Tumult in Transportation

by

WELBY M. FRANTZ

Chairman of the Board of American Tracking Aasociations. Inc.

Tumult is properly described as commotion or agitation with great uproar and confusion of voices. This is an appropriate description of what has been current within transportation in recent years. More and more the confusion of voices is reaching those outside the immediate family of transportation. As a result the American people may be asked to make decisions of great consequence, unfortunately without an adequate background to assure sound judgment.

How many otherwise well-informed people have any sound understanding of the actual functioning of transportation in this country today? All of the available evidence indicates “not many” and yet transport is the foundation of our economy.

Misconceptions? A great many.

Misinformation? An abundance.

Real understanding? Very little.

These are challenging statements, particularly so when addressed to this readership. Yet I think they are susceptible of proof.

Perhaps a few questions which you might answer quickly by consulting your impressions will serve as a confirmation or denial of the basic assertion just made. Let me offer them in the form of statements on which you should rate yourself as agreeing or disagreeing.

1) Transportation is “in trouble.”

2) Trucks are now the major reliance in distribution.

3) Trucks enjoy a great advantage in that they are subsidized.

4) As a national policy, we should permit any one form of transportation to own and operate any other form or forms of transport.

5) Piggyback is new and growing rapidly because it is a technological innovation.

Many other such conceptions might be offered for examination but these will suffice.

V hatever your opinions may be, there are several reasons why you hold them and it might be interesting, a bit later, to inquire into these reasons.

1. Transportation Is “In trouble"?

There are problems in transportation, as in most business activities. In transport, for example, a major problem is commuter service. Others include re-location of industries with accompanying dislocation of traffic flow, some problems of finance, duplicating facilities and technological changes.

Most of the complaint about being “in trouble” emanates from railroads. It might be interesting to examine this complaint and to ask: are they presently “in trouble?” It seems to me there is a split answer with an interesting background.

The answer is “some railroads are in trouble.” Railroads as a whole have historically been “in trouble.” Today they are actually in better shape than they were in before emergence of the trucking industry, principal public whipping boy for their “trouble.”

The plain fact about railroads in this country is that too many of them were built, not as engineering projects responsive to transportation needs of a developing country but as stock-jobbing promotions designed to line the pockets of speculators.

This profligacy resulted in economically indefensible duplication of facilities and has plagued some railroads since their inception.

Mileage in bankruptcy or receivership is a good test of railroad “trouble” and it has been a recurring situation since 1894 — long before truck competition. In that year 40,819 miles or 22.8% of all railroad mileage was in the hands of receivers. In 1905 it dropped to 796 miles; by 1916 was back to 37,353 miles (14.7%); by 1928 back down to 5,236 miles, thence up to a post-depression total in 1939 of 77,013 miles or 32.8%.

Today the figure is less than 500 miles, with no major road involved, although the past history of bankruptcy and receivership is replete with familiar big names.

This long history of “trouble” should clearly indicate the chronic nature of such problems as the railroads have. The significant fact is that motor transport can hardly be blamed as the cause in the light of pre-motor truck competition history.

In this connection the following facts should be noted. In 1929, the year of maximum ton-miles prior to World War II, the railroads accounted for 450 billion ton-miles. They reached a maximum of 741 billion in the war period. In the ten years, 1950 to 1959, their ton miles averaged 605 billion; in the five years 1955-1959 the average was 606 billion. Both averages show long-term expansion, a fact which should not be overlooked.

If it should seem to anyone that there is some sort of paradox involved in the contention that railroads are doing better in freight hauling today when confronted by motor carrier competition than they did prior to it, it is well to remember that competition is indeed a spur. Faced for the first time by a rival mode which could do as good or better job than they could, the railroads set about to improve their service, sales methods and customer relations. One of the greatest contributions of the independent trucking industry over and above its own service has been the general improvement in rail service to meet its competition.

2.Trucks Are Now the Major Reliance in Distribution?

This statement is true. In recent years, the movement of products in agriculture and industry from point of production to ultimate consumer depends far more heavily on trucks than on railroads.

And tomorrow and in the foreseeable tomorrows lying ahead, this shift to major dependence upon trucks will intensify with the increase in population and the further dispersion of industry geographically.

Trucks presently are hauling 38% and railroads 28% of intercity tons of freight (not ton-miles) with 24% being hauled by other modes such as pipelines and water carriers and 10% being hauled jointly by various modes.

In terms of total ton-miles (a ton-mile is the hauling of one ton one mile) railroads are still dominant, thanks importantly to their heavy volume of such items as coal, grain, ore, heavy machinery and the like. But for the successful operation of modern industrial production and for reaching the consumer directly and through intermediate outlets, the major dependence today is upon motor truck service.

3. Trucks Are Subsidized?

The answer to this charge is found in the report published on December 15, 1960 under the title “Subsidy and Subsidy like Programs of the U. S. Government.” Described as “Materials prepared for the Joint Economic Committee, Congress of the United States” this official study had this to say, in full, under the heading “Motor Carriers”:

“Whether the extensive expenditures on highway and street improvements constitute a direct subsidy to the motor carrier industry has been widely debated. Representatives of the motor carrier industry have contended that through registration fees, gasoline taxes and other charges which have gone into the construction of public roads, the industry has met all the costs properly attributed to it. This is denied by railroad spokesmen.

“Studies sponsored by the Federal Coordinator of Transportation indicate that for the periods studied, 1932 and 1934, the motor carrier industry as a whole was not the recipient of any form of public subsidy. However certain parts of the industry, such as farm trucks and trucks of 1 1/2 tons and less, did not meet the costs assigned to them.”

That is the entire comment in the 80-pagc report on subsidies. It should also be noted that, since the years studied, taxes levied against trucks have moved very substantially upward in the face of relatively little road-building compared with the period of the twenties. No construction of any consequence was undertaken during and immediately after the war. And the postwar building of the national system of interstate and defense highways now in progress finds truck operators paying nearly 40% of the total cost.

4. National Policy Should Permit Common Ownership?

Only the railroads among all forms of transportation seek the privilege of owning and operating competing types of transport. Many organizations of shippers, agricultural, industrial and commercial, as well as carrier organizations, either arc opposed to this proposal or favor it only with enforceable safeguards to assure competition and sound development of all modes.

For several years, and with increasing tempo, railroads have been urging that they be given the right to acquire, by establishment or purchase, operations in other fields of transportation, most particularly in truck transport. Presently they are allowed to operate trucks as supplementary or auxiliary to rail service, and some all-motor operations, under grandfather rights and special circumstances. Given complete freedom to own truck lines, these presently limited operations could be expanded immediately, and without hearing process.

The Congress, at the time of passage of the Motor Carrier Act, 1935, had little difficulty in deciding to reserve motor transport to independent businessmen. It understood thoroughly the danger of impeding its development by permitting railroads to enter freely into this new form of transport.

Hie Chairman of the subcommittee of the House Committee on Interstate and Foreign Commerce said, as quoted in the Congressional Record:

“I will say in this respect that it is the intent, and it is important to the welfare and progress of the motor carrier industry, that the acquisition of control of the carriers be regulated by the Commission so that the control does not get into the hands of other competing forms of transportation, who might use the control as a means to strangle, curtail or hinder progress in highway transportation for the benefit of the other competing transportation.”

It is obvious from a review of the proceedings that the Congress then felt that the railroads were not to be trusted to free lance within the motor carrier field. It is probable that students of transportation in both houses had in mind the railroad performance in the boat line case of previous years. In that case, known as “Lake Line Applications Under Panama Canal Act,” the Interstate Commerce Commission had before it petitions from various railroads owning or having an interest in water lines operating on the Great Lakes. In denying the petition for continuation ol this relationship, the Interstate Commerce Commission said:

“These boat lines under the control of petitioning railroads have been first a sword and then a shield. When these roads succeeded in gaining control of the boat lines which had been in competition with paralleling rails in which they were interested and later effected their combination through the Lake Line Association by which they were able to and did drive all independent boats from the through lake-and-rail transportation, they thereby destroyed the possibility of competition with their railroads other than such competition as they were of a mind to permit.

“Having disposed of real competition via the lakes, these boats are now held as a shield against possible competition of new independents. Since it appears from the records that the railroads are able to operate their boat lines at a loss where there is now no competition from independent lines, it is manifest that they could and would operate at a further loss in a rate war against independents. The large financial resources of the owning railroads make it impossible for an independent to engage in a rate war with a boat line so financed.”

Many believe there is no valid reason to suppose that if the railroads are permitted to pick and choose those places in the country where they would engage in motor carrier service in competition with the independent motor carriers, the eventual outcome would be any different from what it was in the boat line case.

5. Piggyback is New — a Technological Innovation?

Piggyback is not new. It pre-dates 1930.

Properly utilized, notably as an instrumentality for coordination between certificated carriers, piggyback has certain transportation advantages. Improperly handled, as many believe much of the current traffic is, it can well be destructive of the fundamental principles of freight-rate construction.

To understand why, it is necessary to examine the basic system of freight charges, designed to develop and protect markets and commodities, insure equality of treatment between shippers and regions, and promote growth of a sound transportation system. Under this fundamental technique, all freight is classified, important yardsticks being value and density. Each classification, in turn, has a rate applied to it, the formula of rates being first class or multiples thereof, percentage fractions of first class, and commodity rates.

It should be understandable that while the cost per mile of operation of a rail car or a highway unit might be identical for hauling a product of low value and for hauling a shipment of gold, for example, the rate charged for hauling the gold would and should be higher, as it is. Therefore, on balance, the total revenue of any carrier, rail, water or motor, consists of contributions from highrated traffic and low-rated traffic. All income is derived from rates determined by classification.

Much of piggyback traffic today is based on ignoring this classification. A railroad will accept a loaded trailer for a flat fee, regardless of what it contains, if it is offering certain piggyback services. The trailer might be filled with low-rated commodities or it might be carrying electronic equipment — the charge is the same.

Evidence in a recent action in connection with piggyback cited by an ICC examiner indicated that the level of some of these piggyback rates was as low as 11.6% to 16.4% of first class rates. In spite of these preposterous levels, the goods, if handled separately, might actually be classified as 150% of first class or more in the current classification. Moreover, piggyback service is much faster than the more expensive service subject to classification.

The market implications of such a practice can be judged at once if one will consider the plight of a small business firm, not having sufficient volume to ship piggyback, compelled to pay the same railroad ten or twelve times the freight charges enjoyed by a competitor big enough to use piggyback under these bargain-basement floutings of the classification principle. How long can he compete in the market place under these terms? And does this technique truly protect commodities, shippers, regions and markets?

From the standpoint of the railroads, how long can they maintain this departure from sound transportation practice? What if shippers generally demand that their volume shipments move in trailer by piggyback instead of in box cars under commodity or class rates? In that event a serious erosion of rail revenue, plus enormous demands for expedited service as now given piggyback, is inevitable. Many believe that while piggyback with its low rates might be a good device to attack competition, it is far from a sound technique by which to operate a railroad.

Why These Misconceptions About Transportation?

No one need feel chagrined at the quality of his ideas on any of the subjects here discussed. In the first place, railroads have been with us for 130 years, are completely familiar, and at one time were the key transport facility.

For years they have skillfully and energetically presented their viewpoints to the public, directly and through others. Among these viewpoints are these: that railroads are the backbone of transportation; that competitors are subsidized; that their growth is stifled by the dead weight of bureaucracy while competitors, inferentially at least, are unrestrained and, increasingly since 1950, that railroading is a “sick” industry and unless something is done, and soon, they cannot continue to operate.

The Outlook In Transportation

Problems of all kinds will continue to face transportation lines, just as they will confront all business. But in an expanding economy, the outlook for all forms is good.

Truck transportation potential to serve is most substantial, as indicated in earlier comment. Air transport cannot help but benefit from a rapid expansion of both passenger and freight business, with the latter especially promising. With new technology now being employed, water borne traffic can look forward to a bright future.

What about the railroads? Some of the foregoing might seem to point to a gloomy future lor the American railroad system. Whether the future is bright or dim depends largely upon the reaction of management to changing conditions in our economy. Historical attitudes must be re-examined and a far more sustained and penetrating inquiry made into operating practices and interrelationships.

Only recently have the railroads renewed their interest in mergers designed to eliminate costly and duplicating facilities and service. For more than thirty years, experts in and out of government have urged them to take steps which almost any other form of business enterprise would long ago have taken to adapt itself to changing conditions.

A prime example is coordination of service with other types of transport, just as they now cooperate with each other. No Congressional approval is needed for such action, they can do it now. Instead they appear to have decided, largely, to forego this opportunity in favor of an all-out attempt to take over other types of transport, the development of which they have fought vigorously to thwart. It is difficult to believe that this country will allow rail corporations with a total investment in excess of $27 billion in rail facilities, to move into competing forms with all the disruptive and monopolistic implications of such entry.

There is tumult in transportation, with great uproar and a confusion of voices. This comment is offered in the hope that it will assist in making the situation clearer and such issues as exist, more sharply defined. We need sound, economical and efficient transportation, more urgently today in the light of the Soviet’s economic upsurge than ever before. We may not achieve it until and unless the underlying facts are understood.