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in the three first cases this is caused chiefly by casualties. The remaining seven sections show a remarkable increase in net revenue. The results of the reduction in rates, referred to in my last annual report as not then being fully evident, now appear. The reductions in grain rate made during the year have partially operated : their full effects will appear in the ensuing year. The difference in revenue due to the difference in rate between the grain rate of the Province of Canterbury and the current Class E rate, estimated for the year's traffic, would probably amount to £90,000. In the passenger fares an annual season ticket available for all lines has been introduced. Fares have been lowered for a part of the passenger traffic. The goods rates have been lowered for agricultural produce, and for hay, straw, and chaff; and some changes have been made in the regulations and local rates. With the change in fares the "use of single tickets for return journeys has been abolished; the practice was objectionable on many grounds, and gave opportunities for fraud. The system for the most part is assimilated to that prevailing in New South Wales. A ticket is issued for every journey; first and second-class fares, which were 3d. and 2d. a mile, are changed to 2jd. and l£d.; the cost of a return journey with two single tickets remains as before; and the inconvenient restrictions about time and distance are abolished. Return tickets are issued on Saturdays, available till Monday, at the old rates of 3d. and 2d. a mile. Having made this change, the practice should now be adhered to until the results are observed, when the subject of fares can be more fully considered. Some new regulations are under consideration to prevent the inconvenience from the present system of booking from flag stations. Arrangements are also being made to facilitate the exchange of goods between sections of railway sepai'ated by sea. The principal traffic in local products for the past four years is as follows : — Wool. Timber. Grain. Minerals. ?°nZ and Cattle. and Pigs. Tons. Tons. Tons. Tons. No. No. 1882-83 .. 51,703 197,231 367,428 510,088 37,455 449,470 1881-82 .. 44,681 192,905 375,725 433,659 32,511 319,837 1880-81 .. 42,387 169,695 421,142 406,266 27,230 280,683 1879-80 .. 41,895 149,428 240,144 321,060 30,393 260,816 The total traffic quantities and mileage, which represent the work done, have increased. Return No. 11 of the traffic ton-mileage for the five chief sections indicates the improvement which has taken place during the past year in this respect, and shows the average cost of transportation. The average cost of transportation on the five sections has increased slightly above that of last year. The casualties on Napier and Wanganui Sections have tended to raise the general average. The work is most cheaply performed on the Auckland Section. On the subject of rates and fares it is idle to draw comparisons with those of other countries, as is frequently done, when every condition of working differs. Assuming that one of the chief points to be considered in fixing rates should be the cost of performing the service, we should direct our attention to the elements determining the expense, the wages, the number of hands, the cost of materials, fuel, and stores, the physical character of the lines, and the traffic quantities and distances. It is unlikely that wages, materials, or stores will be cheaper. The staff cannot be reduced in number if the lines are to be efficiently and safely maintained and worked. The physical character of the lines can be only improved slightly. The increasing age of the lines will lead to increased expenditure every year. In order to do work more cheaply we must look to carrying larger quantities of goods and passengers, and to improved appliances in the shape of stations, machinery, and stock. Notwithstanding increasing expenditure we may reasonably anticipate that as traffic increases we shall perform the services at a lower rate per ton, if the railway extensions added to the existing system are of a remunerative character. But, assuming that the cost of the service is to be a ruling factor, we must not anticipate that freight rates on our railways can approach the figures of those on the great American railways, which carry a traffic tenfold in quantity and distance ; nor that the facilities for and cost of travelling in a sparsely-inhabited country such as New Zealand can assimilate to those of England, having a population of some thirty-five millions, using some eighteen thousand miles of railway, with a capital of nearly seven hundred and fifty millions. Many of our colonists from the older countries fail to understand and allow for the very wide difference in conditions between our railways and those they have been used to, and they are dissatisfied in consequence. The Railway Department is naturally keenly alive to the weak points and defects of the working-railway system, and can determine how far these are dependent on the want of efficient appliances, accommodation, or erroneous practice, and the want of means to amend them, and how far they depend upon physical difficulties and conditions of traffic, which cannot be altered at a reasonable expense. It will be often found that disadvantages cannot be removed because of the absence of a public demand to enforce it. The disadvantage of too many "stations has been alluded to before. We may well dwell on the point again, because every year our train services are getting slower and less satisfactory to the public, while the persons who complain of this are those who are chiefly instrumenta 1 in creating the grievance. The evils of too many stations are —(1) Excessive capital outlay in works and extra rolling-stock needed for working; (2) Excess of cost of maintenance 11—D. 1.