those cars they ship them right back home to us and they sit on our tracks. They need them right now, but many times during the year they are just sitting on our tracks and we cannot get them out of our possession because we have no need for them and certainly we would not buy any more. You could put all the penalty per diem in the world on boxcars, we would not buy another plywood car. We have The CHAIRMAN. Well, for my information, why would you object to any higher per diem, any higher per diem per day for them, then? Mr. PERLMAN. I do not think this is the answer to the car fleet problem. Mr. Congressman. This is what I am getting to.

no use for them.

Mr. WATSON. Mr. Chairman, may I interrupt so that we might have this in the proper context?

The CHAIRMAN. Go ahead.

Mr. WATSON. On page 3 you make an interesting statement that the P. & L.E., although their operating ratio has been above 100 percent-am I to understand that correctly, that revenues have not approached or at least equalled operating costs?

Mr. PERLMAN. Operating revenues have not approached operating costs. Yes, sir.

Mr. WATSON. That is right. So they have been able to pay more than $16 per share

Mr. PERLMAN. No, sir. They earned more than $16.

Mr. WATSON. Earned more than $16 per share last year "principally out of the revenues for car hire it receives."

Now, you are referring to revenues from freight cars?

Mr. PERLMAN. Yes, sir; freight car hire.

Mr. WATSON. And the question I would ask you is why do we have a problem today. If it is so profitable to rent these cars at the present per diem, then why doesn't the New York Central and all of the rest of the companies go ahead and buy unlimited cars-if it is profitable, as apparently this statement would indicate?

Mr. PERLMAN. This is profitable to them because they can get loads from their shippers to ship out to other railroads, so those cars are being used. We had another subsidiary, the Indiana Harbor Belt that had 765 grain cars. They were a terminal line in Chicago. The only time we could get them off the Indiana Harbor Belt was about 1 month of the year during the grain season. Then the western railroads would take them. And the rest of the time they sat on our tracks for 11 months. Now, we could not make a profit no matter what rea-onable per diem was put on by having cars in use 1 month out of

12.

Mr. WATSON. In other words, you are not indicating from your statement that simply because the P. & L.E. made a profit out of revenues from car hiring that the same would apply to other railroads? Mr. PERLMAN. All I am saying is, sir, that if a railroad has sufficient customers and takes care of those customers properly, has the car fleet to take care of them, they do not lose any money on owning the Lumber of cars required to take care of their customers. They actually make money on that.

Mr. WATSON. Perhaps I misunderstood your statement. Apparently P. & L.E. did not make money from supplying their customers but from the car rental. You made the statement. I did not.

Mr. PERLMAN. They did

Mr. WATSON. The only question I want to ask you is whether or not that is a unique situation to the P. & L.E. or whether it would apply generally?

Mr. PERLMAN. Any originating carrier that has enough business to send cars off blind with loads does not lose any money even though they are on another railroad most of the time.

Mr. WATSON. But that would not apply to the railroad carrier in general. It would just be the specific or exceptional carriers?

Mr. PERLMAN. No, sir. The western roads, as you heard this morning, are supposed to be the originating lines and the eastern railroads the terminating lines. And if the western railroads are the originating lines, certainly they can make the same money on per diem that the P. & L.E. makes.

Mr. Moss. Would the gentleman yield for just a moment?

Mr. WATSON. Yes, sir.

Mr. Moss. I have to excuse myself in a moment. I would just like to ask one question, if I might.

Are you holding the P. & L.E. up to this committee as a typical originating railroad?

Mr. PERLMAN. Yes, sir.

Mr. Moss. You are?

Mr. PERLMAN. Yes, sir.

Mr. Moss. And as you took your seat you made a comment about figures.

Mr. PERLMAN. Yes, sir.

Mr. Moss. I would concur in your observation.

Mr. PERLMAN. Thank you very much. I am sorry you do not have the time to hear the facts. I think you should.

Mr. Moss. I can assure you, Mr. Perlman that your very interesting display of facts will be checked with great care by me.

Mr. PERLMAN. Thank you.

Four years ago we were handling five finished automobiles in a 50-foot boxcar. Today, we handle 15 finished automobiles in a trilevel car, and these cars are run in special trains on expedited schedules in both the loaded and empty movements. In order to expedite the return of the multilevel cars, our own forces unload automobiles at the terminals day and night and on weekends. The result has been that this year the New York Central will handle a million finished automobiles by rail and 3 years ago would have gone highway or water, and our profits have increased by improved utilization.

As a byproduct of the mass installation of multilevel auto cars, our fleet of 50-foot boxcars with double doors 12 feet or more wide, was made available for general loading. As of January 1, 1964, the American railroads owned 83,823 of this class of equipment. Of this total, the New York Central System owned 8,427, or more than 10 percent. As your committee knows, the plywood industry has made a great plea for this class of equipment. In the light of the fact that the New York Central is not a large plywood originating railroad, I suggest that we eastern railroads have done considerably more than our fair share in supplying equipment to this industry.

As a further step away from the obsolete 40-foot boxcar, we are running 40-foot Flexi-Van container trains at passenger train schedules

between New York and Chicago, and New York and St. Louis and other points which accumulate 5,200 miles a month, compared to 1200 miles a month on the 40-foot boxcars. This service has become so popular with the customer that already it is 5 percent of our gross freight revenue, but so efficient because of the car utilization involved that it produces 14 percent of our net income.

And I should like to put in two exhibits covering these Flexi-Van trains into the record. May I do that when I get through or

The CHAIRMAN. Well, will you present it to us so we can see if it appropriately fits into the record, and we will be glad to receive it if appropriate.

You may proceed.

Mr. PERLMAN. These are to explain why; because there are less boxcars, it does not mean that there is less capacity-freight capacity-as far as we are concerned.

Beginning in 1958, we initiated a program of acquiring Flexi-Van cars and vans and at the end of December 1964, we owned 690 FlexiVan cars assigned to freight service, and 2,359 40-foot vans, with 2,209 bogies, and are acquiring more.

In the month of October 1964, a study of Flexi-Van service showed that the cars were making 6.1 trips per month and each car on each trip had an average of 1.9 loaded vans. Thus, in the month of October our van and car fleet produced 7,997 40-foot, loaded-van trips.

Using the average for all the 40-foot boxcar equipment of 26.2 days per load, our Flexi-Van car fleet is the equivalent of 9,462 40-foot boxcars. Thus, although our boxcar ownership at the end of 1964 stood at 26,428, our ability to handle loads is the same as though our ownership of 40-foot boxcars was 35,890. But the real point is that in our Flexi car and van fleet we have equipment which our shippers will use consistently whereas the only time the shippers will use our 40foot boxcar fleet is in times of car shortages.

Another product of market research which increases car productivity is the integral coal train. Four years ago when the coal pipeline was in operation into Cleveland, Ohio, we were faced with the threat of many more coal pipelines all over the country. As a result of the integrated train concept in handling coal, the utilization of hopper cars has been greatly improved. We now haul more coal in fewer cars, and in a number of instances the cost to the shipper for handling his coal has been cut in two. The pipeline that was in operation is mothballed and the other pipelines are no longer on the drawing board.

The best illustration of the role of marketing in modernizing railroad services and pricing so that new equipment technology can be profitably applied is our investment in 1964 of $7.5 million for 500 100-ton-capacity covered hopper cars for bulk movement of grain and grain products. This investment was based on careful market research. We found that the traditional pattern of grain movement in 40-foot boxcars was obsolete and inefficient both for the grain-consuming public and for the railroads. Our revenue from this business was $30 million annually, but we were losing $3 million out of pocket. At the same time unregulated trucks and barges were handling more and more of the business because our rate structure was geared to the high costs we incurred in boxcars with their small capacity, costly maintenance, contamination of lading, leakage in transit, and the traditional storage

and milling in transit. Thus, no matter at what level penalty per diem under H.R. 7165 might be set, we would never invest one more dollar in boxcars for grain movement.

The modern 100-ton covered hopper car is ideally suited to the movement of bulk grain. Yet, we could not justify an investment in this equipment without a drastic change in the entire system of grain transportation. Our basic problem is not car supply, but the seasonal nature of the grain movement, aggravated by the Commodity Credit Corporation policy of moving grain at the same time the harvest is taking place. Yet, this problem is not incapable of solution. It was necessary for our marketing department to develop new concepts in pricing grain transportation which encouraged storag in the producing area and direct shipment to consuming areas, geared to the steady rate of consumption rather than to the seasonality of production. Incidentally, where this new grain-pricing concept is in effect, the price paid the producer has been higher than under the old grain rates, and the cost of the grain to the customer has dropped as much as 9 cents per bushel.

And I should like to put into the record an exhibit of this grain concept.

The CHAIRMAN. The exhibit will be received for the files of the committee and we will make a determination as to whether it should go into the record. For example, some of these exhibits with the pictures and labels and everything make it very difficult for the printing to be accomplished and fitted into the record. It just does not suit or fit the method we have of printing.

Mr. PERLMAN. Well, I thought maybe your staff would like to have it.

The CHAIRMAN. On the Flexi-Van exhibit, that can very well go into the record of the hearing, and we shall be glad for that to be included in the record. These other exhibits I have quickly observed, including this one with all the pictures and a lot of other things, with a large map, it would make it-I do not know-we will talk with the printers about it. I think it would be very difficult to include it in the record. We receive these for the files of the committee, and the committee will have the benefit of them.

Mr. PERLMAN. Thank you.

The CHAIRMAN. Likewise, this exhibit that you have here, part of this can go in the record, such part as it would take to make the continuity of your presentation, and it will be included in the record. We will let the staff and the printers work this out.

(Part of the exhibit on Flexi-Van follows, additional information will be found in the committee files.)

FLEXI-VAN, A SERVICE OF NEW YORK CENTRAL SYSTEM

Why Flexi-Van?

Some of the inherent advantages of Flexi-Van are

1. Side loading-1 or 100 trailer units can be handled simultaneously.

2. Costly tiedown crews are eliminated-transfers are made in approximately 4 minutes.

3. Requires no special terminal. Any railhead approachable by a tractortrailer will suffice.

4. Flexi-Van wheels are not "deadheaded," reducing gross weight per car by 9,200 pounds.

5. Center of gravity is lowered 33% percent, eliminating all clearance problems and minimizing the adverse effects of air dynamics.

6. In transit, van bodies literally float in rubber, permitting shifts of 4 inches fore and aft to provide the epitome of damage-free transportation. 7. Roller bearings permit pasenger train speeds and practically eliminate hotboxes.

8. Flexi-Vans travel in Super-Van trains, the fastest freight trains in the world.

9. High-cube, square-nosed vans carrying more cargo than most competitive trainers, permitting maximum cargo loading.

10. Since the trailer body spends most of its time as a freight-car component, it is not subject to the Federal automotive excise tax of 10 percent. 11. License plates are attached to bogies serving multiple bodies and reducing registration fees 66% percent.

12. Licensed bogies are assigned to specific terminals, eliminating reciprocity difficulties.

13. Maximum car utilization-cars arrive, are unloaded, reloaded with new cargo, and forwarded on the same day.

14. Use of a Flexi-Van car permits direct interchange, without transfer of trailer bodies.

15. Gross weight of a Mark III car approximates 51,000 pounds over 20,000 pounds lighter than contemporary equipment to permit transportation of 24 percent more payload with comparative motive power.

16. Permits pregrouping, lowering terminal costs.

17. Allows selective unloading.

18. Permits later terminal cutoff time.

19. Eliminates the costly "Corrigans"-trailers heading the wrong way way when arriving in terminals.

20. Compatible with all forms of carrier, land and sea.

21. Increases railroad net.

22. Reduces distribution costs.

23. Eliminates costly export packing in international trade.

24. Reduces pier handling.

25. Eliminates the costly export pilferage problem.

26. Use of Stricktainers transforms LCL shipments to carloads.

Mr. NELSEN. Mr. Chairman, may I ask a question at this point? The CHAIRMAN. Yes.

Mr. NELSEN. I noted the reference to the movement of Commodity Credit grain during harvesttime. Do you have any figures indicating how extensive this movement is? This is a point that I have been very much concerned about. Do you have those figures?

Mr. PERLMAN. I believe Mr. Miller here would have some.

Mr. NELSEN. If you have any figures, I wish you would supply them for the record. I would be very much interested in seeing how extensive this practice is.

Mr. MILLER. Mr. Congressman, we do have figures

The CHAIRMAN. I think you better identify this gentleman for the record, if he is going to give some information.

Mr. MILLER. My name is E. P. Miller, chairman of the Car Service Division, AAR; and the request has been made for figures as to the number of bushels or carloads of grain ordered out by Commodity Credit. We do have those figures, from the first of the year up to the present time, on a monthly basis.

Mr. NELSEN. I should like to have them for the record.

Thank you.

The CHAIRMAN. In order that we may have an accurate report from the agency or the organization that makes the shipment, I think we shall ask the staff to request the Commodity Credit Corporation to give

us that information.