Mr. Heineman is Chairman of the Chicago and North Western Railway Company. This article is from an address of October 17, 1957 before the Illinois State Chamber of Commerce.
That something is the matter with the railroads is perfectly plain. Intrinsically a railroad is the most efficient method of mass transportation yet known to man. The underlying efficiency of a steel wheel turning on a steel rail has not yet been surpassed. The lack of friction is such that the same amount of fuel will propel a loaded freight car five times the distance that it will propel a truck carrying the same load.
This efficiency extends to the railroad right-of-way. For example, in commuting we can move 48,000 riders by rail in one hour on one passenger line compared with 6,720 by bus and 2,250 by automobile on one express lane. A study by the Brookings Institute has found that it would take twenty highways of four lanes each to carry the same number of persons that can be carried on two railroad tracks.
The North Western Railroad carries 80,000 commuters a day —40,000 each way. It is estimated that if these were to commute by automobile at the current commuting average of 1.5 passengers per automobile, the additional parking space required would precisely cover the Chicago Loop.
With these inherent advantages, one would assume that the railroad industry was outstripping its competitors. But what has actually happened? Our competitors in recent years have outstripped us. While our freight tonnage has increased somewhat, our proportion of revenue tons has been steadily shrinking.
For years the railroads as an industry have had so little appeal for investors that with the exception of equipment trust certificates they have been unable to finance capital needs from external sources.
Moreover, today we learn that responsible and serious leaders of our industry feel that we will be unable to finance even our equipment needs without the assistance of government credit.
Now this is of course a serious matter to the railroad industry. But the implications go far beyond the immediate industry. For what I have said is that the most inherently efficient form of mass transportation presently known is fighting a losing battle when it should be the winner in a walk.
Wasting a Precious Asset
Put still differently, what it means is that our economy is wasting one of its greatest assets. For efficient, cheap, volume transportation of goods and raw materials is an asset beyond price. Few things, if any, are more essential to our economy.
The ambition — the aim — of every one of us within and without the railroad industry should be the manufacture of mass transportation service in increasing volume and at an ever-decreasing cost.
This aim should be the aim not merely of management, but of labor as well. For if we have learned anything since the Industrial Revolution, we have learned that by producing more cheaply, more efficiently, and in increasing volume, we are able to pay higher and higher wages.
And this should be the aim and ambition of the legislatures, the regulatory bodies, and the public, for the cheapest possible transportation is integral to a growing and expanding economy.
But what are the realities? The realities are that, as an industry, we have been forced to seek higher and higher freight rates; that in the case of many commodities we have priced ourselves out of the market; that in the case of many more we are in the process of doing so ; and that in this process we are holding an umbrella over the heads of what is inherently less efficient competition, to the detriment not only of every segment of the railroad industry — management, labor, and capital — but to the immediate detriment of carload shippers, and the ultimate detriment of the public.
Labor Is Deeply Involved
What is the matter with the railroads?
The answer, I believe, is relatively simple. The railroads as an industry set an example of sheer economic waste that is, in my opinion, without parallel in the economic history of our country.
There is no single villain. Labor is deeply involved. Federal, and particularly state, regulatory commissions must bear an important share of the responsibility. And so must you, the public.
Now let me give you some specific examples of what I mean by waste. We run fast passenger trains to Minneapolis, a distance of just over 400 miles. We run them with six-man crews — two men in the engine crew and four in the train crew. We run the distance in approximately seven hours. In those seven hours we use three engine crews, and each time we change engine crews we pay that crew approximately a full day’s pay, and in the case of one crew, two days’ pay. On the trip to Minneapolis we run from Chicago to Milwaukee in 81 minutes. There we change engine crews and pay the first crew approximately a full day’s pay. We change our train crews twice on this run, or pay them a full day’s pay for less than a half-day’s work.
Put somewhat differently, we are paying the equivalent of four days’ pay to our engine crews for seven hours’ work.
Now let us talk about freight service. One of our finest time freights is what we call our CC-7 — Chicago to Omaha. It should run that distance in about twelve hours. The distance from Clinton, Iowa, to Boone, Iowa, is 200 miles and ordinarily requires five hours and ten minutes.
Yet, as a carryover from steam engine days, 12.5 miles an hour is provided as the basis for compensating freight crews, 100 miles being equivalent to a base day. Therefore, we pay two days’ pay for the 200-mile run which occupies five hours and ten minutes. It is apparent to anyone that if we could run our crews through, we could sharply increase their take-home pay — perhaps even double it — and still make real economies to the benefit of all.
There are literally hundreds of other examples. But I don’t want to dwell unduly on the labor side, nor do I want to be guilty of using labor as a whipping boy.
The Regulatory Commissions
Let us consider the regulatory commissions. The Chicago & North Western has some 700 to 800 one-man stations. These are approximately seven to eight miles apart. They were laid out 100 years ago at about the distance that one could move a wagonload of wheat and return in a day.
We recently have made time studies of the work performed in these stations. We have found that agents work as little as four to ten minutes for each eight hours on duty. It isn’t their fault, of course; changed economic circumstances have simply made such stations largely unnecessary.
Translated into terms of pay for hours actually worked, as distinguished from hours on duty, we find that we are paying such men as much as $150 and $160 an hour. Thirty to forty dollars an hour is not unusual.
Now, plainly, we should consolidate the stations. We should use modern technological methods —perhaps a moving office in a panel truck — and where we have several stations, have either none, one, or a moving station.
Only recently a state commission denied us permission to close a station where the uncontested record disclosed that we were paying the agent a full day’s pay and that he was working 59 minutes a week. In that case, a court reversed the decision.
But that is not the point. The point is that a regulatory agency of one of our major states would be so little concerned with the basic economics and so responsive to local political pressure as to override the most obvious managerial decision.
The General Public Must Share in the Blame
Now let me talk about you, the public.
It is reasonably well-known, I suppose, that railroads are operating their passenger businesses at a loss. There is, of course, no Santa Claus. In other words, these losses and others from other uneconomic services are being paid for by someone. In our case it is the carload shippers in the form of higher rates, poorer service, less equipment, less money for technological improvement and improvisation.
Fundamentally, the losing passenger service that I am describing serves no economic need whatsoever. The public has voluntarily chosen to pay its tax dollars for hard roads and for municipal airports so as to make available competing forms of transportation, the most significant of which is, of course, the private automobile.
But when the railroads seek to take off losing and unneeded passenger trains, who is it that appears and opposes this elementary managerial decision? Local chambers of commerce, deeply involved in their community pride, and, of course, labor, concerned over the possible loss of jobs.
I could go on and on. These examples are not exceptional; they are typical. Each in its own way reflects in a measure what is wrong with the railroads. Each in its own way is a conspicuous example of waste.
Much of this difficulty springs from an ancient image, unconsciously held by nearly everyone, of the railroad as a natural monopoly. The original thought was that for the privilege of occupying the preferential position as a monopoly, railroads should perform all transportation services — carload and less-than-carload, passenger and suburban, through freight and way freight — whether or not at a loss.
Labor’s attitude, formed in the years before hard roads, the airplane, the barge, the bus, the truck, the pipeline, or the private automobile, has also displayed an unyielding rigidity to changed economic conditions.
But the fact is that today there is no major business that is as competitive as the railroad business. Not only do railroads compete actively with each other —there are at least five good railroads between Chicago and the Twin Cities, and six or seven between Chicago and Omaha — but also they are engaged in bitter competition with such other modes of transportation as the rivers, the pipelines, the trucks — both common carrier and contract—the bus, the airplane, and the ever-present passenger automobile.
I have said that there is no single villain responsible for the railroads’ dilemma. But I am not so sure that I was right. For in the last analysis, we, the managers, must assume final responsibility. We alone, of all the many interests, have the responsibility for the over-all efficient operation of our properties.
This responsibility cannot be delegated. It doesn’t belong to labor; it doesn’t belong to the government; it doesn’t belong to the public, and it doesn’t belong to our investors. It is ours inescapably. And if we fail to convince our friends from labor that fundamental revisions of their contracts are required to restore the railroads’ competitive position so as to enable us to realize upon our inherent efficiency, increase our volume, and pay steadily higher wages on a sound economic basis—that failure is ours, as managers.
If we fail to persuade the commissions that they must permit us to operate efficiently, to eliminate unnecessary or costly service in the interest of providing efficiently and cheaply that mass service for which we are uniquely qualified —that failure is ours, the managers. If we fail to convince the legislatures that it is not in the interest of their states or their constituents for railroads to continue to be a happy hunting ground, then we have failed as managers.
And if we fail to convince you, the public, that your interest is identical with ours in having us provide quantity service at the lowest possible rates, rather than costly and economically obsolete service, then that failure is ours and no one else’s.
And so, in my opinion, in the next decade the railroads will again be pioneers. This time, though, the pioneering will be over a more difficult terrain than when 100 years ago they pioneered the frontiers of this country. The difficulties will be far greater than those that faced our survey parties in Indian territory; more difficult than when our lines were being built across teeming rivers and over unconquered plains and mountains.
This time we must remake, not the physical frontiers of our country, but the frontiers of thought. We must bridge, and in bridging change, rivers of established and obsolete economic and governmental thinking. We must dynamite not mountains of rock but mountains of inertia — inertia in the legislatures, inertia in labor, inertia in the regulatory agencies, and last, but by no means least, inertia in the public.
The stakes are high — high for all of us in the railroad industry — but even higher for you, the public. For, if we are successful, as I am confident that we shall be, I hold before me a vision of the railroads stripped down and muscular, performing their mass transportation function more cheaply and more efficiently than has ever been known before.
I see an industry that will be continuing to pay — not spend —tax dollars. I see an industry that will be making competition — not merely meeting competition. And finally, I see an industry growing in volume, increasing — not losing — its employment, and inevitably growing in the service that it renders to the shipper, to the public, and to the country.
Ideas On Liberty
A Powerful Entry. . .
What is there in this power situation that should receive the active attention of businessmen generally? Power is the energizing force of all industry. Control of this force by government operation affords a powerful entry by government into the remainder of the industrial activity of the country.
Any act, therefore, on the part of business which condones expansion in the power field can well be an act which, in the end, will be inimicable to the business world itself. You cannot have just a little bit of socialism. You either have it or you don’t. We must realize that this trend is on the march and that our action with respect to it will be the determining factor in the form our government will assume in the years to come.
Dr. S. C. Hollister, Dean of the College of Engineering at Cornell University