he ground of the economies which our necessities have forced 1 us. CURTAILMENT OF EXPANSION. he growing impairment of railroad credit has been felt in many s, in the suspension of the construction of new mileage and the ailment of terminal expansion, but more particularly in the matof equipment, illustrated here to some degree by the previous aker. 'he number of freight cars in service in 1908 totaled approxicely 2,100,000. The number of such cars in service in 1916, as orted, was 2,283,830, an increase of only about 183,000. The tement submitted shows that no substantial additions were made freight equipment in the past five years; that such additions as re made were simply replacements of obsolete, worn out, and troyed cars. Indeed, the end of 1916 showed less freight cars in vice than in the previous year. When we come to locomotives, we find a similar failure to keep reast of the country's need. With 56,867 locomotives in service in 08, we had increased to 62,211 in 1913, and then only had 63,850 1915, with an actual decline for the year 1916. A statement of comotive conditions is herewith submitted. It seems almost needless to point out that there must be a comete breaking down of our railroad system to meet the requirements turally to be expected in the normal development and expansion our commerce and local needs without prompt assistance in adnce of their return. We built 94,112 freight cars in 1915 and 135,001 in 1916, and yet id no more freight cars at the end of the year than at the beginng. We use up over 5 per cent of our freight equipment each year. We therefore must add at least 100,000 cars annually to keep even. We should add at least 100,000 cars annually to meet the demands f our growing population and developing commerce. Summary showing of the number of cars and locomotives built during the years 1899 to 1916. Summary of passenger and freight cars, and capacity of latter from 19: Of these, 1,079,063 were box and refrigerator cars, capacity 37,779,193 tons; 893,229 were coal cut 42,018,442 tons and 131,858 were flat cars, capacity 4,881,149 tons. Class I and II roads only. Class III roads in 1912 reported 915 passenger and 12,125 freight 1914 they reported 11,807 freight and passenger cars, unclassified in official statistics. 3 Does not include cars in service of switching and terminal companies. • This column 1913 and prior thereto includes allowance for some cars not covered by affric). figures. Includes 11,067 cars of switching and terminal companies. Most of our single track roads in existence prior to 189 been rebuilt. Lighter rails and bridges, standard on most of up to 1880, have since been several times replaced with heaviertion and structures. Alignments have been corrected and g reduced. This process of building and rebuilding and the inat by reason of inadequate earnings, to lay by a compensating plus, has forced many of our more important railroads int solvency, some of them several times. Practically the entire ca investment originally made in the railroads prior to 1880 has lost in the changes which were essential to keep pace with the provements and tonnage growth, and the present railroad sys of the country taken as a whole has been built up largely wrecked fortunes, fortunes which have been in many instances o pletely lost in railroad investments. No recognition has been given to the fact that so large a port of the capital invested in them represents property that no lon exists and for which no adequate surplus was provided; a surp which the railroads must have over and above a reasonable ret upon the investment and taxes if they are to be successfully tained. Experience has shown that the railroad industry, w differing in many other respects, is in no respect different from a other commercial or industrial undertaking with respect to the solute necessity for a surplus, so that expansion and develop and provisions for unforseeable eventualities and for new reven producing improvements may not wholly depend upon added tal; and I may say that no commercial or industrial undertakin is deemed worthy of credit that does not lay by a reserve beyon a return upon its investment. NONREVENUE BETTERMENTS. Now, it is a well-known fact that every railroad having any appreciable degree of tonnage movement is compelled not only every year, but every month, to make some investment, and investment here and an investment there, in nonrevenue producing improvements. They have been obliged to measure their wants at the end of the year and to go to their bankers with bond issues for the purpose of providing improvements upon which they can not get a single penny of return. The separation of grades is one of these and the extension of a station platform here and there and the enlargement of a passenger station, or any station building, are all improvements necessary, but do not reflect by any added revenue any return upon the amount of their cost. These are essential, and any plan which does not take into account that requirement is fundamentally fallacious. It is not sufficient to say that they shall have a return of 6 per cent, but they must have added a sum to enable them to provide for the nonrevenue producing improvements. My experience on many railroads prompts me to recommend an allowance of 2 per cent per annum of gross revenue as essential to provide for nonrevenue producing betterments, for which no security issues should be made. Many receiverships in the past would have been avoided if such practices had been possible and adhered to. If we are to recognize the absolute right and necessity of a reasonable return upon railroad investments, at least 2 per cent per annum should be allowed for reinvestment, without security issues to represent it. REGIONAL SYSTEMS NECESSARY. The most formidable problem, and also the most important, is to so deal with the railroads of the country, to so legislate as that the stronger lines may not receive a greater return for the service which they perform and the weaker lines less than they require. We should, therefore, address ourselves to combining the road with regional districts under conditions that will preserve the highest efficiency and the best service at lowest reasonable cost. Unless we deal with the railroads as a single system, or a small number of regional systems, the equalization of the cost of service, rates, and return, is wholly impossible. The railroads came into being, without regard to any system; all equally essential; all performing necessary valuable, indeed indispensable, service to the public, and all entitled to a reasonable return. Equalization is now imperatively required if they shall survive, their development and expansion continue, and their credit reestablished and maintained. to their needs. If a single system could be evolved, the problem of equalization would, of course, be simplified to the extreme of possibility. Next to this would be the regional systems, which, within appropriately defined territorial limits, would embrace all the railroads engaged in interstate commerce, including the weaker roads with the strong. I have heard criticism of both, based on the supposed inability legally to compel the combination of railroads either as a single system or as regional systems. I venture to suggest that a com mission created for the purpose will find no difficulty in obtaining the assent and deposit of the capital stock certificates representing a majority of shares in amount of each and all the railroad companies involved under any reasonable plan which will stabilize the investment of railroad security holders and guarantee or assure & satisfactory return upon invested capital, either through a singl system or several regional systems. I, therefore, suggest a regional system program as outlined in an appendix to this statement. If the railroads are now to be returned to corporate control, the possibility of their nationalization at some future time should be measurably provided for. If we do not now adopt the plan for regional systems, then this possibility later should be so far antici pated now as to make either simpler later on. If a national emergency shall again occur, it should not be neces sary to consider 829 separate railroads, or to deal with nearly 200 of them. Now is the time to provide for these possible contingencies. Competition of rates no longer exists, and this is due largely with respect to the character of facilities furnished. As to passenger service, the laws generally require, and self-interest prompts. the railroads to supply steel coaches. As an example of efficiency without competition, I may instance the Pullman Co., which controls practically all of the sleeping-car facilities of the country. The latter, while in effect controlling a monopoly, has furnished the country the very best, the most commodious, and the best of sleeping-car facilities, with a high-grade dining-car service, and the fact that competition has been eliminated has in no sense deteriorated the facilities or service. It is safe to say that the Pullman Co. has been subject to complaint before the State and Federal Commissions in a less degree in a relative sense than the railroads. There are abuses inseparable from any system which recognizes competition; for instance, that of furnishing cars preferentially to favored shippers; holding loaded cars at division points to delar deliveries and saving favored shippers from demurrage charges: the settlement of claims of favored shippers without adequate investigation, or under duress on the part of the shippers, who threaten to transfer their business to other lines unless claims presented are recognized and paid. It has been frequently urged that the Federal Railroad Adminis tration has been less efficient than under previous private operating control. This I conceive to be the result of a misunderstanding of the part of a large portion of the public. It should be borne in mind that the Director General of Railroads made few, if any, hanges i the operating management of the railroads taken under control. The same operating heads and staffs were almost universally retained and the roads have been operated under Federal control, we may truth fully say, by the same operating agencies in charge of the railroads on December 31, 1917. A very large percentage of the men in railroad service enlisted or were drafted into military service. These were nearly all young with the ambitions and enthusiasm of youth, who were the exents of the greatest efficiency in railroad service. They were reced with older men, and most cases inexperienced in this field of ployment. Deterioration of efficiency and of service were natural A consequential. Government control was in no sense responsible the resulting conditions. The director general very properly was unwilling to completely rdinate the terminals and operation of railroad facilities, because the difficulty to restore their normal conditions when the railroads re returned and restored to corporate control. Once scrambled he turally feared the probable impossibility to "unscramble" them, that in these respects all that might have otherwise been accomshed was in the common interest avoided. On the other hand, the r equipment of the railroads was pooled and completely coordited. There had been no material additions to the freight-car equipent for several years preceding December 31, 1917, and every year ought with it a period during which the industries and farming terests of the country were more or less paralyzed through car mines. The whole country suffered in this respect in 1916, and rain in 1917, without any material additions thereto to meet relacements of obsolete and destroyed cars under Federal control. It was a common practice among all the railroads to hoard their car quipment to provide for seasonal local requirements, and like all oarding processes this only added to the embarrassments and diffiulties of the situation. If the roads are to go back to private ownerhip I deem it to be essential that the freight-car equipment of the ountry used in interline traffic shall be owned by the railroads in common and under a single control. It should be purchased on a oint credit of all the roads benefiting by their use and paid for on a basis of use. We should never again permit freight equipment used in interline and interstate traffic to be hoarded or to be individually controlled. This is not intended to apply to freight-car equipment intended for purely local use and to meet purely local needs. WEAKER ROADS. Eight hundred and twenty-nine railroads reporting to the Interstate Commerce Commission in 1916 operated 254,179 miles. Of these, 538 railroad companies operating 28,839 miles earned less than $5,000 per mile. Ninety-seven railroad companies operating 30,368 miles earned less than $7,500 per mile and more than $5,000 per mile. Sixty-two companies operating 77,143 miles earned less than $10,000 per mile and more than $7,500 per mile. Summarizing-Of 254,179 miles of road, 697 separate corporations, or 82 per cent of the total, operated 136,350 miles whose earnings were less than $10,000 per mile. These are the great arteries of commerce, that may be termed intermediate carriers, being feeders and distributors for the great trunk lines. They naturally come into more intimate relations with and are closer to the people in the territory which they respectively serve than the trunk lines, and it is upon their development the South, the Southwest, and the great |