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ERIE - LACKAWANNA MERGER STUDY

Possibility of Soliciting Carload Freight for Longer Hauls

Study V

The purpose of this study was to determine whether any carload freight presently handled by one of the companies under study could, under merged operation, be successfully solicited for a longer haul producing greater net revenue, and to estimate the net increase in income from such longer hauls.

For example, traffic now originating at Chicago and routed via Buffalo-DL&W to New York City may be handled by any one of several carriers into Buffalo. After merger it is believed that a portion of this traffic could be secured for a longer haul via the merged line direct from Chicago to New York City. The same potential exists with respect to westbound traffic. Possibilities for longer hauls exist on other lines of the merged company but the most important would be use of the longer haul from and to points west of Buffalo, and use of the Maybrook gateway instead of Port Morris for New England traffic.

A complete analysis of interline carload freight was developed in the Waybill Analysis described in Appendix A showing by commodity the cars, tons, origin, destination, routing and revenue. The traffic departments of each road first determined the traffic susceptible to solicitation for a longer haul and indicated the routing which might be used. They then estimated the proportion of the susceptible traffic which might ultimately be secured by solicitation for a longer haul on the lines of the merged company. The accounting departments then calculated the additional freight revenue which would accrue to the merged company for the longer haul, the additional gross ton miles which would be handled in order to earn this revenue, and the increase in per them costs and private line car miles. The estimated additional cost of handling the traffic for the longer haul was based on the freight train out-of-pocket cost per 1,000 GTM shown in Appendix C applied to the additional gross ton miles which would be handled. Allowance for the handling of related empty cars was made in all cases.

In making this study the classes of traffic allocated to each of the roads for analysis were as follows:

(a) Each road analyzed its own interline terminated business.

(b) Each road analyzed its own overhead traffic.

(c) Each road analyzed its own interline forwarded traffic except when it terminated on or moved overhead via the other road.

After merger, Erie traffic now interchanged with the CNJ at Plains Junction, as well as DL&W traffic now interchanged at Taylor, would be handled by the merged company in the same manner as the present DL&W those in there change. Erie's divisions via Plains Junction are slightly better than those the DL&W via Taylor, and it is believed the merged company's divisions on interchange with the CNJ might be slightly reduced, amount being shown in Study XIII.

Several meetings were held with traffic department officials concerning this study and we have thoroughly reviewed their methods and conclusions. It is believed that the reasoning followed by the traffic departments in making the estimates of traffic which could be secured for longer haul is sound. Summary of the cars involved, estimated cost of handling the additional traffic and net increase in earnings of 59,747 is shown on Schedule A. Freight car per them and mileage costs have been taken into account in Study VII-F, Freight Car Pools.

          Schedule A

          Possibility of Soliciting Carload Freight for Longer Hauls

      Summary of Cars, Revenue and Net Income Which Could be Secured
                           the Merged Company

                                        Erie         DL&W            Total

1. Number of interline cars included
   in Waybill Analysis and analyzed
   in Study V                          53,712         57,182        110,894

2. Cars with potential longer haul:
   Number                                  79         24,546         24,625
   Per cent of total cars analyze          -          42.93%         22.21%
   Annualized (A)                         847        256,015        256,862

3. Estimated annual number of cars
   that could be secured for a
   longer haul for the merged company:
   Interline forwarded                    268         20,568        20,836
   Interline received                     579         15,541        16,120
   Interline intermediate                  -          25,855        25,855
                         Total            847         61,964        62,811
   Per cent of cars with potential
   longer haul                        100.00%          24.20%        24-45%

4. Estimated additional revenue for
   longer hauls:
   Interline forwarded                 86,936    $2,107,997     $2,194,933
   Interline received                  98,306      2,536,347     2,634,653
   Interline intermediate               ---        2,303,285     2,303,285
                        Total        $185,242     $6,947,629    67,132,871
   Less allowances for corrections,
   adjustments, etc.
      Per cent                         3.955%         3.855%        3.858%
      Amount                            7,326      $ 267,831     $ 275,157

5. Estimated additional net freight
   revenue                           $177,916     $6,679,798     $6,857,714

6. Additional gross ton miles on
   lines of the merged company
   required to handle the traffic
   for the longer haul including
   an allowance for   the movement
   Of empty cars (000's).               8,979     1,436,252       1,445,231

7. Estimated additional freight train
    out-of-pocket cost of handling    $ 9,378     $1,388,589     11,397,967

8. Estimated increase in earnings                               $5,459,747

(A) Annualized by multiplying by the
         following factors:   Erie - 10.72
                              DL&W - 10.43