necessity came first; the civilian needs of America second. With a limited supply of passenger and freight equipment available, and with a large proportion of this equipment needed for the movement of troops and war supplies, there were not sufficient cars and locomotives remaining to fully meet civilian needs; nor was there time nor materials nor labor to build them. This was explained to the country early in the year, and during the period of the war the people generally, when they realized the situation, patriotically accepted it and made sacrifices accordingly.

Whatever inconveniences have resulted are due entirely to war conditions and are in no way related to the fact that the railroads were under Government control. Such inconveniences undoubtedly would have been greater under private control, for the supply of equipment was augmented by the ability of the Government to shorten routes, to combine facilities, to pool equipment and motive power, and to introduce economies which the roads under private control could not and would not have introduced.

I desire to make this point as clear as possible, for it is necessary for the American people to understand the facts of the railroad situation if this big problem is to be dealt with intelligently. Passenger equipment, while crowded during the war, was crowded because much of the equipment had to be used in the transportation of troops; it was not crowded because the Government had control of the railroads. As a matter of fact, many thousands of passenger train-miles were saved by the ability of the Government to achieve results which private owners of the roads could not or would not have achieved. I say they would not have achieved it, simply because of the competitive system, which would naturally make them unwilling to surrender any of their business or traffic to competitors. During the period of Federal control, every possible economy was exercised in order to save both passenger and freight equipment and make as many cars and locomotives as possible available for the war need first and for the needs of the civilian population next.

I will now read that paragraph about the increased capacity resulting from standardization:

The increase in the rate at which standardized locomotives can be turned out is clearly shown by the following comparison of the two principal shops of the American Locomotive Co. during a portion of July and August, when the locomotives built were of individual design, with a similar period in September and October, when they were building standardized locomotives.

During five weeks beginning July 20, an average of 13 locomotives per week were turned out at the Dunkirk plant, while during five weeks beginning September 14, an average of 19 locomotives per week were turned out at the same plant. For Schenectady, during the five-week period beginning July 20, and average of 8 locomotives per week were turned out, while for the corresponding period beginning September 14, an average of 13 locomotives were turned out.

It will be seen that the increased production due to the standardized locomotives was about 50 per cent.

Of course, the method of building various types of locomotives is an element in keeping up the cost of production.

SERVING THE PUBLIC.

While putting the paramount war needs of the Nation first, nevertheless, every possible effort has been made by the railroads under Federal control to serve the public adequately and furnish every

possible facility for carrying on the ordinary passenger and freight business of the Nation. The railroads are public servants and in time of peace the first consideration should be to furnish adequate service at the lowest possible cost. To keep in touch with the public during the period of Federal control and see to it that their needs were given every possible consideration, the Division of Public Service and Accounting was established soon after the railroads were taken over and Hon. Charles A. Prouty was made director of the division. With this objeot in view, traffic committees were ear.y established upon which the public was given representation. While these committees have no authority to change rates, nevertheless, their advice and recommendations are most helpful. What the shipping public desires above everything is stability of rates and reliability and adequacy of service. In the past thousands of rate changes have been made each month, which were worse than unnecessary. While passenger and freight service was of necessity interfered with during the war, efforts have been made during the past year to keep in touch with State railroad commissions and other local bodies to make certain that well-grounded and important complaints should receive prompt attention.

At the beginning of Federal control four express companies, working under contracts with the railroad companies, each railroad, generally speaking, having a contract with only one express company, were doing about 96 per cent of the express business of the country. The transportation business of the express companies was to utilize the passenger train service of the railroads, and to furnish pick-up and delivery service in connection therewith, so as to secure the expeditious transportation of property, and their service was so closely connected with railroad transportation that it was obvious from the. beginning that similar unification of control and service must be applied to express transportation as to the railroads under Federal control.

This was accomplished through the organization of the American Railway Express Co., which took over the transportation business of the four large express companies above referred to, and entered into a contract with the Director General of Railroads for conducting the express business in a manner similar to that in which the four companies had previously conducted the express business on the railroads, subject, however, to substantially complete control of the business by the Government, and to an arrangement for sharing of profits. This contract was entered into June 26, 1918.

On July 15, 1918, a 10 per cent increase in express rates became effective, all of which was required to meet increased wages of employees of the American Railway Express Co.

Recently it became apparent that the power of control possessed by the director general under the contract would have to be directly exercised in order to deal effectively with problems of wages and working conditions for express employees and in connection therewith to make necessary increases in rates to provide for necessary wage increases. It therefore became important to make it specifically clear by presidential proclamation that the President had the possession, use, control, and operation of the entire transportation system of the American Railway Express Co., and accordingly a proclamation to that effect was issued.

Careful investigation indicated that the express company would require approximately $12,000,000 per annum additional revenue for such wage increase. The Interstate Commerce Commission was consulted as to the method of applying the increases to obtain the amount desired and advised in substance that if it was considered necessary to increase the express rates sufficiently to make the express companies' proportion yield the amount stated, it considered the allocation of the increase proposed preferable to any other method of making the increase.

On November 19 an order was made increasing express rates to an amount sufficient to yield the express company, from its portion of the increased revenue received, approximately $12,000,000. This method carried with it a corresponding increase in the railroad revenue from the express business which was required to maintain a proper relation with freight rates and for other reasons. The basis of the wage increases is now under consideration by the board of railroad wages and working conditions, the body which I established for hearing employees on the transportation systems under Federal control who seek changes in their wages or working conditions, and recommending to me the action to be taken on such requests.

The conduct of the express business has been greatly hampered by shortage of express and baggage cars which in turn has been largely caused by the absorption of those cars in handling troops and troop supplies. I am justified in anticipating that there will be steady improvement in the express service as additional express and baggage cars become available and as labor conditions are improved by means of the steps above described.

I have given you a statement of the transportation conditions a year ago, of the transportation achievements under Federal control during a year of war, and of the present situation.

THE FUTURE.

What remains to be considered is what permanent solution of the railroad problem should be adopted and what shall be the temporary form of railroad control pending a permanent solution.

In December, 1917, there were about 180 separate operating railroad companies in the United States with operating revenues of $1,000,000 or more per year each. Seventy-five of those companies had operating revenues of $10,000,000 or more per year each. There were several hundred companies whose respective operating revenues were less than $1,000,000 per year.

POSSIBLE SOLUTIONS.

Broadly speaking, there are three general permanent solutions of the railroad question possible. The first is to send the railroads back into private control of the several hundred old companies. The second is to have outright Government ownership and control of all the railroads. The third is to reconstruct the railroad along logical lines so as to wipe out these hundreds of different railroad companies and substitute à comparatively few companies which under strict and close Government control can be expected to combine the advantages of Government control, including unified control of those

things where it is needed with the advantages of initiative of private management. Now, the form of such control, if undertaken, may present itself in a good many different shapes, and I am not undertaking to give formulas, I am only undertaking to state the principles which I think might be invoked in the consideration of the various plants. I am not committed to any particular plan. I wish to lay before you certain reforms which I think are indispensable and without which any so-called solution of the railroad problem will be a mere disappointing makeshift.

POLICY.

I am frank to say I do not believe that these important reforms can possibly be accomplished if we are to have in the future several hundred different railroad companies as we have had in the past, or even a hundred or even fifty different railroad companies. I believe they can all be accomplished either through a comparatively few railroad companies or through single Federal control. If the country prefers to continue in existence the hundreds of different railroad companies as in the past, I believe it will be necessary to abandon the hope of obtaining most of the fundamental reforms which I propose to point out.

THE TERMINAL PROBLEM.

One of the most difficult and important railroad problems in this country is that of terminal facilities. It probably means more to the producing and consuming public in the matter of delays, inconvenience, and transportation burdens than any other phase of transportation. It is generally understood that the delays and excessive costs do not occur principally on account of insufficiency of facilities on the road, but on account of inadequate terminals and of the heavy terminal costs.

It is not unnatural that this should be the case. It is a far simpler proposition to haul a train over a railroad than it is to break up that train in a terminal and distribute its cars to the connecting carriers. For one thing, it is easier to provide adequate track capacity on the railroad itself, most of which runs through the country, than it is to provide adequate track capacity in a terminal which is generally in the midst of a great city. But an even more important point is that when the train is being carried over the railroad between terminals it is being handled exclusively under one management and on a railroad which has been planned with unity of purpose. But the moment a train gets into a terminal where its cars must be separated and delivered to connecting lines, then we have to deal with facilities which have not been planned with unity of purpose and which under private control are not operated under a single management. The ability of one company to get rid of the business depends upon what its connecting companies have provided in the way of terminal tracks and other terminal facilities and upon the way in which those connecting companies carry on their operations. It is human nature that each company is much more interested in looking after its immediate exclusive interests, both in the facilities which it provides and in the way it operates them, than it is in building and operating its property so as to help its connections.

Generally speaking, the cities of this country and the railroad traffic that passes through them have wholly outgrown the railroad terminal facilities which were provided many years ago without any conception of the growth of the country's traffic. It is difficult to get the land to expand the terminals of any one railroad and each railroad company is jealously trying to prevent some other railroad from getting the advantage in new terminal facilities. Each railroad company wants to plan its new terminals so as to help its own business and so as not to help its rivals. This is perfectly natural. It is true that at times under pressure of critical necessity some of the railroads at some cities try to combine a portion of their terminal plants into a joint terminal enterprise. But it takes years for the railroads to agree on any such matter, and the comprehensiveness of the particular plan is generally interfered with by the selfishness of some particularly powerful railroad which feels that it can preserve certain advantages by refusing to put into the joint plan certain facilities which ought to be put there in the public interest.

The effect is that when it comes to terminal properties we get a clear-cut conflict of interest between the public and any particular railroad company. The public wants terminal facilities comprehensively planned and carried out so as to promote the greatest convenience and economy for all concerned, but each railroad company, under competitive conditions, is anxious to preserve any particular advantage which it already has and to increase that advantage when practicable. This clash of interests between the public and any particular railroad company and between the different railroad companies serving a particular terminal operates to produce deadlocks which to a large extent prevent terminals from being developed so as to meet the business necessities and so as to serve the public to the greatest advantage.

The condition exists, and is largely accounted for by the reasons above given, that the outstanding shortcomings in railroad transportation are inadequacies in terminal facilities. The great unnecessary burdens in the matter of inconveniences, delay and cost for which the producing and consuming public have to pay are largely due to these terminal conditions. There can be no successful solution of the railroad problem which does not provide a solution for these terminal difficulties. The greatest opportunity to reduce railroad costs for the future and to promote public convenience in transportation will be found in the solution of these terminal problems.

CINCINNATI AN EXAMPLE.

A concrete illustration will help to emphasize the present difficulties. Cincinnati is an important gateway between the North and the South.

Three important railroads, the Chesapeake & Ohio, the Louisville & Nashville, and the Cincinnati Southern, reach Cincinnati by crossing the Ohio River. Four other important railroads, the Big Four, the Baltimore & Ohio, the old Cincinnati, Hamilton & Dayton, now the Erie, the Pennsylvania, and the Norfolk & Western, reach Cincinnati on the north bank of the Ohio River. The interchange of traffic between these lines at Cincinnati is enormous and the general public has a vital interest in this interchange being accom