The biggest problem facing the financially-troubled railroads in the Midwest is overcapacity, according to Dan O'Neal, chairman of the Interstate Commerce Commission.

Testifying before the Senate Commerce Committee's subcommittee on surface transportation, O'Neal said that excessive trackage and too many routes plague the beleagured railroads, and that still more consolidation is needed for the lines to save badly-needed money.

O'Neal said the overcapacity problems in the Midwest can be traced back to early days of the farm-orjented economy that controls the region.

"The midwestern rail network was built to meet the needs of an agricultural distribution system which was characterized, at the local level, by the horse and wagon and the diret road - when a farm-to-railhead round trip of 15 miles was about all that could be accomplished in a single day," O'Neal said.

But the development of highways and changes in distribution have made much of the rail network unnecessary, O'Neal added, and many of the duplicative lines can now be discarded.

O'Neal and the ICC have publicly stated that they are in favor of continued consolidation and merger in the Midwest between the various railroads - especially those with parallel lines.

O'Neal said the Midwest carriers, including several solvent railroads as well as the bankrupt Rock Island and Milwaukee Roads, "have experienced a variety of problems which have contributed to their ill health. The crux of the situation, however, is clearly overcapacity."

Although many of the midwest railroads have high proportions of light and medium density mileage, O'Neal said "Attempts are now under way - by the Rock Island for instance - to modify traditional operating practices in order to develop techniques which will permit profitable operations on medium-density lines."

In addition, O'Neal pointed out, "rail operations have tended to stress high-density traffic movements."

O'Neal said several railroads are also taking advantage of the present laws to reduce excess capacity. The Interstate Commerce Act now includes expedited procedures for the ICC to rapidly approve the consolidation or merger of carriers, as well as the establishment of working agreements allowing the sharing of track or other facilities.

As evidence that the railroads are making use of the new rules, O'Neal said the ICC has four rail consolidation proceedings in progress presently.

O'Neal was testifying on the merits of pending amendments to the Bankruptcy Act.