Railroads: Rates and Regulations

by William Zebina Ripley

This concentration of traffic units is largely due to technical improvements of various kinds. Foremost among these has been the development of the steel rail. In 1880 more than seven-tenths of our mileage was still equipped with iron rails. Rapid progress ensued during the next ten years, upward of eighty per cent. being in steel rails by 1890. At the present time, the proportion is above ninety-eight per cent. In fact, no iron rails have been made for many years, except for repairs and on insignificant branch lines in remote parts of the country. A steady increase in the weight of the rails has ensued. The standard rail for main lines until the Civil War weighed fifty-six pounds to the yard. In the seventies this was increased to sixty-three and above; in the latter eighties the best practice was to use seventy-five pound sections. Since 1900, they frequently run as high as one hundred pounds, in regions of dense traffic. Few main lines of track now average less than seventy-five pounds. It is this increase in the use and size of steel rails which has permitted improvements in rolling stock. But, on the other hand, grave dissatisfaction with the quality of the rails manufactured of late years, particularly since the establishment of practical monopoly under the United States Steel Corporation has become manifest. Numerous accidents due to breakage of rails, especially since 1905, have revealed either defects in manufacture or an undue load imposed by heavier rolling stock, too high speed, or both. The matter has become steadily worse. In 1902 the Interstate Commerce Commission ascribed seventy-eight accidents to broken rails. Nine years later the number had risen to 249. The need of improvement is now fully recognized on all sides.

The power and efficiency of locomotives has increased, perhaps, more since 1890, and particularly since 1895, than in any previous period. Superior materials particularly have contributed to this result, such as the substitution of cast steel for cast iron and of nickel steel for wrought iron in axles, crank pins, etc. Some of the improvements which may be mentioned are, for instance, an increase in the average heating surface from 2,000 in 1890 to nearly 3,000 square feet at the present time, and an increase in the average steam pressure from 160 pounds to 210 pounds per square inch in the same period. The maximum weight has also increased very rapidly. The average weight of a locomotive at the close of the Civil War was approximately 90,000 pounds. This has increased in somewhat the following proportions: To 1881, 102,000 lbs.; to 1893, 135,000 lbs.; to 1895, 148,000 lbs.; to 1898, 230,000 lbs.; rising in 1900 to 250,000 lbs. Passenger locomotives since 1892 have almost doubled in weight, and freight engines have more than done so. Compound and double or Mallet locomotives are also supplanting those of simpler type for peculiarly heavy service. The first compound engine was built in 1899, only one being constructed in that year. In 1900 a single locomotive works turned out 500—a number constituting two-thirds of the entire output of that company—for use in the United States. Such locomotives cost more in first instance; but the greater weight and steam capacity, together with the considerable saving in fuel, amounting to perhaps twenty per cent., more than offset this objection. The traction efficiency of these improved locomotives may be shown by the statement that in 1885 the decapod Baldwin locomotives, made to haul 3,600 tons on a level, represented the maximum capacity. Five years later the same company built locomotives to haul 4,000 tons, not only on a level, but on any ordinary grade. As indicative of late advances in locomotive construction, we may instance those built about 1900 for the Illinois Central and the Union Railroad at Pittsburg, both low-grade roads, carrying exceedingly heavy train loads. The first of these weighed, including its tender, 365,000 lbs., the Union Railroad consolidation engines weighing 334,000 lbs. Such locomotives are stated to be twice as powerful as the best which were manufactured twenty-five years ago. This record is surpassed by engines which have just been built for pusher service on the soft-coal Virginian Railway. They are of the Mallet type, weighing 540,000 pounds; with a train capacity of 4,230 tons. The evaporative surface is 6,760 square feet. As summarizing the increased efficiency of American locomotives, we may instance the figures of the Interstate Commerce Commission, showing the average performance of locomotives for the United States. Whereas in 1894 the average number of tons of freight carried per locomotive was about 32,000 tons, this rose to 46,000 tons in 1899, and to 54,600 tons in 1906. At the same time the number of tons of freight hauled one mile for each freight locomotive in the United States increased from 4,000,000 in 1894 to approximately 6,000,000 in 1899, and to 7,300,000 in 1910. In other words, the average performance of each freight locomotive in the United States has increased by more than fifty per cent. in the last decade.

The economy of large freight cars has been amply demonstrated. Marked advances in the average capacity have taken place in the last few years. In the sixties a 15,000 pound freight car represented about the normal capacity. This has increased, as measured by maximum load, to 28,000 pounds in 1873; to 40,000 pounds in 1875; to 60,000 pounds in 1885; to 70,000 pounds in 1895; while at the present time 80,000 to 100,000 pound cars are in everyday use. Cars of this latter type, built to carry forty to fifty tons, are necessarily of pressed steel construction, and are mainly useful for the carriage of coal and ore and similar low-grade commodities. It seems to be questionable whether a maximum capacity has not been about reached, in view of the exceedingly great wear and tear imposed upon track, bridges, etc. Up to this point the economy of heavy loading is indisputably proved. Increased size of cars far more than proportionately increases the paying load. Thus, for instance, an 18,000-pound car will carry 20,000 pounds load, while a 22,000-pound car will carry a load twice as great. It is stated on good authority, for example, that a car of forty tons capacity can be built which will weigh but 3,000 pounds more than a thirty-ton car, and cost hardly fifty dollars more. This is undoubtedly the reason why at the present time the average load per car is at least one hundred per cent. greater than the maximum which was possible twenty years ago.

A steady increase in the freight performance of American equipment is shown by official data of the Interstate Commerce Commission. Whereas in 1894 it required on an average 1,888 freight cars for every 1,000,000 tons of freight transported their capacity has so increased that the same amount of traffic in 1906 was carried by only 1,127 cars. In other words, an enormous increase in the freight service had been attained. On the other hand, the actual mileage performance of much of this equipment is extraordinarily low. It averages only about 9,000 miles annually or an equivalent of thirty miles a day. At a speed of fifteen miles an hour, this means that actual movement under a paying load, allowing for one-third of its journeyings empty, occupies but little over an hour and a quarter a day. The actual performance is, however, not quite as poor as appears. For, of course, this average includes the non-movement of all cars in bad order (sometimes one-tenth of the total); and also all idle equipment. This latter consideration is of great moment. Special cars, suitable only for seasonal business; and especially demurrage delays, often forty-eight hours or more, adversely affect the result. Where separate mileage records of "foreign" cars are kept, as on the Wabash system, it appears that their mileage is twice as high as for "home" cars. The difference is due to the fact that cars off their own rails, mainly are in actual demand and are kept moving. Probably the daily performance of loaded cars is not less than 150 miles. But a journey of this length, with two days' delay at each end at terminals, would bring the average down to about thirty miles. The public does not always appreciate these facts; and is often querulous. It is certain that the problem how to secure greater efficiency in the use of this equipment is as yet imperfectly solved.[61]

Revenue and Cost Per Train Mile.

The discussion of the nature of railroad expenditure may be concluded by a comparison of the net effects of the developments of the last few years; that is to say, of steadily expanding costs of operation and of slowly and tardily rising rates chargeable for service on the one hand, as over against the results obtained by mechanical improvements and increasing economy of operation coupled with growth of tonnage, on the other. The average cost of transportation has greatly increased. This, according to the statistics of the Interstate Commerce Commission, is shown upon the diagram herewith by the middle curve.[62] The average cost of running all trains per mile, which had fallen from 96 cents in 1891 to 91.8 cents in 1895, rose to $1.07 in 1900, and in 1911 increased by more than one-third, to $1.54 per mile. Against this should be set the fact that while the trains thus cost more to haul per mile, their paying load has increased in somewhat smaller proportion. This is shown by the upper curve on the diagram above mentioned. For freight trains the increase has been from $1.65 to $2.89 per mile. Passenger revenues per train mile have increased less rapidly. This follows from the well-known fact that freight rates have been increased, while passenger rates have not changed for the better during this period; and also that economies in concentration of traffic are necessarily confined to the carriage of freight. The immense gain in trainloads has probably been the main element, among these, as already observed.

Among other things this diagram also brings out the effect upon revenue of the substantial rate increases after 1900, coupled with the elimination of rebate losses. It will be observed how sharply the upper curve of revenue per train mile slants upward after 1899, by comparison with the lower line denoting cost. The same thing apparently occurs again after the set-back of 1907.

The interrelation between these various factors may be more readily shown by confining our attention to the period during which a practically uninterrupted development of business ensued, thus eliminating the confusion due to the four years of depression after 1893. The data on our various charts for the years 1898-1906 demonstrate that during this period the ton mileage, measuring the freight traffic handled, has practically doubled. To transport this doubled tonnage, a growth in freight train mileage of only eighteen per cent. was necessary. This was due, of course, to the notable concentration of train loading, already described, as well as to a density of traffic per mile of line almost sixty per cent. greater. As a consequence of these economies in operation, the revenue per freight train mile has increased by about fifty per cent.; while the average cost of running all trains per mile has grown less rapidly, namely, by 42 per cent. Had we data for freight trains alone it would surely be lower than this. In the meantime during this period of eight years, the rate of return in revenue per ton mile received, remained practically unchanged.[63] From all of which it would appear that even despite all these confusing factors, the law of increasing returns, so far at least as 1898-'06 was concerned, was making itself appreciably felt.

Attentive consideration of the available figures, especially as shown by diagram on page [97], shows apparently that the various economies in operation, heavier trainloads and the like, have not since 1906 yielded any greater profit from mere operation, with the ever increasing volume of business. In other words, the increase in the margin between cost of operation and revenue per train mile,—measuring profitableness per unit of movement—has not kept pace with the augmentation of the size of that unit,—the trainload. Thus it follows, as one would expect, even making allowance for all changes in rates, wages and other expenses, that the law of increasing returns as applied to railroads, does not arise primarily from economic considerations as to mere physical operation. The law originates primarily in the fiscal conditions attaching to the heavy capital investment,—the fact, namely, that fixed charges up to a given point of saturation tend to remain constant, absolutely; but become proportionately less, therefore, as the volume of business expands. From this fact, therefore, rather than because of any marked economies of large-scale production, may it be affirmed that railroads offer a notable example of the law of increasing returns. The important bearing of this distinction will appear in due time in connection with the problem of the determination of reasonable rates. Added significance, also, is given to the relation between the cost of new capital, measured by the rates of interest on bonds and dividends on stocks, and the supply necessary to provide adequate extensions and improvements in future.