Not How Much, But For What

U.S. railroaders this week waited for ICC to grant them a boost in freight rates. They did not expect the full 10% increase they had asked (TIME, Dec. 22), but they did expect around 6-7 1/2%. That would add some $275,000,000 to their 1942 revenues, atop the $45,000,000 passenger-rate increase granted last month.

These new rates mean increased costs to almost every big U.S. manufacturer, to consumers and to the Government, now the nation's largest single shipper. Yet at the ICC hearings the only real opposition to it came from farmer-befriending Secretary Wickard. Not even Leon Henderson protested. For he knew the boost, however inflationary, was probably inevitable.

Fact is, the railroads needed it. A rate rise was implicit in the deal by which they gave their labor a wage increase of $330,000,000 last November. Besides, it will cost railroaders this year an extra $25-30,000,000 to keep saboteurs off tracks and trains. And higher equipment and raw material costs will run them into unguessable millions.

With 1942 revenues up from higher rates on more traffic, the railroads can probably maintain their 1942 net profits at around $500,000,000, on a par with last year. In comparison with any year since 1930, this is profit indeed (see chart, which covers Class I roads). But for the railroads the '30s were a bankruptcy decade; and bankruptcy is no condition in which to go to war.

From the national viewpoint, the important question is not whether $500,000,000 is a lot of money, but what the railroads do with it. So far, they have not dribbled it away. In the last two years long-parched stockholders got $360,000,000--about 50% of the 1940-41 net. In the same two years the roads repaid $117,529,000 to PWA and RFC, thus cutting their Government debts to $455,244,000, less than half their total original borrowings. Moreover, many a railroad learned well the No. 1 lesson of the '30s: that fixed charges, if not reduced in good times, are the surest way to go broke in bad. Southern Railway in December paid the last of $10,000,000 bank loans; Atchison, Topeka & Santa Fe retired $28,070,500 of 4 1/2% convertible debentures; New York Central is planning to pay off $16,000,000 bank loans due in 1942-44. Boston & Maine, Baltimore & Ohio and others are buying their own bonds on the market.

If this policy is continued, a little prosperity now will help the railroads both to fight the war and win the peace. For war, they need a healthy cash account; they must stand ready to haul troops and war materials in unscheduled rushes, which is expensive. And if they are to survive the peace, the roads must be flush enough to buy equipment-- new,streamlined, experimental, costly--with which to compete in a world full of freight and passenger planes.

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