"Only a Palliative"

Month ago Franklin Roosevelt was asked when he was going to have his conference with U. S. railroad men. He replied that he would not do so until the Interstate Commerce Commission announced its decision on the railroad application for a 15% freight rate rise, which he understood would be in a few days. Washington immediately took this remark as an obvious White House nudge in the commissioners' dignified ribs to hurry up and grant the rate rise before the roads folded up completely. In their own good time, last week the eleven commissioners, Mr. Mahaffie dissenting, let the commission's pleasure be known. Instead of granting the 15% the railroads had asked or even the 10% that Wall Street had predicted, the commission authorized increases amounting to an average of about 5.3%,* remarking: "An increase of 15% generally based upon a normal volume of traffic, as proposed, is for a larger amount than is reasonably necessary to meet the purposes of the increase. . . ."

The increase was sought to pull the roads out of the worst hole in their rocky, century-long financial history. The Depression knocked the railroads groggy. The Recession has all but knocked them out. To railroaders the reason is simple: never since the first spike was driven have railroad costs been higher, never have rates been relatively lower. In 1937 railroad fuel and material costs rose $100,000,000, taxes $60,000,000, wages $140,000,000. Income, meanwhile, was reduced 1) by the ICC elimination on Jan. 1, 1937 of some $120,000,000 in emergency freight rates granted in the Depression, 2) by a tremendous drop in traffic during the current Recession (net operating income of Class I U. S. roads was off 82% in January this year). Last fall the ICC granted rate rises on special commodities (like motors and accessories) totaling some $70,000,000, but the roads immediately declared this insufficient, petitioned for 15% more. This would have given them an estimated $447,000,000 added income. Last week's decision, by ICC estimate will provide $270,000,000, by Association of American Railroad's estimate $175,000,000.

That the decision pleased no one, not even the commission, was speedily apparent. President Roosevelt had no comment, but almost every railroad executive had plenty to say. President John Jeremiah Pelley of the Association of American Railroads was most temperate: "We're glad to have what they gave us, but we're disappointed." President Ralph Budd of the Chicago, Burlington & Quincy: "This increase, in my opinion, is nowhere near adequate. . . ." Chief Executive Edward Miall Durham Jr. of the Chicago, Rock Island & Pacific: "Quite unsatisfactory."

Railroad stocks and bonds slumped. Meanwhile, various ICC members sought to explain their attitude. Only Commissioner Charles D. Mahaffie contended that the increase was not large enough. The other commissioners agreed with outspoken Joseph Eastman, onetime Coordinator of Transportation, who remarked: "It is unnecessary to say that an increase in railroad rates cannot furnish an adequate answer to our transportation problem. At best it is only a palliative and whether it is even that remains to be seen."

That raising rates is merely a palliative has long been the contention of almost everyone except railroad officers and investors. ICC's Carroll Miller took occasion to reiterate his favorite belief that nothing can save the roads from Government ownership except consolidation into a single unified national system. How Labor will take the scaling down of duplicate services is not hard to imagine. Burton K. Wheeler, chairman of the Senate Interstate Commerce Committee, reiterated his favorite belief that "some of the roads must go through the wringer." How banks and insurance companies, who are heavily interested in rail securities, will like that is also easily predictable. To ICC Chairman Walter M. W. Splawn was attributed a proposal for a special railroad court to push through the reorganization of the 38 Class 1 U. S. railroads now apparently sidetracked forever in the courts. Finally someone asked Franklin Roosevelt when he was going to hold his railroad conference. This week, said the President.

*The increases range from 5% for agricultural products to 10% on iron & steel products. There are no changes in the rates for bituminous coal, lignite, coke, iron ore, fresh milk & cream and refrigerator service.

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