1939: Railroads

During 1939 Congress again considered the basic problems of the railroads. One important bill became law and the Senate passed two others, which, if finally enacted, will pave the way for a permanent solution of many current difficulties. Two important cases involving the interpretation of existing legislation with respect to the railroads came before the courts, and the Interstate Commerce Commission handed down one decision involving fundamental principles. Meantime, because of the new business recession, the financial condition of the roads in the first eight months of the year failed to measure up to the position attained at the end of 1938. In the fall, after the outbreak of the war, traffic increased so rapidly that existing facilities for freight were pushed to the limit.

Proposed Plans for Reorganization.

The discussions of railroad problems, which had been interrupted in the spring of 1938 by the injection of the labor problem, were resumed early in 1939. Three general plans were presented. One, sponsored by Representative Lea, Chairman of the House Interstate Commerce Committee, called for a complete reorganization of the Interstate Commerce Commission and an increase in its membership from 11 to 18. A second, recommended by the administration, provided for a new Federal Transportation Board to take over most of the duties of the Interstate Commerce Commission and the Bureau of Roads. The third plan was proposed by the Interstate Commerce Commission itself. The Commission made eight main proposals: that (1) the Interstate Commerce Commission be given power to regulate all transportation including water carriers; (2) the Reconstruction Finance Corporation be instructed to make $300,000,000 available to railroads for the purchase of equipment; (3) pooling of traffic and rate charges be made compulsory; (4) certain roads should be allowed to consolidate voluntarily; (5) the Commission be empowered to delegate certain of its functions to individual commissioners and to limit the scope of appeals in rate and finance cases; (6) land Grant statutes should be repealed; (7) railroads should be relieved from the burden of contributing disproportionately to the cost of eliminating grade crossings; (8) railroads should be reimbursed by the Government for any cost of facilities over navigable waters in excess of the direct benefits to the carriers. (See also INTERSTATE COMMERCE COMMISSION.)

Bills Passed and Pending.

The bill which became law at this year's session of Congress was the Chandler Railroad Bankruptcy Act, approved July 28, designed to save railroads from bankruptcy. It provides that railroads in financial difficulties may enter into voluntary agreements with their creditors to postpone maturity dates and reduce interest rates on securities. The new process may be initiated only with the approval of the Interstate Commerce Commission and of creditors holding 25 per cent of the claims. The petition showing that the company cannot meet its debts is to be filed with a special court of three which, after notifying all persons in interest and holding hearings, may issue a stay of all other actions in bankruptcy for a reasonable period.

The bills which passed the Senate but failed to be considered in the House were even more fundamental. The Wheeler Bill would extend all the regulatory powers of the Interstate Commerce Commission to all carriers except air carriers and thus provide a machinery allowing for consideration of the whole transportation problem as a unit. It is expected that this bill will be approved early in the next session. The other bill passed by the Senate and designed to facilitate the handling of cases of railroads already in bankruptcy, provides for a special Federal court of five whose sole duty would be the handling of such cases.

Cases before the Courts.

The first of the cases in the courts this year came before the United States Supreme Court. The Old Colony Railroad, a Connecticut corporation in financial difficulties, had determined to abandon 88 passenger stations in Massachusetts in order to reduce its expenses. Although the Massachusetts Department of Public Utilities fought the case, the Federal District Court in Connecticut allowed an order to close the stations. The Supreme Court later reversed this decision on the ground that it was an unjustified inroad on a state's power to regulate its own transportation.

The second case in the courts has not been settled. On October 25, the Department of Justice filed a civil action against the Association of American Railroads, charging that the Railroad Association in pursuance of a resolution adopted in 1937 had refused to cooperate with motor carriers, thus violating the Sherman Anti-Trust Act. The case will test the extent to which the association may declare policies for its members.

The Interstate Commerce Commission decision with regard to rates involved the principle of rate differentials for the South. The case was hotly contested and led to debates and proposed legislation in Congress. The Commission finally decided in favor of the South and granted a 25 per cent differential on through shipments from Southern states.

Financial Conditions.

The condition of the railroads continued to be unsatisfactory during the first eight months of the year. The rate of operating return on invested capital which had been 2.67 per cent in December 1938, dropped to 9 per cent in April when the coal strike cut off a large portion of the freight traffic, and rose only to 2.01 per cent in August. Of 135 railroads reporting, 23 failed to earn expenses and taxes in the first 8 months of the year while Class I roads had a net deficit of $74,647,000, after fixed charges, compared with a deficit of $182,725,000 for the same period of 1938. Security prices dropped in sympathy with earnings. Bonds which had averaged 90 in 1937 and 59 in 1938 were 56 in August. An index of stock prices (1926 = 100) which averaged 49 in 1937 and 26 in 1938 was 25 in August 1939. In the fall, as a result of increased business activity and the movement of goods occasioned by the war, freight traffic improved rapidly. Freight car loadings in October were 15 per cent above the estimates made in August, and a shortage of equipment resulted. Railroad repair shops were working at capacity to recondition all equipment; and orders for new freight cars, rails, and steel ingots were the highest since 1936. Under the stimulus of the increased earnings, security prices improved. At the end of October, bonds were selling, on an average, for 62; and the index of stock prices had risen to 33. See also UNITED STATES: Supreme Court Decisions; TRANSPORTATION.