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Popular Science Monthly/Volume 47/June 1895/The Decline in Railway Charges

THE DECLINE IN RAILWAY CHARGES.
By H. T. NEWCOMB.

THE efficiency of any general system of transportation necessarily depends upon its safety, speed, and cost, and of these the last is clearly of paramount importance, for, unless charges can be made sufficiently moderate, no means of transportation can be generally available to the public, even though it possesses in the highest degree each of the other qualities. The superiority of railways as a means of moving passengers and freight between localities not connected by natural waterways lies primarily in the fact that they furnish transportation at a cost so low when compared with all other means of transportation that even the highest railway charges are relatively insignificant.

Competent authority has stated that, under the best methods of transportation over ordinary highways, wheat, the most valuable of cereal products, would bear transportation only two hundred and fifty miles to markets where it would sell for a dollar and a half per bushel, and that the market for corn at seventy-five cents per bushel must be within a radius of a hundred and fifty miles from the point of production. To-day, both of these products are carried from the great surplus-producing regions west of the Mississippi River and sold at much, lower prices than those named, in order to supply the denser populations located in the Eastern States and in Europe. Grain and flour are now carried from Chicago to New York over railway routes ranging from nine hundred and twelve to a thousand and forty-two miles in length, for twenty cents per hundred pounds, or only about four and a third mills per ton per mile for the shorter distance.

Dry goods, such as calicoes, Canton flannel, canvas, linen crash, ginghams, jeans, and sheetings, are taken from Boston to Vicksburg, Miss., about fifteen hundred and seventy miles, for fifty cents per hundred pounds, or a little more than six and a third mills per ton per mile. The rate on canned goods, including fish, fruits, meats, and vegetables, from San Francisco to St. Louis over rail lines from twenty-two hundred and eighty to twenty-nine hundred and fifty miles in length, is seventy-five cents per hundred pounds, or about one half of one cent per ton per mile.

These are merely examples of charges on important articles of commerce selected at random and without any intention of showing the lowest charges in existence, as will be clearly apparent when it is added that the average charge upon all freight traffic carried by rail in the United States during the year ending on June 30, 1894, was only 0·866 cent per ton per mile. The average for the States of Ohio, Indiana, Michigan, and the portions of New York and Pennsylvania situated west of Buffalo and Pittsburg was only 0·682 cent during the same year.

Although the immediate effect of the introduction of railway transportation must have been seen in rates very much lower than any previously available, and the consequent extension of the radii of the areas available for maketing surplus products, the present exceedingly low charges have been reached through a long and steady process during which the tendency toward lower rates has become one of the most generally recognized characteristics of railway development. While the existence of this tendency has been generally remarked, little attempt has been made to trace its extent, and even when the effort is made the investigation is found to be attended with numerous difficulties, owing to the absence of adequate records of the early period of railway development. This is especially to be regretted in view of the paramount importance of complete information regarding our railway system, at a time when its effective regulation by legislative authority is one of the problems of government attracting widest attention, and perhaps even more than others requiring in its solution the co-operation of enlightened public sentiment with ripe experience and skillful statecraft.

Fortunately, many railways have preserved data showing the average charges per ton per mile during each, year on all freight carried over their lines, and from these it is possible to present an interesting comparison of present with former charges. Such a comparison has the advantage that it gives the average of all charges, and therefore presents the actual net result of all changes, whether advances or reductions. It has the concurrent disadvantage that it fails to take account of the large increase in long-distance traffic, which is naturally carried at lower average rates per mile, and in consequence may show an apparent decline when charges for exactly similar service have remained stationary. The error from this cause is not, however, believed to be of such importance as to materially influence the result.

According to the last annual report made by the statistician of the Interstate Commerce Commission, the aggregate transportation of freight by the railways of the United States during the year ending on June 30, 1893, was equivalent to moving 93,588,-111,833 tons one mile. Estimating the population at 66,551,571, which allows an annual increase of one and a quarter millions since 1890, this was equal to moving fourteen hundred and six tons one mile per capita of population.

Upon this basis the following table has been prepared, showing the average cost of moving fourteen hundred and six tons of freight one mile over important railways in each section of the country during every fifth year from 1852, for which the average rates per ton per mile could be obtained, and during 1893:

Year. CHARGE FOR CARRYING 1,406 TONS OF FREIGHT ONE MILE AT AVERAGE RATE PER TON PER MILE DURING EACH YEAR.
Fitchburg
R. R.
New York,
Lake Erie and
Western R. R.
Pennsylvania
R. R.
Lake Shore
and Michigan
Southern Ry.
Illinois
Central R. R.
Denver and
Rio Grande
R. R.
Louisville and
Nashville R. R.
Chicago,
Milwaukee
and St. Paul Ry.
Union Pacific
Ry.
United States
1852 $43 87 $27 42 $76 21
1857 55 26 34 59 33 88 $38 52
1862 52 73 26 57 28 68 29 53 $27 56
1867 59 19 28 68 29 24 34 17 40 77 $58 07 $55 40
1872 55 12 21 51 20 53 19 26 30 37 $86 33 32 34 34 17 $32 90
1877 29 24 13 50 14 20 12 09 25 59 43 45 24 75 29 24 27 00
1882 16 45 10 55 12 23 8 86 19 97 51 32 18 98 20 81 31 07 $17 37
1887 15 89 9 70 10 26 9 42 15 33 33 60 14 34 15 33 19 97 14 54
1892 13 01 8 63 9 10 8 46 12 77 26 19 13 33 14 43 15 20 12 63
1893 12 98 8 87 8 72 8 42 11 88 24 76 12 89 14 43 14 52 12 34

The foregoing statement shows reductions startling in amount and distributed throughout all sections of the country. It is seen that the Fitchburg Railroad now receives only $13.10 for an amount of transportation for which as late as the year 1867 it would have charged $59.19, while other railways show even greater proportionate reductions. Similar data, including all railway traffic, are not available for the years prior to 1882, but reductions since that time are shown to have been extensive.

It should not, however, be understood that the amount paid per capita for freight transportation by rail has decreased in the proportion shown by these figures. The most obvious result of declining rates is an extension of the utility of transportation facilities, as is amply shown by the statistics of freight movement. During 1882 the total railway freight service was equal to only 39,302,209,249 ton-miles, or about seven hundred and fifty-two tons carried one mile per capita, and the decline in the average charge per ton-mile from 1·236 cent in that year to 0·878 cent in 1893 was accompanied by an increase in the volume of traffic of nearly two hundred and fifty per cent, and in the amount of transportation per capita to almost twice that of 1882. The increase in tonnage movement in proportion to population was about eighty-seven per cent, and in the aggregate sum received therefor by the railways only thirty-seven per cent.

It will not be sufficent to abandon the investigation of changes in the charges for moving freight at this stage, nor to remain satisfied with mere general averages of those charges. The more minute inquiry which deals with actual rates upon specific commodities of commercial importance affords quite as interesting and it is confidently believed equally important and significant results. The rate from Chicago to New York on grain and flour,

WHEAT.
Export price
per bushel.
Average rate
per bushel.
Number of bushels
which could be carried
from Chicago to New
York for export price
of one bushel.
1867 $127 44·75 cents. 2·84
1872 147 34·99" 4·20
1877 117 20·50" 5·71
1882 119 14·47" 8·22
1887 89 15·75" 5·65
1892 103 13·80" 7·46
1893 80 14·63" 5·47
1894 67 12·88" 5·20

which are nearly always classed together for rate-making purposes, is indisputably the most important single rate that could be selected. It derives its prominence not alone from the fact that it applies to the most important agricultural and food products, when shipped from the greatest grain market in the world to its principal port of export, but also because it is the basis of all charges on grain and flour shipped from the western regions of surplus production to the Eastern States. Any modification of this rate, therefore, effects a corresponding change in the transportation charge on nearly every bushel of grain and barrel of flour produced in the United States, and directly affects the price to producer and consumer of these important commodities.

The preceding table shows the average wheat rate from Chicago to New York, the average export price as compiled by the Bureau of Statistics, and the number of bushels which could be shipped between those points for a sum equal to the export price during each of the years named.

This table shows that the reduction in rates has been considerably in excess of that in the price of wheat, and the same is probably true of the other cereal products and of flour.

The rates charged on the artificial fertilizers so largely used on the cotton plantations of the south are of great importance to the producers of that section. Taking that from Charleston, S. C, to Albany, Ga., as an example, it is found to have been reduced from $4.30 per ton in 1884 to $2.59 in 1894. Equally important changes have taken place in the rates on the product itself, cotton being now shipped from Memphis to Boston via rail for fifty-five and a half cents per one hundred pounds, a reduction of about thirty per cent from the rate in force during 1880, which was seventy-nine cents.

Nearly every one is familiar with the importance of the livestock movement from the southwest to Chicago. Shipments of live cattle are concentrated at the railway centers on the Missouri River and are carried forward to destination in train loads. The rate per car load from 1877 to July, 1881, was $67.50. It was then reduced to $60, but was advanced to $65, remaining at that figure from 1883 to 1887. It is now twenty-three and a half cents per hundred pounds, which is equivalent to $56.40 per car load. The rate on packed meats from Cincinnati to New York city averaged seventy-one and a quarter cents per hundred pounds during 1867; during 1877 the average was 31·93 cents; during 1887, 27·12 cents; and during 1893, 25·43 cents.

Turning to passenger traffic, it is found that the tendency toward increased speed and improved facilities has operated as a limitation upon reductions in charges, though by no means wholly preventing them. The earliest available data give the average charge per passenger per mile during the year 1880 as 2·51 cents, which is higher than any subsequent year. The average for 1893 was 1·976 cents, and the saving upon the traffic of that year over what the public would have paid at the higher rates of 1880 amounted to $80,568,025.

Numerous reductions equal to those given could be cited and to enumerate them all would require a statement showing rates between practically all railway stations and upon nearly every article commonly offered for shipment by rail. As such a mass of detail would be unnecessarily confusing, it is important to endeavor to discover some means for measuring at least with approximate accuracy the aggregate public saving by means of reduced charges for railway transportation. Fortunately, we have such a means which may be made highly satisfactory so far, at least, as relates to the last decade. The entire transportation performed by the railways of the United States during the ten years ending on June 30, 1893, was equal to moving 113,170,723,026 passengers and 681,500,465,282 tons of freight one mile; and had the average rates of 1883 been maintained upon this aggregate, the public would have paid $251,981,813 for passenger and $1,797,078,221 for freight transportation more than was actually received by the railways. The total sum gained by the public by means of reduced charges was therefore $2,049,060,034, an amount equal to one fifth of the present aggregate railway capital, and almost exactly equal to the entire revenue the United States Government derived from customs duties during the same period.

The effect of the decline in the amounts received for similar railway service upon railway revenues can not be neglected by intelligent students of transportation. The following comparisons between the years 1871, 1882, and 1893 are therefore presented:

PER MILE OF LINE OPERATED.
1871. 1882. 1893.
Capitalization—stock and bonds $59,426 $61,969 $59,729
Gross earnings 9,040 7,189 7,190
Operating expenses 6,863 4,290 4,876
Net earnings 3,177 2,899 2,314
Freight earnings 6,600 4,725 4,883
Passenger earnings 2,441 1,886 1,776
Dividends 1,265 952 594

From the foregoing it is seen that the average railway capitalization has changed but little. Gross earnings per mile decreased during the first half of the period, but have remained without material change during the last; or, in other words, the increased traffic has so far balanced the decrease in charges that the average gross revenue has not changed. Operating expenses have increased during the last eleven years, though during the period from 1871 to 1882 they showed a decline. The explanation is, that during the first period increased density of traffic permitted economies in conducting transportation which had the effect of reducing the average cost to the carriers. It would appear, however, that a point was reached beyond which the institution of new economies could not keep pace with increased traffic at low rates, and that this had its natural effect in the second period. This explanation gains force when the constant decrease in average net earnings per mile is noted. Average freight and passenger earnings are seen to have fallen off considerably since 1871, and the final effect of these changes is summarized by the item of dividends, which are seen to be less than fifty per cent of those paid during 1871.

The more complete statistics of the last ten years afford still more impressive results. The following data are for the year ending on June 30, 1803, and comparisons by means of percentages with 1884 are given:

1893. COMPARED WITH 1884.
Increase,
per cent.
Decrease,
per cent.
Tons of freight carried one mile 93,588,111,833 109·25
Average rate per ton per mile 0·878 cent . . . . . 21·96
Freight revenue $829,053,861 63·55
Passengers carried one mile 14,229,101,084 62·09
Average rate per passenger per mile 2·108 cents . . . . . 10·53
Passenger revenue $301,491,816 44·74
Operating expenses $827,921,299 64·72
Net earnings $392,830,575 46·54
Dividends $100,929,885 . . . . . 1·10

It is thus seen that more than double the freight transportation of 1884 is now performed for a total compensation less than two thirds greater; that passenger transportation has increased eighteen per cent more than the sum paid therefor; and that the capital now invested in the stock of one hundred and seventy-six thousand miles of railway receives in dividends a sum absolutely less than did that invested in the one hundred and twenty-five thousand miles operated during 1884. These figures furnish a key to the reasons which justified Judge Cooley's epigrammatic summary of the financial condition of the railway interest when he declared that it "represents an enormous aggregate of wealth and an increasing aggregate of corporate poverty."

The natural query is, What is to be the result? Are railway rates to go still lower, and the return to invested capital become even less than at present; or are charges to remain stationary, and the public benefit from cheapening transportation be finally or even temporarily suspended?

Probably the best informed among railway managers would declare that their charges are already too low, and that it is highly important to discover some means for preventing further reductions. As to what means would safely accomplish this result there is great diversity of opinion, and not a few managers whose knowledge of the conditions governing the business of transportation has accrued during long years of practical experience are emphatic in the announcement of their belief that the tendency toward lower charges is the result of commercial laws which they have no power to restrain. If the latter opinion is the correct one, as may reasonably be assumed from the history of railway transportation, as well as from a consideration of the competition to which rail carriers are everywhere subject, not only among themselves but from common carriers operating via our rivers and lakes, and of the recent impetus which has been given to the construction of artificial waterways by the completion of the Manchester Canal, it is necessary to discover means for further reducing charges without at the same time decreasing net revenue so as to ultimately result in deterioration and bankruptcy of the railways. Obviously, the return to capital must not be much further reduced. With a large portion of the railways of the country in the hands of receivers, the securities of nearly all selling lower than ever before, and being returned in larger quantities from European exchanges, it is evident that the door to further reductions at the expense of capital is closed. Railway transportation, then, must become cheaper by reducing its cost to the corporations conducting it; and as it has been shown that operating expenses per mile of line have increased during the past decade, while gross revenue has remained practically stationary, it is apparent that this can only be accomplished through the introduction of economies not now practiced.

These economies, the nature of which is evident to every experienced railway manager and every intelligent student of transportation, can be effected by the actual or tacit consolidation of railway properties, and their extent and importance will be in direct ratio to the thoroughness of the consolidation and the degree in which the conflicting interests are brought into subjection. The wastes of competition are nowhere more evident nor their detrimental effect upon society as a whole more clearly apparent than in railway transportation.

The legislative restraints upon consolidation should be removed, agreements and contracts between common carriers where not in contravention of public policy should be given legal sanction, in order that the products of farms and factories may be distributed and exchanged at lower cost and with greater freedom. If necessary, the means of governmental regulation should be strengthened, and the operation of the consolidated properties brought more in harmony with public interests. If, as a final result, it should appear that absolute government ownership is safe, practicable, and likely to be productive of much good, it is not unduly optimistic confidently to expect that our institutions will be found perfectly adequate for the new task, and it will certainly be found much easier to deal with a few large corporations than with the multitude of smaller ones now in existence.