1941: Transportation

Office of Defense Transportation.

On Dec. 23, 1941, President Roosevelt issued an Executive Order placing all means of transportation under some degree of control by a single board for the first time in history. It will be remembered that the Maritime Commission and the Civil Aeronautics Board are independent of the I.C.C. This order sets up an Office for Defense Transportation in the Office for Emergency Management of the Executive Office of the President and provides for a Director who 'shall discharge and perform his responsibilities and authorities under the direction and supervision of the President.' The President named Joseph B. Eastman, Chairman of the I.C.C., as Director of the new ODT. The powers of the new ODT, with reference to the coordination of transportation policies, activities and traffic movements, investigation of adequacy of existing facilities and need for new ones, including storage and warehouse requirements, proposals for new legislation and other transportation matters essential to maximum efficiency for our wartime needs, are very sweeping. This experiment will be watched with interest, and already some have expressed the fear that it may lead to Government ownership. This does not necessarily follow, however, and it is to be hoped that Mr. East-man will not be too hampered in his great task by priorities and allocations, and also that he will receive the unstinted support of the President.

National Transportation Policy.

The provision of the National Transportation Act of 1940 for setting up a Board of Investigation and Research, was completely ignored by the President for six months or almost until the Board was supposed to submit its first report, and it was not until Aug. 11, 1941, that the President's final nominations were approved by the Senate. The only normal experiences of the year 1941 were the renewal of the see-saw between wages and rates and the continuation of reorganizations at their usual snail-like pace; unless we include the surrender of land claims by most of the land grant roads in order to qualify for the discontinuance, in part, of the so-called land grant rates, as required by the Transportation Act of 1940. Since most of these claims were about a half-century old and therefore could not be rated of much value, we feel justified in calling their surrender 'normal.' But elsewhere, upset predictions, confusion and chaos were the order of the day.

As noted last year much information in regard to taxes imposed on carriers and on subsidization is already available, particularly since the four-volume report of Mr. Eastman, formerly Coordinator of Transportation and now Chairman of the Interstate Commerce Commission and Director of the ODT, on subsidization was published during the year. This report was immediately and bitterly assailed by the rails as unfair and inconsistent and part of the work of the board will be to try to determine where the truth lies between these widely divergent views. As to taxes, it is to be hoped that sometime the public will learn that the whole tax structure can be simplified immensely by discontinuing the use of the railroads and other utilities as collection agencies. But the most important and most difficult task of the Board of Investigation and Research is to investigate 'the relative economy and fitness of carriers by railroad, motor carriers and water carriers for transportation service,' and hence it is pertinent to look over the personnel of the Board with this purpose, so fundamental to the establishment of a National Transportation Policy, in mind.

The members of the board are N. L. Smith of New Hampshire, Chairman, R. E. Webb of Kentucky and C. E. Childe of Nebraska. None of these could qualify as a national figure in transportation but the first two are comparatively young, 42 and 38, respectively, and both have had extensive academic training and experience on state utility commissions, Mr. Smith having been chairman of the New Hampshire Public Service Commission for several years. Certainly they now have a chance to achieve national distinction by carrying this job to a successful conclusion and selling their conclusions to the Congress and the public. Especially is this so in view of the fact that the third member of the board, Mr. C. E. Childe, has been well known as a railroad baiter and advocate of waterways, having been an active officer of the Mississippi Valley Association and having vigorously opposed the enactment of Part III of S. 2009, i.e., the part subjecting the waterways even to limited control of the I.C.C. Of course, Mr. Childe may acquire a judicious and unbiased attitude when he takes his place on this board. However, I repeat two statements made last year: first that '... it is deplorable that the Congress did not boldly recognize the condition confronting it and place all means of transportation under control of the I.C.C.,' and second that '... more money will be wasted, probably by men who know less about transportation than members of the I.C.C.'

Reorganizations.

With the transfer of the properties of the old Chicago and Eastern Illinois Railway Co. by Benjamin Wham, Trustee, to C. T. O'Neal, President of the new C. & E. I. Railroad Co. on Dec. 31, 1940, this line became the first First Class Railroad in the United States to emerge from receivership under section 77 of the Bankruptcy Act, although final approval of the transfer of properties was not given by the court until June 1941. Since the plan adopted in this case typifies the treatment the I.C.C. is attempting to give the roads in bankruptcy, the details are of interest. Common stockholders received nothing; i.e., common stock with a par value of $23,845,300 was wiped out and the capitalization reduced accordingly, from approximately $85,000,000 to close to $61,000,000. Preferred stockholders of the old company received one share of common stock of the new company for each share of preferred stock held. Holders of general mortgage bonds of the old company received one-half the principal amount of their holdings in the new company's General Mortgage Income bonds and one-half in new Class A stock, plus one share of new common stock for each $1,000 bond held. They also received $35 interest since the plan took effect as of Jan. 1, 1937. This plan reduced fixed interest charges from $1,772,800 to about $485,000, and a similar plan by which the Erie Railroad ended its period of receivership in December cut its fixed charges from $14,551,610 to about $7,000,000, about one-third of its estimated earnings for this year. The Erie reorganization was unusually expeditious, taking only about four years, while many other roads have been in receivership for longer periods. See also RAILROADS.

Wages and Rates.

The renewal of the see-saw between wages and rates was principally due to the increased earnings occasioned by the additional amount of traffic stimulated by defense and aid activities. About the middle of 1941 it became fairly clear that earnings for the year would increase by about $1,000,000,000 and the railroad unions filed a demand for increases in wages, which the roads estimated would cost about $900,000,000.

This led to a long and bitter fight which ended when the President's Emergency Board, called upon for a second time in an effort to avert a nation-wide strike, granted increases estimated to amount to about $365,000,000 a year. The settlement, involving increases in basic wage rates and vacations with pay, means substantially an increase of 76 cents per 'day' for operating men and 80 cents for non-operating employees, effective Dec. 1. Retroactive increases from Sept. 1 to Dec. 1 will be at the somewhat lower rates recommended in the original report of the Emergency Board but rejected by the unions. This award was made on Dec. 2 and on Dec. 9 the see-saw began when the Association of American Railroads, meeting at Chicago, decided to ask the I.C.C. for permission to raise all passenger fares 10 per cent, except extra and furlough fares, and freight rates, except for some bulk commodities such as coal, ore and lumber, by about the same percentage. In doing this, it was pointed out that the wage increases will have cost the roads about $85,000,000 by the end of 1941 and the effect on November earnings was to produce a decrease for the first time during the year. But of course, earnings for the year were much higher than for 1940. The Bureau of Railway Economics of the A. R. A. estimated net income for the first ten months of 1941 at $408,625,472, as compared with $100,932,114 for the same period in 1940. The net railway operating income, before interest and rentals, was estimated at $846,824,141, a 3.79 per cent return, as compared with $532,132,347, a 2.4 per cent return, for the same periods, respectively, and $759,038,636, a 3.43 per cent return, in 1930. The above figures for 1941 probably should be revised downward a bit on account of the retroactive wage increases, but the important thing is that practically all roads are sharing in this prosperity.

Shipping.

Although part of the rail prosperity is due to the withdrawal of ships from intercoastal and coastwise routes, the boom in shipping is even greater than that in railroads. The need for ships was and is so great that these withdrawals were made for more essential service elsewhere, and shipyards on both coasts and on the Great Lakes, some of which have been idle for years, were reopened and are feverishly turning out new tonnage. Most United States ships have been used to replace British tonnage withdrawn for war duty, as for example, the 10 British ships formerly operating between North and South America, and the 25 from the United States Atlantic Coast to the Far East have all been replaced. United States ships going to the Far East have increased from 12 to 82, to India, from 12 to 85, and to Africa, from 17 to 51, with the net result that our U.S. Merchant Marine is operating in the black for almost the first time since the Civil War. It will be remembered that the law setting up the present Maritime Commission provided both construction and operating subsidies, and in fact the lines have been subsidized to the extent of about $3,500,000,000 in the last quarter century. Under the new conditions, American Export increased its net income from $216,631 for the first nine months of 1939 to $5,895,000 for the same period in 1940; similar increases were made by other lines. Withdrawal of 50 tankers from the Gulf Coast to the Atlantic Seaboard Service to supply Great Britain led to fear of a gasoline shortage in the eastern states, and upon request of Secretary Ickes, filling stations in this area closed at seven p.m., for a short time. But the railroads put several thousand tank cars back into service and eased the situation sufficiently so that early closing became unnecessary, although still continued by some stations.

It may be mentioned here that the President again submitted reports to Congress in favor of his pet project the St. Lawrence Seaway.

Since the beginning of war with Japan on Dec. 7, the problems of protecting United States ships and of replacing losses due to sinkings have become more acute but, as already stated, our yards are working overtime and new yards are being built to cope with the emergency.

Pipelines.

Although these furnish only a special kind of transportation, they are under the control of the I.C.C. and are an important part of the transportation picture, since 100,000 barrels are pumped daily from the Oklahoma and Texas fields to the Middle Atlantic States. However, this is only one-half the 200,000 barrels carried by tankers daily from Latin America and only one-twelfth the 1,200,000 barrels carried daily by tankers from the Gulf Ports to the North Atlantic Seaboard before the war. During the so-called gasoline shortage an attempt was made to secure steel for the construction of extensive additional pipe lines but the Priorities Board refused to allow the use of steel for this purpose. One 250-mile short-cut was allowed from Portland, Me., to Montreal which will do away with the long tanker haul around the Gaspé, and up the St. Lawrence.

The most important event for the pipeline companies and their owners, the major oil companies, was the issuance, by Judge David A. Pine immediately after the Government filed suit in December, of a consent decree resulting from Government charges that the large oil companies were violating the rebate provisions of the Interstate Commerce Act and the Elkins Act. The Government alleged that the pipeline companies had paid refunds and rebates to the shipper-owner companies under the guise of 'dividends' often amounting to 'exorbitant' returns on pipeline stock, and giving shipper-owners a 'discriminatory' advantage over competing shippers. The companies denied the charges but accepted the decree which limited the return on pipeline stock to seven per cent. One is reminded of similar railroad practices of a half-century ago, which were the most important reasons for the enactment of the Interstate Commerce Act in 1887.

Present Situation.

Although trucks, buses, inland waterways and airlines have all participated in the benefits of the increased volume and speed-up of business due to defense and war activities, the present situation is rather confused and chaotic. For instance, in spite of the need for bottoms, it is likely that some of the available tonnage will be idle on account of the very high insurance rates, at least until either adequate convoy protection is available or the Government shoulders the risks. Railroad efficiency has continued to increase and the rails have been able to handle virtually all the traffic offered for transport. Many additional streamliners have been provided during the past year and trainload shipments at special rates have been experimented with in freight service. Just as United States ships have replaced British ships on the seven seas, so United States airlines have displaced Axis airlines in some parts of the world. In South America this was accomplished by the simple expedient of United States oil companies refusing to sell gasoline to the German and Italian airline companies. So the fortunes of war will have a dominant bearing on the future of transportation, both domestic and foreign. See also INTERSTATE COMMERCE COMMISSION; MERCHANT MARINE, AMERICAN; RAILROADS.