Tuesday, 22 April 2008

Railways: operation and economic impact

Railway traffic, both passenger and freight grew steadily during this period. Passenger numbers rose from 24.5 million in 1842, to 72.9 m in 1850 to 507 m by 1875, freight tonnage from 5.4 million in 1842 to 38 million in 1850 to 119.6 million in 1875 and total revenue from £4.8 m in 1842 to £61.3 m in 1875. Although some companies created new traffic, the principal aim was to supply improved facilities for existing customers. The trunk-line railways that eventually dominated the industry established themselves as specialist high-tariff businesses. As the industry expanded there were two significant changes in the composition of the business handled:

  • There was an increased emphasis on freight from the mid-1840s. In the decade 1835-45, the major companies concentrated on passenger traffic, deriving three quarters of their gross revenue from this source. By 1850 the proportion had fallen below half.
  • There was a shift in passenger traffic to third class: in 1845-6 third class passengers made up half of total numbers and produced a fifth of the total revenue; by 1870 the proportions had risen to 65 and 44 per cent respectively.

Railways were slow to exploit their freight-carrying advantages. As late as 1835 locomotive technology was confined to a few lines and not until the early 1840s that locomotives were capable of hauling heavy goods trains. It was only with the company amalgamations of the late 1840s and the improvement of long-distance traffic interchange via the Railway Clearing House that railways were able to challenge canals and so extend their markets. Railways could carry freight in quantity and this was the key to their success.

  1. There is general agreement that railways stimulated an overall reduction in transport costs, both by introducing lower rates and by forcing competitors to cut their own charges.
  2. However, the extent of the reductions and the effects on markets and commodities are more difficult. In the period 1830-1850 railways under-cut road coaches by possibly 15-20 per cent and canals by a more substantial figure of 30-50 per cent.
  3. Retailing was transformed and new traffic was encouraged in perishable goods -- meat, fish, fresh milk and vegetables. The extension of services was accompanied by an improvement in communications at all levels, via the telegraph, postal services and newspapers, that were all highly dependent on rail facilities. Faster and cheaper travel also stimulated the growth of leisure facilities, particularly in the coastal resorts.

The railway reduced the cost and greatly improved the quality and volume of Britain's transport.

Economic growth and railways 1830-1900

Nineteenth century writers had little hesitation in assuming a direct link between the growth of the railway network and the pace of economic change. Historians today are more cautious. How much did railways really contribute to British economic growth between 1830 and 1870? G.R. Hawke Railways and Economic Growth in England and Wales 1840-1870, published in 1970, is the starting-point. He poses the question: 'To what extent did the economy depend on railways in 1865?', or more exactly, what would have been the cost of dispensing with railways and transporting passengers and goods by road and canal? Hawke is concerned with 'social saving theory' and concludes that railway services in 1865 represented a social saving of between 7 and 11 per cent of the net national income of England and Wales. He recognises that social savings were much lower in the earlier years -- about 2.5 per cent in 1850 and 6.5 per cent in 1855.

By 1870 the essential features of the railway industry -- the basic network, organisational structure and traffic patterns -- had been established. But maturity did not mean stagnation. From 1870 to 1914 there was a four-fold increase in passengers and a three-fold increase in freight. Route-mileage increased by 50 per cent, capital by 150 per cent and gross revenue by nearly 200 per cent. Inland transport was essentially rail transport in the late nineteenth century, though this is not to ignore the important role of road transport, and especially road haulage, as a short-distance feeder. There is no doubt that the contribution of railways to the economy was much greater than it had been in the 1860s. But historians have directed attention to the declining profitability of the industry and its relevance to the wider debate on British retardation and weakening competitiveness after 1870. So how were railways performing?

The net rate of return on capital fell steadily from 4.55 per cent in 1870-4 to 3.38 per cent in 1900-4. However, it was not until the 1890s that returns fell below the 4.0 per cent level of the 1860s and there was a recovery from 1901 to 3.6 per cent by 1910-12. We may conclude that after two decades of recovery, 1850-70, the industry's earning power fell back to the level of the early 1860s and that operating margins narrowed significantly.  These developments can be explained by seeing railways as the victims of the increased demand for traffic. Traffic growth occurred largely in those sectors were profits were lowest: third class passengers and small consignments of short-haul bulk freight. The emphasis of the railway companies was on expanding links by constructing branch lines at the expense of operating costs.

There were four distinct periods affecting the working environment and these corresponded broadly with changing price trends:

  1. There was a sharp rise in costs in the early 1870s.
  2. Revenue and costs per train-mile fell between 1873 and 1890 when the additional costs of an improve quality of service were offset by the falling price of materials, especially coal.
  3. In the 1890s, and notably between 1896 and 1901, there was a serious escalation of costs.
  4. After 1900 the situation changed again and there was a substantial improvement in operating efficiency; almost all of this occurred in the freight area.

The railways' difficulties were essentially problems of the late 1890s and certainly the period 1896-1901 was a challenging one. Operating costs increased sharply, traffic growth slowed down and the extra burdens of newly raised capital put pressure on profit levels. All this was accompanied by legislation seeking to control two areas of railway economy: charges and labour costs. The Railway Regulation Act 1893, which aimed to restrict excessive working hours, and the Railway and Canal Traffic Act 1894, which established the 1892 rates as new maximum charges, were examples of the many efforts to make the railways conform to public expectations

The degree to which the railway companies were responsible for this situation is a matter of some disagreement. Derek Aldcroft suggests that much of the problem was due to managerial shortcomings and there is evidence that while managers were aware of the need to prune uneconomic services, they frequently yielded to pressure from customers. The results, in the case of uneconomic lines, were economies by squeezing labour and curbing the quality of services. Other historians place emphasis on the more hostile political environment in which railways were places after 1870: governments were prepared to legislate on passenger fares and safety in the 'public interest'.

The Railway and Canal Traffic Act 1873, the Cheap Trains Act 1883 and the legislation of 1888-94 were all part of a significant shift in public opinion. Railways were seen more as public corporations than as profit-making businesses. It as in this environment railways experienced diminishing returns, while producing substantial benefits for society as a whole.

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