It will be noted that for ton-miles the latest month's index given is 61.7, compared with lows of 49.0 in August 1932 and 51.6 in March 1933. For freight revenue the latest index is 55.1, compared with 47.8 in August 1932 and 46.0 in March 1933. For passenger-miles, the latest index is 50.4, compared with 42.3 in August 1932 and 36.0 in March 1933, while for passenger revenue the latest index is 31.6, compared with 30.1 in August 1932 and 25.7 in March 1933. The average of the three-year period, 1923–5, has been made the base in these comparisons because it is frequently so used in various indexes of business.

Total rail operating revenues, including both freight and passenger, in 1932 were 51.2 percent of the 1923-5 average; in 1933 50.6 percent; and for the first nine months of 1934, 54.6 percent of the same months in the base years.

Total operating expenses in 1932 were 51.7 percent of the 1923-5 average; in 1933, 48.4 percent; and for the first nine months of 1934, 53.0 percent of the same months in the base years. The expenses for the nine months of 1934 were 10.2 percent higher than in the same period in 1933, reflecting changes in traffic, wages, prices of materials, and maintenance policy. Although depreciation charges continue on a pre-depression basis, we have permitted extensive retirements during 1933 and 1934 to be charged to profit and loss instead of to operating expenses, and also, some repairs, carried out with the aid of Public Works Administration loans, have been with our permission, in part charged to profit and loss instead of to operating expenses. Beginning with 1935 depreciation of equipment will be charged to operating expenses on a standardized basis.

Actual maintenance work in 1934, as compared with 1933, has increased slightly more than in proportion to the traffic, as is shown by comparing man-hours and traffic, a comparison which is not affected by changes in prices, wages, or methods of financing.

The figures show a curtailment of maintenance work more rapid than the fall in traffic from 1928 to 1933.

The 10 percent wage cut of February 1, 1932, was reversed to the extent of 22 percent on July 1, 1934. During 1935 the remainder of the 10 percent wage cut is to be rescinded. The ability of the railways to bear this will depend in large part on the further revival of traffic. The freight rates, however, are somewhat below the level of those of the prosperous year 1926, often referred to as a year having a desirable level for commodity prices, and passenger fares average considerably lower than those of 1926, while wages are to be restored to a level higher than that of 1926, since there was an upward tendency in wages between 1926 and February 1, 1932, when the 10 percent cut in employee compensation was made. The cost of coal used by railways was 19.1 percent higher in July 1934 than in July 1933, but 13.2 percent lower than in July 1926.

The somewhat higher level in traffic and maintenance in 1934 compared with 1933 is reflected in a small increase in the number of persons employed. After adjustment for seasonal variation, the index number of railway employment was 56.2 for August 1934, compared with 52.0 in May 1933, these figures being percentages of the 1923-5 average. There was also some elimination of part-time work with an increase in the average hours worked per employee in 1934 as compared with 1933.

The reported net railway operating income remaining out of revenues after charging operating expenses, operating rentals, and taxes, reached a low level in 1932, followed by improvement in 1933 and in the first half of 1934. Since June there has been a fall in this item below corresponding periods in 1933 because of advancing costs and somewhat smaller revenues. As shown below, the net railway operating income for the first half of 1934 was 53.9 percent of the 1923-5 average for the same months; for July this index declined to 41.4 percent and in August to 37.8 percent. The net as reported is overstated to the extent that maintenance charges are subnormal.

The reported net income or deficit after fixed charges (by which is meant the net railway operating income plus other income and less leased road rent, interest accruals, and other deductions) has varied as follows for class I steam railways in recent years:

Although in the first four months of 1934 the deficit was smaller than in the same period in 1933, the comparison has been less favorable for 1934 after April, and the year will probably close with a deficit, without considering the unusual charges to profit and loss referred to above.

The interest accruals were in excess of actual payments to the extent of $70,299,617 in 1933 and $160,270,923 for the five-year period, 1929-1933, owing to defaults on certain bond issues by railways operated by receivers or trustees. The length of such roads on December 31, 1933, was 39,206 miles, or nearly 16 percent of the total for all steam railways. Their book value was $2,853,636,688; their unmatured funded debt, $1,808,332,469; and their matured funded debt, $97,486,852. These figures do not include those of the Chicago, Indianapolis & Louisville Railway Company, which went into trusteeship January 1, 1934.

INCREASES IN FREIGHT RATES AND CHARGES, 1934

The principal class I railroads in the continental United States, on August 27, 1934, applied for permission to make certain increases in their freight rates and charges. Shortly afterward most of the so-called "short line railroads ” and a number of water carriers filed similar petitions. All of these petitions were docketed as Ex Parte No. 115, Increases in Freight Rates and Charges, 1934. Hearings in the proceeding began at Washington, on October 1, when the petitioning carriers were heard in support of their proposals. Later there were other hearings at various points for the presentation of evidence on behalf of shippers and other interested parties. The proceeding will be pushed to submission as rapidly as the importance and complexity of the issues permit.

It is stated in the principal petition that the gradual restoration of railway wage scales in effect prior to February 1, 1932, which will be completed April 1, 1935, and rising costs of materials and supplies will increase the petitioners' operating expenses to an amount

about $293,000,000 greater than those for the year 1933. It is estimated that petitioners will fall short of earning their aggregate fixed charges in 1934 by $53,000,000. They further estimate that the proposed rate increases will add about $170,000,000 annually to their revenues, based on a volume of traffic equivalent to that of 1933.

Petitioners do not propose a flat percentage increase to be applied uniformly to all rates, such as they have sought in several other similar proceedings in recent years. For the most part, they propose an increase of 10 percent, subject to maximum amounts varying as to different commodities. A number of important commodities would be entirely exempted, and some, while increases are sought in some territories, are exempted elsewhere.

In general, they propose no increases in the higher class rates (applicable on merchandise and manufactured articles) for distances of 220 miles and less, where competition from motor carriers is most keenly felt. In many other instances exceptions have been made of rates which are now on a subnormal level because of motortruck or other competition.

RATE STRUCTURE INVESTIGATION

In our last annual report we referred to the entry of an order in the general investigation, Docket No. 17000, Rate Structure Investigation, to the effect that except for the orders already made in that proceeding or which will be entered in respect of such orders as supplementary or ancillary thereto, and except for those parts of the proceeding which have been heard or upon which testimony is being heard but not yet submitted, the proceeding be discontinued. Since then, in Part 8, Cottonseed and Its Products and Related Articles, a supplemental report has been issued, also a report in Part 13, Salt, closing these portions of the investigation. Arguments were heard in connection with the reopened Part 7, Grain and Grain Products, and a final report will be issued in the near future. A report is also pending in Part 12, Nonferrous Metals. Part 2, Western Trunk-Line Class Rates, is before us in a reopened proceeding, and is referred to more particularly herein under the heading "ClassRate Adjustments.'

In his report on the regulation of transportation agencies other than railroads, and on proposed changes in railroad regulation, transmitted to the Senate with our approval and ordered printed as Senate Document No. 152, the Federal Coordinator of Transportation recommended the repeal of the Hoch-Smith Resolution, largely because of the present legal effect of the Resolution in view of the interpretation placed upon it by the Supreme Court of the United States in Ann Arbor R. Co. v. United States, 281 U. S. 658.

CLASS-RATE READJUSTMENTS

Western Trunk-Line Class Rates.-As stated in our last annual report, upon petitions we reopened this investigation for a review upon further hearing of the existing readjustment, theretofore prescribed, of the interstate class rates and related rates by rail between points within western trunk-line territory, and between that territory and official territory. The report proposed by the examiners has since been served upon the parties. We heard oral argument thereon, and are considering a report expected to be issued shortly. Original report, 164 I. C. C. 1.

Responsive to petitions of certain interstate shippers, another reopening of the investigation cited above was made. It brought in issue the lawfulness under section 13 of the act of all intrastate class and related rates within Minnesota. After a further hearing we found that no violation of section 13 had been shown and dismissed the petitions. 197 I. C. C. 57.

Lake and Rail Class and Commodity Rates.-This is an investigation into the lawfulness of the rates on class and related traffic, moving partly by boats on the Great Lakes and partly by rail, between the portion of official territory southeast and east of Lake Erie and Illinois-western trunk-line territories via Lake Superior and Lake Michigan ports. Those rates had been published by carriers in purported compliance with our findings in Western TrunkLine Class Rates, supra, and Eastern Class Rate Investigation, 164 I. C. C. 314, and after suspension permitted to become effective. Since our last annual report, exceptions to the report proposed by the examiners have been filed by the parties and we heard oral argument thereon. The proceeding is now pending our decision. Investigation and Suspension Docket No. 3662, Lake and Rail Class and Commodity Rates.

Consolidated Southwestern Cases.-This proceeding is briefly described in our last annual report, and mention is there made of the pending reopening on further hearing respecting the rail rates comprehended by the allegations of the several complaints consolidated. In that reopening we have under review the reasonableness of the cntire readjustment required in the prior reports of the rail class rates and rates applicable to various commodities between points in the southwestern territories, comprising Arkansas, Oklahoma, Louisiana, and Texas, and between those points and points in the States north, northeast, and east of southwestern territories. As previously said, we entered upon this fairly general reopening in order that we may harmonize, so far as possible, this readjustment with that within, to, and from, adjoining western trunk-line territory resulting from Western Trunk-Line Class Rates, supra. Our purpose is to dispose