PROGRESS OF

THE CANADIAN NATIONAL RAILWAYS

ANNUAL REPORT FOR THE YEAR ENDING DECEMBER 31, 1926

AS PRESENTED TO PARLIAMENT

MARKED INCREASE IN GROSS AND NEW EARNINGS

The Annual Report of the Canadian National Railways for the year 1926, as presented by the President, Sir Henry Thornton, to the Minister of Railways and Canals, Hon. Charles A. Dunning, and by him submitted to Parliament, records a marked increase in gross and net revenues over those of the previous year, and shows all fixed charges due the public as earned for the first time. The Report reads in part as follows:

The operating results for the year are shown in the following summary, which compares the principal items of revenue and expenses with the corresponding items for the previous year:

The above figures reflect what may be fairly regarded as a satisAn increase in the System's gross earnings of

factory position.

8.6 per cent. indicates a generally satisfactory business situation throughout the Dominion, and it is equally gratifying to note that with an increase of nearly twenty-two million dollars in gross earnings there was an increase of but one million dollars in transportation expenses.

A reduction in the operating ratio from 86.82 to 82.5 shows a further improvement in operating efficiency.

For the first time the net earnings for the year are more than sufficient to pay all fixed charges due the public.

Railway Operating Revenues. This item requires no comment other than to record that an increase of $21,861,536.09 may be regarded as the result of improved prosperity throughout the Dominion, and the zeal and energy displayed not only by the traffic department but by all of those in the service of the Company in attracting business to the system and securing its fair proportion of increased traffic.

Maintenance of Way and Structures. It was thought wise to increase the total expenditures under this heading for the year in order to effect a higher standard of maintenance. Although the percentage of expenditures for maintenance of way and structures to gross earnings has not increased, the larger expense is to some extent due to the increase in the number of treated ties used, with tie plates for protective purposes, and is also partly due to the greater mileage of new rail employed for renewals. This in turn necessitated increased expenditures for other track materials, including the purchase and application of stone ballast. It is the intention of the administration as rapidly as financial conditions will permit to extend the use of stone ballast on high speed and important passenger routes. A generally improved standard of maintenance, with bridge improvements, permits the use of heavier power, with consequently reduced transportation costs.

Total Operating Expenses and Net Earnings. Total operating expenses increased by $7,079,804.49 as compared with an increase in gross revenue of $21,861,536.09, leaving an increase in net earnings of $14,781,731.60, or 44.2 per cent.

It is but fair to call attention to the fact that during the first years of system consolidation there have been many opportunities for economy. Much of this field has been exhausted and, while efficiency and lower operating costs will be rigorously sought, it is not probable that corresponding percentage improvements can be maintained, especially when it is remembered that certain wage increases have already been granted to employees, and others are in negotiation which will tend to affect operating results.

Finance. For the Dominion fiscal year ending Mar. 31, 1927, the sum of not exceeding $31,000,000 was requested from the Government for Canadian National purposes. $10,000,000 of this

amount has been received in cash. The remainder can be provided under authority of an Act passed at the present session of Parliament. As gross and net earnings for 1926 were larger than it was expected they would be, the full amount of $21,000,000 will not be required.

The funded debt retirements during the year were:

Equipment trust certificates of various issues.. Payments under various sinking funds and otherwise.

Total....

$5,663,400

520,658

$6,184,058

Traffic Movement. Generally speaking, freight car loadings on all lines were better throughout the year than in 1925. Congestion in elevators at the head of the lakes in February necessitated embargoes which were not lifted until April, thus adversely affecting the eastward grain movement in Western Canada during that period. During the same period, however, grain moved in much larger volume to Vancouver than in 1925, and there was also a good grain movement by rail on the lines east of the head of the lakes. Navigation on the Great Lakes did not open until May 3, which was much later than usual. Grain then moved in large volume to the lake head. In September the grain movement in Western Canada was very light, extending into October, and December was a particularly bad month, having little over half the grain movement of 1925 to the lake head.

Movement of grain to Vancouver in the last five months of the year was only about 55 per cent of the 1925 volume. Movement of grain to Prince Rupert commenced in October and averaged 765 cars per month for the last three months of the year.

Apart from the fluctuations in the grain movement, freight traffic continued steady throughout the year. The increase in revenue freight ton-miles moved by train was 6.9 per cent., whereas the train miles in freight service increased only 6.2 per cent.

Passenger traffic was generally good and produced an increase in revenue of 3.9 per cent., whereas passenger train mileage including unit car mileage increased 1 per cent. only.

Rates. The question of freight rates continues to be one of importance and some anxiety. It is not the province of the Board of Directors to argue for or against higher freight rates, but a distinct responsibility rests upon the Board to direct attention to the effect of alterations in the rate structure which would reduce the gross revenues of the system. The Board is of opinion that the welfare of the Dominion would be best served if its railways were allowed rates which would enable them not only to maintain solvency, but to make those improvements and provide those facilities which are from time to time necessary to meet the constantly increasing traffic requirements of a rapidly growing country.

In so far as the Canadian National Railways are concerned, the property is owned by the people of Canada, and, in the last analysis, the financial position is in their hands. However, the Board ventures to express the thought-as it has indeed on previous occasions-that freight rates cannot be constantly decreased and net earnings continue to increase. With fair rates it has been possible to reduce to a minimum the demands of the railways on the public treasury. The Canadian National Railways are emerging from a condition which may be conservatively described as unsatisfactory; they have reached the point where they are paying interest out of net earnings on all the securities. held by the public, and, furthermore, they are furnishing a service which the Board feels is satisfactory to the shipping public. Would it not be wise to allow that condition to continue and to improve?

Industrial Development. New industries continue to be established at points on the Canadian National Railways in large numbers. There has been a marked activity in the establishment of pulp and paper plants. Seventeen new plants connected with this industry were brought into operation during the year, mostly in the Province of Quebec. Water power development is being rapidly pushed in that and other provinces. A large number of new industries were located on the Canadian National Railways, involving expenditures running into millions of dollars. There is every reason to believe that these extensive investments were provoked by confidence in the future of Canada.

Construction. During the year 193.53 miles of new line were placed in operation, including the following:

Turtleford, south-easterly 42.5 miles, Warden-Hanna, 29.18 miles, Bengough-Willowbunch, 28.49 miles, Central Butte, towards Dunblane, 25.98 miles, Acadia Valley Branch, 24.6 miles, Pine Falls extension, 19.5 miles, St. Paul, south-easterly, 19.55 miles. In addition to this, 117 miles of track were laid and 65 miles were graded.

Rouyn Line. The construction by the National Transcontinental Railway Branch Lines Company of its line from Taschereau to Rouyn, which was commenced in December, 1925, is now practically completed and as was intended is being operated by the Canadian National Railways on behalf of the Government. It is proving a valuable traffic producer.

Wages and Labour. The "Co-operative plan" adopted in conjunction with the shops craft employees some two years ago has worked with much satisfaction, and a study is being made to determine the practicability of extending a similar movement to employees in the maintenance of way department.

Late in the year a situation developed with respect to the wage position which demanded immediate consideration and in certain of

its aspects required joint action by the Canadian Pacific Railway and the National System. After careful and anxious consideration an amicable arrangement was made which was thought to be to the interest of the immediate parties involved and of the Dominion itself. Following upon this adjustment negotiations were undertaken and others are in discussion which will result in further increases. While the burden upon the Company's expenses will be considerable, it is believed by your Board that the zeal, efficiency and loyalty of all of the employees justify financial recognition, and it is confidently believed that a large part of the money so spent will, in the course of time, be saved through improved good feeling and consequent efficiency.

Hotel Department. The gross revenue from hotels showed an increase of $295,612 as compared with an increase of $258,016 in expenses, leaving a net operating loss of $38,769 which was less by $37,596 than the corresponding loss in the previous year.

An extension of the Chateau Laurier will be made to meet the ever-growing demand for accommodation at the capital city.

Immigration. Immigration continues to be one of the most important activities of the National Railway System. The officers of the two Canadian transcontinental railways specifically charged with immigration have reached an understanding with the Canadian Government to extend the co-operative agreement for a further period of three years from which good results are expected.

During the past year 31,536 European settlers were brought out by the Canadian National Railways, as compared with 9,582 in 1925; the number of British included in these figures being 8,003 and 3,883 respectively. 335 families from the United States were secured for Western Canada, quite a number of whom have taken up Canadian National lands. At the end of the year there were in effect nine different arrangements under which aid in one form or another may be given to intending emigrants. In connection with these arrangements and immigration generally, also with the development of natural resources in territory adjoining the lines of the system and elsewhere, a great deal of educational and preparatory work has been undertaken from which good. results may confidently be expected in the future.

Betterments. The programme under this head, providing for many improvements in the railway's transportation plant, was continued during the year, including work on the ocean terminals at Halifax, Toronto grade separation and terminal improvements, also similar work at Chicago, Detroit and Edmonton, and a new train shed for Saint John, N.B.

Other work included the following: new yard and engine facilities at Jonquiere, Que.; new yards and track at Clifton Junction, Niagara Falls; three-track ferry slip at Windsor, Ont.; new connection near Solomon, Alberta; additions to Jasper Park Lodge and reconstruction work at Minaki Lodge; further gauge stand