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Common ownership in transportation Fitch, John Woodruff 1968

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C 0. MM 0 I OWN E R S. H L P I N % % JJ-. sje % $ »|; !(e # ^; * jj: >jc sjs * JJ: # % * # ijt j}: # s;< * >Je * >,! ^-f T R A N S P O R T A T I O N by JOHN WOODRUFF FITCH B.Sc. (Forestry), University of New Brunswick - 1966 A THESIS: SUBMITTED IN PARTIAL FULFILMENT OF THE REQUIREMENTS FOR THE DEGREE OF MASTERS IN BUSINESS ADMINISTRATION i n the; Department: of COMMERCE. We accept t h i s thesis as conforming to the; required standard THE UNIVERSITY OF BRITISH COLUMBIA September, 1:96.8 In p r e s e n t i n g t h i s t h e s i s i n p a r t i a l f u l f i l m e n t o f t h e r e q u i r e m e n t s f o r an a d v a n c e d d e g r e e a t t h e U n i v e r s i t y o f B r i t i s h C o l u m b i a , I a g r e e t h a t t h e L i b r a r y s h a l l m a k e i t f r e e l y a v a i l a b l e f o r r e f e r e n c e a n d S t u d y . I f u r t h e r a g r e e t h a t p e r m i s s i o n f o r e x t e n s i v e c o p y i n g o f t h i s t h e s i s f o r s c h o l a r l y p u r p o s e s may b e g r a n t e d b y t h e Head o f my D e p a r t m e n t o r b y h i s r e p r e s e n t a t i v e s . I t i s u n d e r s t o o d t h a t c o p y i n g o r p u b l i c a t i o n o f t h i s t h e s i s f o r f i n a n c i a l g a i n s h a l l n o t b e a l l o w e d w i t h o u t my w r i t t e n p e r m i s s i o n . D e p a r t m e n t o f Commerce T h e U n i v e r s i t y o f B r i t i s h C o l u m b i a V a n c o u v e r 8, C a n a d a D a t e October 1 , 1 9 6 8 A B S T R A C T. The? Problem : • If common ownership of transportation modes i s allowed, do the benefits:, of improved co-ordination of ser-vice: between the various modes and the- economies of joint management exceed the dangers, of monopoly power that could be obtained by a large firm engaged in a l l modes of trans-portation? Methods of Investigation; Literature was reviewed to try to determine, whether or not the logic of allowing a. firm, to engage? i n a l l forms of transportation i s stronger than the logic of segregating the modes within the transportation-system. The arguments of those i n favor of allowing common ownership are- presented from a railway point of view. These; individuals, point to the f i n -ancial plight of the railroads i n today's transportation sys-tem* They argue that the railroads should be allowed to d i -versify to better utilize; today1 s intermodal techniques and economize by using the best combination of modes or a parti-cular mode to suit the. shipper's needs.. Those' opposed to common ownership feel that competition between the modes w i l l be', re-duced and the rate of technological innovation w i l l decline. i i . They f e e l .that r a i l r o a d companies w i l l gain monopoly powers that would Tie detrimental to the public i n t e r e s t . In the United States p o l i c y makers r e s t r a i n common ownership and advocate voluntary co-operation between the modes. History of regulatory p o l i c y regarding common owner-ship is: reviewed to t r y to determine if. r e s t r a i n t has: been b e n e f i c i a l to the transportation system. The nationalized period of B r i t i s h transportation Is also reviewed to t r y to determine whether .-or. not the p i t f a l l s , of this, system of re-gulation could lead to the f a i l u r e , of a transportation sys-tem i n which common ownership i s allowed. F i n a l l y the history of the eff e c t s of no r e s t r i c t i o n of common ownership i n Canada is. studied. The extent of common ownership i n Canada i s described, with special attention given to the Province . of B r i t i s h Columbia. An e f f o r t is: made to t r y to determine i f any monopoly power is: apparent i n the Canadian transporta-t i o n system as a consequence of common ownership. Conclusions; Of the three approaches to regulation, the Canadian approach, of allowing common ownership holds the greatest pro-mise of meeting, today's: transportation needs with the best techniques available. This approach- i s not based on the pre-servation of h i s t o r i c a l systems of transportation and the fear that r a i l r o a d s could again dominate transportation. I t i s possible, however, that large transportation companies could" successfully administer prices i f npt c l o s e l y control-l e d by regulatory bodies. The management of a transportation company should seek to use the most economic means of move-ment available, without bias toward a p a r t i c u l a r mode. I f t h i s i s done both the company and the shipper w i l l benefit from the use of the most modern techniques available i n today's transportation system and improved, techniques w i l l aris:e through continued competition between si m i l a r firms and t r a d i t i o n a l l y segregated firms, within future transporta-t i o n systems. The United States., should follow Canada's: example i n allowing freedom of common ownership. T A B L . E: O P C 0. N T E N T S C H A P T E R r. i T O a D i c f i o i i . . 1 - R e a s o n s f o r t h e s t u d y - T e r m i n o l o g y - S c o p e o f t h e p a p e r - L i m i t a t i o n s o f t h e s t u d y II . T H E A R G U M E N T F O R COMMON O W N E R S H I P . 1 ? - B e n e f i t s t o c o m m o n o w n e r s a n d p r e s e n t p r o b l e m s - E f f i c i e n c i e s o f c o - o r d i n a t i o n - T h e i n t r o d u c t i o n o f i n t e r m o d a l t e c h n o l o g y - B e n e f i t s t o t r a n s p o r t a t i o n u s e r s - O t h e r a r g u m e n t s lir. T H E A R G U M E N T A G A I N S T COMMON O W N E R S H I P ;". . . 51 - H i s t o r i c a l L e s s o n s - W a t e r C a r r i e r s - M o t o r c a r r i e r ' s v i e w p o i n t o n t h e m o n o p o l y p o w e r s o f a r a i l r o a d - C o m p e t i t i o n a n d t e c h n o l o g y - C o n t i n u e d p r o b l e m s w i t h t h e r a i l r o a d i n d u s t r y - E c o n o m i e s o f j o i n t m a n a g e m e n t . - C o n f l i c t o f m a n a g e r i a l p h i l o s o p t e e s IV. COMMON O W N E R S H I P I N T H E U N I T E D S T A T E S <§: G R E A T B R I T A I N . 77 - - C o m m o n o w n e r s h i p i n t h e U n i t e d S t a t e s - H i s t o r y - R a i l r o a d s n o t s u b j e c t t o r e g u l a t i o n - R e s t r i c t i o n s o n r a i l - t r u c k , c a r r i a g e - P o s s i b l e c h a n g e s i n p o l i c y - O n e c h a n g e i n p o l i c y - C o m m o n o x m e r s h i p i n G r e a t B r i t a i n - H i s t o r y - F a i l u r e o f t h e s y s t e m V. COMMON O W N E R S H I P I N C A N A D A . .97 - C a n a d i a n P a c i f i c - a t r a n s p o r t a t i o n c o m p a n y - H i g h w a y s e r v i c e s - M e r c h a n d i s e s e r v i c e s , - C o n t a i n e r i z a t i o n - P r o b l e m s , - C a n a d i a n N a t i o n a l R a i l r o a d - M a s t e r A g e n c y a n d R a i l h e a d P r i n c i p l e s - C o m p a r i s o n o f C . N . . R . a n d ' C . P . R . p o l i c i e s - C . N . R . i - C . P . R . o p e r a t i o n s i n B r i t i s h C o l u m b i a - O p p o s i t i o n t o c o m m o n o w n e r s h i p i n C a n a d a - C a n a d i a n T r u c k i n g A s s o c i a t i o n s ' p o l i c y i v CHAPTER. vr CONCLUSIONS 131 APPENDIX 137 BIBLIOGRAPHY 1^7 L. I S T O.iF ;?T A. B L. E- S TABLE I'. U.S.. F i r s t Class & CPR Passenger- Decline; 18 IT.Millions- of Passenger Miles. (U.S.) 19 Hi:. Share of. Intercity Tranport f o r Public Carriers 19 5+5-1965 i n Canada. 20 IV. Canadian GNP and. Carrier Operating Revenues . . . . 21 v¥„ Rate of Return and Net Income 1957-1967 U.S. F i r s t Class Railroads, 22: VI. C.P.R.. Truck Companies. 106 VIX. Canadian National's. Truck Lines 11:5 VIII. C.P.R.. - C.N.R. Total Units of Equipment . . . . 121: IX. C.N.R. & C.P.R. Trucking i n B r i t i s h Columbia. . . 125 L I S T O F I L L H S T. R A T. 1 0 N S. FIGURE: i . " The Chinese: Wall»# 5^56 i-i":. " Another Chinese Wall " 1-57 MAP 1 CN 2. CN -CP Truck Services i n B r i t i s h Columbia - ^ I s s s # 2 . 1 2 3 -CP Truck Services on Vancouver Island . . . . . 12^-C H A P T E R I INTRODUCTION Reasons for the Study Common ownership i n transportation means simply that a company engaged i n one form of transportation may purchase and operate a company engaged i n another form of transportation. This type of ownership has been re . v -stained by government regulation i n the United States f o r many years and the railroads have often t r i e d to get these regulations relaxed. The reason f o r t h i s regulatory p o l i c y has h i s t o r i c a l l y been the fear that a large trans-portation company , such as a r a i l r o a d company, could con-ceivably gain monopoly powers that would be detrimental to the public i n t e r e s t , i f they were f r e e l y able to purchase companies engaged i n competitive forms of transport. In Canada regulatory p o l i c y has not r e s t r i c t e d common owner-ship and the two major r a i l r o a d s , the Canadian National and Canadian P a c i f i c Railway companies, have always been allowed to purchase trucking companies, a i r l i n e s and water c a r r i e r s . The question of the merits of common ownership has been a controversial subject i n the transportation industry f o r many years. Recently i t has come to a p o s i t i o n of para-mount importance i n the United States, Canada and Great 2 B r i t a i n , because of an increasing d i f f u s i o n of means of sa t i s f y i n g transport demand and a concurrent r e l o c a t i o n of Ind u s t r i a l s i t e s away from railheads. This increasing d i f f u s i o n of means of s a t i s f y i n g demand can be traced to the steady progression of technology and i t s application to transportation. So d i v e r s i f i e d has today's transporta-tion industry become that a major problem has now become one of establishing co-ordination between modes as well as further d i v e r s i f y i n g available modes. One method of im-proving intermodal co-ordination i s to have the various modes under single management. In Canada, and i n other countries, the r a i l r o a d s have f i r s t seen passenger, and now f r e i g h t transport, s h i f t more to airplanes, trucks and buses. To a l l e v i a t e t h i s loss of t r a f f i c the railro a d s have organized trucking arms to try to recapture some of the l o s t t r a f f i c by adding a degree of f l e x i b i l i t y to th e i r r i g i d plant. In the past decade both the CPR and CNR have invested"heavily Sn trucking subsidiaries and are now the biggest truck operators i n Canada. Because of thi s the Canadian government has become more concerned with the ques-tio n of common ownership and i n the new Transportation Act of 1967; Sec. 20 provides f o r investigation of common owner-ship on a national scale. In the United States the ra i l r o a d s have repeatedly t r i e d to get new l e g i s l a t i o n through Congress enabling them to gain complete freedom of ©wrier snip:of -father:mb:ctes-. Thus 3 f a r t h e i r attempts have been unsuccessful, but the concept has been more thoroughly investigated by the Interstate Commerce Commission, the C i v i l Aeronautics Board, the Fed-e r a l Maritime Commission and f i n a l l y the new Department of Transportation. In Great B r i t a i n a l l transport forms were nation-a l i z e d under the Transport Act of 19^ +7 and placed, under a single agency, the B r i t i s h Transport Commission. Under the Transport Act of 1 9 5 6 the massive trucking arm of the B.T.C. was reduced to 7j000 vehicles and the remaining ^+0,000 vehi-cles were sold i n blocks to private operators. The value of the B r i t i s h example i s to demonstrate the eff e c t of large scale common ownership. In a l l three countries the question of common ownership has received considerable atten-t i o n by p o l i c y administrators, academics, transportation men and shippers, but no ide a l solution has been reached o.n how to handle common ownership so that the coordinative and competitive aspects of national transportation policy are kept i n balance. E s s e n t i a l l y the o v e r a l l purpose of t h i s thesis i s to show that the benefits of intermodal co-ordination and the economies of jo i n t management achieved by common ownership outweigh the poten t i a l dangers of monopolistic power that could be obtained by a transportation company engaged i n a l l modes of transportation. This i s not to say that economic concentration r e s u l t i n g from massive ox-mership by a single 4 company could not be a dangerous phenomenon. It i s to say that regulatory p o l i c y can control malignancies of monopoly without t o t a l r e s t r i c t i o n of common ownership. Competition, i t i s f e l t , i s essential to ensure continuing innovation i n the transportation industry. The question i s how can a healthy l e v e l of competition be maintained while trying to achieve intermodal co-ordination? While i t i s true that multimodal ownership may Jliead to a reduction i n intermodal competition, a new type of competition r e s u l t s - competition within the firm and between transportation companies. H i s t o r i c a l l y there have been many examples of wasteful intermodal competition which i s not bene-f i c i a l to society i n the long run. While i t i s true the truck has many inherent advantages, so does the r a i l r o a d , and i n certain cases the t o t a l benefit i s greater than i f each operates at 6dds with one another. With the advent of various intermodal techniques, such as piggyback and containerization, co-ordination i s now a primary concern of policy makers. o The thesis i s that common ownership i s a l o g i c a l route to achieving better intermodal co-ordination and resolv-ing the f i n a n c i a l problems of the r a i l r o a d s , and that the consequences of a reduction i n t o t a l competition within the transportation industry are overemphasized by those opposed to common ownership. This paper i s limi t e d to the area of fr e i g h t transportation since passenger transportation i s too 5 broad an area to attempt to cover e f f e c t i v e l y and too complex a transportation problem to be solved solely through common ownership. Terminology Common ownership has been given many names and numerous concepts have been associated with i t , but the d e f i n i t i o n remains the same as i n the opening sentence. Multimodal ownership Is perhaps a more concise wording as i t connotes the transportation image. A transportation company i s one which f r e e l y engages i n a l l forms of transport. Often the word "integrated" i s attached to "transportation company" to give a more cohesive imagectorthelcomegpt. Co-ordination, on the other hand, i s the physical integration of p a r t i c u l a r f a c i l i t i e s of two or more c a r r i e r s without the integration of c a r r i e r managements and p o l i c i e s . Thus the c a r r i e r s r e t a i n t h e i r own corporate structures. Co-ordination need not mean even the physical integration of f a c i l i t i e s , i t may merely mean that two c a r r i e r s str i k e an agreement with res-pect to rates or type of goods to be carried. Often transport d i v e r s i f i c a t i o n i s used to describe the movement of r a i l r o a d s into other f i e l d s of endeavours. Pegrum:^ distinguishes between integration or common owner-ship on one hand and d i v e r s i f i c a t i o n on the other. D i v e r s i -f i c a t i o n may also r e f e r to common ownership of other modes i n t e r r i t o r i e s beyond the existing t e r r i t o r i e s of the r a i l -road or indicate expansions beyond transportation into other areas of i n d u s t r i a l a c t i v i t y . When integration i s concerned with transportation enterprise only, i t i s a matter of trans-portation p o l i c y , but when i t involves d i v e r s i f i c a t i o n into other i n d u s t r i e s , i t becomes a question of public policy with regard to i n d u s t r i a l organization. Examples of thi s type of d i v e r s i f i c a t i o n are easy to f i n d , perhaps the best one being the C.P.R. with extensive holdings i n primary industries across Canada. For the purpose of this paper, however, d i v e r s i f i c a t i o n w i l l be used i n the same sense as common ownership. One problem which arises when considering common ownership i s the test of whether or not such a combination i s i n the public i n t e r e s t . Consistency with the public i n t e r e s t i s not r e a l l y capable of precise or l i m i t i n g d e f i -n i t i o n . Of necessity i t i s a f l e x i b l e concept which i s capable of being adapted to meet new situations. A test of public i n t e r e s t , and the way i t w i l l be used In thi s paper, i s that c a r r i e r s be permitted to do that which w i l l enable them to give the best possible service at the lowest possible cost. The general public, f o r example, gains from the e l i -mination of an uneconomical branch l i n e operation even though certain Individuals who use or are employed by the service are harmed. The public i s interested i n having at i t s service transportation that i s adequate, dependable, expeditious and f l e x i b l e . In testing public i n t e r e s t a l l 7 modes must be treated on an equitable basis. One mode can-not be discriminated against because of i t s size or form. A l l i n a l l tests of public i n t e r e s t invariably b o i l down to a value judgement. Because of the d i f f i c u l t y of defin-ing and measuring the public i n t e r e s t , many problems ari s e when tryi n g to decide whether common ownership i s b e n e f i c i -a l or detrimental to the public at large. Scope of the paper Both the benefits and detriments of common owner-ship are d i f f i c u l t parameters to measure. Most notions as-sociated with common ownership are primarily t h e o r e t i c a l , whi which i s due to a lack of experience with transportation companies i n today's technical era and the immeasurable nature of such things as degrees of co-ordination and f l e x -i b i l i t y . The power of economic concentration i s also d i f -f i c u l t to quantify. I f rates rise,one cannot state categor-i c a l l y that i t i s due to monopoly power as there i s a whole host of elements that go into rate-making. Since measurement i s a problem, the.approach of t h i s paper Is to go from broad th e o r e t i c a l notions to an attempt at a more s p e c i f i c measure-ment of the eff e c t s of common ownership.. The f i r s t chapter consists of the argument that common ownership i s b e n e f i c i a l to society, which i s essenti-a l l y the viewpoint of the ra i l r o a d s . Arguments are pre-sented on problems i n the industry, the need for d i v e r s i f i -8 cation and the Importance of multimodal ownership i n achiev-ing co-ordination between the various modes. The need f o r d i v e r s i f i c a t i o n i s exemplified by the loss of t r a f f i c to competing modes and the generally poor f i n a n c i a l condition of the railways. The mainstay of the affirmative argument i s that common ownership i s the best way to achieve successful i n t e r -modal co-ordination. This subject has always Interested transportation academics and p o l i c y makers. The theory i s that each mode possesses certain inherent technical and economic advantages and disadvantages. These advantages can often best be r e a l i z e d , or the disadvantages overcome, by combining two or more c a r r i e r s to perform a j o i n t or co-ordinated transportation service. Such co-ordination can bring about f a s t e r or more dependable service f o r the shipper and economies for the transport agencies, some of which may be passed on to the public through lower rates. The value of co-ordination i s , i n many cases, c l e a r l y evident through the avoidance of duplicate f a c i l i t i e s , the sharing of costs or the u t i l i z a t i o n of l e s s costly service. Important as i t is, co-ordination has no value f o r i t s own sake. I t should be u t i l i z e d only when i t makes a r e a l contribution to the ov e r a l l economy and e f f i c i e n c y of movement. No hard and f a s t rule can be l a i d down i n evaluating co-ordination, except to note that the costs of rehandling and the time consumed must always be taken into 9 account as o f f s e t t i n g factors f o r the advantages of co-ordination. Many schemes have been developed by po l i c y makers to encourage co-ordination between the modes without permitting large scale common ownership. In the United States regulatory p o l i c y has been to encourage co-ordination through the establishment of j o i n t rate agreements among the various c a r r i e r s . The effectiveness of these alternative methods of co-ordination w i l l be developed more thoroughly l a t e r on. The second chapter i s the argument against common ownership, which i s e s s e n t i a l l y that of the independent truckers. Their chief argument i s that,by allowing the r a i l -roads to f r e e l y enter the trucking f i e l d , the public would soon f i n d they would be i n another monopoly era i n trans-portation reminiscent of the l a t e 1800's and early 1900's. Perhaps the strongest proof i n support of their case i s . demonstrated by' the way that the ra i l r o a d s controlled water transport on the Great Lakes i n the early 1900's by f i r s t purchasing v i r t u a l l y every water c a r r i e r and then establishing water rates which did not compete with r a i l r o a d rates. They f i n d i t hard to believe that even today the ra i l r o a d s would r e a l l y permit competition with themselves since density of t r a f f i c i s most important to them. They also point to the vast difference i n the amount of c a p i t a l available to r a i l i n comparison with their own lim i t e d resources. The trucking industry developed to the strong p o s i -t i o n i t i s i n today because of competition with the r a i l r o a d s . 10 They argue i f the r a i l s had been allowed to f r e e l y enter the trucking f i e l d , there would not be the strong motor c a r r i e r industry that we take for granted today. The independent motor c a r r i e r can provide the services that shippers require and they are experienced i n the i r profession. If the r a i l -road wants to use the motor c a r r i e r i n a feeder capacity -i t can contact independent truckers to do the job. The r a i l r o a d s , they say, know nothing about the motor c a r r i e r industry and they should s t i c k to the i r own l i n e of work -providing r a i l r o a d service. If the shipper wants to use a combination of services, he can arrange contract among the various c a r r i e r s involved. Water c a r r i e r s give b a s i c a l l y the same argument except t h e i r case i s perhaps a b i t more f o r c e f u l because of the previously described h i s t o r i c a l lessons. Domestic water c a r r i e r operation, i n both the United States and Canada, i s a very small industry. Moreover ra i l r o a d s generally run alongside waterways, because of excellent topography, and there i s a good argument i n favour of the notion that a competing r a i l r o a d i s very tempted to control a prospective water c a r r i e r t.to'U'ts."' advantage. The a i r l i n e s , on the otherlihand, are competitive with the railro a d s i n a narrow range of t r a f f i c because th e i r service i s based on speed at a high pr i c e . Common ownership arrangements be-tween trucks and a i r l i n e s ar.ey? more l o g i c a l a:."because of the excellent co-ordination p o s s i b i l i t i e s between airports 1 1 and c i t y centres. The t h i r d chapter describes how p o l i t i c s and re-sultant regulatory policy has affected the extent of common ownership i n the United States and Great B r i t a i n . Regula-tory p o l i c y i n the United States has been strongly orien-tated to the maintenance of competition, perhaps to the detriment of co-ordination. Actually the l e g i s l a t i o n on common ownership i s not overly r e s t r i c t i v e , but past prece-t< dents set to cases before the 100 have placed severe r e s t r i c -tions on certain r a i l r o a d s who are allowed to operate trucks. These r e s t r i c t i o n s are discussed i n d e t a i l l a t e r on. In Great B r i t a i n government p o l i c y was very conducive to co-ordination, but by complete c e n t r a l i z i n g of a l l transporta-t i o n , competition was perhaps overly restrained. The value of t h i s chapter i s to demonstrate how both competitive aspects and co-ordinative aspects of government p o l i c y must be kept i n balance to create an e f f i c i e n t trans-portation system within a country. I t shows the extremes of regulatory p o l i c y with respect to common ownership and gives a perspective from which to view Canadian regulatory p o l i c y i n the fourth chapter. I t also shows how common ownership regulatory policy has affected the development of the trans-portation system i n other countries, i n comparison with Canada. F i n a l l y the di s s o l u t i o n of the B r i t i s h Transport Commission i s discussed and analyzed to try to determine why 12 the single agency approach f a i l e d i n t h i s case. The fourth chapter describes the extent of common ownership i n Canada by both the C.N.R. and C.P.R. Both these companies are also heavily d i v e r s i f i e d , that i s they are also engaged i n non-transportation a c t i v i t i e s to a large degree. The success of these d i v e r s i f i c a t i o n ventures i s analyzed and the p o l i c i e s of both the C.N.R. and the C.P.R., on the subject of d i v e r s i f i c a t i o n , i s discussed. The C.P.R. i s about the best example of a transportation company i n North America. I t ' s management f e e l s that the: company should, be quite competitive between departments and trucking should not be v i s u a l i z e d as merely a feeder operation to the r a i l r o a d , but as one method of providing required ser-v i c e to the shipping public. The C.N.R., because i t i s gov-ernment owned, has run into some opposition i n tryi n g to acquire trucking companies and operating, r i g h t s . This opposition i s described more thouroughly l a t e r on. Both the second and t h i r d Royal Commissions on 2 Transportation e s s e n t i a l l y came out In favor of common ownership. Nevertheless, due to heavy protestations by the Canadian Truckings Association^ l e g i s l a t i o n enacted i n the Transportation Act of 1 9 6 7 has provided f o r i n v e s t i g a t i o n of 13 further r a i l entry into the trucking f i e l d by the Board of Transport Commissioners under the guidelines of the Combines  Act. As yet there have been no test cases under this new l e g i s l a t i o n at the Federal l e v e l , but both the Provinces of Quebec and Newfoundland have objected to C.N.R. entry into the trucking f i e l d . B r i t i s h Columbia was the f i r s t Province i n which a trucking arm was established by the C.P.R. The C.N.R. has responded to the C.P.R.'s challenge and have established a large trucking arm i n the Province also. An attempt i s made to describe the extent and strength of r a i l r o a d owned trucking i n B r i t i s h Columbia i n the f i n a l chapter with an eye to evaluating whether or not monopoly powers have been gained by the railway companies i n the Province or i n certain segments of the market i n the Province. In the f i n a l chapter Canadian p o l i c y i s evaluated i n comparison with U.S. policy on common ownership. The question i s whether Canadian po l i c y i s setting a desirable trend or a bad example. The future of common ownership i n Canada, the United States and Great B r i t a i n i s f i n a l l y pre-dicted. Limitations of the Study As mentioned, the problem i n trying to evaluate the ef f e c t of common ownership i s severely r e s t r i c t e d by an 1 4 i n a b i l i t y to quantify such things as monopoly power and the benefits of co-ordination. I f I t were possible to do t h i s , the strength of the argument would be greatly increased. As i t stands th e o r e t i c a l arguments w i l l have to s u f f i c e . 1 Pegrum;,'!, D. I. Transportation: Economies and Public P o l i c y . Richard D. Irwin T9E3 p74"27 2 Carr, D. W. and Associates, "Truck-Rail Competition i n Canada," Royal Commission on Transportation. July 1962, Vol III pp. 3-93 Royal Commission on Transportation. Queens Pr i n t e r Vol II Dec. 1961 pp 70-71 15 C H A P T E R I I THE ARGUMENT FOR COMMON OWNERSHIP The argument f o r common ownership, as depicted by the r a i l r o a d s , centres about two basic h i s t o r i c a l pressures. $ i r s t over the l a s t century the transportation industry has d i v e r s i f i e d considerably. Each mode, that has resulted from t h i s process of d i v e r s i f i c a t i o n , i s inherently d i f f e r e n t both te c h n i c a l l y and economically. The modes- are also com-p e t i t i v e with one another and the management of a type of ca r r i e r e s s e n t i a l l y views i t s mode as superior to other modes. (Atesttimestly they do not recognize the inherent advantages of other modes and do not r e a l i z e the e f f i c i e n c i e s that could be obtained through co-ordination. The other similar, but more sophisticated, h i s t o r i c a l lesson i s that a company must develop a business or market rationale i n order to stay In business. If a r a i l r o a d com-pany views i t s e l f merely as a producer of r a i l r o a d trans-portation, i t severely l i m i t s the spectrum of market demands i t faces. By viewing i t s e l f as a transportation company, i n the business of supplying transportation to shippers, a more enduring market orientation i s developed. This i s similar to American Telephone and Telegraph viewing i t s business as 16 c©mmunicaM.e»rather than telephones or I.B.M. viewing i t s e l f as being not only i n the computer business-, but also i n the business of solving problems fo r management. Although they overlap, the benefits that are l i k e l y to accrue from common ownership may be discussed under the. following sub-sections:: 1.,. Benefits to common owners 2. E f f i c i e n c i e s of co-ordination 3. The introduction of intermodal technology h. Benefits to transportation users 5. Other arguments. T . BENEFITS TO COMMON OWNERS AND PRESENT PROBLEMS Under the f i r s t heading, the fiaincreasongfor the common ownership movement has been a steady decline i n the amount of t r a f f i c handled by the r a i l r o a d s , and a consequent u n d e r u t i l i z a t i o n of the railway plant. This has further lead to a general decline i n the f i n a n c i a l condition of the- r a i l r o a d industry, e s p e c i a l l y i n the; United States. By acquiring other types of c a r r i e r s , the railroa d s hope to of f e r a better service to shippers and consequently a t t r a c t more t r a f f i c to cover the high f i x e d costs of t h e i r operations. Also i n entering the trucking business,the r a i l r o a d s can participate: i n more of the higher value t r a f f i c obtained by motor c a r r i e r s . Railroads have l o s t t r a f f i c i n c e r t a i n commodity markets and they are very Interested i n getting back ?.wt:<> 1 7 into these markets as t h i s trend i s l i k e l y to continue i n the future. This i s similar to the newspapers getting into the radio business when they r e a l i z e d that t h e i r medium was fecirig'-cneWJ^anHe successful competition. B a s i c a l l y the reasons the rail r o a d s want to get into other areas of business are the same as i n any other industry. A company may want to acquire or merge with another company f o r : A. F i n a n c i a l Reasons: i . Improve on the p r o f i t l e v e l and rate of return; i i . E f f e c t more rapid growth; 151. Spread the business r i s k B. Operating Reasons: i . Improve on the volume l e v e l or trend i n the present business; i i . S a t i s f y customers' demands fo r new services; i l l . Reduce dependence on one product ( r a i l r o a d transportation); i v . Increase u t i l i z a t i o n of present resources; v. V e r t i c a l l y integrate toward the market served. Just what problems do the r a i l r o a d s face and how important are these problems? TS a . R a i l r o a d P r o b l e m s L o s s i n T r a f f i c a n d F i n a n c i a l C o n d i t i o n B o t h i n C a n a d a a n d t h e U n i t e d S t a t e s t h e r a i l r o a d s a r e n o t a s s t r o n g a s t h e y w e r e p r i o r t o t h e S e c o n d W o r l d W a r . I n b o t h c o u n t r i e s o t h e r m o d e s o f t r a n s p o r t a t i o n h a v e m a d e s e r i o u s i n r o a d s i n t o t h e t r a d i t i o n a l t r a f f i c o f t h e r a i l r o a d s . T h i s h a s b e e n b r o u g h t a b o u t b y i m p r o v e m e n t s i n t e c h n o l o g y a n d a m a r k e d i m p r o v e m e n t i n t h e h i g h w a y s y s t e m s o f b o t h c o u n t r i e s . B e c a u s e o f t h e s e f a c t o r s b o t h p e o p l e a n d i n d u s -t r y h a v e m o v e d a w a y f r o m t h e c i t y c e n t r e s a n d r a i l r o a d s a n d f i n d t h a t t h e y c a n o b t a i n t r a n s p o r t a t i o n s e r v i c e q u i t e r e a d i l y f r o m a l t e r n a t i v e m e a n s o f t r a n s p o r t . P e r h a p s t h e m o s t o u t s t a n d i n g e x a m p l e o f r a i l w a y t r a f f i c l o s s i s f o u n d i n p a s s e n g e r t r a n s p o r t . I n t a b l e I , o n e c a n r e a d i l y s e e t h e s t e a d y d e c l i n e i n r e v e n u e p a s s e n g e r m i l e a g e i n b o t h t h e U . S . a n d C a n a d a a s e x e m p l i f i e d b y t h e U . S . f i r s t c l a s s r a i l r o a d s a n d t h e C . P . R . T A B L E I U . S . F I R S T C L A S S & C P R PASSENGER.JPECLINE Y e a r U . S . R e v e n u e P a s s e n g e r I.i.:^ . C . P . R . R e v e n u e P a s s e n g e r  M i l e a g e ( i n m i l l i o n s ) M i l e a g e ( i n m i l l i o n s ) 1946 1950 1955 1960 1965 1966 1967 ( e s t ) 64,673 31,760 28,526 21,258 17,378 17,084 15,100 2,126 1 ,142 '879 S o u r c e s : C . P . R . , B u r n s B r o s . & D e n t o n - A n i n s t i t u t i o n a l r e p o r t ; C . P . R . A n n u a l R e p o r t - 1967 a n d R a i l r o a d O p e r a t i o n s  1967 b y t h e A s s o c i a t i o n o f A m e r i c a n R a i l r o a d s . 19 While much of t h i s l o s s i s due to the Increased use of the automobile i n both countries, there has also been a heavy loss to the a i r l i n e s i n commercial passenger carriage. Figures f o r the United States indicate the proportion of these losses: Table II Mi l l i o n s of 'Passenger Miles ( U.S.) 1950 1955 i960 1Q63 196V 1965 Railways'. 3 t T c T 2875 2 1 . 3 T8?5 TQ73 1775 Buses- 2 6 . 2 5 . 5 1 9 . 9 2 1 . 9 22.7 22 .7 Inland Waterways 1 .2 1.7 2.7 2 . 8 2 . 8 2 . 8 Airways 10.1 22 .7 Zk.O *+2.8 V 9 . 5 57.9 Total 69.5 78. h 775-9- 86.0 93.3 1 0 0 . 9 Source: }&s'sia& C.P.R. - Burns Bros. & Denton - I n s t i t u t i o n a l Report A l l indications are the a i r l i n e s w i l l continue to capture passenger t r a f f i c at a more rapid rate. More important i s the f i n a n c i a l loss to the r a i l -roads on these passenger operations. For example i n 1:962 passenger revenues amounted to $ 5 5 . 6 m i l l i o n for' the C.N.R. and $Vl'..2. m i l l i o n f o r the C.P.R. This amounted to d e f i c i t s of $95.2 and $52.-7 m i l l i o n f o r the C.N.R. and C.P.R. res-p e c t i v e l y . Expressed i n another way, the C.N.R. paid out $2.71 f o r every d o l l a r received i n passenger revenues while the: C.P.R. paid out $ 2 . 2 8 f o r every d o l l a r received. While i t Is true, the railway companies, under the Transportation 20 Act of 1967, may claim f o r 80% of the i r losses i f they are not allowed to discontinue the service, the Canadian people must s t i l l pay the b i l l . Even i f one discounts passenger t r a f f i c as a con-tinuing source of revenue f o r the r a i l r o a d s , losses i n f r e i g h t t r a f f i c have also been incurred over the years to competing modes of transportation. In Canada the railroad's l o s s i n the share of i n t e r c i t y f r e i g h t transport can be seen i n table I I I . TABLE III Share of I n t e r c i t y Transport f o r Public Carriers 1945-1965 i n Canada ( B i l l i o n s of ton-miles) Year R a i l %_ 1945 63.3 72 1950 55.5 61 1955 66.2 54 1960 66.4 44 1965 87.2 42 Water %_ Road ^ 22.0 25 3.0 3 27.0 30 7.6 8 34.3 28 10 .2 8 36.9 26 13.4 10 55.0 26.5 19 .4 9 Pipeline $ .6 1 12.3 10 23.6 17 46.8 22.4 Source: D.B.S. Daily Feb. .13, 1967. Even more s i g n i f i c a n t i s the change i n revenues received f o r f r e i g h t hauled. The trucking industry a t t r a c t s the higher value general f r e i g h t while the r a i l -road must r e t a i n the lower value bulk commodities. In r e l a t i o n to GNP Table IV shows the change i n operating revenues. 21 TABLE I? Canadian GNP and Carrier Operating Revenues (in m i l lions) Year G.N.P A i r l i n e P ipeline Road R a i l 1945 1950 1955 1960 1964 11,800 18,000 27,100 36,300 47,000 10.5 31.8 77.4 235.9 335.0 4 58.9 93.0 138.5 42 .0 106.7 220.0 351 .2 557.3 774.9 958.9 1,198.3 1 V15 T>. 6 1,324.4 Sources: Pulda, Carl H. Competition i n the Regulated Industries and D.B.S. 53-222 and 53-223 Motor Carriers - Freight. In the United States, i n 1965, the railro a d s also only retained 42$ of the i n t e r c i t y ton-mile f r e i g h t market and the trucking i n t e r e s t s had about twice the share of th e i r Canadian counterpart or about 18$ of the t o t a l . In terms of revenues, while the operating revenues of the Canadian r a i l r o a d s have increased s l i g h t l y over the years the average operating revenues, on f r e i g h t , of the American f i r s t class r a i l r o a d s declined from #10,491 m i l l i o n i n 1957 to #10,407 m i l l i o n i n 1965. Other f i n a n c i a l indicators such as net income and rate of return on fix e d assets have also demonstrated weak performance by the U.S. ra i l r o a d s as shown i n Table V. 22 TABLE V Rate of Return and Net Income 1957-1967 U.S. F i r s t Class Railroads (in m i l l ions) Year Net Railway Rate of Return on In-vestment aft e r depreciation Operating Income 1957 1959 1961 1963 1965 1967 I 922 3-36 2 . 7 2 •1.97 3.1 2 3 . 6 9 3 . 5 9 748 538 806 962 712 Source: Railroad Operations 1967 (A.A.R.) In 1961, f o r example, operations f o r a l l U.S. r a i l -roads f o r the f i r s t 5 months barely broke even and 38 out of 107 Class I r a i l r o a d s ran i n the red. Net working c a p i t a l at the end of May 1961 was down to $316 m i l l i o n -equivalent to l e s s than 18 days' cash operating expenses. Rate of return f o r the r a i l r o a d s s t i l l remains the lowest i n a l i s t of 73 d i f f e r e n t industries kept by the F i r s t National City Bank of New York and p r o f i t s amount to only one-fourth that of other public u t i l i t i e s and manufacturing. b. Other Inequities treated by the government i n r e l a t i o n to other modes of trans-portation. In the United States the rates of a l l r a i l r o a d commercial f r e i g h t movements are t i g h t l y regulated by the I.C.C. Major loopholes, however, allow private and i n t e r -state truckers - to escape regulation . In fa c t nearly two-y The r a i l r o a d s also complain that they are not f a i r l y 23 thirds of a l l truck t r a f f i c and nine-tenths of inland water-way t r a f f i c i s completely unregulated. Since 1946 r i s i n g government expenditures on f a c i l i t i e s have also influenced the competitive p o s i t i o n of U.S. c a r r i e r s . As annual government outlays f o r highways rose by 1960 to 4^ times the 1946 l e v e l , truck t r a f f i c expanded to 3| times. Likewise Federal outlays have helped bargeline t r a f f i c to expand to more than 4 times the 1946 l e v e l and a i r t r a v e l to nearly 6 times that l e v e l . In contrast the rai l r o a d s build their own r i g h t s of way and pay heavy taxes on these land holdings. In r e l a t i o n to each d o l l a r of revenue the U.S. ra i l r o a d s pay about three times as much property and mis-cellaneous taxes as bus l i n e s , nine times as much as water c a r r i e r s , ten times as much as truck l i n e s and fourteen times as much as a i r l i n e s to state and municipal govern-ments. In terms of the proportionate costs of owning, building and maintaining the f a c i l i t i e s over which their vehicles run, the r a i l r o a d s bear 3 times as much as bus l i n e s , 4 times as much as trucks and 13 times as much as domestic a i r l i n e s . Bargellnes pay nothing whatever to the costs of navigation works. Contributions by non-rail c a r r i e r s include a l l user taxes (such as f u e l and o i l taxes, licence and r e g i s t r a t i o n fees, and t o l l payments). These comparisons further include annual carrying charges on i n -vestments i n ri g h t s of way, way repa i r expenditures and way property taxes - a l l of which the r a i l r o a d s bear, but which 2h the- taxpayer, bears: i n whole; or i n part on behalf of other-c a r r i e r s . In Canada the railroads: are also charged with the maintenance of rights, of way and do pay more; taxes- than other c a r r i e r s . However t h e i r argument i s weakened somewhat by the f a c t that one r a i l r o a d has ample sources of c a p i t a l i n the: Federal. Government and both receive subsidies from the government f o r various types of t r a f f i c and f o r serving various remote regions. While i t i s true that the railro a d s do pay more; f o r the maintenance and usage of r a i l r o a d property-, t h i s argument only has: relevance: to the subject matter of t h i s thesis i n that through common ownership the railways would be able to make use of the f a c i l i t i e s they have provided f o r through S$.M t h e i r tax dollars'. c. Railroads Attempts t i ' Solve Problems In t e r n a l l y I t can be argued that the rairoads have not done enough to improve t h e i r own competitive position and t h e i r own e f f i c i e n c y , consequently they continue to lose t r a f f i c . The f a c t i s the railro a d s i n both the United States and Canada have done a great deal to create a more e f f i c i e n t plant and develop rates that are more a t t r a c t i v e to the general shipper. When railways, had a monopoly i n the transportation of large segments of t r a f f i c , i t was possible to meet i n -creased expenses simply by r a i s i n g r a i l rates. This 2 5 method of r e l i e f has grown more and more inadequate as the; areas and in t e n s i t y of intermodal competition have breadened. In f a c t the trend has been to increased use of competitive rates designed s p e c i f i c a l l y to compete with t a r i f f s pub-lis h e d by other c a r r i e r s . In 1966 approximately J>0% of the revenues received on f r e i g h t by Canadian ra i l r o a d s was derived from competitive rates. Also the use of agreed c charges, which are designed s p e c i f i c a l l y to a t t r a c t and hold t r a f f i c , are being used extensively by the Canadian r a i l r o a d s . In 1966 2 8 . 7 $ of the revenues received on f r e i g h t were derived under agreed charges. In the United States, where agreed charges are not allowed, incentive rates, designed to encourage loading of available equipment to capacity, are being used more and more e f f e c t i v e l y . Although these rate schemes are quite e f f e c t i v e i n competing with the truck, b a s i c a l l y the r a i l -road must reduce i t s costs and improve i t s e f f i c i e n c y i n order to be able to reduce rates. In f r e i g h t transportation the ra i l r o a d s have worked hard to improve th e i r operating e f f i c i e n c y . Among the most s i g n i f i c a n t recent developments are three computer systems for better control of f r e i g h t car d i s t r i b u t i o n and use, bearing the acronyms ACI, TRAIN and UMLER.. ACI - Automatic Car I d e n t i f i c a t i o n i s considered a revolutionary development i n r a i l r o a d technology. I t Is a standard scanning system that e l e c t r o n i c a l l y i d e n t i f i e s and records i n i t i a l s and numbers of f r e i g h t cars moving i n road trains and i n yards. The accurate and instantaneous recording of f r e i g h t equipment movements by these devices far exceeds human c a p a b i l i t i e s . I t i s expected to reduce input errors greatly while pinpointing the lo c a t i o n of in d i v i d u a l units of r o l l i n g stock. TRAIN - T e l e S a l l Automated Information Network i s an ambitious program designed to centralize car i n t e r -change information i n a national data centre for a l l the U.S. r a i l r o a d s . This w i l l allow the d i s t r i b u t i o n of cars equitably between the railroads and geographic areas to a l l e ? vlate unbalance i n car supply. UMLER - Universal Machine Language Equipment Register w i l l enable r a i l r o a d s to determine, by computer, the physical c h a r a c t e r i s t i c s of any f r e i g h t car i n North America. In Canada computer programs have already been developed to keep track of the 425 ,000 r a i l car f l e e t and a CN-CP Telecommunications subscriber can merely d i a l d i r e c t to computer headquarters to get f i r s t hand information on the lo c a t i o n of cars. Both r a i l r o a d s are also a c t i v e l y i n t e r -ested i n ACI. Because of these improvements and d i e s e l i z a t i o n , since 1946 average f r e i g h t t r a i n s speeds have been increased by 22$ and the hourly transportation output of the average f r e i g h t t r a i n has increased by about 7 0 $ . 27 While these modern methods have been used to improve operating e f f i c i e n c y s i g n i f i c a n t developments have been made in r o l l i n g stock i n order to a t t r a c t certain shippers. One of the most outstanding examples of the rail r o a d s recaptur-ing a s p e c i f i c market by development of a specialized car i s i n the carriage of new motor vehicle. This has been brought about by the development of the giant double and t r i p l e deck r a i l cars. Before these cars were introduced i n i 9 6 0 the r a i l r o a d industry's share of new motor vehicle carriage i n the United States had dwindled to about 8 per cent of the t o t a l market. In and 1967 the r a i l r o a d s managed to recapture about 50 per cent of the market from a l l other modes and the outlook f o r 1968 i s even brighter. More and more specialized equipment i s being developed to challenge the adaptability of the track to s p e c i f i c types of t r a f f i c . F i n a l l y the merger movement i n the United States i s an outstanding e f f o r t by the r a i l r o a d s to improve th e i r e f f i -ciency and reduce costs. When the r a i l r o a d s were f i r s t constructed, the national p o l i c y was based on a competitive approach to service and as a r e s u l t competing r a i l r o a d s set up i d e n t i c a l terminal f a c i l i t i e s and yards, operated nearly p a r a l l e l l i n e s and i n general created many duplicate and unnecessary f a c i l i t i e s . Interchange points between r a i l -road companies create needless delays and many rai l r o a d s operate on i n f e r i o r roadbeds which are uneconomic. Through merger i t i s hoped that many of these duplicate 28 f a c i l i t i e s and uneconomical operations w i l l be eliminated. 2. EFFICIENCIES OF CO-ORDINATION While i t i s true the ra i l r o a d s have done much to Improve the i r operations i n t e r n a l l y , i t i s impossible f o r them to a t t r a c t many types of t r a f f i c because of the inher-ently r i g i d nature of the r a i l r o a d plant. Railways pro-duce transportation e f f i c i e n t l y i n large volumes.sHoutes , • terminals and equipment are a l l designed to accommodate heavy t r a f f i c . As companies move away from t r a d i t i o n a l r a i l sidings and terminal f a c i l i t i e s i t becomes more and more d i f f i c u l t f o r the r a i l r o a d s to bring t r a f f i c to these f a c i l i t i e s . If the r a i l r o a d plant i s u t i l i z e d e f f e c t i v e l y i t i s an extremely e f f i c i e n t means of transportation. In comparison with the truck much l e s s t r a c t i v e resistance i s produced by a steel wheel r o l l i n g on a track than a rubber t i r e on pavement. Because of t h i s , on the average, r a i l -roads handle over 3 times as much f r e i g h t t r a f f i c per gallon of f u e l as i n t e r c i t y truckers and about 58 times as much as an airplane. Next to the pip e l i n e , the r a i l r o a d i s technic-a l l y the most e f f i c i e n t form of land transport available. In terms of manpower rai l r o a d s handle more than 5 times as much f r e i g h t t r a f f i c per employee as a truck and 20 times as much as an airplane. In t o t a l i t costs, on the average, about four times as much -to ship a ton of fr e i g h t by truck as i t does by r a i l . On the long haul, a f t e r momentum i s 29 gained, the low t r a c t i v e resistance of a t r a i n makes i t an extremely e f f i c i e n t and economical mode of trans-portation. In the MaePherson Royal Commission on Transpor-1 tation. , i t has been pointed out why trucks have captured a s i g n i f i c a n t amount of t r a f f i c from the ra i l r o a d s i n recent years:: " For-hire; truck t r a f f i c , i n the; early 1960's, had been strongly influenced by: i . The railway rate structure which, with the elements of value of service rate-making, horizontal rate increases and other i n s t i t u -t i o n s , had over previous years made rates i n c e r t a i n areas and i n c e r t a i n t r a f f i c classes, p a r t i c u l a r l y a t t r a c t i v e f o r truck competition; i i . Decentralization of industry and an increase i n demand f o r smaller and more frequent d e l i v e r i e s to hold down inventory costs; i i i * . The speed, economy and f l e x i b i l i t y of highway transport i n providing these s p e c i a l -ized services; i v . Some narrowing of the gap between railway and truck line-haul costs due to t e c h n i c a l l y improved truck equipment. " The speed and frequency of service and the adapta-t i o n of the truck to shipper's preferences f o r door-to-door delivery and care i n handling have strongly influenced shippers to change to trucking f o r t h e i r 30 short to medium haul needs. Even more important to the r a i l r o a d has been the invasion of the long-haul market. Equipment and highway improvements, such as l i g h t e r weight, more powerful d i e s e l s and increased t r a i l e r size, have enabled trucks to compete i n t h i s market where the rail r o a d s are most e f f i c i e n t . While pipeline has captured a considerable share of t r a f f i c , i n terms of ton miles hauled, it, i s not a threat to dry commodities and packaged commodities, but i t may be a threat to more of the l i q u i d commodities presently handled by tank car. Also i f solids pipelines come into existence more r a i l r o a d t r a f f i c w i l l be threatened. For the common ownership argument, however, there are no r e s t r i c t i o n s , either i n the United States or Great B r i t a i n to keep r a i l -road companies from owning pipeline companies. Airplanes should threaten more r a i l r o a d t r a f f i c i n the future with the advent of the "Jumbo Jet", buth higher valued truck f r e i g h t should be affected more than r a i l r o a d f r e i g h t . For example ra i l r o a d s may face competition f o r t h e i r newly recaptured auto t r a f f i c : " Detroit i s seriously interested i n the p o s s i b i l i t y of using the new jumbo jet planes to ship cars. General Motors, f o r one, has been talking with United A i r Lines about converting the Boeing 747, due to f l y next year, to a long-haul c a r r i e r . Auto o f f i c i a l s say the 747 could be modified to hold 30 cars and f l y them from Detroit to C a l i -f o r n i a i n a few hours at #47 l e s s per unit than the present cost of shipping by r a i l . — A i r cargo would be especially suitable f o r such low-volume cars as C a d i l l a c , L i n coln and Imperial, which are 31 s t i l l produced In Detroit (mass volume cars are assembled at plants throughout thegcountry to minimize transportation costs)." The r a i l r o a d s are primarily interested i n acquir-ing truck l i n e s f o r co-ordination purposes to bring more t r a f f i c to the r a i l r o a d . Donald Gordon has es s e n t i a l l y stated t h i s before the House of Commons Standing Committee on Railways, A i r l i n e s and Shipping owned by the Government " The company's aim i s to of f e r the kind of transportation service that i s best suited to public demand, both i n terms of cost and e f f i c i e n c y , always remembering that i t s basic i n t e r e s t i s the provision of service through railway f a c i l i t i e s , i n which the Canadian National has a very large invest-ment. The major i n t e r e s t of the railway i s the long distance haulage of bulk and packaged commo--- d i t i e s . Generally speaking,, t h i s can be done most economically by railway but certa i n l y there exists and w i l l remain a large f i e l d for long haul road transport. In addition road trans-port i s a better agency f o r the c o l l e c t i o n and d i s t r i b u t i o n of much t r a f f i c and i s more eco-nomical and faster f o r short-distance service Canadian National i s not i n any way interested i n d riving the independent trucker out of b u s i - n ness. Both the railway and th.e truck are tools of transportation and i n the best interests of the shippers and receivers - the users of the service - each tool should be used as i t i s best suited. What i s needed, therefore, i s an i n t e l l i g e n t recognition of a competitive co-existence and the development of a co-ordinated rail-highway system i n which each form of trans-portation would play the role i n which i t best f i t s . Canadian National's objective i s to acquire a trucking pattern so as to obtain for i t s own operations the benefits of co-ordination with railway f a c i l i t i e s or even replacement of them i n those cases i n which the truck i s a better t o o l . " 32 Many academics agree with the picture of co-ordination portrayed by Mr. Gordon and t h i s argument Is also that of other railway companies. The idea of "com-p e t i t i v e co-existence , , : instead of "wasteful competition" means: that f a c i l i t i e s must be co-ordinated and not d u p l i -cated unnecessarily. Go-ordination implies not only the elimination of unnecessary competition, but also the prevention of such competition. Wasteful competition between two agencies implies costs that are swollen by duplicate administration, competitive advertisement, and the pro-vision, of surplus vehicles and services to the shipping public. Furthermore the narrow margin of p r o f i t that may occur i n highly competitive situations may prevent the establishment of the transport undertakings on a sound commercial basis. The scale of operations of c e r t a i n competitive firms may be smaller than the optimum economic size of business under the given conditions, with the r e s u l t that the f u l l economies of large scale are not obtained. From an economic viewpoint co-ordination ref e r s to two or more transport modes that, i n being organized together, create more e f f i c i e n t resource use than would be possible i f each one were treated independently. Express-ed more simply, a co-ordinated organization puts two or more modes together so that a larger net product i s possible 33 than i f the modes were under separate organization. In terms of total costs and total revenues the difference between the total revenues less total costs, (including transfer) i s greater than the difference between total revenues and costs of the most economical mode (for a par-ticular haul). There are essentially three ways of achieving co-ordination in a broad sense: i . Voluntary co-operation - each company maintains i t s separate identity; i i . Pooling of resources - a certain degree of common ownership with a controlling body to safeguard the public interest and, M. Common ownership - the provision of a l l ser-vice by a transportation company. a. Voluntary Co-Qperatlon In the United States, where common ownership Is restricted, government policy has been to encourage volun-tary co-ordination through-the allowance of through route and joint rate arrangements. Under such a system the use of through route and joint rate arrangements aid co-ordina-tion by permitting shippers to deal only with the originat-ing carrier regardless of how many other carriers are i n -volved in the movement to the f i n a l destination, and by making available to shippers a single-factor joint rate for 3V through service. In the l a s t decade the growth of Plan I 4 t r a f f i c and i n the l a s t few years the growth of ,Elan V 5 t r a f f i c , has demonstrated that r a i l and motor c a r r i e r managements i n t h e i r own i n t e r e s t s w i l l respond to economic conditions and f i n d a common ground f o r sharing i n savings inherent i n such co-ordination. Lt has been said that the objectives sought through common ownership can be attained through co-ordination between r a i l and motor c a r r i e r s , by f i l i n g j o i n t rates. While j o i n t rates do have a place i n the transportation industry, they are not e n t i r e l y adequate. The parties to such arrange-ments remain competitors and i t must be remembered that the truck always has an alternative method of movement. For s e l f i s h reasons each party seeks to gain the advantage over the other. There i s constant pressure as to who gets what i n d i v i s i o n of rates, who i s to move the uaarafe&did t r a f f i c , who w i l l get the undesirable t r a f f i c and who w i l l get the long haul. S i m i l a r l y i n Plan I and Plan V piggyback, i t i s the trucking company which executes the b i l l of lading with the shipper, has a l l the contaetsa with the shipper and delivers the f r e i g h t to the consignee. In these situations the r a i l r o a d i s only an intermediate c a r r i e r that has no contact with the shipper or the consignee. If the trucking company decides to go back to the highway on the intermediate haul, the r a i l r o a d i s l e f t with empty piggyback cars and no contract. 3* b. Pooling of Resources This i s a f a i r l y new concept of co-ordination which the United States appears to be heading toward. The theory behind t h i s movement i s not exemplified by intermodal i n t e -gration as much as i t i s by the railway merger movement. This i s a d i r e c t e f f o r t to combine or pool the resources of one type of c a r r i e r to obtain better u t i l i z a t i o n of resources/ In the merger movement careful testing of the public inte r e s t i s carried out by the I.CO. Intermodal examples of pooling of resources are s t i l l mainly i n the th e o r e t i c a l stage. One example i s the idea of container pooling which i s now quite prevalent i n Europe. In February, 1 9 6 8 Railway Express Agency set up Interpool Inc., a company s p e c i a l i z i n g i n the leasing of containers and supporting equipment. The company serves r a i l , truck and steamship l i n e s with containers and side-loading equipment supplied by Steadman Industries Ltd. a Canadian Company. A pool of 20-foot and 40-foot con-tainers has been established i n Chicago. Interpool arranges a l l terminal services, including the transfer of containers between r a i l cars and t r a i l e r chassis. In the United States several changes i n the present regulatory p o l i c y have been considered to improve co-ordina-tion. Although these proposals do not necessarily recommend the pooling of resources, they do imply that United States policy has had somewhat of a change i n recent years. The 36 "Doyle" Report recommended that through routes and j o i n t -rl rates be required among and between a l l common c a r r i e r s , including motor carriers;, that regional j o i n t rate bureaus be established, under the a n t i t r u s t umbrella, to f a c i l i t a t e and expedite, a l l rate actions, including s p e c i f i c a l l y intermodal j o i n t rates and through routings; and that users as well as c a r r i e r s be permitted to i n i t i a t e an application f o r such rates and through routes. I t further recommended that the I.C.C.. should: " Broaden the powers of the regulatory agency beyond the Interstate Commerce Commission's present powers with respect to through routes and j o i n t rates by giving the power to the regulatory agencies to compel such when i t receives no co-operation from a c a r r i e r involved and the l a t t e r ' s acts or refusals to bargain unon the matter amount to bad f a i t h . " The other i n d i c a t i o n of change was contained i n the l a t e President Kennedy's Message to Congress i n 1962 with respect to co-ordination: ? "Assure a l l c a r r i e r s the r i g h t to ship vehicles or containers on the c a r r i e r s of other branches of the transportation industry at the same rates available to non-carrier shippers. This change w i l l put the various c a r r i e r s i n a position of equality with f r e i g h t forwarders and other shippers i n the use of the promising and f a s t -growing piggyback and related techniques. " With respect to through routes and j o i n t rates, the Message said: " For many years some regulatory agencies have been . authorized to appoint j o i n t boards to act on proposals f o r i n t e r c a r r i e r services; but they have taken v i r t u a l l y no ...intiative to foster these arrangements which could greatly increase service and convenience to the general public and open up new opportunities f o r a l l c a r r i e r s . I recommend, therefore, that Congress declare as a matter of public p o l i c y that through routes and joi n t rates should be vigorously encouraged and authorized a l l transportation agencies to par t i c i p a t e i n j o i n t boards. " At present the only arrangement f o r a j o i n t board of Federal agencies i s i n the Federal Aviation Act of 1958 which allows for the creation of a jo i n t board of the C.A.B. and I.C.C. to deal with j o i n t rate practices which might be established by a i r c a r r i e r s and other common c a r r i e r s . A proposal f o r the creation of a new j o i n t I.C.C. - C.A.B. -F.M.C.' board was introduced at the request of three agencies before the 8 9 t h Congress i n the United States, but no hear-ings were scheduled. c. Common Ownership The proponents of common ownership argue that i t i s not necessary to force parties to enter into j o i n t agree-ments. B a s i c a l l y no matter how one regulates the various c a r r i e r s the f a c t remains that they are s t i l l competitors and w i l l always seek to. gain the advantage i n such situations. Under a system allowing common ownership the shipper deals with a", single entity which i s able to offer him a variety of combinations of service and p r i c e . The incentive, which i s strongly present between r i v a l s f o r t r a f f i c , to offer service' i n a manner that does not give f u l l recognition to theinherent advantages of each of the modes of transportation available disappears under common ownership. In the case of r i v a l s the p r i n c i p a l aim of each i s the maximizing of p r o f i t s regardless of the o v e r - a l l economy and s u i t a b i l i t y of the service \id compared with some other service or combina-tio n of service that was available. When the corporate entity owns and operates d i f f e r e n t modes i t presumably selects the methods which provide the most e f f i c i e n t service at the l e a s t possible cost because i t i s i n t h e i r own s e l f i n t e r e s t to do so. The economic merits of this.type of-organisation are numerous. Elimination of waste and duplication of f a c i l i t i e s represent major virtues. Excess capacity i s minimized because single management i n -vests most heavily i n those areas where the p r o b a b i l i t y of success i s most evident. S p e c i f i c cost advantages accrue from common ownership through the elimination of duplicate overhead expenses such as i n forces engaged i n s o l i c i t a t i o n of t r a f f i c , b i l l i n g and accounting. Further economies and greater e f f i c i e n c y also accrues from better co-ordination i n operating schedules, i n the u t i l i z a t i o n of equipment, i n the operation and maintenance of physical f a c i l i t i e s f o r the loading and unloading of equipment i n piggyback ser-vices, and the l i k e . Decisions are based on a consideration of a l l modes and the needs of a l l modes as opposed to the 39 competitive s i t u a t i o n where actions are limited by the needs of a single mode. Mr. Forgash, president of United States Freight 8 Co. has said " Taking up the dictionary d e f i n i t i o n of 1 co-ordination 1 as 'harmonious combination', you cannot have co-ordination without a combi-nation, and unless i t i s harmonious i t w i l l not be very e f f e c t i v e ... If i t i s to serve any useful purpose the combination must be such as to obtain the maximum benefits from each kind of service. " The common ownership proponents claim that no combination w i l l be harmonious unless i t i s r e a l - the combination of several companies under one management. Under the present system most co-ordination, outside of TOFC i s transfer from mode to mode under the supervision of a user or his agent which cost time and money. The costs incurred by the user but not included i n the f r e i g h t charges paid are, neverthe-l e s s , part of society's transportation cost. The shipper cannot be condemned f o r working to eliminate costs which appear unnecessary for performing an e f f i c i e n t and required transport service. It i s debatable, however, whether i n d i -vidual shipper management of co-ordinated a c t i v i t i e s i s conducive to a b e n e f i c i a l long-run solution and that such co-ordinated service i s being conducted at the lowest cost consistent with the public .interest. OQ Richard H. Stokes put i t t h i s way: " Groups of t r a f f i c s o l i c i t o r s a l l chasing af t e r . the same business,' dBnumerable executive suites, s t a f f s and equipment maintained for the opera-ti o n of each company, countless small terminals duplicating work which could be handled more e f f i c i e n t l y and economically by consolidation a l l present a picture that must dismay those con-cerned with the future economic health and a strength of the transportation industry. " Co-ordination of transport operation can be accom-plished at lower costs by transportation companies rather than shippers. Transportation managers d i r e c t t h e i r atten-t i o n to providing transportation; they are aware of e x i s t -ing technological and managerial developments; they are capable of assessing the merits of changes i n the manner of providing transportation. Transport management r e l i e s on p r o f i t s attained from s e l l i n g transport services; the atten-tion of the shipper i s divided among production and d i s t r i -bution problems. The a b i l i t y to specialize gives the management of transportation companies an advantage i n pro-viding low-cost transport service. Railroad management'., claims that they are the most experienced i n the business of transportation with some j u s t i f i c a t i o n . They are the oldest companies i n the business and because of t h e i r size they are able to u t i l i z e computers f o r increased e f f i c i e n c y i n solv-ing problems and deciding when i t pays to use only one mode or a combination of modes. 3. THE INTRODUCTION OF INTERMODAL TECHNOLOGY With the increased use of intermodal technology such as piggyback, "birdyback" and containerization there i s a need for standardization of hardware and f a c i l i t i e s used i n intermodal operations. One of the main problems i n containerization i s a general lack of standard equipment and transfer devices. Because of t h i s the growth of con-t a i n e r i z a t i o n has been slow. Vested i n t e r e s t s i n certain modes and the p r a c t i c a l problems of r e c o n c i l i n g the d i f f e r -ing i n t e r e s t s of the many firms i n each mode a l l suggest that the single transportation firm i s uniquely suited to i i a hasten the Introduction of intermodal technology. The fragmented nature of the present multitude of c a r r i e r s lead to undesirable r i g i d i t i e s i n the system that are not con-ducive to rapid change. Other advantages include the co-ordination of research and the pooling of r i s k s inherent i n the development of new technology. Common ownership provides a broader per-spective f o r viewing the needs of intermodal co-ordination and the needs of the shipper. This perspective i s not available to a single owner or even an equipment manufacturer. Also i f the transportation company comes up with a successful innovation t h i s increases the incentive f o r continued research. Inherent i n any experimentation i s also the r i s k of f a i l u r e . The size and d i v e r s i t y of a multimodal firm makes the dan-gers of r i s k l e s s problematical and aecertain degree of f a i l u r e can be allowed. The development of the Steadman container system described previously has greatly been encouraged by both the CNR and OPR. The U.S. National Committee of the International Cargo Handling Co-ordination Association has proposed an e n t i r e l y new concept of container service and technology. They f e e l the container i t s e l f should be considered a tran portation vehicle under the control of a "transmodalist" operator who controls the movement of the container as i t passes through the services of the various transport modes The need f o r thi s new concept has been described by Mr. R. P. Holubowifcg: 1 0 " The t r a d i t i o n a l c a r r i e r sees the character of his investment changing r a d i c a l l y from a pre-ponderance i n ship hardware to one i n containers. The area i n which he can r e a l i z e a return on the new c a p i t a l investment, however, i s s t i l l l i m i t e d to the port-to-pprt segment of ov e r a l l cargo movement. 'Integrated' transportation at the ocean c a r r i e r ' s expense i s not p a r t i -c u l a r l y a t t r a c t i v e as a r e s u l t . " He further says that: " I t Is our contention that the mere existence of a large number of containers, whether they are standardized and interchangeable or hot, w i l l not, i n and by i t s e l f , bring about or even lead to true integration of our transportation sys-tem i f thi s technology i s merely superimposed on the present, fragmented transportation system and national transportation regulatory philoso-phy, under this concept, there should be no bar against the existing modal c a r r i e r s from becoming transmodal operators. " As complete standardization i s r e a l l y very acceptable In theory, but not i n practice they say that: 1^ " While i t would be most desirable to have a l l equipment used by the transmodalists completely standardized, Interchangeable, and compatible with a l l moles, the success of an i n d i v i d u a l operation would not necessarily be dependent on t h i s f actor. To the extent there are varying sizes or other c h a r a c t e r i s t i c s , i t -would he necessary for the transmodalist to ensure that he keep within a given 'closed' system where interchangeability and compatibility can be achieved. Nevertheless, standardi-zation of equipment i s a most important goal i f true integration i s to be achieved. " Therefore a transportation company could develop t h e i r own standard equipment and handling equipment through-out t h e i r entire "closed" system. The Canadian P a c i f i c Railroad has these c a p a b i l i t i e s at present. They u t i l i z e the Steadman system throughout t h e i r operations and can use t h e i r own ships, i f they desire, to provide a completely integrated container service. Even i n the piggyback f i e l d Canadian P a c i f i c had shown that the common ownership p r i n c i p l e has i t s merits. In the early 196Cs they became the biggest piggyback c a r r i e r s i n the world i n a very short time because of t h e i r a b i l i t y to use t h e i r own trucks and t r a i l e r s for pick up and delivery. They were able to c a p i t a l i z e on the obvious economies of integrated rail-highway service available through piggyback quickly and e f f e c t i v e l y . The C.N. also was quick to enter the piggyback f i e l d . 4. BENEFITS TO TRANSPORTATION USERS The benefits that should accrue to transportation users are already i m p l i c i t i n the e f f i c i e n c i e s and economies that 8 c c r u e to the multimodal owner. If the transportation company benefits from improved e f f i c i e n c y through new tech-nology and economies of j o i n t ownership costs are reduced and rates should be lowered. Also i f a r a i l r o a d can use trucks to feed i t s operations, service advantages such as greater f l e x i b i l i t y and door-to-door service w i l l be offered to the shipper. In addition the shipper w i l l have to only deal with one company to handle the entire spectrum of his trans-portation needs, i f he so desires. He i s able to tap the knowledge of a pool of transportation talent that i s not available when dealing with a single c a r r i e r . Hopefully, under single ownership, the management w i l l not be p a r t i c u -l a r l y biased to any p a r t i c u l a r mode and w i l l be able to off e r excellent informal advice on handling the p a r t i c u l a r physical d i s t r i b u t i o n problems of the Individual shipper. In other words the transportation company i s i n the business of pro-viding transportation, not merely r a i l r o a d or truck trans-portation. An additional economy accrues to the shipper i n the handling of intermodal shipments. He receives only one b i l l of lading, and i f damage occurs he does not have to go through the complex business of tracihg^down his claim as he only has one company to complain to. Anthony 12 P. Arpaia, V/.B., of International R.E.A>.la.as said: " True co-ordination, i n my opinion, means a single document, single r e s p o n s i b i l i t y , a single factor rate,,and a single contract with the shipper where a movement of goods takes place i n one complete transaction. " As f a r as the shippers are concerned, i n general they are interested i n dealing with transportation firms. 'M5 lil?. f a c t Canadian I n d u s t r i a l T r a f f i c League President, J. M. Benson has said the following about the new Transporta-13 t i o n Act: " The Act i l l u s t r a t e s a recognition, f i n a l l y , that there i s a r e l a t i o n s h i p between c a r r i e r modes and that, somehow, modal developments must be co-ordinated by one agency. Canada, which i s a high transportation cost country, must not waste money through s u i c i d a l d u p l i -cation of service or a protected transportation industry. The U.S. i s attempting to do the same thing through i t s new Department of Trans-portation but has a much tougher job because of i t s massive regulatory system and m u l t i p l i c i t y of regulatory agencies, strongly entrenched. " In the United States a r l e t t e r to the Secretary of Commerce from the President of the National I n d u s t r i a l 14 T r a f f i c League said the following: " E f f e c t i v e co-ordination of the f a c i l i t i e s of r a i l , truck, water and a i r services i s necessary to give the public the f u l l benefits of modern transportamethods. Such co-ordination i s most l i k e l y to develop f r e e l y i f the d i f f e r e n t forms of carriage are permitted to be held under common ownership, provided that competition i s preserved.... Recommendation No.10 The League recommends that the law be amended to permit one form of transportation to operate other forms of transportation through ownership or contractual arrangements, subject to the Commission's power to preserve competition by enforcing such r e s t r i c t i o n s as i t finds after hearings are necessary to that end. " Other statements were heard before Congress i n 1960 when the r a i l r o a d t r i e d to get b i l l s passed that would allow common ownership. Lowe P. Siddone, general t r a f f i c manager m of the Holly Sugar Go. and a past president of the N.I.T.L. had the following to say: " The enactment of h i l l s H.R. 7960 and H.R. 9280 would be i n the public i n t e r e s t for i t would promote the national transportation p o l i c y which requires a r a i l r o a d transportation system adequate to meet the needs of commerce, the United States Postal Service, and the national Defence." -> William H. Ott, general t r a f f i c manager of Kraft Poods, and president of the National Industrial T r a f f i c League: " The League urges that l e g i s l a t i o n i s needed to make possible a greater degree of common ownership of c a r r i e r s i n d i f f e r e n t transporta-t i o n f i e l d s , at l e a s t i n the f i e l d of high-way transportation. " l b I t i s hard to argue against statements of the shippers as they are the individ u a l s who use the transportation ser-vice provided by the industry not the l e g i s l a t o r who, i n the United States, maintain r e s t r i c t i v e l e g i s l a t i o n against common ownership. 5. OTHER ARGUMENTS a. Private Carriage The r a i l r o a d s have l o s t t r a f f i c and continue to lose t r a f f i c , but they also point to the fa c t that common ca r r i e r s are a l l l o s i n g t r a f f i c to private and unregulated c a r r i e r s . Various estimates have been made on the extent of unregulated carriage, some estimating that between 40 and 60 percent of the t o t a l i n t e r c i t y ton miles are now being moved by other than the regulated c a r r i e r s i n the U.S. In a recent Canadian debate the following figures were quoted: " During the year 1960, the combined t o t a l revenue trade carried by service transport i n t h i s country amounted to 423,820,000 tons. Of t h i s t o t a l the railways are credited with having carried 168,462,000 or 37-39$. The 'for h i r e 1 c a r r i e r s , 145,086,000 tons or 34.23$. The private motor transports, 20,291,000 tons, 28.38$. In other words, 6 2 . 6 1 $ of th i s country 1s surplus transport today i s being furnished by agencies other than the railway which should ce r t a i n l y d i s p e l l the a l l too prevelent notion that the Canadian Railways continue to hold a monopoly i n the transportation f i e l d . " Private and unregulated competition takes many forms. Even t r a f f i c which had been thought to be captive to a certain mode has been displaced to unregulated carriage. Private carriage of f r e i g h t , once begun, tends to become an Irrevocable action. This i s because a substantial invest-ment i n equipment and f a c i l i t i e s must be made. Whether done by new construction, purchase or lease the investment or l i a b i l i t y i s r e l a t i v e l y long-term. To give up private , carriage also involves either an immediate cost to the firm or a gradual tapering o f f . Private carriage also develops the irreversable quality from Its transportation service. These benefit the customer as well as the warehouse or factory of o r i g i n . To give up private carriage may well r e s u l t i n loss of customer patronage. U n t i l private carriage i s made uneconomic through combination of available services or improvement i n service by the present regulated c a r r i e r s i n such a way as to meet a l l the requirements of the shipper, whatever the commodity or wherever located - i t w i l l not lose i t s appeal. The r a i l r o a d s say to the regulated common c a r r i e r s that i t i s necessary to band together and work i n unison to provide better service i n competition with unregulated c a r r i e r s . While i t i s true that the r a i l r o a d cannot expand into other areas of endeavour i n the U.S. very r e a d i l y , t h i s has d e f i n i t e l y not been the case f o r other companies entering the r a i l r o a d f i e l d . For example American Can Company, Bethlehem Steel Company and United States Steel Company are just a few of the shippers who actually own and operate r a i l r o a d s . I t i s also not at a l l Impossible that several of the large trucking firms i n the United States could get together to acquire a r a i l r o a d . Whatever i s possible, the ra i l r o a d s and other common c a r r i e r s should, i n some way, provide cheaper and more adequate service to compete with the large number of "do-it-yourself" shippers that have appeared i n recent years. b. Asset Value & Congestion The r a i l r o a d s f i n a l l y argue that the value of the railway network, already established and operating, i s incalculable to the nation and that i t cannot be abandonieedi , esp e c i a l l y since the r a i l r o a d has a d e f i n i t e use i n the transportation network. They point out that i t i s necessary to use these f a c i l i t i e s to capacity f o r society to. get the maximum benefit of economic e f f i c i e n c y . The r a i l r o a d i s e s s e n t i a l l y a resource which must be used to the best advantage In society's productive processes. Another recent argument that has been espoused by the r a i l r o a d i s i t s r o l e i n r e l i e v i n g congestion. City a f t e r c i t y i n the United States i s c a l l i n g f o r express bus service and new railways on above or below the general l e v e l . In large c i t i e s such as New York and Montreal trucks of the i n t e r c i t y size produce unnecessary congestion on c i t y streets because of t h e i r size and speed. In most c i t i e s the r a i l r o a d s have centralized terminal f a c i l i t i e s and f a i r l y e f f i c i e n t road f a c i l i t i e s . In New York, f o r example, the r a i l r o a d s are subsurface and do not int e r f e r e with movement of t r a f f i c In the c i t y . It i s much more e f f i c i e n t to u t i l i z e the terminals and deliver goods throughout the c i t y with smaller, more e f f i c i e n t delivery trucks, rather than have a f u l l size tractor and t r a i l e r drop packages off at each shipper 1s door. S U M M A R Y Many of the advantages professed by those i n favour of common ownership are l o g i c a l from the perspective of the business manager. The r a i l r o a d Industry i s d e f i n i t e l y not as l u c r a t i v e a business to be i n as i t was i n the past. In many areas of the transportation market the r a i l r o a d has become obsolete and changes are required i n the basic 3fo structure of the r a i l r o a d industry i f i t i s to move out of the 1 9 t h century into the 2 0 t h centuryi One of the methods of accomplishing t h i s i s to modernize plant and equipment and make operations more e f f i c i e n t . The r a i l -roads have worked hard i n these areas, but t h i s approach has not and probably never w i l l solve a l l the problems of the r a i l r o a d . Another method i s to allow the railroads to d i v e r s i f y and enter into other areas of transportation through commoncownership. By l e t t i n g r a i l r o a d s acquire complementary service more l u c r a t i v e types of t r a f f i c can be attracted back to the r a i l s . Furthermore the r a i l r o a d company can better u t i l i z e capacity and more e f f e c t i v e l y avoid the r i s k of becoming t o t a l l y obsolete. I f the r a i l r o a d were a t o t a l l y I n e f f i c i e n t method of transport, perhaps i t would be better to eliminate the services provided, but the r a i l r o a d i s e f f i c i e n t and can be used, i n today's modern era. If the management of the r a i l r o a d companies i s t r u l y Interested i n using alternative methods of transport to provide better, more economical and e f f i c i e n t service to the shipping public, then they should be allowed to purchase and operate certain other c a r r i e r s i n other transport modes. F O O T N O T E S 1 op c i t p. 18 2 Business Trends - " A i r Oar-Go?", Newsweek Magazine July 1 , 1968, p. 6 5 . ~ 3 House of Commons Sessional Committee of Railways, A i r L i n e s and Shipping Owned by the Government. June 19, 1961, Queens P r i n t e r , p. 261 Ottawa. 4 "Plan I TOFC service" - i s service performed by a r a i l -road i n substitution for motor common c a r r i e r service to, from and between named points over the motor c a r r i e r ' s route - moved at motor c a r r i e r routes. 5 "Plan V TOPC service" - i s that performed under published j o i n t r a i l m o t o r rates over through rates with c e r t i f i c a t e d motor common c a r r i e r s . 6 Special Study Group on Transportation P o l i c i e s i n the United States of the Senate Committee on Commerce i n i t s Report on National Transportation P o l i c y (Senate Ref. No. 4 4 5 , 8 7 t h Congress, 1 s t Session, 1961) p. 227-228 7 President Kennedy's Message r e l a t i v e to the Transportation System of Our Nation (H.P. Doc. No. 3 8 4 , 8 7 t h Cong., 2nd Sess., A p r i l 5 , 1962) p.5 & P 8 . The Revolution i n Transportation, The Journal of Commerce June 1959 p.48. 9 Stokes, Richard H. What Single Improvement of the Inter-State Commerce Act Is Most Needed, I.C.C. P r a c t i t i o n e r ' s Journal 33:421,425 February 1966. 1:0. R.P. Holubowltz, The Transmodalist, World Ports, October, 1 9 6 7 , p. 3 11 Ibid p. 30 12 , Third International Symposium on Coordinated Transportation,-Distribution Age, Nov., 1962,p67 13 Donlon, E. Canadian Pacific: The Restless Multimodal Colossus to the North, Railway Age, December 1 8 / 2 5 , T967, P. 3 3 . th. Prince, Gregory S., Ownership of One Mode of Transporta- tion by Another, Speech before the Transporta-tion Law Committee: of the Federal Bar Assoc. Annual Convention , Phila., Pa. 1963? P» 7 . 1l5. Transportation Diversifications:: Hearings before a subcommittee of the committee: on Interstate; and' Foreign Commerce;, House-; of Representatives Feb. 2 , 3 , a n d 5 , April 1:2, 1:3 and 1:4, i 9 6 0 , p.301 1'6 Ibid., p 372 1 7 . Debater Should Railways Engage in Transcon-tlnental trucking? , Canadian Transportation, Janii 1:962, pp. 1.8-23 C H A P T E E . LI I THE ARGUMENT AGAINST COMMON OWNERSHIP The argument against common ownership i s essen-t i a l l y that of the independent trucker, the water c a r r i e r s and to some degree the a i r l i n e s . The basis of their argument i s of h i s t o r i c a l o r i g i n . Before the truck had reached a stage of development where I t was possible to compete against the rai l r o a d s f o r any large segments of t r a f f i c , the railro a d s had a v i r t u a l monopoly i n trans-portation, with the exception of domestic water carriage. During t h i s period the ra i l r o a d s and great r a i l r o a d b u i l d -ers, such as H i l l and Harriman i n the United States, engaged i n cutthroat competition among themselves and against other c a r r i e r s trying to enter the transportation market. Railroad companies were very large and rather unscrupulous. Prom this era the railro a d s gained a bad reputation f o r unethical business practices and, i n fa c t , have never been able to completely l i v e down thi s image. H i s t o r i c a l Lessons - Water Carriers Those who argue against common ownership, almost without exception, use the following quote taken from the 52 report of the House Committee on Interstate and Foreign Commerce, which dealt with the l e g i s l a t i o n that became the Panama Canal Act of 1 9 1 2 : "'• The proper function of a r a i l r o a d corp-oration i s to operate t r a i n s on i t s tracks, not' to occupy the waters with ships i n mock competition with i t s e l f , which i n r e a l i t y operate to the ext i n c t i o n of a l l genuine competition. Although the re s u l t i n g Panama Canal Act prohibited r a i l control of water l i n e s operated through the Canal, i t allowed such control of other water l i n e s to continue i f the Commission s h a l l be of the opinion that any existing ... (line) i s being operated i n the intere s t of the public and i s of advantage to the con-venience and commerce of the people. " 1 Shortly a f t e r passage of the Panama Canal Act, various r a i l r o a d s owning or having an in t e r e s t i n water l i n e s operating on the Great Lakes f i l e d p e t i t i o n s seeking the right to continue the rel a t i o n s h i p . In Lake Line Applications Under the Panama Canal Act . the: Interstate Commerce Commission concluded t h e i r report by saying: " These boat l i n e s under the control of the p e t i t i o n i n g r a i l r o a d s have been f i r s t used as a sword and the a s h i e l d . When these roads succeeded i n gaining control of the boat l i n e s which had been i n competition with p a r a l l e l i n g r a i l s i n which they were interested and l a t e r effected t h e i r combination through the Lake Line Association by which they / -53> were able to and did drive a l l independent boats from the through lake-and-rail transportation, they thereby destroyed the p o s s i b i l i t y of com-p e t i t i o n with their r a i l r o a d s other than such competition as they were of a mind to permit. Having disposed of r e a l competition v i a the lakes, these boats are now held as a shield against possible competition of new independents. Since i t appears from the records that the rai l r o a d s are able to operate th e i r boat l i n e s at a loss where there i s now no competition from inde-pendent l i n e s , i t i s manifest that they could and would operate at a further loss i n a rate war against independents. The large f i n a n c i a l resources of the owning r a i l r o a d s make i t im-possible f o r an independent to engage i n a rate war with a boat l i n e so financed. Prom a consideration of a l l the circumstances and conditions disclosed by the respective records herein, the Commission i s of opinion and finds that none of the several existing specified services by water herein concerned i s being operated i n the interests of the public or i s of advantage to the convenience or commerce of the people within the meaning of the act, and that an extention and a conti-nuance thereof w i l l prevent, exclude, and reduce competition on the Great Lakes. The application of each of the pet i t i o n e r s herein p~ i s therefore denied, e f f e c t i v e Dec. 1, 1915. " Although the provisions of the Panama Canal Act haire been dormant for many years and no further r a i l r o a d applications had been f i l e d to acquire control of water car-r i e r s , recently the I l l i n o i s Central Railroad Company and the Southern P a c i f i c Company applied to acquire control of the John I. Hay Company, a water c a r r i e r . The I.C.C. concluded that the r a i l applicants had f a i l e d to meet the statutory requirements necessary for approval of the proposed trans-action. Leading up to thi s conclusion they said: 5i+'' Compared to water c a r r i e r s not blessed with such f i n a n c i a l backing, the competitive ad-* vantage accruing to Hay would be substantial. Undoubtedly, the immediate r e s u l t of an approval would be that competition f o r the available water t r a f f i c would be increased and i n t e n s i f i e d and that protestant water car-r i e r s , most of which are f i n a n c i a l l y sound, may be able to withstand such competition for a time. However, with Hay's expanded f a c i l i t i e s , a dditional equipment, more frequent s a i l -ings and enlarged s o l i c i t a t i o n force, the end r e s u l t would be a sharp reduction of, and possibly complete elimination of, com-p e t i t i o n on the water routes involved. Accordingly, the fears of water c a r r i e r protestants that Hay's acquired advantages would be so great as to jeopardize t h e i r competitive position and the continuance of independent,water operations are not unfounded. " & Water c a r r i e r s , and the I.C.C. to a certain degree, s t i l l believe that the basic c o n f l i c t of interests between competitive r a i l and water c a r r i e r s would s t i l l prevent any meaningful water transport being developed under r a i l control along similar paths. Domestic inland water car-riage and r a i l carriage are not complementary services. Both c a r r i e r s are burdened with very high terminal costs. Because of the d i f f i c u l t y involved i n co-ordinating equip-ment, i t i s almost impossible to develop a co-ordinated f a c i l i t y , at l e a s t with present technology, which w i l l be of advantage to both c a r r i e r s . There i s l i t t l e or no economic incentive for co-ordination between these modes. Water c a r r i e r s f e e l that the motor c a r r i e r , with i t s short-haul advantage, can be co-ordinated with water carriage quite e f f e c t i v e l y . Furthermore they point to the d i s -criminatory p r i c i n g of r a i l service i n such a way as to frus t r a t e and prevent rail-water service under present United States regulatory p o l i c y . In almost every s i t u -ation i n the continental United States where co-ordinated rail-water service i s actually or p o t e n t i a l l y available, there exists also an alternative a l l - r a i l route. Acting on an i n d i v i d u a l basis or i n concert there have been several examples where r a i l r o a d s seek to keep t r a f f i c on the a l l - r a i l route. One example i s the Southern Railway grain case i n which the r a i l r o a d established a broad schedule of d r a s t i c -a l l y reduced grain rates from o r i g i n points on the M i s s i s s i p p i River and the Ohio River into the southeast. Later these rates were established from the Tennessee River to the same areas i n the southwest. Ingersoll " has described the effe c t of these rates: " The rates f o r long hauls were based on a l i t t l e over six m i l l s per ton-mile — but the minimum was #2.40 a ton. So f a r short distances beyond the Tennessee ports, where most of the previous movement of waterborne grain on the Tennessee had been destined, the rates were 15 to 20 m i l l s a ton-mile. '"T" '. • • .' • - ••—or ... ; ••• \ \ " ALL-RAIL RATE . ' St. Louis to Atlanta BARGE /. i 2.76 a ton for 693 miles (4 mills) .! EX-BARGE RAIL RATE Chattanooga to Atlanta $2.40 for 133 miles. (18.0 mills) As to t h i s t a c t i c the Interstate Commerce Commission said 'The p r a c t i c a l effect of applying the proposed rate formula with i t s 240 cent minimum to the Tennessee River ports would be to build a "Chinese Wall" along the south bank of the Tennessee River through which no ex-barge grain could penetrate by r a i l . ' " Another example of a similar "Chinese Wall" Is given by In g e r s o l l : i/" "Phosphate , mined In F l o r i d a , Is used f o r fer-r - t i l l z e r In Greensbobb, N.C. The phosphate . ' could move r a i l - w a t e r - r a i l v ia . the ports of . Tampa and Wilmington. But the ra i l roads , have b u i l t a 'Chinese Wal l ' at Wilmington to prevent Greensboro from enjoying any of , the economy of coastwise shipping from . F l o r i d a to North Caro l ina. The r a i l rate from the port of Wilmington f o r 118 miles to Greensboro i s almost as high as the a l l - . r a i l rate fo r 667 miles a l l the way from the - F l o r i d a mines to Greensboro. " . F 1 C U K E oL  I I i RAIL RATE "' Wilmington, N. G. to Greensboro, $7.00 Ton • N.C, for 118 miles ! . n i l • yen. 'J '":- '-. 0 •' '>;• i 11 .iv. "GREENSBORO, N.C PORT OF WILMINGTON ALL RAIL Bartow to Greensboro $7.44 Ton j : . <;. 667 Miles :'RAIL RATE : "J Bartow to Tampa $1.34 Ton 41 Miles Authorities: SFTB 876-A, ICC S-140 SFTB 1011-A, ICC S-100 44 58 From these examples i t can be seen that under competitive conditions the r a i l r o a d s have indeed put up barriers to ef f e c t i v e rail-water co-ordination i n the United States. While i t i s tine that under common ownership the r a i l r o a d s might not try to hinder movement of f r e i g h t i n t h e i r own water c a r r i e r s , i t i s not clear that the water c a r r i e r s would develop as e f f e c t i v e l y under railway ownership, especially where the r a i l r o a d p a r a l l e l s the waterway. As there are not any s i g n i f i c a n t economies to be achieved under water-rail common ownership and as both modes are best suited to long-haul transport i t i s hard to see how the railways could make ef f e c t i v e use of owned water c a r r i e r s i n co-ordinative a c t i v i t i e s . The United States' domestic water carriers industry i s very small i n comparison with the r a i l r o a d industry, but quite e f f e c t i v e and e f f i -cient. Instead of allowing common ownership; based on the Great Lakes case and current rate practices; i t would seem that perhaps the water c a r r i e r should receive better protection i n the United States. In Canada the network of inland waterways i s not as extensive as i n the United States. Shipping i s f a i r l y well confined to the Great Lakes and the St, Lawrence, with a small volume on the Mackenzie. Ships carrying bulk cargo along the St. Lswrence and Great Lakes do not need to obtain licences beyond the customary c e r t i f i c a t e of 59 seaworthiness and other saffcty precautions required by the Department of Transport f o r the protection of property and l i f e . Rates are not subject to regulation as i n the United States with the exception of contracts f o r grain carriage which are subject to the approval of the Board of Grain Commissioners. As f o r package f r e i g h t the Board of Trans-port Commissioners issues licences on the basis of public convenience a f t e r considering whether alternative f a c i l i t i e s are adequate or whether the new services w i l l be comple-mentary. Package f r e i g h t e r s , such as the Canadian Steamship Lines use the same f r e i g h t c l a s s i f i c a t i o n as railways. In connection with t h e i r operations the Canadian Steamship Lines operate i n conjunction with the Canadian National on a jo i n t r a i l - l a k e - r a i l rate basis which dates back to the time before the transcontinental r a i l l i n e s traversed Ontario. They have been preserved and represent an a l t e r -native route whereby the shipper can obtain a lower rate f o r slower movement. These rates have been regulated by a scale of rate d i f f e r e n t i a l s between a l l r a i l and r a i l -w a ter-rail set by the Board of Transport Commissioners. The Canadian P a c i f i c Railway also maintains a r a i l - l a k e -r a i l service with i t s own vessels. The same competitiisne rates are published by the C P . as the CN.-Canadian Steamship jo i n t rates. 60 Since there have been no complaints against Canadian P a c i f i c Railways using t h e i r Great Lakes water c a r r i e r s as " f i g h t i n g ships" i n the past, at t h i s time i t i s not v a l i d to say that common ownership has been detrimental to the public i n t e r e s t i n the case of Canadian inland water car-riage. I t must be remembered, however, that the routes along which the r a i l r o a d s can compete with water c a r r i e r s i n Canada are not as extensive as the network i n the United States. If competition were more extensive,tighter regu-la t o r y measures might be i n order to prevent r a i l dominance of inland water carriage. Motor Carriers' Viewpoint on the Monopoly Powers of Railroad ' The motor c a r r i e r industry i n both the United States, and to some degree, i n Canada argue that the r a i l -roads could gain monopoly powers i n the same way that they did i n the United States inland water c a r r i e r industry. They point to the vast f i n a n c i a l resources available to the r a i l r o a d as compared to the average independent trucker . If the r a i l r o a d finds a p r o f i t a b l e t r a f f i c i n t h e i r truck-ing operations, they have the resources to purchase and place many traacks i n the p a r t i c u l a r l y p r o f i t a b l e area i n a short period of time. The way i n which they would gain monopoly powers has been described by the American Trucking Association i n t h e i r b r i e f before the 1960 hearings on 6t Transport D i v e r s i f i c a t i o n i n the United States: " The r a i l r o a d s , with the f i n a n c i a l resources and competitive devices at the i r command f o r an a l l - o u t war against t h e i r competitors, would l i n e up against L i l l i p u t i a n s . Of the motor c a r r i e r s subject to economic regu-l a t i o n s by the Commission i n 1959, about 1,130 had operating revenues of #1 m i l l i o n ar more, about 1 ,800 had revenues of # 2 0 0 , 0 0 0 up to #1 m i l l i o n , and about H , 5 0 0 had revenues of les s than # 2 0 0 , 0 0 0 . The larges t motor c a r r i e r s had revenues of # 7 1 , 9 6 2 , 7 2 7 i n 1959. The larg e s t r a i l r o a d had t o t a l revenues of # 8 8 7 , 6 8 3 , 8 5 8 . I t i s Impressively true that the battle would be between c a r r i e r s of markedly d i f f e r e n t strength. Agression would take the form of a series of r a i l drives against i n d i v i d u a l motor c a r r i e r s . The strategy no doubt would be to acquire key c a r r i e r s or ri g h t s f o r use i n waging wars on Independent motor c a r r i e r s . Selective rate-cutting a c t i v i t i e s would afford ample opportunities to eliminate both small and larger motor c a r r i e r s or to create conditions which would enable acquisitions of t h e i r properties on favourable terms. The present Commission practice, i n adjudicating i n t e r -agency rate disputes, of allowing railways to go down close to out-of-pocket costs, i f not lower, places an exceptional burden on motor c a r r i e r s , quite apart from the economics from any point df view of using out-of-pocket costs i n the manner described by the r a i l r o a d s . This burden would be greatly i n t e n s i f i e d under common ownership. " Mr. P. I. Beardsley describes how the rai l r o a d s would complete th e i r monopolization of the transport 7 industry. • " If despite their e f f o r t s to eliminate e f f e c t i v e competition by rate-cutting a c t i v i t i e s , a few independent motor c a r r i e r s remained on the scene, the r a i l r o a d s could undoubtedly, If they so desired, eliminate them through the simple 6 2 expedient of buying them out. ... Once these e f f o r t s had succeeded, the r a i l s would then be free to take the l a s t step i n t h e i r o v e r - a l l program, the bringing of t r a f f i c 'back to r a i l s ' i n order to protect their heavy invest-ment i n r a i l plant and f a c i l i t i e s " . This argument presented by the A.T.I, i s quite debatable. Even i f the transportation industry were cha-racterized by a t o t a l lack of regulation ; i t is, quite incon-ceivable that the r a i l r o a d s could completely monopolize road transport. Considering the ubiquitous nature of the trucking industry, i t i s highly unlikely that the r a i l r o a d s could ever get to a point where a l l there would be l e f t to do i s buy out "the few remaining operators". Water trans-portation i s d i f f e r e n t as the investment i n equipment i s considerably larger than i n trucking. Furthermore i t i s very doubtful that even considering the "vast f i n a n c i a l resources" of the r a i l r o a d s that they could r e a l l y sustain operations below f u l l costs f o r a long enough period of time to successfully exhaust a l l independent operators. Let us say that the r a i l r o a d s can gain monopoly power in certain geographic areas. If they then raised the rates, a f t e r gaining a monopoly, any enterprising i n d i v i d u a l could obtain a small truck with very l i t t l e c a p i t a l invest-ment and compete at a s l i g h t l y lower p r i c e . The f a c t remains, however, that the r a i l r o a d s are regulated and would not be allowed to f r e e l y cut rates with the i r " f i g h t i n g ships" so that they are consistently below f u l l y distributed costs. Also i n both the United States and Canada there i s anti-combines l e g i s l a t i o n to prevent the formation of companies which can successfully control a market. B a s i c a l l y , however, the r a i l r o a d has a monopoly structure i n that i t i s not economical f o r society to have two r a i l r o a d s competing i n a small market where one would be s u f f i c i e n t . I t i s conceivable that i n certain small geographical areas the r a i l r o a d might be the only company providing transportation service, whether by r a i l or by truck. In certain remote areas of Canada, f o r example, the ra i l r o a d s do have a monopoly, but t h i s Is not because they want i t , i n f a c t they often lose money on these operations. In the United States r a i l r o a d s that have extensive "Grand-father r i g h t s " dating back f i f t y years have not been able to control the transportation markets i n wlich they operate. Competition & Technology I t i s quite l o g i c a l , however, that competition between the various modes i s reduced by common ownership although not eliminated. By reducing competition there i s the p o s s i b i l i t y that innovation and improvements i n tech-nology are also reduced. Under competition, when two industries face the same market, there i s a constant stimu-lus to gain a larger share of the market and progress. To do thi s the competitive firm must Improve i t s operations through efficiency... When there i s a lack of i n t e r -industry competition, there i s a tendency to be s a t i s f i e d with progress already achieved. Competition between r a i l and truck has undoubtedly forced both industries to reduce costs through more e f f i -cient service. Many f e e l that the trucking industry would not have progressed as far as i t has today i f , i n the United States, r a i l r o a d s had f r e e l y been allowed to own and operate trucks. Under common ownership, even i f a monopoly does not develop, the development of new trucking services competing with the r a i l r o a d i s slowed because of a g l u t t i n g of the market. S i m i l a r l y i f the trucking ser-vices operated by the rai l r o a d s are successful, the exi s t -ing r a i l l i n e s would be starved of c a p i t a l f o r new r a i l r o a d equipment as the r a i l r o a d s would invest more heavily i n trucks because of a more a 1rapid:ive Return on c a p i t a l . Common ownership of p o t e n t i a l l y competitive services i s l i k e l y to favour too f a s t a withdrawal from the railway f i e l d , which may mot abe.rlnfthe l i n t ere st' of.; society i n the' long run. Speaking i n the House of Commons on March 2 3 , 1960, the Hon. George Hees, on pp.. 2377-2378 of Hansard, got the following impression of transportation i n Great B r i tain during a tour: "I was i n Glasgow, and was fortunate enough to attend the Glasgow i n d u s t r i a l exhibition. Whilst there, those who were showing me round the exhibition were very anxious that I should see the railway exhibit, to see what improvements " -She nationalized railways- of England were •undertaking. As I was being shown these 1 5:mpx^^am improvements - and these improvements were very worth-while*—I was t o l d by the railway o f f i c i a l who was showing them to me that they had been made necessary by the denationalization of the motor- transport industry i n England. This o f f i c i a l t o l d me. that i f the motor transport i n -dustry i n England had not beenMe]aationalized,it << would not be necessary f o r the railway industry to make any improvements at a l l , because when the industry; was nationalized, there; was l i t e r -a l l y no competition, or c e r t a i n l y no competition of a worrisome nature, f o r the: railways.However as soon as the motor transport industry became: denationalized by the Conservative' government, then the motor1 c a r r i e r industry began to give the- nationalized railway industry very serious competition. These very worth while changes which I was shown by t h i s railway o f f i c i a l were, accord-ing to him, one hundred per cent made necessary because of the. competition given the railways by a r e v i t a l i z e d , denationalized road transportation system then i n existence i n the United Kingdom. 11 Although the completely nationalized system of Great B r i t a i n is- an exaggeration of the. common ownership e f f e c t on competition, i t does serve to show how the incen-tive' to progress and innovate was reduced. An inte r e s t i n g by-product; of the nationalized period i n B r i t i s h Transport however, is: the rapid advancement of intermodal technology It enabled the B r i t i s h Transport Commission to plan i t s new f a c i l i t i e s on a j o i n t working basis, and i n a l l new planning account was taken of a l l modes: of transport. This, meant, that new road depots, were provided with r a i l f a c i l i t i e s for- the. through t r a n s i t of some commodities by 66 r a i l while new r a i l depots had been planned to accommodate also the terminal f a c i l i t i e s of raad services. In a speech given before the Canadian Railway Club by K.W.C. Grand, of the B.T.C. the improvement of container service was noted. " ... B r i t i s h Railway companies are probably the biggest single owners of containers i n the world — over 5 0 , 0 0 0 i n service (as of 19610. About 20 types are now to be seen on the railways. ... New uses for containers are constantly being found, and a p a r t i c u l a r l y s t r i k i n g indieation of t h e i r p o t e n t i a l i t i e s i s afforded by the diesel-hauled Condor trains — the f i r s t to be devoted e n t i r e l y to containers — which have been steadily winning back f r e i g h t t r a f f i c to the railways. Tra v e l l i n g nightly between London and Glasgow i n le s s than 10 hours, they give the fastest, .long-distance f r e i g h t service i n B r i t a i n . ® ;8 In the bulk materials f i e l d technological problems were also worked on: " Transhipment of t r a f f i c i n bulk i s si m p l i f i e d i f t h i s can be accomplished by employing mechanical apparatus. Examples are the a i r discharge of 'Presflo' wagons and the gravity discharge of some mineral and other, lioppered wagons d i r e c t l y into road vehicles." L9 Mr, Grand also pointed out problems encountered i n intermodal technology that exemplify p a r t i a l l y the argument that terminal costs remain high because the railway and trucking forms of transport are b a s i c a l l y d i f f e r e n t . 67 " Despite the advantages of mechanical handling, . the costs of transferring t r a f f i c at stations f o r road delivery or from road c o l l e c t i o n are l i k e l y to remain high, especially i f transhipment of the t r a f f i c i s involved; these costs r e f l e c t not only the short run items of labour and f u e l but i n the longer term the provision and renewal of handling equipment, buildings and cartage vehicles. Urgent attention i s now being given to fin d i n g means of reducing the high terminal costs of transfer between r a i l and road so that the advantages of the r e l a t i v e l y low, long r a i l haulage costs can be combined with the f l e x i b i l i t y of door to door c o l l e c t i o n and d e l i v e r y by road haulage. "*® Continued Problems i n the Railroad Industry One of the arguments developed by the A.T..A. that i s e s s e n t i a l l y similar to the previous argument i s that the r a i l r o a d s have a l o t to do i n their own industry before they should be allowed to enter the trucking industry. They claim that the r a i l r o a d s are not i n such bad f i n a n c i a l shape, and even i f they are i t i s not b e n e f i c i a l to society to allow them to waste valuable funds on outside investments when the railway system i s s t i l l i n e f f i c i e n t and obsolete i n many respects. While i t i s true that the railro a d s have done quite a b i t to eliminate duplicate f a c i l i t i e s through merger and branch l i n e r a t i o n a l i z a t i o n there i s s t i l l much to be done i n the United States to eliminate some of the diseconomies p r o l i f e r a t e d i n the r a i l r o a d monopoly era. The rai l r o a d s are es s e n t i a l l y asking the government to protect them from the effects of economic changes and technological advancement. 68 The r a i l r o a d s have shown the i r confidence i n the future of the basic r a i l r o a d structure by the large c a p i t a l outlays they have made on i t . The primary r e s p o n s i b i l i t y of r a i l r o a d management to stockholders and creditors i s tied up with t h i s structure. Present keyed-up e f f o r t s to divert t r a f f i c from motor and water ca r r i e r s are i n l i n e with this prime in t e r e s t i n r a i l r o a d plant. Some railro a d s have defined plans, but many reach out b l i n d l y to get into other forms of transportation. Trucking industry feels/that the r a i l r o a d s with their large investments i n fixed and other r a i l r o a d f a c i l i t i e s should be directed to concentrate t h e i r e f f o r t s on "the iron horse and not try to maintain a whole stable of horses".'"" The r a i l r o a d plant s t i l l i n -cludes many duplicative mileages and strongly entrenched positions. Railroad management i s t r a d i t i o n a l l y i n d i v i d u a l i s -t i c which lessens the r a i l r o a d s ' a b i l i t y to provide better service to the shipping public by co-operating with each other. Consolidations provide a means of eliminating excess plant and of increasing e f f i c i e n c y . While there i s a c t i v i t y i n this f i e l d at present, i t needs to be accentuated and encouraged. Rati o n a l i z a t i o n of plant also provides widespread opportunities f o r economies. P a r t i c u l a r need exists f o r r a t i o n a l i z a t i o n of terminal f a c i l i t i e s . Modern-i z a t i o n of structure and r o l l i n g stock costs money and since the r a i l r o a d s have a lim i t e d amount of funds, these funds are better spent on t h e i r own modernization programs, rather than on the ac q u i s i t i o n of trucks. The trucking concerns also point to the fac t that -l-^ the r a i l r o a d industry has always fought the trucking industry and that r a i l r o a d management w i l l not change the i r attitude. H i s t o r i c a l l y , i n the United S ^ e s , the railro a d s have fought at l o c a l , State and National l e v e l s to impose every type of r e s t r i c t i o n on the trucking i n d i r e c t l y i n such mat-ters as taxation, size and weight l i m i t s . An outstanding example of the onerous requirements imposed by the States on the trucking industry i s the Texas law which forbade a truck with a load i n excess of 7,000 pounds to operate on the highways of Texas unless i t was en route to a r a i l t e r -minal i n which case the permissive load would double. The f a c t that the r a i l r o a d industry has s t i l l not done enough to achieve co-ordination and e f f i c i e n c y within i t s own ranks has been pointed out by Mr. J. P. H i l t z , vice president, operations and maintenance, of the Delaware & T P Hudson Railroad: " : ... we have yet to accomplish a un i f i e d approach to the many of our common problems. One r a i l -road s o l i c i t s a l l types of perishable f r e i g h t and i n s i s t s i t makes money from handling i t . The connecting l i n e does everything possible to discourage certain types of perishable com-modities and w i l l not join i n the establishment of schedules which could bring t h i s business to the service route. ... One r a i l r o a d f e e l s that certain i n t e r l i n e passenger service i s pr o f i t a b l e and would l i k e to improve service and schedules. The connecting l i n e i s no longer interested i n passenger service and despite the high t r a i n earnings of a p a r t i -cular run w i l l not jo i n i n a program of 70 improvement. One r a i l r o a d l i k e s piggyback - the next one does not — and so on, far into the night. " Conceding that "a certain amount of disagreement i s desir-able " and that conditions peculiar to certain r a i l r o a d s cause " d i f f e r e n t outlook on certain matters", Mr. Hiltzr continued: " However I contend that none of these reasons, . nor many others which could be advanced, can amount f o r the lack of unity i n the r a i l r o a d industry. I can only be accounted f o r , i n my opinion, by shortsightedness, stubborn-ness and selfishness. I t can only lead, and again i n my opinion, to the eventual destruction of our industry I f e e l that the r e a l reason we don't e f f e c t i v e l y compete with the trucks i s because we don't know how.to compete, except among ourselves. m ••>*J Mr. H i l t z ' s remarks demonstrate that certain r a i l -road problems arise from discord within the industry. One solution to t h i s problem has been the development of joint research f a c i l i t i e s with the Association of American R a i l -roads, but there i s s t i l l more resistance to be broken down within the industry i t s e l f to achieve better co-opera-tion, among the various r a i l r o a d s . Economies of Joint Management One of the more l o g i c a l arguments that the truckers use i s that there are few economies achieved under common ownership. B a s i c a l l y the operations of a large trucking firm are normally highly decentralized i n contrast to the r e l a t i v e l y centralized organization of the railways. The r a i l r o a d industry i s characterized by a f a i r l y r i g i d formal hierarchy whereas the trucking industry i s much more informal and based more on personal leadership. This leads to d i f f e r e n t managerial attitudes, which has been demonstrated by the experience of the B r i t i s h Transport Commission after the trucking industry was nationalized under the 194-7 Transport Act. " The process of assimilating and digesting some 4,000 undertakings was bound to occupy the greater part of the f i r s t f i v e years; moreover at the end of the period i t had become quite clear that the Road Haulage Executive wished to concentrate grpon the most p r o f i t a b l e of t h e i r a c t i v i t i e s , namely long-distance truck haulage. To this end they had i n s t i t u t e d a system of 'Directional Groups', whereby a group i n , say, the London area was e n t i r e l y conceived with t r a f f i c to the Birmingham area where a second Group acted as i t s partner and receiving station. The paradox of t h i s quite natural development i s that, instead of road haulage being e s s e n t i a l l y complementary to the railways (as presumably i t would be i n a f u l l y integrated system) under common ownership i t began to develop services which were even better q u a l i f i e d .to compete with the railways on th e i r own special ground than those provided under separate ownership. " One economy which the railr o a d s emphasize i s that of the a v a i l a b i l i t y of computer aids to management or account-ing control on a j o i n t service basis. The larger trucking companies can afford computer systems that w i l l aid i n th e i r operations. The smaller company, while probably not able to afford a f u l l computer system of th e i r own, can 72 rent time on computers i n service bureaus or can j o i n t l y finance such f a c i l i t i e s with other firms. Generally speak-ing though the ra i l r o a d s are able to finance more advanced computer systems than the tracking companies. The p o s s i b i l i t y of greater economies through j o i n t financing ha$e also been professed by the r a i l r o a d s . I t i s true that some trucking companies have experienced pro-blems i n obtaining c a p i t a l , but most have been able to solve these problems quite s a t i s f a c t o r i l y . One of the methods of financing possible i s to merge with a larger trucking firm that i s able to obtain c a p i t a l at a lower cost. The truckers point to the f a c t that each d o l l a r invested i n trucking by a r a i l r o a d company represents one d o l l a r l e s s to be used f o r the modernization and improve-ment of the r a i l r o a d f a c i l i t i e s . The truckers f a i l to mention the need f o r co-ordinated investment i n intermodal equipment. The truckers f e e l that the economies of t r a f f i c s o l i c i t a t i o n are even more doubtful. They offer service on the basis of meeting s p e c i f i c customers' requirements more economically than other means of transportation. This, they say, requires a person who knows the industry well and has a good knowledge of the complexities of trucking ser-vice and t a r i f f s . I t i s d i f f i c u l t f o r an i n d i v i d u a l to also know the complexities of r a i l r o a d service and t a r i f f s . 73 The difference i n regulatory frameworks between the two modes further complicates j o i n t s o l i c i t a t i o n . I t does seem, however, that the transportation s o l i c i t o r can o f f e r a wider selection to the shipper. Also i t would seem that l e s s personnel would be required to e f f e c t i v e l y s o l i c i t t r a f f i c i n a true transportation company. The economies that accrue i n terminal operations are also limited due to the difference i n the techniques and operating c h a r a c t e r i s t i c s of railway and highway vehicles. While i t i s true that loading ramps and storage f a c i l i t i e s are somewhat d i f f e r e n t f o r both modes; i t does seem that a consolidated terminal would offer some advantages to both modes. Inherent economies would be r e a l i z e d i n intermodal operations such as f a c i l i t i e s f o r the transfer of containers and the loading of piggyback t r a i l e r s . One problem i s many of the r a i l r o a d terminals are old and i n e f f i c i e n t and modern-i z a t i o n of these f a c i l i t i e s , designed b a s i c a l l y f o r the r a i l -road era, i s quite an expensive undertaking. In vehicle maintenance and engineering there are very few economies inherent i n j o i n t ownership. The two modes are s u f f i c i e n t l y d i f f e r e n t so that interchange of parts and labour (other than d i e s e l mechanics) i s f a i r l y l i m i t e d . I t i s true, however, that certain economies of scale are attainable i n the truck industry. A l l a n 0. F.lott, Director, Department of Research, A.T.A. described the findings of the A.T.A. ' " A. Maintenance and terminal costs appear to increase more than In proportion to output. B. Depreciation and taxes r i s e i n pro-portion to increases i n output. C. Administrative and insurance costs decline i n proportion to increase i n output. D. T r a f f i c and transportation costs (which make up about f i f t y per cent of t o t a l costs) decline with increases i n output ... " Other economies of scale include lower c a p i t a l costs, ad-vantages i n purchasing f u e l and vehicles and advanced com-munication systems, computers and other apparatus. While these economies of scale may be achieved by a large trucking firm, they may also be achieved by r a i l r o a d firms which are already of a large-scale nature. For ex-ample t r a f f i c and transportation costs, which comprise 50$ of t o t a l costs, can be reduced by a single s o l i c i t a t i o n force espoused by the r a i l r o a d s . Also most ra i l r o a d s have advanced communication systems (such as CN-CP telecommunica-tions) and computer systems. Costs of c a p i t a l attainable by the railway firms are also presently lower than those attainable by smaller trucking firms. In Canada, where the degree of concentration i n f o r hire trucking i s not especi-a l l y great, the r a i l r o a d s have seen the opportunity to gain £5 certain economies through consolidation of trucking firms. C o n f l i c t of Management Philosophies The r a i l r o a d s advocate the advantages of using the truck to provide a n c i l l a r y services to the r a i l r o a d . This type of u t i l i z a t i o n implies centralized control of trucking and using trucking as a non-competitive tool of the r a i l -road. On the other hand they also claim that they -will maintain competition within the firm. In other words they are saying that the trucking arm must also produce a p r o f i t and r e t a i n a certain degree of autonomy. If the r a i l r o a d s are not going to allow cross-subsidigatlon between their trucking arms and t h e i r r a i l r o a d operations there i s a con-f l i c t of managerial philosophies. In other words how i s a company to maintain competition between i t s branches, such as General E l e c t r i c or General Motors, and s t i l l centralize operations enough to provide co-ordination with r a i l opera-tions? This subject w i l l be more adequately discussed when considering Canadian P a c i f i c ' s managerial philosophy l a t e r on. S U M M A R Y The argument against common ownership revolves around the danger of monopoly or at l e a s t a reduction i n competition. In the case of inland water carriage being owned by a r a i l -road company the argument that a monopoly could develop i s strong because these two modes of transportation are quite 7,6 supplementary along the waterways. Because of t h i s regu-la t o r y p o l i c y p r o h i b i t i n g common ownership f o r these two modes i s more l o g i c a l than prohibiting r a i l r o a d s from owning truck companies that are complementary. In the United States, where ra i l r o a d s s t i l l exhibit duplication of f a c i l i t i e s and where the rail r o a d s have mono-polized water transport i n the past, regulatory p o l i c y res-tr a i n i n g large scale common ownership has been quite l o g i c a l i n the past, however i n the next chapter i t w i l l be seen that some of the r e s t r i c t i o n s are perhaps a b i t onerous and should be modified. F O O T N O T E S t. , H.Repr/. No. h-23 on the Operations of the Panama Canal, 62nd. Congress., 2nd Sess. 12 ( 1 9 1 2 ) . 2.. 7 33 I.CC. 6 9 9 , 7 t 6 (1:91:5) 3. ? I l l i n o i s : Cent. R.R. - Control - John I . Hay Co., 317 I..CC, 39 ( 1 : 9 6 0 ) h. I n g e r s o l l , A.C., Co-ordinated Transportation Service, A Waterway Operator's Point of View: Co-ordination of Service, Syracuse University; Business Research Center; Salzburg Lecture Series #16; p. 3 2 . 5 . Ibid., p. 3 3 6 . Transport D i v e r s i f i c a t i o n , op. c i t . p 2 1 9 7. Beardsley, f.T., R e s t r i c t i o n Against R a i l Entry into Other Transportation F i e l d s , Law and Contemporary Problems, Autumn, 1 9 5 9 , p. to. 8. Grand, K.W.C., " Co-ordination i s a Necessity", Canadian Transportation, November, 1'96t, p. 18. 9 . I b i d . , p . 18 10 L o c . c i t . p . 1:8 t t . T r a n s p o r t a t i o n D i v e r s i f i c a t i o n o p . c i t . p . 219 1:2 H i l t z , J.F.., " R . R s W a r n e d : U n i f y o r - D i e " , R a i l w a y A g e D e c e m b e r 1 5 , 1-959? p . -"+1. 1'3. L o c . c i t . p V i . 1:'+. B o n a v i a , M . R . T h e : E c o n o m i c s o f T r a n s p o r t , L o n d o n C h a p . 7 1 T h e C o n t r o l a n d C o o r d i n a t i o n o f T r a n s p o r t , p . 211: 1 5 . F l o t t , A . C . / ' E c o n o m i e s o f S c a l e i n T r u c k i n g , " T r a n s p o r t a t i o n R e s e a r c h F o r u m P a p e r s T967 p p 13-15 77 C H A P T E R I V COMMON OWNERSHIP IN THE UNITES STATES & GREAT BRITAIN Common Ownership i n the United States - History Railroads i n the United States, as previously men-tioned, are prohibited from entering into common ownership with domestic water c a r r i e r s . The railroads are the only c a r r i e r s subject to these r e s t r i c t i o n s which are contained In subsections 1V through 16 of Section 5 of Part I of the Interstate Commerce Act, which sections were i n i t i a l l y en-acted i n the Panama Canal Act of 1912, 37 Stat. 566. Under the provisions of the Panama Canal Act, a r a i l r o a d i s pro-h i b i t e d from having any inter e s t whatever i n aswater oper-at i o n through the Panama Canal with which i t does,or may, compete f o r t r a f f i c . As to operations elsewhere than through the Pana-ma Canal, a railroad, interest i n such operations i s pro-hibited i f the r a i l r o a d does or may compete f o r t r a f f i c with the r a i l a f f i l i a t e d water c a r r i e r . A r a i l r o a d con-templating such an a q u i s i t i o n must prove to the I.C.C. that r a i l r o a d i n t e r e s t i n a p a r t i c u l a r water c a r r i e r w i l l not prevent that water c a r r i e r from being operated i n u the interest of the public and that i t w i l l not reduce competition on the p a r t i c u l a r water route. 78' As f o r motor c a r r i e r s , when Congress enacted the Motor Carrier Act i n 1935, i t placed a s p e c i f i c r e s t r i c t i o n i n Sec. 213 (a) (1) upon the r i g h t of r a i l c a r r i e r s and water c a r r i e r s thenceforth to consolidate with or otherwise acquire motor c a r r i e r s . This r e s t r i c t i o n read as follows: " The Commission s h a l l not enter such an order unless i t finds that the transaction w i l l promote the public i n t e r e s t by enabling such c a r r i e r to use service by motor vehicle to public advantage i n i t s operations and w i l l not unduly r e s t r a i n competition. " (U.S. 49 Stat 556). U n t i l 1940, both r a i l r o a d s and water c a r r i e r s were subject to thi s special r e s t r i c t i o n concerning the control of motor c a r r i e r s . In 1940, however, the r e s t r i c t i o n was removed from the water c a r r i e r s . Early Commission cases did not r e s t r i c t c e r t i f i c a t e s Issued to r a i l a f f i l i a t e d motor c a r r i e r s i n new operation cases. The Commission by l a t e r decisions, however, concluded, as a general p o l i c y , that, to be authorized, the motor c a r r i e r service must be supplemental or a u x i l i a r y to that of the r a i l c a r r i e r i n -volved and that t h i s should be assured by conditions to be imposed upon such operations. The conditions which are now standard, except for condition No.3, were formulated i n Kansas City Southern Transport Co. Inc. Common Carrier Application, 10 M.C.C. 221, and were stated as follows: " 1. The service to be performed s h a l l be lim i t e d to service which i s a u x i l i a r y to, or supplemental of, r a i l service-. 7$ 2. No motor service s h a l l he rendered to or from any point not a station on a r a i l l i n e of the r a i l r o a d . 3 . Shipments to be transported s h a l l be limit e d to those on a through b i l l of lading, including a p r i o r or subsequent movement by r a i l . 4 . A l l contractual arrangements between the applicant motor c a r r i e r and the parent r a i l r o a d s h a l l be reported to the Com-mission and s h a l l be subject to r e v i s i o n . 5 . The motor service s h a l l be subject to such further s p e c i f i c conditions as the Commission i n the future may fin d i t neces-sary to enforce, i n order to ensure that i t w i l l remain a u x i l i a r y and supplemental to the r a i l service. " The o r i g i n a l conditions were set i n 1938, but i n 1941 , on reconsideration, the Commission substituted f o r con-d i t i o n No.3, which required p r i o r or subsequent movement by r a i l , a so-called key point condition, stated as follows: " No shipment s h a l l be transported by applicant as a common c a r r i e r by motor vehicle between any of the following points, or through or to or from more than one of said points: Kansas City, Hume, and J o p l i n Mo., Pittsburg, Kansas, Shreveport and Lake Charles, La., Beaumont, Tex., Texaskana, Ark - Tex. and Port Smith Ark. " (28 M.C.C. 5 , P. 2 5 ) . The keypoints were selected as usual break-bulk points and the intention was to prevent t r a f f i c being moved by the r a i l a f f i l i a t e d motor c a r r i e r over substantial distances. Thus, i n common language the following conditions were established. The f i r s t condition, the supplemental or a u x i l i a r y require-ment, i n e f f e c t means that a l l t r a f f i c moved by the motor 'So c a r r i e r must move on r a i l rates and b i l l i n g . I t may not move, as highway business generally does, on truck rates and b i l l i n g . The second condition prevents business being handled to a point not a r a i l station. The th i r d condition i s either the p r i o r or subsequent r a i l haul requirement or the key point r e s t r i c t i o n . Railroads l o t Subject to Regulation State statutes usually make no d i s t i n c t i o n between rail-owned motor c a r r i e r s and other motor c a r r i e r s , with . the r e s u l t that r a i l motor subsidiaries can move intrastate t r a f f i c under the same conditions as the i r competition and common ownership between companies engaged i n d i f f e r e n t modes i s permissible. R a i l a f f i l i a t e d companies which were conducting a general trucking business at the time of the adoption of the Motor Carrier Act of 1935 have "grand-father" r i g h t s i n respect of the t r a f f i c so conducted, and can continue such business without any of the r e s t r i c t i o n s which have been considered. At the present time the I.C.C. occasionally grants c e r t i f i c a t e * to r a i l a f f i l i a t e d motor c a r r i e r s to engage i n certain trucking operations free from the usual r e s t r i c t i o n s where the transportation ser-vice i s li m i t e d i n scope and Is unattractive to other truckers. Also, i n certain other areas such as the hauling of mail or exempt commodities, authority from the I.C.C. i s not required and the rail-motor c a r r i e r i s free to operate without 81 " r e s t r i c t i o n . Some of the r a i l r o a d s have had very extensile grandfather r i g h t s for many years. For example the Northern P a c i f i c Railway Oo. also operates the Northern P a c i f i c Trans-port Co. which has f u l l grandfather r i g h t s i n the State of Montana where the r a i l r o a d serves. In Montana they operate a f u l l y integrated service and have since 1927. As an unrestricted motor c a r r i e r they join i n through routes and rates, p a r t i c i p a t e i n motor c a r r i e r bureau t a r i f f s and enjoy free interchange of t r a f f i c with other motor c a r r i e r s . They also have r e s t r i c t e d r i g h t s which permit them to operate between Missoula on one hand and Portland, Oregon, Seattle, Tacoma, Washington on the other under key point r e s t r i c t i o n s . Mr. Robert S. MacParlane, President, has described -1 ,-the e f f e c t of the Northern P a c i f i c Transport Co. J j " From 1930 to 1958, the population of our 6 p r i n c i p a l States served by my company increased from 6 , 7 4 5 , 0 0 0 people to 9 , 9 1 7 , 0 0 0 an increase of 47 per cent. The number of production workers i n these six States 5 4 . 2 3 per cent. The value added by manu-facturing increased 3 9 9 . 6 percent and personal incomes increased from § 3 , 7 6 0 m i l l i o n to #18,552 m i l l i o n , an increase of 3 9 3 . 4 per cent. During the period from 1925 to 1930, we handled only 24,420,000 tons of revenue f r e i g h t . In 1925, we handled 5 7 5 , 0 0 0 tons of less-than-carload l o t f r e i g h t , but i n 1958, we handled only 9 5 , 9 8 2 tons of t h i s t r a f f i c . During the postwar period, the revenue f r e i g h t tonnage handled on the Northern P a c i f i c has actually declined from 2 7 , 3 3 7 , 0 0 tons handled i n 1956 to the 24,420,000 tons handled In 1958. At the same time, the motor c a r r i e r s operating i n 8 2 the t e r r i t o r y we serve have had a phenomenal growth. Taking the 18 p r i n c i p a l motor c a r r i e r s that compete with the Northern P a c i f i c , we f i n d that from 1947 to 1958^ t h e i r combined revenues increased from $46. ->\ \ ., 146,911,000 to # 1 9 6 , 2 1 9 , 0 0 0 , or 318.28 . per cent. . ... The history of 27 years of operations by the Northern P a c i f i c Trans-port Company i n the State of Montana proves that a r a i l r o a d controlled motor c a r r i e r , operating without r e s t r i c t i o n , can provide a much improved co-ordinated r a i l and highway service without r e s t r a i n i n g to any extent motor c a r r i e r competition. " Another company with extensive trucking operations i s the Southern P a c i f i c Railroad. A subsidiary company, the P a c i f i c Motor Trucking Company, i s engaged i n the busi-ness of operating motor trucks i n the States of Oregon, C a l i f o r n i a , Nevada, Arizona and Texas (to E l Paso). In 1959 i t owned and operated 4 , 3 3 5 units of equipment over 14 ,666 miles of unduplicated authorized route. Its operat-ing r i g h t s generally p a r a l l e l the r a i l operations of Southern P a c i f i c Co. and i s authorized to serve a few points i n off r a i l t e r r i t o r y t r ibutary to the Southern P a c i f i c . With the exception of several operating r i g h t s acquired by purchase and a few r e l a t i v e l y minor truck operations conducted p r i o r to the grandfather date of the Motor Carrier Act i n 1935, i t s i n t e r s t a t e operating r i g h t s are r e s t r i c t e d to the trans-portation of t r a f f i c moving on r a i l rates and b i l l i n g . Con-versly, p r a c t i c a l l y a l l of P a c i f i c Motor Trucking Co.'s State operating ri g h t s are not so r e s t r i c t e d . 83" The motor service furnished by P a c i f i c has grown to be an essential part of the Southern P a c i f i c ' s r a i l ser-vice. I t has been used to provide a u x i l i a r y services to just about the f u l l e s t extent possible. Today door to door service i s offered at 2,024 stations on the l i n e s of the Southern P a c i f i c . The Southern P a c i f i c inaugurated piggy-back services i n 1953 and b u i l t many loading ramps at termi-nals along i t s route. In addition to providing terminal service between piggyback ramps and the shippers door, P a c i f i c provides substitute service over the highway to adjoining points where the t r a i n service i s too slow or infrequent, or where volume of t r a f f i c i s not s u f f i c i e n t to j u s t i f y construction of a ramp. Rest r i c t i o n s on Rail-Truck Carriage Key-point and subsequent haul r e s t r i c t i o n s are es-p e c i a l l y bothersome to the r a i l r o a d s . For example i n the case of the Southern P a c i f i c because service must be confined to that which i s a u x i l i a r y to or supplemental of r a i l ser-vice, they are not able to o f f e r truck service d i r e c t l y to the public. This r e s u l t s i n i n a b i l i t y to enter into j o i n t rates with other truck l i n e s serving points beyond the scope of t h e i r operating authority. Thus they cannot offer the shipper a continuation of truck service beyond points on the r a i l l i n e . Condition requiring observance of key points or 8if application of the alternative condition requiring that t r a f f i c transported by motortruck must have p r i o r or subse-quent r a i l haul also create problems for the Southern P a c i f i c because they set up a ba r r i e r l i m i t i n g the length of haul for which substitute service can be provided. Under such conditions, substitute service cannot be provided between p r i n c i p a l terminals, the length of highway haul i s reduced which r e s u l t s i n uneconomical operation of r a i l equipment where highway equipment could be used more advantageously. As an example of t h i s , San Francisco and Stockton, C a l i f . , which are approximately 70 miles apart, are key points. The P a c i f i c Motor Co. operates trucks between them d a i l y f o r the transportation of truck-and r a i l - b i l l e d State t r a f f i c . Because of t h i s key point r e s t r i c t i o n , i t i s necessary to continue the operation of a r a i l car f o r handling the small amount of available int e r s t a t e t r a f f i c . This r e s u l t s i n both assignment of a r a i l car to a service which i s uneco-nomic and i n e f f i c i e n t use of truck equipment. Key-point and other conditions on interstate operat-ing r i g h t s also handicap r a i l - t r u c k subsidiaries from being u t i l i z e d to t h e i r f u l l e s t extent i n making piggyback service more f l e x i b l e , p a r t i c u l a r l y i n r e l a t i o n to providing substi-tute service f o r the r a i l r o a d . Door-to-door service and speed are the essence of piggyback service. It i s not unusual f o r a shipper to require a piggyback shipment to be at the destination p r i o r to t r a i n a r r i v a l and a highway 85 tractor cannot be used to accomplish this on interstate t r a f -f i c because of the key-point r e s t r i c t i o n s . Shippers also demand a through truck service today and not a co-ordinated r a i l - t r u c k service using a r a i l car f o r part of the haul and a truck f o r part of the haul because of the necessity of transferring the lading. While a shipper can tender f r e i g h t to a r e s t r i c t e d r a i l motortruck c a r r i e r f o r part of the journey, because of key point and p r i o r and subsequent r a i l haul r e s t r i c t i o n s he prefers to use an independent c a r r i e r who can provide the entire service without transfer of lading. The condition l i m i t i n g service to pointw which are r a i l stations also l i m i t s highway transport of piggyback t r a f f i c to plants within the terminal area of a r a i l station. If a shipper i s not within such an area, he i s barred from using r a i l piggyback service. The New York Central also i s heavily endowed with key point r e s t r i c t i o n s - 46 a l l t o l d . Mr. Perlman, P r e s i -dent of the N.Y.C., has described the eff e c t of two of these 9>'V key point r e s t r i c t i o n s : ^ " For example, when we have less-Hhan-car load f r e i g h t i n our f r e i g h t house i n New York City and we would l i k e to move i t overnight to Albany rather than take 2 days by putting i t into a boxcar, taking i t up there and getting i t back out and a l l , we are not allowed to take that with our own trucks from New York to Albany. We are one of the largest taxpayers i n the State of New York and we cannot carry that f r e i g h t — with our own motorway service. " 86 Mr. Wayne 1 . Johnston, president of the I l l i n o i s Central Railroad has described the effect of r e s t r i c t i o n s on the company's trucking subsidiary. " P a r t i c u l a r l y r e s t r i c t i v e Is the requirement that what we carry i n our trucks must have a p r i o r or subsequent haul by r a i l . We cannot move shipments i n our trucks to, from, through or between more than two keypoints, of which there are 27 on our r a i l r o a d . The p r i o r or subsequent r a i l haul r e s t r i c -tions, and the keypoint r e s t r i c t i o n s , are p a r t i c u l a r l y burdensome, because as a r e s u l t of them much t r a f f i c cannot be handled by truck at a l l . For i l l u s t r a t i o n , we have a truck operating d a i l y from Jackson, Miss, to Vickesburg, Miss., thence north to Charlesdale, Miss. When inter s t a t e f r e i g h t arrives by r a i l r o a d at Jackson, destined to points north of Vicksburg on our trucfe route, we cannot move such shipments on from Jackson to destination i n the truck we have leaving that day. Because of the keypoint r e s t r i c t i o n i n our c e r t i f i c a t e , we cannot move thi s f r e i g h t the 50 miles from Jackson to Vicks-burg on our truck. We are compelled by this r e s t r i c t i o n to put these shipments i n ','~. s box car at Jackson and move them by r a i l to Vicksburg, and then, when the truck from Jackson arrives at Vicksburg the following day, put those shipments i n the truck at Vicksburg. A l l t h i s shadow-boxing of course means one or two days' delay. " The various conditions and r e s t r i c t i o n s that are applied to the r a i l r o a d s i n the i r use of motor c a r r i e r s create i n e f f i c i e n c y and waste and l i m i t the usefulness of the truck to the r a i l r o a d . While some of these r e s t r i c t i o n s are necessary from a regulatory point of view, many of them are just of nuisance value to the r a i l r o a d s . Furthermore 87 they are discriminatory i n that only the railroads, are sim-i l a r l y r e s t r i c t e d and they are discriminatory among the various railroads i n that some have unrestricted rights and others do not. Because of t h i s various changes have been suggested i n recent years. Possible Changes i n Policy The railroads have continuously lobbied f o r great-er freedom i n operating motor - truck a f f i l i a t e s . The "Doyle" report recommended continuation of the general p o l i c y of r e s t r i c t i n g common ownership: ^ " Conversely, however, to permit the1 railroads ( some of which have access to almost vast cap-i t a l resources ) to own or acquire other modes of transportation might very possibly convert our present transportation system into a system of huge and few transportation companies.. A good argument might well have been made i n f a -vor of such transportation companies, as they exist i n Canada and i n other countries, at the time the newer competing modes of transportation . were getting started i n the 1930's. However, i t would seem that the far-reaching upheaval In the present competitive s i t u a t i o n that might take place i f we were: to adopt such l e g i s l a t i o n today would assume the proportions of unscrambling an egg. " It also recommended, however, that the regulatory agencies be allowed to grant common ownership priveleges to companies for a " t e s t " period of three years. At the end of the three year period the company would have to 88 e s t a b l i s h , to the s a t i s f a c t i o n of the regulatory agency that i t s license to continue operations should be extended i f t h e i r operation has shown i t s e l f to be i n the in t e r e s t of the public. Other recent statements indicate' that a change i n regulatory p o l i c y might soon be i n order. President Johnson, i n h is Department of Transportation Message, stated that the United States lacks a co-ordinated transportation system that permits e f f i c i e n t movement of goods from one mode*to another using the best c h a r a c t e r i s t i c s of each mode:"We must c l e a r away the i n s t i t u t i o n a l and p o l i t i c a l b a r r i e r s which impede adaptation and change." In January of 1 9 6 6 , the Report of the President's Council of Economic Advisors stated the following: " New technological opportunities could be f u l l y exploited by removing obstacles to combina-tions of modes of transport and by more ready acceptance of shipper and c a r r i e r — owned equipment by railro a d s and motor c a r r i e r s . " Alan S. Boyd, Secretary of Transportation, has made several comments on common ownership. In a recent 7 speech, Secretary Boyd said: ' -"• So i n an immediate sense, we f e e l that the greatest transportation progress w i l l consist of integrative and consolidating measures at the so-called tranfer points. Of course, the i n h i b i t i n g factors which lower intermodal ef-f i c i e n c y are not exclusively texEhnolog 1 c a l r they are often i n s t i t u t i o n a l . Fb"r •example, there 89 would have to be some statutory changes before the f u l l co-ordination a r i s i n g from common ownership of sveral modes would be possible. I do not regard that as a t e r r i t o r y forbidden to contemplation. 11 However i n a recent interview with Railway Age, Mr Boyd had the following to say when asked about the Department of Transportation's p o s i t i o n on common ownership: » We have not taken any pos i t i o n . There i s no work project i n the o f f i c e looking at the. ques-t i o n . We don't see, at the moment, any reason to devote our resources to working on a position. This i s an area of vast interest where- the impact w i l l be of such *a major nature i f there are changes i n the law, and where there i s not a c r i t i c a l s i t u a t i o n as I see i t today - and where i t seems to me that t h i s should be a bubble - up sort of development of attitude, rather than a t r i c k l e - down from the department. " 8 One Change i n Policy Prior to T967 the C i v i l Aeronautics Board had re-s t r i c t e d surface c a r r i e r s from owning in t e r e s t i n a i r c a r r i e r s . The C.A.B. expressed the b e l i e f that surface c a r r i e r s , i f allowed to get into a i r carriage, would emphasize t h e i r surface transportation interests and would not wholeheartedly develop the a i r operations. The Board adopted the p r i n c i p l e that the operations must be shown to be supplementary to the service of the surface c a r r i e r s and also an i n t e g r a l part of that service. One exception had been allowed over the years - t.the Railway Express Agency, which pioneered i n a i r express. I t began moving express i n a i r service i n 1929 90 and continues to do so to t h i s day. I t has, however, been denied the r i g h t to engage i n a i r f r e i g h t and i n a i r f r e i g h t forwarder transportation. In September 1967, the C.A.B. authorized three major motor c a r r i e r s 4 c P a c i f i c Intermountain Express, Consolidated Freightways and Navajo Freight Lines - to o f f e r a i r f r e i g h t forwarding service, either d i r e c t l y or through subsidiary firms. In i t s decision i t allowed; these three companies to go into the. a i r f r e i g h t forwarding business on a f i v e year test basis. In reaching the-9 decision (five-to-one) the Board said: " Our purpose i n i n s t i t u t i n g t h i s invest-i g a t i o n was to determine whether the t r a d i t i o n a l r e s t r i c t i o n s on surface c a r r i e r s have become out-moded. As the record shows, the economies of the. dynamic a i r cargo industry have: changed dras-t i c a l l y since those r e s t r i c t i o n s were f i r s t evol-ved. Upon the-basis of current f a c t s , the exam-iner concludes after exhaustive analysis that the applicants' entry w i l l not lead to the- i l l s which persuaded the Board to deny forwarder 1 au-t h o r i t y to some motor c a r r i e r s i n the past. By the; same token, t h i s decision should increase' the intermodal carriage of f r e i g h t by a i r and truck. The chief reason for the anemic growth of such intermadal carriage to date may well be the lack of economic incentive f o r surface c a r r i e r s — the lack of any reward fo r them with respect to that part of the journey that would be performed by a i r . When the incentive i s provided, matters of intermodal co-ordination - easing and f a c i l -i t a t i n g the movement of freight, between transport modes - w i l l be manageable. " The one dissenter, Vice Chairman Robert T. Murphy sees the decision i n the following way : 1 0 91 H F i r . s t , i t s h o u l d b e n o t e d t h a t t h i s c a s e h a s n o t h i n g t o d o w i t h e n h a n c i n g i n t e r m o d a l c o - o r d i n a t i o n - e a s i n g a n d f a c i l i t a t i n g t h e m o v e m e n t o f f r e i g h t b e t w e e n t r a n s p o r t m o d e s . O t h e r p r o c e d u r e s a r e a v a i l a b l e , o r c a n b e c r e a t e d , t o t h a t v e r y w o r t h - w h i l e e n d a n d n o o n e s e r i o u s l y s u g g e s t s t h e c o n t r a r y . T h u s , t h e a p p l i c a n t s , a s t r u c k e r s , c o m e b e f o r e u s w i t h n o f a v o r e d s t a t u s o t h e r t h a n t h e i r a c -k n o w l e d g e d e c o n o m i c s t r e n g t h a n d s u r f a c e e x p e r i e n c e . " I n J u l y 1967, t h e S o u t h e r n P a c i f i c R a i l r o a d a s k e d t h e C . A . B . f o r a u t h o r i t y t h a t w o u l d a l l o w t h e m t o p r o v i d e d o m e s t i c a n d i n t e r n a t i o n a l a i r f r e i g h t f o r w a r d i n g s e r v i c e a t m o r e t h a n 3 , 0 0 0 c i t i e s i n t h e . w e s t e r n a n d s o u t h w e s t e r n s t a t e s . I n t h e p a s t S o u t h e r n P a c i f i c h a s d i v e r s i f i e d w i d e l y - i n a d d i t i o n t o t r a i n , t r u c k a n d p i g g y b a c k o p e r a t i o n s , i t m a i n t a i n s r e f i n e d p e t r o l e u m p i p e l i n e s . I t a l s o h a s a n -n o u n c e d p l a n s f o r a 275 - m i l e c o a l s l u r r y p i p e l i n e , w h i c h i s o n e o f t h e l a r g e s t y e t c o n c e i v e d . T h e S o u t h e r n P a c i f i c p l a n s t o u s e e x t e n s i v e t r u c k s e r v i c e i n c o n n e c t i o n w i t h i t s a i r f o r w a r d i n g o p e r a t i o n s , m o v i n g a i r f r e i g h t t o a n d f r o m p o i n t s w i t h i n 25 m i l e s o f o n e o f t h e 63 a i r p o r t s s e r v e d b y s c h e d u l e d a i r l i n e s e i t h e r i n t r u c k s o p e r a t e d b y t h e a i r f r e i g h t f o r w a r d i n g o p e r a t i o n , o r b y o n e o f S o u t h e r n P a c i f i c ' s t h r e e m o t o r c a r r i e r s u b s i d i -a r i e s . T h e y p l a n ^ t o e s t a b l i s h i n t e r m o d a l p o o l s o f c o n t a i n e r s f o r a i r f r e i g h t f o r w a r d i n g , t r u c k s : a n d r a i l o p e r a t i o n s w h i c h w o u l d m a k e i t p o s s i b l e f o r a c o n t a i n e r t o b e f i l l e d w i t h a i r f r e i g h t a n d f l o w n t o o n e d e s t i n a t i o n , r e f i l l e d w i t h r a i l f r e i g h t f o r a t h i r d p o i n t . S u c h a s y s t e m w o u l d 92 a l l e v i a t e the need for- planes to move empty containers from one point to another simply to balance supply. So f a r the i r application has not been approved by the C.A.B. Summary Although r e s t r i c t i o n s against common ownership i n the United States have been maintained i n areas of r a i l r o a d i n t e r e s t , there are signs that regulatory p o l i c y may change more i n favor of allowing common ownership i n the near future. While- i t cannot be expected that l e g -i s l a t i o n w i l l be passed allowing the railroads to f r e e l y own and operate other c a r r i e r s , there- may be a l i b e r -a l i z a t i o n of r e s t r i c t i o n s on the part of the regulatory bodies i n the interest of the r a i l r o a d s . Perhaps the Southern p a c i f i c A i r Forwarding operation w i l l be a l -lowed on a f i v e year test basis by the C.A.B. 93 Common Ownership i n Great B r i t a i n - History The f i r s t part of the B r i t i s h Transport Act of 19*+7, set up a body c a l l e d the B r i t i s h Transport Commission with the general duty " to provide an e f f i c i e n t , adequate, economical and properly integrated system of public 11 inland transport and road f a c i l i t i e s " The B.T.C. was given the authority to carry goods by road, r a i l and inland waterways. I t was, however, prohibited from operating t a x i s and maintenance f a c i l i t i e s f o r cars except as a purely a n c i l -l a r y service to t h e i r main operations. The r e s p o n s i b i l i t y to operate the transportation system was put under f i v e separate executives covering railways, dock and inland waterways, road transport and hotels. Prior to the Act the railways were decentralized under four separate ownerships. After the Act a l l financing was centralized and operations were divided into six regions. Prior to enactment of the 19*+7 Transport Act the motor c a r r i e r industry had been highly competitive and made up of small owners. A certa i n amount of competition was maintained by "A" li c e n s e operators, who were small oper-ators who had a p r i o r right to t r a f f i c they had handled for years, and "B" license operators who transported goods for the r a i l r o a d under a n c i l l a r y arrangements. They were allowed to continue hauling within a 25 mile radius of t h e i r operating 9^ bases. The Act also contained two other provisions to prevent the shipper from being exploited by a public transport monopoly. I t had one that would allow the shippers" to complain to the executive and another that allowed complete, freedom for the shipper, t o engage i n private trucking under a "C" li c e n s e . F a i l u r e of the System The Transportation Act of 1956 disbanded the B r i t i s h Road Services and the assets, were sold o f f y l ^ with the exception of 7 , 0 0 0 trucks, to maintain the trunk network. The main problem with the; Act of 19^7 was that i t di d not r e s t r i c t i n any way the> granting of "C" li c e n s e s . The business community , against n a t i o n a l i z a t i o n , invested heavily i n their, own transport f a c i l i t i e s . To make matters: worse-, s t r i c t control over railway charges was- maintained and nothing was done to r e l i e v e the; railways of statutory and other- f i n a n c i a l burdens inherited from t h e i r monopoly days. F i n a l l y the growth of the; motor' industry was encour-aged and railway modernization delayed.. As a re s u l t the B r i t i s h Transport Commission was a f a i l u r e . As- mentioned i n the previous chapter, the railway haulage executive concentrated on the; most l u c r a t i v e of truck transportation - the; long haul, when the; main idea i n n a t i o n a l i z i n g the. motor: c a r r i e r industry was to achieve better u t i l i z a t i o n of the' r a i l r o a d f a c i l i t i e s through co-ordination. The r e a l problem i n nationalizing road transport 95 d i d not. arise from the size, of the organization ( about Vl , 0 0 0 v e h i c l e s ) , or the type of ownership, i t was the ele-ment of exclusive monopoly, enjoyed by the road haulage executive, over public long distance: carriage by road. That monopoly could have been destroyed by the B r i t i s h Government by l i f t i n g the 2.5 l i m i t from the holders: of "A",."B" or. "Cl,: licenses;. Motor c a r r i e r transport would then have been opened to private competition without losing the technical e f f i c i e n c y of the co-ordination scheme o r i g i n a l l y intended. B a s i c a l l y the problem with the. completely nation-a l i z e d transportation system was that the government did not t r y to foresee t h e * d i f f i c u l t i e s that might arise by suddenly changing the; e n t i r e system. They did not invest i n the modernization of r a i l r o a d f a c i l i t i e s and co-ordinated term-i n a l s . More important, they l e t the Road Haulage executive operate: e s s e n t i a l l y as an autonomous body and did not put enough safeguards, into the- system to assure co-ordination between r a i l and road management.. As a r e s u l t the f i n a n c i a l p l i g h t of the: r a i l r o a d continued and. road transport f l o u r -ished, e s p e c i a l l y i n the private sector. Also road-rail, r e l a t i o n s have now become, i n c i d e n t a l to the struggle between public and private transport. Summary The B r i t i s h System was characterized by p r a c t i c a l l y a t o t a l elimination of competition i n areas of transport 96 over- 25 miles, i n length, with the: exception of private transport. This: resulted i n u n d e r u t i l i z a t i o n of the r a i l -way plant: and consequent fail u r e ; of the system. Although the basic objective i n n a t i o n a l i z i n g the system was to achieve: better coordination between the various modes, t h i s objective was not attained due, to poor' planning. In the United States, on the= other hand, competition Is maintained i n a \irasteful manner i n c e r t a i n areas and good coordination has not been achieved. F O O T N O T E S 1. Transportation D i v e r s i f i c a t i o n , op. c i t . p. 113 2. Transportation D i v e r s i f i c a t i o n , op. c i t . p. 95 3'. Transportation D i v e r s i f i c a t i o n , op. c i t . p. 76 if. " Doyle" Report , op. c i t . p. 5. Department of Transportation Message; , H. Doc. No. 399 8 9 t h Cong., 2nd Sess., supra, p. h 6. Economic Report: of the. President together with the Annual Report of the Council of Economic Advisors, January 1:966, H. Doc. No. 3 ^ 8 , 8 9 t h Cong., 2nd Sess. 7 . Remarls by A l l a n S. Boyd, Secretary of Transportation, Prepared for' Delivery before the National Transportation I n s t i t u t e of the Transportation Association of America, Conrad Hil t o n Hotel, Chicago, 1 1 1 . Feb. t, T967 8 . "The. Future : of. Railroads^.. Interview with. Alan S. BoydV ' " ' 7 ' " ' " " ' Railway"' Age"", Feb.' '5, ' 1968'.' p.18 9. " Viewpoint - An Intermodal Thaw i n Washington ", Railway Age;, Oct. 2 , 1:967, p. 38 1 0 . - " C.A.B. Authorizes Long - Haul Motor Carriers to Enter A i r Freight Forwarding Business", T r a f f i c World, Sept 3 0 , 1967, p. 11.. K.M. .Gwilliam, Transport and Public Policy, Department o f I n d u s t r i a l Ecom., George Allen& Unwin Ltd., Ruskin House, t96V, p. 9*f "97 C H A P T E R . 5 COMMON OWNERSHIP IN CANADA The railways have always been free, to acquire interest#in other forms of transportation i n Canada. In fact, i n the early 1:920's the r a i l r o a d s f i r s t began to ac-quire trucks f o r the short haul movement of express and less than carload l o t s . P r i o r to t h i s the. railroads owned drays and cartage companies. At t h i s time a l l vehicles were used i n a s t r i c t l y a n c i l l a r y sense to the r a i l r o a d s . In the l a s t t h i r t y years, however, both the C.N.R. and the C.P.R. have acquired more and more trucks as competition from the motor • c a r r i e r industry has increased. Because of t h i s , recent Royal Commissions have looked into the question of railway ownership of trucks. The Lessard Commission had the following comment on the fear of the railro a d s monopolizing road.transport: 1 We can f i n d no evidence that t h i s large ownership w i l l , except f o r very short periods, lead to higher prices f o r truck transport. Such & a b r i e f w i n d f a l l can exist f o r any- truck owner. If the danger i s r e a l , the p r i n c i p l e s enunciated below fo r s i g n i f i c a n t monopoly can be applied, and the r e s t r i c t i v e trade practices l e g i s l a t i o n invoked. We have stated that, with free entry, and the ever present p o s s i b i l i t y of private trucking, the structure of the trucking industry i s such that e f f e c t i v e monopoly i n prices cannot p e r s i s t . With competition thus protecting shippers, the only other disadvantage of large scale trucking l i e s i n the danger that i t poses to the independent truckers. This danger can only p e r s i s t i f railway ownership i s more e f f i c i e n t than either independent or private trucking. E f f i c i e n c y should not be penal* ized. However railway ownership of truck l i n e s 98 involves two p o l i c y recommendations concerning t h i s d i v e r s i f i c a t i o n . The f i r s t concerns the r e a l economic advantages of combining road and r a i l f a c i l i t i e s . To the extent that these e x i s t , r a i l -ways must be required to o f f e r to a l l truckers r a i l f a c i l i t i e s at prices and under conditions the same as are offered to rail-owned trucks The second recommendation concerns the p o s s i b i l i t y of hidden subsidies from r a i l assets or income to trucking operations or vice-versa. The Board must be given authority to require the railways to keep s t r i c t l y separate accountihg of t h e i r operations intermodally. The costing section of the Board of Transport Commissioners must be able at a l l times to provide the Commissioners with pertinent cost separations; f o r r a i l and road operations of the railway company. Under these conditions and with the p o s s i b i l i t y of l e g i s l a t i v e or regulatory r e s t r a i n t , we see no reasons to l i m i t the entrance of railway into any mode of transport. " The HacPherson Commission ^ noted the: increase: i n r a i l . owned trucking also. They pointed out that, i n general truck l i n e s purchased by the railways: have continued to operate as subsidiaries of the r a i l r o a d . They also noted that trucks used by the: railways are not used e f f e c t i v e l y as feeder services to r a i l box cars and there seems to be l i t t l e i n d i c a t i o n that trucks can be co-ordinated e f f e c t i v e l y i n a feeder role f o r piggyback operations. An i n t e r e s t i n g f a c i t of the operation of trucks by the r a i l r o a d s was pointed out by the Commission. In becoming part of a very large r a i l - t r u c k complex,, the inherent f l e x -i b i l i t y of the independent trucking firm i s reduced, even though t h e i r operations are l a r g e l y independent of the r a i l r o a d s . Because they do coordinate t h e i r operations to some degree, with these of the railway and other a n c i l l a r y trucking firms, they lose some of the important advantages of small firm decision-making. This i s true where* the railway 99 firm t r i e s to provide special services to a shipper. Also there i s evidence that the various Provincial.regulatory bodies have objections to the railways acquiring interest i n trucking firms. On the monopoly question the Macpherson Commission had the following to say: Independent trucking firms showed some con-- : cern about t h i s growth of rail-owned trucking. Information obtained i n the survey indicated t h e i r concern was mainly that t h i s could lead to some degree of monopoly of surface transport by the railways. Several reported losing some t r a f f i c to r a i l trucking because of the extra bargaining power imputed to the railways. But most of them were less concerned with present disadvantages than with future prospects i n t h i s respect. Taking account of the handicaps, discussed above, which rail-owned trucking faces i n future competition with Indepen-dent truckers, there may be less cause f o r concern than the l a t t e r anticipated. But future trends i n public p o l i c y with respect to. further purchases of independent trucking franchises and the exten-sion of exis t i n g franchises was looked upon as a c r i t i c a l determinant of t h i s . Highway operations of rail-owned trucking may be expected to increase. But the growth of these I n t e r c i t y highway operations of the railways may not be as rapid as that of i n -dependent trucking because of the i n f l e x i b i l i t i e s that attach to integration of highway and r a i l op-erations. Future highway operations, by the railways may be affected also by the freedom they are allowed i n extending t h e i r present franchises and i n t h e i r purchases of additional truck l i n e s . Overall, the evidence does not suggest that the competitive strength of independent trucking has been or w i l l be s i g n i f i c a n t l y x-reakehed by the railways' progressive improvements. Thus fa r these improvements have not closed the gap In services rapidly enough to prevent an increasing loss of t r a f f i c to independent trucking. Indeed the gap may well widen during the next decade " 3 100 In 1967 the National Transportation Act was passed and i n the Act protection f o r the truckers against rate d i s -crimination or predatory rates has been established i n the following way: ^ » Sec. 16 i2) Where a person has reason to believe (a) that any act or omission of a c a r r i e r or of any two or more c a r r i e r s , or (b) that the effect of any rate established by a c a r r i e r or c a r r i e r s may p r e j u d j c a l l y a a f f e c t the public interest i n respect of t o l l s for or conditions of the car-riage of t r a f f i c ^ w i t h i n , into or from Canada, such person may applet to the (Canadian Transport) Com-mission f o r leave to appeal the act, omission or rate,- and the Commission s h a l l , i f i t i s s a t i s f i e d that a prima f a c i e case has been made, make such investi g a t i o n as i n i t s opinion i s warrented. (3) In conducting an i n v e s t i g a t i o n under t h i s section, the Commission s h a l l have regard to a l l considerations that appear to be relevant, including, without l i m i t i n g the generality of the foregoing, (a) whether the t o l l s or conditions s p e c i f i e d f o r the carriage of t r a f f i c under the rate so established are such to create ( i ) an un-f a i r disadvantage beyond any disadvantage that may be deemed to be inherent i n the l o c a t i o n or volume of the t r a f f i c , the scale of operation con-nected therewith or the type of t r a f f i c or service involved, or ( l i ) an undue obstacle to the i n t e r -change of commodities between points i n Canada or an unreasonable discouragement to the development of primary or secondary industries or to export trade i n or from any region of Canada or the move-ment of commodities through Canadian ports; or (b) whether control by, or i n the interests of a car-r i e r i n , another form of transportation services may be involved. (h) I f the Commission, after a hearing finds that the act, omission or rate i n respect of which the appeal i s made i s p r e j u d i c i a l to the' public i n -terest, the Commission may... .make, an ordering requiring a c a r r i e r to remove such p r e j u d i c i a l feature 101 i n the relevant t o l l s or conditions s p e c i f i e d for the carriage of t r a f f i c or such other order as£a i n the circumstances It may consider proper, or i t may report to the Governor i n Council f o r any action that i s considered .appropriate. I f a trucker could not obtain s a t i s f a c t i o n f o r grievances against the r a i l r o a d under t h i s section of the act , i t i s possible to protest any proposed a c q u i s i t i o n of a trucking company by a r a i l r o a d under section 20 of the Transportation Act of 196? . I t reads as follows: ^ "(1)A railway company, commodity pipeline company, water transportation company or person operating a motor vehicle undertaking or an a i r c a r r i e r .... that proposes to acquire, d i r e c t l y or i n d i -r e c t l y , an in t e r e s t , by purchase, lease, merger, consolidation or otherwise, i n the business or undertaking of any person whose p r i n c i p l e business i s transportation, whether or not such business or undertaking i s subject, to the j u r i s d i c t i o n of Parliament, s h a l l give notice of the proposal to the Commission. (2) The Commission s h a l l give...... such public or other notice of any proposed ac-q u i s i t i o n .... as It appears to be reasonable under the circumstances, including notice to the Director of Investigation and Research under the' Combines Investigation Act:. (3) Any person a f f e c t -ed by a proposed a c q u i s i t i o n .... or any association .... representing c a r r i e r s or transportation under-takings affected by the ac q u i s i t i o n may, within such time as prescribed by the Commission, object to the Commission against such a c q u i s i t i o n on the grounds that i t w i l l unduly r e s t r a i n or otherwise be p r e j u d i c i a l to the public i n t e r e s t , (h) Where objection i s made....the Commission (a) s h a l l make such Investigation, including the holding of public hearings, as i n i t s opinion i s necessary or desira-M s ble i n the public i n t e r e s t ; (b) may disallow such ( a c q u i s i t i o n i f i n the opinion of the Commission such a c q u i s i t i o n w i l l unduly r e s t r i c t competition or otherwise be p r e j u d i c i a l to the public i n t e r e s t ; and any such a c q u i s i t i o n .... within the time l i m i t -ed therefore by the Commission ... i s void " 102 I f the Board rules that a c e r t a i n a c q u i s i t i o n i s not i n the public i n t e r e s t , the company i n question would s t i l l have the r i g h t of appeal to the Supreme- Court of Canada andilto the Cabinet. The idea of t h i s l e g i s l a t i o n i s not to prevent co-ordination, I t should tend to assure that co-ordination i s the primary interest of the purchaser. So f a r no r e s t r i c t i o n s have been placed on the r a i l r o a d s by the Commissioners under the auspices of t h i s Act, but there; have been cases i n P r o v i n c i a l Courts:, which w i l l be discussed l a t e r . Canadian P a c i f i c - A Transportation Company Canadian P a c i f i c Railroad takes pride i n being described as " the world's most complete transportation system". A l l i i n a l l i t serves both passenger and f r e i g h t customers over 85 , 0 0 0 .miles of integrated routes by land, sea and a i r , operating on f i v e continents. I t Is the largest p r i v a t e l y owned transportation company i n the world and the largest p r i v a t e l y owned r a i l r o a d outside of the United States, with 21,000 miles of r a i l r o a d i n both countries. It i s Worth America's t h i r d largest truck and truck orient-ed organization, operating on about 21,000 miles of truck routes. I t also owns an international a i r l i n e , operates steamships and owns a large i n t e r e s t i n a p i p e l i n e . In i t s other d i v i s i o n s , Canadian P a c i f i c owns eleven hotels, run's Canada's largest o i l and gas company, owns 85^,000 acres of choice farmland, vast forest preserves 103 i n B r i t i s h Columbia, thousands of acres of mineral deposits i n the Northwest T e r r i t o r i e s , and major holdings i n Cominco, a mining and smelting company. It also has t i t l e - to many acres of expensive downtown r e a l estate i n c i t i e s across Canada, which, a l l - i n - a l l make i t a t r u i y . d i v e r s i f i e d com-pany. Despite i t s m u l t i - f a c i t e d operation, Canadian P a c i f i c i s f i r s t a transportation company. With the open-ing of the transcontinental r a i l l i n e i n 1 8 8 6 , a vessel chartered by Canadian P a c i f i c s a i l e d with tea from Yoko-hama to Vancouver where i t was transshipped f o r delivery to Eastern Canada. Then i n 1 8 9 1 , Canadian P a c i f i c started a one-carrier mail service between the Orient and Great B r i t a i n , using the railway as a "land bridge" and thus reducing the time i n t r a n s i t by more than two weeks, as compared to the d i r e c t sea route. In early years Canadian P a c i f i c conducted many services i t h a t i n the United States were conducted by the government. For example they at one time had an Immigration department, colonization, i r r i g a t i o n and farm development department to help populate the Western Provinces. Canadian P a c i f i c has always been a widely diver-s i f i e d companyri not only one which owns and operates a l l modes of transportation. E s s e n t i a l l y C.P.R. i s divided into three functional groups, two dealing primarily with transportation and the 1 C V l a s t , Canadian P a c i f i c Investments Limited, a wholly owned subsidiary of the C.P.R., which i s engaged In many opera-tions not d i r e c t l y related to transportation. Chart no. 1 shows the major d i v i s i o n s of the company. (For r e l a t i v e sizes of investments see appendices I,II & I I I ) . Highway Services In XykQ C.P.R. began Its trucking operations by buying Island Freight Lines on Vancouver Island. Then i n T 9 5 8 the C.P.R. spent | 8 . 3 m i l l i o n to acquire a portion of the common and preferred stock of Smithsons Holdings Limited and Smith Transport Limited. ° An additional $ 1 . 0 m i l l i o n was added at the same time to the company's i n -vestment i n Canadian P a c i f i c Transport Ltd. In 1:960, Smith Transport and Smithson's Holdings became wholly-owned sub-s i d i a r i e s of the company with the purchase of the remaining common and preferred stock f o r $ 6 . 8 m i l l i o n , r e s u l t i n g i n a t o t a l investment i n shares of$ 1 5 . 1 ' m i l l i o n and ownership of Canada's largest truck company. Smith Transport embarked on a p o l i c y of t r a f f i c development and d i v e r s i f i c a t i o n a f t e r completing a major reorganization and re-equipment program i n 1 9 6 7 . The following companies have been purchase by the C.P.R. over the years: ( See table VI) 105. i t- 5 U < OC r «t t 0 u -o: a O 2 o rs 2 <. o 12 5 , W Q o 105 Table VI - C.P.R. Truck Companies Canadian P a c i f i c Transport Ltd. Island Freight Service Smith Transport Ltd. Canadian P a c i f i c Merchandise Services DeLuxe Transport Ltd. Norman's: Transfer Ltd. Montreal Cornwall. Express Ltd. Lawson Transport Ltd. Brydges Transport Ltd. O.K.. Valley Freight Lines Ltd. Dench of Canada Ltd. Loucks Trucking Service Ltd. Source: Personal correspondence- Canadian Trucking Associations In Western Canada these: companies have been absorb-ed into Canadian P a c i f i c Transport. In the East, The Smith companies and Canadian P a c i f i c Express: handle the. trucking needs: of the shipper.- Smith Transport remains a separate subsidiary company. The routes covered by the Canadian P a c i f i c System, shown i n figure 3? include such areas of recent development as Labrador and the northern areas of Saskatchewan, Alberta and B r i t i s h Columbia. In 1:967' the various trucking a c t i v i t i e s of C.P.R.. employed 7?980 people and used 1 ,757 trucks for short haul, 2 , 6 ^ 5 highway t r a i l e r s and 1,251 highway t r a c t o r s . Merchandise Services In order to further t h e i r operations as an in t e -grated transportation company, the C.P.R. established the Department of Merchandise Services i n Western Canada i n 1959* 107 Prior-to the formation of Merchandise Services, shippers used the services of Canadian P a c i f i c and i t s subsidiaries to f u l f i l t h e i r demand for transportation. This required t r a f f i c managers to be f a m i l i a r with the t a r i f f s and sche-dules of: Canadian P a c i f i c r a i l l . c . l . f r e i g h t , Canadian P a c i f i c Express, Canadian P a c i f i c A i r Freight and A i r Ex-press:, Canadian P a c i f i c Transport, Bench of Canada,O.K. Valley Freight Lines, Island Freight Service and Smith Transport to the extent that the l a t t e r connects with Canadian P a c i f i c Transport to provide East - West transport. Now the t r a f f i c manager merely has to phone Mer-chandise' Services to obtain the services available under the previously named Canadian P a c i f i c operations. This new department was organized on the West coast and now has been extended across: Western Canada to the Lakehead. The two main goals of the department are to: ( 1 ) bring about complete integration of r a i l , l . c . l . , express and truck operations i n the handling of less-than-carload and package f r e i g h t ; and (2) to "provide the best possible service at maximum e f f i c i e n -cy and minimum cost " through co-ordination under a single administration a l l available transport modes. The goals of the department are i n keeping with Canadian P a c i f i c ' s concept of " t o t a l t r a n s p o r t a t i o n ' ^ described by W.H. McDon-ald, general manager of C P . Merchandise Services: ? 108 Our concept of t o t a l transportation i s to pro -vide: a complete service which w i l l meet the1 needs of various shippers whose requirements d i f f e r as to rates, schedules and equipment. This involves t r a i n s , trucks, ships, planes and any combination of these methods of transportation which enable us: to offer- a service from the producer to the consumer or any portion of such service as the i n d i v i d u a l shippers require. While transportation problems d i f f e r between indu s t r i e s , a l l require-ments revolve around service,,equipment and p r i c e . In any endeavor to solve transportation problems, these three areas must be considered. " "Merchandise Services"has grown ra p i d l y since i t s . inception on Vancouver Island i n 1959> p a r t i c u l a r l y i n the trucking f i e l d . During 1 9 6 6 , CPMS carr i e d about three b i l -l i o n pounds of cargo and, by the end of the year, i t s f l e e t of pick-up and delivery trucks operating between the Lake-head and the P a c i f i c Coast numbered 5*+9. Canadian P a c i f i c Transport Company operated on 8 , 9 6 0 unduplicated route miles g i n the year with a f l e e t of 290 tractors and 679 t r a i l e r s . In 1965? i n order to secure additional heavy hauling licences i n B r i t i s h Columbia and entry into the northern parts of the province, C P . Transport purchased F.W. Loucks Trucking Services with terminals i n Prince George, Quesnel and Dawson Creek. Since that time they have not purchased any additional trucking companies. One of the prime arguments of those opposed to common ownership i s that there i s a decrease i n technolo-g i a a l innovation as a r e s u l t of a reduction i n competition C.P.R. has demonstrated that technological innovation i s 109 one of their' primary i n t e r e s t s , e s p e c i a l l y i n the bulk material handling f i e l d . C P . Transport entered the bulk handling f i e l d i n 196U-, moving cement i n pressurized tank t r a i l e r s from r a i l cars to dam s i t e s on the Columbia River i n B r i t i s h Columbia. Since that time, the company has taken other steps to provide specialized equipment to meet the needs of the bulk materials shipper. One of the more unique, operations has been the movement of molten s u l f u r by r a i l and them the t r a n s f e r r a l of the mineral to C P . trucks f o r delivery to a customer i n Gold River fo r pulp and paper processing. To handle the molten sulfjer, which freezes at 2h& 0 Fahrenheit, Merchandise Services bought special highway t r a i l e r s designed to keep the suiter at 300 0 Fahrenheit. Another operation using three, modes, has been developed on an experimental basis i n B r i t i s h Columbia to handle bulk f e r t i l i z e r . The f e r t i l i z e r i s loaded from specially-designed highway c a r r i e r s into a i r c r a f t f o r f e r t i l i z i n g immature forests from the a i r . It was sent i n special r a i l hopper cars from Calgary to Cowichan Lake, B.C., worm-fed into torpedo>-like, highway t r a i l e r s , hauled to the a i r s t r i p , and f i n a l l y blown into dusting a i r c r a f t . The: pro-cess eliminated the previous method of trucking bags of f e r t i l i z e r from an ordinary box car and having to load the planes by hand. In other areas of •'.trucking innovation C.P.R.,, with the, assistance of the National Research Council, have developed an envelope-cooled refrigerated t r a i l e r . 1 re-i n the development.of intermodal terminal f a c i l i t i e s C.P.R. has also- been act i v e . The f i r s t Merchandise Services terminal was opened i n Vancouver on Oct. 1 ,19i?9. B u i l t at a cost of $8*+0,000 i t became the prototype f o r other major CP.M.S.. terminals;. Two large terminals were contracted i n 1961 - one i n Calgary at a cost of $ 8 0 0 , 0 0 0 and one i n Ed-monton at a cost of $ 5 6 0 , 0 0 0 . There: followed a $ 7 3 0 , 0 0 0 terminal i n Regina i n 1962. and the % l a r g e s t terminal was con-structed i n Winnipeg at a cost of $ T , 6 7 0 , 0 0 0 i n 1:963. This terminal, at one; time, can handle 33: highway t r a i l e r vans:, 33'. c i t y pick-up and delivery trucks, and 2k r a i l f r e i g h t and express cars:. Smaller, but equally e f f i c i e n t terminals have been constructed at Hanaimo, Duncan and T r a i l , B.C. and at Brandon, Manitoba-. In other areas existing f a c i l i t i e s have been modified and expanded to meet Merchandise Services requirements:. F i n a l l y i n 1967 new terminals; were construct-ed at Gold River and Prince- George, B.C.. These terminals, are; completely mechanized and are very e f f i c i e n t . Packaged f r e i g h t i s unloaded from a pick-up truck, passed through a sorting center and loaded Into the proper railway car i n a f r a c t i o n of the time required man-u a l l y . Each major CP.M.S. terminal includes a main building with adjoining r a i l and t r a i l e r docks to handle incoming and outgoing r a i l and highway shipments. Beneath the t r a i l e r and r a i l docks, a system of chutes and conveyor belts move the shipments from trap doors located on the 1 dock f l o o r s to a sorting center. The conveyor belts deposit the shipments on revolving platforms and packages are then taken to the i n -appropriate car, t r a i l e r or delivery truck by a four wheel towcard that operates on a towline moving i n a groove i n the' terminal f l o o r . To a s s i s t i n c o n t r o l l i n g the dispatch of t r a i l e r s over wide areas of Western Canada from these • terminals -, p r i n c i p l e points are linked by h high-speed t e l e % ^ type: c i r c u i t s augmented by telex service between Winnipeg, Regina, Calgary, Edmonton and Vancouver. Mobile radios- are u t i l i z e d f o r the routing of l o c a l pick-up and delivery trucks through the c i t y streets. Service i s very important to a shipper who has a wide d i s t r i b u t i o n area. In Western Canada C P . Merchandising has developed entire d i s t r i b u t i o n programs, using both truck and r a i l , to permit shippers to confine inventories to one or two ce n t r a l points i n the. West and thus reduce warehousing costs. For example one large: company d i s t r i b u t i n g through-out Western Canada was able to reduce inventory by 30$ using C.P.R. d i s t r i b u t i o n s e r v i c e i The extensive coverage provided by CP.6s r a i l and highway routes makes i t possible- for most shippers to cover t h e i r entire d i s t r i b u t i o n area dealing s o l e l y with C.P.R. Distrbution i s also undertaken d i r e c t l y from carloads completely eliminating warehousing and frequent service schedules from the Merchandising terminals: permit overnight and second morning delivery i n most cases. C.P.R. has also set up a new rate structure f o r the express and l . c . l . moving i n r a i l service; which relates charges more d i r e c t l y to the actual cost of handling the' shipments. In the rate structure are incentives f o r individual 11 2 shippers to. reduce costs, by increasing the s i z e of shipments and sending the t r a f f i c over longer distances. Now the C.P.R. i s thinking of establishing agreed charges f o r a customer that would cover raw materials inbound to his plant and f i n i s h e d products outbound, including d i s t r i b u t i o n . F i n a l l y sales t r a i n i n g programs have been established, industry ser-vice representatives'appointed and t r a f f i c research under-taken - a l l with a view to making the shipper more aware of the complete service available, from C P . and market these services to the customer. Containerization Canadian P a c i f i c was the f i r s t Canadian Railroad to use containers. During the> l a s t decade;-C.P.R. has under-taken a number of experiments i n containerization. I n i t i a l l y , the company started work on a container car with Strick Co. This work lead to development of the "Flexi-Van" system. About three years: ago the Steadman side transfer system was perfected with the help of C P . It permits a low cost transfer of containers from r a i l to road i n about two min-utes" with one man serving as the operator. In 1967 about 5 , 0 0 0 containers were used on C P . trucks, ships and';rail and a big increase^ln volume expect-ed i n T 9 6 8 . In overseas t r a f f i c , CP., i s handling container-ized mail from Rotterdam to Montreal and i s shipping general cargo v i a container i n the l a t e s t addition to the C P . f l e e t - the "Beaveroak"« The container f a c i l i t i e s b u i l t into the. 113 new ship allow I t to carry ten refrigerated, containers and between eighty and ninety dry cargo containers:, each twenty feet long and eight by eight i n cross-section. Problems Although Canadian P a c i f i c has moved c l o s e r to being a true; transportation company than perhaps any other r a i l r o a d company i n the world without government aid , i t has found that there; are: i n t e r n a l problems.. These have been described very aptly by W..J. Stenason, V..P. of Company Services - C.P.R.:"1,0 " There' are, of course, i n t e r n a l operating problems which are unique; to an integrated trans-portation company. Transportation i s Inherently complex, and i t s physical integration p a r t i c u l a r l y complex. Vested interests: i n c e r t a i n modes exist even within the multimodal firm, and the process of disengaging from c e r t a i n modes and expanding into other modes does not occur without f r i c t i o n . The " p r o f i t center" approach, which i s v i t a l to the dynamic management of a d i v e r s i f i e d enterprise, must be reconciled with the.needs f o r o v e r a l l system optimization at the corporate l e v e l . Labour problems are c e r t a i n l y not assisted by having to deal with a large number of labour organizations simultaneously, nor by the d i f f e r i n g contract conditions and terms which ensue. " I t must be added that these problems are ones which occur i n any d i v e r s i f i e d enterprise and are ones which can be solved over time. As yet there has been no l i t i g a t i o n of serious complaints against Canadian P a c i f i c Insinuating that they are t r y i n g to monopolize transport. The; one aspect of C.P.R. that sets, them apart from Canadian National i s that the C P . investment p o r t f o l i o contains s e c u r i t i e s of companies that 11^f are heavy users of t h e i r transportation services. For exam-ple^, Canadian P a c i f i c O i l and Gas i s only a producer- of gas and o i l mainly i n Alberta. Husky O i l , on the other hand, Is not only i n the r e f i n i n g and marketing areas, but also produces, heavy crude and i s located i n Saskatchewan. By in~-?,=: vesting i n Husky, CP.I., becomes, i n d i r e c t l y , an integrated producer with both product and geographic d i s t r i b u t i o n . A minority i n t e r e s t i n Central Del Rio has the e f f e c t of i n -creasing t h i s d i v e r s i f i c a t i o n . C-P.I.'S: rather large holding of Trans-Canada Pipe Lines also displays v e r t i c a l Integra-t i o n with C P . O i l and Gas and gives horizontal integration into t h i s transportation f i e l d to C.P.R. Canadian National Railroad Canadian National i s not as d i v e r s i f i e d a company as Canadian P a c i f i c and e s s e n t i a l l y has followed the C.P.R* i n t h e i r entry into other modes of transportation and t h e i r approach to service, i n c e r t a i n respects. They are not, as mentioned previously, d i v e r s i f i e d into f i e l d s other than those related to transportation., ( see Appendix I V ). C J . ' s entry into trucking was retarded somewhat by Parliament's r e f u s a l to wholeheartedly allocate c a p i t a l funds: f o r the purchase of trucks. Parliament's slow endorsement of C.N.'s trucking endeavors was. influenced by the rationale that allowing a government owned r a i l r o a d to purchase trucks was tantamount to n a t i o n a l i z i n g a segment of the trucking industry. 115 In i 9 6 0 Canadian National made i t s entry into the trucking f i e l d by purchasing Midland Superior Express of Calgary and East-West Transport, both long-haul truckers. In the East they purchased Empire Freightways:. Since t h i s time they have purchased other trucking companies i n Central and Western Canada, as shown i n table VII. Table VII - Canadian National's Truck Lines Canadian National Transportation Ltd. D. Chapman and Co. Ltd. ... B r i t i s h Columbia Eastern Transport Ltd. ... Sydney, N.S. East - West Transport Ltd. ... Manitoba Empire Freightways Ltd Ontario Hoar Transport Ltd Ontario Husband Transport: Ltd. ... Ontario Midland Superior Express ... Alberta Scobies Transport Ltd. ... Ontario Sydney Transfer and Storage Ltd. Toronto-Peterborough Transport Co. Ltd.,Ont. Source:- Personal correspondence -Canadian Trucking ^Associations As of December 31?1967? the Canadian National owned or leased a t o t a l of 1795 trucks, 1 l M tractors, 3033 semi-t r a i l e r s and 83*+ containers - t o t a l 6803 u n i t s . ( See Appendix In 1961 Mr Gordon, then President of the C.N.R., described how the company purchased trucks and t h e i r general 11 trucking p o l i c y : "....the C.N.R. decided to supplement railway services with c o l l a t e r a l trucking f a c i l i t i e s .vis wherever an integration of operations would e f f e c t i v e l y improve the services, and,therefore, i t s competitive p o s i t i o n . In endeavoring to implement t h i s p o l i c y , the C.N.R. i s proceeding cautiously and, as a general r u l e , i s endeavoring to enlarge i t s trucking f a c i l i t i e s through a 116 very s e l e c t i v e purchase of existing highway oper-ators. In t h i s way, i t i s not adding suddenly to the t o t a l transportation f a c i l i t i e s of the coun-t r y , since that would l i k e l y produce an undesir-able surplus and lead to a period of uneconomic competition by the weaker operators i n s t r i v i n g to maintain t h e i r p o s i t i o n . Our objective i s to acquire: a trucking pattern so as to obtain f o r our own operations the benefits, of co-ordination with railway f a c i l i t i e s or even replacement of them i n those cases i n which the truck i s the better t o o l . The1 a c q u i s i t i o n of the trucking companies now owned or optioned by the: Canadian National i s a step- toward implementation of this; p o l i c y . This i s a. l o g i c a l follow - up of competitive rates, agreed charges, piggyback services and the r a i l -head and master agency p r i n c i p l e s of operation. E f f o r t has been made; to select those highway ser-vices that best f i t into an;over-all plan of making the best use of a l l transportation media. Thus the a c q u i s i t i o n of truck l i n e s , i n addition to improv-ing the competitive p o s i t i o n of the railway and gaining access, to markets not served by r a i l s , pro-vides opportunities of economy through integration of r a i l and highway f a c i l i t i e s and substitution of r a i l service f o r highway services through i n -creased use of r a i l piggyback. " The company has not altered t h i s p o l i c y over the years- ( See Appendix V ). Master Agency and Railhead P r i n c i p l e s The= " Master- Agency P r i n c i p l e " that Mr. Gordon used i s b a s i c a l l y C.N.'s plan f o r a reduction i n the number of branch lines; and stations now maintained by the C.N.R. Mr Gordon says: " We are; using the f a c i l i t i e s of the; r a i l -way to get the maximum advantage of heavy loading of cars and bring them to a c e n t r a l point, almost l i k e the hub of a wheel. 11 In effect, they survey the area around t h i s "hub" to- determine i.whether or not they can better handle the t r a f f i c - at the subsidiary stations around the "spokes" of 117 the. wheel or whether they would f i t naturally into the huh. In other words i f they do f i t into the "hub"1 - they w i l l provide truck service, but i f the. amount of t r a f f i c i s such that at any p a r t i c u l a r spoke i t would s t i l l be advantageous to run a t r a i n - the t r a i n i s used. I f they close an agency or st a t i o n they provide; a telephone system which i s available to everyone i n the town. A master agency i s established;, at the key point and the residents: can c a l l long distance: i f necessary at no charge. At the central point the; operators connect the c a l l e r to the railway department best suited to the c a l l e r 1 s needs. This p r i n c i p l e , along with the use; of trucks, hopefully w i l l allow CN. to- serve a much larger area than they did i n the past, which i s quite an important consideration. Both the C.N.R. and C.P.R. have e f f e c t i v e l y increased t h e i r mar-keting areas; through the use of trucks. Because of t h i s the rail r o a d s are; now more competitive between themselves — a further argument that competition within the transpor-t a t i o n Industry i s not reduced by common ownership. Mr Gordon says that: " This is. a very,very f o r t h r i g h t e f f o r t to stem det e r i o r a t i o n of our t r a f f i c , p a r t i c u l a r l y i n non-carload f r e i g h t we decided we; must e l -iminate the existing d i f f e r e n t i a l between '-rail and highway transportation i n so f a r as the. qual-i t y - p r i c e of service rel a t i o n s h i p i s concerned. We f e l t that a substantial improvement In the less-carload f r e i g h t s i t u a t i o n could best be. ob-tained by f i r s t adopting a system f o r handling t h i s type: of t r a f f i c that would not only increase service but reduce costs, and therefore bring about a par-a l l e l lowering of rates. 11 118 The 11 • railhead " plan Involves the. dispatch of hea-v i l y laden r a i l cars to a c e n t r a l l y situated railhead l o c a t i o n loaded with goods fo r d i s t r i b u t i o n by truck.to various des-t i n a t i o n s . This i s e s s e n t i a l l y the inverse of the "master agency" p r i n c i p l e . Taken together these two p r i n c i p l e s are incorporated i n C.N.'s " Express Freight Services " which i s the p a r a l l e l to C.P.'s Merchandising Services: " The aim (of the department) is. to take the best of (express and l . c . l . ) services and provide one superior high speed service at rates competi-t i v e with other forms of transportation. The u l t i -mate goal i s to present the shipping public with one department and one form of documentation f o r a l l non-carload consignments. Eventually i t i s an-t i c i p a t e d that the railway w i l l have a combination of rates and services on other-than-carload t r a f f i c that w i l l permit s o l i c i t a t i o n directed s p e c i f i c a l l y to non-carload t r a f f i c with the: same e f f o r t and cohesion that i s now being expended on carload t r a f f i c . "' 1i:> O r i g i n a l l y the C.N.R. c a l l e d t h i s the department of Merchan-dise Services, but i n recent years changed i t to d i f f e r from C.P.'s department. Canadian National d e f i n i t e l y emphasizes the; railway role i n t h e i r handling of l . c . l . l o t s : " The; purpose of the department of Merchandise Services i s to r a t i o n a l i z e and co-ordinate; the var-ious types of r a i l or highway transport which are or wi l l " be available i n order to make the railway as competitive as good practice dictates' i n that' area of transport where: the highway c a r r i e r attracts t r a f f i c because of speed and f l e x i b i l i t y of service, as well as i n the smaller area where- the highway c a r r i e r enjoys: a cost advantage. " T 1 * However Mr. Gordon does not f a i l to recognize that; " There are many Instances where; t r a f f i c that i s operating under modern 119 conditions i s not best handled by the railway. Comparison of CN.R and C.P.R. Policy Canadian National i s prepared to handle long - haul t r a f f i c with trucks where " the truck i s a better t o o l " and f o r t h i s reason they have also established a department of Highway Services which, i t i s presumed, would be prepared to develop special equipment to handle the-needs of the: shipper. Nevertheless', t h e i r department of Express Freight Services does emphasize the railway role - at l e a s t i n objectives. For example- i n a speech before: the Canadian In d u s t r i a l T r a f f i c league:, Mr. Gordon explained what the railway's: r o l e i s i n 1 5 t o t a l d i s t r i b u t i o n : " But r a i l transportation by i t s e l f i s not s u f f i c i e n t l y f l e x i b l e to be the only service we are prepared to o f f e r i n the market place. We re-cognize that there i s a substantial part of the transportation market where: integrated truck - r a i l transportation i s superior with respect to cost and service. To t h i s end we have been building up the highway side of our operations by expanding our own trucking services and by acquiring a l i m i t e d number of outside trucking companies. We also intend to explore the use; of i n t e r l i n e rate arrangements with independent highway c a r r i e r s wherever these w i l l best serve the needs: of the: market. In this: process we have been c a r e f u l that our expansion w i l l be complementary to r a i l service and that the natural advantages of r a i l and highway w i l l be pre-served, and developed. " In f a c t Mr. Gordon emphasizes the f a c t that he would rather see j o i n t rate and through route, agreements: ,,; From a technical point of view, complete u n i f i c a -t i o n of r a i l , road, \<rater and a i r Into a single transportation system.may be quite possible; but i t may not be possible, or necessary, or desirable from an organizational and competitive point of 120 view. What I am suggesting i s not a greater degree of common ownership or centralized control over day-to-day operations, hut a voluntary arrangement under which independent units exchange ideas and informa-t i o n and make services available to each other with the primary purpose of providing maximum e f f i c i e n c y and economy i n operation by avoiding wasteful d u p l i -cation of services and a need f o r subsidizing uneco-nomical operations. In contrast Canadian P a c i f i c openly admits that they are interested i n a l l phases of transportation. They too are interested i n u t i l i z i n g the capacity of the r a i l r o a d to a greater degree,, but they do not suggest that common ownership might not be desirable from " an organizational and competitive point of view." C P . appears to believe more i n i n t r a f i r m competition and CN. believes i n co-ordination with centralized control o f trucking f a c i l i t i e s , using the r a i l r o a d to best advantage. Canadian P a c i f i c does- seem to make a higher p r o f i t on trucking operations, than does CN. In 1966 the net operate; i'ng p r o f i t of C.N.'s trucking companies was $t.h m i l l i o n where-as C P . netted $7 m i l l i o n i n 1967 . 1 ? Summary Ba s i c a l l y the C.N.R. uses t h e i r trucks i n the same way that the C.P.R. does., hut they do emphasize that the r a i l r o a d i s t h e i r main i n t e r e s t . While they do not emphasize su i t i n g the customer's need with specialized truck equipment, they do seem to u t i l i z e trucks quite heavily i n t h e i r opera-tions. A l l t o l d both r a i l r o a d s haul only 5-6 % of the i n t e r -c i t y ton-miles moved by truck i n Canada and both have the following number of trucks(See table VIII). 121 TABLE VIII C.P.R. - C.N.R. Tota l Units of Equipment Trucks Tractors T r a i l e r s Containers C.P.R. 1 , 757 1,251 2,61f5 5 , 0 0 0 (approx.) C.N.R. 1 , 7 9 5 1 ,11+1 3 , 0 3 3 8 3 ^ Totals 3 , 5 5 2 2 , 3 9 2 5 , 6 7 8 5,83*+ Source: Personal Correspondence(See Appendix V) This i s i n comparison to the 1 ,266,02*+ powered motor veh i c le un i t s reg i s tered i n Canada i n 1966 or C P . and C N . i n combination own about 0»k-7% of a l l motor powered vehicle: units: i n Canada. (. trucks and tractors: i n the pre-vious table;. ) This seems: to indicate: that , as ye t , the r a i l r oad s have; not succeeded i n monopolizing the trucking industry to any extent. C.N.R. - C.P.R. Operations, i n B r i t i s h Columbia Canadian P a c i f i c s tarted the i r "multimodal approach" to t ransportat ion i n B r i t i s h Columbia.,with the incept ion of Canadian P a c i f i c Trucking and Merchandising Services. A l l t o l d the C.P.R.. operates 2 , 7 0 0 miles of rai lway l i n e , 3 , 5 0 0 miles of highway routes and 1 ,1,00 miles of coasta l shipping lanes i n the Province. C P . Merchandising Services carry a l l the: cement and o i l to the Columbia River power projects and, as T22 previously described, haul sulphur to the pulp mills, on Vancouver Island. On other parts of the Island they pro-vide service, to nearly every small, community and they are the only r a i l r o a d to serve many parts of the Island. (See Map # 2 ) . In naut i c a l endeavors Canadian P a c i f i c ' s R..B. Angus sails- from B.C. to Japan with lead concentrates and lumber. In addition they are? having thr.ee; special bulk c a r r i e r s b u i l t f o r charter to MacMillan-Bioedel Co. f o r use i n the lumber trade-. Each vessel i s , 2 8 , 0 0 0 D.W.T. with a sp e c i a l h u l l design f o r loading of lumber. F i n a l l y Canadian P a c i f i c has ordered two 57>000 ton vessels to transport Canadian coal to Japan, scheduled f o r delivery i n l a t e 1 9 6 9 . These ships, w i l l presumably be-used i n conjunction with C.P.'S uni t coal t r a i n s running from Coleman, Alberta to Port Moody, B r i t i s h Columbia. The; Canadian National Railroad was l a t e r getting into the B r i t i s h Columbia trucking industry. Prior t o 1966 only a few. Canadian National Trucks operated i n the Province and no other trucking companies had been purchased at that time. Then i n 1 9 6 6 , Canadian National Transportation, C.N.'s trucking arm, purchased the shares of D. Chapman and Co. Ltd., a trucking firm operating throughout the i n t e r i o r of the Province,(See; Map # 1 ) . At present the trucking arm i s nearly as large as that of Canadian Pacific's as can be seen i n Table IX. 123 :. John; M A P C h ; - C P Tcuriig ftEgmccc >N ftRlTlSH C Q L U H R I * . C U T R U C K ; R O U T E S CP TRUCK. R O U T C S fl E R C H 6.100 l i \ Hit MCSTE'- C..V). T R U C K . R s O U T B S l O C U U O e T H O S E OP suesv01 f -CHA<PHAIO CP CMO CRCAS. O R . R O U T E 1 F R O M V/AUOC, [Vancouver KeremJbfc "^^CANADA and / T T 12*f N Q shusM*** - ... c*pe Scott s^n j o s e f g ,_?ort Hardy ' -"Rupert 1 Port Hardy. H o l b ^ -- .CoalHarbou Winter \ Hartour,' Quatsrno. ; 1 ~ . ,S-' . Port A l i ce * "Brooks 3a , •<V t„ • • •*» • • /M, . im%» Kyuquot0 » : . i ^ / Z e b a l l o s . ( f t it V Kelsey Bay Sayward 1 f 1 T'hsiV O " S \ ^ 5 ! S „ B l o e d e l V -- - - " ' ' ' ^ F o r b e s L d g Crown//(„" C L A % S # 1 C I O T R U C K . ROUTED A - cio. pic*, - U P ^ • - C P . neRe.HA»o©v*»io<. P I C V C - U P i oex-iot« ^pyster UUnd Nootka y-:;:-;;-" : , Con u m a p _ _ i \ ^ i ' * U / M t n \ I B l a c i \ M „ »STRATHCONAl" , t } > "'~"'Z/" Muchalat / 1 .Donnfr /. A \ '""'Wei" ^ ^X^r* ' .-P • .„..Ji&u™ Courten; " • " . ' . j ' f e . » - M r , A V , " • ' B e v a n V Como'x loyston J""» So.tBas.nO , ffij; /O. G/acrr. Bucki., 8J,\» V„ Island \ . Eae»anPolntO° . 0-^- v • I'S'-'-tfii. ..t..-, .\ 5,.„ f.», \ ^ . B o w s e r - -~ J-aiicum Beach o Ucluelet, Cassidyi,. \tCnivit-hmt., Ladysmitfl *Tsnww ^BamfieJd Cowichan £~<f " Y££0{1 ChemaTnC Rounds0 V ^fcfcvSomenos^ I*ake O/ Edinburgh Mtn f\ 1719 • All Todd -4 ^ft Renfrew "^ Leecritown r 2J04 RiyerrNiiksooke1 . Jordan i'>5»Sic!/n <6 JV^Victori; CV. £;• M I i m TABLE IX. C.N.R. - C.P.R. Trucking In B r i t i s h Columbia Class. I* Class I I I * Total/Co. Canadian National C.N. Transportation D; Chapman Co. Ltd. 1.6 115 3 ? 3V 195 Canadian P a c i f i c 1:65 92; 257 296" F 5 2 *; Class I - Point to point, no Pickup &. Delivery-Class I I I Pickup & Delivery only Source: Files, of Public U t i l i t y Commission, B r i t i s h Col. Both r a i l r o a d s combined do not operate as many trucks i n the Province as Johnston Terminals Ltd., who own and operate ktfQ. u n i t s . Maps 1.&2: show, however, that the r a i l r o a d s haYe; succeeded i n obtaining a f a i r l y good market coverage i n the Province. I f t f c o s ^ i n Canada In the beginning of the chapter i t was mentioned that as a re s u l t of of trucking protestations before' the government, Sec. 20 of the Transportation Act of t.967 was enacted. The•opposition arguments of the Canadian Trucking Associatipnsare the same as those used by the: American Trucking Association with one exception. Here the truckers argue that the r a i l r o a d s are heavily subsidized by the government and should not be given a free hand to engage i n trucking a c t i v i t i e s u n t i l they improve t h e i r operations to such an extent that subsidization i s not. required. At the P r o v i n c i a l l e v e l the Province of Quebec 126 was the f i r s t to oppose Canadian National's entry into trucking. In a p o l i c y statement the Province expressed 18 the following view: " We are f o r increasing the e f f i c i e n c y of the railways, with trucks serving as a supplement to railway operations on a li m i t e d basis'. We are against the railways, acquiring a dominant or near-monopoly p o s i t i o n i n the trucking industry at the expense of independent truckers and to the detriment of the interests of the. public at large. .. .• We would l i k e to remind the railways that t h e i r main ob l i g a t i o n to the Canadian people., on h i s t o r i c a l , economic and s o c i a l grounds i s to run an e f f i c i e n t and economically sound railway system, not a truck-ing business. Hence we^  expect them to stay out of the trucking business exceptfin so f a r as i t i s ess e n t i a l on a li m i t e d basis to f u l f i l l e f f i c i e n t l y t h e i r functions as a railway. ... In our opinion, a trucking arm supplementary railway operations should not go beyond fick-up and delivery services provided by railway-owned trucks i n Metropolitan centers and major urban centers. " On June- 22:, 196V, Quebec showed that i t meant what i t said, by rej e c t i n g the app l i c a t i o n of Midland Superior Express Ltd., subsidiary of Canadian National Transportation, for- operating rights: between points i n Quebec and Manitoba and Quebec and B r t i s h Columbia. The Manitoba Motor Carrier Board ruled on February 17? t96 1 +, that there 1 would be added to Manitoba operating r i g h t s previously held by Midland,the authority to transport f r e i g h t from Winnipeg "to Montreal and H u l l i n the Province of Quebec, as and when authorized by the Quebec Transportation Board."^ Prior to t h i s decision the Quebec Board had allowed C.N.T. to purchase Midland-Superior and operate on exis t i n g routes, but i n t h i s case the Board had Said: 1 127 " I t is: stated that the foregoing (policy statement i n the previous quote), i s the p o l i c y of the gov-ernment of the Province of Quebec. As no i n d i c a t i o n has been given t o r t h e Board of any change i n p o l i c y with respect to application made by the railways, the Board has come to the conclusion that i t i s not i n the intere s t of the public of t h i s Province to grant the application. "'• 2 0 The next Province to reject C.N.R.'s expansion i n trucking was Newfoundland. The following recommendations of the Newfoundland Royal Commission on Truck Transportation exemplify' the attitude of Newfoundland to further r a i l r o a d 2T expansion into the; trucking f i e l d : IT....The Commission feels, that the Railway does, and: w i l l continue; doing, an excellent job as a c a r r i e r of bulk, and heavy goods. For the national economy, a l l emphasis should be placed on the p expansion of the operation i n which the railway excels....... Accordingly the- Commission i s of the: unanimous opinion that the C.N.R.-C.N.T. Ltd. truck operation should be confined to st a t i o n -to-s t a t i o n , and should not be permitted to engage i n d i r e c t competition with private trucking.(rec-ommendation #1:):. 10.3 Not To Purchase; Trucking Firms The overwhelming preponderance of evidence submitted to the hearings; showed that C.N.R.-C.N.T. Ltd. should not be permitted to purchase or control d i r e c t l y or i n d i r e c t l y private trucking operations. The; truckers and other witnesses indicated that to do t h i s would be allowing the C.N.R. to do something i n d i r e c t l y that they are not empowered to do d i r e c t -l y : that is. to take over and nationalize the private trucking Industry. The Commission f e e l s that private industry should not be interfered with by* the state unless i t i s i n the public i n t e r e s t to do so. The Commis-sion i s of the opinion that i t Is not i n the public interest f o r C.N.R.-C.N.T. Ltd. to be allowed to purchase^ private trucking f l e e t s (Recommendation #2) " 128 F i n a l l y the C.N.R. has been opposed by the Inter-state: Commerce Commission i n the United States. When C.N. Transportation bought control of Husband Trucking Co., they also acquired control of a subsidiary which operates i n the United States - Husband International Transport. On June 7, 22 T968 the Commission reached the decision that: " the C.N.R. (should) divest i t s e l f of 'any and a l l i n t e r e s t ' ! , d i r e c t l y or i n d i r e c t l y ', In the truck l i n e (that) w i l l take e f f e c t 30 days from June 7th, the date i t was served The examiner concluded C.N.Transportation and Transport i n his findings of unlawful common control, and recommend-ed that they, as well as the C.N., be directed to dispose of a l l interest i n International. " Canadian Trucking Associations' Policy Over the years, the Canadian Trucking Associations, with a f f i l i a t e d p r o v i n c i a l organizations across Canada, have been opposed to railway entry into trucking i n general. One problem has been 'ia^/iigeneral lack of a completely u n i f i e d trucking front against r a i l r o a d entry. Two problems disturbed the management of the Associations!in.Ottawa. One problem was the apparent willingness of the largest trucking compan-ies to s e l l t h e i r assets to the rai l r o a d s for a proper pr i c e . The other problem was the attitude of the Automotive Transport Association of Ontario, the largest memben-of the Associations. They «are not opposed to railway entry into trucking provided that the rai l r o a d s operate these truck l i n e s independently of the r a i l r o a d and abide by the the regulations set f o r other truck l i n e s i n the Province ;'df COhtaria. The Trucking Association 129 of Quebec, on the other hand, has remained v i o l e n t l y opposed to railway ownership of truck lines., except for pick-up and delivery. Recently, however, the. C.T.A. has been able to 2^ s o l i d i f y their' p o l i c y with respect to trucking': J »• C.T.A. p o l i c y adopted at the 1967 Annual Meeting regarding r a i l entry into the trucking i: J industry (has been) amended so that, at the d i s c r e -t i o n of the President and Executive Director*, C.T.A. may oppose any attempts on the part of a railway or a railway subsidiary: (a) To acquire 1 any further i n t e r e s t , d i r e c t l y or i n d i r e c t l y , by purchase, lease, merger, co n s o l i -dation or otherwise i n any trucking business or undertaking, x^hether such an undertaking is. merely Pr o v i n c i a l or not., before the Canadian Transport Commission or any P r o v i n c i a l regulatory agency. (b) To extend i t s operating authority i n the trucking business or the operating authority of trucking companies d i r e c t l y or i n d i r e c t l y oxmed or controlled by a railway company or railway subsidiary. . (c) Provided that the C.T.A. s h a l l oppose under (a) and (b) where: opposition has been f i l e d on be-hal f of at l e a s t one trucking firm which i s a mem-ber of a P r o v i n c i a l Association, and that i n addi-t i o n at l e a s t one affected P r o v i n c i a l Association requests C.T.A.1s intervention. " Conclusions Although common ownership has not been r e s t r i c t e d i n Canada, a trucker or any other c a r r i e r under the Transportation Act of V967, may oppose further entry of the' r a i l r o a d s ^ i n t o other transportation modes. As yet i t does not appear that railway entry into other modes has been detrimental to the public i n t e r e s t . In f a c t , the progressive: marketing approach of the C.P.R. may well be the answer to r a i l r o a d problems i n other countries. The C.N.R., while not moving as ra p i d l y 130 into diversified a c t i v i t i e s , i s also a progressive organi-zation. A l l told Canada's regulatory policy, with i t s new-precautions:, is; being carefully scrutinized by other countries, and may well set the. trend, in allowing Intermodal ownership In these countries: i n the future. F O O T N O T E S 1. Royal Commission on Transportation, Vol. II, op. c i t . p. h2 2. Royal Commission on transportation, Vol 111, op. c i t . p. 76 3 . Ibid, pp 76-79 k. National Transportation Act of 1967, op. c i t . Chap 6 9 , p. 10 5 . Ibid. , p. 13 6. C.P.R. - Institutional Report, Burns. Bros.and Denton Ltd. P. 39 7 . " Canadians; Propose 'Complete' Transportation " , Railway-Age, Oct. 5 , 1-96^, p. 38 8. CPR Institutional Report, op. c i t . p. T'C-» ' s! j&f .Ttl««feice# .« i f i , !:Sfy?;'»i':*fei'e; TO. W. J. Stenason, " Multimodal Ownership in Transportation" in Trans. Research Forum Papers T967, p. 1T. House of Common'is Sess. Com Owned by the Govt;, ^  ,c: . tgi op. c i t . p. 26T 12. Ibid. p. 2*+6 1.3. Ibid. p. 270 th. " C.N.'s 'Man at the Top' Talks About Trucking", Canadian n Transportation, June, T96O, p. 29 15. " The Railway Role; in'Total Distribution " Canadian Transp? March, T96T T6". D. Gordon, " Needed: Integrated Transportation',' Canadian Transportation, Oct.,1962, p. 20 17. C.N.R. Annual Report T966 and C.P.R. Annual Report T967 1'8. " The. Attitude of Quebec Towrd Trucking " Canadian Transportation , March, 1961, p. 35" 1'9 Quebec Says.- 'No' to Midland Superior", Canadian Transportation, Sept'., 196*+, p. |?6 20 Ibid. p. 57 21: Newfoundland Royal Commission on Truck Transportation , Part TO, March 6 , 1.962 2 2 . C.I.T.L. T r a f f i c Notes, Issue No. M+Olf, June 2 8 , 1968 23"» Canadian Trucking Associations - Transport Release R - 6 8 - 3 131 C H A P T E R. VI C O N C L U S I O N S In Canada, the. United States and Great B r i t a i n regulatory policy,concerned with common ownership, has a f f e c t -ed the basic structures of the transportation Industries i n a l l three countries. In Great B r i t a i n regulatory p o l i c y was changed from one allowing l i t t l e , common ownership to one which nationalized a l l transportation and placed i t . under one c o n t r o l l i n g government agency. This experiment proved to be a f a i l u r e because a t h e o r e t i c a l l y optimum structure was imposed upon the exis t i n g structure without allowing fo r adjustment to user's needs through the; forces of compe-t i t i o n . Also the c o n t r o l l i n g body was allowed to set prices at discretionary l e v e l s f o r the various modes within the system and as a resu l t a balance i n the u t i l i z a t i o n ©f the modes was not obtained. In the United States regulatory p o l i c y ' ; l s designed f o r an era i n transportation when.-.- the. railroads; were domin-ant. The approach i s to preserve the weaker modes from the predatory attacks of railro a d s by r e s t r i c t i n g the ra i l r o a d s ' r i g h t s to acquire competing modes. In following t h i s approach the United States has attempted to preserve competitive rate-making through the Interstate Commerce Commission while at the; same time' encouraging coordination of the modes by ad hoc j o i n t rate-making. Intermodal competition has been preserved, but the voluntary co-ordination sought has been more wiste f u l than f a c t u a l . More energy has been expended i n preserving the "r i g h t s " of each mode; than In providing 132 the best intermodal service possible with today's intermodal techniques. Furthermore the l o g i c behind allowing r a i l r o a d s with ''Grandfather Rights" i n trucking to f r e e l y own and op-erate trucks' and not allow railroads, without $hese rights to truck i s dubious,to say the l e a s t . In Canada, competition has been preserved between two companies, once primarily r a i l r o a d s , now increasingly general transportation companies - the Canadian P a c i f i c and the Canadian National. Each has always been free to enter any form of transportation that w i l l move the t r a f f i c to the s a t i s f a c t i o n of the shipper and meet the p r o f i t c r i t e r i a of i t s owners. Although both railroads have increasingly entered the trucking f i e l d i n recent years, both s t i l l face vigorous competition from a very young and aggressive trucking industry. It i s i r o n i c ; t h a t i n a l l three countries, competition has given r i s e to such technical improvements as piggyback that obsolete .the needtferssesregation of the: modes. Of the three: approaches to regulation, the Canadian approach holds, the greatest promise of meeting today's transportation needs with the best techniques available. This approach i s not based on preserving h i s t o r i c a l systems of transportation. Several problems have been noted In the Canadian approach. One problem i s the r a i l r o a d s might gain toolarge a share of the Canadian trucking industry and therefore may be; able to successfully control rates and competition. It i s not r e a l i s t i c to assume that the railroads could gain 133 true monopoly powers under the regulatory p o l i c i e s adopted by the Canadian government, but i t i s possible that the railroads: could gain a degree.' of o l i g o p o l i s t i c control of the Canadian trucking industry. Since they now are the largest truckers i n the country the rates set by the C .N.R. and the C.P.R. may merely be adopted by smaller truckers that compete i n the same market. In other words instead of "cut-throat" competition reducing rates below compensatory l e v e l s the danger may be that rates are "stablized" at l e v e l s that are not minimal and the shipper may pay too much for the service he receives. To prevent t h i s from occurring the^ regulatory agencies In the country must have available to them the most accurate cost information to determine whether or not rates are too high. More information i s needed on economies of scale and j o i n t ownership i n trucking to aid the regulatory bodies i n deciding what should be a maximum and minimum rate f o r a p a r t i c u l a r movement. Both rail r o a d s should be required to keep separate accounting records for t h e i r trucking and r a i l operations. Another problem that develops i s a problem of corporate structure. I f the objective i s to r e t a i n a high degree of competitiveness within the transportation firm while at the same time co-ordinate the various techniques within the firm -there i s an apparent c o n f l i c t of objectives. Actually t h i s problem i$ more apparent than r e a l because with proper org-anization i t should be able to be overcome. Since the o v e r a l l 13^ objective of the transportation company i s to earn maximum t o t a l p r o f i t s f o r the entire firm, top management must make the decision as to what mode w i l l be used f o r a p a r t i c u l a r haul or part of a haul. I f i t i s most economical to use a truck f o r a p a r t i c u l a r long haul, because of the value of the commodity or the poor opportunities for. co-ordination of truck and r a i l f o r the. p a r t i c u l a r routing, then the truck should be used.If the. shipper wants h i s movement to be acvv complished i n two days and t h i s cannot be done- by a combined r a i l - t r u c k movement or even truck movement then perhaps the shipper w i l l be w i l l i n g to pay f o r a i r f r e i g h t . A l l i n a l l i f management seeks to use the most economic means of move-ment av a i l a b l e , without bias toward a particular-mode, then both the-' company and the shipper w i l l benefit. I f a p a r t i c u -l a r mode i s not contributing to overhead i t should be abandon-ned or improved. Technological innovation w i l l arise from the need to s u i t the shippers requirements. Separate account-ing records f o r each mode should be maintained to determine whether or not p r o f i t c r i t e r i a are being met. In the United States the one e f f e c t of r e s t r i c t i n g common ownership that has been of benefit to the o v e r a l l public i s that the. r a i l r o a d s have, been forced to seek solu-tions to t h e i r f i n a n c i a l problems within the industry i t s e l f . While some of the r a i l r o a d s may never: be able to compete against trucking and may end up bankrupt, undoubtably a more 135 e f f i c i e n t transportation system w i l l r e s u l t . The problem i s , however, that the economy of the country continues to grow and eventually i t might be found that the: r a i l r o a d capacity that had been eliminated might well have been u t i l -i z e d . If the railroads" were allowed to enter into,common ownership- arrangements without r e s t r i c t i o n , they would have; to decide within the firm whether a p a r t i c u l a r branch line: should be: abandonned or truck used instead. This type of branch l i n e r a t i o n a l i z a t i o n would undoubtedly lead to a f u r t h e r reduction In unnecessarily duplicated f a c i l i t i e s than is - p o s s i b l e s o l e l y through the. merger movement. In any country common ownership may lead to more e f f i c i e n t u t i l i z a t i o n of the available transport f a c i l i t i e s i f allowances f o r common ownership are: judged by the f o l -lowing c r i t e r i o n : T. Common ownership should not be' unduly re s t r i c t i v e -to competition i n the transportation f i e l d . 2. Common ownership should not be used to hinder the development of any mode. 3 . Any common ownership*, proposal, should provide tangible and demonstrable benefits to the: public over and above those available from the carriers, working separately. h. A common ownership proposal should provide: f o r integrated physical, and f i n a n c i a l operation with minimal subsidization of one mode by another. B a s i c a l l y the, judgement as. to whether or not competi-t i o n i s unduly restrained by common, ownership i s a value judgement and should be treated as such. Market control i s 136 only possible where a l l competition is. eliminated and where no new competition can economically arise* In these areas the railroads- are- providing a service which no one else i s w i l l i n g to undertake, which Is; hardly a desirable s i t u a t i o n to be i n . In the United States, where' i t i s f e l t the railro a d s would gain too much control of the. trucking industry IS common ownership were not r.estalhed, one sees the development of various b r i l l i a n t techniques to improve intermodal transfer-of goods at transfer points,, but sadly these techniques are not u t i l i z e d to the extent they should be. Voluntary cooperative ion f a i l s i n many instances because of vested interests i n a p a r t i c u l a r mode. Regulatory p o l i c y i s based on the assumption that common ownership i s not i n the public i n t e r e s t . Other than the evidence given by the Eaketllness 0ase, taken from a past era i n transportation, regulatory authorities have no other evidence to give i n support of t h e i r b e l e i f s . In fa c t i f these same- regulatory authorities looked to Canada, they would see that so f a r common ownership has enabled two r a i l r o a d companies to improve t h e i r services i n the public i n t e r e s t , while at the same time trucking has maintained i t s growth. The United States should follow Canada's example rather than continuously oppose the theory that common ownership does: benefit the shipping public. A P P E N D ! a & S 137 Canadian Pacific Railway Company Balance Sheet ASSETS 1966 1965 {millions) Current Assets: Cash and Temporary Investments $ 65.5 S 48.4 Dividend Receivable from • Canadian Pacific Investments Limited 10.0 12.9 Accounts Receivable 80.0 69.4 Material and Supplies . 39.6 34.4 $ 195.1 $165.0 Other Assets Aircraft Deposits $ 37.1 $ 0.8 Special Refundable Corp. Tax 3.6 — Other Deposits 3.1. 3.8 Unamortized Discount on . Funded Debt 1.5 1.7 Other Deferred Charges 1.2 0.9 $ 46.5 S 7.1 Insurance Fund .' S 13.9 $ 14.2 Investments: . Canadian Pacific Inv. Limited ' S 310.8 $303.5 Canadian Pacific Air Lines, Ltd. " 22.8 22.8 Other Subsidiary Companies 107.7 97.2 Other Investments . 46.5 45.6 S 487.8 $469.1 Properties: Railway '$2,221.3 $2,160.2 Telecommunications 109.7- 104.9 Hotels 25.3 42.3 Steamships ' 63.2 62.7 Aircraft 44.6 54.0 Other Properties 11.9 12.8 $2,476.0 $2,437.0 Less: Accumulated Depreciation 1,096.8 1,070.7 $1,379.2 $1,366.3 $2,122.5 $2,021.7 LIABILITIES . .;• 1966 1965 {millions) Current Liabilities: , , Accounts Payable and Wages Accrued $ . 76.5 $ 69.7 Deposits by Affiliated Companies (Net) 22.1 13.8 Income and Other Taxes Payable 23.5 6.5 Dividends Payable 23.0 22.3 Debt Maturing Within One Year 30.6 21.5 Other Current Liabilities 27.2 25.9 $ 203.0 $159.9 Deferred Liabilities • . N ':. $ 13.7 S 4.8 Deferred Credits: , 1 Deferred Income Taxes $ 122.0 $118.8 Other 0.4 0.3 '"• - $ 122.4 $119.1 Insurance Reserve $ 13.9 $ 14.2 Investment Reserves $ 3.8 $ 8.8 Funded Debt $ 123.4 $103.2 Debenture Stock S 292.5 $292.5 Shareholders' Equity: Preference Stock 1 ' V $ 137.6 $137.3 Ordinary Stock 358.3 358.3 Premium on Stock 38.5 38.5 Donations and Grants ; 80.1 80.0 Retained Income 735.5 705.1 $1,349.7 $1,319.2 $2,122.5 $2,021.7 138 ; Appendix II .•; , ;,:' Canadian Pacific Investments Limited and Subsidiary Companies Consolidated Balance Sheet ASSETS 1966 1965 Current Assets: Cash & Temporary Investments $ Deposits with Canadian Pacific Railway Company Dividends and Accrued Interest Receivable ComincoLtd. Other •• . Accounts Receivable Inventories, at the lower of cost or market •. Prepaid Expenses Other Asssets: Deferred Accounts Receivable Land Contracts Receivable Special Refundable Corp. Tax Other {millions) 2.3 S 2.7 2.1 7.8 0.9 8.4 2.4 0.1 0.8 0.5 0.3 2.0 Investments: . 'ComincoLtd. •. S 145.2 Other Partly-owned Subsidiary Cos 3.4 Other Investments, at cost 210.3 1.1 7.7 0.8 6.9 1.9 0.1 S 24.1 S 21.2 S 1.1 0.6 0.8 3.6 S 2.4 S123.7 3.9 206.5 $• 358.9 • S334.2 LIABILITIES : Current Liabilities: Accounts Payable & Accrued Chgs Canadian Pacific Railway ' Co. $ Other Notes & Accrued Interest Pay-able Income & Other Taxes Payable Dividend Payable 1966 1965; Deferred Liabilities: Severance Taxes Payable Other Deferred Credits: Deferred Income Taxes Unapplied Rentals Other {millions) 1.3 $ 2.0 9.0 7-0 23.0 2.4 2.4 . 10.0 12.8 s 45.7 $ 24.3 $ 3.1 •$' 3.9 0.1. s 3.2 S 3.9 $' .14.2 $ 11.2 0.8 0.7 .— .0.3 $ 15.0 $ 12.2 Shareholders' Equity: Capital Stock—n.p.v. common shares Authorized—40,000,000 -Issued— 31,082,016 (1965:30,353,116). S 310.8. $303.5 Properties, at cost: ; Oil, Gas and Other Minerals $ 70.7 $ 59.3 Timberlands and Related Facil-ities 32.2 31.6 Hotels . 54.4 32.2 Real Estate 19.1 13.5 Miscellaneous 3.6 3.3 $. 179.9 $139.9 Less: Accumulated Depreciation, Depletion & Amortization (depletion—1966— • $9,408,373; 1965— $5,998,151) 19.9 12.2 $160.0 $127.8 Paid-in Surplus Retained Income 81.8 90.1 81.8 59.9 $ 482.7. $445.3 $ 546.6 $485.6 $ 546.6 $485.6 139 r:%-- ".j'.',.:.Appendix.III .• C.PJf Investment Portfolio as of Dec. 31, 1966 STOCKS Preferred:'' Canadian Power & Paper Securities Limited Canborough Limited The Consumers' Gas Co. Debhold (Canada) Limited Great Britain & Canada , Investment Corp. Husky Oil Canada Ltd. Industrial Acceptance Corporation Limited-Northern and Central Gas Company Limited Power Corporation of Canada Limited Rio Algom Mines Limited Trans-Canada Pipe Lines Limited . Union Gas Co. of Canada Ltd. Victoria & Grey Trust Company Other Number Of Shares Cum. Red. $1.30 Series "A"—Par Value $25-Cum. Red. Series "A" 5i/4%—Par Value $100 / Cum. Red. Series "B" ! 5%—Par Value $100 : Cum. Red., 5 %—Par Value $100 Cum. Red. Series "A" 6%—Par Value $100 Cum. Red. 5%—Par Value $50 Cum. Red. Series "B" 6%—Par Value $50 .¥ Cum. Red. Convt. Series "C", 5i/4%—Par Value $50 Cum. Red. 5% %—Par Value S25 Cum. Red. First $2.60 1965 Series—Par Value $50 Cum. Red. First 4% % 1965 Series—Par Value $50 Cum. Red. First $5.80 Series "A", Par Value $100 Cum. Red. $2.80, Par Value $50 Cum. Red. Series "C" 5%—Par Value $50 Cum. Red. Series "A" 5.35%—Par Value $50 ' Common: • Central-Del Rio Oils Limited' ; The Great Lakes Paper Company Limited The Huron & Erie Mortgage Corporation Husky Oil Canada Ltd. MacMillan Bloedel Limited Montreal Trust Company* Provincial Bank of Canada Rio Algom Mines Limited '•. t \ Texas Gulf Sulphur Company Trans-Canada Pipe Lines Limited Union Carbide Canada Limited , Other Cost Approximate Market Value 25,000 600,000 450,000 12,500 1,250,000 1,087,500 4,150 415,000 344,450 12,500 . 1,250,000 • 1,150,000 15,000 . 1,500,000 1,395,000 25,485 1,260,757 • 1,000,268 10,655 544,929 511,440 15,000 : 750,000 810,000 20,000 ;'*; 500,000 , 460,000 15,000 750,000 675,000 13,000 ; 617,500. .' 511,875 11,000 1,088,500 1,076,625 30,000 1,485,000 1,380,000 50,000 . 2,500,000 2,275,000 10,000 500,000 2,374,136 .V 460,000 2,046,480 . 17,385,822 15,633,656 1,597,010 . 13,807,119 20,761,130 138,810 3,667,979 .' 3,157,928 528,260 6,953,456 4,622,275 448,600 4,881,996 . 5,719,650 1,510,372 48,384,295 35,116,149 329,500 6,640,634 • • 4,530,625 116,230 ' 6,235,360 - 4,445,798 599,690 , ~ 9,544,274 ' 14,242,637 60,100 3,680,179 6,824,355 1,157,752 44,850,085 . 28,364,924 527,250 . . 12,624,329 • .. 10,347,281 • 1,239,148 1,499,228 162,508,854 , 139,631,980 "Subsequently exchanged for 500,000 common shares of The Investors Group. 1U0 BONDS, DEBENTURES AND NOTES Bell Telephone Company of First Mortgage Canada British Columbia Electric • Company Limited • T. Eaton Realty Company . Limited Industrial Acceptance Corporation Limited C. Itch & Company Limited Province of Nova Scotia , Quebec Hydro-Electric Commission ' The Municipality of Metropolitan Toronto, City of Winnipeg Other Series "F"—31/4% due 15/2/73 Series "G"—3%% due 1/6/75 Series "I"—31/2% .. due 1/5/76 First Mortgage Series "D"—33/4% due 15/3/68 First Mortgage—3 >/2 % •. due 15/3/68 6.90% Note due 1/2/67 Convertible Unsecured Debentures—6 y4% due 31/3/84 U.S. 6.56% Note due 10/1/67 3% Bonds due 1/9/69 31/% Deb. due 15/6/69 3 y 5 % Deb. due 1/12/69 Sinking Fund Debentures— 2y4% due 1/12/67 ';••>, Total bonds Total bonds, preferred and common shares Principal Amount Cost Approximate • Market Value 56,000,000 $ 5,196,250 : $ 5,070,000 350,000 . ' 294,875 279,562 600,000 •• 507,000 477,000 1,000,000 948,000 947,500 1,800,000 500,000 1,717,425 500,000 1,728,000 500,000 1,000,000 1,000,000 900,000 1,081,250 1,000,000 820,125 924,500 ,1,000,000 821,250 350,000 200,000 . 327,880 186,100 327,250 185,000 ' 100,000 94,680 ' 1,057,373 ' 96,750 /'• 1,043,915 13,730,958 $193,625,634 13,400,727 $168,666,363 Investments of Wholly-Owned Subsidiaries STOCKS ,. Common: ; ' ' • ' Central-Del Rio:Oil Limited ' Other ; BONDS, DEBENTURES AND NOTES " Foundation Scottish Properties Ltd. 6 % Note Other . • " . • Number Approximate of Market Shares Cost Value 1,696,754 Principal Amount $ 14,848,844 $ 22,057,802 1,164,050 $600,000 26,923 600,000 26,923 $ 16,639,817 $ 22,057,802 $210,265,451 $190,724,165 * Unquoted • " A P P E N D I X i v ' ' . *"" r""'" Companies [Included! Sn the. Canadian National.System'-! Canadian National Railway Company \ Canadian National Express Company : Canadian National Railways (France) '. / . . ' ^ r ' | v -Canadian National Realties, Limited . .'.''iV.i . Canadian National Steamship Company, Limited v , . . i'.;-..^  .-•>;: Canadian National Telegraph Company . : :'s- ' y/'^  ,' Canadian National Transfer Company ' .... , . • ';••• .: Canadian National Transportation, Limited •.','V- >? > V The Canadian National Railways Securit ies Trust v' The Canadian Northern Quebec Railway Company •' ' , • ' D. Chapman and Co . Limited . ' Eastern Transport Limited '.'. ; : i ' • ' ' " • East-West Transport Ltd. . ; . • - • ' ; ' , : Empire Freightways Limited The Great North Western Telegraph Company of Canada ; ; Hoar Transport Company Limited . . . . -k Husband Transport Limited • . . Midland Superior Express Limited '• .' " ' £ The Minnesota and Manitoba Railroad Company '". The Minnesota and Ontario Bridge Company , :• '•' Mount Royal Tunnel and Terminal Company, Limited •;. ; •'• ,• The Northern Consol idated Holding Company Limited . The Quebec and Lake St. John Railway Company '' '..'•">:;•"•' .'. •••. Scob ie 's Transport Limited V*..;."'-, •:''••'••'..'•'•'i• . The Toronto-Peterborough Transport Company, Limited . - ; Central Vermont Railway, Inc. .:• ''-''''••"'{': ••' Central Vermont Transportation Company \''. y \ ; S.. Duluth, Rainy Lake & Winnipeg Railway Company . ' • •'. " . -''X^-('. i • • •• Duluth, Winnipeg and Pacif ic Railroad Company ' • •.•"\ :..•''.'i •'„••. , Duluth, Winnipeg and Pacif ic Railway Company *: • ••••'•*'.,; ' Grand Trunk-Milwaukee Car Ferry Company Grand Trunk Western Railroad Company H In addition, the property of the Canadian Government Railways'. . .,.•!, is entrusted to the Canadian National Railway Company as part of the System. APPENDIX. IV Consolidated Balance Sheet at December 31,1966 Assets Current Assets Insurance Fund Cash Accounts receivable Material and s u p p l i e s ; Other current assets Government of Canada—Due on deficit account Investments in Affiliated Companies not Consolidated A i r Canada j J o i n t l y operated rail and terminal facilities Property Investment Road Equipment , Other physical properties Other Assets and Deferred Charges Less recorded depreciation Other investments Prepayments Unamortized discount on long term debt Other assets Deferred charges $ 53,539,728 107,892,997 76,835,257 34,007,884 8,593,217 240,819,500 47,885,450 2,651,467,657 1,464,560,536 143,940,532 •4,259,968,725 1,016,161,115 4,689,126 2,123,816 14,580,334 7,635,786 11,373,097 V. $ 280,869,083 16,326,528 •' 288,704,950 3,243,807,610 40,452,159 $3,870,160,330 Liabilities Current Liabilities , ; Provision for Insurance ; Other Liabilities and Deferred Credits Long Term Debt Accounts payable Accrued charges Other current l iabilities Bonds . . . Government of Canada loans and debentures Shareholders' Equity Government of Canada $ 106,981,158 50,344,308 9,799,135 1,327,485,264 • 445,354,762 Capital Stock of Subsidiary Companies Owned by Public 6,000,000 shares of no par value capital stock of Canadian National Railway Company 359,963,017 1,070,008,366 shares of 4 % preferred stock of Canadian National Railway Company 1,070,008,366 Capital investment of Government of Canada in the Canadian Government Railways 441,455,292 ~ : • ~ : ' ' 1,871,426,675. 4,345,185 $ 167,124,601 16,326,528 38,097,315 1,772,840,026 1,875,771,860 53,870,160,330 The notes on page 30 are an integral part of this Balance Sheet. W . R. Corner, Comptroller. ; APPENDIX V Canadian National Railways Department of Highway Services F .A .Ga f f ney , V i c e - P r e s i d e n t February'20, 1968. Mr. John, W. F i t c h , Our F i l e : 5030-17 •Dear Mr.. F i t c h : ' V"'•'•/'••:. C '!\'r&?-i#~:^-t'--I have your l e t t e r of February 15th on the subject o f common ownership o f two.or-more modes of t ransportat ion by one ]:> company. I^T.J'-:-. Canadian Nat iona l ' s object ive i s to o f f e r the k ind of • t ranspor ta t ion serv ice that i s best su i ted to .pub l i c demand, both i n terms of cost and e f f i c i e n c y . To fur ther t h i s concept, the company decided to supplement i t s ra i lway services with c o l l a t e r a l . t ruck ing f a c i l i t i e s wherever close co-ord inat ion of operations would e f f e c t i v e l y improve i t s se rv i ces , and, there fore , i t s competit ive po s i t i on . In implementing that po l i c y , Canadian Nat iona l has been proceeding caut ious ly and, as a general r u l e , has endeavoured to enlarge i t s t ruck ing f a c i l i t i e s through a very s e l e c t i v e purchase of ex i s t i ng highway operators. In t h i s way, i t i s not adding suddenly to the t o t a l t ransportat ion f a c i l i t i e s of the Country s ince that could produce an undesirable surplus, and lead to a per iod of uneconomic competition by the weaker operators s t r i v i n g to maintain t h e i r po s i t i on . , The company does not regard competition between the ra i lway and commercial t ruckers as a f i gh t fo r su rv i va l - i t i s not i n any way in teres ted in d r i v ing the independent t rucker out of business^ Both the ra i lway and the truck are too l s of t ransportat ion, and in the best i n te re s t s of the shippers and rece ivers - the users of the serv ice - each t o o l should be*used as i t i s best su i ted. The very s i ze of the f o r - h i r e trucking industry • ind ica tes how remote i s the p o s s i b i l i t y that the rai lways could . ever obta in a monopoly of i t , even i f they wanted to do so. I f an examination i s made of estimates by the Dominion Bureau of v r : S t a t i s t i c s regarding i n t e r - c i t y commercial trucking operations i n Canada, i t w i l l be found that the ra i lways ' t o t a l Canadian t ruck ing operations - and th i s would include a l l the rai lways i n Canada and not just the Canadian Nat ional - represent no more-.v; than f i v e or s i x percent of the t o t a l i n t e r - c i t y highway business. ••^ Pr ivate t ruck ing i s a l so taken into cons iderat ion, the percentage of the ra i lways ' share of •the i n t e r - c i t y t ruck ing industry accounts fo r only two to three percent of the t o t a l * Thus i t i s apparent how remote i s the p o s s i b i l i t y that the rai lways could ever monopo-l i z e the t ruck ing f i e l d . Added to t h i s i s the fact that p r o v i n c i a l ; regu la tory boards make a strong point of ensuring that there i s competit ion on highway routes, and i t i s most u n l i k e l y that they w i l l change th i s po l i c y to favour railway-owned trucking operat ions. I hope the foregoing w i l l be of some value to you i n the wr i t i n g of your thes is . ! Yours t r u l y , V ice-Pres ident APPENDIX VI Canadian National Railways Express Freight Services 4 July 1968. Mr. John W. Fitch, Dear Mr. Fitchs Reference is made to your letter 1 of June 23rd concerning highway units r operated by or on behalf of Canadian National Railways. As at December 31> 1967, the Canadian National owned or leased, for the haulage of express and freight, a total of 1795 trucks, 1141 tractors, 3033 serai trailers and 834 containers - total 6803 units. A breakdown by type and assignment follows: Owned Leased ' 1 Total Tractors - line haul 478 90 : '568 Tractors - city P & D 265 24 289 . Trucks - city P & D 204 18 222 Semi trailers - line haul.,, • L403 V 2403 :. Semi trailers ~ city P & D 74 : 74 Total - C.N.T.L. '2424. 132 ''Y 2556 •.">[*! • 1 ;': Operated by C.N.T.L. (Rail) Tractors - line haul 142 «* 142 Trucks - line haul 371 371 .•./2 Operated by C.N.T.L. (Rail) (Cont'd) Owned • Leased Total Semi trailers - line haul Semi.trailers - plan II piggyback Total - C.N.T.L. (Rail) Operated by C.N. Express Tractors ~ city P & D Trucks - city P & D Semi trailers - city P & D ''^  Containers Total — C.N. Express '•"•;!. Canadian National Transportation Limited represents the nine trucking subsidiaries owned by the railway and are operated independent of r a i l • operations. C.N.T.L. (Rail) are those inter-city highway operations manned by railway employees for the transportation of express traffic. Units assigned to Plan II piggyback services, i.e. railway transportation ; of trailers owned by the railway, are accountable to this branch of the railway. Insofar as vehicles for C.N. Express are involved, trucks, trac-tors and semi trailers are utilized in local pick-up and delivery opera-tions. The 834 containers listed with this group, are used exclusively for the inter-city transportation of express shipments either via r a i l or highway. • \ With respect to the total number of powered vehicles registered in Canada, the most recent release by the Dominion Bureau of Statistics indicates a total of 1,266,024 units licenced in the year 1966. Thus the 2936 trucks and trailers owned or leased by the C.N.R. represent an infinitesimal por-tion of the total registrations. I trust the information supplied herein meets with your requirements. Yours truly, 267 - 267 $28 - $28 1308 - 1308 142 - / 142 1202 - 1 1202 761 ; - 761 834 : ~ '. , 834 2939 , - [ 2939 Vice Presidemv. B I B L I O G R A P H Y 14-7 BOOKS; Alberts: and Segall, The Corporate Merger, The Graduate School of Business, Univ. of Chicago, Chicago, 111., 1966 Bonavia, M.R. , The Economics of Transport , London, i 9 6 0 Currie, A.W. , Canadian Transportation Economics, Univ. of Toronto Press., Canada, T.9,67 Drayton, Emerson and Griswold, Mergers, and Acquisitions: Planning and Action, Financial Executives Research Foundation, Inc. New York, t.963 Fenelon, K.G., Transport Co-ordination, P.S. King and Son Ltd., Orchard House, Westminister, 192-9 Foster, CD., The. Transport Problem, Blackie and Son Ltd., Lon.,1964-Fulda, Carl H., Competition i n the Regulated Industries: .Transportation, The Trade Regulation Series, Boston, 1961 Hay, W.W.., An Introduction to Transportation Engineering, John Wiley and Sons Inc., New York, 1.961. Koontz and O'Donnell, Readings i n Management, McGraw H i l l , New York, 1:959 Mason, E.S., Economic Concentration and The Monopoly Problem, Harvard University Press, Cambridge, Mass., 1959 Myles. Mace and Montgomery, Management Problems of Corporate  Acquisitions, Harvard University Press, Boston, T962 Nelson, Ralph L . , Merger Movements: i n American Industry, Northwestern Univ. Princeton Univ. Press, Princeton N.J.., 1:959 GOVERNMENT DOCUMENTS. Lessardy Royal Commission on Transportation, Vol. IT, Queen's Printer and Controller of Stationary, Ottawa, December, T.96T Carr-, D.W. and Associates, Royal Commission oh Transportation  Vol. I l l , Queens's Printer and Controller of Station-ary, Ottawa, 1:962. Chap. 69 - National Transportation Act of 1-967, Queen's Printer and Controller of Stationary, Ottawa, T967 Chap. 234- - An Act Respecting the Railway - Queens: Printer, Ottawa, 1:960 I4-8 1:959 Sessional Committee- on Railways;, A i r Lines and: Shipping Owned, by the Government, Queen's; Printer, T.96O 1:960 Sessional Committee, on Railway's, A i r Lines and Shipping Ownedcby the: Government, Queen's Printer, I96I: 1:961. Sessional Committee on Railways, A i r Lines and Shipping Owned, by the Government, Queen's.. Printer-, 1962 1:963 Sessional Committee on Railways, A i r l i n e s and Shipping Owned by the. Government, Queen's Printer-, 1964-United States J u r i s d i c t i o n a l Conflicts, and the Coordination of Transportation - Interstate Commerce Commission Statement; No. 606 - U .S.. Govt. Printing O f f i c e : 1.959 Transportation Diversification*;, Hearings before a Subcommittee of the. Committee on Interstate and Foreign Commerce, House of Repr., Eighty - s i x t h Congress, Second Session on H.R. 7960', H.R. 796T, H.R.. 7962,. H.H. 92.79, H.R. 928Q and H.R. 9281 , U.S. Gown. Printing Office:, i960 PERIODICALS. "After Defeat - Rearmament. ,I; Canadian Transportafjo t i o n , A p r i l , "1:903 The A t t i t u d e of Quebec Towards Trucking ", Canadian Transportation. March, I96I " Attitude of the; Long - Haul Trucker" Can. Trsp. January, 1:962 Barbon, Marvin W, ,"The Second Transportation Revolution Harper' s Magazine:, March, 1:957 Barriger, John W.,"The Effects of Merger on Competition ", Transportation Journal, Vol. 7,Nov3.,JSpring 1:968 Beardsly, P.T.,"Restrictions Against R a i l Entry into Other Transportation Fields; ", Law and Contemporary Pro-. blems:, Autumn, 1:959 Beards!cy, P.T., " Integrated Ownership of Transportation Companies and the Public Interest", The George  Washington Law Review, October, T..962 .. " B r i t a i n ' s F a i l u r e with R a i l s Poses a Question fo r Canada, Transportation Topics. Se-pYt. 24-, 1:962 1if9 Bunting, W,"Common Goals for* Common Carriers - A Blueprint for Intermodal Co-ordination ", I.C.C. Practitioner's Journal, Sept, 1:963 "C.A.B. Authorizes" Long-Haul Motor Carriers to Enter Air Freight''Forwarding Business" T r a f f i c World, : Sept. 3 0 , 1967 " Canadian National Adds: 1:5,000 Route-Miles ", Canadian Trsp., July, t§60 " C.Pr- a Total Transportation System Can. Trsp.. January, 1*968 " C.P.R. 1 Merchandising Services" - Railway Age, Oct. 5 , 196^ " Canadian's Propose 'Qomplete.1 Transportation ", Railway Age, Oct. 5 , T96M-" C P . Puts Emphasis on Integration ", Can. Trsp., February, T968 " Canadian P a c i f i c Railvray Company " , I n s t i t u t i o n a l Report, Burns. Bros and Denton Co. N.Y. July, 1967 " Canadian P a c i f i c - The Restless Multi-modal Col-ossus to the North ", Railway Age, Dec. 1:8/25, T967 " Canada's R a i l Aids ", Transport Topics ?Nov. 12 , 1:962 " Canadian Railways Increasing Ownership of Motor Carriess ", Transport Topics, Feb. 1 9 , 1 9 6 2 " Coordination of Service" Syracuse University, Business Research Center, Salzberg Lecture Series # 16 " Container!zation " Can Trsp., Nov. 1963 " Debate;:. Should Railways Engage i n Transcontinen-t a l Trucking ?", Can. Trsp., Jan. 1 9 6 2 , pp. 18-23 Dodge, William H., " Common Goals of Common Carriers - A Blueprint f o r Intermodal Coordination I.C.C. Pra c t i t i o n e r ' s Journal, Oct. 1:963 11 F u l l Text of Piggyback Rules ftoposed by I.C.C. Examiners ", Transport Topics,Sept. - 2 , 1963 150 Gaffney, F.A. 11 Canadian National's Trucking P o l i c y " Can, Trsp., Nov. ,.21961 Gordon, D. " C.N.'s 1 Man at the Top Talks about Trucking #, Can. Trsp. June, i 9 6 0 Gordon, D., " Changes Proposed i n Grain Handling", Can. Trsp. June, t 9 6 0 Gordon, D., " The Railway's Role i n 'Total D i s t r i b u t i o n ' " , Can. Trsp., March, 1 9 6 1 , p. 1:8 Gordon, D., " Needed: Integrated Transportation " Can. Trsp., Oct. 1962 Harrison, Carter M. , " Co-ordination: A Blueprint", I.C.C. Prac t i t i o n e r ' s Journal, Dec. 1963 Holubowltz:, R.P., " The Transmodalist"-, World Ports. Oct. 1967 " How the C.N.R. Sees i t s Trucking Role", Can. Trsp. Jan., 1.902 ......... " Integrated Services, f C.P.'s Progress " Can. Trsp. Aug. 196^ " Integrated Transport Systems" Railway Age, Nov.2,1959 ........ •" I.C.C. Balks:. Canadian Railway Attempts to Get Truck Rights", Transportation Topics,Sept. 24-, 1962 Loomis, Daniel P., "Transport D i v e r s i f i c a t i o n " , The Financial Analysts Jour., Nov.-Dec.,1960 McDonald, W.H., " C P . ' s ' T o t a l Transportation' Concept", Can. Trans., Nov. 1:964-MacMillan, N.J., " How C.N. Fared i n 1967 ", Can. Trsp., Feb.,1968 Moulton, Harold G.,"Transportation Companies and Coordination", Amer. Econ. Rev. Supplements , 1933 " P.M.T.A. Verdict - Ruling Holds R a i l A c t i v i t y Was ^ l a w f u l " , Transport Topics, Feb. 27, T96I , " Quebec Says '"'No' to Midland-Superior", Can. Trsp. Sept. 1-964. , " R a i l Bid fo r Water Carrier Puts Public Interest Question to I.C.C." Transport Topics, Sept. I.9, 1.^ 60 15T I /'Railway Invasion of Highway Transportation Inches Forward,.11 P a c i f i c Report-Motor Carrier Jan. I 9 6 I ......... " Rail's. Monopoly Attempts Exposed i n Record of Successful Anti-Trust Suit by Riss and Co. ", Trans- port Topics , Nov. 2 1 , 2 8 Dec. 5,12 &195 1-960 Ramsay, R.,"Needed a Unified. Trucking Front " Can. Trsp., Jan. I 9 6 2 Shinn, Glenn E. , " Public Transportation and Federal Regulation" T r a f f i c World , January 21,1961 " Southern P a c i f i c Co. Seeks. C.A.B. 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" A Blank Check for. the Railroads." Fre.und' »<T.G. " No Company Store i n Transportation" "Green Light f o r Monopoly i n Transportation" " Rules f o r Ruin i n Transportation " Rentz.el,D.W. " The Big Squeeze " - Ssssciation of American Railroads; " One Package Transportation " " The Gathering Transportation Storm " ""Railroad Operationa T967 " - Canadian National Annual Report, 1966 - Canadian P a c i f i c Annual Report , 1967 

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