GENERAL ARTICLES

The Railway Problem

An explanation of the causes that have brought about our present transportation dilemma

W. A. IRWIN January 1 1932
GENERAL ARTICLES

The Railway Problem

An explanation of the causes that have brought about our present transportation dilemma

W. A. IRWIN January 1 1932

The Railway Problem

GENERAL ARTICLES

An explanation of the causes that have brought about our present transportation dilemma

W. A. IRWIN

IN THE first article of this series an attempt was made to outline the railway problem from the point of view of the gentleman who sits in the counting-house and interprets events in terms of money values. Those who followed the evidence will recall that it dealt largely with the financial dilemma resulting from the difficulty of meeting rising railway debt charges out of declining railway income.

When it comes to indicating the underlying causes of this dilemma, one finds all sorts of curious and seemingly incongruous factors entering into the picture.

It is no exaggeration to say, for instance, that we can trace some of the roots of the trouble to falling prices, the Russian Five Year Plan, tariffs, the balloon tire, a sick monetary system, too 'much railway, the Panama canal, war debts, the stock market crash, a Scotsman by the name of McAdam, the Versailles treaty, the man who invented the carburetor, and the weather.

The first truth of the matter is that railroads, in Canada as elsewhere, are sick primarily because the economic world is sick. Railways are the arteries along which flow the blood streams of commerce. Inevitably the beat of the railway pulse attunes itself to the pulse of national and international trade. Obviously, then, any factor contributing to the prevalent economic ill-health is likewise a cause of the railway problem.

This diagnosis, however, sound as it is, is not a complete explanation of (he anaemic condition of current railway earning statements. Paradoxical as it may seem, part of the trouble is attributable not to the depression, but to certain phases of the late lamented prosperity boom, deceased 1929.

Twenty years ago the railway was without a serious rival in the business of long distance land transport. Old Dobbin, once a competitor, had been left far in the rear. True, the steel-tired chariot, then as now, had to contend with carriers using coastal and inland waterways, but over great areas of waterless terrain it enjoyed a virtual monopoly.

Today there is a potential competi'.or of the railway parked in every garage. In two decades we have passed through a revolution in land transport comparable in its effects only to the transportation revolution that followed the advent of the railway itself. Prosperity has given every eighth person in Canada a motor vehicle, and every eighth

person in Canada, by virtue of that fact, is a potential rival of the railway operator. Gasoline, the internal combustion engine, rubber tires and state-built highways already have played havoc with railway passenger earnings; and the onslaught of the motor-driven freight carrier on railway freight earnings has only well commenced.

Economic depressions are an old story in railway history. This is not the first time that the railway organism has suffered from general business debility. But this is the first time that the railway organism has had to wrestle with a major depression, while at the same time playing the rôle of involuntary donor in a continuous blood transfusion for the benefit of a rival transportation agency whose arteries have achieved a capacity undreamed of twenty or even ten years ago.

More than that, all other considerations apart, the general health of the railways is not in any too gcx>d condition to withstand a long siege. Their past is dotted with periods of riotous spending that have left their mark on railway physiques. Until recently, some of their strength has been consumed in fighting among themselves strength that might have been used in united attempts to staunch the drain imposed by a common enemy. The patient, now the victim of external affliction, has also to reckon with the results of his own past excesses.

All of which is by way of indicating that the doctors who are now diagnosing the case with a view to prescribing a remedy have undertaken no mean task.

Causes of Dwindling Traffic

T)ERHAPS it will help to keep the several main causes of the trouble in clear perspective if we set them down formally as follows;

1. General economic conditions.

2. Competition of other transport systems, including:

Motor vehicle competition;

Waterways competition.

3. Economic weaknesses within the railway system

itself resulting from:

Too much railway:

Uneconomic competition between rival railways.

Some of those tags cover a great deal of gn>und and they are not all mutually exclusive, but in a non-technical article such as this they will have to suffice. "Too much railway." for instance, is simply a convenient phrase used to indicate the results of long years of building in anticipation of traffic that has not materialized, haphazard use of the railway as a colonizer without due regard to cost, uneconomic duplication of lines, and construction motivated by political rather than economic considerations. Waterways competition is included not so much because it is an immediate factor in the railway traffic problem, but because it is one of the basic factors entering into the making of rail freight rates, which in turn determine the volume revenue from freight handlings —the largest single source of railway income.

It will be observed also that some of the factors affect primarily the revenue side of the account, while others are primarily matters of cost.

Turning now to the net effect of all the factors entering into the revenue side of the picture, the handiest index is gross railway earnings. During the ten years 1921 to 1930, the gross earnings of all railroads in Canada averaged $•182,000,000 a year. Until 1928, the most prosperous year in railway history, the trend was generally upward. In that year, the figure w'as $503,000,000. By 1930 it had fallen to approximately $454,000.000. Actual returns for 1931 will not be available for some time, but the total for the year was probably not more than $370,000,000 at an outside estimate.

In other words, in 1931 revenue was down at least $112.000,000 in round figures from the average for the previous ten years and $193,000,000 from the peak.

It is impossible to say with absolute accuracy just how much of the decline was due to general business conditions and how much was due to the competition of non-rail carriers, but on the basis of an examination of traffic trends over the past twenty years one can safely generalize to this extent :

Approximately seventy per cent of railway revenue is derived from freight handling. So far as this seventy per cent is concerned, the primary cause of the decline has been the falling off in general business, motor truck competition having been a secondary factor.

Continued on page 32

Continued from page 23

Loss of passenger revenue has been continuous over a period of some ten years and is attributable primarily to motor vehicle competition, the depression having been a secondary factor during the past three years.

One does not have to delve very far into the statistical record to find evidence of the effect of the general business decline on railway freight handlings. In 1928, for instance, the C. P. R. and the C. N. R. handled some 18,000,000 tons of wheat. In 1930 they carried approximately 10,000,000 tons. That one item alone accounted for more than a third of the total freight decline for the period. And the explanation of that particular part of the decline is not the motor truck, but Russia, the weather and tariffs, to name only some of the more obvious factors. During the same period, C. P. R. handling of lumber decreased twenty-four per cent and that of the C. N. R. thirty-four per cent. As between 1929 and 1930, C. N. R. haulage of coal dropped by more than 1,200,000 tons or roughly about twelve per cent. Here again the trend of business and not the motor truck was the controlling factor.

To get a more general view, one has only to look at our external trade figures. For the twelve months ending October last, our exports and imports totalled $1,325.000,000. For the year ending October 1930, the figure was $2,031.000,000; for the year ending October 1929, $2,611,000,000. Volume of goods handled was not down as much as the dollar totals would seem to indicate, as prices are now much lower than they were in 1929, but those figures are the principal clue to the explanation of the railway freight problem.

Motor Vehicle Competition

THE motor truck, however, cannot be dismissed as a negligible factor, even though its inroads do not loom very large in the total volume of rail tonnage. Bulk freight and long haul freight is still moving largely by rail, but over the past several years the truck has captured an increasing volume of L. C. L., or less than carload lot freight, that is, package shipments in quantities less than a carload. This is true particularly in the densely populated districts of Ontario and Quebec, where the hauls are relatively short.

In the past this class of shipment on the basis of volume has constituted about 3 ]/¿ per cent of total rail freight, the L. C. L. tonnage of the C. P. R. and C. N. R. for 1928 having been some 4.000,000 tons in a total of 112,000,000. In the light of some of the larger figures already cited, one might be excused for thinking that this phase of the problem is not much for the railwayman to worry about, but in these days of pruning and paring and scratching for the last dollar, fluctuations in even a 3\■> per cent

item demand careful scrutiny. The more so in this case since L. C. L. freight yields a much higher revenue than a bulk commodity such as wheat.

No man can say with certainty just how much of this type of traffic has been wrested from the railways by the truck, but one estimate given by the C. N. R. Bureau of Economics places the total freight handled in 1930 by trucks operating as common carriers over rural highways at 1,500,000 tons, which would mean a loss in revenue to the railways of $12,000,000. This figure includes neither the tonnage carried by privately operated fleets such as those of the oil companies and chain store operators nor the tonnage hauled in towns and cities; hence it is not to be taken as indicating the total volume of truck haulage, which is enormously larger. Information covering truck handlings is in such a chaotic state that no accurate statement of the latter figure is possible. The actual total is anybody’s guess, but, using such yardsticks as the known taxes paid, gasoline consumption and other operating costs as the basis for an approximation, it is probable that the total volume of freight handled by all types of trucks in Canada would yield a revenue in excess of $300,000,000, were it all to pay rates commensurate with the cost of handling.

Much of this traffic, of course, represents traffic that once was horse-drawn—traffic in which the railways have no interest. A great deal more of it is traffic originated by the truck which the railways have never handled. The size of the figure, though, indicates the enormous scope of this new transportation agency whose expanding 'field now overlaps that of the railways. One of the urgent needs of the moment is a detailed and comprehensive study of the whole railway versus truck problem aimed at a definition of the respective fields and the respective economic utility of the two agencies. As it is, we have been piling up railway debt, piling up highway debt and duplicating transportation facilities with no very intelligent idea of where we’ve been going.

The Passenger-Traffic Barometer

WHEN it comes to analyzing the causes of the decline in railway passenger earnings, the facts of the case marshal themselves with challenging clarity. The record is plain for all who care to read. So far.as the railways are concerned, it has been a case of marching the king’s soldiers up the hill and then marching them down again.

Between 1910 and 1920, the latter being the peak year, the number of passengers carried annually by all the railroads in Canada increased by forty-three per cent. Between 1920 and 1930 the annual total declined by thirty-three per cent.

Here are the specific figures:

Passengers Carried, all Railroads in Canada 1910 35,894,000 1920 51,318,000 1928 40,592,000 1929 39,070,000 1930 .............. 34,699,000

It is rather startling to discover that our railways actually transported fewer passengers in 1930 than in 1910 despite a population growth of more than 2,800,000 and an increase in railway mileage of 17,000 miles, but such is none the less the fact. Equally startling is the corresponding decline in the earning power of the railways as passenger carriers. Taking the C. P. R. as an index, the C. N. R. not being in the picture for the whole of the twenty-year period, we find that passenger train revenue per mile of road was also lower in 1930 than it was in 1910, despite an advance of fortytwo per cent in the basic passenger rate during the interval and despite considerable increases in mail and express revenue.

Here again the specific figures tell the tale at a glance:

C. P. R. Passenger Train Earnings per Mile of Road 1910 .................. $2,902 ’ 1920 .................. 4,844 1928 .................. 3,434 1929 .................. 3,296 1930 .................. 2.754

Translated into terms of gross revenue this means that during the last ten years of the twenty, C. P. R. annual passenger earnings dropped by $21,000,000, the total for 1920 having been $49,125,000 and that for 1930, $28,101,000.

Rate and distance factors enter into the revenue showing, but there can be no question as to the causes of the decline in the actual number of passengers handled. Taking all roads again, the record for the period 1920 to 1930 shows a decrease in the number of persons using the railways annually, of 16,700,000. Roughly, one quarter of the loss was due to the depression of 1930. The remainder can be attributed only to the competition of the motor vehicle, and largely to the competition of the privately owned automobile, motor buses being a relatively minor factor.

All which means that during the past decade Canadian railways have lost an annual passenger business of some $25,000,000 to the once derided “gas cart.” Add to this the estimated freight loss of $12,000000 and subtract freight receipts from the automotive industry of somewhere around $5,000,000 and you get a total decrease in annual railway revenue caused by the motor vehicle, of some $32,000,000.

The figure is only an estimate and it probably is low, as it takes no account of the increased passenger business that increased population would have brought to the railways had there been no motor car, and does not include all the freight factors. But low or not, $32,000,000 is no small item in the economy of a transport agency whose gross business for 1931 was not more than $370,000,000.

A Gargantuan Infant

THE rapidity with which motor-driven highway transport has developed is little short of amazing. In 1910 there were 8,967 motor vehicles in Canada. By 1930 this modest total had increased to 1,239,000, of which 1,047,000 were passenger cars and 165,000 were trucks. Including additions up to the end of August, 1931, this enormous fleet, on the basis of 1930 values, represents a capital investment of $961,000,000. Next to citizens of the United States and the islanders of Hawaii, we have been, on a per :apita basis, the most prodigal purchasers of motor vehicles in the world.

As right of way for this gigantic transportation machine, we now have 192,675 miles of improved highways, of which 80,000 miles have been surfaced with gravel, macadam or concrete; not to mention another 200,000 miles that still await the highway engineer’s attention. To build this gigantic network, it is estimated that we have spent $849,000,000, of which $326,000,000 represents expenditure on provincial

and provincially subsidized roads and the remainder expenditure by lesser governmental bodies.

In other words, alongside a railway system that has cost us $3,243,000,000 we now have a secondary land transport system that represents a capital investment of some $1,800,000,000, not including expenditure on such auxiliary plant as repair shops and fuelling stations.

Nor do the capital figures tell the whole story, for on a conservative basis it can be shown that the probable economic cost of maintaining and operating this secondary transport service is in the neighborhood of $700,000,000 a year, or $100,000,000 more than the railways cost us in the most active twelve months in their history. (For detail see compilation at the end of this article.)

Small wonder that visiting economists from Europe survey our transport facilities and politely murmur the adjective “overbuilt.” And small wonder that our railway machine is creaking and groaning, and its operators, confronted by the phenomenal exploits of the mammoth that walks on balloon tires, are wondering what to do next.

Trucks and Taxation

TOURING recent weeks the battle has taken the form of a skirmish over the principle of whether the motor vehicle should pay the full economic cost of the highway that it uses as right of way. Railwaymen point out that in 1930 we spent $23,000,000 on highway maintenance. Add to this interest of $42,000,000 on highway investment and $16,000,000 for depreciation and the total is $81,000,000. In addition the provincial governments spent $70,000,000 on new highway construction. As against these items the provinces collected gasoline and registration taxes of $42,800,000. The total of customs and excise taxes collected by the federal authorities on automotive equipment during 1930 is not available but it was probably a good deal less than the $25,000,000 received from that source in 1929.

Space does not permit of a detailed examination of the pros and cons of the argument but the figures suggest one conclusion that is of direct interest to the taxpayer. We cannot go on indefinitely using a right of way without paying for it. We’ve already applied similar methods of financing to a very considerable portion of our railway system and found that sooner or later they get us into trouble. Inevitably, motor vehicle taxes are going up. Ontario has already started to increase them, and it is a foregone conclusion that the other provinces ultimately will have to follow.

Theoretically such increases in taxation should tend to drive traffic back to the railways, and if there is any “unfairness” on the motors side of the competition it is only easonable that it should be eliminated, but when it comes to actualities it is prob1 able that taxation will have little to do with determining the ultimate outcome of the rails-motors struggle. Fundamentally, the success of motor-driven highway transport is based not on cost but on convenience and mobility, on the efficiency with which it can carry goods and persons over short distances when and where they are wanted, irrespective of time schedules and fixed rights of way.

The railway, on the other hand, is too cumbersome a m chine to handle efficiently what might be called “retail” transportation. As a machine for the handling of bulk and long distance transportation, that is, “wholesale” transportation, it is the most ; efficient yet devised, but, in the light of the motor vehicle performance, to use a railway to carry a dozen crates of eggs from a warehouse in one city to a retail store in another fifty miles away, is like using a sledgehammer to drive a carpet tack. The figure is not my own but a railwayman's which goes to show that rail operators are not blind to the economic utility of truck transport.

Transport by truck, however, has very definite economic limits, as a little reflection will indicate. A train of thirty cars.

manned by a crew of five or six men and representing an investment of roughly $150,(XX), can move 1,200 tons of grain between distant points with ease. To handle this load by motor would require at least 240 five-ton trucks, representing an investment around a million dollars and requiring a crew of not less than 300 men. There is not much room for argument in those figures.

Ultimately, of course, the two transport systems will find their respective levels of economic efficiency and so become complementary rather (han antagonistic. The last ten years, though, have seen a great deal of wasteful and useless competition not only between the motor vehicle and the railway, but between railways.

“Uneconomic Competition’’

AS HAS already been intimated, the d*latter is one of the fundamental factors contributing to the present railway difficulty. All competitive businesses, it seems, have one characteristic in common, a characteristic which impels them to meet external competition with internal strife. And the railways, confronted with a revolutionary change in transportation, have been no exception to the rule.

During a period in which the aggregate of railway passenger travel has been steadily diminishing, competition between railways for passenger traffic has reached new heights of intensity. Higher train speeds, more frequent service, duplication of service as between two roads, radio, the train telephone, solarium cars, lounge cars, barber shops, shower baths, more commodious sleeping accommodation, have all added their quota to the costs of passenger service provided by individual roads and still the aggregate of passenger revenue has gone steadily downward.

In a country already burdened with an overbuilt railway system, the last ten years have seen intensive competition in the construction of branch lines. Tables prepared by the C. N. R. and the C. P. R. indicating the respective encroachments of the two roads on one another’s territory do not agree as to either detail or totals, but they do indicate that at least a quarter of the $129,000,000 spent on branch lines during the past ten years has been expended on competitive building which has tended to increase the’ duplication between the two roads.

In the auxiliary services there has been similar competition. The hotel systems of both roads have been losing money and still both roads have gone on building hotels. In some cases, notably at Vancouver and Halifax, one road has entered into direct competition with the other. The C. N. R. explains that its Vancouver hotel was built because of a contractual obligation to the city of Vancouver. Both roads explain that the economic motive for building hotels is to increase railway passenger traffic in general and tourist traffic in particular. Tourist traffic has increased, but seventy per cent of it moves by automobile. The railways thus find themselves in the position of having subsidized a rival transport agency, while at the same time losing money on their hotel investment. Coincidentally. railway passenger earnings have steadily declined.

Similarly with steamship services which are regarded as feedçrs for rail traffic. The steamship services themselves have not been making money, and while they may have retarded the decline in passenger revenue

they have not prevented it. Despite that fact, a year and a half ago saw the two roads engaged in a hammer-and-tongs battle in the shipping trade on the West Coast.

The railways now point out, of course, that during the past twelve months all this has been changed. Passenger schedules have been cut drastically, luxury services have been curtailed, duplication of service on certain runs has been diminished or eliminated altogether. The C. N. R. is now routing traffic via C. P. R. steamships, and C. P. R. steamship offices will now route traffic over C. N. R. land lines. Both roads

have joined in a drastic slashing of express rates aimed at truck handlings of package goods. Co-operation has even gone the length of joint selling effort, advertisements soliciting passenger traffic having recently appeared signed jointly by the erstwhile competitors.

But the point of the tale is this. If co-operation is sound business when the going is rough, why not co-operation in the interests of economic efficiency when times are good?

An Estimate of the Annual Cost of Operating and Maintaining Highway Transport in Canada

Investment in motor vehicle based on 1930 registration figures and prices, plus 1931 expenditure to August 31. . . $961,550,000 Interest on capital at 5% $ 48,000,000 Depreciation assuming car life at eight years..... 120,000,000 Fuel (gas consumption, 1930, 480,000,(XX) gal. at 20 cents a gal.)..... 96.000. 000 Lubricants (estimated)... 15.000. 000 Maintenance, repairs, tires (basis, 2.36 cents per mile, U. S. National Automotive Chamber of Commerce figures).... 169,000,000 Garage ($25 a year, low) 31,000,000 Drivers: Trucks and buses (basis Ontario Automotive Transport Association figures, assuming average operation at nine months a year)..... 142,000,000 Passenger cars........ 20,000,000 Insurance (actual figures, 1930)................ 18,250,000 Total.................. $659,250,000 Less allowance for tourist expenditure included in above................ 30,000,000 Total cost of vehicle operation............ $629,250,000 $629,250,000 Investment in high1930. yS.’ $849,000,(XX) Interest on capital at 5% 42,450,000 Depreciation, assuming life of road at fifty years 16,000,000 Maintenance (1930 figures)................ 23,100,000 Total highway operation. $ 81,550,000 $ 81,550,000 Total annual cost of vehicle and highway operation........................ $710,800,000 Annual investment in new roads, 1930 figure............................ 70,000,000 Total cost of vehicle and highway operation including annual extension of road system...................... $780,800,000 j

Note-—Taxes paid by motor vehicles are not ¡ included in the above, as it is assumed they are ! included in the expenditure on highways.

The figure given under Investment in Motor Vehicles approximates “present value” rather than “original cost.” An independent estimate places that latter figure at $1,300,000,000.

Competent highway engineers claim that adequate maintenance of highways would involve an expen! diture of $70,000,(XX) a year. The depreciation figure, therefore, should probably be much larger than that ¡ shown.

Editor's Note—-This is the second of a \ series of articles on the railway problem. The j third article which will appear in an early issue will indicate the various remedial \ measures now being discussed.