The Department of Justice has had occasion to study the implications of this bill in connection with rather extensive litigation recently conducted by the Transportation Section of the Antitrust Division. The studies we have made in this connection indicate that the passage of this bill will greatly increase the cost of transportation of the Government, and in a way that will be inequitable when compared with the cost of normal commercial shippers. Studies by the Interstate Commerce Commission indicate that at the present time the general level of cost of Government shipping is higher than that of normal shippers. This, we understand, is due to the frequent necessity of the military to ship at class rates in order to perform the military mission involved. In addition our investigations have shown that regulation of rates for shipments of military property by either Federal or State agencies will place a serious burden on the defense effort and disrupt the lines of supply in many instances, particularly in times of emergency.

In

The Department of Justice strongly opposes the enactment of this bill. addition to removing one of the few remaining significant elements of competition in the field of transportation ratemaking, by abolishing the Government's privilege of seeking competitive rates among carriers of all classes, it is unjustified from the standpoint of rate equality between the Government and commercial shippers and is directly contrary to the military needs.

The Bureau of the Budget has advised that there is no objection to the submission of this report.

Sincerely,

Hon. J. PERCY PRIEST,

WARREN OLNEY III, Acting Deputy Attorney General.

EXECUTIVE OFFICE OF THE PRESIDENT,

BUREAU OF THE BUDGET, Washington, D. C., February 24, 1956.

Chairman, Committee on Interstate and Foreign Commerce,

House of Representatives, Washington, D. C.

MY DEAR MR. CHAIRMAN: This is in reply to your letter of February 3, 1955, requesting the views of the Bureau of the Budget with respect to H. R. 525, a bill to amend section 22 of the Interstate Commerce Act, as amended, and for other purposes.

This bill would amend section 22 of the Interstate Commerce Act so as to remove the present authority under which common carriers may establish reduced rates for Government traffic.

The problem of rates for Government transportation was, in the last year, given intensive study by the Advisory Committee on Transport Policy and Organization. The Committee recommended legislation to repeal section 22 and to provide new authority for special Government rates subject to most of the provisions of the Interstate Commerce Act. This proposal is incorporated in H. R. 6141, now pending before your committee.

H. R. 6141 attempts to retain for Government rates a special status consistent with the unusual character of Government traffic movements and the need for expedition, especially in national emergencies. Military shipments in particular need the flexibility and speed provided through special rate procedures in order to obtain reasonable rates. Large amounts of military shipments are not eligible for published commodity and exception tariff rates, which are lower than the overall class rates, since this military traffic does not coincide with the commercial traffic for which the lower commodity and exception rates are published. To require the Department of Defense to move its traffic on class rates would increase its freight costs. It could be expected that the Department would institute proceedings before the Interstate Commerce Commission to obtain the reasonable rates the Interstate Commerce Act prescribes.

It should also be noted that the Commission on Organization of the Executive Branch of the Government considered arguments for and against amending the Interstate Commerce Act in a manner similar to that proposed in H. R. 525 and concluded not to recommend amendment.

The General Services Administrator in the report he is making to your committee on this bill sets out in an attachment some pertinent reasons for maintaining authority for special Government rates. The Secretaries of Defense

and Commerce in the reports they are making to the Senate Interstate and Foreign Commerce Committee oppose enactment of a similar bill, S. 2114. Copies of these two reports are enclosed.

In light of these considerations, the Bureau of the Budget recommends against enactment of H. R. 525.

Sincerely yours,

PERCY RAPPAPPORT,

Assistant Director

DEPARTMENT OF THE ARMY,
Washington, D. C.

Hon. WARREN G. MAGNUSON,

Chairman, Committee on Interstate and Foreign Commerce,

United States Senate, Washington, D. C.

DEAR MR. CHAIRMAN: Reference is made to your request to the Secretary of Defense with respect to S. 2114, 84th Congress, a bill to amend section 22 of the Interstate Commerce Act in order to discontinue the authority under such section which authorizes the carriage, storage, or handling of property free or at reduced rates for the United States and the transportation of persons for the United States free or at reduced rates. The Secretary of Defense has delegated to the Department of the Army the responsibility for expressing the views of the Department of Defense.

Section 22 of the Interstate Commerce Act provides, in part, as follows:

That nothing in this part shall prevent the carriage, storage, or handling of property free or a reduced rates for the United States, State, or municipal governments *** or the transportation of persons for the United States Government free or at reduced rates ***”

The purpose of S. 2114 is to amend section 22 by removing the permissive authority to transport persons for the United States Government at free or reduced rates and to carry, store, or handle property for the United States at free or reduced rates.

The Department of the Army, on behalf of the Department of Defense, is strongly opposed to the enactment of S. 2114.

Historically, statutory authority relating to the regulation of the transportation field has provided for reduced rates to the Government. Since its original enactment, the Interstate Commerce Act has contained a provision in section 2 authorizing railroads to grant free or reduced rates for the shipment of property for the United States, State, or municipal governments. This authority has been extended to other modes of surface transportation as they were drawn within the regulatory orbit. In addition, the Transportation Act of 1940 further authorized surface carriers to grant free or reduced rates for the transportation of passengers to the United States Government. Reduced rates provisions have been beneficial to the Government and to the carriers.

The Department of Defense, today, is one of the world's largest shippers with all modes participating in military traffic. The commodities purchased and transported involve every conceivable commodity in the civilian economy as well as items peculiarly military in their use. The location of many military installations is not adjacent or intermediate to industrial or commercial cities and to that extent do not coincide with commercial traffic patterns. Consequently, because of these locations the use of commodity rates available to commercial shippers is precluded.

Prior to World War II there was an almost total absence of any large volume of military commodities, and, because of this fact, the legal rates available were based almost in their entirety on classification ratings. With the greatly expanded military commitments, global in nature, since the end of the war, large volumes are shipped in contrast to the period 15 years ago. Many shipments, however, are of a nonrecurring nature and publication of rates for such shipments in carriers' tariffs would produce paper rates; i. e., there would be little or no traffic moving under those bases. In effect, the repeal of section 22 would force all militarly departments to seek publication by tariff of rates to and from their many points or origin and destination with greatly increased expense to carriers and military departments. On those movements where the urgency of movement militated against the normal time-consuming ratemaking publication and regulatory processes, the charges that would accrue would be those class rates that would create unreasonably high charges on the urgent shipments.

There are two principal reasons why rates negotiated under section 22 provide in many cases more remunerative earnings to the carriers than the earnings derived from commercial shippers based on tariff rates. First, military shipments generally load heavier to the car or truck than do average commercial shipments. Second, the distance of military movements is usually much longer than the distance for commercial freight movements.

Section 22's flexibility and expedition provides mutual benefits to the carrier as well as the Government and its use does not place a burden on commercial shippers. To the contrary, as Mr. W. A. Maloney, general attorney for the Association of American Railroads has stated (Traffic World, February 5, 1955, p. 24):

66 # **To the extent that the railroads under section 22, obtain at compensatory rates Government traffic that, in the absence of section 22, their competitive ratemaking disadvantages would lose for them, the burden of shippers by rail is not increased but, on the contrary, is lessened by the contribution from this traffic. Repeal of section 22 and placing the railroads under the same competitive ratemaking handicaps when competing for Government traffic as they suffer when competing for commercial traffic would not relieve commercial rail shippers of any conceivable burden. ***"

Not only do the free or reduced rates provisions of section 22 provide the Government with a flexible and expeditious procedure for arriving at fair rates for military shipments, but they also are, in numerous instances, more remunerative than commercial rates to the carriers. Attached is a table which shows a comparison of rail carload revenue earnings of section 22 traffic with total carload traffic and a comparison of the rail carload grouping of "manufactured and miscellaneous" items with total carload traffic. It will be noted that the comparisons indicate that the gross revenue earnings of traffic moving at section 22 rates are 2 to 5 times the gross revenue earnings of rail carload traffic in the "manufactured and miscellaneous" group of commodities. Therefore, justification for repeal of section 22 cannot be based on the premise that the carriers are transporting military traffic below the cost of operation.

It should also be pointed out thah by repealed the provision of section 22, which authorizes rates on the transportation of property or personnel by or on behalf of the United States, S. 2114 would eliminate the flexibility and expedition now afforded the carriers in establishing rates for the military departments where the urgency of movement militates against the normal ratemaking processes. Military plans and operations necessary for the preparation of mobilization and the defense of the United States are constantly undergoing changes. The chain of logistical support, of which domestic carriers form a vital link, must be responsive to emergency changes in military plans and operations. In that connection, the rate problem is an important facet in the use of domestic carriers. Inasmuch as the provisions of section 22 provide the flexibility and speed essential in responding to the exigencies of military operations, this Department, on behalf of the Department of Defense, is of the opinion that S. 2114, if enacted, would work against the best interests of the United States Government.

The enactment of S. 2114 would also have a serious fiscal effect upon the United States Government, particularly the Department of Defense. At the existing level of traffic, the estimated additional cost to the Department for the movement of freight would be $29 million and for the movement of passengers $8,100,000. Possibly some reduction in these amounts would result from tariff adjustments of rates and fares on United States Government traffic. However, as pointed out before, time will not always permit military freight and passenger movements to be delayed awaiting tariff adjustments.

Reference is made to S. 1920, 84th Congress, a bill to amend the Interstate Commerce Act, as amended, particularly section 8 thereof which proposes a new section 15a of the Interstate Commerce Act. The proposed new section 15a (5) provides for new rules to apply to reduced rates offered the United States, State, and municipal governments. In its report on S. 1920 this Department offered to your committee recommendations for some minor amendments to the proposed section 15a (5). The Department of the Army believes that the language of S. 1920 concerning reduced rates for governments would remove the major abuses which are understood to have caused the movement for repeal of the application of section 22 to the Federal Government. The Department of the Army, on behalf of the Department of Defense, strongly favors the approach of S. 1920 as contrasted to S. 2114.

For practical reasons, this report deals but briefly with the salient objections to S. 2114. In the event hearings are held on the bill, opportunity will be appre

st to furnish a witness and to furnish more detailed evidence why it should acted. In general, it is believed that advocacy of such legislation by ters and carriers group arises from misunderstanding of the effect of atter of information for the committee the Department of Defense in its on S. 543, a bill to establish the finality of contracts between the ment and common carriers of passengers and freight subject to the Intermerce Act, recommended the substitution for S. 543 of a bill to amend as to specify that the 2-year statute of limitations on action involving **** and overcharges applied to transportation of persons or property Urated States Government. This was consistent with the President's en ent that he was not approving S. 906 (the predecessor of S. 543) and - * 'ed enactment of a bill making the statute of limitations applicable to ted States Government. The Department of Defense would have no ce, to proposed legislation similar to the mentioned report on S. 543. report has been coordinated within the Department of Defense in accord*1. procedures prescribed by the Secretary of Defense.

- F„reas of the Budget has advised that it has no objection to the submission report for the consideration of Congress.

• rely yours,

WILBER M. BRUCKER,
Secretary of the Army.

a perseum of rail carload revenue earnings average load and mileage of sec. 22 gu tution freight traffic with like factors on total rail carload freight traffic and manufacturers and miscellaneous items

b. - Interstate Commerce Commission- Carload Waybill Analysis.

AZKEN G. MAGNUSON,

THE SECRETARY OF COMMERCE,

Washington, D. C.

Chairman, Committee on Interstate and Foreign Commerce,
United States Senate, Washington, D. C.

“AR MY CHAIRMAN: This letter is in reply to your request of June 1, 1955, for s of this Department with respect to S. 2114, a bill to amend section 22

1

cost advantages whenever they exist and to their full extent." While the amendments will permit closer alinement of rates with cost characteristics, value-ofservice considerations may still be fully effective within the zone of reasonableness.

H. R. 6141 repeals section 15 (a) of the act, which requires that the Commission in prescribing rates given consideration, among other factors, to "the effect of the [proposed] rates on the movement of traffic by the carrier or carriers for which the rates are prescribed." This repeal eliminates the requirement that the Commission substitute its business judgment for that of carrier management in these matters.

The proposed legislation makes three basic changes in the act relating to the Commission's power to suspend new rates, fares, or charges pending a decision as to their lawfulness. The first change would shorten the suspension period from 7 to 3 months. This change would assure prompt action in the disposition of such proceedings. The second change would authorize the Commission to suspend rates only when it determines that the proposed rate would probably be unlawful, that it would result in injury to the complainant, and that in the absence of suspension, the complainant has no other adequate remedy. This change would establish the power of suspension as a special and unusual remedy. Under existing provisions, suspension is too frequently invoked by competing carriers to harness the proponent or merely to delay decision. The third change would shift the burden of proof from the proponent to a complainant carrier, which is in accord with the Administrative Procedures Act.

The fourth section of the Interstate Commerce Act would be amended so as to eliminate the procedural requirement that common carriers subject to parts I and III of the act obtain approval of the Commission prior to charging less for a longer than for a shorter distance, and to authorize such carriers to charge less for longer than shorter distances if the charge is necessary to meet actual competition and does not result in less than a just and reasonable minimum charge. The section would also be amended so as to delete provisions prohibiting such common carriers from charging any greater compensation as a through rate than the aggregate of the intermediate rates. Other sections of the act affording adequate remedies against unjust or undue discriminations resulting from the application of rates of this character are not modified.

The bill specifically authorizes carriers to establish incentive and volume rates. The principle and validity of price differentials having suitable relation to the lesser cost of providing goods or services in quantity is generally accepted throughout our economy. However, carriers subject to the act, who possess inherent characteristics that might enable them to move great volumes over long distances, have not been sufficiently free to institute incentive pricing and pass on to the public the cost savings involved in hauling heavy volume traffic from one point of origin to a single destination.

H. R. 6141 makes several basic changes in the act which would strengthen the common carrier industry. These changes do the following: (1) redefine a private carrier by motor vehicle; (2) redefine motor and water contract carriage and require the filing of actual rather than minimum rates; (3) repeal the drybulk commodity exemption applicable to water carriagers; (4) provide definite statutory standards for determining which nonprofit shipper associations are entitled to continued exemption from the provisions regulating freight forwarders; and (5) empower the Commission to override States service requirements in certain instances,

The proposed redefinition of a private carrier of property by motor vehicle limits the applicable exemption to a person who transports by motor vehicle, property of which he is the owner, leasee or bailee and which property was not acquired for the purpose of such transportation.

The redefinition of contract carriage makes clear that such operations are limited to those of a specialized or individualized character under bilateral contracts or those equivalent to bona fide private carriage.

Neither of these amendments would affect in any way legitimate private or contract operations. In the case of private transportation, certain opportunistic operations which have proved injurious to sound public transportation would be brought under regulatory control. Contract carriers who are in effect operating as common carriers would be required to obtain proper operating authority. Provision is made for granting appropriate operating authority to persons affected by the amendments who are entitled to such authority by virtue of their past operations.