44 



HARDWOOD RECORD 



present stringent rebating laws, and at a time 

 when tlie pulilislied freight rate did not by any 

 means indicate the actual rate that was collected 

 bv the carrier. In fact, this rebating was so 

 general that I feel perfectly sate in saying that 

 the railroads on an average did not collect in 

 excess of 80 per cent of their published rate so 

 that taking this into consideration, we And. 

 through the elimination of rebating, an actual 

 increase in rates of at least 20 per cent. 



Another claim of the railroads is that on ac- 

 count of the high price of labor, material and 

 taxes, the cost of operation has materially in- 

 ire-ised Rv referring, however, to the state- 

 Sen?s of the •llroadf filed with the Interstate 

 Commerce Commission it will be ascerta'ned that 

 this statement is not only untrue but that on 

 the contrary there has been a steady gain in t 

 net income and a corresponding decrease in the 

 percentage of cost of operation. This has been 

 due to the constantly increasing movement ot 

 freight which is being bandied with practicall.v 

 the same facilities. It, therefore, the claim o 

 the railroads that the freight rates should be 

 based on the cost of operation (and this I be- 

 lieve is logical), the freight rates should be low- 

 eie^l instead ot raised and the w.ages of employes 

 further increased, and I lirmly believe that the 

 present condition of the railroads warrant this 



"""/an "endeavor to win the support of the pub- 

 lic in an effort that was to be made by the ■■a>l- 

 ro-ids to increase fre ght rates. C. C. McLam, 

 cha^rmLn of the Trunl Line Association pub- 

 lished a pamphlet which was generally circulated 

 by the railro'ads some eight or ten months ago 

 This pamphlet was entitled The Diminisnea 

 Purchasing Power of Railway Earnings. In 

 fhis a?tidf Mi" McCain compared the daily wage 

 scile paid to employes in 1897 with that to sim- 

 ilar employes in 1907, showing an increase of 

 16 '^7 per cent, and claimed that no correspond- 

 ing' ncrease had been made in freight rates 



We have before seen, however, that by the abo- 

 lition of rebating, an actual increase in tveight 

 ra ?° of 20 per cent had taken place which is 

 morl than svrfflclent to take care of the advance 

 S wages claimed by Mr. McCain, if his figures 

 were correct. I thiik, however, that I can estab- 

 lish to your entire satisfaction that the figures he 

 submits are at least misleading, and that instead 

 of a^ increase there has actually been a decrease 

 m the cost of labor. Mr. McCain has merely 

 established that the «"«"."* P^/d to each em- 

 Dlove per day was greater in 190 1 than in ISJi. 

 We find, however, from his own hgures. that 

 thi enUre operating expense, inc uding labor and 

 the increase thereon that lie claims, was less in 

 iq07 than in 1897, in proportion to the business 

 handled, showing, 'as 1 have said before a de- 

 crease and not an increase in the cost of labor, 

 due to thetTt that it accomplished more for the 

 same amount ot money that was expended for t 



I do not want to bore you with statistics, but 

 I feel that at this point it will be necessary for 

 me to quote a few*^ figures to substantiate the 

 statements I have just made. I might add tha 

 all the figures which I quote are obtained f om 

 the swoin statements of the railroad themselves 

 on file with the Interstate Commerce Commis- 



^'°We find the total eapitalization of railroads in 

 1897. $10,033,008,074, «g«l°^ ^l^^n^-'^sV- per 

 1907, an increase of *,O'-l-*''13S.609 or ol-- Pf.^ 

 cent. We find a trackage in 189 1 of 24.,01.i 

 miles In ]'.W7 327.97.-i miles, an increase in 

 total' trackage of but 33.5 per cent. This in- 

 crease bear in mind, includes all double track- 

 ing, yard tracks, spurs and private sidings. 



The net income in 1897 we find to have been 

 S81,257.50G. In 1907. $449,461,188; an increase 

 of $368,203,082, or 453 per cent, so that we 

 find by a comparison of these flgiues that the 

 railroads, with an increased capitalization, in- 

 duding all of the water that had been Pumped 

 in, of but 51.2 per cent, that an >nereased track- 

 age or facilities of but 35.5 per cent, hand ed an 

 ficreased tonnage of 142 per eent. resulting in 

 an Increased net income of 45.3 per cent. Net 

 income, it must be borne m mind, is what is lett 

 after paying all expenses; in other words, the 

 Set income of railroad companies is exactly the 

 same as the net profit of any ordinary business 

 institution. Does this look like starvation for 

 the railroads, or as though an advance in rates 

 were necessary V , , » i ,„ 



Further reference to the railroad reports shows 

 that the surplus — in other words, what is left 

 after paving all expenses and then paying divi- 

 dends and interest on their capitalization and 

 bonded indebtedness— exceeded in 190, by .^t>0,- 

 005 785 the entire net income tor the year ot 

 1897; in other words, the surplus in 190 1 wa.s 

 an excess of $141,000,000, while the entire net 

 income for 1897 was as stated a little more than 

 $81,000,000. 



In the foregoing statements and compansons 

 I have used the commission figures of 190 1. as 

 it was on these figures that Mr. McCam s argu- 

 ment was based, and also because these were the 

 most recent that were available on the short no- 

 tice that I had to prepare this argument. 



Tte condition of the railroads today, as shown 

 bv their reports for the eight months ending 

 February 28, 1910, show even a more prosperous 



condition, as we find for these eight months an 

 increase over 1907. which was the "banner" 

 year, of $72,658,000 in net income. At this 

 rate the increase in net income over correspond- 

 ing months in 1907 for the twelve months end- 

 ing June 20, 1910, will approximate $109,000,- 

 000. This enormous increase in the earning 

 power of our railroads over the extremely pros- 

 perous period of 1907 has accrued in spite of 

 any advances and increases that have been made 

 in wages, taxes, cost of material, etc.. and with 

 comparatively little increase in the tangible value 

 of the carriers. 



On October 18, 1909, President McCray, of 

 the Pennsylvania lines, stated that no general 

 advance in freight rates was being considered at 

 that time. Indicating that such action was not 

 necessary. It is now claimed, however, that be- 

 cause of the increase that has since been made 

 in wages, an advance in freight rates is neces- 

 sary. Let us see whether or not this claim is 

 borne out by the record of the Pennsylvania Rail- 

 load, made since that time. 



What pertains to the Pennsylvania company 

 pertains to all the roads, and if I had the time 

 and you the patience I could give you the fig- 

 ures of all the other roads In the country show- 

 ing substantially the same results, so that I take 

 it that it is clearly established that the increase 

 made in the wage scale is onl.y consistent ; in 

 fact, hardly in proportion with the increased 

 business being transacted by the carriers, and I 

 think it is equally well established that there is 

 more reason for rates as an entirety to be low- 

 ered than to be raised. 



The real reason for the desire on the part ot 

 the railroads to advance rates is not that such 

 advance is essential to yield a fair return on the 

 value of the property, but to further the stock- 

 Jobbing operations of Wall Street. We all know 

 that the actual operation of the roads has be- 

 come but a secondary consideration, and is merely 

 the means through which some of the railway 

 powers gather enormous profits by the manipula- 

 tion of the capitalization of their properties. 

 For some years the plan has been as soon as the 

 stock paid dividends to issue more stocks and 

 bonds : in other words, pour in some more water, 

 and by extra pressure brought to bear on those 

 in charge of the operating departments, pay a 

 dividend on this water, and when this dividend 

 was secured, still more water was poured in, and 

 the same operation repeated again and again. 



The point has now been reached, however, 

 where the operating departments of the railroads 

 are securing maximum results from those in their 

 charge, so that to permit the enhancement of 

 their private fortune to further increase capi- 

 talization or indebtedness, it is necessary to find 

 some other means of increasing their earning 

 power, so as to pay dividends on this increased 

 capitalization ; therefore, they now say to us, "It 

 is necessary to increase rates." Will we stand 

 for if.' I don't think so. 



Just what amount of water has been pumped 

 into railroad capitalization it is, of course, im- 

 possible from the figures to ascertain, but we 

 can procure some idea from some of the disclos- 

 ures that have been made ; for instance, we all 

 recall the Chicago & Alton, which road increased 

 its capitalization in less than a month from 

 thirty-eight millions to one hundred and three 

 millions with little or no increase in the actual 

 value or Improvement of their property. In an 

 investigation that was made we find that four 

 million dollars in stock and bonds were issued 

 and sold to the unsuspecting public for real 

 money, and not a dollar of this enormous sum 

 could be found, and not a single tie had be<-ii 

 laid. This is typical of railroad finance, and to 

 this, and not to the insufliciency of freight rates, 

 is due the present antipathy of the investing 

 public toward railroad securities. 



(Jur president, realizing the necessity of ascer- 

 taining the real value of the physical possessions 

 of the railroads in order to determine whether 

 or not they were securing a fair return on their 

 investment, caused a clause to be inserted in the 

 pending railroad bill providing for the valuation 

 by a commission of the physiial property of the 

 railroads. This provision, however, together 

 with several others of a similar nature, were 

 carefully pruned out of the bill in the Senate 

 committee by that great friend of the railroads. 

 Senator Aldrich. 



We now come to that phase of the question 

 in which we perhaps are more directly inter- 

 ested, i. e., the freight rates on lumber as com- 

 pared with rates on other commodities. 



In fixing freight rates the railroads do not 

 base their charges on the cost to them of the 

 service performed, as all other business is trans- 

 acted today, but arbitrarily fix a rate without 

 regard to such cost. These rates are fixed at 

 "what the traffic will bear." In other words, 

 what the public will stand for. This basis of 

 rate making has resulted in low rates where tlie 

 people interested have made a hard fight and 

 brought influences to bear to keep the rates 

 down. While those lines of trade that have not 

 made much of a fight in this direction have se- 

 cured extremely high rates. 



Unfortunately the lumbermen do not seem to 

 have given this* matter the consideration to which 

 it is entitled, and their demands for lower rates 



or objections to increases in rates in the past 

 have been few, and those few have been made 

 in rather a halfhearted way. 



The result of this is, and I want you to clearly 

 understand this, that the present rates on lum- 

 ber are several times higher than that on any *. 

 other commodity, when based on the actual cost 

 to the carrier of the service performed by it. 



I do not deny that there are rates in effect on 

 certain commodities which, perhaps, are too low; 

 in fact, I believe that there are some commodi- 

 ties which are being transported l)y the railroads 

 at an actual loss, but as we have seen from 

 the previous figures which I have quoted, the 

 average results do not justify any increase, and 

 I maintain that each commodity should bear its 

 own burden and not one commodity pay part of 

 the freight on the other as is now the rule. 



The profit to the carrier of transporting lum- 

 ber today is many times greater than that of 

 transporting any other commodity, so that wc 

 are making up with the freight that we ship 

 the losses that the railroads experience in han- 

 dling other freight, and are m.nking a profit for 

 tlie railroads on such freight as is handled with- 

 out a profit, as well as paying them a good profit 

 on our own. This. I think, you will all agree 

 with me is not right, and I believe that rates 

 should be so based as to compel each commodity 

 to pay its fair proportion. 



In order to emphasize these statements I beg 

 to submit comparisons ot the rates on lumber 

 with a few other commodities. 



The rate per hundred pounds from Cincinnati 

 to Chicago on lumber is 10 cents. The rate be- 

 tween the same points on cattle is 12 cents. As- 

 suming that the average car of lumber will 

 weigh 55,000 pounds, which I do not believe is 

 excessive, the freight on a carload of lumber 

 would be $55. while on the basis of 25.000 pounds 

 for cattle (which I am informed is about the 

 average) the revenue would be $30 per car, mak- 

 ing the revenue per car on luml)er $36 greater 

 than on cattle, or more than twice as much. 

 The average value of a car of lumber. I believe, 

 could safely be fixed at $400. while the average 

 value of a" car of cattle will exceed $2,000, or 

 its value is tour and one-half times greater than 

 lumber. The per cent of freight in proportion 

 to value is about 13 per cent on lumber against 

 1 V2 per cent on cattle. Let us consider for a 

 moment the relative cost to the carrier of trans- 

 porting a car of lumber as compared with cattle. 

 For lumber almost any sort of cars will answer, 

 and. as we all know by bitter experience, no 

 cars are furnished for lumber until all other 

 demands for cars have been met. The cars must 

 be loaded by the shipper, and there is no special 

 preparation made by the carrier to facilitate 

 this loading. In the case of the movement of 

 cattle special cars are required and must be and 

 are always furnished promptly. Special provi- 

 sion is made to facilitate the loading of cattle. 

 After the lumber has been loaded on cars at the 

 expense of the shipper, and without any assist- 

 ance whatsoever by the carrier, the carrier moves 

 the shipment forward at its convenience, giving 

 practically all other freight the preference over 

 lumber, thus resulting in a very slow movement 

 of such freiglit and making deliveries very un- 

 certain. In the case of handling cattle, the car- 

 rier is required by law to move such freight for- 

 ward on certain schedule, and in cases where the 

 freight is out more than thirty-six hours they are 

 required to stop their trains, water and take care 

 of their load. In addition to this they furnish 

 transportation for a man accompanying each 

 shipment. In the transporting of lumber, there 

 is little or no damage, and the amount paid out 

 on this account is practically nothing, while on 

 cattle the amount paid out is stupendous. If 

 you will consider carefully these facts, I think 

 vou will agree with me that the actual cost to 

 the carrier of transporting a carload of cattle 

 must be several times the actual cost of trans- 

 porting a carload of lumber, and still we find 

 the amount charged for such transportation more 

 than twice as much on the lumber as on the 

 cattle. 



I will quote briefly a few other rate compari- 

 sons without elaborating to such an extent on 

 the cost of the services performed. The rate on 

 grain from Jackson. Mich., to Cincinnati is 7 

 cents per hundred pounds. A reconsignment 

 privilege is granted, by which the grain may be 

 kept in the warehouses here for sixty days and 

 reconsigned to Richmond. Va.. and on a propor- 

 tional rate of 6V0 cents per hundred pounds. 

 The rate on lumber to the same point is 10 cents 

 per hundred pounds, a difference in revenue per 

 car of $50. or almost three times as much per 

 car on lumber as on grain, and this calculation 

 is based on exactly the same weights per car on 

 the grain as on lumber. 



The rate on phosphate rock from Mt. Pleasant, 

 Tenn.. to Cincinnati is $1.90 per ton, but as the 

 tons in this commoditv are computed on a basis 

 of 2,240 pounds, we find the rate per hundred 

 pounds is 8% cents, against IS cents on lumber. 

 The rates on pig iron from Cincinnati to De- 

 troit are $1.60 per ton of 2.268 pounds, or alMut 

 7V> cents, against 10 cents on lumber. The rate 

 on" pig iron from Birmingham to Cincinnati is 

 .$2.23 per ton of 2.268 pounds, or a trifle less 

 than 10 cents per hundred pounds, against 20 



