In the promotion of any new railway the selection of the route to be followed is of the first importance. Upon this depends the expenditure involved in overcoming the physical difficulties to be encountered in the course of construction, and the location of-the line should be such as to secure the maximum amount of traffic available. The cost of future operation also depends, in great measure, upon the route adopted.
By the exercise of engineering skill and experience, the total mileage of track may be reduced, and difficult gradients and curves may be avoided, and by these means the subsequent cost of haulage is obviously affected. At the same time savings may be effected in capital expenditure on earthworks, tunnels, bridges and other special works of a costly character.
The location of the line and of the stations, goods depots and sidings in relation to the centres of population, trade and industry, determines to a great extent the amount of traffic and consequently the earnings which will be secured ; and the number and position of these stations, etc., will in turn affect both the capital cost of the undertaking and the annual expenditure involved for staff and main- tenance. Moreover, as distance is one of the prime factors to be considered in the fixing of rates and fares, it is manifestly desirable that, ceterls paribus, the route selected to connect the various traffic points to be reached should be as short as possible. This principle is obviously of particular importance in competitive areas.
In determining the location of the line the question of curvature and gradients calls for special attention. Curves are introduced with a view to avoiding undue expenditure on special works, such as tunnels, bridges, embankments and cuttings, but as a set-off against this, if the curves are anything but flat ones (i.e. curves of large ra- dius), there is the resultant increase of wear and tear upon the rails and rolling-stock and increase in the mileage of track, whilst reduc- tions of speed and a greater consumption of fuel may also be involved.
The influence of gradients upon working costs is still more marked. Where they are numerous and severe it may be necessary to employ engines of a heavier and less economical type, with the result that when running on the level sections or on the down-grades there is an appreciable waste of power, whilst the use of brakes is accompanied by an increase of the wear and tear of the rolling-stock of permanent Way. In extreme cases it is usually necessary to employ additional (" banking") engines on the up-grades. In some instances the length and weight of trains have to be reduced and the cost of working the line is thus inevitably increased.
In considering the " earnings " of railway companies, or the "price" at which they place their services at the disposal of the consumer, it must be remembered that the undertakings themselves, being quasi-monopolistic in character, are usually subject to regula- tions imposed by the State. Consequently, in railway working, the economic tendencies which usually determine the price of commod- ities or services do not operate with entire freedom. At the same time even railway rates and charges, as a whole, must bear some relation to the cost of production.
Railway expenditure, apart from taxes, falls under two main heads: (a) working expenses, which include salaries and wages, maintenance and renewal of way and works and of rolling-stock, and also fuel and stores; and (6) fixed charges, including interest on capital and also rentals and other similar charges.
The aggregate earnings or gross receipts of a railway under- taking which is run on a purely commercial basis must be sufficient to cover both the working expenses and the fixed charges. The suc- cess of the undertaking depends ultimately upon the amount of the gross receipts and upon the proportion of this amount which is absorbed in the payment of working expenses. The volume of the traffic is therefore a matter of fundamental moment. If it be small and incapable of further development, and if the working expenses are already at the minimum compatible with efficiency of service, it may be necessary to charge high rates in order to cover both working expenses and the fixed charges. An increase of rates, to be effective, must, however, be such as to produce an amount which will more than compensate for the loss of traffic which such an increase tends to produce. Successful railway transportation therefore rests upon the following factors: (a) "economy in the cost of construction and other items by which the magnitude of the fixed charges is deter- mined, requiring engineering skill ; (b) the maximum development of the traffic available, requiring business capacity; and (c) economy in working expenses, which is a matter for a railway expert.
In the fixing of freight charges, account is taken not only of the weight and bulk of the goods conveyed and of the distance for which they are carried, but also of terminal services, such as the loading and unloading of waggons. This charge varies in accordance with the services rendered and the class of goods dealt with. It is also irre- spective of the distance the goods are carried. The maximum rates chargeable for goods traffic are fixed by Statute, but on British rail- ways these rates are not necessarily the same in every case. This is not due to any ascertainment of the cost of " production " per unit of service in each case, but to a consideration of the general circum- stances of each line concerned. The amount of the fixed charges being known, the density and regularity of the traffic is taken into account. Where the traffic is dense and regular and where fuel is obtainable at a comparatively low cost, there is obviously some ground for establishing lower maxima than would be appropriate
for lines in agricultural areas having a light or intermittent traffic. Nevertheless, such differentiation is less common abroad than it is in the United Kingdom.
Service charges and mileage rates differ also according to the varying values of the commodities carried, the differences being determined by an elaborate system of classification. It is extremely difficult to say what proportion of the fixed charges or working expenses of a railway is attributable to the handling of a particular quantity of any particular kind of traffic, because a large part of such expenditures is "joint costs." Consequently railway charges are based very largely upon the consideration of the value of the commodities offered for conveyance. On general economic principles the amount which any commodity can pay for carriage to the market for which it is intended depends upon the amount by which its value in the market exceeds that which it possessed at the point of despatch. The difference between the value of a commodity at the point of despatch and its value in the market is naturally greater in the case of a costly article, and it therefore can bear a higher actual charge without sensibly diminishing the percentage available for profit. The apparently heavy charge payable for the transport of a valuable commodity may increase the cost of that commodity by only a small percentage, whilst in the case of mer- chandise of low value a similar charge would add a large percentage to the cost of the goods and possibly render them unmarketable. Thus the traffic is usually made to pay " what it will bear " and so long as the aggregate return to the undertaking is adequate, the railway manager is content to carry much traffic at rates which are below the average. This he can usually afford to do, not only because he obtains super-average rates for higher-grade traffic, but also because the additional expenditure incurred by the company in carrying a given quantity of additional traffic is rarely proportion- ate to the volume of such additional traffic. In the majority of rases the acceptance of additional traffic is accompanied by little addition to the fixed charges which have to be met, and can usually be handled without any proportionate increase in working expenses.
With regard to distance, the rates per mile quoted for freight t raffic usually decrease as the distance to be covered increases, for although the cost per ton-mile (or per passenger-mile) for journeys of varying lengths can hardly be gauged with accuracy, it is recognized that long-distance freights are more profitable. Apart from the fact that a long-distance journey may be regarded as having a " wholesale " as distinct from a " retail " character, it enables the railway under- taking to make a fuller use of its plant, whilst the amount of terminal and other work involved is not affected by the greater distance for which the goods are conveyed.
In British practice, railway passenger fares are of three kinds: (a) ordinary fares at scheduled rates, (b) season-ticket rates, and (c) special fares.
Ordinary passenger fares were originally fixed in a somewhat empirical fashion, being arrived at by under-cutting the rates quoted by the other passenger transport agencies which were in operation prior to the advent of the railway era. Nevertheless, the rates which were thus fixed proved to be remunerative without being immoder- ately so, and it is no doubt because of this that they have usually been recognized as reasonable by the travelling public and the companies concerned.
Similarly, the differentiation which exists between the fares charged to first-class and third-class passengers rests upon an j arbitrary basis and is not measured by the actual difference in the cost of the accommodation and haulage. Arbitrary, however, as the method of fixing passenger fares has been, it is the general experi- ence of railway companies that passenger traffic is, on the whole, less remunerative than freight traffic.
Season-ticket traffic being chiefly confined to large urban areas involves heavy expenditure on the construction of lines and stations in districts where the value of land and property is naturally greatest, and where competitive influences are strongest. Another charac- teristic of season-ticket traffic is that the bulk of it has to be carried within the limits of the morning and evening rush-hour periods, and to meet the requirements of these "peak" hour periods (where trains can get full loads in one direction only), it is nec- essary to provide a large quantity, of rolling-stock which must perforce remain idle during the slack hours of the business day. Against this must be set the fact that the traffic is regular and provides full train-loads with a minimum attention on the part of the station staffs. On the whole, however, the question whether season-ticket traffic is remunerative is debatable, whilst with regard to the low rates chargeable under the system of " workmen's fares " it may safely be said that political and not economic considerations have been the principal determining factor.
" Special " passenger fares are mainly confined to holiday and pleasure traffic. This traffic is naturally mobile and tends to pass readily from one line to another according as the advantages offered by each to the passenger vary in attractiveness. Consequently the traffic is usually secured by purely competitive methods, e.g. \ advertisement and by the quotation of special fares. The cost of working pleasure traffic is high in proportion to the revenue earned, but good train-loadings are usually obtained, and as much of ti traffic is genuinely " additional " it is doubtless a source of appre- ciable profit.
