ECONOMY IN OPERATION

It has been seen that about 50% of the charges collected by the express companies for the transportation of packages go to the railroads, 50% remaining to the express companies. To be exact, in 1917 the sum of $222,860,373 represented the collection charges by the express companies, of which $113,535,059, or 51%, went to the railroads, leaving to the express companies from transportation, $109,325,314. Revenues of the express companies from operations other than transportation brought their total revenues up to $115,920,129. Their operating expenses were $113,721,057. In other words, for every 10% by which Government operation of the express service might decrease the operating expenses of the express service, even if the present contracts with the railroads are assumed by the Government, there should be a saving in the amount of express rates assessed the public of no less than 5%.

Such savings seem inevitable under a Government postal express. Vast as is the extent of the parcel-post operations, there is no evidence that all or even most of its ramifications have yet reached that point of magnitude where the addition of new business means an increasing instead of a decreasing cost per unit. Let it be remembered that the parcel-post carried in 1917 some 1,120,000,000 parcels and the express companies some 280,000,000; so that, taking into account the secondary features of the express service not performed at present by the post office, the inclusion of the express service in the parcel post would increase the latter's activities not much more than 25%. Certainly, it may be fairly assumed that any such services in which the law of increasing costs per unit might hold would be at least counter-balanced by services in which the law of diminishing costs per unit would hold; so that we may consider the economies of a Government postal express absolutely instead of relatively.

CONSOLIDATION OF EQUIPMENT

In the first place, the express companies require for their operations much the same kind of equipment as is required by the Post Office Department. Express cars and railway postal cars; horse-drawn express delivery wagons and horse-drawn post office delivery wagons; motor express trucks and motor post office trucks; express company horses and Post Office Department horses—all do similar work, along similar routes, in similar sections of similar cities at similar times of the day and under similar conditions. The economies possible by consolidation are lessened only slightly by the fact that on the main railroad trunk routes express traffic is often carried by trains composed entirely of express cars, in which there can obviously be little saving by consolidation of the express system and the parcel-post. In passing, it should be noted that the railway mail cars are furnished by the railroads, and in most cases the trucks and wagons and automobiles used in transporting mail through a city render that service by contracts of the Post Office Department with their owners; so that the savings in consolidation would accrue indirectly by lower contract rates rather than directly.

Especially in smaller communities and in the thinly settled outskirts of larger communities can one wagon or one motor truck often render the service now requiring one express wagon or motor truck and one post office wagon or motor truck. On less crowded routes and on less crowded trips, one railroad car can often render the service now requiring an express car and a railway post office car. And on the crowded routes and in the thickly-populated cities, if one vehicle of transportation cannot render the service now requiring two, at least in many cases four such vehicles can render the service now requiring five. (Note 3.)

CONSOLIDATION OF AGENCIES

In the second place, it has been seen that each of the express companies of the United States concentrates its activities upon a certain section of the country. That is to say, on many occasions a package traveling a long distance may be handled by two or three, or sometimes even four express companies before it reaches its destination. The wastes and superfluous costs therein are evident. There is not only the direct cost of unloading, transferring, and re-loading parcels from one express company to another—and at many points express offices and yards are the width of an entire city apart. There is also the cost of the complicated bookkeeping necessary to determine for what part of the journey of a package each express company has been responsible and accordingly to what share of the express charge each is entitled. That this cost is no mere creature of a brain hell-bent upon Government ownership is proved by the fact that of a total operating expense of $113,721,057 in 1917, exactly $32,272,795 or 30% was paid to office employees. As it stands, this is the largest single item of expense in the express business, nor does this sum include the salaries of the officers and general superintendents and minor managers, nor the salaries of their clerks and subordinates directly engaged in the managing and superintending aspects of the express business. A consolidation of the express companies of the country into one agency would end that large proportion of office work attendant upon the calculation of the pro rata returns to separate express companies, and upon the issue of separate receipts, waybills, etc., and would hence result in still further reduction of express rates.

CONSOLIDATION OF PERSONNEL

But, in the third place, there are also to be considered the expenses represented by the employees not in the offices—those on the vehicles, around the stables and garages, and on the trains. Consolidation of the express service with the postal service would result in a consolidation, not only of equipment, but also of personnel. If one truck does the work of two trucks, or four trucks of five, two truck employees can do the work of four, or eight of ten. Where one railway car does the work of two, one railway car crew can do the work of two crews. That such saving would have a not altogether inconsiderable effect upon the operating expenses and hence upon the rates of the express companies is evident from the fact that the wages of vehicle, stable, garage and train employees amounted in 1917 to $23,547,906, or 20% of the operating expenses of the express companies.

CONSOLIDATION OF OFFICES

In the fourth place, there were in the United States in 1917 some 55,000 post offices. The number of express offices is not definitely known, but it is probably in the neighborhood of 40,000. The possibilities of saving by coöperation and consolidation here are again obvious, particularly when it is remembered that a large section of the activities of practically every post office is given over to handling packages mailed under the parcel-post. Especially in many smaller cities and towns, post offices could handle with little increased cost the business now requiring separate express offices in those localities. Where post office facilities are inadequate to handle the demand now being made upon them, the present express company offices might readily serve to save the cost of additional construction and facilities in the future. The amount of rental saved merely by the consolidation of many different express offices may be indicated by reference to the recent experience of the Railroad Administration in a parallel situation. Similarly, there is possible an extensive consolidation and economizing in stables and garages, office furniture and supplies.

THE POSTAGE STAMP

In the fifth place, there is the saving represented in the very nature of the postage stamp itself, which can be sold and accepted for payment of charges only by the Post Office Department. Much of the expense of the express companies in issuing receipts, making statements, checking upon money received, etc., could be saved if the express parcels could proceed under a postage stamp.

MISCELLANEOUS SAVINGS

Finally, there are the hosts of miscellaneous items of operating expenses in which we must be led to expect saving by all other experience in consolidating similar agencies performing similar services. Some of these expenses might even be eliminated entirely under Government ownership and control. Such are the cost of superintendence and auditing, insurance, the cost of securing traffic commissions, advertising and law expenses, to say nothing of the profits paid stockholders in normal years.

The amount of these savings can only be roughly surmised; but in 1912, Mr. David J. Lewis estimated that they would amount to at least 40% of the total operating expenses. In this connection, it may be remarked in passing that Mr. Lewis's qualifications for throwing light upon the express service problem include not only theoretical knowledge gained by years of study of the problem, both here and abroad; but also practical knowledge of ways and means, as attested by general belief that the establishment of a parcel-post in the United States was due to his analyses more than to the efforts of any other one man; and also by the fact that when the Government in 1918 assumed responsibility for the management of the telephone and telegraph systems of the land, Mr. Lewis was made, and at the time of writing is, the general manager in charge of those systems while under Government control. Certainly, in view of the economies enumerated above as inherent in Government ownership and control of the express companies, on the face of it Mr. Lewis's statement seems extremely reasonable.

THE CONSEQUENT REDUCTION IN RATES

So that, if Mr. Lewis's estimate were accurate, and remembering that the operating expenses of the express companies in 1917 represented one-half of the total charges made by the express companies for transportation, a reduction of 20% in the express rates should accompany the acquisition of the express companies by the Government, other things being equal. But other things are not equal. Lower rates mean increased business; and in an agency which has developed the field at its disposal so inadequately as have the express companies, each additional unit of business can be handled at a lower cost and hence at a greater profit than each previous unit. This consideration was the primary one advanced by the Interstate Commerce Commission in ordering 16% reduction in the express rates in 1914. So that, the lower amount of profit per parcel being counterbalanced by a greater number of parcels, the economy in a Government postal express should be represented by a lowering of express rates anywhere from 25% to 35% of the present rates.

But up to this point our calculations have assumed that under a Government postal express the railroads would continue to obtain their 50% of the charges on each package transported by express. This method of calculating the return due to the railroad is certainly ingenious in its simplicity and lack of scientific basis, but it is just as certainly unfair to the shipper of parcels by express. Let us consider, for example, two shipments of similar articles under similar conditions—one from New York City to Yonkers, New York, a distance of some 20 miles; the other from New York City to San Francisco, a distance of more than 3,000 miles. In each case, the express companies collect the parcel and deliver it to the railroad in New York City; and collect the parcel from the railroad and deliver it to the consignee, in the first case in Yonkers; and in the second case in San Francisco. In both cases, the services rendered by the express companies are about identical, aside from the different lengths of time during which space and protection in express cars must be afforded. But the services rendered by the railroad companies are far different in the two cases. In the first case, the parcel is carried for less than an hour; in the second place, for some days. Obviously, the share of the railroad in the entire service rendered in transporting the parcels is less in the first case than in the second, but in each case it gets the same share of the total express charge—namely, 50%.

Such a system in its very nature must thwart any attempt to make express rates reflect the value of express service. For, of course, the rates actually fixed endeavor to do justice to both the express companies and the railroads in each case considered above. In the first case, the rate must be high enough so that 50% of it will not be too glaringly little for the express companies to retain for their relatively more important and more costly service of collecting a parcel in New York and delivering it in Yonkers. In the second case, the rate must be high enough so that 50% of it will not be too glaringly little to turn over to the railroad for their relatively more important and more costly service of carrying the parcel across the continent. The railroad directors and express company directors cannot be expected to have reached a fair compromise after fighting for their own interests when the contracts were originally made, for, as has been seen, their interests are largely identical. It would seem, then, that only the shipper sending a parcel several hundred miles is charged a fee commensurate with the value of the service rendered him. It would seem that shippers sending parcels shorter distances must be charged too much and that shippers sending parcels longer distances must be charged too little. A glance at parcel post rates proves the validity of this surmise, for parcel post rates are lower than express rates for shorter distances and higher for longer distances. Under the present system of competition between the parcel post and the express companies, the nature of the contracts between the express companies and the railroads compels express rates which unfairly discriminate against the express companies at the shorter distances and unfairly discriminate against the parcel-post at the longer distances.

However, there is no evidence in all this that the express rates as actually levied may not strike a just and equitable average between the rates too low and the rates too high. Let us therefore compare for a moment the railroad costs of the express traffic with the railroad costs of the Postal System. It has been seen that in 1917 the express companies paid the railroads for transporting some 280,000,000 parcels the sum of $113,535,059. In the fiscal year ending June 30, 1917, the Post Office Department paid railroads and other transportation lines for services in transporting all postal matter, including almost 1,120,000,000 parcels, the sum of $63,358,997. (The basis for remuneration to the railroads for transporting postal matter is the size and the weight of the matter transported.) Of course, it must be remembered that for the postal service the railroads furnished the cars. It must be remembered also that the parcels of the express companies averaged heavier weights and travelled longer average distances than the parcels of the parcel-post. Nevertheless, the enormous discrepancy between the two figures cannot be thus entirely explained away. Some of the discrepancy, and obviously a considerable part of it, can be traced only to an unjustifiably high return paid the railroads by the express companies. (Note 4.)

Moreover, the amount thus obtained by the railroads in 1917 from its express traffic was equivalent to about 3½% of the total railroad revenues, although it represented 50% of the total express revenue. Accordingly, even a radical slashing of express rates, with its resulting beneficial stimulation to the express service of the country, could hardly disturb the well-being of the railroads to any serious extent.

Again, the various functions performed by the express companies as subsidiary to the express business proper are on the whole paralleled by similar functions of the Government or other agencies. Money orders, both domestic and international, are issued by the Post Office Department, and in 1917 were issued to the extent of $854,963,806 as against $145,934,982 of the express companies. Telegraph and cable transfers are readily issuable by the telegraph companies themselves. Similarly, the travelers' cheques issued by the express companies could without difficulty and with no less convenience be issued by our large banking institutions performing that service.

It is therefore respectfully submitted that any comprehensive consideration of the express service field in the United States can point only in one direction—toward the consolidation of the express service of the United States with the Postal System of the United States, under the control and management of the Post Office Department.