Percentage of Operating Expenses to operating revenue on 35 systems in compared with B&A, NY.N.H.&H. B&M. R.RS. It seems important that some attempt should be made to discover the underlying cause of this steadily increasing ratio of operating expenses to operating revenues. FUEL AND Wages. Operating expenses are divided into five groups, transportation expenses, maintenance of way and structures, maintenance of equipment, traffic expenses, and general expenses. As the combined traffic and general expenses usually represent less than 5 per cent of the total operating expenses, they are relatively unimportant, and do not require detailed consideration. Of the three main groups of operating expenses, the largest is transportation expenses. This group includes expenses incident to the actual moving of traffic, and the most important items are the cost of fuel and the wages paid to employees. The increases in these two items in recent years account for a considerable portion of the total increase in operating expenses. Returns made by thirty of the thirty-five railway systems in official classification territory indicate an increase in the average price of coal from 1910 to 1913 of 7.7 per cent, and an increase in the average daily wage paid in 1913 as compared with 1909 of 9.02 per cent. A smaller percentage of increase in the average price of coal is shown by the three Massachusetts railroads during the same period, but the increase in the average daily wage to employees has amounted to 13.02 per cent. If the increase in the average daily wage as reported by the companies correctly represents the increase in the scale of wages, the increased operating expense due to the latter item amounted to $820,060 on the Boston & Albany, to $2,941,538 on the Boston & Maine, and to $3,489,652 on the New Haven. The importance of this single item is shown by the fact that on the Boston & Maine Railroad the increase in the wage scale as above estimated during the past four years has been more than sufficient to wipe out the 6 per cent dividend formerly paid upon the capital stock of that company. MAINTENANCE EXPENSES. The most pronounced increase, however, in the operating expense accounts is shown in the amounts expended for maintenance of way and structures and for maintenance of equipment. Here, again, the experience of our railroads is typical of general conditions prevailing in official classification territory, as appears from the following tables and chart compiled from the returns of the companies and showing the amounts expended for maintenance and the ratio of maintenance expenses to operating revenues on each of the three Massachusetts railroads and on the three railroads combined during the past ten years. Ratio of Maintenance Expenses to Operating Revenues on Each of the Three Companies. Ratio of Maintenance Expenses to Operating Revenues on the Three Companies 1905 1906 1907 1908 1909 1910 1911 1912 1913 1914 Year. Combined. Percentage of Maintenance Expenses to An examination of the tables given above will show the general upward trend of this group of expenses which has been especially marked during the past three years. The figures for the last year especially are so large as to raise an inquiry in regard to the integrity of these accounts. It has been suggested that the figures showing the net earnings of the companies for the last financial year are deceptive; that the companies, in order to make a favorable showing for an increase of rates, have buried their net earnings by charging maintenance expenses, not only with all the necessary cost of maintenance, but also with the cost of many new additions which properly belong to new construction, and represent a capital rather than an operating expense. The Commission has therefore deemed it proper as a test of the integrity of these accounts, to examine the maintenance expenses of the New York Central, the Erie, and Baltimore & Ohio Railroads, which may be regarded as fairly comparable with our three Massachusetts railroads. For the purpose of comparison we have tabulated the relative expenses for maintenance of way and structures and maintenance of equipment on these three systems and the three Massachusetts companies for a period of ten years. The expenses for maintenance of way and structures are shown on the basis of the annual expense per mile of track. The expenses for maintenance of equipment have been subdivided into locomotive repairs and renewals, passenger car repairs and renewals, and freight car repairs and renewals, and have been computed on the basis of the average annual expense per unit. Maintenance of Way and Structures. Average Expenses per Mile per Year for the Maintenance of Way and Structures, Using as a Unit for Comparison the Number of Miles of Main Track Owned and Leased, Computed as Single Track. Average Expense per Locomotive per Year for Repairs and Renewals. Average Expense per Passenger Car per Year for Repairs and Renewals. Average Expense per Freight Car per Year for Repairs and Renewals. These tables, as well as the preceding tables and charts showing the advanced ratio of maintenance expenses to operating revenues for all railroads in official classification territory, indicate that the increase of this group of expenses on our Massachusetts roads is typical of general railroad conditions over a large area of the country. It is probably true that the high level of recent expenditures of this character is due in part to a failure on the part of the companies to make adequate provision for maintenance in the past, either through current expenditures out of operating revenues or by laying aside proper reserves for depreciation. There can be little doubt, however, that these increases are due in the main to conditions described by the Interstate Commerce Commission in the Five Per Cent Case: : The "The last ten years has been a period of remarkable development among the railroads. During that period heavy locomotives have taken the place of the lighter types formerly in use. small and relatively light wooden freight and passengers cars have been replaced by larger and heavier equipment, some of the cars of each class being made entirely of steel; many of the old |