In the field of passenger service the loss to the railways was even greater than that in the freight service. The greater use of the private automobile was the principal cause, but in addition thereto the bus (motor coach) and the aeroplane have taken many passengers from the railways.
The competition of highway, pipe line, waterway and airway services has had the effect of reducing railway rates in both freight and passenger services. Table V. shows that the average revenue per ton-mile fell from 1.081 cents in 1926 to 0.988 cents in 1935. The revenue per passenger-mile was reduced from 2.936 cents in 1926 to I•940 cents in 1935.
This competition has also had the effect of shifting the emphasis in rail rate-making from the "value of service" principle to that of "cost of service." Railway rates traditionally were built on the principle that low-grade commodities, which would move only under low freight rates, could properly be charged less than the total cost, so long as the charge was more than the direct or "out-of-pocket" cost, and that the indirect or overhead costs not borne by the low-grade commodities could be assessed against the commodities of high value which could bear a charge in excess of total cost. The "value of service" theory has but slight recognition in the tariffs of the truckmen and since their lower charges have appealed especially to the shippers of high-grade commodities, on which the railway rates are high, the railways have been forced to depart in substantial degree from the value principle and meet competition on a cost basis. To the shipper
that basis is controlling, as he will not now pay more for carrier service than the cost to him of providing his own transportation in his own trucks, vessels or pipe lines.
Having lost their ability to charge abnormal rates on high-grade commodities to offset the deficiencies in revenue on low-grade freight carried at sub-normal rates, the railways have had even greater incentive than ever before to hold down their costs, in crease their operating efficiency, and improve the quality of their service. That they were fairly successful in their efforts is indi cated by the fact that the 45.9% decrease in revenues, 1935 under 1926, was met by a 44-5% decrease in operating expenses. This is noteworthy in view of the fact that something like one-half of operating expenses are normally fairly constant and fluctuate but slightly with moderate variations in volume of traffic.
Number of Employees.—Inasmuch as labour costs make up nearly 6o% of total operating expenses, the recent heavy reduc tions in such expenses have meant drastic cuts in number of em ployees, employee-hours and wages. The data for 1926, 1933 and 1935 are shown in Table VI.