a broker, and the noncarrier into a carrier. The practice of the carriers in dividing their revenues with the owner-operators furthered the broker status, for the carriers were in many instances doing nothing more than collecting a commission for securing traffic for the non carriers.

The simplest way to have dealt with the problem would have been to prohibit all leasing and require the carriers to use only carrier-owned equipment. But this would have eliminated the possibility of a carrier augmenting its fleet by renting vehicles when traffic was unusually heavy. A middle course was called for.

The Commission concluded that not all leasing was objectionable, and that leasing under proper control was desirable. But the trip-leasing of owneroperated vehicles was from a practical standpoint inconsistent with, and destructive of, regulation. Trip-leasing and the division of revenues with noncarriers were the sources of the disturbance, and if eliminated, it was hoped that the flexibility made possible by proper leasing could be preserved.

Several of the States, Washington in particular, had earlier considered the problems incident in leasing, and concluded that a requirement that leases of owner-operated vehicles be for a reasonable term, and that compensation be paid on a use basis, i. e., so much per mile or per hour, ended the evils fostered by trip-leasing without destroying motor-carrier flexibility.

The rules prescribed by the Commission have an overall objective of preserving bona fide leasing while at the same time eliminating the transferring of certificates under the guise of leases to noncarriers. The key feature of the rules is the requirement that leases of vehicles driven by owners or employees of the owners thereof (as contrasted with employees of the carrier) shall be of less than 30 days duration (rule 207.4 (a) (1), 52 M. C. C. 675, 744). The second most important provision is the requirement that leased equipment be paid for on some basis other than a division of revenues (rule 207.4 (a) (5), 52 M. C. C. 675, 744).

What is the effect of these rules? Necessarily the rules eliminate the tripleasing of owner-operated vehicles, and the payment of compensation based upon a division of the revenues. Owner-operated equipment may still be leased, but on a basis that will insure that it be used by the carriers in much the same manner as carrier-owned equipment. The period of 30 days will enable the carrier to properly inspect the vehicle; to orient it into its regular operation, to provide for a return of the equipment to its starting point, rather than turning the owner-operator out on his own at the end of a particular trip; to supervise the operation of the equipment; to make certain that the safety rules are followed; and that the driver gets the required rest. Payment on a mileage basis, or hourly basis, will result in the leased vehicle being used on much the same basis as owned equipment rather than having the cost of operating the leased vehicle fluctuate widely, depending on the nature of the traffic handled. Briefly the effect of the leasing rules is that freight handled in leased equipment will be a bona fide operation of an authorized carrier rather than a law-evading broker-noncarrier arrangement.

So that the rules may be kept in proper focus and their true purpose not distorted, it is well to note what the rules do not do. The rules do not prevent the carriers from augmenting their fleets, or prevent them from participating in bona fide interchange arrangements. The carriers may still:

(1) Lease all of the equipment they want without drivers from truck rental

concerns.

(2) Lease from either carriers or noncarriers, equipment on a short-term or trip basis without drivers.

(3) Lease equipment with drivers where the lease extends for more than 30 days.

(4) Purchase or build all the equipment the carrier desires and either have such equipment operated by the carriers' own employees or by independent contractors.

E. THE COMMISSION'S LEASING RULES ARE A REASONABLE AND PRACTICAL SOLUTION TO THE PROBLEMS TO WHICH THEY ARE ADDRESSED, AND ARE HIGHLY REGARDED BY VAST SEGMENTS OF THE NATIONAL ECONOMY

Although, throughout the litigation both before the Commission and in the courts, it was readily admitted by all parties that widespread evils and evasions of law have existed under the prevaling leasing practices, it was contended by some that the prohibition of trip leasing woud be arbitrary and too severe, and

that lesser remedies should be adopted. Commenting on these contentions, Mr. Justice Reed in the American Trucking Associations case, supra, at page 317 said: "The relationship of these rules to the regulatory scheme they are designed to protect forms a basis for the answer to various allegations that certain rules are arbitrary. For our purposes, such an argument must mean that the Commisison has no reasonable ground for the exercise of judgment. In the instant case, such is not the situation; the evidence marshaled before the Commission plainly supports the conclusion that the continued effectiveness of its regulation requires the rules prescribed."

The Supreme Court, while not having the responsibility to determine what type of rules the Commission should have established, was nevertheless of the view that the rules adopted, considered in the light of the conditions that had been found to exist, cannot be criticized as being so severe as to be legally objectionable as "arbitrary." The rules are therefore within the permissible range. This being so, the only issue is whether Congress should intervene and prevent the Commission from effectuating rules which it has found are urgently needed for the proper administration of the Motor Carrier Act.

Now it must be kept in mind that the Commission in formulating these rules did not act hastily or upon scanty evidence. Just the opposite is true. Throughout the proceedings the Commission went all out to consider every facet and feature of the problem and how the difficulties could be solved without unnecessarily disturbing the flexibility of the motor carrier industry. The Commission's judgment is therefore a considered judgment, but more than this, it is a judgment arrived at only after several years of study both before and during the investigation. And of course, the Commission has a recognized expertness in this field.

In reaching its conclusion as to an appropriate solution, the Commission had the experience of the State of Washington where since 1935 leasing rules incorporating all of the important provisions of the Commission's rules had been on trial and had been found most satisfactory to the public, the State of Washington's regulatory agency, and perhaps what is most significant, to the motor carrier industry. The State of Washington in its brief to the Supreme Court of the United States advocating approval of the Commission's rules stated:

"It must be remembered that the State of Washington was a pioneer agency in the enactment of effective motor carrier regulation and as such has been highly successful in improving safety of operations upon the highways, the economic welfare of the motor carrier industry, and the dependability of motor carrier service. Generally the eleven Western States have followed the lead of Wushington and many have adopted similar safety and leasing regulations.

"The State of Washington intervened before the Commission on behalf of its motor carriers mainly to demonstrate to the Commission that reasonable and sound leasing rules can and do work and the Commission so found in its order of May 8, 1951.

"As stated at the outset, our primary reason for intervening as amicus curiae in this case has been to point out to this Court that leasing rules proposed by the Commission in its order of May 8, 1951, are no different than the leasing rules which have been in effect in our State for many years, and that such rules are practical, effective, and indispensable to intelligent regulation of the motor carrier industry, not only from the factor of safety of operations but from the standpoint of promoting sound economic conditions in the motor carrier industry."

"In later years the regulated carriers of the State of Washington themselves actually requested an increase in enforcement officers from 24 to 32 in the interest of better regulation, and have continually resisted any attempt to modify or change the present rules relative to leasing" (emphasis supplied).

This statement of the State of Washington is most important for several reasons. Firstly, it is concrete evidence that rules of the type prescribed by the Commission have been in effect in several of the Western States-a large territorial area that is of great importance to the agricultural economy-and have had a salutary effect on the transportation industry. Secondly, the rules after being enacted, have been found desirable by the motor-carrier industry itself. Thirdly, the rules create no substantial enforcement problem.

The State of Wisconsin also strongly advocated the adoption of Federal leasing rules including the provision ultimately incorporated in the Commission rules.

The State of Pennsylvania has had leasing rules, more restrictive than those prescribed by the Commission, in effect since 1939 and its experience with the rules has been comparable to the experience of the State of Washington. In fact some 17 States have regulated the leasing of vehicles by carriers. It is also significant that after the Commission prescribed its rules several of the Eastern States, including New York, Ohio, and Michigan, began studying the advisability of prescribing similar rules for operations in those States.

So it can be said that from the standpoint of precedent and experience there is every reason to believe that the Commission's rules regulating leasing will be just as successful and sound from a practical standpoint as their counterparts in the several States. It will be remembered that when the Motor Carrier Act was enacted, it was a relatively late comer in the field of motor-carrier regulation since several of the States had earlier found a compelling need for regulatory legislation. The situation with respect to leasing is substantially the same.

The Commission in prescribing its rules is not embarking on an uncharted course, for the trails have been blazed by the States. But the Commission had more than the experience of the States to encourage its efforts, for vast and important segments of the national economy for years have been advocating the abolition of trip leasing of owner-operated vehicles.

At the several hearings these advocates of adequate leasing rules stepped up and gave voice to their views. They spoke for sound competitive conditions in transportation, for fair and adequate regulation, and for the abolition of law-evading practices that were unmindful of the public interests and the well-being of those earning their livelihood in transportation. Theirs was the voice calling for law and order to replace chaotic conditions that were making a sham of regulation. This group included a large number of the regulated motor carriers whose investments and desires to operate within the law were being seriously threatened by a relatively small but increasing group of carriers relying upon trip leasing. It included the labor unions whose jobs were being destroyed by the exploitation of owner-operators to provide cheaper transportation than could be furnished after the payment of fair and decent wages to carrier employees. It included the Bureau of Motor Carriers which felt that trip leasing was incompatible with proper regulation. It included State regulatory agencies who were of the belief that the success with their rules offered promise for Federal regulation. It included owner-operators who had seen their small investments destroyed by their inability to bargain for adequate hire from the carriers. And it included the railroads.

Why the railroads? Because the railroads, long responsive to public needs and requirements, and subject to the closest of regulation by the Commission found, as they had found prior to the passage of the Motor Carrier Act in 1935, that competition on a fair and equal basis is impossible if the motor-carrier industry can avoid proper and adequate regulation. The diversion of traffic to nonregulated motor carriers which began prior to 1935 has continued at an accelerated rate because the motor carriers have reverted to their pre-1935 status through the device of the trip lease. But the newer diversion of traffic has been even more serious because the carriers using trip leases are largely interested in the longer hauls of the better types of traffic. Such traffic is the backbone of the American railroad system.

If the motor carrier industry under fair and equal competitive conditions can divert that traffic from the railroads by reason of some inherent transportation advantages, then the motor carrier industry should have that traffic because the American public is entitled to the most efficient and economical transportation service. But if the motor carriers are diverting that traffic by their ability to repeatedly circumvent regulation, by the exploitation of owner-operators, and by widespread evasions of law, then in the interest of preserving their ability to serve the public and protecting their owners' properties and the security of their employees the railroads must vigorously voice their objections to unfair competitive conditions.

Additionally the railroads are interested in highway safety for they are large users of highway transportation in assembling and distributing less-than-carload freight in local areas. And their employees use the highways in their daily lives. Highway safety is important to the railroads.

Mr. Justice Reed speaking for the Supreme Court in the American Trucking Associations case, supra, best summarized the destructive economic impact of leasing, and while his remarks are principally directed toward the adverse

effects on the regulated motor carrier industry, these remarks are equally applicable to the effects that the leasing practices have had on the railroads. He said at pages 311 and 312:

"But evidence is overwhelming that a number of satellite practices directly affect the regulatory scheme of the act, the public interest in necessary service, and the economic stability of the industry, and it is on these that the rules focus. ** *

"Consequences on the economic stability of the industry were also noted. The carrier engaged in leasing practice is at the mercy of the cost and supply of exempt equipment available to him. Hence, he may at times find himself unable to undertake shipping obligations because no trucks are available willing to make a relatively unprofitable trip or to assume the burdens of less-thancarload service. Certification is granted on a showing that a concern is fit and willing to provide nondiscriminatory service required by the public convenience. To sustain this obligation, the authorized integrated carrier who finds his leasing competitor only willing to undertake the more profitable ventures may be obliged to rely on miscellaneous freight without compensating economic long carload hauls to sustain estimated profit margins.

"Use of exempt equipment by authorized carriers also tends to obstruct normal rate regulation. Schedules are traditionally grounded in costs. But the cost picture of a carrier who depends largely on leased equipment is far different from that of a carrier owning his own trucks. Not only is the latter able to undertake operations with relatively slight investment. As well, his current overhead involved in operating leased equipment is solely administrative, the owner of the exempt equipment bearing the expense of gas, oil, tires, wages and depreciation out of his share of the fee. And to refer to the exempt owner's own expenses as determinative of what is a 'reasonable' rate would be manifestly impossible as long as the relationship between lessor and lessee are too tenuous, termed and informal and the compensation of each based on a division of

revenue.

"It is claimed that the practice in fact has had a demoralizing effect on the industry. Authorized carriers find it advantageous to expand their operations by leased equipment because of the fact that no investment is required, nor is the risk of empty return trips and other overhead incurred. Hence, carriers owning their own trucks face a fluid rate structure in competition with those specializing in use of exempt equipment, especially where such equipment is offered for a trip, as it often is, for expenses. There is thus a pressure on the certificated operator to enter the leasing field and hence expand the effect of these conditions and practices on efficient, safe and nondiscriminatory truck service which the act is designed to promote."

F. THE OBJECTIONS TO THE LEASING RULES ARE WITHOUT MERIT

There are two principal groups opposed to the Commission's rules. These groups include segments of agriculture and a relatively small part of the motor carrier industry. It is important to keep in mind that there are many motor carriers and motor carrier associations that actively sought regulation of trip leasing and that the motor carriers opposed to the leasing rules were largely responsible for the widespread violations of law which presently prevail and the frustration of regulation.

Another witness deals with the contentions of the agricultural people. I shall answer the arguments of the motor carriers supporting this legislation.

It is their view that trip leasing reduces the cost of providing transportation and increases flexibility. The substance of this argument reduced to essentials, is that regulated motor carrier transportation is more expensive to operate if it cannot function part, or all of the time, beyond, or outside of regulation. The same argument, it will be remembered, was advanced in an effort to convince Congress that the passage of the Motor Carrier Act would increase the costs of transportation. Ironically, it was the need of the public for reduced transportation charges that first brought about regulation of American transportation. So on the one hand we find the desire for lower transportation charges bring about regulation, and on the other hand, the same desire urging the destruction of regulation.

Low transportation charges dependent upon the carrier having available cheap transportation is not necessarily in the best interests of the public. If the rendition of transportation at low cost is made possible by the exploitation of the unprotected owner-operator; if it results in the destruction of nondiscrimi

natory service by promoting the picking and choosing of the better type of traffic, to the disregard of the less desirable shippers' business; if it results in the diversion of the better types of traffic to carriers operating unlawfully, to the detriment of law-abiding carriers providing standby nondiscriminatory service to the public at reasonable charges; and if it results in excessive highway dangers and abuse, it is not in the public interest but contrary to and destructive of every dictate of fair, economical, sound, and safe business dealings. Low-cost transportation is only desirable when it can be maintained according to the standards which Congress has said must exist if the national transportation policy is carried out.

What about the argument that motor-carrier flexibility is dependent upon trip leasing? As pointed out before, the leasing rules prescribed by the Commission do not prohibit a carrier from leaving vehicles to supplement its fleet. A carrier may still lease vehicles to be driven by their owners if the lease is of 30 days' duration or longer. The only thing proscribed by the rules is the trip leasing of owner-operated vehicles which has over the years undermined the regulatory schemes established by Congress in the Motor Carrier Act.

CONCLUSION

From what has been said, it appears that in considering H. R. 3203 this committee is at the threshold of a vital and far-reaching determination. Shorn of adornments and reduced to bare essentials, the determination that must be made is the very same that brought about the most careful and thoughtful consideration by the Interstate Commerce Commission. The determination is: Shall the Commission exercise control over regulated transportation by the abolition of law-evading and regulation-destroying practices made possible by the trip lease of owner-operated vehicles owned by noncarriers and thereby carry out the purposes of the Motor Carrier Act; or shall the Commission be compelled to stand aside and allow the regulated motor carriers by the unlimited use of the trip lease to destroy the regulatory scheme and thereby jeopardize the well-being not only of the public, the railroads, but also itself? To approve this legislation is to approve the destruction of regulation as established by the Motor Carrier Act. There is no other way to view the determination that is before this committee.

The CHAIRMAN. If there is no one else to be heard, I will now hear our friend who said his remarks would be confined to 3 or 4 minutes. You were so gracious in that we will not hold you exactly to that. doubt if you could do it as well as you would like in that time, and I want you to feel free to present your matter.

Mr. DIEHL. Thank you, Mr. Chairman.

The CHAIRMAN. Not taking undue advantage of the committee.

STATEMENT OF MILTON E. DIEHL, WASHINGTON, D. C.

Mr. DIEHL. My name is Milton E. Diehl. I am an attorney-at-law with an office in Washington, D. C. I live in the free State of Maryland and I am the adopted son of Mr. Hale's State of Maine and I am enjoying your Garden State of New Jersey on visits.

The CHAIRMAN. You will continue to enjoy it if you go there. I understand you were secretary to Mr. Eastman.

Mr. DIEHL. I had the privilege for 21 years of working with Mr. Joseph E. Eastman, from 1923 until he died. I was his stenographer and secretary and later became his counsel, and I was his assistant general counsel as Federal coordinator when the bill which resulted in the passage of the Motor Carrier Act of 1935 was under consideration by this committee and by Mr. Eastman. I had the pleasure of working upon it on many occasions and sitting at his elbow as he testified before the various congressional committees, including this

one.