The committee met, pursuant to call of the chairman, at room 410, Senate Office Building, at 11 o'clock a. m., Senator Ellison D. Smith presiding.

Present: Senators Smith (chairman), Pomerene, Myers, Saulsbury, Lewis, Gore, Underwood, Cummins, Townsend, La Follette, Poindexter, McLean, Watson, and Kellogg.

There were also present: Mr. Daniel Willard, president of the Baltimore & Ohio Railroad Co.; Alfred P. Thom, general counsel, railways executives committee; S. T. Bledsoe, general counsel, Atchison, Topeka & Santa Fe Railroad; Howard Elliot, president of the New York, New Haven & Hartford Railway Co.; Bird M. Robinson, representing the American Short Line Railroads; S. N. Felton, president of the Chicago & Great Western Railroad; Sibert L. Witman, representing the Philadelphia & Reading Railroad; J. Kruttschnitt, Southern Pacific lines; Charles E. Elmquist, president National Association of Railway and Utilities Commissioners, Washington, D. C.; Glen E. Plumb, representing the railway brotherhoods, Chicago, Ill.; Richard Waterman, representing the Chamber of Commerce of the United States, Washington, D. C.; Clifford Thorne, of Iowa.

The CHAIRMAN. The committee will come to order. We have met for the purpose of discussing the railroad situation, and at this meeting particularly with reference to the recommendation made by the Director General of Railroads with respect to the five-year tenure under present conditions.

Mr. McAdoo, the Director General, is present, and the committee would like to have him state whatever facts or suggestions he sees proper to submit, and any other matters pertaining to the subject which he may care to discuss.

Senator CUMMINS. Mr. Chairman, is it understood that Mr. McAdoo will proceed and conclude his statement without interruption?

The CHAIRMAN. That is entirely with him. If he prefers to proceed and conclude his statement without interruption in order to preserve the continuity, that course will be pursued.

Director General McADOO. I should like that procedure very much, Mr. Chairman.

Senator CUMMINS. I should, myself, prefer to hear a statement made in its entirety without interruption.

Director General McADOO. And after it is completed, of course I shall be very glad to answer any questions that may be asked.

The CHAIRMAN. Then it will be understood that the Director General will make his statement without interruption.

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STATEMENT OF HON. WILLIAM G. McADOO, DIRECTOR GENERAL OF RAILROADS.

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Director General MCADOO. Mr. Chairman and gentlemen of the committee, I have felt that it would be useful, perhaps, if general outline of the work which has been accomplished in past year of Federal control, and then to follow that with son.. of the reasons why I feel that the extension of the period of Federal control for a further test under peace conditions would be wise and helpful. This statement has been prepared under very great pressure; it is longer than I should like to have it, but the subject is so vast and complex, and the field we have entered into in the past year is so great that it is impossible to do justice to it in a brief statement.

To review the results of the past year of Federal control, it is helpful first to survey the railroad conditions that immediately preceded

that control.

(1) For several years railroads in seasons of heavy business had developed conditions of transportation stringency similar to the conditions of financial stringency that characterized our banking situation prior to the passage of the Federal reserve act, but the periods of transportation stringency were even more frequent and more pronounced. It was impracticable for the scores of different railroad companies to depart from their competitive practices and join in a coordination of facilities and effort so as to meet the traffic demand made upon them and enable them to handle their "peak load" successfully. These competitive rivalries prevented any sort of central control of the traffic itself. Therefore it was impossible to stop the loading of traffic which could not be promptly disposed of at destination, or to encourage movement to destinations where the traffic could be promptly handled. To an important extent there was inadequacy of terminal facilities and a serious lack of coordination and use of those in existence. In the fall of 1916 the transportation stringency reached such a point that traffic was almost paralyzed through inability to dispose of it at destination. In the fall of 1917, despite strenuous efforts, and yet under a larger degree of coordination than had ever before been attempted, to prevent such a situation, a paralysis of the transportation situation again occurred These conditions were most aggravated in the territory east of Chicago and St. Louis and north of the Ohio and Potomac Rivers, but the acute conditions in this territory reacted unfavorably on the transportation situation throughout the rest of the country, damming up the traffic on connecting lines and producing congestion and distress throughout the country.

The seriousness of the situation is shown by the fact that on January 1, 1918, there were reported on all roads a total of nearly 145,000 cars accumulated on account of the congestion which prevailed in the territory east of Chicago and St. Louis and north of the Ohio and Potomac in excess of the normal movement.

Very serious conditions of car shortage existed both in the fall of 1916 and in the fall of 1917. In 1916 the situation became so critical that a special investigation was inaugurated by the Interstate Commerce Commission, with the result that under date of December 28, 1916, Commissioner McChord made a report in which he stated that "in some territories the railroads have furnished but a small part of

the cars necessary for the transportation of staple articles of commerce, such as coal, grain, lumber, fruits, and vegetables." He added: In consquence mills have shut down, prices have advanced, perishable articles of great value have been destroyed, and hundreds of carloads of food products have been delayed in reaching their natural markets. In other territories there have been so many cars on the lines of the carriers and in their terminals, that transportation service has been thrown into unprecedented confusion, long delays in transportation have been the rule rather than the exception, and the operation of established industrial activities has been uncertain and difficult.

In its report of December 1, 1916, the Interstate Commerce Commission, after reviewing the car shortage situation in detail (this was a year prior to Government control) and telling of investigations into conditions at widely separated points, said:

Substantially all told the same story of failure of transportation facilities and resulting embarrassment and losses. It abundantly appeared that the movement of loaded cars was in the main and on the whole very slow. The time of movement of grain from Iowa points to Chicago was shown to be as slow as 2 days and as high as 25 days, the greater part taking from 4 to 8 days. Serious delays to loaded cars in switching to points of unloading at large terminals and in passing through such terminals out to other cities, explained much of the failure in car service.

I need not recount the various expedients adopted by the railroads under private control to bring order out of the railroad chaos, none of which was adequate or successful. The railroad executives of the country tried valiently during 1917 to solve the problem. Most of them patriotically sought to find means of keeping the transportation system functioning. Competitive and private control, however, were unequal to the task.

(2) The great movement of traffic overseas without satisfactory coordination of rail and ocean transport, the heavy building operations in the way of construction of cantonments, shipbuilding plants, storage depots, munitions plants, etc., the transfer to war activities of the ships and tugs of the coastwise service, thereby throwing still another new. burden on the railroads, the increasing and exacting movement of troops-all these operated to accentuate difficulties and develop the grave weaknesses inherent in the uncoordinated competitive activities of all the different railroad companies.

(3) These difficulties were further accentuated by inability to get promptly new locomotives which had been ordered (but which could not be delivered because much of the locomotive output was being devoted to our allies) and to an entire absence of any locomotives in the reserves of the railroad companies.

Many lines had entirely inadequate facilities for repairing the locomotives they own. This is shown by the fact that up to December 14, the total number of locomotives sent to other line shops for repairs were 2,220. For instance, 423 locomotives of the Baltimore & Ohio were repaired in the shops of other lines, while Baltimore & Ohio shops repaired only 24 locomotives belonging to other lines, leaving the net assistance received by the Baltimore & Ohio 399 locomotives; 201 locomotives of the Pennsylvania Lines West were repaired in other line shops, while the shops of the Pennsylvania Lines West repaired only 25 locomotives belonging to other lines, leaving the net assistance received by the Pennsylvania Lines West, 146 locomotives; 36 locomotives of the Central Railroad of New Jersey were repaired in other line shops, whereas they repaired no locomotives of other lines.

Prior to Federal control the railroads had voluntarily transferred into the congested eastern territory 107 engines from the West and

South. In addition, the Railroad Administration relocated 215 locomotives already in the East. This ability to place locomotives promptly where they were most needed regardless of the interest of any particular line greatly assisted in bringing order out of chaos. Notwithstanding the tonnage handled during the year, which has been the heaviest ever known, there are now stored, in good condition, and ready for winter service, 1,189 locomotives, while one year ago there was not a single serviceable locomotive in storage. This improved condition has been due largely to the coordination of shop work, which has resulted in an average increase of 20.93 per cent each week in the number of locomotives receiving classified repairs. (4) The relations with labor were of the most unsatisfactory and threatening character. The cost of living had greatly increased. Insistent demands were urged by railroad labor for corresponding increase in wages. There was no method for an amicable adjustment of labor disputes. To a large extent there appeared to be a lack of confidence on the part of labor in the management of the railroad companies if not an actual hostility thereto. There was imminent prospect of the most serious strikes that had ever threatened the railroad situation.

Senator LEWIS. Mr. Director General, if I do not interrupt you, may I ask, since you have made that statement, if the demand for increase in wages did not arise only after we came into control of the roads, but had it not been constantly existing as against the railroads then when we took charge of them?

Director General MCADOO. Yes, sir; I was describing the situation. The CHAIRMAN. Senator, before you came in, the committee had made an agreement that the Director General should proceed with his statement without interruption and then when he had concluded questions might be asked.

Director General McADOO. I am describing conditions as they existed at the time of Federal control, and those were the labor conditions at that time.

Senator LEWIS. I apologize for the interruption.

Director General MCADOO. (5) The financial situation of some of the railroad companies was precarious. The rapid increase in operating costs, due to increased prices of materials and supplies and the increased expense of operating under the conditions of transportation stringency, were threatening to impair the ability of many railroad companies to meet their interest and dividends, so that the railroad plight was a serious menace to the general financial situation. Even if railroad credit had been at its best instead of at its poorest, it would have been difficult at the time to raise funds for urgently needed capital expenditures because of the credit demand of the Government and the high rates prevailing for money.

(6) The country was at war. Its industrial power was being turned into war channels. The volume of traffic to be transported for war purposes was steadily growing and promised to keep growing to a degree which could not be foreseen. The Nation's success in the war was largely dependent upon the transportation machine functioning with an efficiency surpassing anything which had ever been known in the past. Yet all the factors were rapidly converging to produce a prolonged and serious transportation paralysis.