Crosse Wednesday morning. He reports further that they have had absolutely no trouble and the most serious delay was in passing through the span of the C., M. & St. P. Railroad bridge at Hastings, where they were obliged to break up the tow and pass the barges through one at a time. In my opinion the new barges are a great success. They are large enough to take a worth-while cargo with a shallow draft. These barges, loaded with approximately 650 tons each, were drawing scant 3 feet. I am personally sorry that we did not arrange to load them to approximately 800 tons each, which would have given them a draft of about 3 feet. The cargo then would have been 32 cars at 50 tons per car instead of 25 cars at approximately 50 tons per car. I believe they would have made the trip quite as successfully. Mr. Du Shane advises me that he thinks they are past the most troublesome part of the river and that in all probability they will get through without any difficulty. It should be borne in mind that the dredge boat Taber is not a very satisfactory towboat. It does not handle readily and is quite unsuited to the upper river. Nevertheless, it appears to be doing fairly well. It carries but a single crew, hence they are running only during the day, and the daylight at this season is rather short. Due allowance must be made for that fact. I suppose we should not assume that because this initial trip seems to be progressing satisfactorily that the success of the proj ect is assured. We will hardly feel warranted in becoming enthu siastic until several trips have been made under different conditions, but I am personally thoroughly satisfied with the showing made thus far. The barges are wonders, both in design and construction. I think the United States Engineers are to be congratulated on their achievement. I shall hope to send you some photographs within a day or two. With assurances of my personal regards, I am, Yours, very truly, Hon. JOHN J. ESCH, ST. PAUL ASSOCIATION, ST. PAUL, MINN., November 1, 1919. Chairman Committee on Interstate and Foreign Commerce, House of Representatives, Washington, D.. MY DEAR MR. ESCH: United States Engineer Du Shane advises ne that the U. S. dredge boat Taber, with the two barges of iron ore, arrived at Dubuque yesterday, Friday morning, and left there at 12.15 p. m., yesterday noon; no trouble encountered thus far. I am inclosing under separate cover some photographs which may be of interest. They are not very satisfactory. It was a dull, rainy day. One photograph shows the tow as it was made up. It is, however, lying alongside shore and it would appear that one barge pro jects considerably farther ahead of the towboat than the other. That is due to the position of the camera when the picture was taken. As a matter of fact the barges occupy exactly the same position on each side of the towboat and project ahead exactly the same distance. One of the smaller pictures will give you a very good idea of how the barges were placed with reference to the towboat. The barge on the opposite side occupies exactly the same position. The other smaller picture shows the fleet moving down river. You see the stern of the towboat and the stern of each of the barges. The large picture showing a view of the ore was taken from the bow end of one of the barges, the photographer standing on the barge. It would seem to have a very light load but, as a matter of fact, there are 13 carloads on that barge, averaging a little better than 50 tons to the car. The barges were drawing scant 3 feet of water. As previously explained, had they been able to get the third barge and put it immediately ahead of the towboat and between the other two, it would have added 650 tons to the cargo and would have made the fleet "handle" easier. House Office Building, Washington, D. C. DEAR MR. ESCH: You doubtless saw the statement of Commissioner McChord on the railroad situation, which I read with interest and immediately wrote him a letter, copy of which I enclose. I have also gone carefully over the bill which you submitted to Congress, and regret to say that it would practically leave the railroads about where they were before, that is, with respect to their revenues. Unless Congress acts promptly and liberally, so that the revenues of the railroads of the country may be brought into proper relation with their expenses, you can see from the condition of the Pennsylvania System-the largest in the United States, whose ton mileage is more than 12 per cent of the entire country, and whose density of traffic probably exceeds any other system, and which admittedly has been conservatively managed throughout its careerwhere the transportation systems of this country will be upon the return of the roads to their owners. Yours, very truly, SAMUEL REA, President. The letter referred to by Mr. Rea is as follows: Hon. C. C. MCCHORD, JUNE 4, 1919. Commissioner, Interstate Commerce Commission, Washington, D. C. MY DEAR MR. MCCHORD: I was interested in reading your recent statement as to the present railroad situation, and gratified to find our views rather in accord in opposing a Government guaranty as the solution of the railroad problem. I regret to say, however, that I do not share your optimism as to the situation facing the carriers at the end of Federal control on December 31, 1919, much as I appreciate the benefits that will accrue to the transportation industry when Government control ends. I am giving below some statistics of the Pensylvania System for the year 1918 and the first four months of 1919 to sub stantiate my position. Assuming that the Pennsylvania System had no guaranty in 1918, its condi tion at the end of that year would have been about as follows: Net railway operating income. Corporate income (other than any portion of the standard compensation) __ Total--- Fixed charges, including sinking and other funds and war taxes.. Deficit in meeting above fixed charges. Total deficit_---- $32,300,000 23,900,000 56,200,000 60, 200, 006 4,000,000 35,000,000 39,000,000 The net operating income for the year 1918 was equal to less than 2 per cent on the total property investment of the system, and you will note that the above deficit of $39,000,000 includes no allowance for that margin over dividend requirements which is so necessary as a bulwark to the credit of a large system, and to provide for unproductive expenditures, or to meet other emergencies. I, of course, appreciate that the increased rates made effective in 1918 were not enjoyed for the entire year; also that for the most part of 1918 traffic was moved under war conditions, and the weather of the first few months of that year was unprecedented; also that the great dilution of labor was a factor, and many other outlays were made to meet an abnormal situation. However, taking the first four months of the year 1919, when weather and war conditions were considerably modified, while the Pennsylvania system did better than for a similar period of 1918, it had left after paying operating expenses (but not war taxes) only $2,450,000. During this four months' period of Federal control the Railroad Administration has been enforcing economies in labor and materials, but I gravely question whether the property has beer maintained, as our lines are much behind the test period in rails, ties, etc. Even under these conditions of enforced economies our system fell short about $26,000,000 in earning its standard compensation in the first four months of this year. While conditions for the first few months of any year may not be an actual index for the remainder of the year I think you will adimit that even with the most optimistic view of the situation in a war-reconstruction period the Pennsylvania system will fall far short of earning its moderate guaranteed rental, and the question is how to promote this decline in operating income. From my long experience I am sure that increased business, greater efficiency, and other economies which can be effected under private control can not overcome the existing handicap without increased rates. The corporation may not be directly concerned with the operating results under Federal control, and our financial condition on January 1, 1920, may not suffer materially in comparison with January 1, 1918, but our management as the trustee for over 110,000 stockholders of the parent company, half of who are women, who in many cases are dependent on the income received from our stock for their livelihood, is concerned over the prospects facing us when Federal control terminates. Their uncertainty will be increased by your state ment, which will be regarded by the shipping public as affording no hope of increased railroad mileage and facilities, because no basis will exist to attract the large amounts of new capital required by the railroad business. We have plans for needed capital for electrification, terminal enlargements, especially in the large cities and seaports, and new equipment, but there is no basis to proceed with such expenditures on the attitude you express. It appears that the lesson of inadequate facilities demonstrated in and before the war is for gotten, and that the railroads will be forced into the position of an obstacle to the commercial growth which must come to this country. I would be derelict in my duty to our stockholders If I did not call attention to the situation they will be called upon to face at the end of this year unless some means are found to place our property in a position where it can earn a just and reasonable return when private managements resume control on January 1 next, and in my judgment this can not be done under the present rate structure. To complacently sit still and hope that increased business and greater efficiency, with probably lower costs for materials and lower wages (which most people consider "pegged," and which the Railroad Administration publicly states are not too high) will eventuate in increased net earnings sufficient to yield a reasonable return on our railroad investment, is unquestionably to encourage false hopes, which can not be justified for a minute on any sound business basis. All the world faces huge increases in transportation rates compared with ours, and it is better for business men to pay higher rates-which, if found too high, can be reduced-and have their chief consumers, the railroads, prosperous, rather than pursue the past policy of restricting railroad credit, and later trying to rectify the serious harm that has resulted from inadequate railroad revenues. What a stimulus it would be in a war-reconstruction period to see railroad credit placed on a sound basis to attract sufficient additional capial, and to find the Interstate Commerce Commission and the director general a unit in promptly conceding the requisite rate increases required to produce that result, thus eliminating uncertainty and releasing the Public Treasury from carrying the roads. Yours, very truly, SAMUEL REA, President LETTER SUBMITTED BY HON. C. C. McCHORD. Mr. SAMUEL REA, JUNE 9, 1919. President the Pennsylvania Railroad Co., Broad Street Station, Philadelphia, Pa. MY DEAR MR. REA: Your letter of June 4 is before me. I have read with interest your comments on my recent statement, and your views respecting the situation of the Pennsylvania system as to the future. My statement was devoted to three main propositions: 1. That Government ownership and Government guaranties were not advisable. 2. That regional commissioners, or regional mergers ought not be provided for. 3. That the railroads of the country would not be in a bankrupt condition on January 1, 1920. As I understand it, you agree with me in part, but you interject another subject by insisting that rates of freight and other transportation charges must now be increased in order to insure for the future necessary improvements and betterments to property, and the payment of annual dividends, interest charges, etc. In the course of your letter you say that your management as the trustee of over 110,000 stockholders of the parent company, over half of whom are women, is concerned over the prospects facing you when Federal control terminates. You then say: Their uncertainty will be increased by your statement, which will be regarded by the shipping public as affording no hope of increased railroad mileage and facilities, because no basis will exist to attract the large amounts of new capital required by the railroad business. This assertion of yours utterly disregards what I had stated. What I did say was: In giving the figures and making the comparisons, I must not be understood as taking the position that the railroads of the country have earned as much or more than they should have earned or were entitled to earn. My sole effort has been to give the facts as I find them to be, in order that the situation may be looked squarely in the face, and to ascertain whether there is a foundation for the statement that our railroads will be confronted with bankruptcy should they be restored to their owners. 152894-19-VOL 3- -54 In another connection I also said: The expression of a fear that more effective regulation will deprive the railroads of the country of a just return for service rendered is but a reassertion of the old fear that was given voice before the taking over. The people of this country have ever been, and they are now, ready and willing to pay to the railroads such rates of freight, passenger fares, and other charges for service rendered as shall be just and reasonable. There is no good reason for not believing that just and reasonable rates will be provided for the future. If wages and cost of materials are such as to demand higher freight rates and other charges in order that the railroads shall render adequate and efficient transportation service, the regulating body, on being shown the facts, can be depended upon to deal justly with the situation. I am unable to understand how you or any of your stockholders, women or men, can glean from my statement that I am not in favor of such rates of freight as will insure adequate railroads and facilities. Neither have I the slightest apprehension that if I am correctly quoted to the latter they can or will reach the conclusion you have suggested. When the armistice was signed last November, peace conditions began. Manufacture of war material ceased, and we entered upon the transition from war to peace conditions. By January 1 next over a year's peace conditions will have been experienced. Your pessimism is predicated upon what has happened during the stress of war and conditions which have naturally come about during the transition from a war to a peace basis. Let us confidently hope that both are now behind us. For the past few months business has been marking time, waiting through a force of habit acquired during the war for some paternal action upon the part of the Government. I am confidently of the opinion that if the physical operation of our railroads was restored at once to their managements, thereby getting back to the regular order of operation, protected as they are by the guaranty that nothing could be done that would have a greater tendency toward stabilizing and stimulating business with a resultant benefit to the railroads. It certainly can not be contended that conditions will continue as they have been during the war period, or that the country will fail to shake off the lethargy brought about during the transition period. We know that the guaranty is to continue at least until January 1, 1920. We do not know to what extent the revenues, cost of operations, and maintenance of the carriers will increase or decrease in the interim. It seems to me the wise thing to do is to get back as quickly as possible to the regular order in the operation of our railroads. If this be done, they will have six months previous to January 1 in which to transport traffic under normal operating conditions, and the result will be known. I very much doubt the wisdom of an attempt to adopt a permanent plan for the future of our railroads, so far as operating income is concerned, based on war conditions and conditions that are the outgrowth of war. Let us first get back to normal conditions and build for the future on that foundation, thereby endeavoring to insure that permanency which is so necessary to the growth and prosperity of our transportation systems, without which we can not hope to have a prosperous country. You state that your railroad will be unable to secure money for necessary improvements on the basis of present earnings. |