as a whole would earn net railway operating income equivalent so far as possible to a fair return on the value of their property. This rule proved to be difficult to comply with. Furthermore, there came to be a widespread feeling that the rule had a tendency to make rates higher than some traffic could be expected to bear.

In 1925 the Congress adopted the Hoch-Smith resolution declaring the true policy in ratemaking to be pursued by this Commission "that the conditions which at any given time prevail in our several industries should be considered insofar as it is legally possible to do so, to the end that commodities may freely move." Construing this language in Ann Arbor R. Co. v. United States (281 U. S. 658, 666-7), the Supreme Court said:

"This policy is not new. In ratemaking under existing laws it has been recognized that conditions in a particular industry may and should be considered along with other factors in fixing rates for that industry and in determining their reasonableness; and it also has been recognized that so far as can be done with due regard for the interests affected rates should be such as will permit the commodities to which they relate to move freely in the channels of commerce."

The rule of ratemaking in section 15a was rewritten in 1933 to read as follows: "In the exercise of its power to prescribe just and reasonable rates the Commission shall give due consideration, among other factors, to the effect of rates on the movement of traffic; to the need, in the public interest of adequate and efficient railway transportation service at the lowest cost consistent with the furnishing of such service; and to the need of revenues sufficient to enable the carriers, under honest, economical, and efficient management, to provide such service."

The mention of "effect of rates on the movement of traffic" was a repetition of the thought expressed by Congress in the Hoch-Smith resolution. In 1940 this provision was amended to read, as in its present form, "to the effect of rates on the movement of traffic by the carrier or carriers for which the rates are prescribed." This modification was generally understood to have been made at the request of water and motor carriers who feared that otherwise their rates might be increased for the purpose of protecting rail traffic.

In H. R. 6141 it is now proposed to wipe out this affirmative rule of ratemaking and substitute therefor certain negative rules which would direct the Commission not to do certain things. In the proposed paragraph (1) there would be a direction that it "shall not consider the effect of such charge on the traffic of any other mode of transportation; or the relation of such charge to the charge of any other mode of transportation; or whether such charge is lower than necessary to meet the competition of any other mode of transportation." This is in line with the proposed omission of the reference to "unfair or destructive competitive practices" from the proposed statement of national transportation policy. If the present rule of ratemaking were to be repealed, as proposed, there would probably be controversy as to whether the effect would be to prevent the Commission from considering matters now mentioned in the rule. The history of the rule before recited would support an argument that the rule as it now reads is in the nature of a declaratory statute, repeal of which would leave the Commission free to consider any matter deemed pertinent other than those expressly barred by the new substitute rule.

In the proposed paragraph (2) it would be provided that in determining just and reasonable maximum charges "the Commission shall not require such charges to be reduced below the full cost of performing the services to which they apply, exclusive of losses in other services." The meaning of the term "full cost," etc., is doubtful. Possibly it refers to what are commonly known as "fully distributed costs." Likewise the reference to "losses in other services" is not clear.

In recent years much progress has been made in determining transportation costs, which by nature fall into two categories. First, there are the out-of-pocket or direct expenses which vary with changes in volume of traffic handled and may be assigned to commodities on a cost-of-service basis. Second, the remainder of the costs, i. e., the difference between total revenue needs of the carriers and the out-of-pocket costs, which are of a fixed or constant character, is designated as the overhead costs, or burden. (Total revenue needs embrace operating expenses, rents, taxes (including income taxes), and an allowance for return on investment or profit.) The total revenue needs as so defined are distributed on the basis of statistical apportionments, and the sum of the out-of-pocket costs and apportioned overhead costs is referred to as fully distributed costs. Such

costs provide a guide as to the distribution of the overhead costs, on the average, to all the traffic, but they give no recognition to demand for transportation, i. e., shipper response to a rate. For that reason fully distributed costs are inadequate for universal application in fixing maximum reasonable rates. Such a rigid rule as that here proposed, in our belief, would prove impracticable and unsatisfactory.

The final sentence in the proposed section 15a (2) is obscure :

"In making such a determination, the Commission shall take into consideration the extent and effect of competition with respect to the service to which the charges apply to the end that carriers will be prevented from imposing excessive or unreasonable charges on traffic which is noncompetitive."

Perhaps this sentence has something to do with the expressed belief of the Advisory Committee "that rates are unreasonably low when not compensatory, i. e., when they fail to cover the direct ascertainable cost of producing the service to which the rates apply." This criterion of an unreasonably low rate, however, is not to be found in the bill.

In our opinion the proposed section 15a (1) and (2) should be rejected. (3) This paragraph would provide that differences in rates, classifications, etc., "as between the different modes of transport, each with respect to its own type of service, shall not be deemed to constitute unjust discrimination," etc. We doubt the necessity for such a provision in view of the proviso now contained in section 3 (1) of the Interstate Commerce Act-"That this paragraph shall not be construed to apply to discrimination, prejudice, or disadvantage to the traffic of any other carrier of whatever description." However, if the amendment here proposed is made, it should more properly be placed in section 3 of the act, and this observation applies also to paragraph (4).

(4) This paragraph would provide that undue prejudice and preference should not be predicated on "the establishment, maintenance, publication, and application of rates or charges for individual shipments of property subject to incentive minimum weights or in volume which make due allowance for differences in the handling costs of a carrier subject to this act and which are established for the purpose of meeting competition of other modes of transportation." The term "incentive minimum weights" presumably refers to alternative minimum weights for carload shipments, which the railroads are now free to establish where such action does not cause undue prejudice and preference.

The inclusion of "individual shipments of property *** in volume" is not clear. Volume of movement is one element considered in prescribing maximum or minimum rates. Its bearing on undue prejudice and preference is not clear. As this proposed paragraph is now phrased we feel that it might be subject to an interpretation which would excuse undue prejudice and preference of shippers. We do not favor the enactment of the proposed section 15a (3) and (4). (5) At present section 22 of the act provides that "nothing in this part shall prevent the carriage, storage, or handling of property free or at reduced rates for the United States, State, or municipal governments*** or the transporta tion of persons for the United States Government free or at reduced rates ***. It is now proposed to delete the italicized words from section 22 and to add a new paragraph to section 15a so as to authorize rates, etc. "of special application for transportation service" to these governments. Such rates would, however, become subject to most of the other provisions of the act except that for security reasons filing, posting, and publication of tariff schedules and contracts could be waived.

In recent years there has been much dissatisfaction with the exemptions accorded to Government shipments by section 22. In our opinion that dissatisfaction is justified, and we are, therefore, in favor of amending this section. We urge, however, that any special rates for the governments should be limited to apply only during time of war, or threatened war, or other national emergency, and that such rates be negotiated on a firm and unassailable basis. We believe that a thorough study by Congress as to the present-day needs respecting the furnishing of transportation free, or at reduced rates, is warranted.

We do not believe that this matter should be included in section 15a, which has always been fundamentally a rule of ratemaking for the guidance of the Commission rather than the carriers. It would be preferable, we believe, to add any new provisions as a paragraph of the present section 22 or attach it to section 6. If the advisory committee's proposed amendment is to be adopted, we suggest the following wording, which would remove some duplication and lack of clarity in the proposed draft:

"The establishment, maintenance, publication, and application of rates, fares, charges, and rules and regulations of special application for transportation service to the United States, State, and municipal governments by carriers subject to this Act is hereby authorized. Such rates, fares, charges, and rules and regulations may be made retroactive where the circumstances so warrant, and shall not be subject to suspension or to the provisions of section 4, but shall be subject to all other applicable provisions of the Act: Provided, however, That the provisions of the Act with respect to filing, publication, and posting of tariff schedules and contracts may be waived where the security of the United States so requires upon the filing of an appropriate statement in writing with the Commission by the head of the Government agency concerned. Transportation services rendered by common carriers subject to the Act for such governments other than under rates, fares, charges, and rules and regulations of special application shall be subject to all the provisions of the Act."

SECTION 9

Our discussion of the proposed section 15a (5) sufficiently embraces this section.

SECTION 10

Section 10 of the bill proposes to amend the definitions of common, contract, and private carriers by motor vehicle. The purpose of these changes is to afford to common carriers some measure of relief from the competition of certain classes of unregulated private carrier and from the relatively less-regulated contract carriers by motor vehicle.

Paragraph (a) of section 10 would amend the definition of motor common carrier in section 203 (a) (14) of the Interstate Commerce Act by striking out the word "except" and adding the italicised portion, so that the definition would read as follows:

"(14) The term "common carrier by motor vehicle" means any person which holds itself out to the general public to engage in the transportation by motor vehicle in interstate or foreign commerce of passengers or property or any class or classes thereof for compensation, whether over regular or irregular routes, [except] including any person heretofore engaged in transportation as a contract carrier by motor vehicle which the Commission shall find in appropriate proceedings not to be engaged in transportation as a contract carrier by motor vehicle as defined hereby, but excluding transportation by motor vehicle by an express company to the extent that such transportation has heretofore been subject to part I, to which extent such transportation shall continue to be and shall be regulated as transportation subject to part I."

Paragraph (b) of section 10 would amend the definition of a contract carrier by motor vehicle in section 203 (a) (15) by eliminating the words "under individual contracts or agreements," rearranging the definition, and adding the italicised portion, so that the complete definition would read as follows: "(15) The term "contract carrier by motor vehicle" means any person [which, under individual contracts or agreements,] who engages in transportation by motor vehicle of passengers or property in interstate of foreign commerce for compensation (other than transportation referred to in paragraph (14) and the exception therein) on the basis of bilateral contracts for specialized or individualized service or services equivalent to bona fide private carriage by motor vehicle."

Paragraph (c) of section 10 would amend the definition of a "private carrier of property by motor vehicle" by deleting the indicated portions and adding the italicised portions, so that the definition will read as follows:

(17) The term "private carrier of property by motor vehicle" means any person not included in the terms "common carrier by motor vehicle" or "contract carrier by motor vehicle", who [or which] transports in interstate or foreign Commerce by motor vehicle property of which such person is the owner, lessee, or bailee when such transportation is for the purpose of sale, lease, rent, or bailment, or in furtherance of any commercial enterprise.]: Provided, That such Garnership, lease, or bailment was not undertaken for the purpose of such transportation."

We agree, generally, with the purposes of the amendments proposed in section 10 of the bill, but we are of the opinion that the amendments, as proposed, would not accomplish the objectives the draftsman had in mind, and that in some respects the proposals are undesirable.

Motor common carriers

The proposed amendments to the definition of a contract carrier by motor vehicle excludes from the scope of the definition certain classes of carriers formerly included. The amendment to the definition of a common carrier by motor vehicle does not permanently enlarge that definition to include all carriers excluded by the amendment to the contract-carrier definition, but arbitrarily brings within the common-carrier definition only those who "heretofore" were operating as contract carriers which the Commission finds not to be contract carriers under the revised definition of a contract carrier. Persons who in the future engage in motor transportation for hire, either with or without a permit, which is not that of a common carrier because not held out to the general public and which is not within the amended and restricted definition of a contract carrier would not be subject to regulation as either common or contract carriers. Presumably they would be able to engage in such operations without being subject to any regulation whatever, not even to the safety and hours of service regulations applicable to private carriers. It thus appears that the proposed amendment would not accomplish the intended result. Conceivably, this situation might be corrected by amending the definition of a common carrier by motor vehicle to include all motor carriers transporting for compensation who are not within the revised definition of a contract carrier by motor vehicle. Such a change in the common-carrier definition, however, would raise serious questions as to whether a person may be compelled, against his will, to become a common carrier and serve the general public. State statutes which have been construed to have that effect have been held to be in violation of the due process clause of the Constitution. Michigan Commission v. Duke (266 U. S. 570); Frost Trucking Co. v. R. R. Com. (271 U. S. 583). Such a change also is undesirable because the term "common carrier" has a wellknown and a well-established meaning at common law and in this and various other State and Federal statutes. To prescribe for this term a special and technical meaning different from the commonly accepted meaning would tend to create confusion.

All motor carrriers engaged in transporting in interstate or foreign commerce for compensation should be classified as either common carriers or contract carriers and, except to the extent that they are exempted by specific provisions in the act, regulated as such. Since the objective is to limit the classes of carriers who may operate as contract carriers and since it appears undesirable and questionable to declare all other for-hire carriers to be common carriers, we are of the opinion that desired results may best be achieved by permitting interstate and foreign motor carriers transportation for compensation only by specified classes of carriers, viz, (1) common carriers as presently defined in the act, and (2) contract carriers as defined in the revised definition that is adopted. We recommend, therefore, that the proposed amendment of the definition of a motor common carrier in section 203 (a) (14) not be adopted and that in lieu thereof there be added to the act a provision designated section 203 (c) reading as follows:

"SEC. 203. (c) Except as provided in section 202 (c), section 203 (b), in the exception in section 203 (a) (14), and in the second proviso of section 206 (a) (1), no person shall engage in any transportation for compensation, by motor vehicle, in interstate or foreign commerce, on any public highway or within any reservation under the exclusive jurisdiction of the United States, unless there is in force with respect to such person a certificate or a permit issued by the Commission authorizing such transportation.

"A person shall be deemed to be engaged in transportation if, through the selection, approval, or employment of drivers or other employees (other than as a bona fide officer or employee), through the control over facilities, or through other means, directly or indirectly, he exercises direction or control over the movement of passengers or property, or assumes responsibility for the persons or property being transported or for the operation of the vehicles over the highways.

"A person shall be deemed to be engaged in transportation for compensation if he receives for such services a reward or consideration, regardless as to whether the compensation, reward, or consideration is received directly or indirectly, through the device of leasing or renting vehicles, employment, the furnishing of drivers or other employees, or management services, the buying or selling of property, or in any other manner by which compensation, reward, or a consideration is received in return for the direction or control of or the

responsibility for vehicles used in transportation by motor vehicle in interstate or foreign commerce."

The reason for recommending the last two paragraphs will be explained in the comments on the proposed amendment of the private-carrier definition.

The definition of a common carrier by motor vehicle now appearing in section 203 (a) (14) is, in our opinion, appropriate and adequate except that it is stated entirely in terms of "holding out." In order to make it more fully conform to the generally understood and the common-law meaning, we suggest that The there be added following the word "which" the words "engages in or." definition then will read, "The term 'common carrier by motor vehicle' means any person which engages in or holds itself out to engage in * We do not recommend any other change in the existing definition of a common carrier by motor vehicle.

Motor contract carriers

It is our opinion that the proposed definition of a contract carrier by motor rebicle in section 10 (a) of the bill is indefinite, particularly the added clause, "equivalent to bona fide private carriage by motor vehicle." The primary distinction between contract carriage and private carriage is that the former is transportation for hire while the latter is not transportation for hire. Private carriage by motor vehicle is not limited to specialized or individualized service. There is no motor transportation which may not be performed as private carriage. Whether private carriage would be economical would depend upon the particular circumstances. These circumstances are so variable that this does not constitute a satisfactory standard for the interpretation of the terms, "specialized or individualized." "Specialized" services are rendered by many common carriers, such as carriers of automobiles, carriers of liquid freight, carriers of household goods and others. It is our belief that the definition of a contract carrier by motor vehicle should describe the services which a contract carrier may perform in the clearest possible terms and that it should particularly distinguish between contract carrier service and common carrier service.

The original definition of a motor contract carrier in the Motor Carrier Act, 1935, defined this type of carrier as one who transports for compensation “under special and individual contracts or agreements." In the Transportation Act of 1940, this definition was amended and the word "special" was omitted. The word “individual," however, remained. The report of the conferees explained these changes as follows:

"Section 203, paragraphs (14) and (15), have been rewritten for the sole purpose of eliminating carriers performing pickup, delivery, and transfer service. This change was suggested by the Chairman of the Interstate Commerce Commission.

"The conferees wish to make it plain that it is not their intention, by changing the language of paragraphs (14) and (15) of section 203, to change the legislative intent of the Congress one iota with respect to definition of common and contract carriers other than those performing pickup, delivery, and transfer service."

Both before and after the 1940 amendment, we interpreted the contract carrier definition as requiring some form of "special and individual" service different from ordinary transportation service, under bilateral contracts covering service over a period of time (Pregler Extension of Operations, 23 M. C. C. 691; Craig Contract Carrier Application, 31 M. C. C. 705; Transportation Activities of Midrest Transfer Co., 49 M. C. C. 383). Recently, however, in Contract Steel Carriers, Inc., v. United States (129 F. Supp. 25), a three-judge United States district court set aside our decision in such a case, Motor Ways Tariff Bureau v. Steel Transp. Co., Inc. (62 M. C. C. 413), holding that we had misconstrued the contractcarrier definition. The court was of the opinion that the words "special and individual contracts or agreements" did not denote a specialized service required by the needs of a particular shipper, nor did they limit the number of contracts the carrier may have, but merely required, in the words of the court:

* a contract specifically negotiated with the particular shipper, the terms of which may or may not comport with other similar contracts held by the contracting carrier or other carriers of the same classification. * * * 'Special', in the phrase under discussion, distinguishes the personal relationship between the private carrier and each individual shipper from the impersonal relationship of the common carrier to each member of the general public who applies to him for service which he is required by the public nature of his undertaking to render indiscriminately."