passenger-miles for 1920, the largest in any prewar year. In short, there is no reason from the standpoint of traffic volume why the railroads should be confronted with financial disaster. The difficulty lies elsewhere. It is to be found in the fact that, in a world of greatly increased wages and prices, freight rates remain on a prewar level. There is no reasonable doubt that traffic will continue to decline during the postwar years following 1946. The full effect of the change from a war to a peacetime economy will not be felt in 1946, due to the heavy passenger traffic during the first six months, among other factors. In Petitioners' judgment, the volume of freight and passenger traffic in the three years 1947 to 1949 will be below that of 1946. There is no reason why traffic expected to move in the years following 1946 can not support the railroads of the country, if their rates, fares, and charges are restored to something approaching a proper relationship to the wages they pay, the costs of materials and supplies which they must buy, and the general price structure prevailing in the national economy. Data regarding volume of traffic are shown on pages 4 and 5 of Appendix III. VI The traffic handled by the railroads during the war years not only showed an enormous increase in volume but also underwent a change in nature and composition. This was due to the fact that the "higher-rated" traffic increased to a greater extent than did the "lower-rated" traffic. Thus, an analysis of carload traffic moving in 1940 (which was less affected by the war than was 1941) and in 1944 (the last year throughout which the war was being actively prosecuted) shows that the commodity group "Manufactures and Miscellaneous," which includes the higher-rated commodities, contributed 41.9 percent of the total freight revenue in 1940 as compared with 54 percent in 1944, while "Products of Mines" fell from 31.4 percent in 1940 to 23.5 percent in 1944. The effect of the war upon the character of freight traffic is further indicated by the table appearing below, from which it appears that, comparing 1944 with 1940, the increase in revenue was far greater than the increase in tonnage originated. This reflected both longer average hauls and a greater proportion of higher-rated freight during the war years, since there had been no change in rate levels. The Traffic has now resumed, or is rapidly resuming, its prewar pattern. trend is away from the long hauls and the unusual volume of higher-rated traffic arising from the war. At striking example of long-haul traffic which has already been lost is crude petroleum which, in 1944, showed an increase of 224.5 percent in tonnage originated, and of 1,140.3 percent in freight revenue over 1940. This movement of crude petroleum by rail was due to diversion of most tank steamers during the war. The nature of war traffic, the demands for transportation, and the desire of everyone to cooperate in the war effort resulted in a more intensive utilization of the railroad plant, as measured by such factors as loading per car, cars per train, ratio of empty to loaded mileage, etc. With the termination of war traffic, the shift to commercial traffic, and the substantial reduction in volume of traffic, these favorable wartime factors can no longer be relied upon. Data relating to the war traffic appear on page 9 of Appendix III. VII The revenue passenger-miles and passenger revenues, by months, for the years 1939 to 1945, inclusive, and for the months of January and February 1946, the latest for which figures are available, are set forth in Appendix III, page 5. It will be seen that during the years 1943, 1944, and 1945 the level of passenger business was very high, primarily because of the requirements of the armed forces and other conditions growing out of the war. Most of the military and naval passenger traffic will cease by July 1, 1946, and civilian traffic will decline with the return to peacetime conditions. Passenger traffic of Class I rail roads in 1946 is estimated at 65,000,000,000 revenue passenger miles. The practical significance of the rise and decline of passenger traffic is brought into sharp focus when it is borne in mind that for the six-year period 1936-1941, when passenger traffic was at a relatively low ebb, the average annual net operating deficit of Class I railroads from passenger operations, calculated in accordance with the Commission's formula, was $245,000,000, whereas for the years 1942 to 1944, when passenger operations were at a high level, the passenger business produced a net operating income averaging $201,000,000 a year. Data regarding volume of passenger traffic and the revenues derived from it appear on page 8 of Appendix III. VIII The conditions with which the railroads are confronted in 1946 can best be understood by considering first the conditions which existed in 1945. During 1945 the rates, fares, and charges were practically at prewar levels, with the exception of the 10 percent increase in passenger fares, to which reference has already been made. The wage rates in effect during 1945 were very much higher than those in prewar years, as a result of the 1941 and 1943 increases already described, and the prices of materials and supplies had also increased substantially over prewar levels. The volume of traffic for the year 1945, as a whole, remained at wartime levels, although it had turned downward during the latter part of the year. The high volume of traffic in 1945 enabled the railroads to meet the increased expenses than in effect, but they were able to earn only a moderate net railway operating income. In fact, as a result of cumulative in creased costs the net railway operating income in 1945 was much lower than in 1942, although the operating revenues for 1945 showed a large increase over those for 1942. At the close of 1945 the railroads were in no position to withstand the impact of the additional adverse factors with which they are confronted in 1946. The wage increases determined upon in the early part of April 1946, and retroactive to January 1, 1946, will add approximately $619,000,000 to the 1946 expenses. The higher prices which the railroads must pay for materials and supplies in 1946, as compared with the prices which they paid in 1945, will add not less than $167,000,000 to the 1946 expenses. Moreover, the volume of traffic in 1946 will be less than that in 1945 by a very large amount, with the result that operating revenues for 1946, on the basis of 1945 rate levels, will be more than two billion dollars under the operating revenues in 1945. If the wage rates, pay-roll tax rates, and prices of materials and supplies confronting the railroads today had been in effect throughout 1945 (see Appendix III, page 6), net railway operating income for that year would have been reduced from $850,000,000 to $236,000,000. Similarly, the net income after charges of $447,000,000 would have been wiped out and a net deficit of $158,000,000 would have resulted. The sharp contrast in the operating results to be expected for 1946 under present rates, as compared with the actual operating results for 1945, appears from the following table. The basis for the 1946 estimates shown in the table, as well as further information concerning the 1945 operating results, will be found in Appendix III, page 7. Thus, the stage is set for a transportation crisis unless effective remedial measures are promptly taken. The financial situation in which the railroads find themselves has come about for the reasons hereinbefore discussed and in spite of the fact that there has been in recent years a striking improvement in operating efficiency (see Appendix III, page 10) and a large decrease in funded debt and interest charges. IX For the purpose of obtaining the additional revenues so urgently needed, Petitioners propose (a) To continue in effect, without expiration date, the increase of 10 percent in basic passenger fares and charges which, pursuant to the authority granted in Ex Parte No. 148, is to expire six months after the legal termination of World War II; and (b) To make a uniform increase of 25 percent in all their freight rates and charges, including international rates and charges, with corresponding increases in their joint rail-and-water and rail-and-truck rates and charges, subject to certain limitations and qualifications. The increase in rates and charges and the rules proposed by Petitioners are set forth in Appendix II hereto. The limitations and qualifications of the general increase of 25 percent are designed to avoid undue disruption of competitive relations and commercial conditions. Petitioners state that, if they are permitted to make effective the increased freight rates and charges as herein proposed, they will proceed with due diligence to make such reasonable readjustments in the resulting rates and charges as commercial and traffic conditions may require. X Petitioners estimate that, if the proposed increased rates and charges are made effective May 15, 1946, the additional revenue of Class I railroads for the year 1946 would be $625,000,000; the net railway operating income would be $605,000,000; and the net income $185,000,000. If the proposed increased rates and charges should not be made effective until July 1, 1946, the additional revenue for the year would be only $500,000,000; the net railway operating income only $540,000,000; and the net income only $120,000,000. The above calculations appear in Appendix III, page 7. While it is, of course, impossible for the proposed increased rates and charges actually to be made effective for the full year of 1946, it is possible to estimate the results on the basis of the full year. On such a basis, the additional revenue would be $990,000,000, the net railway operating income $855,000,000, and the net income $430,000,000. It, therefore, appears that earnings of the railroads for 1946 will be grossly inadequate even if the full relief sought herein should be granted at once. An annual net railway operating income of less than $1,000,000,000 is clearly insufficient to maintain the nation's system of railways in a sound economic condition. At this time, adequate railway earnings are of even greater importance than in more nearly normal periods. There is now an extraordinary need for substantial expenditures by the railroads to overcome the deferred maintenance which has accumulated in war years, and there is also need for expenditures to provide modernized equipment and facilities, if the railroads are to give the safe, adequate, economical, and efficient service contemplated by the National Transportation Policy. ΧΙ Petitioners state that the rates, fares, and charges proposed by them herein will be reasonable for the services covered thereby and will not result in a loss of traffic by Petitioners to an extent that will deprive them of benefit therefrom in the way of a substantial net increase in revenue. This is particularly true in view of the fact that freight rates are on the prewar level, while wholesale commodity prices have risen 37.2 percent since 1939. (See Appendix III, p. 119.) Petitioners further allege that said proposed rates, fares, and charges are necessary to enable them to continue to provide the adequate and efficient transportation service necessary in the public interest as stated by Congress in the National Transportation Policy and in Section 15a (2) of the Interstate Commerce Act. Petitioners further state that the exigencies of the situation justify and require immediate action as proposed herein, permitting Petitioners to make the proposed rates and charges effective May 15, 1946, on one day's notice, pending hearing on and final disposition of this petition, and subject to further order of the Commission; that increased rates cannot be made retroactive, so that each day's delay in the effective date thereof means an irreparable loss to Petitioners, whereas shippers can be amply protected by awards of reparation. XII Petitioners state that the increased operating costs hereinbefore referred to are being and will continue to be incurred by them in the handling of intrastate, as well as interstate, traffic; and that the estimate of increased revenues which Petitioners will receive, as set forth in Paragraph X hereof, reflects the application of the proposed increases in rates and charges to both interstate and intrastate traffic. It is respectfully suggested, therefore, that the cooperation of the State Commissions be invited, as provided by law, in any investigation instituted and conducted by the Commission as hereinafter prayed for. WHEREFORE, Petitioners pray that the Commission institute an investigation into the matters set forth in this petition; that they be permitted to continue in effect, without expiration date, the 10 percent increase in passenger fares and charges now published to expire six months after the legal termination of the war; that they be permitted pending hearing and final action by the Commission upon this petition, to publish and file in the manner and form hereinafter described, effective May 15, 1946, upon one day's notice, freight rates and charges increased as proposed by them herein, and that such increased rates and charges be permitted to become effective without suspension, but subject to further order of the Commission; that the Commission, in view of the critical nature of the situation now confronting Petitioners, speedily determine and find that their rates and charges, increased in the manner and to the extent proposed by them herein, are and will be just and reasonable and not in excess of such maximum reasonable rates and charges as are necessary in the public interest to enable Petitioners to continue to provide the adequate and efficient railway transportation service contemplated by law; that the Commission grant Petitioners special permission to make such increased rates and charges effective by publication, on one day's notice, of simple forms of supplements to existing schedules, and that such supplements be permitted to become effective without suspension; that the Commission enter a general order, modifying all its outstanding orders to the extent necessary to enable Petitioners to make effective the increased rates and charges herein proposed; that, where the application of such increased rates and charges would result in creating new departures or changing existing departures from Section 4 of the Act, the Commission by the entry of special orders authorize such departures; and that the Commission make such findings and orders herein as will permit Petitioners, without further order of the Commission, to make revisions in the increased rates authorized by it as outlined in Paragraph IX hereof. Respectfully submitted. H. C. BARRON, Dated at Washington, D. C. April 15, 1946. R. R. BONGARTZ, H. D. BOYNTON, S. R. BRITTINGHAM, Jr. E. H. BURGESS, CHARLES CLARK, ELMER B. COLLINS, FRANK W. GWATH MEY, T. P. HEALY, H. H. LARIMORE, H. L. WALKER, J. M. SOUBY, J. CARTER FORT, Attorneys for Petitioners. Notices and other communications concerning this Petition should be addressed to J. Carter Fort, Room 929, Transportation Building, Washington 6, D. C. APPENDIX I Aberdeen and Rockfish Railroad Company. Abilene & Southern Railway Company. Ahnapee and Western Railway Company, The. Akron & Barberton Belt Railroad Company, The. Akron, Canton & Youngstown Railroad Company, The. Alabama Great Southern Railroad Company, The. Alabama, Tennessee and Northern Railroad Company. Aliquippa and Southern Railroad Company. Alton and Southern Railroad. Alton Railroad Company, The (Henry A. Gardner, Trustee). Apache Railway Company, The. Apalachicola Northern Railroad Company. Arkansas Western Railway Company, The. Atchison, Topeka and Santa Fe Railway Company, The. Atlanta & Saint Andrews Bay Railway Company. Atlanta and West Point Rail Road Company. Atlantic and Yadkin Railway Company. Atlantic Coast Line Railroad Company. Baltimore and Eastern Railroad Company. Baltimore and Ohio Chicago Terminal Railroad Company, The. Baltimore and Ohio Railroad Company, The. Bamberger Railroad Company. Bangor and Aroostook Railroad Company. |