TWENTY-SEVENTH ANNUAL REPORT

OF THE

RAILROAD COMMISSION

To the Honorable J. C. W. Beckham, Governor of Kentucky:

The year ended December 1, 1906, has been not only the busiest, but one of the most important years in the history of the Commission. A large number of complaints regarding rates, depots, side-tracks and equipment have been investigated in various parts of the State. A number of complaints were filed charging that all local rates to and from points wholly within the State are unreasonable and unjust. These complaints were consolidated and about eight months' time was consumed in making a most thorough investigation. The depositions of shippers and the representatives of railroads were taken; all the data and information possible bearing upon the subject was obtained, and after a full argument by counsel, the Commission, on the 19th day of July, rendered an opinion and adopted a local mileage scale of rates making a very material reduction. This opinion and the scale of rates so made by the Commission will be found in Appendix A, likewise a synopsis of most of the important complaints heard and determined during the year. Before the expiration of the ten days allowed by law, after notice had been served upon the railroads affected by the establishment of these rates, suits were filed by the railroads in the Federal Court for the Eastern District of Kentucky, seeking to enjoin the Commission from enforcing them. A temporary restraining order was granted by the Court upon the filing of the Bills of Complaint. Thereafter, on motion of the Commission, Hon. A. M. J. Cochrane, the presiding judge of that court, entered an order requiring the railroads to make separate way bills in the transportation of intra and interstate freight, and also requiring them to keep these way bills on file in their

offices properly separated, to the end that should the Commission's order be upheld, the difference between the rates actually charged and that fixed by the Commission may be readily ascertained. The pleadings in these cases have been made up and issues fully joined. As soon as a special commissioner shall have been appointed by the Court, the taking of proof will be begun and pushed as rapidly as possible. We are of the opinion that the rates made by this board are not confiscatory, as claimed by the railroads, and are no more than fair and just. We confidently expect to win these cases, and to that end shall bend every energy.

MILEAGE.

At the close of the fiscal year ended June 30, 1905, there were 3,374 miles of railroad in the State, and at the close of the fiscal year ended June 30, 1906, this mileage was increased to 3,446 miles of railroad. We are glad to be able to report that in addition to the increase in mileage during the past year there are many new extensions under way, especially in the coal fields in Eastern and Western Kentucky. Outside capital has at last awakened to the fact that Kentucky is abundantly rich in its mineral, timber and agricultural resources, and we hope to be able to report next year a still greater increase in railroad construction.

SHORTAGE OF CARS.

The Commission has received numerous complaints from shippers on account of the failure of the railroads to furnish cars to transport products to market. These complaints are made, especially in the winter months, on account of the shortage of coal cars. It is an undisputed fact that the railroads not only in Kentucky, but throughout the United States have not kept pace with the enormous increase in traffic, hence there is a universal complaint upon the part of shippers. of all commodities throughout the country on account of the car shortage. The seriousness of this question should not be underestimated. A shortage of cars has a tendency to more seriously affect the welfare and prosperity of the country than any other one thing. When freight

traffic is tied up and commodities are unable to reach the market, a stagnation in business is created, and on account of the inability of shippers to realize upon their products stringency in the money market is the inevitable result.

Recent investigations made by us show that this shortage is not confined altogether to the winter months; many coal operators complain that even during the summer months they are unable to obtain a sufficient number of cars to carry the output of their mines.

Various theories have been advanced as to the cause of this evil. Among others, it has been suggested that one of the factors resulting in a shortage of equipment, inadequate terminal facilities and the limited construction of new lines throughout the country has been the tendency toward consolidation of railroads whereby the weaker lines have been absorbed by the stronger ones, thus minimizing competition in service as well as for traffic, and in the effort upon the part of the railroads to economize in all branches of the service they are endeavoring to transact the business of the consolidated lines with fewer employes and less equipment than would be required were they independently operated. That this consolidation has gone on from year to year and the interests of the public seem to have been forgotten, consequently fewer miles of railroad have been constructed than would otherwise have been done.

The Interstate Commerce Commission has recently made an exhaustive inquiry into this subject, and in its efforts to diagnose the trouble, among other things, they say:

"The problem is one that is much deeper and much broader than a mere lack of cars and engines. It is one in which is involved every factor of railroading, the construction, the operation, the maintenance. and the financing of the railroad. The inability of the shipper to procure a car may be but a symptom of a deep-seated and organic trouble. The real cause of car shortage may lie in the too conservative character of the management of the road or in the unfitness and incompetency of its operating officials. It may follow from an incomprehension on the part of directors of the full duty imposed by law upon a common carrier. It may arise out of a policy in railroad operation which gives

primary consideration to speculative stock operations. It may come from an inability to secure funds to so fit itself that it can discharge its duties. It may follow in the time of exceptional prosperity, from an increase in traffic which could not reasonably have been anticipated. Or, it may result from an inability to secure labor and materials necessary to the proper enlargement of the railroads' facilities. The problem of transportation is so closely interwoven with the fabric of our commercial system and so closely related and so interdependent are the various activities of our industrial life, that one may not lightly say what are the multitudinous considerations which necessarily enter into so simple a question as the reason why a railroad car is not at once forthcoming when ordered.

The enactment of a reciprocal demurrage bill will not build railroad track, equipment, enlarge and simplify terminals, nor transform incompetent operating officials into first-class railroad men; but it might stimulate, energize and, in some cases, revolutionize the methods of delinquent railroads so that they would render the service which they are created to render. This is the theory of reciprocal demurrage. But that, of itself, it will enable the railroad to render adequate services, is not demonstrated by experience."

Whatever the cause may be, the fact exists that the railroads are not furnishing the shippers of the country suffiicent cars to transport their products. The shippers lay the entire blame at the door of the railroads, and the railroads contend that the failure upon the part of the shipper to speedily load and unload the freight tends, in a great measure, towards creating a shortage of cars. So far as the shipper is concerned, a time limit is placed upon him and he is penalized unless he complies with the rules which require him to load and unload within a certain time. No such penalty is placed upon a railroad, either as to the time for furnishing cars when ordered, or in their transportation. There is a small per diem charged by agreement of all railroads, of from twenty to fifty cents for the use of a foreign car for the period of thirty days and one dollar per day thereafter. This per diem should be increased to such an amount as will make it more profitable to a railroad using a foreign car to return it to its owner, than to keep it in service