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Mail Carrying Railways Underpaid


A Statement by the Committee on Railway Mail Pay representing 214,275
miles of Railway in the United States, operated by 268 companies,
containing facts and figures which prove that Railway Mail Pay does
not equal the operating expenses that it makes necessary, leaving
nothing for return upon the value of the property.

 THE COMMITTEE ON RAILWAY MAIL PAY

 J. KRUTTSCHNITT, Chairman
 Director of Maintenance and Operation, Union and Southern Pacific
   Systems

 RALPH PETERS, Vice-Chairman
 President, Long Island Railroad

 CHARLES A. WICKERSHAM
 President and General Manager, Western Railway of Alabama

 W. W. BALDWIN
 Vice-President, Chicago, Burlington & Quincy Railroad

 W. W. ATTERBURY
 Vice-President, Pennsylvania Railroad

 GEORGE T. NICHOLSON
 Vice-President, Atchison, Topeka & Santa Fe Railway

 E. J. PEARSON
 First Vice-President, Missouri Pacific Railway

 E. G. BUCKLAND
 Vice-President, New York, New Haven & Hartford Railroad

 C. F. DALY
 Vice-President, New York Central Lines

 W. A. WORTHINGTON
 Assistant Director of Maintenance and Operation, Union and Southern
   Pacific Systems

 W. F. ALLEN, Secretary

 H. T. NEWCOMB, Statistician

       *       *       *       *       *




Mail Carrying Railways Underpaid


A STATEMENT

By the

Committee on Railway Mail Pay

representing

214,275 miles of Railway in the United States, operated by 268
companies,

containing facts and figures which prove that

RAILWAY MAIL PAY

does not equal the operating expenses that it makes necessary, leaving
nothing for return upon the value of the property.

October, 1912.




TABLE OF CONTENTS.


                                                                 Page

 I. Scope of this Pamphlet                                          3

 II. Railway Mail Pay Is About to be Forced Still Further Below
    the Level of Just Compensation, Unless Payments are Promptly
    Readjusted, on Account of the Additional Volume of Mail that
    will Result from the Inauguration, on January 1, 1913, of the
    Parcels Post                                                    3

 III. The Postmaster-General's Erroneous Assertion that the
    Railways were Overpaid "About $9,000,000.00" in the Year 1909,
    Rests Primarily Upon His Adopting an Unprecedented Theory
    which Allows Nothing for a Return Upon the Capital Invested in
    Railway Property                                                4

 IV. The Mail Service Supplied by the Railways Costs Them More in
    Operating Expenses and Taxes than They Are Paid For It, and
    Leaves Nothing for Return on the Property                       6

 V. The Postmaster-General's Apportionment of Space Between the
    Mail Service and the Other Services Rendered on Passenger
    Trains Did Not Allow to the Mails the Space which They
    Actually Require and Use and this Had the Result of Unduly
    Reducing His Estimates of the Cost to the Railways of the Mail
    Service                                                         9

 VI. The Postmaster-General Ignored Data which He Had Obtained
    Showing Expenditures on Account of the Mails Largely in Excess
    of the Direct Expenses for that Service which He Reported      11

 VII. The Month of November Is Not a Fair Average Month in Any
    Railway Year or One that Is Typical of a Year's Business and
    Its Use as the Sole Basis of the Postmaster-General's
    Calculations was So Unfavorable to the Railways as to Deprive
    the Results of Any Value Even If in All Other Respects His
    Methods were Beyond Criticism                                  13

 VIII. A Commission of Senators and Members of Congress which,
    Between 1898 and 1901, Most Fully and Carefully Investigated
    the Subject, Ascertained and Declared that Railway Mail Pay
    was Not Then Excessive; Since Then there Have Been Many and
    Extensive Reductions in Pay Accompanied by Substantial
    Increases in the Cost and Value of the Services Rendered by
    the Railways                                                   14

 IX. The Administration of the Post Office Department Has Not, in
    the Last Twelve Years, Effected any Reduction in the Annual
    Total of Its Expenses for Other Purposes than Railway
    Transportation or in the Proportion of Its Revenues Required
    for Such Other Expenses, but the Whole Saving Which Has Nearly
    Eliminated the Annual Deficit of the Department Is Represented
    by the Reduced Payments, Per Unit of Service, to the Railways  17

 X. The Continuous Refusal of the Post Office Department to Order
    Reweighings of the Mails Except After the Maximum Interval of
    Four Years which the Law Allows, the Demands for Station and
    Terminal Services that Are Rendered Without Any or Without
    Adequate Compensation and the Unjust Discrimination Against
    Compartment Cars Used as Railway Post Offices Are All Abuses,
    Seriously Injurious to the Railways, Which Have Grown Up Under
    the Present System of Payment and Ought at Once to Be Remedied 18

 XI. The Postmaster-General's Proposed Plan of Payment Based Upon
    Operating Cost and Taxes, to Be Ascertained by the Post Office
    Department, Plus Six Per Cent. Is Seriously Wrong in Principle
    and Would Encourage and Perpetuate Injustice                   20


 _Appendices._

 A. Extracts from the Postal Laws and Regulations                  23

 B. Classification of Operating Expenses                           27

 C. Receipts from Passenger and Freight Traffic by Months          28

 D. How Railway Wages Have Increased                               29

 E. How Railway Taxes Have Increased                               30

 F. Letter dated September 11, 1912, from Hon. Jonathan Bourne,
    Jr., Chairman, Senate Committee on Post Offices and Post Roads 31

 G. Reply made thereto by the Committee on Railway Mail Pay        32




I. SCOPE OF THIS PAMPHLET.


The Committee on Railway Mail Pay, representing railways whose lines
include ninety-two per cent. of the aggregate length of all railway
mail routes in the United States, believes that the payments to the
railways for the services and facilities furnished by them to the Post
Office Department are, and for a long time have been, unjustly low.
This pamphlet contains a concise statement of the facts which prove
that this belief is warranted and, incidentally, a refutation of the
estimates made by the Postmaster-General, and reported to the Congress
(House Document No. 105, Sixty-second Congress, first session), which
led him to conclude that the basis of payment could now properly be
changed so as to accomplish a present reduction of about twenty per
cent. It will be shown that although the insufficient data and the
erroneous methods employed by the Postmaster-General resulted in his
making estimates of cost to the railways that are far below the real
cost, his own figures and calculations, when properly analyzed and
supplemented, demonstrate that the mail service has not been fairly
remunerative to the railways.

Before proceeding to this demonstration it should, however, be noted
that--




II. RAILWAY MAIL PAY IS ABOUT TO BE FORCED STILL FURTHER BELOW THE
LEVEL OF JUST COMPENSATION, UNLESS PAYMENTS ARE PROMPTLY READJUSTED,
ON ACCOUNT OF THE ADDITIONAL VOLUME OF MAIL THAT WILL RESULT FROM THE
INAUGURATION, ON JANUARY 1, 1913, OF THE PARCELS POST.


Congress has provided for a vast and incalculable extension of mail
traffic by creating a "Parcels Post," to be inaugurated on January 1,
1913, which, by opening the mails to many articles not previously
accepted at the post-offices and by materially reducing the rates on
mailed merchandise, is expected enormously to increase the volume of
the shipments which it covers. The Government seems to have assumed
that, under existing contracts, which were made before the meaning of
the word "mail" was thus extended, the railways can be compelled,
until these contracts expire, to carry this great additional volume of
mail traffic WITHOUT ANY COMPENSATION WHATEVER. If the former practice
of the Post Office Department is followed, no new contracts will be
made until after the next quadrennial weighings in each of the four
weighing sections, so that the position of the Government amounts to
an assertion that the whole added volume of the Parcels Post mails
will have to be carried without any compensation by the railways of
New England for four years and six months (these railways are in the
first weighing section but the weighing for the adjustment to be made
on July 1, 1913, has begun and will be completed before the Parcels
Post is inaugurated), by those of the second weighing section for
three years and six months, by those of the third weighing section for
two years and six months, by those of the fourth weighing section for
one year and six months, and by those of the first weighing section,
not located in New England, for six months. No presentation of the
injustice of the mail pay received in former years suggests even the
approximate extent of the losses which the railways will thus incur in
the next four and one-half years, unless readjustments are promptly
made on account of the Parcels Post.




III. THE POSTMASTER-GENERAL'S ERRONEOUS ASSERTION THAT THE RAILWAYS
WERE OVERPAID "ABOUT $9,000,000.00" IN THE YEAR 1909, RESTS PRIMARILY
UPON HIS ADOPTING AN UNPRECEDENTED THEORY WHICH ALLOWS NOTHING FOR A
RETURN UPON THE CAPITAL INVESTED IN RAILWAY PROPERTY.


The Postmaster-General assumed that the railways would be properly
compensated if they received a sum equal to the operating expenses and
taxes attributable to the carriage of the mails plus six per cent. of
the sum of those expenses and taxes. The calculation by which he
obtained the sum which he assumed would have been proper compensation
for the single month covered by his investigation was as follows:

 His estimate of operating expenses and taxes on
   account of mail service (Document No. 105, p.
   280) for one month                             $2,676,503.75

 Six per cent. of above                              160,590.22
                                                 --------------
     Total, assumed to represent just
       compensation for one month                 $2,837,093.97

The railways having been paid, for the month selected, $770,679.16 in
excess of the sum resulting from the above calculation, the
Postmaster-General assumed that this excess over expenses and taxes
plus six per cent. constituted excessive profit for that month. He
multiplied this assumed excess by twelve to get his estimate of annual
excess and stated the result, in round figures, as "about $9,000,000."

The mere statement of this method discloses the fact that it makes no
allowance for any return upon the fair value of the railway property
employed in the service of the public. This omission is, of itself,
sufficient wholly to destroy the Postmaster-General's conclusion.
Everyone recognizes that a railway is entitled to at least a
reasonable return upon the value of its property devoted to the public
service. The Postmaster-General ignored this universally accepted
principle and adopted a theory which, if applied to the general
business of the companies, would render substantially every mile of
railway in the United States immediately and hopelessly bankrupt. The
recently published report of the Interstate Commerce Commission on the
railway statistics of the year that ended with June 30, 1910, contains
data by which this statement is easily demonstrated, as follows:

 Operating expenses of all United States
   railways, for the year                           $1,822,630,433

 Taxes of all United States railways, for the year     103,795,701
                                                    --------------
     Total                                          $1,926,426,134

 Six per cent. of above total                          115,585,568
                                                    --------------
     Total gross receipts permitted by
       Postmaster-General's plan                    $2,042,011,702

But if this plan had been in force, the railways would have had, for
interest on mortgage bonds, a reasonable surplus as a margin of
safety, dividends on stocks, unprofitable but necessary permanent
improvements,[A] rents of leased properties, etc., etc., only the six
per cent. or $115,585,568. This figure may be compared with the
following, among others:

 Interest obligations (on funded debt only) of
   all United States railways, for the same year  $370,092,222

 Rentals of leased properties, all United States
   railways, for the same year                    $133,881,409

    [Footnote A: The necessity for providing, out of income, for
    some kinds of improvements is commonly admitted. The public
    constantly demands greater comfort and convenience which can
    be supplied only by improvements in property and equipment
    that bring in no additional income. A present example in the
    mail service, itself, is the great expense which the railways
    are now undergoing in substituting steel mail cars for those
    formerly in use. The old cars, which thus become a total loss
    were fully up to the most advanced standards of construction
    when built and they could continue for a long time to serve
    the purposes of the service except for the public demand for
    stronger cars.]

Plainly, the Postmaster-General's proposal is equivalent to an
assertion that the railways would make a fair profit if they were
enabled to collect the sum of $115,585,568 in addition to their
operating expenses and taxes, but the figures given by the Interstate
Commerce Commission show that this would be less than one-third of
the sum necessary to meet interest charges which must be paid in order
to prevent foreclosures of mortgages and, if bond interest could be
ignored, is much less than the rentals that must be paid if the
existing systems are not to be broken up. And, of course, it would
allow nothing whatever for legitimate demands upon income for
dividends, permanent improvements or surplus.

It is unnecessary to dwell upon the consequences of such a theory of
"compensation" to railroad credit and to the public interest in
efficient transportation service, to say nothing of the consequences
to owners of railroad stock and bonds. Such a theory is not a theory
of compensation--it is a theory of oppression and of destruction.

The fact that the Postmaster-General has found it necessary to justify
his attack upon the present basis of railway mail pay by a theory so
unprecedented and so unwarranted in principle and in law, raises a
strong presumption against all his opinions and conclusions upon this
subject.




IV. THE MAIL SERVICE SUPPLIED BY THE RAILWAYS COSTS THEM MORE IN
OPERATING EXPENSES AND TAXES THAN THEY ARE PAID FOR IT, AND LEAVES
NOTHING FOR RETURN ON THE PROPERTY.


It cannot be too strongly emphasized that the railway mail pay at
present is insufficient to pay even its proper share of operating cost
and taxes and does not produce any return upon the property. This will
be demonstrated by any fair inquiry, as will now be shown. Reports
submitted to the Postmaster-General by railways operating 2,411 mail
routes, with a total length of 178,710 miles, showed that their gross
receipts, per car-foot mile[B], from services rendered on passenger
trains during November, 1909, were as follows:

 From mail            3.23 mills
 From other services  4.35 mills

    [Footnote B: A car-foot mile is a unit equal to moving one
    foot in car length (regardless of width or height) one mile.
    Thus to move a car sixty feet long one mile results in sixty
    car-foot miles; to move the same car three miles results in
    180 car-foot miles, etc.]

Thus it appears that the space on passenger trains required for the
mails is proportionately less than three-quarters as productive as
that devoted to passengers, express, milk, excess baggage, etc., etc.
As it is the general belief of railway managers, whose conclusion in
this respect has rarely if ever been challenged, that the passenger
train services, as a whole, do not produce revenues sufficient to meet
their fair proportion of the operating costs and the necessary return
upon investment, and therefore are not reasonably compensatory, it is
evident that the mail service, the pay for which is more than
twenty-five per cent. below the average for the other services
rendered on the same trains, must bring in much less than reasonable
compensation. Certainly railroad revenues as a whole could not be
reduced twenty-five per cent. without destroying all return upon the
property. If so, it must be true that there can be no compensation in
a rate of mail pay that is twenty-five per cent. less than the rate of
pay for passenger traffic which, as above shown, is relatively
unprofitable.

No merely statistical comparison can, however, reveal the whole story
for the railways are required to furnish many incidental facilities
and to perform many additional services for the Post Office
Department, which render the mail service exceptionally arduous and
costly. These extra services include calling for and delivering mails
at a large proportion of the post offices located at railway towns;
supplying rooms, with light, heat and water, in railway stations for
the use of the mail clerks; placing cars, duly lighted and heated, on
station tracks for advance distribution, often many hours before the
departure of trains; carrying officers and agents of the Post Office
Department as passengers but without compensation to the extent of
more than 50,000,000 passenger miles annually (this being, of course,
in addition to the railway mail clerks on duty), etc., etc. Extracts
from the "Postal Laws and Regulations" defining and demanding these
services are given in Appendix A. No one can examine this appendix and
not be convinced that the mail service is the most exacting among all
those rendered by American railways.

The fairness of railway mail pay can also be tested by apportioning
operating expenses between passenger and freight traffic, and then
making a secondary apportionment of the passenger expenses between
mail and other kinds of traffic carried on passenger trains. This
method involves charging directly to each kind of traffic all expenses
pertaining exclusively thereto, and the apportionment, on some fair
basis, of those expenses which are common to more than one kind of
traffic.

In accordance with the request of the Postmaster-General, the railways
estimated the cost of conducting the mail service in the manner just
explained and reported the results to the Postmaster-General. After
first charging to each service the expenses wholly due to it they
apportioned the common expenses between the passenger and freight
services, following (with inconsequential exceptions) the method most
generally employed for that purpose, namely the apportionment of these
expenses in the proportions of the revenue train mileage of each
service. Having estimated, in this way, the operating expenses
attributable to passenger trains, the railways assigned to the mails
the portion of this aggregate indicated by the proportion of the total
passenger train space required for the mails. Using this method, 186
railways, operating 2,370 mail routes, with a total length of 176,716
miles, ascertained and reported that for November, 1909, the operating
expenses (not including taxes), for conducting the mail service were
$4,009,184. The Postmaster-General states (Document No. 105, page
281), that all the railways represented in the foregoing, and enough
others to increase the mileage represented to 194,978 miles, were paid
for the same month only $3,607,773.13. It thus appears that the pay
was far below the operating expenses, without making any allowance for
taxes or for a return upon the fair value of the property employed.

While different methods are in use for ascertaining the cost of
passenger train service and the results produced by such methods may
show considerable variation, yet the mail pay is so far below
reasonable compensation, from the standpoint of the cost of the
service and a return upon the value of the property, that no method
can be reasonably urged which would not demonstrate the
non-compensatory character of the present mail pay. This is
illustrated by the method which the Postmaster-General himself
employed, as the character of that method is such that it necessarily
produces the very lowest estimate of cost for the passenger train
service.

 The Postmaster-General, by his method of
   apportionment arrived at a cost of          $2,676,503.75

 But this must be increased (as will be shown
   below, on account of his erroneous
   apportionment of car space (page 10), by       800,802.00

 And also on account of his refusal to assign
   expenses directly incurred in the mail
   service (page 12)                              401,126.00[C]

 Total, according to the Postmaster-General's
   method of apportioning costs between
   passenger and freight traffic               $3,878,431.75

    [Footnote C: There may be some duplication in this item, but
    to eliminate it would require an elaborate computation which,
    in view of the broad margin of expenses over receipts, is
    wholly superfluous. Whatever duplication exists must be small
    in comparison with this margin.]

Thus even the Postmaster-General's method of apportioning costs
between freight and passenger traffic produces an operating cost in
excess of the total pay received by the railways, leaving nothing
whatever for return upon the fair value of the property or necessary
but non-income producing improvements.

There is no allowance, in any of these estimates of cost, for the
large volume of free transportation supplied to officers and agents of
the Post Office Department, when not in charge of mail, although this
amounts to over 50,000,000 passenger miles annually and, at the low
average rate of two cents per mile, would cost the Post Office
Department more than $1,000,000 per year.

Moreover, as will presently be shown (pages 13-14) all the figures
here discussed are for the month of November, a month which, because
of the abnormally low ratio of passenger traffic to freight traffic,
substantially understates the cost of the passenger train services,
when figures derived from it are applied to an entire year.

It thus becomes evident that any inquiry which takes into
consideration the necessary elements of the situation will demonstrate
that railway mail pay is too low. It is only by ignoring essential
elements of the service and of expense and the fundamental element of
a return on the value of the property that any argument to the
contrary can be constructed.

Thus the mail traffic does not pay its operating cost. That traffic is
a substantial percentage of the total public service performed by the
railroads. It should contribute a substantial proportion to the taxes
which the railroads have to pay and to the return on railroad property
which its owners are entitled to receive. Clearly no fair method can
be devised which will fail to show that the existing mail pay is far
below a fairly compensatory basis. Certainly this condition ought not
to be intensified by adding the injustice of still further reductions.
On the contrary, the unjust reductions of recent years should be
corrected for the future, and the railroads should be relieved from
the strikingly unjust methods by which they are at present deprived of
anything approaching fair compensation.




V. THE POSTMASTER-GENERAL'S APPORTIONMENT OF SPACE BETWEEN THE MAIL
SERVICE AND THE OTHER SERVICES RENDERED ON PASSENGER TRAINS DID NOT
ALLOW TO THE MAILS THE SPACE WHICH THEY ACTUALLY REQUIRE AND USE AND
THIS HAD THE RESULT OF UNDULY REDUCING HIS ESTIMATES OF THE COST TO
THE RAILWAYS OF THE MAIL SERVICE.


Detailed reference will now be made to the methods and controlling
effect of the Postmaster-General's apportionment of passenger train
space between the mails and the other services rendered on passenger
trains. Such an apportionment was a necessary step in the calculations
reported in Document No. 105. Having obtained certain estimates of the
cost of the passenger train services, considered together, by methods,
producing the lowest results, the next step shown in Document No. 105
was to apportion a part of this cost to the mail service. The accepted
method for such an apportionment is to distribute the total cost in
proportion to the train space required by each of the respective
services. The Postmaster-General obtained from the railways statements
which he might have used in applying this method and these statements
showed that 9.32 per cent. of the total space in passenger trains was
required by the mails, but, instead of using the data showing this
fact, he substituted figures of his own which reduced the space
credited to the mail service to 7.16 per cent. of the total. The total
of passenger train costs which the Postmaster-General estimated should
be apportioned among passengers, express and mail, on the basis of
space occupied, was $37,074,172.[D] He therefore assigned to the mail
service 7.16 per cent. of the last-named sum or $2,654,510.69. If,
however, he had used the proportion of space, 9.32 per cent.,
resulting from the reports he had obtained from the railways, the
amount apportioned as cost of the mail service for the month would
have been $800,802 greater. Multiplying this by twelve gives an
increase in the estimated annual cost of over $9,600,000.

    [Footnote D: This is the sum which was apportioned by the
    Postmaster General on the basis of train space occupied. He
    estimated $40,121,294.83 (Document No. 105, page 280) as the
    total operating expenses and taxes of the passenger train
    services for the month. Of this total $21,993.06 was charged
    directly to the mails and $3,025,129.77 directly to the other
    passenger train services, leaving the sum stated in the text
    to be apportioned on the space basis.]

Thus the Postmaster-General arrived at his declaration that the
railways were getting an excess profit of $9,000,000 by means of two
fundamental errors, omitting for the present reference to any other
errors. He understated the annual mail expenses and taxes of the
railways by at least $9,600,000, and he ignored entirely the necessary
return on the value of railroad property.

This examination of his methods shows that the determination of space
was of primary and controlling importance and that the changes in
space allotment have destroyed the value of his deductions. These
changes were due to his refusal to assign to the mail service the
working space and temporarily unoccupied space on trains, which were
necessary to the mail service and to his actually assigning much of
this space to the passenger service rendered on the same trains.

It is scarcely necessary to note that all kinds of traffic require
"working space" in addition to the space actually occupied by the
traffic itself, and that this is especially true of the mail traffic,
or that where there is a preponderating movement of a certain traffic
in one direction there must be some empty space on account of that
traffic, sometimes called "dead" space, in trains moving in the
direction of lighter traffic. Thus passenger cars must have aisles,
vestibules and platforms, and postal cars must have a great deal of
space in which to sort the mails while, for mail carried in baggage
cars, there must be space in which to reach the pouches and to receive
and deliver them through the doors. A through train must also have the
full capacity required for the maximum traffic of any kind likely to
seek accommodation on any part of its journey, although during much of
each trip the actual traffic may be considerably below this limit. The
Postmaster-General, however, refused to credit the mail service with
much of the space thus required by the Department although his figures
for the other passenger train services allowed fully for all such
space required by them. In fact in many cases such space, actually
required by the mails and so reported by the railways, was taken from
the total mail space and, without reason, assigned to the passenger
service. These modifications of the data correctly reported, not
susceptible of justification upon any sound transportation principle,
were carried so far that the tabulations of the Post Office
Department, which are stated for railway mail routes having a total
length of 194,977.55 miles[E] show only 926,164,459 "car-foot miles"
made in the mail service, although certain railways, included therein,
and having railway mail routes aggregating only 178,709.96 miles, had
correctly reported mail space equivalent to 1,153,110,245 "car-foot
miles." Thus, although the Department's figures cover 8.3 per cent.
more mileage, its reductions of space resulted in assigning to this
greater mileage about one-quarter (24.5 per cent.) less mail space. At
the same time the Department actually increased the space assigned to
the other passenger train services, its figures showing 12,014,065,506
car-foot miles in these services for 194,977.55 miles of mail routes
which must be compared with 11,222,478,739 car-foot miles reported by
the railways for 178,709.96 mail-route miles.

    [Footnote E: Document No. 105, p. 53.]

This treatment of the controlling figures as to space, supplementing
the other errors of method and omissions of fact, which have been or
will be cited, was amply sufficient to turn a real loss into an
apparent profit.




VI. THE POSTMASTER-GENERAL IGNORED DATA WHICH HE HAD OBTAINED SHOWING
EXPENDITURES ON ACCOUNT OF THE MAILS LARGELY IN EXCESS OF THE DIRECT
EXPENSES FOR THAT SERVICE WHICH HE REPORTED.


As a part of the investigation reported in Document No. 105 the
Postmaster-General obtained from the railways statements showing the
amounts expended by them for the station and terminal services
required by his Department and the amount of free transportation
furnished on his requisition for officers and agents of the postal
service when not in charge of mail. These data were not used (Document
No. 105, p. 6) and, as no adequate allowance was made in any other way
for these expenses, the omission unjustly reduced the estimates
of the cost to the railways of their postal services. The
Postmaster-General's explanation of this omission implies that it was
partially offset by the assignment as cost of mail service of its
proportion, on the space basis, of all the station and terminal
expenses of the passenger train services but these special mail
expenses are disproportionately heavy and the amount so assigned was
far too low. The expenses for station and terminal services especially
incurred for the mails, during November, 1909, and reported to the
Postmaster-General, for ninety-two per cent. of the mileage covered by
Document No. 105 aggregated $401,136.00, as follows:

 Amount of wages paid to messengers and porters
   employed exclusively in handling mails                 $79,980.84

 Portion properly chargeable to mail service, pro-rated
   on basis of actual time employed, of wages
   paid to station employees a part of whose time
   is employed in handling mails                          198,927.01

 Amount expended for maintenance of horses and
   wagons and for ferriage, etc., in connection with
   mail service                                             5,640.98

 Rental value, plus average monthly cost of light
   and heat, of room or rooms set apart for the exclusive
     use of the mail service                               37,258.93

 Rental value of tracks occupied daily for advance
   distribution of the mail                                47,029.12

 Average monthly cost of light and heat for postal
   cars placed daily for advance distribution of mail      18,400.57

 Interest at the legal rate upon the value of cranes,
   catchers and trucks required for mail service            3,895.36
                                                        ------------
     Total                                               $401,126.00[F]

    [Footnote F: This total includes $9,993.19 reported by four
    companies which gave totals for these items, but did not
    report the items separately.]

All the foregoing data were reported to the Postmaster-General in
response to his request but he made no use of these items, an omission
manifestly to the serious disadvantage of the railways and having the
effect of unduly reducing his estimates of the cost of the mail
service.

Similarly, the Postmaster-General omitted to use the data he had
obtained from the railways showing the volume of free passenger
transportation, already referred to, supplied to the officers and
agents of the Post Office Department and his estimates contain no
recognition of the cost of this service although its extent should be
a matter of record in the Department as it is furnished only on its
requisition. The space in passenger coaches occupied by these
representatives of the Post Office Department, traveling free, was not
assigned to the mail service but was treated as passenger space.




VII. THE MONTH OF NOVEMBER IS NOT A FAIR AVERAGE MONTH IN ANY RAILWAY
YEAR OR ONE THAT IS TYPICAL OF A YEAR'S BUSINESS AND ITS USE AS THE
SOLE BASIS OF THE POSTMASTER-GENERAL'S CALCULATIONS WAS SO UNFAVORABLE
TO THE RAILWAYS AS TO DEPRIVE THE RESULTS OF ANY VALUE EVEN IF IN ALL
OTHER RESPECTS HIS METHODS WERE BEYOND CRITICISM.


All the Postmaster-General's calculations, reported in Document No.
105, and by him relied upon therein, and elsewhere, to substantiate
his attack upon existing railway mail pay, depend solely upon data for
the single month of November, in the year 1909. It is obvious,
therefore, that the validity of his conclusions, if all the rest of
his processes were accurate and his deductions otherwise sound, would
depend upon whether November is sufficiently typical of the railway
year to be safely used as the sole basis for conclusions applicable to
a whole year. The truth is, however, that November is not a typical or
average month and that all of its deviations from the averages
of the year are such as greatly to favor the result which the
Postmaster-General was seeking.

It may well be doubted whether the railway year contains any month
that can properly be regarded as typical of the whole period but if it
does, the month of November, with four Sundays, two holidays and only
twenty-four working days, is certainly not such a month. The
Interstate Commerce Commission publishes the monthly aggregates of
railway receipts and these official data conclusively prove that
November, 1909, was the one month for which the data were most
strongly favorable to finding, by the Postmaster-General's method, an
abnormally low apparent cost for the passenger train services and,
consequently, for the mail service.

It is a month in which substantially Winter conditions prevail in a
large part of the country and, on this account, one during which much
of the ordinary work of maintenance of way and structures must be
suspended. Such work occasions a large fraction of the yearly expenses
of all railways and these expenses pertain in a relatively large
proportion to the passenger services because the higher speed of
passenger trains results in greater relative wear and tear upon
road-bed and structures than that caused by the slower trains of the
freight service and the requirements of safety to passengers carried
at high speed impose more costly standards of maintenance than would
otherwise be necessary. Consequently a month in which these
maintenance expenses are necessarily below the yearly average cannot
typify the full annual cost of the passenger train services. Figures
showing the facts are contained in Appendix B.

It is, of course, understood that the respective expenses of the
passenger and freight services must move upward and downward with the
fluctuations in the volume of each sort of traffic. No month can
furnish a reliable basis for estimating the proportion of the total
expenses that is caused by the passenger service unless during that
month the volume of passenger traffic bears a normal relation to the
volume of freight traffic. But in November, 1909, as will appear from
official figures for each month in the year contained in Appendix C,
passenger traffic, as measured by receipts therefrom, was much below
the average month of the year while freight traffic was far above the
average. The November receipts from passengers amounted to only 21.5
per cent. of total receipts, the lowest relation shown for any month
in the year. Of course, under these conditions passenger expenses were
curtailed and freight expenses relatively enhanced. Certainly the use
of data resulting from these abnormal relations could not possibly
produce results fairly typical of a normal period, that is of a whole
year. The results so obtained must have diminished the apparent cost
of the passenger train services below the true cost, by just as much
as the figures for November were below the average figures of the
year.

These considerations fully establish the truth that, if every other
feature of Document No. 105 were absolutely beyond criticism, the fact
that it rests wholly upon estimates based upon data for the single
month of November would render its conclusions illusory, misleading
and seriously prejudicial to the railways.




VIII. A COMMISSION OF SENATORS AND MEMBERS OF CONGRESS WHICH, BETWEEN
1898 AND 1901, MOST FULLY AND CAREFULLY INVESTIGATED THE SUBJECT,
ASCERTAINED AND DECLARED THAT RAILWAY MAIL PAY WAS NOT THEN EXCESSIVE;
SINCE THEN THERE HAVE BEEN MANY AND EXTENSIVE REDUCTIONS IN PAY
ACCOMPANIED BY SUBSTANTIAL INCREASES IN THE COST AND VALUE OF THE
SERVICES RENDERED BY THE RAILWAYS.


The Congressional Joint Commission to Investigate the Postal Service,
which reported on January 14, 1901, is authority for the fact that, at
that time, railway mail pay was not excessive. Senator William B.
Allison, of Iowa; Senator Edward S. Wolcott, of Colorado; Senator
Thomas S. Martin, of Virginia; Representative Eugene F. Loud, of
California; Representative W. H. Moody, of Massachusetts, and
Representative T. C. Catchings, of Mississippi, six of the eight
members of the Commission, then united in the following:

     "Upon a careful consideration of all the evidence and the
     statements and arguments submitted, and in view of all the
     services rendered by the railways, we are of the opinion
     that 'the prices now paid to the railroad companies for the
     transportation of the mails' are not excessive, and
     recommend that no reduction thereof be made at this time."
     Fifty-second Congress, Second Session, Senate Document No.
     89, pp. 19, 22, 25, 29.

Since the Commission reported, the volume of the American mails, the
revenue of the American postal service and its demands upon the
railways for services and facilities have greatly increased. The costs
of supplying railway transportation have also greatly increased. The
necessary cost of railway property per unit of service has increased,
and in consequence the amount required as a reasonable return thereon,
on account of higher wages and prices, the higher standards of service
demanded and the higher value of the real estate required for extended
and necessary terminal plants. Operating expenses have grown by reason
of repeated advances in rates of wages paid to employees of every
grade and increased prices of materials and supplies. Taxes have
increased with the rapidly augmenting exactions of State and local
governments and the imposition of an entirely new Federal corporation
tax.[G] Yet during this period of rapidly advancing railway expenses,
and in spite of the fact that at its commencement the railway mail pay
was not excessive, the rates of payment for railway mail services have
been subjected to repeated and drastic decreases accomplished both by
legislative action and by administrative orders. These reductions have
so much more than offset the rather doubtful advantages which the
railways might be assumed to have obtained from the increased volume
of mail traffic that in 1912 they find their mail service more
unprofitable than ever before. The following table shows the facts:

                                Average railway mail
 Fiscal       Total railway      pay per $100.00 of
 Year           mail pay          postal receipts.

 1901         $38,158,969             $34.18
 1904          43,971,848             30.62
 1907          49,758,071             27.10
 1910          49,405,311             22.04
 1911          50,583,123             21.26

    [Footnote G: Data indicating some of the increases in wages
    and taxes are given in Appendices D and E.]

The foregoing shows that the Post Office Department expended for
railway transportation, in 1901, $34.18 in order to earn $100.00 in
gross and that by 1911 this expenditure had been reduced 37.8 per
cent. to $21.26.

This notable reduction was the consequence (first) of the operation of
the law fixing mail pay under which the average payment per unit of
service decreases as the volume of mail increases; (second) of the
Acts of Congress of March 2, 1907, and May 12, 1910, and (third) of
administrative changes effected by the Post Office Department which,
without decreasing the services required of the railways or enabling
those services to be rendered at any lower cost, greatly reduced the
payment therefor. Chief among these administrative changes was the
Postmaster-General's order known as the "Divisor" order (No. 412 of
June 7, 1907, superseding Order No. 165 of March 2, 1907) radically
lowering the basis for calculating the annual payments for
transportation. No official estimate of the reduction in the aggregate
annual payment produced by the operation of the law fixing the scheme
of payment has been made but from time to time the Department has
published estimates of the reductions otherwise effected. None of
these estimates is now up to date, and to make them comparable with
the present volume of mail substantial increases would be necessary,
but they are given below as representing an amount substantially less
than the lowest possible statement of the total present annual
reduction.

      Cause of reduction                  Amount of annual reduction.

 Natural operation of the law                      No estimate.

 Acts of March 2, 1907, and May 12, 1910          $2,723,658.90

 Withdrawal of pay for special facilities            167,005.00

 Postmaster-General's divisor order                4,941,940.34

 Other administrative changes                        699,544.51
                                                 --------------
     Total (with no allowance for the first item
       above)                                     $8,532,148.75

No one will contend for a moment that there has been any net reduction
in the cost of supplying railway mail services and facilities since
1901, the year in which the report of the Joint Commission to
Investigate the Postal Service was made. In fact, all changes in
railway operating costs, except those due to increased efficiency of
organization and management, which can have little if any effect in
connection with mail traffic, have been in the opposite direction.
During the years characterized by these reductions the railways have
been called upon continually to improve the character of their postal
service and the Post Office Department will not deny that the railways
are now rendering better, more frequent, and more expeditious postal
service than in 1901, or any intermediate year, and are doing so at
greatly increased cost to themselves.

In view of these thoroughly substantiated facts the drastic reductions
of recent years afford unanswerable proof that railway mail pay is now
too low.




IX. THE ADMINISTRATION OF THE POST OFFICE DEPARTMENT HAS NOT, IN THE
LAST TWELVE YEARS, EFFECTED ANY REDUCTION IN THE ANNUAL TOTAL OF ITS
EXPENSES FOR OTHER PURPOSES THAN RAILWAY TRANSPORTATION OR IN THE
PROPORTION OF ITS REVENUES REQUIRED FOR SUCH OTHER EXPENSES, BUT THE
WHOLE SAVING WHICH HAS NEARLY ELIMINATED THE ANNUAL DEFICIT OF THE
DEPARTMENT IS REPRESENTED BY THE REDUCED PAYMENTS, PER UNIT OF
SERVICE, TO THE RAILWAYS.


That the recent savings of the postal service have been wholly at the
expense of the railways is shown by the following:

                                    1901.          1911.

 Postal gross receipts           $111,631,193   $237,879,823

 Postal expenses, all purposes;
     Total                       $115,554,921   $238,507,669
     Per cent. of gross receipts     103.5          100.3

 Railway mail pay;
     Total                        $38,158,969    $50,583,123
     Per cent. of gross receipts      34.2           21.3

 Postal expenses other than
 railway mail pay;
     Total                        $77,395,952   $187,924,546
     Per cent. of gross receipts      69.3           79.0

This table shows that in the ten years from 1901 to 1911 the Post
Office Department reduced its operating ratio between its total
expenses and its gross receipts from 103.5 per cent. to 100.3 per
cent., being a reduction of 3.2 points; but it also shows that this
improvement was due solely to the fact that the ratio of railway mail
pay expenses to gross receipts was reduced from 34.2 per cent. to 21.3
per cent., a reduction of 12.9 points, while the ratio of all other
expenses to gross receipts increased from 69.3 per cent. to 79 per
cent., an increase of 9.7 points. Thus the improvement of 3.2 points
in the ratio for all expenses was due entirely to the greatly reduced
ratio of railway mail pay, the heavy reduction in that respect
exceeding by 3.2 points the very substantial increase in the ratio of
all other expenses.

During the ten years from 1901 to 1911 the Department took up an
enormous increase in business at a greatly decreased cost for railway
transportation and at a largely increased cost for other purposes. It
cost the Department, for purposes other than railway transportation,
nearly nine-tenths of $126,248,630 to add that amount to its gross
receipts (although for these other purposes it had previously spent
less than seven-tenths of its gross receipts) while it required less
than one-tenth of the same sum to pay for the added railway
transportation that the new business required (although at the
beginning of the period railway transportation had cost more than
one-third of the gross receipts). This startling comparison fully
warrants the conclusion that the power of Congress and the Department
has been exercised to force upon the railways, by reducing the
payments for their services, the burden not only of the effort to
eliminate the annual postal deficit but of considerable increases in
other forms of postal expenditure. No reference to rural free delivery
will serve to explain away the conclusion suggested by this comparison
especially since only a fraction of the cost of that service
represents really an additional net outlay. This service has permitted
a reduction of one-third in the number of post offices and has been in
many cases substituted for star route service and the savings thus
permitted ought to be credited to it before determining its cost.

That increases in postal expenditures were necessary, between 1901 and
1911, is not denied. The period was one in which steady and extensive
increases in the cost of living made necessary considerable increases
in the salaries of postal employees and in the cost of postal
supplies, precisely as the railways were impelled to increase the
salaries and wages of their employees and were obliged to pay higher
prices for their supplies. In other words, the purchasing power of the
American dollar, and of standard money everywhere, greatly decreased
and this decrease affected the Post Office Department as it has
affected every business undertaking. But the purchasing power of the
railway dollar decreased exactly as that of all other dollars and it
was unreasonable and unjust that while this change was in progress,
the losses which it entailed in the postal service of the Government
should be shifted, as it has been shown that they were, to the
railways which were, at the same time, suffering far greater losses
from the same cause.




X. THE CONTINUOUS REFUSAL OF THE POST OFFICE DEPARTMENT TO ORDER
REWEIGHINGS OF THE MAILS EXCEPT AFTER THE MAXIMUM INTERVAL OF FOUR
YEARS WHICH THE LAW ALLOWS, THE DEMANDS FOR STATION AND TERMINAL
SERVICES THAT ARE RENDERED WITHOUT ANY OR WITHOUT ADEQUATE
COMPENSATION AND THE UNJUST DISCRIMINATION AGAINST COMPARTMENT CARS
USED AS RAILWAY POST OFFICES ARE ALL ABUSES, SERIOUSLY INJURIOUS TO
THE RAILWAYS, WHICH HAVE GROWN UP UNDER THE PRESENT SYSTEM OF PAYMENT
AND OUGHT AT ONCE TO BE REMEDIED.


In addition to the inadequacies in the rates of pay provided under the
present law, which result in payments that do not leave any balance
for taxes or return upon property and indeed do not even meet
operating expenses, there are certain conditions which have grown up
in the application of the existing basis of pay that ought to be
rectified. This is especially necessary in view of the tendency,
herein shown, of the Post Office Department to apply the system so as
to reduce its expense for railway transportation, and to look to this
item as the chief or sole source of economies.

The transportation pay received for each railway route is determined,
under the practice of the Department, for a period of four years on
the basis of the average daily weight carried during a period of about
three months duration prior to the beginning of the period for which
it is fixed. Thus, by the terms of the law, the Government upholds the
principle that weight should be the basis of payment but, by an
inconsistent practice, denies that principle and creates a condition
under which it is practically certain that the weight actually carried
will differ materially from the weight paid for. Congress, surely,
never intended this result for the provision of law is, merely, that
the mail shall be weighed "not less frequently" than once in four
years and clearly implies an intention that it should be weighed
whenever a substantial change in volume has taken place. But the Post
Office Department controls, subject to the provision of law, the
frequency of the weighings, and naturally seeks those reductions in
its expenses which can be effected without loss anywhere except in
railway revenues. Consequently, it long ago ceased to order new
weighings, except when compelled to do so by the expiration of the
statutory limit. It thus happens that while the railways are paid on
the basis of a certain average daily weight they are frequently
carrying a much greater weight and with no compensation whatever for
the increase in the weight. In other instances the change is in the
opposite direction but with increasing national population and wealth
it is obvious that most of these changes must be to the injury of the
railways. However, the element of uncertainty thus introduced into
each contract is unbusinesslike and in fairness to both parties ought
to be removed. No railway would make a four years' contract to carry,
for a definite sum, the unlimited output of any manufacturing plant
and if it attempted to do so the contract would be void under the
Interstate Commerce law. The terms of the mail contracts are
substantially dictated by the Postmaster-General and by Congress and
the latter ought, in justice both to the railways and to the
Government, to require the former to make annual weighings in order
that the scheme of payment provided in the law may be fairly and
accurately applied.

Railways are required to transfer the mails between their stations and
all post offices not more than a quarter of a mile distant from the
former and, at the election of the Post Office Department, to make
similar transfers at terminals. For the former no compensation is
accorded, and for the latter the allowances are inadequate. There are
numerous instances in which these extra services require expenditures,
on the part of the railways concerned, that exceed the total
compensation of the mail routes on which they occur. The extent of
these requirements in particular cases is largely subject to the will
of the Department and this produces unreasonable uncertainties as to
what may be demanded during the life of any contract. The basis of
payment plainly does not contemplate such services, they are a
survival from the period when the mails were carried by stage-coaches,
which could readily deviate these distances from their ordinary
routes, and it is clear that the Government ought to perform these
services itself or reasonably compensate the railways therefor.

Much of the mail moved by the railways is carried in cars especially
equipped as traveling post offices in order that it may be accompanied
by postal clerks who perform, on the journey, precisely the labor
which they would otherwise perform in local post offices. Cars so used
can be but lightly loaded and are costly to supply, to equip, to
maintain and to move. Their use has greatly increased the efficiency
of the postal service and vastly expedited the handling of the mails.
In the infancy of this service Congress provided for additional
payments for the full cars so required, but when the practice of
requiring portions of cars for the same identical purpose was
inaugurated no provision for paying for them was made and this
condition never has been corrected. Even in Document No. 105, the
injustice of this situation is recognized (page 3) and the
Postmaster-General asserts that it is a purely arbitrary
discrimination and without logical basis. Obviously a reasonable
allowance for apartment cars ought to be made.




XI. THE POSTMASTER-GENERAL'S PROPOSED PLAN OF PAYMENT BASED UPON
OPERATING COST AND TAXES, TO BE ASCERTAINED BY THE POST OFFICE
DEPARTMENT, PLUS SIX PER CENT. IS SERIOUSLY WRONG IN PRINCIPLE AND
WOULD ENCOURAGE AND PERPETUATE INJUSTICE.


The foregoing discussion makes plain the error and injustice in the
Postmaster-General's proposal to pay the railways for carrying the
mail upon the basis of returning to them the operating expenses and
taxes, as ascertained by the Post Office Department, attributable to
the carriage of the mails, plus six per cent. of the sum of these
expenses and taxes.

The discussion under heading III above demonstrates that the plan
leaves out of consideration any allowance for return upon the property
and would be destructive of the universally recognized rights of the
railroad companies.

Furthermore, such a plan is fundamentally erroneous because it
involves paying the highest rates to the railroad that by reason of
physical disabilities or inefficient methods is most expensively
operated and the lowest rates to the railroad which, by reason of the
highest efficiency, operates at the lowest cost. A railroad's superior
operating efficiency is frequently due to exceptionally heavy capital
expenditures to obtain low grades, two, three or four main tracks, and
to improve in other respects the roadbed and tracks to the end that
trains may be hauled at the lowest expense. Such a railroad needs, and
is entitled to sufficient net earnings to enable it to pay a proper
return upon the increased value which is due to such expenditures. But
under the Postmaster-General's plan, a railroad would be penalized for
all the capital expenditures made by it for the purpose of decreasing
its operating cost, because the more it decreased its operating cost
the more it would decrease its mail pay.

The ascertainment of the cost to a railroad of conducting mail service
is necessarily very largely a matter of judgment and opinion, because
a large proportion of the total operating expenses are common to the
freight and passenger traffic and can only be approximately
apportioned. There is room for a very wide discretion in the making of
such apportionments. It would not be right or proper to entrust the
Post Office Department with the discretion of making such
apportionment, because the Post Office Department has an obvious
interest at stake, its object always being to reduce the railroad pay
to a minimum.

The last preceding statement is fully justified by the facts disclosed
by the foregoing pages, which show how consistently the Post Office
Department has relied upon reductions in railway mail pay as the ever
available source of desired curtailments of expenses and how
unsuccessfully the railways have resisted this persistent pressure.
They show that successive Postmasters-General have taken advantage of
every legal possibility, such as taking the longest time between mail
weighings which the law permits and the strained interpretation of the
statute fixing the basis of payment (page 19), in order to effect
reductions in railway mail pay. Consequently, the facts point
irresistibly to one conclusion, namely, that the Post Office
Department is a bureaucratic entity with an interest in the reduction
of the amounts paid to the railways that is incompatible with an
impartial ascertainment of what is fair compensation. This interest,
coupled with the brief tenure of the responsible officers of the
Department, must always incline the latter to support insufficient
standards of mail pay and prevent their recognizing the ultimate
necessity of paying fairly for efficient service. It would, therefore,
be clearly inexpedient and strikingly unjust to place railway mail
revenues wholly at the mercy of the Department by enacting a law which
would authorize each Postmaster-General to fix railway mail pay on the
basis of his own inquiries and opinions in a field in which so much
must be left to estimate and approximation as that of the relative or
actual cost of the different kinds of railway service.

It is conceded that every railway mail contract is between the
Government, which is the sovereign, and a citizen, and that the nature
and terms of the contract are always substantially to be dictated by
the former. But this very condition invokes the principle of primary
justice, that the sovereign shall take care to exercise its power
without oppression. To this end the determination of the terms on
which the Post Office Department may have the essential services of
the railways ought to be reserved, as at least partially in the past,
to the Congress, or, if delegated at all, they should be entrusted to
some bureau or agency of Government not directly and immediately
interested in reducing railway mail pay below a just and reasonable
compensation.




APPENDIX A.

EXTRACTS FROM THE POSTAL LAWS AND REGULATIONS.


"Railroad companies, at stations where transfer clerks are employed,
will provide suitable and sufficient rooms for handling and storing
the mails, and without specific charge therefor. These rooms will be
lighted, heated, furnished, supplied with ice water, and kept in order
by the railroad company." Section 1186, second paragraph.

"The specific requirements of the service as to ... space required ...
at stations, fixtures, furniture, etc., will at all times be
determined by the Post Office Department and made known through the
General Superintendent of Railway Mail Service." Section 1186, third
paragraph.

"Railroad companies will require their employees who handle the mails
to keep a record of all pouches due to be received or dispatched by
them, and to check the pouches at the time they are received or
dispatched, except that no record need be kept of a single pouch from
a train or station to the post office or from the post office to a
train or station which, in regular course, is the only pouch in the
custody of the company's employees at that point while it is being
handled by them. This is not to be construed as relieving railroad
companies from having employees on trains keep and properly check a
record of all closed pouches handled by them, without exception."
Section 1187, first paragraph.

"In case of failure to receive any pouch due, a shortage slip should
be made out, explaining cause of failure, and forwarded in lieu of the
missing pouch. Specific instructions in regard to the use of shortage
slips will be given by the General Superintendent of Railway Mail
Service." Section 1187, second paragraph.

"Every irregularity in the receipt and dispatch of mail should be
reported by the employee to his superintendent promptly, and if a
probable loss of or damage to mail is involved, or if the cause of
failure to receive a pouch is not known, the report should be made by
wire, and the superintendent will notify the division superintendent
of Railway Mail Service without delay. A copy of the employee's report
should be attached to and become a part of the permanent pouch
record." Section 1187, third paragraph.

"Train pouch records will be kept on file at the headquarters of
division superintendents of railroad companies for at least one year
immediately following the date the mail covered by them was handled,
and shall be accessible there to post office inspectors and other
agents of the Post Office Department. Station pouch records will be
kept on file at the station to which they apply for at least one year
immediately following the date the mail covered by them was handled,
and shall be accessible there to post office inspectors and other
agents of the Post Office Department." Section 1187, fourth paragraph.

"Railroad companies will require their employees to submit pouch
records for examination to post office inspectors and other duly
accredited agents of the Post Office Department upon their request and
exhibition of credentials to such employees." Section 1187, fifth
paragraph.

"Every railroad company is required to take the mails from, and
deliver them into, all terminal post offices, whatever may be the
distance between the station and post office, except in cities where
other provision for such service is made by the Post Office
Department. In all cases where the Department has not made other
provision, the distance between terminal post office and nearest
station is computed in, and paid for, as part of the route." Section
1191, first paragraph.

"The railroad company must also take the mails from and deliver them
into all intermediate post offices and postal stations located not
more than eighty rods from the nearest railroad station at which the
company has an agent or other representative employed, and the company
shall not be relieved of such duty on account of the discontinuance of
an agency without thirty days' notice to the Department." Section
1191, second paragraph.

"At connecting points where railroad stations are not over eighty rods
apart a company having mails on its train to be forwarded by the
connecting train will be required to transfer such mails and deliver
them into the connecting train, or, if the connection is not
immediate, to deliver them to the agent of the company to be properly
dispatched by the trains of said company." Section 1192.

"At places where railroad companies are required to take the mails
from and deliver them into post offices or postal stations or to
transfer them to connecting railroads, the persons employed to perform
such service are agents of the companies and not employees of the
postal service, and need not be sworn; but such persons must be more
than sixteen years old and of suitable intelligence and character.
Postmasters will promptly report any violation of this requirement."
Section 1193.

"Where it is desirable to have mails taken from the post office or
postal station to train at a terminal point where the terminal service
devolves upon the company, in advance of the regular time of closing
mails, the company will be required to make such advance delivery as
becomes necessary by the requirements of the service." Section 1194.

"When a messenger employed by the Post Office Department cannot wait
for a delayed train without missing other mails the railroad company
will be required to take charge of and dispatch the mails for the
delayed train, and will be responsible for the inward mail until
delivered to the messenger or other authorized representative of the
Department." Section 1195.

"Whenever the mail on any railroad route arrives at a late hour of the
night the railroad company must retain custody thereof by placing the
same in a secure and safe room or apartment of the depot or station
until the following morning, when it must be delivered at the post
office, or to the mail messenger employed by the Post Office
Department, at as early an hour as the necessities of the post office
may require." Section 1196.

"When a train departs from a railroad station in the night time later
than 9 o'clock, and it is deemed necessary to have the mail dispatched
by such train, the division superintendent of Railway Mail Service
will, where mail is taken from and delivered into the post office by
the railroad company, request the company, or where a mail messenger
or carrier is employed by the Post Office Department, will direct him,
to take the mail to the railroad station at such time as will best
serve the interest of the mail service. Such mail will be taken charge
of by the agent or other representative of the railroad company, who
will be required to keep it in some secure place until the train
arrives, and then see that it is properly dispatched." Section 1197,
first paragraph.

"The division superintendent of Railway Mail Service will give
reasonable advance notice to the proper officer of the railroad
company, in order that the agent or representatives of the company may
be properly instructed." Section 1197, second paragraph.

"Railroad companies will be expected to place their mail cars at
points accessible to mail messengers or contractors for wagon service.
If cars are not so placed the companies will be required to receive
the mails from and deliver them to the messengers or contractors at
points accessible to the wagon of the messenger or contractor."
Section 1198.

"A mail train must not pull out and leave mails which are in process
of being loaded on the car or which the conductor or trainman has
information are being trucked from wagons or some part of the station
to the cars." Section 1199.

"At all points at which trains do not stop where the Post Office
Department deems the exchange of mails necessary, a device for the
receipt and delivery of mails satisfactory to the Department must be
erected and maintained; and pending the erection of such device the
speed of trains must be slackened so as to permit the exchange to be
made with safety." Section 1200, first paragraph.

"In all cases where the Department deems it necessary to the safe
exchange of the mails the railroad company will be required to reduce
the speed or stop the train." Section 1200, second paragraph.

"When night mails are caught from a crane the railroad company must
furnish the lantern or light to be attached to the crane and keep the
same in proper condition, regularly placed and lighted; but if the
company has no agent or employee at such station, the company must
furnish the light, and the care and placing of same will devolve upon
the Department's carrier." Section 1200, third paragraph.

"The engineer of a train shall give timely notice, by whistle or other
signal, of its approach to a mail crane." Section 1200, fourth
paragraph.

"Railroad companies are required to convey upon any train, without
specific charge therefor, all mail bags, post office blanks,
stationery, supplies, and all duly accredited agents of the Post
Office Department and post office Inspectors upon the exhibition of
their credentials." Section 1184.




APPENDIX B.

CLASSIFICATION OF OPERATING EXPENSES.


(Data from Reports of the Interstate Commerce Commission.)

 ---------------------------------------------------------------------------
                                    Average cost per mile of line.
 ------------------+-----------------+-------------------+------------------
                   |                 |                   | Monthly average
                   | Fiscal year 1910|  November, 1909   |  for the other
                   |                 |                   | eleven months of
                   |                 |                   | the fiscal year
                   +---------+-------+-------+-----------+-------+----------
                   |         |       |       |  Per cent.|       |Per cent.
                   |         |Monthly|       | of monthly|       |of monthly
       Class.      |  Amount |average| Amount|average for| Amount|average for
                   |         |       |       | the fiscal|       |the fiscal
                   |         |       |       |    year.  |       |    year.
 ------------------+---------+-------+-------+-----------+-------+----------
 Maintenance of way|         |       |       |           |       |
   and structures  |$1,562.88|$130.24|$124.04|    95.24  |$130.80|  100.43
 Maintenance of    |         |       |       |           |       |
   equipment       | 1,746.00| 145.50| 148.44|   102.02  | 145.23|   99.82
 Traffic expenses  |   220.61|  18.38|  18.85|   102.56  |  18.34|   99.78
 Transportation    |         |       |       |           |       |
   expenses        | 2,893.71| 324.48| 327.78|   101.02  | 324.18|   99.91
 General expenses  |   287.71|  23.98|  23.10|    96.33  |  24.06|  100.33
 ------------------+---------+-------+-------+-----------+-------+----------
     Total         |$7,710.91|$642.58|$642.21|    99.94  |$642.61|  100.00
 ------------------+---------+-------+-------+-----------+-------+----------




APPENDIX C.

RECEIPTS FROM PASSENGER AND FREIGHT TRAFFIC BY MONTHS.


(Data from Reports of the Interstate Commerce Commission.)

 ----------+-------------------------+-------------------------+------------
           | Passenger receipts per  |   Freight receipts per  |Per cent. of
           |    mile of line         |      mile of line       |  passenger
           |-------+-------+---------+-------+-------+---------+ receipts to
           |       |       |Per cent.|       |       |Per cent.|  receipts
   Month   | Total | Daily |of daily | Total | Daily |of daily |  from both
           |       |Average|average  |       |Average|average  |  passengers
           |       |       |for year |       |       |for year | and freight
 ----------+-------+-------+---------+-------+-------+---------+------------
 1909,July |$251.66| $8.12 | 112.15  |$608.67|$19.63 |  88.46  |    29.25
      Aug. | 269.70|  8.70 | 120.17  | 653.97| 21.10 |  95.09  |    29.20
      Sept.| 254.95|  8.50 | 117.40  | 704.51| 23.48 | 105.81  |    26.57
      Oct. | 231.80|  7.48 | 103.31  | 781.91| 25.22 | 113.65  |    22.87
 ----------+-------+-------+---------+-------+-------+---------+------------
      Nov. | 206.69|  6.89 |  95.17  | 752.69| 25.09 | 113.07  |    21.54
 ----------+-------+-------+---------+-------+-------+---------+------------
      Dec. | 211.55|  6.82 |  94.20  | 640.59| 20.66 |  93.11  |    24.83
 1910,Jan. | 187.42|  6.05 |  83.56  | 618.06| 19.94 |  89.86  |    23.27
      Feb. | 171.92|  6.14 |  84.81  | 603.76| 21.56 |  97.16  |    22.16
      March| 202.61|  6.54 |  90.33  | 716.76| 23.12 | 104.19  |    22.04
      April| 203.84|  6.79 |  93.78  | 658.93| 21.96 |  98.96  |    23.63
      May  | 218.47|  7.05 |  97.38  | 682.96| 22.03 |  99.28  |    24.24
      June | 233.25|  7.78 | 107.46  | 674.97| 22.50 | 101.40  |    25.68
 ----------+-------+-------+---------+-------+-------+---------+------------
 Average   |$220.32| $7.24 | 100.00  |$674.81|$22.19 | 100.00  |    24.61
 ----------+-------+-------+---------+-------+-------+---------+------------




APPENDIX D.

HOW RAILWAY WAGES HAVE INCREASED.


In the year 1901 the railways reporting to the Interstate Commerce
Commission received, in gross from operating sources, the sum of
$1,588,526,037.00 and expended in wages and salaries the sum
of $610,713,701.00; in 1910 the corresponding totals were
$2,750,667,435.00 and $1,143,725,306.00. Computations from these
totals show that in 1901 the railways expended in wages and salaries
$38.45 out of each $100.00 of gross operating receipts, while in 1910
the proportion had increased to $41.58 a difference of $3.13 in each
$100.00 of gross receipts. This difference does not seem small but it
is hardly realized, except when the calculation is made, that on the
basis of the gross receipts of 1910 it would amount, as it does, to an
additional expense of $86,095,890.72. It is to be borne in mind that
this largely increased payment to labor is in spite of the fact that a
part of the increase in wage rates has been offset by higher
efficiency in method and facilities. Comparisons of rates of wages,
from the annual statistical reports of the Interstate Commerce
Commission, follow:

 -----------------------------------------------------------------
                                       |   Average wages per day
                                       +-------+-------+----------
         Class of Employees            |       |       | Increase,
                                       | 1901  |  1910 | per cent.
 --------------------------------------+-------+-------+----------
 General office clerks                 | $2.19 | $2.45 |  11.87
 Station agents                        |  1.77 |  2.14 |  20.90
 Other station men                     |  1.59 |  1.91 |  20.13
 Enginemen                             |  3.78 |  4.34 |  14.81
 Firemen                               |  2.16 |  2.57 |  18.98
 Conductors                            |  3.17 |  3.73 |  17.67
 Other trainmen                        |  2.00 |  2.72 |  36.00
 Machinists                            |  2.32 |  3.03 |  30.60
 Carpenters                            |  2.06 |  2.39 |  16.02
 Other shop men                        |  1.75 |  2.20 |  25.71
 Section foremen                       |  1.71 |  1.99 |  16.37
 Other trackmen                        |  1.23 |  1.57 |  27.64
 Telegraph operators and dispatchers   |  1.98 |  2.16 |   9.09
 Employees, account floating equipment |  1.97 |  2.10 |   6.60
 All other employees and laborers      |  1.69 |  1.96 |  15.98
 --------------------------------------+-------+-------+----------




APPENDIX E.

HOW RAILWAY TAXES HAVE INCREASED.


(Data from Reports of the Interstate Commerce Commission.)

 ----------+-------------+---------------+-------------
 Year      | Amount paid |  Average per  | Per cent. of
           |             | mile operated | net receipts
 ----------+-------------+---------------+-------------
 1900      | $48,332,273 |    $251.00    |     8.7
 1901      |  50,944,372 |     260.50    |     8.6
 1902      |  54,465,437 |     272.12    |     8.3
 1903      |  57,849,569 |     281.76    |     8.4
 1904      |  61,696,354 |     290.69    |     9.0
 1905      |  63,474,679 |     292.55    |     8.5
 1906      |  74,785,615 |     336.36    |     8.8
 1907      |  80,312,375 |     353.09    |     8.9
 1908 (1)  |  84,555,146 |     366.84    |    10.7
 1909 (1)  |  90,529,014 |     384.57    |    10.1
 1910 (1)  | 103,795,701 |     430.99    |    10.3
 ----------+-------------+---------------+-------------

(1) Not including terminal and switching companies.




APPENDIX F.

UNITED STATES SENATE

COMMITTEE ON POST OFFICES AND POST ROADS


                                                 September 11, 1912.

My dear Sir:

I hand you herewith a copy of Senate Bill No. 7371, introduced by me
by direction of the Senate Committee on Post Offices and Post Roads,
embodying a plan recommended by the Post Office Department for
determining the compensation to be paid to railroad companies for
transportation of the mails. This general subject has been referred to
a joint Committee of Congress. The Committee has not yet organized and
probably will not do so for several weeks, but as a member of that
Committee and as Chairman of the Senate Committee on Post Offices and
Post Roads and under authority of Senate Resolution No. 56, I desire
to secure immediately such information as may be available for
submission to the Committee at its first meeting. I will ask you,
therefore, to answer the following questions:

(1) Do you deem the present plan of compensation an equitable one as
between the Government and the railroads? If not, in what respects and
as to what classes of railroads is it inequitable?

(2) Is the underlying principle of the plan embodied in the inclosed
bill a proper basis for compensation? If not, wherein is it improper,
and why?

(3) What, in your opinion, is a desirable plan for compensating
railroad companies for transporting the mails?

I desire an early reply to these inquiries relating to the general
plan, and, if you are not ready to do so now, shall be glad to have
you submit later a detailed discussion of this bill and of House
Document No. 105, 62d Congress, 1st Session, with which, I assume, you
are familiar.

                           Yours very truly,

                               (Sgd.) JONATHAN BOURNE, JR.

                Chairman Senate Com. on Post Offices and Post Roads.




APPENDIX G.

COMMITTEE ON RAILWAY MAIL PAY


                                                    October 3, 1912.

Hon. Jonathan Bourne, Jr.,

    Chairman, Senate Committee on Post Offices and Post Roads,

        Washington, D. C.

My dear Sir:--

The Committee on Railway Mail Pay, representing 268 roads operating
over 214,275 miles of road, has been investigating the subject of mail
compensation for about three years, or since the Post Office
Department, in 1909, sent out a series of questions regarding the
space furnished for mails in passenger trains, and the cost to
railroad companies of the service which they perform for the
Government in the carriage of the mails. Therefore the Committee has
thought it would be of interest to you to receive from it an answer to
the questions propounded by your letter of September 11, 1912,
addressed to the officers of railroads throughout the country.

A response to House Document No. 105 is now in course of preparation,
and will be submitted at an early date. In the meantime, our committee
desires to submit the following replies to your inquiries:

_Question 1._--Do you deem the present plan of compensation an
equitable one as between the Government and the railroads? If not, in
what respects and as to what classes of railroads is it inequitable?

_Answer._--The existing law has never worked to the disadvantage of
the Government, but has failed to do justice to the railways by reason
of infrequent weighing; absence of pay for nearly 40 per cent. of the
space occupied as travelling post offices; the performance, without
pay, of side and terminal messenger service, and the unjustifiable
reduction in pay by the Act of Congress dated March 2, 1907,
supplemented by Order No. 412 of the Postmaster General, changing the
divisor.

The present law is based upon correct principles, but should be so
amended as to provide--

     (a) For the Repeal of the Act of March 2, 1907.

     Notwithstanding the large increase in every other item
     connected with the administration of the Post Office
     Department, the railroads' pay has been singled out as the
     one element in these operations for concentration of
     economies. This too, in the face of the fact that the
     operating expenses of the railroads have been greatly
     augmented by the requirements of the law with reference to
     steel equipment, and a general increase in cost
     characteristic of all business operations.

     (b) For annual weighings, and a definite and just method for
     ascertaining daily average weights.

     Under the quadrennial weighing all increased weight of mail
     during the next succeeding four years is carried by the
     railroads without any compensation whatever, which is
     manifestly unfair.

     The railroads must provide car space and facilities for the
     _maximum_ weight offered at _any_ time, yet they are paid
     only for the _average_ weight carried. The Postmaster
     General's order covering the divisor has unfairly reduced
     this _average_.

     This provision is essentially necessary in view of the bill
     establishing the Parcels Post, effective January 1, 1913,
     which will result in taking from the express service traffic
     for which the railroad companies now receive compensation
     and transferring it to the mail service; the bill referred
     to containing no provision for payment to the railroad
     companies for the increased tonnage to be handled in mail
     cars, although such provision was made for the star routes
     and the city wagon service.

     (c) For pay for Apartment Cars on some basis that will
     compensate for the service.

     That the Postmaster General has himself recognized the
     justice of such a change, is indicated in the following
     quotation from page 3 of House Document No. 105:--

     "* * * an additional amount may be allowed for railway post
     office cars when the space for distribution purposes
     occupies 40 feet or more of the car length. No additional
     compensation is allowed for space for distribution purposes
     occupying less than 40 feet of the car length. This
     distinction is a purely arbitrary one and without any
     logical reason for its existence."

     (d) For a fair allowance to the railroads for the side and
     terminal messenger service which they perform for the Post
     Office Department, according to the value of this service to
     the Post Office Department.

     The necessity for this is also emphasized by the
     establishment of the Parcels Post which will undoubtedly add
     greatly to the expense of the service.

     (e) That all rates of pay should be definite and not subject
     to the discretion of the officers of the Post Office
     Department.

     Other inequities exist under the present law, but are due to
     the administrative methods rather than to the law itself.

_Question 2._--Is the underlying principle of the plan embodied in the
enclosed bill a proper basis for compensation? If not, wherein is it
improper, and why?

_Answer._--The underlying principle of the plan embodied in Senate
Bill No. 7371 is not correct. Any plan of compensation based upon
operating cost and taxes, plus six per cent. for profit, is
fundamentally wrong, because it makes no allowance for return upon the
property employed.

Furthermore, such plan is not correct, because it involves paying the
highest rates to the railroad that by reason of physical disabilities
or inefficient methods is most expensively operated, and the lowest
rates to the railroad whose operations are most efficient and whose
service is most satisfactory and valuable to the Post Office
Department. Under the plan proposed, a railroad would be penalized for
all the capital expenditures made by it for the purpose of decreasing
its operating cost, because the more it decreased its operating cost
the more it would decrease its mail pay, although by making this
improvement in operating cost it would have incurred an additional
capital charge upon which it would have to pay dividends or interest.

The ascertainment of the cost to a railroad of conducting the mail
service is necessarily very largely a matter of judgment and opinion,
because a large proportion of the total operating expenses are
expenses common to the freight and passenger traffic and can only be
approximately apportioned and there are various formulas existing for
such apportionment. It would not be right or proper to entrust to the
Post Office Department the discretion of selecting the formulas by
which to ascertain these costs, because the Post Office Department has
an obvious interest at stake, its object always being to reduce the
railroad pay to a minimum.

The estimated cost of a specific service is not a proper basis for
fixing rates for transportation of any commodity. The railroads are
entitled to receive a full and fair return for the value of the
service performed, and the ascertainment of cost of such service is
principally of value as a protection against the establishment of
confiscatory rates.

_Question 3._--What, in your opinion, is a desirable plan for
compensating railroad companies for transporting the mails?

_Answer_.--The existing law has been in effect for nearly forty years,
and those who have worked under it are more or less familiar with its
operations. If it were amended to correct serious inequities, as
suggested in the answer to Question 1, and fairly and impartially
administered by the Post Office Department, it would be preferable to
any untried or theoretical plan that could be proposed.

                                Very respectfully yours,

                            COMMITTEE ON RAILWAY MAIL PAY,

                                    By

                                          (Signed) RALPH PETERS,

                                                  _Acting Chairman_.




Transcriber's Notes:


Words surrounded by _ are italicized.

Small capitals are presented as all capitals in this e-text.

Apparent printer errors are retained.