_Narrating several occurrences which made huge Canadian National
deficits inevitable._
Comparisons may be odious; but they are sometimes illuminating. To
many sincere well-wishers to the experiment of nationalizing about
twenty thousand miles of Canadian railways, the clearest remaining
impression of the earlier years of that regime is of enormous
deficits. Apprehension of the causes of these deficits is not clear.
It certainly could not be among those who once advocated turning over
this national property to a competitor for a dollar a year, leaving
the nation to carry all the fixed charges on a capital obligation
four or five times the size of the national debt before the war, and
about two-thirds of that interesting burden in this tranquil era.
Before discussing the purely Canadian situation it is worth while to
look at what happened across the line.
When the United States entered the war, all the railways were taken
over by the Government, under the supreme direction of the Secretary
of the Treasury, Mr. McAdoo, and with a guarantee of pre-war profits
to the owners. The so-called national administration lasted twenty
months, and lost one billion, four hundred and forty-three million
eight hundred and ten thousand dollars, or more than the total fixed
assets of the Canadian National Railways before the inclusion of the
Grand Trunk. Besides this loss, the Government advanced, during its
control, one billion one hundred and forty-four million dollars for
equipment, additions to, and betterments of properties which the
nation does not own. The chances for complete recovery of that money
are probably nothing more than chances.
That was nationalization in the United States, under the autocratic
control and operation of a politician.
Nationalization in Canada began under vitally different conditions,
as to the properties taken over, and the character of the management.
When in 1920 the effects of the American experiment were being
acutely felt in Canada, I happened to speak to the Ottawa Canadian
Club. This comparison of conditions on both sides of the border was
made; and I think its fairness is still beyond question:
IN UNITED STATES. IN CANADA.
1st. The Reason. War measure. For economic causes.
2nd. The object. Unified service Adequate and efficient
regardless of cost. service.
3rd. Duration. Temporary; this very Permanent; due to
condition being quite conditions on which
unsettling. the policy was based.
4th. Method of Political--Mr. McAdoo. Non-political; board
Management. of management of
business men.
5th. Competition. Eliminated; practical Preserved; strong
monopoly of the competition assured.
worst kind; over
265,000 miles.
6th. Result on Indifference. On their toes.
Staff.
7th. Result Guaranteed return to Recognition of
generally. Railways on investment. efficient service.
Dictator McAdoo Promotion from merit
wages award proved alone.
to be a thirty-chapter
serial with supplements.
It would be a signal failure of duty here if one did not offer
the warmest tribute of gratitude and admiration to the Board
of Directors, which the Government appointed in September,
1918, to serve with me, and which administered 17,478 miles of
railway, formerly the Canadian Northern, Intercolonial, National
Transcontinental and Grand Trunk Pacific. The directors were:
A. J. Mitchell, Toronto.
G. A. Bell, Ottawa.
Robert Hobson, Hamilton.
E. R. Wood, Toronto.
F. P. Jones, Montreal.
Sir Hormisdas Laporte, Montreal.
R. T. Riley, Winnipeg.
C. M. Hamilton, McTaggart, Sask.
Col. Thos. Cantley, New Glasgow, N.S.
Later, Mr. F. P. Jones resigned for business reasons, Mr. C. M.
Hamilton retired to become a candidate for provincial honours in
Saskatchewan, (he is still in the Government at Regina), and Col.
Thomas Cantley resigned when selected as a candidate in the Federal
election of December, 1921; thus accentuating the non-political
character of the Board.
It is proper to repeat that these gentlemen gave to the work,
shortly to be sketched, exactly the kind of supervision which able,
conscientious men give to the management of private concerns. Many an
anxious discussion did we have about the broad lines of policy, and
the measures essential to laying deep and sound the bases of future
success of a business which perhaps had heavier handicaps upon it
than were hindering any magnitudinous contemporary enterprise.
One of the most precious qualities in the administration of
great businesses, including Governments, is what Napoleon called
two-o’clock-in-the-morning courage, which is very different from
the desperation of battle-heat. A glance at the fundamentals of the
Board’s situation, will indicate whether they showed the Napoleonic
quality, in the cold, dead hour, when temptations to turn over for a
snooze are most potent.
The Board inherited a vast mileage and a traffic volume, which was
not likely swiftly to be enlarged, once the troops were returned, and
the war shipments, which had taxed the Intercolonial, for instance,
almost to its limits, for the first time in its long history,
were over. All costs were at a height, which before the war, was
unthinkable. Rates had not risen in comparison. The physical property
was badly run down, owing to war conditions, in which connection were
two especially heavy burdens, the quality and extent of which the
general public could not be expected to appreciate.
The life of a tie and of a wooden trestle is from seven to ten years.
On the Canadian Northern, the National Transcontinental, and the
Grand Trunk Pacific, there were many trestles which must be replaced
either by fills or steel bridges. You would be surprised to know how
many trestles there were between the Yellowhead and Prince Rupert,
where it was popularly assumed that steel bridges had eliminated the
old-time feature of pioneer construction.
To those who are not very familiar with an important phase of
railway practice, perhaps it may be explained that wooden trestles
are built in places where it is intended to make entirely new and
costly embankments for roadbed. But it is not done that way in the
beginning, because a wooden trestle is quickly and cheaply put up,
whereas, to make an embankment with, perhaps, hundreds of thousands
of cubic yards of earth or rock, means the employment of innumerable
teams at enormous expense, and much delay in laying rails.
Sometimes, indeed, trestles are built because the character of the
earth’s foundation makes it uncertain whether the first location is
the best, and a trestle is adaptable to whatever slight deflection
may be necessary. For several years you can use the trestles, relying
on traffic developing sufficiently to pay for the embankment out of
revenue. You then build it economically by work train, with the cars
loaded by steam shovel and unloaded by a steampower plough, that
sweeps the flat cars clean.
The supersession of trestles was a large and expensive element in
the Board’s work of putting the National Railways into first class
operating efficiency.
There was another costly factor of immense importance which did
not enter into the “national” administration of the United States
railways. Thirty-five per cent. of all our mileage had been taken
over from the contractors during the war. Anybody who has noticed
what happens when a gas or water main is disturbed in a street, knows
that though the filled earth, when the job is done, is a hump in the
road, it becomes a hole as the earth settles. Every motorist has
mourned when he hasn’t objurgated, as he comes again, again and again
to a piece of new provincial highway where the concrete has not been
put down, because the “fill” must have time to settle. Thirty-five
per cent. of the National Railway mileage was, to a considerable
extent, like the roadway of the disturbed water main, or the
disturbed motorist. Besides these factors new roundhouses, section
men’s residences, water facilities and many terminal plants had to be
provided or improved.
In so general a sketch as this it is impossible to distinguish
between expenditures on capital and maintenance accounts. We were
compelled to go to Parliament for large sums for ordinary as well as
for deferred maintenance, in addition to what was imperative for new
equipment, terminals and completion of branch line construction.
In the public apprehension of somewhat complex financial
relationships, the uppermost idea no doubt was that the Canadian
National Railways were losing millions, hand over fist, on the
mere running of trains, and that the money voted by Parliament was
swallowed up in hopelessly irrecoverable deficits. The report for
1921 gives the distribution of the total net cash advances to the
Canadian Northern:--
Refunding of loans, including principal of
equipment securities $ 32,306,952.49
New Construction 29,804,673.62
Betterments 21,962,955.31
Railway Equipment 42,339,483.81
Rails, accessories and other material 19,212,656.94
Capital contracts payable 1,973,820.00
Fixed charges and operating deficits 103,487,706.71
---------------
Total $251,088,248.88
---------------
The good citizen, who always pays his way, and looks upon everything
connected with Government as a deadly allurement to wasteful
extravagance, is tempted to assume that a first class recklessness
and a third-class efficiency have gone into the Canadian National
Railways’ management. A reading of the abridged report made to Mr.
Kennedy in 1922, of the Operating and Maintenance Department, which
is given in the appendix should help to correct this error. Still,
a tendency to persist in it may linger, especially among those
who regard our great rival, the C.P.R. as being filled with the
excellences which public service is believed conspicuously to lack.
Saddened owners and candid friends of the Canadian National Railways
may not discover unaided a feature of the war and post-war situation
which makes the practice of comparison more interesting and less
odious than it usually is. It has to do with what has already been
noticed--that thirty-five per cent. of the Canadian National mileage
was received from the contractors during the war.
Does it ever mean anything to the critical public, I wonder, that
Parliament and the Dominion Board of Railway Commissioners recognise
no difference between the pioneer railway and its old-established,
flourishing senior? The Canadian Northern was not begun until the
Canadian Pacific had been operating transcontinental trains for ten
years. Its main line was built through practically empty prairie
country. But though it was a pioneering system, it had to meet the
same conditions as to passenger and freight rates that governed
the C.P.R., with the established traffic of the only continuous
transcontinental railway in the world. This disparity applies with
equal force to the opening up of the northern wildernesses in Quebec
and Ontario by the National Transcontinental and the Canadian
Northern.
The emergence of the National Railways placed upon us a
responsibility for creative, pioneering services the magnitude of
which has surely not been fully appreciated by Parliament, public or
press. So far as one is aware, the value to the country of a pioneer
railway has never been worked out on an actuarial basis. Take, say, a
territory three hundred miles long by thirty miles wide into which
settlement is introduced by a railway. Thirty towns are established
in it through which all the newly-created business of the region
passes. That business is represented not only by what is visible in
the thirty towns and their sustaining farms. It is in the factories
of Ontario, the financial, theological and other institutions of the
East, and in all the paraphernalia of transportation, from coast to
coast, including the car and engine shops, and the divisional towns.
The common denominator of the whole range and multitude of activities
set in motion by the pioneer railway is the Government, the expenses
of which, avowedly for the general advantage of Canada, are roughly
divisible into two sections--as the expenses of a great bank
are. There are the expenses of established business which yields
dividends, and those which are chargeable to promotion, expansion,
pioneering--which will presently become profit-making. The Government
furnishes various administrative services to newly-opened country
which do not produce an immediately balancing revenue. No criticism
can be offered against this general policy. Banks carry on branches
in sparsely populated localities, for similar reasons. They support
their children for a while because presently the children will
support them.
Railways are expected to furnish services which cost more than they
bring. The Canadian National is carrying a larger proportion of
these than ought to have been assumed, under a properly controlled
programme of original construction. But that does not alter the
fact that the pioneering service is being given, under the orders
of a Board of Commissioners which, broadly speaking, treats the
youthful branch as if it were the matured trunk. The point I wish
to suggest is that, to obtain a fair perspective of the Canadian
National Railways, as they were between 1918 and 1922, these aspects
of a thirty-five per cent. of mileage taken over after the Great
War began, should be taken into account; especially in relation to
the heavy expenditures necessitated by a continuation of extremely
adverse conditions.
Look at one of the financial aspects of these tremendous, but typical
necessities for tremendous expenditure. The well-conducted railway,
as already said, expects to replace its trestles out of revenue; and
to carry its maintenance from the same source. On the Intercolonial
it had never been expected that revenue would care for all these
charges. The capital account was continually increased, the money
being supplied by Parliament from taxes, and not carried as an annual
recurring liability, such as the bonded indebtedness of a railway
which must live by commercial processes alone. The Intercolonial was
always true to this form before 1919.
If the National Railways were to be managed as a business, and not as
a makeshift, the Board felt that there should not only be a thorough
rehabilitation of the property, but that all possible costs should
be charged to revenue so that there could be no mistake about the
strictly businesslike character of the whole administration. That
meant requests for vast sums of money, and the charging of them
against revenue, which in turn meant the declaration of huge and, to
the short-sighted, terrifying deficits.
The money could only come from Parliament, on the demand of the
Government. My old colleagues of the Board would not thank me
for saying that they showed extraordinary courage in putting the
situation, in all its formidability, up to the Government. But, to
many seasoned business men, in their place, what they did would have
required volcanoes of two-o’clock-in-the-morning bravery.
If there had been anything like the ancient brand of political
control, or profit, in the Government’s railway dispositions, what
would the Cabinet’s attitude have been? It would have said “Keep
your expenditure down to the lowest possible limit, not giving first
regard to the foundation for future commercial success. Charge
as much of your expenses as possible to capital account, to keep
deficits down, so that we may make the best possible immediate
showing to the voters.”
The Government did nothing of the kind. The Board went to the Cabinet
with a big, hard, forbidding business proposition, which only the
lapse of years could justify. To its enduring honor, be it said, the
Government courageously faced the situation with a kindred spirit;
found the money, and said never a syllable about the political
effects of so much courage, and so much danger.
Though the Board exhibited such splendid courage, let it not be
supposed that there was anything exhilarating about our job. After
all it is a heart-breaking affliction to have to go on month after
month with the results of ceaseless endeavour written monotonously
in red ink. To any Scotch soul, the continued outlay of more
than a dollar to earn a dollar was bound to feel very much like
predestinated doom. There was no escape from the experience in the
present. Without it there was no hope for the future. Thousands of
miles of railway were on the verge of dilapidation. To allow the
process to go farther would be to invite the permanent disaster which
we were determined, if possible, to avoid.
In trying to give to the general public an intelligible account of
a railway administration, there is always the danger of fogging
the story with statistics--of making it impossible to see the wood
for the trees. I am anxious to make it clear that the Board of
Directors, of whom I had the honour to be the head, approached and
performed their duty in a fashion which became the dignity of their
employer--the Canadian nation--and reflected high distinction upon
themselves.
From our first inspection of the property, from Sydney and Halifax
to Vancouver and Prince Rupert, and from our study of the economic
conditions affecting the expansion of revenue, we evolved a definite,
coherent policy. I take the liberty of repeating what I endeavoured
to express in a memorandum which I read to the Select Standing
Committee on National Railways and Shipping, on April 20th, 1921.
Speaking of the general supervision exercised by the Board, and after
stating that they were the directing force in the general policy of
the railways, I said:
“It has been accepted by them as a definite policy that a national
railway system be built up of the various lines owned by the
Government, which in all respects will be the equal of the Canadian
Pacific Railway in its ability to give the communities it serves good
and adequate railway service. To carry out such a guiding policy it
has been necessary to assume that ultimately the traffic for which
the main lines of the system were laid down would be developed. Where
any limiting condition exists which prevents the above-mentioned
policy from being carried out it is the aim of the directors to
remove such a condition. It has therefore been necessary, in addition
to taking up deferred maintenance, to make a start on the progressive
programme of improvements to the physical properties of the system.
It is a matter of regret that much of this work, which could not
further be postponed, had to be undertaken during the last two years
under conditions which added largely to the expense. This situation
was intensified by the fact that initial tie and bridge renewals for
a long section of the main line came due within the period under
review. The extra outlay which it has been necessary to make in an
effort to put track and equipment in the proper physical condition
is largely indicated by the increases in the principal headings of
expense already set up in the statements being placed before you.
“This has involved the expenditure of money to improve locomotive
terminals; extend sidings and switching yards; to put in double
tracking, and improve many other operating conditions, so that a
greater efficiency can be secured from the equipment now owned, and
so that additional traffic may be handled without congestion. It
has also been necessary to undertake some branch line extensions,
particularly those on which some work has already been done prior to
the war.
“Additional rolling stock and motive power has been required, large
additions to the equipment being necessary to put this system in a
position properly to handle its proportion of the traffic of the
country.”
Because of the enormous amount of work to be done, and of the
cost of materials having increased to unprecedented figures, even
then--although the later increases added greatly to the burden, and
wages were also much higher and labour less efficient--we had to
consider carefully the order in which the programme should be carried
out. We therefore, placed the works in the following order.
1. Those absolutely necessary to the continued operation of each line.
2. Those absolutely necessary to the reasonably satisfactory handling
of traffic.
3. Those not absolutely necessary but which would reduce the cost of
operation sufficiently to justify fully the expenditure.
Under such a policy we carried on for over three years. Each year
increased the burden of troubles and anxieties due to advancing costs
of materials and wages, as you may now see.
Our first year, (and the first post-war year,) 1919, far from seeing
any let up to the accumulation of embarrassing labor conditions
originating in the McAdoo award and its many supplements, or a
reduction in costs of material, brought an aggravation of the
situation. The United States Government’s decision to accept
the losses of the United States railroad administration as war
expenditures, was official recognition of the disproportion between
expenses and gross earnings. We carried on without charging any of
our difficulties to war account.
Freight and passenger rates in 1919 remained stationary, while
wholesale prices, according to the Department of Labour’s index,
advanced from 286.5 to 322.7, and the average annual wage of railway
employes increased from $1,061.20 to $1,315.93.
In this year, due to the large amount of deferred maintenance which
was essential to bringing the property up to normal conditions, the
increase in labour cost alone was $19,000,000, and in materials
$2,500,000. The increased cost of our labour was more than half of
the total annual revenue of the Dominion Government when Sir George
Foster became Minister of Finance.
“From bad to worse” describes the situation in 1920, from the
operating point of view. The Canadian National, in common with
other Canadian railways, was carrying the accumulated burdens of
the McAdoo award and its oppressive supplements, etc., as well as
still higher costs for coal, materials and supplies. The inadequacy
of earnings in this situation was fully recognized; but the rates
question was not dealt with in Canada. The continuation of the United
States Government guarantee of pre-war profits to the railroads up
to September, 1920--twenty-two months after the armistice--prevented
increases of charges over there to meet the increased wages. As we
were operating under United States wage rates it was felt that the
Railway Commission should hold us down to United States freight rate
levels.
In this year, too, another crushing blow was dealt the railways by
the Chicago award, which was adopted in Canada under strike pressure.
The award which was made in September, but was retroactive to May
8th, increased wages by over 25 per cent. This, applying to more than
four months’ back pay involved a payment by the Canadian National of
almost six million dollars.
During this year of boom prices and deferred maintenance, the
programme of improvements and betterments had to continue, as much
of the work could not longer be deferred. But at what a cost! In
labour and materials, exclusive of coal, the increase approximated
$29,000,000. In our direct transportation account, our coal bill
alone showed an increase of $6,200,000.
Though 1920 was bad enough, 1921 excelled it in horror. In reviewing
the results of this year, the United States railroad authorities
have called it the worst year in the history of the United States.
“The decline of both freight and passenger traffic was the greatest,
absolutely and relatively, that ever occurred in the country,” the
Railway Age said.
The Canadian railways experienced practically similar conditions
to those existing in the United States. But the Canadian National
System, unlike many other lines, finished the year with its physical
property in better condition than ever before. We drastically reduced
operating and maintenance forces, because the deferred maintenance
work had practically been completed; and because, due to the previous
two years’ work, operating conditions were improved. Though our
traffic, in common with that of other railways, fell away, the year
closed with gross earnings practically the same as in 1920. We were
able to effect such economies in every department that we reduced our
operating expenses by $21,250,000.
Misery loves company. Sometimes, when you are in trouble, it is a
consoling thought that you have not monopolised the chastening rod.
Our handicaps considered, we were not as badly off as some American
railways which, in dividend-earning power, had been regarded as
surest among the sure--the Pennsylvania, for instance.
This line had an operating loss of over $23,000,000 in 1920, or a
total loss of $48,250,000, including taxes and fixed charges, as
against net earnings of over $89,500,000 only four years before--in
effect, and comparatively, a deficit of $112,500,000.
The Canadian Pacific in 1916 had a surplus of $15,500,000, after
paying all fixed charges, and dividends. But in 1920 with an increase
of $87,000,000 in gross revenue over 1916, the C.P.R. not only lost
the advantage of the increased earnings, but advancing expenses
exhausted so great a proportion of their gross that the surplus
in 1920 was only $450,000, after providing for fixed charges and
dividends.
In the spectacular declines of such railways as the Pennsylvania
there was no branch-line factor such as affected our situation. It is
axiomatic in railway practice that most branch lines, of themselves,
do not pay, and that, without the branch lines that do not pay, the
main lines can’t pay--at least their prosperity would be heavily
reduced. In a sense, of course, if you do not build a line into a
prairie region where settlement has already taken place, you will get
business, for the remote farmer will haul his grain to the station,
and his supplies must be hauled a longer distance than would be the
case if he were closer to the steel. But settlement will remain
sparse, and farmers will not grow as much grain, if they have to haul
it twenty, forty or sixty miles to market.
In the main, promises of railways that were made to vanguard
settlements in the old Canadian Northern days had been fulfilled.
Sir William Mackenzie and Sir Donald Mann were so saturated with
the pioneering spirit that it was more difficult to keep them from
getting ahead of traffic than it was to fulfill the promises that
were made.
During the war, of course, all branch line construction was at a
standstill. Work had been done on twenty-four Canadian Northern
branch lines, which the National Board had to take up when the war
was over. One Grand Trunk Pacific branch was under construction, so
that we had twenty-five extensions to take care of. In this field of
general policy our rule was not to ask Parliament for any sort of
blanket authority to make changes from the estimates submitted at
each session. We proposed a programme which we intended to live up to
and not to exceed. We recognized the supremacy of Parliament as to
capital expenditure, as we fought for the supremacy of the Board with
regard to details of contracts.
These twenty-five expansions were in the West. But there were branch
line problems in the East. Indeed, there were portions of main lines,
which, for local traffic purposes must be treated as if they were
branches. In the farther East were several lines which were built
and operated by small companies until, though low wages were paid,
their economic impossibility as independent organizations threw them
into Government control. Service had to be given, with wages raised
to the level of main lines. On one branch line, in Ontario, where
the engineer had been paid less than a hundred dollars a month, his
earnings under the McAdoo awards were raised to the income of an
Ontario Cabinet minister--six thousand dollars in a year.
The Board, loaded with many lines which, as distinctive features of
the system, could never be expected to pay operating expenses out
of revenue, introduced an entirely new system of transportation in
Canada--the self propelled single car, operated by one driver and
one conductor, like an ordinary street car. We placed this sort
of service, some of it run by gasoline, and some by electricity,
on several branch lines, saving costs in power, in the weight of
equipment used, and in wages, at the same time giving greater
frequency and efficiency in service. The policy has, I believe, been
extended under the substituted management, with considerable success.
A light service for example is being given between Toronto and Parry
Sound, on the old Canadian Northern.
One is inclined to think that in this kind of service, rather than
in the electrification of branch railways, which is far more costly
than the general public supposes, the most economical and efficient
adjustment of old steam lines to modern conditions will be achieved.
The principle of the automobile on rails offers a flexibility which
nothing else can; and the possibilities of the electric storage
battery are not yet exhausted.
Very inadequately the scope of the Board’s work, from the fall of
1918 to the fall of 1922 has been sketched--although we stepped out
in October, our resignations were requested in July. The co-operative
spirit was not confined to the directors, or even to the higher
branches of the daily service. The esprit de corps that was developed
far exceeded the expectations of those who believed that Government
ownership meant general slackness. The consolidation of the staffs of
the Intercolonial, the Grand Trunk Pacific and the Canadian Northern
was accomplished without friction of any kind; and the loyalty of the
employes all over the system was admirable.
The justification of the policy laid down in 1918 is contained in the
figures of earnings and expenses for the four years of our regime--it
is fair to include the whole of 1922 in this survey, since we retired
in October and the new chief did not take charge until mid-December.
It will not be too wearisome to give, on the next page, the only
considerable table of statistics which this work contains.
From the mass of facts embedded in these tables one can only extract
a few. The progressive decline in the total loss on operating after
the zero year of 1920--a decline which has been accentuated in
the figures for 1923--is obvious. But it is not so obvious that
the disparity between earnings and expenses in 1922, is due to
the revival of the Crow’s Nest Agreement which threw the railways
backward, from a business point of view. We had expected to break
almost even in 1922; and would have done so, if the revived agreement
had not lopped over eight millions from revenue.
CANADIAN NATIONAL RAILWAYS
COMPARATIVE STATEMENT OF EARNINGS AND EXPENSES
(For the Years 1919, 1920, 1921 and 1922)
GROSS EARNINGS 1919 1920
Canadian Northern $53,562,177.57 $66,695,398.80
Canadian Government 40,179,380.93 44,803,045.84
Grand Trunk Pacific 11,294,617.87 14,408,549.66
-------------- --------------
Total $106,036,176.37 $125,906,994.30
OPERATING EXPENSES:
Canadian Northern $60,034,023.92 $82,953,978.60
Canadian Government 47,728,205.73 55,445,651.29
Grand Trunk Pacific 17,587,567.37 24,543,063.60
-------------- --------------
Total $125,349,797.02 $162,942,693.49
OPERATING DEFICIT:
Canadian Northern $6,471,846.35 $16,258,579.80
Canadian Government 7,548,824.80 10,642,605.45
Grand Trunk Pacific 6,292,949.50 10,134,513.94
------------- --------------
Total $20,313,620.65 $37,035,699.19
GROSS EARNINGS 1921 1922
Canadian Northern $69,088,474.16 $60,679,033.37
Canadian Government 41,275,314.84 40,939,945.70
Grand Trunk Pacific 16,638,677.64 18,516,977.58
-------------- --------------
Total $127,002,466.64 $120,135,956.65
OPERATING EXPENSES:
Canadian Northern $75,564,385.30 $63,625,763.09
Canadian Government 46,990,047.74 43,436,667.67
Grand Trunk Pacific 20,668,360.51 22,809,843.99
-------------- --------------
Total $143,222,802.55 $129,872,274.75
OPERATING DEFICIT:
Canadian Northern $6,475,911.14 $2,946,729.72
Canadian Government 5,714,732.90 2,496,721.91
Grand Trunk Pacific 4,029,691.87 4,292,866.41
------------- -------------
Total $16,220,335.91 $9,756,318.04
The most outstanding fact hidden in the statistics is the relation
of the Canadian Northern to the Grand Trunk Pacific and National
Transcontinental lines. As to this, we will leave out a detailed
comparison with the line between Winnipeg and Fort William, which
gets its share of the grain traffic to the head of lakes, remarking
only that, thanks to the proportion of grain diverted from Canadian
Northern lines at Winnipeg and important points west, this section of
the great project of twenty years ago is by far the best of the whole
line between Winnipeg and Moncton.
Now look at the figures for the C.N.R. and the G.T.P. This is what it
cost to earn a hundred cents in each of the four years:
1919 1920 1921 1922
Canadian Northern 112.1 124.3 109.3 104.9
Grand Trunk Pacific 156.2 170.3 140.2 123.2
For the gulf between earnings and expenses, 1920 was the worst year
in North American railway history. But it was the year in which
the Grand Trunk Pacific was first co-ordinated with the Canadian
Northern--beginning with the grain movement, in September. Thanks
to the diversion of traffic to the Grand Trunk Pacific and National
Transcontinental, Canadian Northern gross rose only 24.4 per cent.;
while the Grand Trunk Pacific increased 28.4 per cent. But the
increase in the cost of earning a dollar on the C.N.R. was 12.2 cents
as against 14.1 cents on the G.T.P.
The conditions as to increase of traffic from the country served by
these former rivals, are, relatively, what they were before the war.
If the two lines were on anything like an equal footing as regards
the quality of the territory served, and the amount of business
available, for instance, at such competitive points as Saskatoon,
Regina and Edmonton, where both compete against the C.P.R., the ratio
of operating losses would have been about the same, in 1922, when the
return to normal was well on the way, and would have been much nearer
attainment but for the Crow’s Nest revival. But, though the G.T.P.
total earnings were not one-third of the C.N.R. total earnings, and
were an increase of nearly two millions over those of 1921, or 11.1
per cent., the loss on operation was nearly a million and a half more
than on the Canadian Northern. If the Canadian Northern loss had been
proportionally the same as the Grand Trunk Pacific, it would have
been over fourteen million dollars instead of less than three.
These remarkable comparisons, it cannot be too clearly emphasized,
are in spite of the turning over of immense quantities of C.N.R.
business to the G.T.P. The conviction remains that, if the C.N.R.
could have been kept as a separate entity, it would have made a small
profit during these four years, with the exception of the abysmal
1920, and its emergence into an entirely self-sustaining system would
have been immediately in sight.
One aspect of the co-ordination of the C.N.R. and G.T.P. is specially
worthy of remembrance. During the heavy season of grain movement
to the Lakes it has been an excellent policy to transfer millions
of bushels to the old National Transcontinental at Winnipeg, to
relieve the congestion on the old Canadian Northern between
Winnipeg and Port Arthur, via Fort Frances. The effect of this sort
of double-tracking has been partially offset by the necessity to
operate as two separate railways, with two sets of roundhouses,
repair shops, etc. There has been a special advantage to the National
Transcontinental side of the account, though. During, say, eight
months of the year, the Canadian Northern could handle all the
business accruing from its own lines at Winnipeg. But the diversion
having been made for the grain-congestion period, it is continued
for the balance of the year. A facility in movement for the Canadian
Northern during the rush season is more than paid for by a loss of
traffic for the rest of the year.
Such, then, was the irresistible logic of railway events when the
irresistible logic of political events presented to the directors,
including the two who had given long and undivided service to the
properties, a freedom from responsibility which has been appreciated
at its high private value.
The report for the year 1922, the policies for which were laid
down under the first President’s chairmanship, was written by
another hand. Six months after the old administration ceased,
this is what was reported to the Minister of Railways and the
Governor-General-in-Council:--
“On behalf of the Board, I would like to state that after inspection
of the main arteries of the system, we find that the work undertaken
has been well performed, and that the expenditures have been well
applied. While the demands for capital expenditure on a system
of such extent in a growing country, as the former Board stated,
are never-ending, yet it may now be said that the three groups of
lines, until recently the Canadian National Railways, enter the
consolidation in excellent physical condition and operating at a
high mark of efficiency as regards actual performance, or movement
of traffic, and other factors controllable by management. Apart
from certain well-known cases of duplication, the lines are well
located and in exceptional position to successfully perform the
transportation demands of the country. The problem, as far as the
lines covered by this report is concerned, is how sufficient traffic
may be developed to carry the overhead and maintenance expenses.
As far as transportation costs go, an economical performance is
being made. Under these circumstances the margin for improvement,
with the present light volume of traffic, is largely dependent on
circumstances beyond the control of the management.
“On some of the older sections there are still improvements that
should be undertaken, but in the main the lines are modern in
character, and were built or have been brought up to standards which
are ahead of actual traffic requirements, except under stress of
seasonal movements.”
Finally, touching these early years of nationalization, one may be
allowed to indicate the footing on which we parted from our working
associates by repeating two paragraphs from the President’s farewell
circular:
“It has been our constant aim to keep the National system free from
anything that could be used to support a charge that the Government’s
railway, steamship, express and telegraph services, were being
used for political purposes. I can only say for myself and those
directors who retire with me that nothing in the nature of political
interference would have been tolerated while we were in charge. It is
a necessary policy if efficient administration is to be obtained.
“In sending out this note of farewell, which will reach many of those
with whom I have had practically a working lifetime’s association,
I desire to express my hearty appreciation of the friendly personal
relationships and friendships which have resulted from our joint
efforts to do the best in our power for the fine properties in which
we were employed, which properties, I know, we have felt are of such
potential worth that they can be made great national assets. The way
has not always been smooth, and the work has always been hard, but it
has always been worth while, because of those with whom I have had
the pleasure of sharing the load. For all of you who remain to carry
on I wish the best of good luck. I hope that you will be permitted
to advance the interests of Canada’s National Railway, Steamship,
Express and Telegraph services, to an extent that will demonstrate
that public ownership may still be consistent with good management.”