Out of the Tunnel

People who play with trains have often been hurt, especially people who invest in railroad stocks. The Dow-Jones index of 20 railroad stocks needed a full 35 years to climb back to its 1929 high. But since it passed that mark last February, the rail average has been moving upward, reached an alltime peak of 208.95 three weeks ago.

Last week, as the stock market generally fell in a long-anticipated correction, the rail average did better than the industrials, closed at 202.50.

All the signals show that the railroads are pulling out of their tunnel.

They have been sped along by recently relaxed Government policies on rates and mergers, a refreshing enlightenment on the part of some labor unions, and the railroaders' own hustle.

Making Money. From a postwar low of $7.7 billion in 1961, revenues of the nation's 102 Class I railroads rose to $9.6 billion last year, are likely to top $10 billion in 1964. Helped by liberal depreciation schedules and favorable tax rulings, rail profits last year achieved a six-year high of $651 million, should climb at least another $50 million this year, if only because the Supreme Court's ruling against featherbedding will lower labor costs. Traffic is also rising. So far this year, the roads have carried 5% more freight than in the same period of 1963, and shortages of rail cars are cropping up in some places. Freight-car makers are busier than at any time in the last six years, and their backlogs of unfilled orders for new cars are rising.

New equipment and new ideas are partly responsible for the railroads' rise. Chrysler Corp., for example, recently started shipping its models on the new three-level freight cars instead of Great Lakes steamers. "Unitized" freight trains that carry only coal and move directly from mines to power plants save Chicago's Commonwealth Edison $5,000,000 a year. At the same time, the regulatory climate in Washington has changed. Switching from its policy of helping one form of transportation at the expense of another, the Interstate Commerce Commission has lately permitted railroads to reduce some rates to compete better against trucks and barges.

Two Live Cheaper. Probably the most meaningful change is the mellowing of attitudes toward mergers, which railroaders hope may eventually save them up to $1 billion a year. In the past two years the Government has approved two major mergers--the Chesapeake & Ohio and Baltimore & Ohio linkup, as well as the tie between Atlantic Coast Line and Seaboard Air Line Railroad. The ICC is considering 20 other proposed mergers, of which six are big. The Justice Department has raised serious objection to only one, the link-up between the nation's two largest railroads, the Pennsylvania and the New York Central. But the railroads are exempt from antitrust laws, and the ICC has the last word on mergers.

The greatest barrier to a Pennsy-Central merger has been labor's objection. Much of the barrier was removed last month, when the chiefs of 17 rail unions signed a job-protection deal with Pennsy Chairman Stuart Saunders and New York Central President Alfred Perlman. Terms: if the merger is consummated, the labor force cannot be reduced by more than 5% each year. An ICC hearing examiner will make a recommendation on the merger by year's end, and railroaders are hopeful that the ICC's eleven commissioners will give the two roads a go-ahead by 1966.

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