cars to ship coal, steel and some other commodities are in tight supply, and shortages already exist on some roads.

These sources say the tight supply of cars should reach a peak in the next 2 weeks and then ease somewhat. That's because much of the current pinch stems from high operations in the steel industry, which is shipping metal at the fastest rate in more than 3 years to meet strike-hedge orders placed earlier. This shipping rate should decline next month, easing the pinch for steelmakers. But coal men say their troubles are destined to grow worse in weeks ahead. This, I think, Mr. Chairman, is the real point, and the one the Commission wishes to emphasize.

Of most significance is the fact that the squeeze, even though it may be temporary, is taking place during only a moderate business upturn. This suggests that railroads would have real trouble meeting demand if any strong and sustained pickup comes.

I would offer the copy of the article for the benefit of the staff or the committee, as it may wish.

Senator PROUTY. Would you like that included in the record? Mr. WALRATH. The portion I read is adequate. If you care for the entire article, I have a photostatic copy.

Senator PROUTY. I think perhaps it should be included in the record. (The article follows:)

FREIGHT CAR PINCH-SHIPPERS WORRY MORE ABOUT EQUIPMENT LACK THAN THREAT OF STRIKE; CLIMBING LEVEL OF INDUSTRIAL ACTIVITY CITED; SOME STEEL, MINE SHIPMENTS HINDERED; ROADS SPUR CAPITAL SPENDING

(By J. Russell Boner, staff reporter of the Wall Street Journal)

PITTSBURGH.-While the Nation's railroads are fretting over the outcome of their current labor dispute, their customers are more concerned about a spreading freight car shortage.

The shortage has developed slowly in recent weeks because of a rising level of business activity, combined with 5 years of inadequate expenditures for new equipment by most of the Nation's railroads. Shippers and railmen agree that cars to ship coal, steel and some other commodities are in tight supply, and shortages already exist on some roads.

These sources say the tight supply of cars should reach a peak in the next 2 weeks and then ease somewhat. That's because much of the current pinch stems from high operations in the steel industry, which is shipping metal at the fastest rate in more than 3 years to meet strike-hedge orders placed earlier. This shipping rate should decline next month, easing the pinch for steelmakers. But coal men say their troubles are destined to grow worse in weeks ahead.

Of most significance is the fact that the squeeze, even though it may be temporary, is taking place during only a moderate business upturn. This suggests that rail roads would have real trouble meeting demand if any strong and sustained pickup comes.

SHOWDOWN ON TUESDAY

Concern about a rail car shortage may prove a minor matter, of course, if the railroads try to impose new working rules on the rail unions later this' month, as they've indicated they'll do. The carriers and unions this week delayed until next Tuesday the deadline for any showdown that could result in a nationwide rail strike. But shippers generally have taken a calm view about the labor situation, confident President Kennedy wouldn't tolerate a strike.

For the present, they are bothered more about shortages in such equipment as the special gondola cars used to haul bar and coil steel as well as carbon plate and tinplate. "No steel company is getting as many of these cars as they want from any railroad," says an official of one eastern road. Says a sales executive for one steelmaker: "We're having to exert every bit of influence we can possibly exert through our traffic department to obtain the equipment necessary to keep the flow of shipments going."

Inland Steel Co., in Chicago, says it is "having trouble shipping all we're making right now because we can't get enough rail and truck equipment." Another big producer was forecasting May shipments 15 percent ahead of April,

but says a "shortage of specific special cars, covered gondolas and so forth," limited the gain to "11 or 12 percent."

A smaller producer says it's "having to ship more and more by truck," due to an "extreme shortage" of cars to carry coil and sheet and a "definite shortage" of cushioned cars, and "even wooden-bottom gondolas." This company, in fact, says it's had to store some products on the mill floor while waiting for rail equipment to ship them.

The Pennsylvania Railroad says steel-filled gondolas being shipped to the Midwest are "slow coming home," and it notes that the Association of American Railroads has put out a car-service order directing western lines to move gondolas back East empty if necessary.

Some companies report a tightening of the supply of cars to haul iron ore, another commodity used by steel makers. Hanna Mining Co. of Cleveland, says its Groveland, Mich., iron ore concentration plant missed shipments to Granite City, Ill., recently when car shortages developed. One source says shortages are affecting big ore boats because often there aren't enough rail cars handy to unload two or more 20,000-ton vessels at one dock.

Coal producers figure the shortage of coal-hauling hopper cars will become critical late this month as mines seek additional loadings to tide them over the 2-week miner's holiday that begins June 29. Most railroads allow coal producers to load cars without having to pay car-rental fares from June 15 to June 29, for delivery during the miners' holiday.

LOST PRODUCTION

But this year coal output has soared, spurred by strong steel demand, and there's considerable question whether mines will be able to get the cars they need. A shortage of coal hopper cars is a big problem, since coal accounts for about 25 percent of all rail tonnage shipped.

Robert McGowan, director of traffic for Peabody Coal Co., one of the Nation's largest soft coal producers, says his company has lost production in Indiana, western Kentucky, Missouri, and some in Oklahoma, because of rail car shortages. The car scarcity, he figures, has cost Peabody some potential sales, and forced it to operate on Saturdays, at time and one-half pay for the miners, in order to meet commitments. "I think we're going to have car shortages right on until the railroads replenish their stock," Mr. McGowan says.

E. C. Hill, in charge of coal procurement for the Tennessee Valley Authority, the Nation's largest coal user, says: “Our suppliers are having a real tough time getting enough cars to run." He adds that some suppliers have been forced to cut back production about one shift a week, due to lack of an adequate supply of cars. Mark Eastin, Jr., president of West Kentucky Coal Co., Madisonville, Ky., says: "We've had some considerable car shortages. We'll miss a day's run here and a day's run there." He estimates that the short car situation is costing somewhere around two shifts, or about 15 percent of production a week.

Coal cars aren't quite so short in the East, but there are indications a pinch is developing.

"Last week we ran out of cars 3 different days, but we were able to put our coal in bins, so we haven't lost any days of operation. But we're screaming and shouting" at the railroad, says John N. Crichton, executive vice president of Johnstown Coal and Coke Co., Johnstown, Pa.

Although coal production topped 9 million tons in only 3 years last year, it has averaged above that for the past 8 weeks. Coal carloadings in the same period have averaged over 110,000 cars weekly, a level some railmen consider critical if maintained for long. This situation may ease a bit as steel demand declines and the miners' holiday passes, but coalmen generally are boosting their production forecasts, and figure the car supply will remain tight.

SPENDING DECLINE

Shippers, who say the car shortage reflects inadequate capital spending by the railroads, note that such spending has slumped to an average of $791 million annually since 1958 from over $1 billion during the preceding postwar years, As a result, the Nation's class 1 railroads had 1,537.341 freight cars on May 1, with 8.1 percent in bad condition-down from 1.751,355 5 years earlier, when only 6.6 percent were in bad order. This is eased somewhat by the fact that

average car capacity at the start of 1963 was 56.31 tons, up from 54.55 tons 5 years before.

Railroads lately have been moving to change the situation, however, while these efforts won't alleviate the current problem, they promise to help matters in years ahead. The roads are stressing faster turnaround and better car utilization, repairing equipment, and boosting spending for more and bigger cars. A new Government survey shows the industry plans to spend over $1 billion on equipment this year for the first time since 1957. The order backlog for new freight cars on May 1 already had soared to 19,872, up from 14,244 a year earlier and the highest for that date since May 1, 1960.

TRYING TO MEET DEMAND

The Norfolk & Western Railroad, which reported record coal loadings in May, and expects a "similarly strong" June, says that, in anticipation of heavy demand for coal cars, it "tried to lease cars from other lines, but couldn't. So, we kept in service temporarily almost anything that will run." The line also has stepped up its maintenance to reduce its cars in need of repair to less than one-half percent of its fleet. And, a spokesman says: "We stepped up our production of 85-ton hopper cars to 60 a week, from 40 a week earlier this year." (The road builds cars in its own shop in Roanoke, Va.)

The Chesapeake & Ohio Railway on Monday will begin sending 1,300 50-ton hopper cars to its shops in Raceland, Ky., where the sides will be heightened by 7 inches, boosting capacity to 63 tons of coal.

The Baltimore & Ohio Railroad has devoted about 3,000 of its fleet of 31,500 serviceable coal cars to a "unitized train" pool; unitized trains haul a single commodity to a single customer on what is, in effect, a shuttle basis. The B. & O. says unit trains operating under special tariffs put in effect April 1 are averaging a turnaround time of just over a week. This means the cars can be used to carry about three times as much as a comparable unit on a regular train, where the turnaround time is about 20 days, the road says.

The Chicago, Milwaukee, St. Paul, & Pacific Railroad, anticipating a possible severe grain car shortage in the fall, is currently in the midst of a $10 million program to revamp 5,300 boxcars.

Mr. WALRATH. Studies made in 1950 indicated that a total of 1,935,500 freight cars would be required by 1956 to meet the anticipated needs of shippers. As of January 1, 1956, however, freight car ownership and control of class I railroads-including railroad owned or controlled refrigerator cars-totaled only 1,774,614 cars. As of May 1, 1963, this ownership had further declined to 1,596,222 cars, a record low.

For the convenience of the subcommittee, there is attached to my statement a table, marked exhibit A, which indicates the trend in car ownership and control, as well as in cars ordered, retired, and installed during the past 14 years. The trend is anything but reassuring. (Exhibit A follows:)

Mr. WALRATH. I am certain that the committee understands, but again to make the record perfectly clear, the Commission recognizes that there is a very valid argument to the effect that improved efficiencies of railroads and better and larger equipment does actually require fewer cars to move the same tonnage today as compared to 20 years ago.

The fact that concerns us is that the shippers' needs are not being met, and so this is not really a numbers game; it is facing up to stark realities, and that is the basis for our concern.

In addition to inadequate car ownership, one of the greatest contributing factors to recurring freight-car shortages has been the failure of some carriers to utilize the existing fleet of equipment more efficiently. This we have sought to meet by various service ordersnever popular, and in recent years increasingly ineffective in solving crises for shippers as the overall car supply diminishes.

There is no way of concentrating a skeleton fleet at any one point to meet a critical demand without on the other hand creating a shortage somewhere else, as we will illustrate later by events which have occurred during the past several weeks.

A relatively high percentage of unserviceable or bad-order cars over the last several years has also constituted an important factor in aggravating the freight-car shortage situation.

Considering 5 percent of car ownership as representing a normal ratio of unserviceable cars to the total ownership, the percentage for the years 1959-61 was 8.4, 7.1, and 9.2, respectively. Moreover, while the figure has declined somewhat to 8.6 as of January 1, 1962, and 8.1 as of May 1, 1963, this is the result of an increase in cars being retired as well as in cars being repaired.

In this connection, it is noted that the percentage of unserviceable cars being held for heavy repairs-more than 20 man-hours-has increased from 5.6 of car ownership, not including railroad owned or controlled refrigerator cars, as of January 1, 1955, to 6.7 as of May 1, 1963. We are not making progress.

An easy answer to this is that cost of repair is increasing while operating capital declines, but, in our judgment, an insidious intangible reason is that it is cheaper to rent someone else's car in a peak loading period than it is to own one, perhaps only to lose it to someone else whose economic motives are the same.

I am simply trying to point out, Mr. Chairman, that the deficit railroads, that is deficit owning railroads, have a real basis for saying that they haven't had the capital to invest in new equipment. We know from the financial records that this is true in many cases.

Yet the Commission believes that in view of the recurring critical shortages of freight cars experienced by our Nation, it is imperative that ownership of such equipment be increased and maintained at a level capable of meeting the needs of the shipping public during normal times and at the same time providing a reasonably adequate supply during periods of emergency.

I know that the committee is quite aware of the sense in which we use the word "emergency," but again, to make our record perfectly clear, when I mention emergency in this sense we are not talking about a catastrophic or a widespread national emergency; that is, one such as will be created by an enemy threat or enemy action, for which cer

tainly we are not adequately equipped by rail car reserves. We have reference simply to the seasonal and area emergencies and industrial emergencies which everyone knows will occur at each of the producing areas with respect to various types of cars. And now these emergencies are beginning to occur in the industrial field, such as steel, coal, sugar, and others.

So we are really talking about what should be normal service requirements to meet regularly occurring peak periods of demand, and not, I might say, an emergency in the sense that Webster might define it.

During these periods when critical shortages have occurred, the Commission has resorted to every means at its command to cope with the problem. Greatly stepped-up demurrage charges have helped to insure prompt loading and uploading, insofar as shippers and receivers are concerned.

Such action, however, is ineffectual during that phase of car movement and handling when the equipment is in the hands of the carriers. We seek to reach this by service orders, which, of course, help; but as the total supply of cars diminishes each year, these orders become more controversial and less effective in meeting area peak requirements. Our orders when entered today sometimes create a crisis where none existed before and in areas far removed from that which we had judged to be the critical area.

The earning value of the average freight car far exceeds the current per diem charge of $2.88. Hence, some of the carriers have found it more attractive to pay the per diem or car rental charge than to own the cars. Such carriers, therefore, obviously have no economic incentive to provide their fair share of an adequate car supply.

In other words, if the advantage of renting equipment could be made less attractive during times of car shortage, there would be a greater willingness on the part of every railroad to make its just and equitable contribution to the national car fleet.

I want to point out at this stage of the testimony, Mr. Chairman, that car supply is not a new problem, even in terms of the 20th century; nor is our approach to a solution a novel one. In fact the problem of car supply is probably as old as the railroads themselves, at least from the time that the first two of them had a common point for connection.

I have been reading a little history lately, particularly a study entitled "Southern Freight Rates in Transition," by Dr. William H. Joubert. I find that shortly after the War Between the States we were faced with a situation where there were many small railroads running through the South, connecting at inland or common points. It had been traditional to meet the car supply situation there by simply unloading at the end of the line and reloading on the next train. Of course we know today that this method can't provide adequate through service. In fact, the inadequacies soon became apparent to these southern roads.

It was then that, by voluntary agreement, under what has been called the Green Line system of 1872, that five railroads got together and by solemn contract agreed they would furnish a proportionate number of cars to meet that through movement requirement. It is interesting to note that they thought then that 96 cars would do it.