CHAPTER XIII

COMMUNICATIONS

The real output of the communications sector was 11 per cent higher in 1960 than in 1959. This rate of increase was somewhat faster than that attained from 1958 to 1959, also exceeding the average annual expansion for the last five years. Output increases were registered in all branches, but were particularly large in the case of aviation, shipping and road haulage. The expansion of out­ put in the railway branch proceeded at a rate well below the annual average for the last five years. The latter, however, was somewhat exceeded in the avia­ tion, shipping and road haulage branches. Following two years of stability, transport prices rose considerably in 1960. The rise totalled some 7 percent­i.e. more than the rise in the general price level­ owing to the raising of bus fares after the abolition of subsidies, higher railway fares, higher port charges ( these had previously remained unchanged since 1954), and higher rates of travel tax on sea and air journeys. Road haulage charges, which have been fairly stable since. 1957, underwent little change in 1960. Investments in the communications sector1 were greatly expanded during the year under review, the increase totalling 53 per cent­ from IL.88 million in 1959 to IL.135 million in 1960. The lion's share of these investments­ IL.61 million­ were in the shipping branch. In addition, IL.38 million were invested in motor vehicles, IL.16 million­in roads, and IL.7 million­in harbours. The number of persons employed by the sector increased by 5 per cent in 1960. Wage payments, however, (excluding payments to members of transport cooperatives) totalled 10 per cent more than in the preceding year. This was due to the larger number of employees, toa rise of some 4 per cent in the aver­ age earnings per employee, and to a slight increase in social benefit payments. Wage rates went up chiefly in the harbours and in the aviation branch. The total tonnage of Israel's merchant fleet increased considerably during 1960. Owing to this and to the partial recovery from the depression which had been affecting world shipping, there was a 20 per cent increase in the output of the shipping branch­a rate of expansion far greater than during the preceding two years. The share of Israel ships in the carrying of freights to and from Israel was also larger, while freight charges rose somewhat and profitability improved. On the other hand, there are indications of a decrease in the rate of exploitation

x At ifxed prices. Exclusive of investments in posts and oil pipelines.

184 BANK OF ISRAEL, ANNUAL REPORT 1960 of the cargo lfeet, due partly to the growing imbalance between the volume of import and export cargoes (see below). The share of Israel shipping in passen­ ger transportation to and from Israel likewise declined, and the lfeets operations between foreign ports were restricted. There was an appreciable improvement in the situation of the "El Al" airline duirng 1960. Real output increased by 24 per cent, a larger percentage of carry­ ing capacity was exploited, there were fewer delays, average output per employee rose, and expenditure per unit of output decreased. The cost of the saved dollar also fell somewhat. As against these gains, "El Al" 's share of the passenger traffic to and from Israel and on the trans­Atlantic route declined.

Table XIII­1 Indices of Real Output and of Prices in the Communications Sector, 1956 to 1960

Percentage increase or decrease )­( from previous year Branch 1956 1957 1958 1959 1960

Real output Shipping 33.2 12.8 9.0 8.9" 20.1 Aviation ­0.3 7.8 68.1 30.9 24.1 Railways 27.5 29.0 ­6.5 6.3 2.3 Buses ­2.1 13.7 14.9 9.7 6.0 Other road vehicles )mainly trucks( 6.8 6.5 7.7 4.0a 10.5 Harbours 1.2 9.7 0.7 22.9 8.0

All branches* 6.5 9.5 12.3 9.6 10.8

Prices' Shipping 8.6 4.9 ­5.1 ­7.1" 4.7 Aviation 3.3 10.9 4.2 2.4 7.8

Railways 7.1 8.1 4.3 ­ 5.1

Buses 12.4 5.7 ­ ­ 12.3 Other road vehicles

)mainly trucks( 4.5 2.3 0.2 ­ 1.7

Harbours ­ ­ ­ ­ 10.0

All branches* 5.8 3.6 ­1.2 ­1.0 6.9

" The ifgures in the Bank's Annual Report for 1959 have been revised according to a new method of weighting. b Including foreign travel tax. c Weighted according to the Central Bureau of Statistics estimate of added value in each branch. . '

CHAPTER XIH, COMMUNICATIONS 185 The output of Israel's harbours increased by 8 per cent in 1960, after having risen by 23 per cent in 1959. Though this considerable growth was not accom­ panied by the expansion of port capacity, the operational performance of Haifa harbour was improved during the year under review, productivity rising while the average length of time spent by ships in port declined. However, the big increase in shiftwork, more overtime, and the over­exploitation of fixed produc­ tion factors caused a rise in the average cost per unit of output. Port service charges were raised by 10 per cent during 1960. In anticipation of a further increase in import and export tonnage during the coming years, concrete steps were taken to prepare the construction of a second deep­water Mediterranean harbour at Ashdod, so as to reduce the con­ gestion in existing ports. A $27.5 million loan from the World Bank has already been approved for this purpose, and a tender has been published for the imple­ mentation of the ifrst stage of the project. The expansion of output in the railway branch proceeded more slowly in 1960, totalling only 2 per cent, as against an annual average of 14 per cent for the last ifve years. Passenger transportation actually contracted by about 0.5 per cent. The rate of exploitation of passenger carrying capacity likewise declined. Yet the ifnancial situation of Israel Railways improved, chielfy because fares were raised by 12.5 per cent. The number of motor vehicles increased by 14 per cent duirng the year under review. Private cars, trucks and motor cycles were the types of vehicle mainly affected. The real output of trucks increased by 10 per cent, and of buses­ by 6 per cent. Though road haulage charges did not rise duirng recent years, while input pirces climbed higher, there was no decline in the proiftability of heavy trucks. This was due to the "dieselization" process and the streamlining of working methods, which reduced costs per unit of output. On the other hand, the pro­ iftability of light trucks decreased, since in their case expenditure per unit of output rose and competition became more intense.

1. Shipping Since the beginning of 1957, world shipping has been passing through a period of depression caused by the excessive number of ships. This is relfected by idle vessels, lower freight charges, iferce competition for cargoes, lower rates of exploitation for available shipping space and­ resulting from all these­ the declining proiftability of shipping companies. The index of tramp shipping charges for vessels on long­term charter1 was 57 per cent lower in 1959 than in 1955. The depression continued throughout 1960, but there were some signs of a

1­ The index of freight tairffs for chartered ships issued by the Birtish Chamber of Shipping.

186 BANK OF ISRAEL, ANNUAL REPORT 1960 Table XIII­2

The Israel Merchant Fleet, by Type of Ship, Gross Registered Tonnage and Deadweight Tonnage, 1957 to 1960

(End of period(

Number of ships Gross registered tonnage Deadweight tonnage Type of ship 1957 1958 1959 1960 1957 1958 1959 1960 1957 1958 1959 1960

Passenger and mixed* 6 53,745 53,745 42,730 42,755 27,038 27,038 20,338 29,435

Cargo 24 31 35 40 104,341 135,914 145,086 199,305 154,641 197,720 211,645 285,769 ft Tankers 4 4 5 7 34,527 34,527 57,852 99,748 53,058 53,058 89,260 155,309

70ta/ 34 41 45 52 192,613 224,186 245,668 341,808 234,737 277,816 321,243 461,513 8 g g c 2 * Cargo and passenger. ^ Source: Ministry of Transport and Communications, Shipping and Ports Division. H 1 Clf

CO revival­ especially towards the end of the year­ such as a tendency towards higher tariffs and a larger volume of cargoes, while idle shipping tonnage de­ clined considerably, totalling 3.5 million tons as against 9.3 million tons in 1959 and 6.5 million tons in 1958. Simultaneously, the excesse supply of ships was reduced, and the pressure to cut freight charges lessened. The index of freight charges for vessels on long­term charter rose by 18.5 per cent during 1960, but was still 45 per cent lower than in 1957. The Israel merchant lfeet grew rapidly during the year under review. Its dead­ weight tonnage increased from 321,000 tons in 1959 to 462,000 tons in 1960­ i.e. by more than 44 per cent­ largely owing to the net addition of five cargo vessels totalling 74,100 tons and two tankers, including a big one of 46,400 tons. The number of ships in the lfeet reached 52 at the end of the year. The biggest increase occurred in the tonnage of tankers, which grew by 74 per cent, as compared with a 35 per cent expansion of the tonnage of dry cargo vessels. As in 1959, there was no change in the number of passenger ships. Two obsolete ships were disposed of during 1960: the "Tsfonit", built in 1937, and the "Av­ raham Graetz", built in 1920. The carrying capacity of Israel's merchant lfeet has in recent years been in­ creasing more rapidly than its tonnage, since the average age of the ships de­ clined while their average speed has been rising. As during the previous 3 years, the average age of the Israel lfeet and the proportion of obsolete vessels over 20 years old continued to decline in 1960. Obsolete ships of this kind constituted 23 per cent of the lfeet in 1958, 15 per cent in 1959, and only 7 per cent in

Table XIII­3 The Israel Merchant Fleet, by Age, 1959 and 1960

1959 1960 Deadweight Deadweight Age tonnage tonnage Number Number of ships of ships Tons Percent­ Tons Percent­ ages ages

All ages 321,243 100.0 45 461,513 100.0 52 Up to 2 years 107,394 33.4 15 220,540 47.8 16 3to 5 years 125,630 39.1 16 135,482 29.4 16 6 to 10 years 25,444 7.9 5 58,408 12.7 13 11 to 15 years 3,050 1.0 1 2,963 0.6 1 16 to 20 years 10,688 3.3 1 10,688 2.3 1 20 years or more 49,037 15.3 7 33,432 7.2 5

Source : Bank of Israel calculations, based on data of the Shipping and Ports Division Ministry of Transport and Communications.

188 BANK OF ISRAEL, ANNUAL REPORT 1960 1960. The average age of the lfeet1 declined from 7.5 years in 1959 to 5.5 years in I960, and is now among the lowest in the world. This increases carrying capacity, reduces expenditure on repairs and maintenance, and confers an ad­ vantage in competition with foreign ships owing to the faster speeds attainable. On the other hand, however, the process of rejuvenation creates a high level of expenditure on amortization and interest : the share of these two items within the total outlays of Israel shipping rose in 1960 to 21 per cent. An additional factor which has increased the carrying capacity of the Israel lfeet during recent years is its rising average speed. This reached 14.8 knots in 1960, as against 12.5 knots in 1955, due to the substitution of modern for obsolete vessels and the addition of new and faster ships. The carrying capacity of the lfeet, calculated by multiplying the change in deadweight tonnage by the change in average speed, rose, during I960, by 33 per cent. Since this exceeds the rate of expansion in real output, the percentage of capacity exploited appears to have dropped.

(a) Cargo traiffc The real output of the cargo­carrying section of the Israel lfeet (including chartered ships operated by Israeli shipping companies) rose during 1960 by some 16 per cent. The total turnover from cargo trafifc reached $40.1 million in 1960, of which $28.5 million were from ships lfing the Israel and $11.6 million from chartered vessels. Owing to the larger number of ships lfying the Israel lfag in 1960 and to the depression in world shipping which made it difficult to obtain additional cargoes, the share of chartered ships within the total activities of Israel shipping declined from 38 per cent in 1959 to 29 per cent in I960.2 Consequently, the output of chartered vessels in the cargo­carrying branch declined by 11.2 per cent, while the output of Israel lfag ships simultaneously rose by 32.8 per cent. The last four years are characterized by a declining ratio between tonnage actually carried and the deadweight tonnage of the lfeet.3 In 1957, the ton­ nage of dry cargoes carried by Israel lfag ships was 8.1 times larger than the average deadweight tonnage of the lfeet during the same year. In 1958, the ratio was 6.8 to 1; in 1959­ 6.6 to 1 ;and in 1960­ 5.8 to 1. This development was partly caused by the lengthening of the cargo routes, partly by changes in the composition of the cargoes, and partly by a decline in the percentage of capacity exploited. The lower rate of exploitation of cargo ships in 1960 is likewise relfected by the fact that the ships' cargo­carrying capacity expanded more rapidly than a Weighted. according to the gross registered tonnage of the ships. 2 Including the transportation of fuel by tankers. 3 Estimated annual average, weighted according to the number of months during which each ship operated.

CHAPTER XHI, COMMUNICATIONS 189 their real output : the carrying capacity of the cargo lfeet, inclusive of tankers, increased by 38 per cent, while real output rose by only 33 per cent. This differ­ ential is not entirely due to a lower exploitation rate, but may also have been partly caused by changes in the composition of cargoes and in the length of the maritime routes served by Israel shipping. Factors not dependent on Israel ship­ ping, such as delays in foreign ports before loading or unloading, could likewise have exerted an inlfuence in this sphere.

Table XIII­4 Maritime Freight Traiffc to and from Israel, by Flag, 1955 to 1960 (thousands of metric tons( Dry cargo Flag and year ruel Imports Exports Total

Israel lfag 1955 401 175 576 217 1956 439 260 699 341 1957 516 216 732 211 1958 495 201 696 275 1959 743 241 984 506 I960 828 299 1,127 1,844 All flags 1955 1,525 640 2,165 1,458 1956 1,471 699 2,170 1,275 1957 1,540 862 2,402 1,727 1958 1,648 773 2,421 1,730

1959 1,882 1,092 2,974 ­

1960 2,035 1,179 3,214 ­ Percentage share of Israel lfag 1955 26 27 27 15 1956 30 37 32 27 1957 34 25 30 12 1958 30 26 29 16

1959 39 22 33 ­

1960 41 25 35 ­ Source: Shipping companies and Central Bureau of Statistics.

The total quantity of dry cargo carried by Israel shipping on all lines­in chartered vessels as well as Israel ships­ increased by only some 1.5 per cent in 1960. It reached 2,438,000 tons, as compared with 2,403,000 tons in 1959. This change relfects a 2 per cent increase in the quantity of cargo carried by chartered vessels and an increase of less than 1 per cent in the tonnage carried by ships lfying the Israel lfag. This rate of expansion is considerably slower than

190 BANK OF ISRAEL, ANNUAL REPORT 1960 the average for the ifve preceding years5 and than the increase in 1959 (see Table XIII­5). The output of the shipping branch comprises two components : tonnage and the distances over which goods are transported. Consequently, no far­reaching conclusions concerning the scope of shipping operations should be drawn from the slight increase in tonnage. The increase in real output registered as regards cargo traffic, though the overall quantity of cargo remained virtually unchanged, indicates that freights were carried over longer distances. This raised the average income per ton of cargo.

Table XIII­5 Cargo Carried by Israel Ships, 1958 to 1960 (thousands of metric tons(

Cargo carried Cargo carried Total to and from between cargo Type Israel foreign ports carneu of cargo Total and year By Israel By char­ By Israel By char­ By Israel By char­ lfag tered lfag tered lfag tered ships ships ships ships ships ships

Dry cargo 1958 696 394 528 239 1,224 633 1,857 1959 984 482 376 561 1,360 1,043 2,403 1960 1,127 555 246 510 1,373 1,065 2,438 Fuel 1958 275 ­ 351 ­ 626. ­ ■ 626

1959 506 ­ 50 ­ 556" ­ 556

1960 1,844 ­ ­ ­ 1,844 ­ Ii844

* Excluding 465,000 tons of fuel carried from Sukreir to Haifa. b Excluding 28,000 tons of fuel carried from Sukreir to Haifa. Source: Shipping companies.

The average distance over which cargoes were transported has been lengthen­ ing for the past three years, due to the increasing proportion of long lines­. especially to the Far East, the United States and the Great Lakes. Besides transportation to and from Israel, local shipping companies have been operating cargo vessels between foreign ports. While some of these lines com­ plement services to and from Israel, others are entirely separate. Most freights between foreign ports are carired by chartered ships. Indeed, there has been a distinct tendency duirng the last three years to carry less and less cargo between foreign ports by ships lfying the Israel flag. This applies equally to the absolute quantity of such cargoes and to the percentage they constitute of the total ton­ nage transported by Israel shipping. Thus, cargoes carired between foreign ports

CHAPTER Xm, COMMUNICATIONS 191 constituted 43 per cent of the tonnage carried by ships lfying the Israel lfag in 1958, but only 28 per cent in 1959 and 18 per cent in 1960. The decline has been largely due to the considerable expansion of Israel's imports and exports (which has enabled shipping companies to concentrate their activities on the transport of goods to and from Israel) but also to the depression affecting world shipping. The latter affected the freight charges of tramp vessels rather more adversely than the rates on fixed lines. The share of imports within the total tonnage carried by Israel shipping has been increasing more rapidly during the past three years than the share of ex­ ports. Imports constituted 40 per cent of the total tonnage carried in 1958, but as much as 60 per cent in 1 960. This was the result of the decline in the quanti­ ties of cargo carried between foreign ports and to the comparatively slight in­ crease in the proportion of export tonnage. Though the relative share of import and export cargoes carried by Israel shipping averaged 30 per cent during the last ifve years, when it rose slowly by an average of 1.5 per cent per annum, it increased to 33 per cent in 1959 and 35 per cent in I960; These increases are larger than the ifve­year average owing to the great expansion of the carrying capacity of Israel shipping. Tonnage transported by local shipping companies in Israel lfag ships and chartered vessels constituted together 52 per cent of imports and exports in 1960, as compared with 49 per cent in 1959. The participation of the Israel lfeet in the carrying of export cargoes is ap­ preciably smaller than in the case of imports. Similarly, the average annual in­ crease in the tonnageof. exports carried during the last ifve years was smaller than the average annual increase in the tonnage of imports carried. These pheno­ mena, caused by the conditions governing international trade, have expanded the share of import cargoes within the total maritime freight traffic of Israel shipping to and from Israel from 63 per cent in 1956 to 74 per cent in 1960. The growing imbalance between import and export cargoes experienced during recent years has reduced the percentage of available cargo capacity exploited on journeys starting in Israel. It should be noted that the opposite trend has been in evidence as regards foreign ships operating on the Israel line: in their case the imbalance between import and export cargoes has been contracting ever since 1955. During that year, imports constituted 71 per cent of the tonnage they carried to and from Israel (i.e. much the same percentage as in the case of Israel lfag ships), but by 1959 their share had declined to 57 per cent and in 1960 it was 58 per cent. The fact that foreign shipping companies have achieved a virtual balance between export and import cargoes on the Israel line, while the Israel lfeet shows a growing imbalance in this sphere, has been causing the relative proiftability of the Israel lfeet to decline. The adverse effect on the percentage of carrying capacity exploited and on proiftability is even greater than would appear from the above ifgures owing to the lack of coordination in training.

192 BANK OF ISRAEL, ANNUAL REPORT 1960 Table XIII­6

Maritime Passenger and Immigrant' Traiffc to and ■from Israel, by Flag and Shipping Lines, 1955 to 1960

Passengers Immigrants on Flag North Turkish Mediterranean anj year Mediterranean American Total lines" line and lines" line others

Israel ships*

1955 28,300 4,600 ­ 32,900 32,400

1956 33,900 5,800 ­ 39,700 45,900

1957 39,400 7,750 ­ 47,150 56,400

1958 44,570 1 1,000 ­ 55,570 9,220

1959 44,940 9,660 ­ 54,600 9,400

1960 51,780 10,960 ­ 62,740 7,590

All ships 1955 45,100 4,600 4,800 54,500 34,100 1956 43,400 5,800 7,400 56,600 47,200 1957 51,750 7,750 4,250 63,750 56,900 1958 61,840 11,000 4,270 77,110 11,060 1959 61,620 9,660 6,000 77,280 10,100 1960 77,020 15,170 5,490 97,680 9,570

Percentage share of Israel ships

1955 63 100 ­ 60 95

1956 78 100 ­ 70 97

1957 76 100 ­ 74 99

1958 72 100 ­ 72 83

1959 73 100 ­ 71 90

1960 67 72 ­ 64 79

* Immigrants whose fare was paid by the Jewish Agency. Immigrants who paid their own fare are considered passengers. b Mainly France and Italy. " Including 9,500 immigrants in 1956 and 26,800 immigrants in 1957 who sailed on ships chartered by an Israel company. a Including 600 passengers in 1956 and 1,400 passengers in 1957 who sailed on ships chartered by an Israel company. No ships were chartered for passenger transport in 1958, 1959 and 1960. Source: "Zim", Israel Navigation Company.

CHAPTER XIII, COMMUNICATIONS 193 )b) Passenger traiffc The passenger­carrying capacity of the Israel lfeet did not expand in 1960, remaining at the 1959 level of 1,640 in 3 passenger vessels and a further 626 in, 2 mixed passenger­cargo vessels. The number of passengers actually carried by Israel ships on all lines rose from 64,000 in 1959 to 70,33c1 in 1960­ i.e. by 10 per cent. Despite the larger number of passengers carried, real output in this branch declined by 1.3 per cent, this being due to the lower average income per passenger caused by the smaller average distance travelled and by the increasing weight of concessions granted to organized groups. " ■ Fares were raised by approximately 9 per cent during the year under review. The rise was entirely caused by the higher rate of foreign travel tax introduced in February­ 55 per cent of the fare as against 40 per cent previously. Thus, the amounts collected by the shipping companies remained unchanged. ■■ Following a sharp increase in 1956, the percentage of passengers carired to and from Israel shipping has been declining. It was only 64 per cent in 1960 as compared with 74 per cent in 1957. The decrease has been caused by intensified competition from foreign ships which are operating less luxurious passenger

Table XIII­7 Sea and Air Passenger Traffic* to and from Israel, 1955 to 1960

Year Sea Air Total

Absolute numbers 1955 54,500 77,400 131,900 1956 56,600 81,000 137,600 1957 63,750 95,260 159,010 1958 77,110 133,700 210,810 1959 77,280 167,700 244,980 1960 97,680 219,100 316,780 Percentages 1955 41 59 100 1956 41 59 100 1957 40 60 100 1958 37 63 100 1959 32 68 100 1960 31 69 100

* Excluding immigrants. Source: Shipping and aviation companies.

l Inclusive of immigrants.

194 BANK OF ISRAEL, ANNUAL REPORT 1960 ships and charging lower fares. The carrying capacity of foreign passenger vessels operating on the Israel line rose considerably in 1960, whilst that of Israel ships remained unchanged. Consequently the decUne in the proporiton of passengers carired by Israel ships was steeper in 1960 than in previous years, reaching 7 per cent. In order to face the compeititon with more success, a popular­type passenger vessel has been ordered from a French shipyard and will enter service in 1961. The rate of exploitaiton of Israeli passenger ships is fairly high. On the trans­ Atlanitc line it reached an average of 88 per cent in 1958 and 84 per cent in 1959; on the Mediterranean 'hnes it was even higher, being esitmated at around 90 per cent. 1960 showed a conitnuaiton of the trend characterisitc of the preceding six

years : the proportion of maritime passenger traffic has been declining as com­ pared with that of passengers carried by airlines. Persons travelling by sea to and from Israel constituted 40 per cent of the total number of travellers in 1957, but only 32 per cent in 1959 and 31 per cent in 1960. The average annual rate of decline since 1956 has been 2.5 per cent.

(c) The business aspect The slight improvement in the business situation of internaitonal shipping during 1960, due to a smaller surplus of available ships, was also felt by Israel shipping. There was a mild rise in tariffs and profitability improved. While dur­ ing the previous two years there was a considerable decrease in the average transportaiton charges received by Israel shipping, 1960 brought a small increase of 3.2 per cent. However, the conitnuing depression affecitng world shipping and the rapid growth of the Israel lfeet's carrying capacity appear to have caused a decline in the rate of exploitaiton due to insufifcient cargoes. A provisional summing up of financial data1 applicable to Israel shipping (after addiiton of the premium paid on added value) shows that the proifts of the shipping branch reached $8.6 million in 1960, as against only $2 million in 1959. Most of the proifts reaped during these two years were from the operation of chartered ships, which brought a net gain of IL.4.1 million in 1959 and IL.3.6 million in 1960 (exclusive of the premium on added value ). The profitability of Israel shipping has been inlfuenced by its rapid expan­ sion duirng recent years. The carrying capacity was increased considerably every year, new lines were inaugurated, arid more freights and passengers were transported. As in the case of industiral undertakings, it is necessary to view some of the current expenditure during that peirod as running­in costs con­ sittuitng part and parcel of the oirginal investment. Income has also tended to increase more slowly duirng the peirod of expansion owing to the difficulties encountered in captuirng new markets. This factor is of paritcular importance

x Including the operation of ships chartered by Israeli companies.

CHAPTER XHI, COMMUNICATIONS 195 in view of the intense competition obtaining in internaitonal shipping during recent years. A further factor, which must be taken into consideraiton when analysing the profitability of Israel shipping during these years, is the level of freight charges­ now 10 to 15 per cent lower than during normal periods. A profit and loss account for 1960 calculated on the basis of freight rates 10 per cent higher than those actually in force shows that Israel shipping companies would have made a profit of $2.3 million from operaitng their own ships under such condiitons, even without the premium payable on added value. The profitability of the Israel lfeet is likewise affected by the gap between the tonnages of imports carried by its ships, and by the lack of coordination between sailing dates and quantity of cargo for transport. These factors reduce the percentage of capacity exploited. Poliitcal circumstances are prevenitng the Israel lfeet from operaitng in the Middle East, which would otherwise con­ sittute its natural market. This, as well as dififculites occasioned by its capital structure (which have caused high expenditure on interest­ amounting in 1960 to as much as 11 per cent of total costs) are addiitonal factors limiitng profits. Nevertheless, there was an improvement in the ifnancial situaiton of the shipping branch during 1960, which was relfected by a higher return on in­ vested capital.1 On all shipping operaitons, including those of ships chartered by Israeli companies, this return totalled 5.9 per cent in 1959 and 8.1 per cent in 1960. Considering the special circumstances affecitng shipping during 1960, the latter rate seems satisfactory. The main criterion of the proiftability of shipping to the economy is the cost of the saved dollar. A subsidiary criterion is the percentage of added value. In the case under discussion, the two criterions appear to indicate different con­ elusions : the cost of the saved dollar during the last three years has been low in comparison with other branches of the economy, but so has the percentage of added value. During 1960, the cost of each dollar saved by the operations of ships lfying the Israel lfag2 was IL. 2.48. If all the acitviites of the shipping branch, including those of chartered vessels, be taken into consideraiton, the cost of the saved dollar was only IL.2.08. Added value during the year under review was approximately 25 per cent. In 1960, there was an improvement in the proiftability of shipping from the standpoint of the economy. The sum total of added value produced by the branch increased from $9.7 million in 1959 to $14.0 million inI960,­i.e. by 44 per cent. The cost of the dollar decreased by 12 per cent and the percent­ age of added value ( calculated from turnover) rose from 20 in 1959 to about

J The return on invested capital has been calculated according to the ratio between interest payments + net proifts after receipt of the premium, and the total investment in ships. 2 The added value in foreign currency and the cost of the dollar have been calculated on the basis of 6 per cent imputed interest on the capital invested in ships, all of which is assumed to be in foreign currency.

196 BANK OF ISRAEL, ANNUAL REPORT 1960 Table XIII­8

Receipts, Estimated Added Value in Foreign Currency, and Cost per Dollar Saved of the Israel Merchant Fleet, 1959 and I960" (thousands of U.S.$(

1959 1960 All ships All ships operated owned operated by by Israeli Israel Chartered ships ships Israeli companies companies

Receipts (before taxes) 47,797 43,199 11,605 54,804

Foreign Currency Expenditure

Direct 33,681 29,132 8,722 37,854 5 Imputed 4,423 38,104. 2,936 32,068 29 8,751 2,965 40,819 50

Added value in foreign currency 9,693 11,131 2,854 13,985 O o g Local currency expenditure g G (thousands of IL.) 22,779 27,646 1,458 29,104 O Cost per dollar saved (IL.) 2.35 2.48 0.51 2.08 § en Percentage of added value 20 26 25 25

* Imputed interest at 6 per cent on capital invested in ships has been added to foreign currency expenditure. >0 Sourcb: Bank of Israel calculations based on data supplied by shipping companies. 25 in 1960. During both years it was more profitable to operate chartered ships than Israel lfag ships, both for. the shipping companies and for the economy. This phenomenon relfects the depressed conditions in international shipping, which enabled the chartering of ships at low prices and their employment on lines where the depression exerted less inlfuence on freight charges. However, it was also due to the higher cost of operating Israel ships because of the higher input prices in this country. It should be noted further that the utilization of chartered vessels enables a greater degree of elasticity in accordance with mar­ ket conditions, since normallya ship is chartered only when a sufifcient quan­ tity of cargo at convenient places has already been assured. This elasticity has led to better exploitation of cargo­carrying capacity by chartered vessels than by Israel lfag ships. At the same time, it must be stressed that the operating of chartered ships cannot be analysed except in conjunction with Israel ships, there being a clearly deifned connection between the two types of activity.

2. Civil Aviation (a) International civil aviation During 1960, the El Al Company operated 4 "Bristol Britannia" aircraft ( carrying capacity­ 364 passengers) and two "Constellation" aircraft (car­ rying capacity­ 126 passengers). In addition, El Al utilized chartered aircraft, particularly on the line to South Africa and for special lfights.The' share of chartered aircraft within the company's total activities increased: from ,6 per cent in 1959 to 14 per cent in 1960. This increase was due tothe fact that the .demand for El Al services expanded too quickly to enable the company's own aeroplanes to meet it. El Al's tptal carrying capacity, including chartered air­ Jcraft, rose from 42.6 million ton/miles in 1959to 51.5 million ton/miles in :19~60. .:. ,.

; ­ / Table XIII­9 ":' Operational Data of El Al' 1955 to 1960 Average Number distance Index of Hours Miles available Percentage Year of lfown lfown lfown per carrying capacity lfights passenger exploited c (miles( capacity b 1955 906 12,374 2,566,628 2,487 100.0 64.4 1956 ' 889 11,984 2,529,736 ,.. 2,283 103.4 60.9 1957 940 12,185 2,498,249 2,084 104.5 65.4 1958 1,236 13,420 3,541,695 2,421 210.3 57.3 1959 1,562 14,500 4,130,220 2,308 263.4 59.7 1960 1,864 16,260 4,679,500 2,290 307.6 62.7

* All lines, excluding unscheduled lfights. b Measured according to available seat/miles. c Eassenger/rhiles lfown as compared with available seat/miles. Source: El Al. '

198 BANK OF ISRAEL, ANNUAL REPORT 1960 The operational statistics of El Al show an improvement in 1960. This is relfected by the expansion of activities, a higher rate of capacity exploitation, fewer delays, larger average output per employee, lower costs per unit of output and a slight decrease in the cost of the saved dollar. On the other hand, 1960 witnessed a decline in £1 Al's share of the total passenger air traffic to and from Israel, and there was virtually no change in tlie company's profitability. The latter is explained by the fact that, parallel to the improvement in oper­ ational data and the fall in expenditure per unit of output, there was also a decline in income per unit of output. Despite the smaller number of aircraft operated by the company,1 real output in terms of ton/miles increased by 24.6 per cent, reaching 29.4 mil­ lion ton/miles as against 23.6 million in 1959.2 The carrying capacity of air­ craft operated by El Al rose by 21 per cent, whilst the carrying capacity of aircraft owned by the company increased by only 11 per cent. Consequently, it would appear that the larger carrying capacity is the result of an increase in the number of charter lfights on the one hand and more efficient utilization of lfying equipment on the other hand. The average number of hours lfown daily by "Britannia" aircraft rose from 7.30 in 1959 to 9.10 in 1960, most of the increase taking place during the peak season (see TableXIII­10).

Table XIII­10 Average Daily Exploitation of El Al Aircraft, 1959 and I960

­. ­ . )hours)

^ni year^' Annual average Peak season ­ Off­season

"Britannia" 1959 7.30 9.00 6.00 1960 9.10 10.40 7.40 "Constellation" 1959 4­10 ,­­, 4.30 3.20 1960 3.00 '.'.' 3.00 3.00

Source: El Al data.

In contrast to the two previous years, the expansion of. El Al's activities was largely confined to the European lines. The number of ton/miles3 on these lines increased by 27 per cent, as compared with an increaseof 18 per cent on the

­In I960, El Al operated with 4 "Birtannias" and 2 "Constellations," as against 4 "Birtan ב nias" and 3 "Constellations" in 1959. 2 Including freights and passengers in terms of ton/miles. s Cargo and passengers in terms of tons.

CHAPTER XIII, COMMUNICATIONS 199 trans­Atlantic line. El Al's share in the air traiffc above the Atlantic Ocean declined from 2.2 per cent in 1959 to 1.8 per cent in 1960. This was due to the inauguration of jet aircraft services by companies competing with El Al. During the last two years, the average percentage of carrying capacity ex­ ploited in El Al aircraft has been rising. It was 60 per cent in 1959, but 63 per cent in 1960. Consequently, the company's output has been expanding more rapidly than its carrying capacity. The proportion of occupied seats in aircraft on the trans­Atlantic line rose from 59 per cent in 1959 to 64 per cent in 1960. The latter ratio roughly equals the average rate of exploitation for international civil airlines operating on this line. The improvement in El A/'s operational data is likewise reflected by a 43 per cent decline in delays, as compared with the preceding year. This con­ siderable advance is the continuation of a trend ah­eady apparent in 1959 and bears witness to better organizational and technological methods and a higher level of service.

Table XIII­11 Ton/Kms. Produced Per Employee and Ton/ Kms. Sold per Employee, El Al and Other Airlines, 1959' (thousands of tons/kms.( Tons/kms. Tons/kms. produced sold per employee per employee

T.W.A. 76.3 43.8 Pan American 61.3 38.1 El Al 45.4 25.2 Alitalia 44.8 24.3 B.O.A.C. 33.2 18.1 Qantas 32.3 18.2 Swissair 31.8 19.3 Air France 31.4 19.4 S.A.S. 30.9 17.0 K.L.M. 30.5 17.3 Iberia 29.9 17.4 Olympic 29.1 13.9 Lufthansa 26.6 13.9 Sabena 25.0 15.6 B.E.A. and Cyprus Airways 22.6 14.9 Air­India 21.7 12.4

* Including administrative personnel. Source : Annual Statistical Abstract published by I.A.T.A.

The average output per employee (including administrative personnel) in terms of ton/miles increased by 14 per cent in 1960. According to I.A.T.A.

200 BANK OF ISRAEL, ANNUAL REPORT 1960 statistics, El Al had the third­highest output per employee of the 16 interna­ tional airlines competing on parallel lines (see Table XIII­11). The slow increase in El Al's share of the air passenger traffic to and from Israel, which had continued uninterruptedly since 1955, came to an end in 1960. El Al's share declined from 51 to 48 per cent of the total number of passengers lfying to and from Israel. Looking at the situation from a slightly different aspect, we find that air passenger traffic to and from Israel expanded during 1960 by 36 per cent, while the increase in the number of passengers travelling to and from Israel by El Al aircraft totalled only 26 per cent (see Table XIII­12). The main reasons for El Al's declining share of this traffic may be summed up as follows : a. A changeover by certain passengers to foreign airlines operating with jet aircraft, made possible on the supply side by the big expansion of carrying

Table XIII­12 Civil Aviation Traiffc to and from Israel' 1955 to 1960

Freight and Immigrants* Passengers mail (tons(

Israel aircraft' 1955 31,400 708 634 1956 33,800 720 3,446 1957 41,800 890 4,222 1958 60,506 1,212 8,056 1959 82,376 1,620 8,491 1960 104,100 2,223 9,869 All aircraft 1955 77,400 1,416 634 1956 81,000 1,530 2,446 1957 95,260 1,730 4,222 1958 133,700 2,236 8,056 1959 161,140 2,903 9,613 1960 219,050 3,782 11,683 Percentage share of Israel aircraft 1955 41 50 100 1956 42 47 100 1957 44 51 100 1958 45 54 100 1959 51 56 88 1960 48 59 84

" Excluding trafifc through Haifa airport. b For deifnition of immigration see note 0 to Table XIII­6. ' Including aicraft chartered by El Al. Source: Reports of El Al Airlines.

CHAPTER XIII, COMMUNICATIONS 201 capacity achieved by these airlines and on the demand side by a preference for jet travel. This phenomenon was relfected by the increasing share of traf­ fie taken by foreign airlines utilizing jet aircraft during the second half of the year under review. b. Owing to the travel tax regulations enforced in Israel during 1960, there was a general tendency among Israel residents to prefer foreign airlines. This was one of the reasons why El Al proved more successful in keeping its share of tourist travel than of Israeli travellers. The quantity of freight and mail carried by El Al increased by 31 per cent during the year reviewed, reaching 6,066,000 ton/miles. This growth must in part be ascribed to the expansion of air­freighted agricultural exports to Eu. rope. The items so transported included mainly vegetables, fruit, eggs and. chicks. Most of this transportation was implemented in chartered aircraft. Addi­ tional quantities, which El Al was unable to carry, were shipped by foreign airlines. El Al's share of air freights and air mail rose from 56 per cent in 1959 to 59 per cent in 1960. The basic fares charged by the company were not changed during the year under review, but altered lfight schedules and the larger weight of concessions granted for organized groups and special journeys reduced the average income per ton/mile from 96.1 agorot in 1959/60 to 88.5 agorot in 1960/61. The improvement in operational data was relfected by lower costs per unit of output­a trend characteristic of the last two years, which began with the regular utilization of "Britannia" aircraft. However, since income per unit of output showed a parallel decline, there was virtually no change in the pro­ iftabi'hty of El Al during 1960. The company's activities in the financial year 1960/61 showed a profit of some IL.60,000, after receipt of the premium on added value. The return on invested capital has been exceedingly low, amount­ ing during the last two years to no more than 2 per cent per annum.1 The cost of the saved dollar fell from IL.3.08 in 1959/60 to IL.2.92 in 1960/6I.2 Due to the expansion of the company's activities, total added value rose by 27 per cent­ from $3.9 million in 1959/60 to about $5 million in 1960/61. The proportion of added value within total turnover rose from 18 to 20 per cent. So as to enable El Al to compete with foreign airlines under conditions of transition to jet travel, two jet aircraft of the Boeing 707 type were ordered during 1960 and preparations began to be made for putting them into service. The order contract includes an option on a third aeroplane. The investment

The rate of return on invested capital has been calculated according to the ratio between ­י interest payments + net profit after receipt of premium, and the value of the company's assets. 2 The calculation assumes an imputed interest of 6 per cent per annum on capital invested in lfying equipment. All such interest is assumed to be in foreign currency.

202 BANK OF ISRAEL, ANNUAL REPORT 1960 Table XIII­13 Receipts, Estimated Added Value in Foreign Currency and Cost per Dollar Saved of the El Al Company, 1959/60and. /96.0/61' (thousands of U.S. $)

1959/60 1960/61

Receipts 21,278 25,172 Foreign currency expenditure Direct 16,713 19,498 Imputed 637 17,350 678 20,176

Added value in foreign currency 3,928 4,996 Local currency expenditure )thousandts of IL.( 12,105 14,564 Cost per dollar saved (IL.( 3.08 2.92 Percentage of added value 18 20 b Imputed interest at 6 per cent on capital invested in aircraft was added to foreign cur­ rency expenditure. Source : Bank of Israel calculations, based ­on El Al data. in these two aircraft, inclusive of ground equipment and the alteraitons required in buildings and runways, totalled $20.5 million. Their purchase was ifnanced partly by the Israel Government and partly by a $10.5 million loan from the American Export­Import Bank. It is planned to put both aircraft into opera­ iton in the middle of 1961. Until their arrival, El Al has chartered a Boeing 707 jet plane, which went into service during January 1961.

(b) Inland civil aviation During 1960, the Arkia company operated with 4 Dakota aircraft, each of 32 seats, one "Dove" aircraft with 11 seats, and two helicopters. Arkia's output, measured in terms of ton/kilometres and passenger/kilo­ metres, increased by 30 per cent. Most of the increase was in chartered flights, where it totalled 78 per cent. Passenger transportaiton by regular flights ex­ panded by 19 per cent, and air freight transportaiton­ by 12 per cent. The number of passengers carried increased by 21 per cent to 95,000, as compared with 14 per cent in 1959. The quanitty of cargo carried by the company in­ creased by 10 per cent. Duirng 1960, Arkia expanded its special flights abroad. These are usually short­distance journeys. ..; '­ ~

CHAPTER Xm, COMMUNICATIONS 203 Table XIII­14 Inland Civil Aviation Traiffc, 1955 to 1960

Year Number of Freight passengers )metric tons(

1955 11,700 350 1956 23,300 360 1957 66,000 380 1958 68,700 129 1959 78,300 226* 1960 95,000 249 ' Revised ifgures. Source: Reports of "Arkia" Airways.

In June I960, fares on the Eilat line were raised by 12.4 per cent. This increased the income of the company by some IL.40,000. The rate of exploitation of lfying equipment rose slightly, from 74 per cent in 1959 to 75 per cent in 1960. The average speed of lfights was increased from 211 kilometres per hour in 1959 to 230 kilometres per hour in 1960. After deducting depreciation on aircraft at the rate of 18 per cent, Arkia's activities in 1960 showed a profit of 11­.20,000.

3. Harbours The output of Israel harbours increased by 8 per cent in 1960, after an increase of 23 per cent during 1959. The total tonnage loaded and unloaded at the four ports reached 3,214,000 tons, as compared with 2,974,000 tons in 1959. The entire expansion took place at Haifa and Eilat. In Haifa, output rose by 10 per cent, and in Eilat­ by 11 per cent. In the ports of Tel­Aviv and Jaffa output actually declined by 6 per cent. The proportion of heavy and relatively cheap cargoes continued to increase during 1960. This trend is due to the vertical development of production, to the larger proportion of raw materials and unfinished products within total imports, and to bigger exports of minerals. The growing percentage of bulk cargoes is another manifestation of the same tendency. In Haifa Port, bulk cargoes constituted 47 per cent of the total tonnage loaded and unloaded dur­ ing 1960, as compared to 42 per cent in 1959. Only slight changes occurred in the distribution of import and export tonnage between the four harbours : the share of Haifa Port rose from 82 to 83 per cent, and that of Eilat­ from4to 5 per cent. The combined share of Tel­Aviv and Jaffa declined from 14 to 12 per cent.

204 BANK OF ISRAEL, ANNUAL REPORT 1960 Table ^11­15

Cargo Traffic through Israel Ports, 1957 to 1960

Thousands of tons Percentages Port Loading and unloading Unloading (imports) Loading (exports) All cargoes 1957 1958 1959 1960 1957 1958 1959 1960 1957 1958 1959 1960 1957 1958 1959 1960

Haifa 2,021 1,998 2,427 2,677 81 80 79 82 90 87 85 85 84 83 82 83

Tel­Aviv 172 186 218 200 11 11 12 10 7 8 7 6 3

Jaffa 168 178 198 191 7 7 7 6 7 7 7 6

Eilat 41 59 131 146 1 2 2 2 8 g 3 c All ports 2,402 2,421 2,974 3,214 100 100 100 100 100 100 100 100 100 100 100 100 2 . ­­ ­ ­­ ^ ^ Source: Ministry of Transport and Communications, Port Authorities. H O Z to 8 The proportion of exports within total tonnage loaded and unloaded re­ mained at its 1959 level of 37 per cent. Port dues were raised at the beginning of 1960. They had previously re­ mained unaltered since 1954. Since then, there had been a considerable rise in input prices, only partly offset by higher productivity. The changes in the tariffs for transferring cargo, including porterage and lighterage, were made after costing factors and general economic considerations had been duly weigh­ ed, special attention being paid to the encouragement of exports. Consequently, the average costs of transferring export cargoes declined by 7 per cent. The lower income resulting from the reduction of transfer charges on exports, as well as the raising of lighterage and porterage costs caused by higher input prices, were all charged to imports, and the tariffs for the latter rose by an average of 33 per cent. Taking an average for imports and exports, transfer costs rose by 24 per cent. There was no change in stevedoring rates for the general public, but since the taxes on this service were lowered the stevedoring companies received 8.5 per cent more of the rates charged than in 1959. The charges for servicing ships had not been altered since the nineteen­thir­ ties. They were low in comparison with those applicable in similar harbours abroad, and during recent years had not even covered direct outlays. New rates were introduced in October 1960. Though 150 per cent higher, these do not exceed the levels current in comparable foreign ports. On the whole, port charges rose by an average of 10 per cent in I960.1

Table XIII­16 Freight and Passenger Traiffc in Haifa Port, 1955 to 1960

Passengers Ships Cargoes (excluding fuel( (thousands( v Net YeaT registered Number tonnage Unloading Loading Total (thousands AMDteTsr' Total of tons(

1955 1,165 2,134 1,183 570 1,753 62 29 91 1956 1,014 2,021 1,145 662 1,807 74 31 105 1957 1,125 2,296 1,266 755 2,021 89 33 122 1958 1,071 . 2,284 1,320 678 1,998 50 40 90 1959 1,145 2,192 1,497 930 2,427 51 40 91 1960 1,191 2,477 1,674 1,003 2,677 54 46 100

Source : Haifa Port Authority.

2 Weighted according to types of service and months.

206 BANK OF ISRAEL, ANNUAL REPORT 1960 The total quantity of cargo passing through Haifa Port in 1960 included 1.7 million tons unloaded and 1 million tons loaded­ i.e. altogether 10 per cent more than in 1959. The tonnage unloaded increasedby 12 per cent, and tonnage loaded­ by 8 per cent. The number of ships passing through the har­ bour increased from 1,145 in 1959 to 1,191 in 1960. During the year under review, as in 1959, the actual output of Haifa Port exceeded its optimum capacity. The optimum loading and unloading capacity of this harbour has been assessed at between 2.3 and 2.4 million tons per an­ num, while in fact output reached 2.7 million tons. This caused additional costs due to the over­utilization of barges, the use of railway sidings distant from the quays and more work­shifts. There were also delays in the transporting of cargoes to and from the harbour. As a result of improved working methods in Haifa Port, the average time of turn­round from the day of arrival until the end of unloading was reduced by 4 per cent during 1960. Moreover, average tonnage actually unloaded per working day increased by as much as 19 per cent. There was also a slight decrease in the ships' waiting time in port between the day of arrival and the beginning of unloading. This averaged 1.3 days in 1959 and 1.2 days in 1960. The total number of days spent by ships in port waiting for unloading to begin declined from 902 in 1959 to 856 in 1960. These developments were due to a considerable increase in the input of variable production factors and to a 4 per cent rise in labour productivity in the port as against 1959. So as to increase the output capacity of Haifa port, work began on the lengthening of the quays on the western side of the main harbour by 528 metres. When completed, this will increase output capacity to 0.6 mil­ lion tons per annum. Some of the new quays will be put into operation already at the beginning of 1961, and the entire project is planned for completion by the end of 1961. Another expansion plan provides for additional quays in the Kishon harbour, which would increase its output capacity by 0.2 million tons per annum. This work is scheduled to begin in the summer of 1961 and to end before the start of the 1962/63 citrus season. The output of Jaffa and Tel­Aviv harbours declined during 1960. Loading, unloading and demurrage costs are all considerably higher in these ports than in Haifa, since they are open­sea harbours where all loading and unloading has to be done by means of lighters. They also lack silos, which reduce the average costs of unloading grain. The percentage of capacity exploited is low, and they are considerably dependent on weather conditions. Stormy days, dur­ ing which regular work is impossible, accounted for about 9 per cent of the year in 1960. Moreover, in Jaffa Port idle days occasioned by the absence of ships totalled as much as 10 per cent of possible working days during the year. The output of Eilat harbour increased by 11 per cent in 1960­ i.e. more rapidly than the average output of Israel's ports­ reaching 146,000 tons. Eilat was visited by 55 cargo vessels and 30 tankers. Of these, 9 cargo ships are

CHAPTER Xm, COMMUNICATIONS 207 operating regularly on the Eilat route. Nevertheless, neither in 1960 nor in previous years has output capacity been fully exploietd. On the basis of tech­ nical data and available equipment, surplus output capacity during the year under review is estimated at approximately 40 per cent. The increase in output during 1960 occurred entirely in tonnage loaded, the proportion of export cargoes rising from 66 per cent to 70 per cent of the entire tonnage passing through the port. The main exports through Eilat were cement (48 per cent), minerals (38 per cent) and general cargo (11 per cent). The chief import cargoes were oilseeds (24 per cent), fodder (7 per cent) and rice (6 per cent) . No significant investments were made in Eilat harbour during 1960. Plans began to be drawn up for a new harbour, whcih would enable three ships of 10,000 tons displacement to anchor simultaneously. When this new port has been built, the existing harbour is to be set aside for ifshing boats. To anticipate the expected shortage of harbour capacity caused by the ex­ pansion of Israel's imports and exports, the ifrst practical steps were taken in 1960 towards the construction of a second deep­water harbour at Ashdod : an international tender was published for the implementation of the initial stage of construction, which, when completed, will yield a harbour capacity of 700,000 tons­ mainly intended for handling citrus exports. The contract was given to the Foreign and Harbour Works Company (a subsidiary of Solel Bo­ neh Ltd.) together with three French companies. The Israeli company's share in the execution of this stage will reach about 55 per cent. Plans provide for the beginning of work in April 1961 and the completion of the ifrst stage by the beginnig of 1965. The World Bank has approved a $27.5 million loan to ifnance part of this investment.

4. Israel Railways The expansion of output in the railway branch proceeded more slowly in 1960 than in 1959 or during the previous ifve years. Real output increased by 2 per cent, as compared with 6 per cent in 1959 and an average annual ex­ pansion of approximately 14 per cent during the years 1955 to 1959 inclusive. Expansion was slowed down both as regards passenger and goods traiffc. The reasons are to be found in the larger share of motorized transport in the haulage of freights, the higher percentage of passengers carried by buses on inter­urban lines, and the restricting of new investments in the railways. Despite the worse operational data, there was an improvement in the ifnan­ cial situation of Israel Railways, chielfy because fares were raised. The year under review was the ifrst during which there was no increase in passenger traiffc on the railways. The number of passenger/kilometres declined by about 0.5 per cent, while during the preceding four years it had been rising at an average annual rate of approximately 11 per cent. It should be noted

208 BANK OF ISRAEL, ANNUAL REPORT 1960 Table XIII­17 Railway Traiffc, 1955/56 to 1960/61

Freight Passengers Fiscal year Tons Ton/kms. Number Passenger/kms. )thousands( )millions( )thousands( )millions(

1955/56 1,377 136.7 3,391 246.1 1956/57 1,534 174.6 4,565 327.3 1957/58 1,838 237.0 4,657 332.7 1958/59 1,681 204.5 4,706 348.3 1959/60 1,944 225.5 4,837 368.9 1960/61* 1,961 218.0 4,362 347.0

* Including estimates for February and March. Source: Reports of "Israel Railways". that the output of buses rose by 6 per cent in 1960. Railway passenger trafifc has been expanding at a progressively slower rate since 1955, except for 1959, when expansion was one per cent larger than in 1958. The number of persons travelling by train declined by 10 per cent during the ifnancial year 1960/61. The decline afTected all routes, but was most pro­ nounced on the Jerusalem­Lod, Tel Aviv(South)­Lod and Haifa­Lod lines. The number of passengers decreased to a greater extent than the number of passenger/kilometres, this phenomenon relfecting the increase in the average length of railway journeys from 76 kilometres in 1959/60 to 80 kilometres in 1960/61. The average length of journeys has been increasing continuously since 1957/58. There was an improvement in the punctuality of passenger trains during 1960. On the main lines, 60 per cent of passenger trains arrived on schedule, as compared with 56 per cent in 1959. Nevertheless, there was little change in the incidence of more lengthy delays. Ever since 1957/58, there has been a steady decrease in the rate of exploita­ tion of passenger trains. The average proportion of occupied seats fell from 76.4 per cent in 1957/58 to 58.1 per cent in 1959 and 56.7 per cent in 1960. The decline in the rate of exploitation during 1960 affected all lines except Lod­Beersheba and Haifa­Nahariya, both of which account for only a small proportion of the passenger trafifc. The real output of goods trains increased by 4 per cent in 1960­ i.e. by less than the average annual increment for the last ifve years. As in previous years, railway freight trafifc expanded less rapidly than road haulage, and the rail­ way's share of goods transported in the country continued to decline. There was virtually no change in the number of tons carried by rail in 1960/61 (see Table XIII­19). On the other hand, the number of ton/kilo­

CHAPTER XHI, COMMUNICATIONS 209 Table XIII­18

Rate of Exploitation of Available Capacity on Passenger Trains, by Lines, 1959 and 1960

Number of utilized seats Line 1959 1960

All lines 58.1 56.7 Haifa­Tel­Aviv 62.6 59.9 Haifa­Lod 58.4 57.8 Lod­Jerusalem 60.8 56.6 South Tel­Aviv­Lod 62.4 60.3 Lod­Beersheba 45.7 54.7 Haifa­Krayot­Nahariya 13.9 13.9

Source : Israel Railways. metres decreased by 3.3 per cent. These data relfect the smaller average dis­ tance over which cargoes were carried. This has been declining steadily from 129 kilometres in 1957/58 to 122 kilometres in 1958/59, and 111 kilometres in 1960/61 despite the lengthening of the lines. In other words, there has been a growing proportion of relatively short­distance freights, partly due to the construction of sidings to industrial undertakings and other supply centres for rail cargoes. The financial situation of Israel Railways improved in 1960/61. The cur­ rent deficit declined to its lowest level during the past three years and was 30 per cent smaller than in 1959/60, totaUing IL.1.6 million as against IL.2.3 mil­ lion in 1959.1 The ifnancial statement, which in addition to operational costs also includes depreciation and interest, shows a deficit of IL.5.8 million in 1960/61, as compared with IL.6.3 million in 1959/60. The better ifnancial situation of Israel Railways was due to the raising of fares by 12.5 per cent and to the larger average income per ton/kilometre of freight, following changes in the composition of cargoes and the introduction of new schedules, while operational expenditure remained unaltered (see Table XIII­19). The railway's income from passenger transportation did not rise to the full extent of the increase in passenger fares. This is a further indicator of the declining real output in this division. On the other hand, there was hard­ ly any difference between the railway's income from freight trafifc in 1959/60 and in 1960/61. Here, two mutually offsetting factors were in evidence : the volume of freights carried by rail declined, but income per ton/kilometre rose.

* Current expenditure includes sums set aside for pensions and compensation payments.

210 BANK OF ISRAEL, ANNUAL REPORT 1960 The total income of Israel Railways increased by some 7 per cent­ from IL.10.9 million in 1959/60 to IL.11.7 million in 1960/61.

Table XIII­19 Receipts and Expenditure of Israel Railways ,1959/60 and 1960/61

Income Expenditure Deifcit Deprecia­ Fiscal year Pas­ Freight Miscel­ Total Opera­ tion Total Opera­ Overall sengers laneous tional* and tional interest

Thousands 0[f IL.

1959/60 4,251 6,106 590 ­ 10,947 13,292 3,975 17,267 2­345 6,320 1960/61 ­ 4,694 6,080 930 11,704 13,292 4,180 17,472 1,588 5,768 Index 1959/60 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 1960/61" 110.4 99.6 157.6 106.9 100.0 105.2 101.2 67.7 91.3

■' Including deducitons for pension and compensaiton funds. b Equipment has been amortized after deducting the value of non­depreciable assets and of scrap ; depreciaiton is calculated over 40 years at the rate of 2.5 per cent per annum. Interest has been calculated at three rates : (1) 6 per cent per annum on depreciable equipment. (2) 3 per cent per annum on earthworks in connection with tracks, bridges, and water drainage. (3) 7 per cent per annum on stocks in storage. Interest on depreciable equipment was calculated net of depreciation. (Source: Budget Department, Ministry of Finance.) " Provisional data. Source: Reports of Israel Railways and of the Ministry of Finance, Budget Division.

Though the output of the railways decreased by 4.4 per cent during 1960/61, expenditure on wages remained at its previous level. However, outlays on ma­ terials declined by 6 per cent. Expenditure on interest and depreciation rose by 5 per cent. The profitability of the railway is decisively affected by its volume of output, since fixed costs account for a considerable proportion of total expenditure, while the rate of equipment utilization is low. Depreciation and interest, which constitute only part of the fixed costs, accounted during 1960/61 for appro­ ximately 24 per cent of total outlays. During recent years, the railways have met difficulties in expanding their output owing to competition from road transport and to their dependence on the existing network of track, most of which was laid down before the State of Israel came into being. The geographical situation of certain sections of the track no longer accords with the needs of the economy. Furthermore, expand­ ing output and increasing profitability is made difficult by the tariff policies of

CHAPTER XHI, COMMUNICATIONS 211 Israel Railways, which were determined some years ago in a manner not per­ mitting elasticity under changing conditions of demand. As a result of the above­mentioned factors, and owing to the severance of Israel Railways from the railway networks in neighbouring countires, and the shortness of the existing lines, the volume of activity is restircted and the equip­ ment utilization rate remains low. Consequently, fixed costs per unit of output are high. Certain other factors were also responsible for loweirng proiftability duirng recent years. These include the high labour input component in expenditure per unit of output as compared with other countires, the fact that freight tariffs have not been raised since 1956 despite rising costs and input pirces, and the reduction of income by concessions to certain categoires of passengers and cargoes motivated by general economic considerations.

5. Road Transport The number of motor vehicles, including buses, taxis, private cars, trucks and special vehicles, increased by 14 per cent in 1960. The number of pirvate cars rose by some 20 per cent, of trucks­ by 9 per cent, of buses­ by 8 per cent, and of motor­cycles­ by 17 per cent. As in previous years, there was virtually no increase in the number of taxis. The volume of passenger traffic, including taxis,1 increased by 7 per cent duirng the year under review­ i.e. less rapidly than the number of vehicles. iAs during the preceding ifve years, the greatest expansion took place in motor­ cycle trafifc :­ 13 per cent. This followed a 48 per cent increase in such traf­ ife during 1959. The main cause appears to have been the rapid rise in the number of motor­cycles in the country duirng recent years, when this type of vehicles became a popular form of transportation. The increase in bus trafifc totalled 7 per cent in 1960, as compared to 10 per cent in 1959.2 The total petrol consumption of civilian motoirzed trafifc rose by 6 per cent in 1960. However, the consumption of solar oil increased much more, by 23 per cent, in view of the continued tendency to substitute diesel­dirven for petrol­dirven engines on trucks, buses and taxis. Most of the trends affecting motoirzed trafifc were no different in 1960 than during the preceding ifve years. The congestion on the roads increased, since the road area was not expanded to an extent commensurate with the rapid rise in the number of vehicles using it. There was a tendency towards greater standardization of heavy vehicles, as well as towards the replacement

1 According to the nation­wide count of traiffc made by the Central Bureau of Statistics. z The assessment is based on the kilometrage travelled by busses owned by the "Eshed", "Dan" and "Hamekasher" cooperatives.

212 BANK OF ISRAEL, ANNUAL REPORT 1960 of considerable numbers of motor­cars by new models. Diesel engines were preferred to petrol engines for buses and other heavy vehicles, since they tend to reduce operating costs.

(a) Trucks The output of trucks was 10 per cent larger in 1960 than in 1959, reaching approximately IL.240 million. The number of trucks (including towing ve­ hides) increased by 1,975, i.e. by 9 per cent. There was virtually no change in road haulage rates during the year under review. The main trends affecting the road haulage branch during recent years may be summed up as follows: a. The relative proportion of tenders and light trucks on the one hand and of heavy trucks on the other hand has been increasing, while the proportion of medium­weight trucks has been declining. Tenders accounted for 47.2 per cent of all commercial vehicles in the country in March 1954, and for as much as 52.3 per cent in March 1959. The proportion of trucks weighing 7.5 tons or more increased over the same period from 5.5 per cent to 12.1 per cent. However, there has been no increase in the number of trucks weighing bewteen 5 and 7^2 tons, and their share declined from 47.3 per cent to 36.6 per cent. b. The relative share of diesel­propelled trafifc has increased, diesel trucks constituting 6 per cent of all commercial vehicles in 1954 and 16 per cent in

1 960. This tendency to "dieselize" has been particularly pronounced as regards heavy vehicles of 8 tons and over, since in their case the cost of carrying heavy cargoes over long distances is lower for diesels than for petrol­driven trucks. c. There has been a trend towards specialization in specific types of haulage. Heavier trucks and diesel­propelled vehicles are being mainly employed on the longer Unes, while lighter trucks and petrol­propelled vehicles are utilized chief­ ly to carry light cargoes and passengers on short and medium­long lines. d. The standardization of vehicle models is proceeding. This development, relfected by the dec'hning number of truck types in general use, has reduced the expenditure on spare parts, and is facilitating maintenance. e. The average age of trucks is rising. Weighted according to authorized tonnage, it has increased from 10.3 years in 1954 to 11.6 years in 1960 (see Table XIII­20). The proportion of obsolescent trucks more than 10 years old has declined slightly­ from 61 per cent in March 1954 to 60 per cent in March 1960. But as against this, there has been a considerable increase in the proportion of obsolete trucks aged 15 years and over­ from 13 per cent in 1954 to 36 per cent in 1960. The average age of trucks in Israel exceeds the optimum period of service from the technical aspect, which is estimatedat7to 9 years. This phenomenon is particularly marked as regard petrol­propelled trucks, the average age of which in 1960 was 13 years. The old age and obsolescence of a sizeable per­

CHAPTER Xm, COMMUNICATIONS 213 Table XIII­20 Average Age of Trucks' by Authorized Cargo and Type 0/ Fuel, 31st March, 1960

Authorized Average age (years( cargo (tons( Benzine Diesel All trucks

Up to 5 13.0 9.4 12.8 5.0 to 8.9 12.6 7.3 9.0 9.0 to 9.9. 11.6 9.8 10.1 10.0 to 11.9 8.9 9.7 9.7 12.0 to 14.9 15.7 17.1 17.0 15.0 to 19.9 11.8 11.8 11.8 20.0 to 29.9 12.8 7.7 8.3 30.0 and over 13.9 7.6 9.1

Total 13.0 9.5 11.6

" Weighted according to average authorized cargo in each cargo1 category. Source : Bank of Israel calculations, based on C.B.S. data. centage of commercial vehicles in the country have caused a decline in the standards of service, higher expenditure on repairs and fuel, and longer idle periods in garages. These factors, as well as the unsuitability of obsolescent trucks for certain types of haulage, have reduced the profit of the vehicle owners concerned. f. Road haulage rates have not risen despite higher input prices, partly because costs per unit of output have declined (especially in the case of heavy vehicles) following "dieselization", organizational improvements and the adop­ tion of more efifcient working methods. Another important factor in this con­ nection was the surplus of light trucks, which created intensely competitive conditions in this section of the branch and prevented the raising of charges. It should be noted that, despite unaltered rates and higher input prices, there was no decrease in the proiftability of the heavy trucks, most of which belong to big haulage companies and enjoy the beneifts of specialization in certain types of haulage, long­term contracts and operation on regular lines. On the other hand, recent years have witnessed a decline in the proiftability of light trucks, most of which are petrol­propelled and operated by individual owners or small organizations. These trucks are in the main utilized to provide auxiliary services over short distances in and between urban areas. Lower pro­ iftability in this section of the branch is due to a rise in costs per unit of out­ put, which in turn resulted from the growing obsolescence of many vehicles and higher input prices (including taxes and imposts) not offset by organiza­ tional and technological improvements as in the case of heavy trucks. A further factor reducing the proiftability of light commercial vehicles was the surplus

214 BANK OF ISRAEL, ANNUAL REPORT 1960 supply of their services on offer, the expansion of available carrying capacity not being accompanied by a parallel increase in tonnage carried. The decline in the rate of increase of demand for smaller trucks was the result of changes in the composition of cargoes and types of haulage during recent years. The smaller imports of ifnished products, the increase in raw material imports, the longer average distance per haul, the larger average tonnage of consignments, and changes in marketing methods were all partly responsible, conferring an advantage on heavier, diesel­driven vehicles and special trucks for the trans­ portation of commodities in bulk. The last few years have brought intensiifed competition between light trucks, relfected by the larger number of idle days, a higher percentage of journeys without load, smaller average loads on other journeys, lower haulage rates, more convenient credit terms for customers and the inability to collect waiting time charges. There are no exact data about the rate of exploitation of trucks. However, it is estimated1 that approximately 40 per cent of all journeys are made without load. The overall rate of exploitation, i.e. the percentage of ton/kilo­ metres actually carried as compared with the ton/kilometrage hypothetically possible on the basis of the vehicles' authorized maximum load, has remained unchanged during the last ifve years, at around 50 per cent. The rate of exploitation is below average in the case of light vehicles (5 tons or less) and heavy trucks (8 tons or more ). The highest rate of exploita­ tion was achieved by medium­sized vehiclesof5to 8 tons. The rate of exploitation for journeys with load only, which is computed according to the ratio between the quantity of cargo actually carried and the permissible maximum load, was approximately 80 per cent as regards normal

consignments . The rate is slightly higher in the case of diesel­driven than in the case of petrol­propelled trucks.

(b) Buses The real output of the passenger transport cooperatives rose by 6 per cent in 1960, following a 10 per cent rise in 1959. The total distance travelled by vehicles belonging 10 the three cooperatives increased from 133 million kilo­ metres in 1959 to 142 million kilometres in 1960. The addition of 55 new buses to the previous inventory and the replacement of obsolete buses by modern larger vehicles increased the number of available seats by 6 per cent, and it reached 87,657 at the end of the year under review. The trends characterizing the bus services during the preceding three years were apparent also in 1960. The supply of bus services expanded more rapidly than the demand for them. This reduced congestion in the buses and improved the regularity of their journeys. The average kilometrage travelled per employee

1 On the basis of the study of road haulage cargoes prepared by the Central Bureau of Statistics in June 1958 and other sources.

CHAPTER XHI, COMMUNICATIONS 215 and per bus continued to increase, due to the lengthening of exisitng lines and the inauguraiton of new lines to remote areas. As compared with 1955, the average kilometrage per bus increased by 27 per cent and the average kilometrage per employee­ by 18 per cent. The number of regular lines in­ creased from 612 in the ifnancial year 1956/57 to about 700 in 1959/60. The total length of regular lines increased from 19,000 kilometres in 1956/57 to 21,000 kilometres in 1959/60. The "dieselization" process and the replacement of old buses in an effort to standardize the types of vehicles in use conitnued in 1960. The number of buses owned by the three passenger transport cooperaitve increased from 1,685 in March 1956 to 2,070 in March 1960. While the total number of buses thus increased by 23 per cent during this period, there was a rise of as much as 161 per cent in the number of diesel­propelled buses. Diesel buses accounted for 85 per cent of the total bus fleet at the end of 1960, as compared with 78 per cent in 1959 and only 37 per cent in 1956. The changeover to diesels was likewise reflected by a 22 per cent decline in petrol consumpiton, while the consumpiton of solar oil increased by 11 per cent. Within the framework of the modernization policy, some 600 old buses were withdrawn from service between March 1956 and March 1960, while about 950 new buses were introduced. The growth of the buses' carrying capacity was sitll greater, for the average number of seats in the new buses is larger. More­ over, the smaller number of days spent by these buses in garages and their ability to operate more intensively likewise increased effecitve capacity. The attempt to achieve a greater measure of standardizaiton led to the pur­ chasing of most new buses acquired during 1960 from two firms: Leyland and

Table XIII­21 Indices of Number of Buses, Expenditure on Bus Service, Number of Seats and Mileage, 1955 to 1960* (1955 = 100(

Number Expenditure Number Income Annual Income Year of on bus of per mileage per buses services* seats seat' )kms.( km."

1956 100.4 92.6 102.9 90.0 97.9 94.3 1957 105.7 108.0 114.2 94.5 111.3 98.1 1958 113.6 121.8 128.5 95.6 127.9 96.2 1959 121.3 134.1 140.0 94.9 147.9 90.6 1960 124.4 142.0 147.8 96.1 158.2 90.6 ' All the data refer to the three bus cooperatives­ "Eshed", "Dan" and "Hamekasher". b At constant prices. Excluding parcels and sundries. * At constant prices. Source : Data received from the Ministry of Communications, the Central Bureau of Sta­ tistics and the Bus Cooperatives.

216 BANK OF ISRAEL, ANNUAL REPORT 1960 Chausson. The models produced by these two companies constituted approxi­ mately 87 per cent of the three cooperatives' 1960 bus lfeet. Bus fares had remained unchanged between September 1956 and March 1960. During this period, the deifcits caused by rising input prices were covered by a Government subsidy, which represented some 12 to 14 per cent of the bus cooperatives' income. At the end of 1959, the Government decided to terminate the subsidy and permit the raising of fares as from the 1st of March, 1960. As a result, fares rose by an average of 11.4 per cent on inter­urban lines and 12.8 per cent on urban lines. Taking all lines together, the average increase in fares duirng 1960, as compared with the average level prevailing in 1959, was 12.3 per cent.

CHAPTER XIII, COMMUNICATIONS 217