Mr. SMITH. But I have in mind here principally carload traffic, truckload traffic.

Mr. HINSHAW. And then you state:

This situation is due to the fact that military installations are generally located in places remote or at some distance from the large industrial cities. These installations are constantly, for one reason or another, being deactivated or reactivated.

Why should the question of deactivation or reactivation have anything to do with the rates?

Mr. SMITH. Because it would make a difference in the flow of the traffic, a change in the flow of the traffic. Now, if you have a constant movement between given points, there is no reason why you should not get your rates adjusted and keep them there. But if for some reason you start changing your origins or changing your destinations, then you have to do the job all over again.

Mr. HINSHAW. Then why should not the military rate or the Government rate be considerably higher than the industrial rate or commercial rate?

Mr. SMITH. Well, now, I see no reason in the world why we should pay any higher rates for this.

Mr. HINSHAW. For off-line shipment of 10,000 carloads? You should not have to pay more because that is at some distance from the industrial cities and off line?

Mr. SMITH. No; I don't think we should pay any more.

Mr. HINSHAW. I should think you would want to pay a good deal more to get that done, just from the fact that it is at a remote place or at some distance from a large industrial city, and not get a reduction on that account.

Mr. SMITH. The point is that at the industrial cities or centers, or the large cities, usually rates have been established, if they are going to be established at all, on commercial traffic. Now, if you move out 25 miles from that community, that is not included within that adjustment. So you must, if you want to pay a reasonable rate, get an adjustment out to that point. And you do it through section 22. Or rather, you ask for a rate and you get it through section 22.

I don't see any reason why we should not have a reasonable rate. It might be 10 cents higher than the rate to the city. But it is certainly less than the class rate. We would not say that it should always be the same. That would be ridiculous. But nevertheless it should be something less than the class rate we would pay otherwise.

Mr. HINSHAW. Well, I should think just offhand, having once been in the transportation business myself, that to take a shipment or a series of shipments off line, a carrier would necessarily have to return empty, because there is no other back-haul traffic. And therefore you ought to pay a good deal more than the going rate for that kind of service; not a lesser rate.

Mr. SMITH. Well, I expect we do. And I think there would probably be many instances where we would not feel that we should have the same rate. But we should have something less than a class rate, even though it might not be as low as the rate to the city 25 miles away. Mr. HINSHAW. That is probably true. Class rates do not apply very much to carload.

Mr. SMITH. Oh, yes; they do.

Mr. HINSHAW. No; you have mostly commodity rates.

Mr. SMITH. You do where you have a movement, and where you have got them established. But where you have movements that are against the grain, we will say, or to communities outside of the regular edition of the tariff, you have lots of class rates.

Mr. HINSHAW. You say in here:

The direction of military traffic flow is also quite different to that of industrial or commercial traffic and is under constant change due to the emphasis on defensive needs caused by the changing international situation.

Is that a good reason for having a lesser rate, or a higher rate? Mr. SMITH. No; it is a good reason for getting a rate promptly, such as we would have under this legislation, and as we have under present legislation.

Mr. HINSHAW. If the rates have not been filed, the carrier has a right to file a rate at any time, and 30 days later, of course, it may be approved by the Interstate Commerce Commission. But if no rate is in existence, they can file a rate, can they not?

Mr. SMITH. They can file it, but it would become effective on 30 davs' notice.

Mr. HINSHAW. That is correct. On the other hand, the Government of auditing of rates is considerably further behind than that, is it not? Mr. SMITH. Oh, yes, considerably. But I do not think that has any bearing, since carrier bills are paid promptly on presentation.

Mr. HINSHAW. And then you say:

Then, too, a proper rate structure for an establishment as large as the Department of Defense cannot be accomplished overnight.

I do not know what that has to do with it.

Mr. SMITH. Well, it has this to do with it: The military movement, as great as it is today, is a big movement, and it is one for which ultimately the rates should be so adjusted that you might not need a section 22 or anything like it. But it is such a vast job that you cannot do it in a short period of time. Maybe in 4 or 5 years we would not be in here talking about a section 22.

Mr. HINSHAW. Now, if I may, I would like to refer to the next paragraph and read fairly well along in it. It says:

Another important distinction between traffic of private industrial shippers and receivers and traffic of the military departments is the time element. Military traffic may, because of some emergency, require major changes in movement requirements at, say, 5 p. m.-obviously there is not time to negotiate rates of service arrangements or have them filed on 30 days' notice under section 6 of the Interstate Commerce Act, as would be necessary in the absence of statutory sanction similar to section 22. History is replete with events providing pertinent examples. The invasions of North Africa and Normandy caused tremendous changes in operations, many of them spontaneous in nature.

And then we go on with a lot of movements that took place during the war. Did we not have during the war the Office of Defense Transportation?

Mr. SMITH. Yes, sir.

Mr. HINSHAW. Did they not provide cars and equipment and practically govern the railroads and the carriers during the war?

Mr. SMITH. I think that is true.

Mr. HINSHAW. Then what does this reference have to do with it? Mr. SMITH. They had absolutely nothing to do with freight rates, nothing whatever.

Mr. HINSHAW. I do not know whether I should read that again or not. You are referring, I believe, to the establishment of rates quickly. Mr. SMITH. That is right.

Mr. HINSHAW. That is right. And is there anything in a war situation that does not enable a rate to be established at any time subsequent to the action? Do you expect to establish rates now for any 5 p. m. action in any direction whatsoever that may be caused to move, that is, the Defense Establishment may cause to move?

Mr. SMITH. If we haven't any knowledge of when it might come, we would certainly not expect to establish anything in advance. Mr. HINSHAW. Nor at 5 p. m., would you, at the time the movement is supposed to take place?

Mr. SMITH. We might do it the next day and get it retroactive. Mr. HINSHAW. Well, you can do it 30 days from now and get it

retroactive.

Mr. SMITH. Not under today's law, you can't.

Mr. HINSHAW. The carrier can make a rate any time he wants to and file it with the Interstate Commerce Commission, and you can knock it down within 30 days.

Mr. SMITH. Yes, but the carrier cannot make it retroactive, and if we have a movement on the higher rates, we could not do anything about it unless we had a litigation proceeding and tried to prove the higher rates unreasonable.

Mr. HINSHAW. Well, renegotiation enters into the thing also, and claims, and so forth. The services and the industrial shippers and everybody else have had claims filed for as long as 5 or 10 years ago, I believe, in some instances.

Mr. SMITH. If a reduced rate were filed today effective 30 days from now, in the interim the traffic would move on the higher rate, and the only way we could recover would be through a complaint through the Interstate Commerce Commission to seek authority for reparation by the carrier. That is the thing we would like to avoid. Mr. HINSHAW. Now, more or less in conclusion, I hope, of this subject: You have stated, on page 6 of your testimony, that from January 1, 1955 to December 31, 1955, the rail negotiated rates constituted 26.6 percent of the

Mr. SMITH. Of the rate tenders.

Mr. HINSHAW. The rate tenders under section 22?

Mr. SMITH. Yes.

Mr. HINSHAW. And the nonnegotiated rates, 73.4 percent.
Mr. SMITH. Yes, sir.

Mr. HINSHAW. I am sorry, but I do not quite get what you are referring to there. Maybe I misunderstand.

Mr. SMITH. Well, the 586 plus the 1,618 are the total rate tenders received by the military departments from the railroads during that year. Now, we negotiated for 586 of those rate tenders, which was 26 percent, but we did not negotiate for the 1,600, and never did ask for them. They were voluntarily given to the military departments, without any solicitation on our part.

Mr. HINSHAW. Did you use them?

Mr. SMITH. We probably did.

Mr. HINSHAW. But otherwise they were just filed with the military? Mr. SMITH. That is right. And in turn with the General Accounting Office and other places where we have to file them.

Mr. HINSHAW. The 586 rates that you negotiated I presume applied to actual shipments?

Mr. SMITH. They were sought for actual movements; yes, sir.

Mr. HINSHAW. Is the dollar volume or ton mileage available? That figure?

Mr. SMITH. You mean the amount of traffic that moved under the 586? Is that what you mean?

Mr. HINSHAW. Yes.

Mr. SMITH. I expect maybe it could be, with a great deal of effort, brought together. But it isn't available in one place today.

Mr. HINSHAW. Is it a large amount?

Mr. SMITH. Yes, I expect it would be a rather large amount.
Mr. HINSHAW. Are those rates determined to be compensatory?

Mr. SMITH. Yes, sir. If they are not compensatory, we don't intend to ask for them. We make a study to determine what we think should be a reasonable compensatory rate before we ever seek it.

Mr. HINSHAW. Are they what we call fully compensatory, or merely out-of-pocket compensatory?

Mr. SMITH. Well, we think they contribute something to the profit or the overhead of the railroads in addition to the out-of-pocket. Mr. HINSHAW. You say the profit, or the overhead?

Mr. SMITH. Yes.

Mr. HINSHAW. Well, of course, that is a big difference. "Contribute to the overhead" means they are slightly more than out-ofpocket.

Mr. SMITH. I will say this: If the railroads think in their opinion they do not contribute something more than the out-of-pocket costs, they should not give them to us. That is more for their judgment than it is ours. If they think we have gone too low, they certainly should raise the ante.

Mr. HARRIS. Will you yield?

Does it only apply to railroads?

Mr. SMITH. Oh, no. No; railroads, motortrucks, water lines. It doesn't apply to airlines. It doesn't apply to pipelines or airlines, but it applies to surface transportation.

Mr. HARRIS. Then your statement as to the railroads a while ago would apply to motortrucks.

Mr. SMITH. Yes, we are coming to motortrucks in that next item he is talking about.

Mr. HINSHAW. You point to 321 rates negotiated by you with motor carriers, amounting to 1.8 percent of the number of rates filed, I take it.

Mr. SMITH. Could I point out here that the 321 may not mean 321 rates. It may mean a thousand rates. It was 321 rate tenders. Some of them might apply to an area where there would be dozens of rates. But there would be 321 tenders, which probably does not make much difference as far as your questioning is concerned.

Mr. HINSHAW. And I take it that similarly the motor carrier nonnegotiated tenders of 16,641 were just a number of documents filed with the defense establishments; is that correct?

Mr. SMITH. Yes. A great many of them were filed to maybe meet something that had been filed by the railroads or something filed by one motor carrier to meet another motor carrier, or something of that

character, which in the final analysis meant nothing to the Department of Defense insofar as dollars are concerned. Just a "me too" proposition.

Mr. HINSHAW. Then your statement that 98.2 percent of the tenders were nonnegotiated does not mean anything, does it?

Mr. SMITH. Well, it means that we had to do all of the administrative work associated with those.

Mr. HINSHAW. Of receiving them?

Mr. SMITH. Yes.

Mr. HINSHAW. I suppose you filed them in the circular file, did you?

Mr. SMITH. Oh, no. You can't do that. No, sir. They have to be kept available and filed with the General Accounting Office. You can't throw them in the round file.

Mr. HINSHAW. I am surprised. But at least you do not know what percentage of those rates you availed yourself of, do you?

Mr. SMITH. Offhand, no.

Mr. HINSHAW. Then, of course, it has no meaning, except as a pile of paper.

Mr. SMITH. That is right. It is a burden on us. That is what we are trying to show: that it is a burden on us to take care of all those. Mr. HINSHAW. Let us go back to the advantages that you list, on page 4. I am kind of working back in your statement, you see. You

say:

The principal benefits to both the carriers and the Department of Defense, in the utilization of the provisions of section 22 of the act, are as follows: Now, obviously if section 22 were amended by H. R. 525, these advantages would appear, most of them, equally well. For instance, the rates, fares, charges, and rules and regulations have already been established, have they not?

Mr. SMITH. No.

Mr. HINSHAW. Oh, I thought they were in the tariffs.

Mr. SMITH. Well, there are some rates and fares and charges in the tariffs. But anybody would be foolish to pay them without some adjustment to a reasonable basis.

Mr. HINSHAW. Why is that? They are established, are they not? In other words, section 22 gives you the opportunity to negotiate. Now, if you take that opportunity away, of negotiating a rate, then the rate is established, is it not? It is established expeditiously?

Mr. SMITH. NO. Section 22 has nothing to do with the negotiation. We can negotiate at any time with or without section 22. But after the negotiation has been completed, then is when section 22 comes into play. It gives the carrier an opportunity to do the publication or to provide a rate tender overnight, or in 15 minutes if he wants to do it. He doesn't have to print a tariff. He doesn't have to file with the Interstate Commerce Commission. He doesn't have to wait for 30 days. He doesn't have to think about the fourth section. He doesn't have to think about suspension. It is there.

Mr. HINSHAW. Well, of course it is, because he just simply says, "I'll carry it for so much." And it may be different one time or another. But if the rates were the rates established by the Interstate Commerce Commission, and not subject to negotiation, then, of course,