more point to point direct mail movements, elimination of intermediate transfers, and reduction in damage.

Mr. LISHMAN. Have representatives of railroads come to you, or to other officials of the Post Office Department and requested that the mail be taken off a passenger train?

Mr. JONES. In some instances, this has been discussed, yes, sir. For example exhibit 4 to Dr. Aitchison's statement, page 1, does confirm such a negotiation with the Norfolk & Western Railroad.

In other instances in response to our statements to railroads that their performance in passenger type carrying trains was unsatisfactory and unreliable, they have asked us to consider movement of some mail traffic in freight trains which they felt could afford better service at less cost.

Mr. LISHMAN. Do you have any other specifics other than the Norfolk & Western situation that you have just referred to?

Mr. JONES. In specific discussions of traffic control and traffic management with officials in the Southern Pacific Co., for example, we had pointed out serious schedule failures, failure to perform on service, and had advised them again that unless satisfactory schedules could be offered and maintained, we would have to seek other means of moving the mail.

At that time they did offer certain schedules in freight service in containerized movements, and we did accept those services.

Mr. LISHMAN. Could either of the witnesses explain why railroads can realize greater net profits through haulage of mail on freight than they can by hauling it on a passenger train?

Dr. AITCHISON. Well, we are not managers of railroads, thank heaven. We have got the postal service, but I think generally they are longer trains, the trains don't require all the switching, I mean of cars in and out of passenger terminals.

I don't think I could state, as an authority that is, what is wrong with the railroads and what their operating troubles are in this area. I know they have had some expenses. Now the Penn station in New York has a large mail handling facility that I don't believe most passengers would see, but that was very, very badly cluttered up while the old Penn station was being torn down and the new Madison Square Garden was being put up, and I think it would be very difficult to even try to be efficient down there in the mail room while that sort of situation was going on.

There has been other construction that has been a problem at Grand Central. There was some going on some years ago, and we were asked to take the mail off the local trains going out of these at that time just because it was not efficient.

You probably know more about it.

Mr. JONES. Basically, many of the railroad terminals, as is well known, are older structures. The areas used for processing mail incident to the line haul on railroads are congested. They were congested many years ago, before we had an explosive growth in mail volume. While railroads did make an attempt to mechanize or automate some of the handling of the mail, the very nature of the building in which they tried to shoehorn the machinery makes efficiency difficult.

So these services were limited in the amount of efficiency or effectiveness that could be applied to them, even under real tough management.

In addition, in the movement of mail by passenger trains, we had much of the service performed in a preferential type service known as way cars and working storage cars.

These cars performed local, short, en route exchanges. They generally required a baggage man to attend the train. Much of this service is basically expensive. The Post Office has diverted much of the short haul mail to highway, because we can do a more effective and efficient job.

The traffic remaining on the rails when it becomes long haul or medium haul traffic is conducive to containerization and piggyback movement in freight type or longer haul trains.

The railroads have always indicated that these are lower unit cost trains. Therefore, they should be able to haul this traffic, performing principally line haul, with very limited terminal handling services at a less expensive cost to the carrier.

We would note that with containerization many of the piggyback and container yards are new, they have new techniques and should be more efficient and effective in the processing and handling of this traffic.

Mr. LISHMAN. I am going to ask a rather leading question. Have any railroads officials ever requested the removal of mail from passenger trains so that they could justify discontinuance of the passenger train?

Mr. JONES. I would say in that specific scope, or nature, a question has not been put to us of that type. As I say, we have talked to railroads about services deficiencies. We have explained to them the fact that we cannot retain traffic on their trains if they do not improve the service.

They have not indicated to us in writing that they wanted to take the mail off the passenger train and put it in freight, but they have told us then in conference and in discussions that the only way they can meet our service requirements and meet competitive costs is by using containerized shipments in their fast freight trains, or what are called solid mail, and express trains.

Mr. LISHMAN. Do you know if there is a practical impediment to having a modified form of piggyback service on a passenger train? Mr. JONES. No, sir. As a matter of fact we have used that type of service for a period of time when a type of service called Flexivan was introduced by the New York Central and other railroads.

These types of units were moved on passenger trains, or what we called mail and express trains which operated in and out of passenger terminals.

At the present time, considering the construction and layout of many passenger terminals and terminal areas, there would not be any major impediment provided such a train could make the containers readily available in the terminal areas or major en route points for prompt deramping or have a facility for prompt ramping and connection with a passenger-type train.

Mr. LISHMAN. Do you know whether the ICC has ever asked the Post Office to participate in a train discontinuance case in order to get pertinent information from the Post Office Department concerning mail revenue?

Mr. JONES. No, sir. The only request that I have received was last week through Mr. Scherr with regard to the current Pennsylvania case. That is the first time I have received one from the ICC.

51-728-71-pt. 1-13

Mr. Moss. What was the nature of that request in the Penn Central case?

Mr. JONES. I am sorry, sir.

Mr. Moss. What was the nature of the request made by the ICC of you?

Mr. JONES. The Interstate Commerce Commission directed a request to our counsel, which counsel transmitted to me asking if we would present information relative to the current request of the Penn Central to discontinue a number of its passenger trains.

This information would be basically on what is the present mail traffic and its value, what would the Post Office do, if the trains were discontinued, with this mail traffic, how much would be then retained by the railroad, and how much might go to other modes in our planning, and if passenger trains were retained, would the traffic stay with the passenger trains?

At the present time, my staff is working on this request to develop information.

Mr. Moss. When that information is developed, will you supply copies of it to this committee?

Mr. JONES. Yes, sir.

Mr. Moss. Without objection, we will hold the record open to receive that information.

This committee is going to be very deeply involved in requests for legislative action relating specifically to Penn Central and to other railroads more generally, and we are going to be interested in your findings. Mr. JONES. We shall do that.

Mr. LISHMAN. I only have one or two more questions, Mr. Chairman. In recent years, is it correct that the increase in freight revenues paid to the railroad companies for freight haulage of mail has increased beyond the actual loss of revenue realized from the discontinuancerealized from their passenger train operations? Forget the word "discontinuance."

Mr. JONES. I don't think that is right, Mr. Lishman. We might be able to check the figures for you. Actually, the amount of revenue retained by the railroads when traffic changes from passenger-type service to freight-type service is usually less in total dollars.

It probably is more attractive in net because the railroads are anxious to obtain it and retain it.

Dr. AITCHISON. My quick arithmetic looks as if there were a drop from about 311 million in those first three lines of exhibit 1 in 1965 to 92 million in 1969, which is a drop of about $219 million.

Taking that 311 from 331, we have 20 million that was other than those first three lines in 1965, and that has increased to about $113 million.

So here is a net gain of about 93 million against a loss of 219 million. So it is a loss overall, but that is just in gross revenue.

A large part of that is the railway post office, which is a differeint operation. It is more than transportation.

Mr. LISHMAN. For the record, Dr. Aitchison, could you elaborate on why this railroad post office is in a little different category?

Dr. AITCHISON. Yes. It is a baggage-type car especially equipped then with pigeonholes, racks for hanging sacks and things, where postal employees sort mail while the train is moving between points.

It was very, very useful as an operation when the railroads provided a national network that went everyplace. It picked up mail on the fly from the small points it went through and would sort it out and throw it off on the fly as it went through.

As the passenger trains diminished in number, every time a train came off, the network was less effective, and the system was broken, and connections were broken.

The airplanes came along and the letter sorting machines and just looking at what these railway post offices cost us is sort of eye opening. We have one between New York and Pittsburgh, 439 miles. It is a 60-foot car that runs about 300 days a year. We pay for the round trip, and it costs us something over $121,000 one way for that year, which does not sound like very much money.

The square footage in that car is 540, 60 feet long by 9 feet wide. The cost per square foot per year is $225.

Now if we could move that sorting space which has a little transportation with it on land, we would need more space, because these cars are not notably luxurious and spacious, and they are not exactly efficient, either, and the people, men, reaching up to put things into pigeonholes and things like that, get in each other's way.

So we would need about five times as much space on land, stationary space. So that $225 a square foot per year would turn into $45 for the equivalent stationary facility.

Now our latest facility is the best known one, the F.D.R. station in New York, which is, oh, I have not seen it. I think it is 53d and Third Avenue, something like that. To construct that, to obtain the site, construct the building, put in the mechanization, which is the latest kind, the very latest we could get, the architectural and engineering fees was something over $18 million.

This building has quite a bit of parking space around it, maneuvering space, and ramps. If we take that out and just use the interior space in that building, the construction, including all the mechanization, the site and everything, the cost was $67 a square foot, not too much more than that $45 per foot per year than we pay to replace the RPO.

Now the lease cost is $1,340,000 a year for this, which works out to $4.90 a square foot for the interior space and now when you can get space in New York right at the crossroads like that as against $45 a square foot year after year in a car that is worn out, and not being able to perform efficiently in that car, you can see why we find it cheaper to move the distribution from wheels to land and use some of that extra money, if it requires it, some that we have saved, to fly it, and that 6-cent mail is not getting 10-cent mail service, I might say. Mr. LISHMAN. I think that is a very interesting explanation, and dramatic in view of the comparison of the figures we have here. I think you have convinced me beyond a doubt-a reasonable doubt that it is certainly reasonable to get rid of the RPO's.

With regard to the mail haulage contracts, do they obtain a clause requiring standards of service?

Mr. JONES. Generally they have a standard clause requiring the transportation carrier to meet the requirements of the Postmaster General.

We require the contractor to meet the published service schedules that he establishes, we do retain some flexibility in the schedules, and

we may require one round trip on a schedule established by the Postmaster General, or certain services of that type.

If we do set general service standards within the contract, and then become specific in service orders, the initial standards and service orders are clearly understood by the carrier when he enters into the initial contract.

Mr. LISHMAN. Does the contract contain sanctions for violation of the contract, for failure to adhere to the standards and do such sanctions include the inclusion of a fine upon the railroad?

Mr. JONES. These will vary with the contract and the agreement. In the case of an agreement to move mail by freight, it provides that in case of failure to meet the terms of the contract and service conditions of the Postmaster General, penalties may be assessed.

This is understandable. It is under the broad provisions of title 39 of the United States Code in the 6000 series, covering the control and movement of mail by rail.

As a matter of practice we do not assess penalties against railroads moving mail on freight trains for late running but we do assess fines for failures to provide adequate equipment and adequate protection for the mail, when these are considered to be within the control of the carrier.

When mail moves in passenger-type trains under special agreements, we may assess penalties for any failure to meet any service standards set by the Department.

Mr. ROGERS. May I ask a question?
Mr. Moss. Certainly, Mr. Rogers.

Mr. ROGERS. This is not so in all of your contracts, do I understand, you don't assess penalties if they don't meet the contract responsibilities?

Mr. JONES. We have an option to terminate the contract for failure to meet the standards.

Mr. ROGERS. There is no assessment of penalty?

Mr. JONES. Administratively, each failure is checked to see whether

it is beyond the control of the carrier. For a first failure we would not assess a financial penalty.

For a repetitive failure we will assess penalties.

Mr. ROGERS. For lateness?

Mr. JONES. For lateness, for example, for lateness in a passengertype operation, where delay in the delivery of the mail occurs, a penalty is assessed.

For a late operation of a mail movement in a freight train, we do not assess a penalty, but we will divert the traffic to another carrier or another mode.

Mr. ROGERS. You mean the contract would be terminated then?

Mr. JONES. Yes.

Mr. ROGERS. How many times do they have to be late to terminate a contract?

Mr. JONES. Generally, several times. I would not give a specific figure. It would depend on the nature of the contract and the service, and the distance and the impact on the delivery of the mail.

Mr. ROGERS. Have you ever assessed a penalty for lateness of mail! Mr. JONES. Yes, sir.

Mr. ROGERS. How many times would you think?

Mr. JONES. I could not tell you offhand, sir. But let me say frequently.