The Railroad Problem

by Edward Hungerford

[1] “Not only have the developments of the last fifteen months disclosed the enormous productive capacity of the people and industry of this country, but they have also shown that when it is being fully utilized the facilities of the railroads are not adequate to the demands which it causes to be made upon them. To sum up, then, the industry and commerce of the country grew rapidly throughout the ten years ending in 1907, and almost throughout that period the facilities of the railroads were increased so rapidly that they proved adequate to the demands made upon them. At last, however, the traffic did catch up with the facilities, the result being the great car shortage of 1906-1907. The year 1916, unlike the year 1906, marks the beginning, not the approach of the end, of a period of industrial and commercial activity and growth. There will doubtless be a painful and violent readjustment after the war ends, but there will be another period of industrial expansion after the readjustment is passed.

“Since our railroad facilities have proved inadequate at the beginning of the present period of prosperity, will they not prove inadequate to the demands which will be made upon them as soon as the period of readjustment is over. And if they prove inadequate at the beginning of a period of prosperity, what kind of a situation will they cause to develop if industry steadily grows more active and traffic heavier, as it did for several years prior to 1906?

“There seems to be only one rational answer to this question. No matter how favorable to a period of prolonged and great prosperity other conditions may be, progress in industry and commerce will be sharply arrested, and there will not be any long continuance of prosperity, if the facilities of transportation are not greatly increased. The net operating income of the railroads during the year now closing has been unprecedented, probably averaging more than six per cent on the investment in road and equipment. In the past whenever it has averaged over five per cent there has resulted a largely increased investment in new facilities. In view of the large net earnings now being made the expenditures during 1916 for new mileage and trackage, for new equipment and other improvement have been relatively small.”—Railway Age Gazette.

[2] Frank A. Vanderlip, President of the City National Bank, New York city, in an address delivered in Washington, late in October, 1916, called attention to the fact that in the year just closing, $400,000,000 had been invested in new industrials in America, but practically not a dollar for railroad investment. The only new capital which the railroads have been able to obtain has been through borrowing. On top of this Congress has taken the extraordinary responsibility of advancing the wages of the railroad trainmen. The extent of the railroad business is such that it ought to be building 200,000 freight cars a year. Last year (1915) they built 74,000, in 1916 the total was little, if any, greater. And week after week the reports are published, showing the car famine in America.

[3] “In the five years, ending with 1906, the number of locomotives ordered by the railroads of the United States was almost 22,400, or almost 4,500 per year. During the five years, ending with 1916, the number ordered has been less than 14,000, or about 2,800 a year.

“In the five years, ending with 1906, the total number of freight cars ordered was almost 1,100,000, an average of over 218,000 a year. During the five years, ending with 1916, the number ordered has been only about 740,000, or an average of about 148,000 a year.”—Railway Age Gazette.

[4] The winter which ushered in 1917 has seen not only great freight congestion, and in consequence many embargoes, but a serious impairment of passenger service, particularly in the northern and eastern sections of the United States. This impairment has taken the form of constant and irritating passenger train delays. These have come despite a winter more mild and open, particularly in the East, than we have had for a number of years. They have been so constant and so pronounced as to arouse much comment as to their possible causes. By some they have been attributed to labor disaffection, and by others, to the congestion caused by the abnormal movement of freight. But the railroaders who know best feel that the real cause is in “engine failure.” In the hard years of stringent economy through which our carriers have just passed they not only failed to purchase sufficient new locomotives, but to repair and maintain properly the ones already in their roundhouses. And in February, 1917—after eighteen months of grilling traffic—these locomotives have begun to bend and break under the strain. After all, a locomotive is not so very much different from a man. There comes a limit to its endurance.

[5] “Some question has been raised repeatedly as to whether the condition of railroad net earnings really has been the cause of the decline in new construction, and in the acquisition of new equipment. For example, in the hearings before the Newlands Committee at Washington some of the members of the committee have called attention to the fact that the stocks of many of the better managed and more prosperous railroads have steadily sold above par, that their bonds also have commanded what seem to the questioners figures which indicate a good market for bonds, and it has been asked whether any cases can actually be cited where strong railroad companies have sought and have failed to sell at good prices securities to raise money for improvements. Points of this kind having been raised, the Railway Age Gazette recently addressed a letter to the presidents of several of the leading railroads of the country, asking them to give specific examples of how the condition of earnings and of the money market during recent years has interfered with their raising money for extensions and improvements. There has not been time as yet for replies to all these inquiries to be received. Some have been received, however, and they contain significant information. One letter which has been received is from the president of an important and relatively strong, prosperous and conservatively managed railroad in the Northwest. He says in part:

“‘This company has been for some time, and is now desirous of building about four hundred miles of extensions of its railroad in sections of the Northwest that are not at present adequately served by transportation facilities; but, because of its inability to dispose of its securities, at a price that, as a business proposition, would warrant their sale, has been unable to make these much needed extensions.

“‘Until within the past few years this company was able to dispose of its four per cent bonds at approximately par, and in common with other first class securities, these were considered by the purchasers to be a good investment; but in the last few years we have found it practically impossible to dispose of these bonds at a price that would meet the demands of an economical and proper administration of its financial affairs.