Mr. DOLLIVER. You have required them? Mr. ARPAIA. Yes. Mr. DOLLIVER. To what extent? Mr. ARPAIA. You mean in number of such rates or in the volume of traffic represented? Mr. DOLLIVER. Well, both. Mr. ARPAIA. It is pretty hard for me to say offhand. Mr. DOLLIVER. I will not press the question. I am simply interested to know whether there is some progress being made. Mr. ARPAIA. Yes. We are aware that under the present act we have permitted multiple car rates on occasion but you have the protection there against any undesirable impact on the rest of the shipping public. Now, of course, the implications in the recommendations and the legislation involved here cover more than just the protection of the small community to which you referred. They also cover the protection of the smaller businessman. After all, his traffic is not the kind the carriers compete for, yet, if rates on all the competive traffic were reduced to the bare compensatory level, the small shippers of less than carload traffic and less than truckload traffic would have to bear the burden. Mr. DOLLIVER. There is one other matter your comment has called my attention to. Yesterday, testimony was elicited from the witnesses to the effect that the railroads are suffering a very substantial loss on their passenger traffic. It occurs to me that is pretty largely a matter of accounting as to how much it costs to transport to passengers and how much to freight? Mr. ARPAIA. Yes, we are now going to investigate this question because of two reasons. First, this formula that is used to allocate the expense as between freight and passenger service is of some obscure origin and, frankly, it has been questioned. Mr. DOLLIVER. Well, is that by order of the Commission? Mr. ARPAIA. Well, it developed and it is now the system that is used in our accounting department. However, there is another thing we want to find out, just where these losses arise. Are they on branch line? Is it in commutation service? Is it in long-haul traffic? And to what degree? We want to get to the fundamentals. Now, losses in passenger service are a very, very, very, troublesome problem. Obviously, this country needs the facilities of rail passenger travel. That is very important to this country in time of mass movement, and that usually arises in time of emergency. We cannot allow those services to be removed. We have to preserve them. We have to find out how. I think the railroads themselves have given this thing a great deal of thought and study and have been trying in recent years to cut down the amount of investment in passenger trains. As it is, today it costs about twenty-five hundred dollars to furnish a seat on a passenger car. If this new equipment proves to be successful, it will reduce that initial investment to perhaps as low as twelve or thirteen hundred dollars. If it is possible to reduce the investment, the costs of operation, the amount of fuel; all such items are very important and such steps should be encouraged. We want to find out basically what is the proper formula to apply in allocating these costs. Mr. DOLLIVER. How far has your Commission gone in that study as to the reallocation of cost of passenger traffic? Mr. ARPAIA. We have just initiated that investigation only about a month ago. Mr. DOLLIVER. Have you ever had one before? Mr. ARPAIA. No; not an official investigation but the Commission itself in 1915 they did. Mr. DOLLIVER. It is a long time. Mr. ARPAIA. Yes. Mr. DOLLIVER. To repeat, the formula that is set up for the allocation of costs for passenger traffic is a formula of the Commission itself. You now are looking into that with a view to giving it a revision if the inquiry justifies it? The ARPAIA. The formula was estabilshed a long time ago, as I understand it, and of course it has been used since with little change and that is the way the reports are filed. Mr. DOLLIVER. I think that is all, Mr. Chairman. Thank you. Mr. HARRIS. That is not tied up in this proposed legislation; is it? Mr. ARPAIA. Not that I know of. Mr. HARRIS. I did not understand so. Mr. ARPAIA. I should answer, Chairman Harris, however, that one provision of this bill would give us the power to pass upon the curtailment of passenger services with the State commissions, but not the formula aspect. Mr. HARRIS. I understand that. Now, back to section 22. The veto message of the President in 1954 has no relationship as to subject matter as do the provisions under consideration here? Mr. ARPAIA. The bill which the President vetoed was one which merely provided that section 22 quotations would be binding in the absence of fraud or clear error, but it allowed a shorter period of time in which the Government would have to show anything of that kind. The President's position was that we were treating, or the bill treated, the Government differently than it did any other shipper who has a 2-year statute of limitations on raising questions with respect to the lawfulness of rates and charges. Of course, in my opinion, this is only my view, the average shipper does not have the benefit of these special rates. Their situation is not quite comparable. Mr. HARRIS. Of course, now, carrying the matter to the other degree, why the same principle would be followed should the recommendation that you made here regarding section 22 be followed, and that is the people would be given the same privileges that the Government has had? Mr. ARPAIA. That is right. They would be placed on a real equality. Mr. HARRIS. Now, back to the declaration of policy. 78456-56-pt. 1- -21 The Department of Commerce in its statement said that the present statement of national transportation policy in the Interstate Commerce Act includes phraseology which has been taken to justify the imposition of regulatory restraints upon the exercise of managerial discretion and competitve activity. Do you agree with that?" Mr. ARPAIA. Of course, there are restraints on excesses. When this act was first adopted it was claimed that it deprived railroads of managerial discretion. As a statement furnished for the record by the Secretary Weeks' office shortly after the first hearing amply showed, this act has been amended and amended and amended. It is not a "time encrusted" act. I think that one thing ought to be clearly understood. When the act was first passed, it had no teeth. Yet, if you read the comments of that period, you will find that there was the same complaint then that there is now: interference with managerial discretion. Now, obviously only excesses in competition are restrained but such action is necessary to protect the public who need dependable, sound, efficient, adequate transportation which was found to be impossible of achieving with cutthroat or breakneck competition. This country needs all forms of transportation. Mr. HARRIS. Then your answer is that it is true with reference to restraint of excesses. Mrr. ARPAIA. Yes. Mr. HARRIS. And there is a difference between your position and the Department of Commerce's position? Mr. ARPAIA. Yes, but interference is sparingly exercised, I might add. Mr. HARRIS. Now, he says: Particularly to be noticed in this regard are the provisions directing that the regulation of all modes of transportation be “*** so administered as to recognize and preserve the inherent advantages of each * He said this language taken in conjunction with other sections of the act would justify regulatory restraints upon competition when carriers have sought to give their customers the full advantage of cost and service superiority. You do not agree with that, then, do you? Mr. ARPAIA. No. That is a very broad statement. We permit the lowest possible rate and that, I think, is proved by the present reasonable level of rates. Carrier revenues must be consistent with an ability to furnish adequate service, regardless of its effect on competitive forms. Except when it gets to the point where it destroys competition, if a rate is compensatory, we generally allow it to become effective. I think these figures on the degree of suspension action that I showed you this morning show that very clearly. Mr. HARRIS. He said: In all too many cases the phases "preservation of inherent advantages of each mode of transportation" and "elimination of destructive competition" have been applied to restrict what was once the basic purpose of the regulation of transportation to assure the shipper the lowest rates without undue discrimination. Mr. ARPAIA. The policy which Congress has established requires the Commission to foster sound transportation and not to permit it to be destroyed. Now, today, carriers come in and say: "There is no competitive need for the proposed reduction of this rate. If you permit it to be reduced, carrier revenues will be dissipated, thereby making it impossible for carriers to render good service." Now, that happens as between rail and rail, it happens as between water and water, motor and motor, as well as between each form of transportation. There are instances where a carrier, because of pressure of some kind, will try to file a rate and it is not competitively necessary. If it becomes effective, the reductions will spread, and it logically has to spread, because, otherwise, shippers would be in the position where they would be prejudiced or some shippers preferred. Markets would become dislocated and the national economy would suffer. Mr. HARRIS. Well, now, it has been alleged that this policy has worked a discrimination against certain modes of transportation. Specifically has it been pointed up to me, and I am trying to get the matter clarified in my own mind, that a shipper will propose a compensatory rate. Do not ask me to define what a compensatory rate is because I am afraid I could not do it, but, nevertheless, that is the contention, and because it might adversely affect the economic status of a different mode of transportation, the rate would not be allowed. Is that true? Mr. ARPAIA. I think that that is not true to this extent: When rates are protested, what the Board of Suspension does is to check first whether or not that rate is compensatory. It checks whether or not the rate which is being changed actually moves traffic. It checks whether or not there is a close relationship between the filed rate and other prescribed rates, and whether the related rates are not too far from the rate that is filed. As these figures show, if the rate is compensatory, if the rates are actually moving the traffic, they are not concerned at all with how it shifts the traffic. They allow that rate to become effective regardless of the protests. Most of these rates do go in. It is only in the situation where that rate is really destructive, not competitively necessary, that there is an examination of the entire situation to see what has been happening and in those relatively few instances the parties are allowed to substantiate their position. Mr. HARRIS. Now, it has also been brought to my attention and contended by some that that situation being true, that the Commission would go into the matter and would take so long to come to a conclusion on it that the shipment had already been concluded and, even though they won out in the end, it was all fruitless. Are we faced with that situation? Mr. ARPAIA. Of course, after all, it does take time. First let me say no rate is based on a single shipment. These rates are based on regular movements of traffic, so it is not a case of where they lose a single movement. I mean it is a continuing thing. Now, the rate that was previously there stays in effect until there has been a hearing or opportunity for hearing. We use a shortened procedure which has cut down the time, but all the parties insist they have to have time to prepare their evidence and, yes, it does take Mr. HARRIS. How much time does it usually require on an average now to expedite such a proceeding? Mr. ARPAIA. Well, experience shows that 7 months is just about the minimum you need if you are going to have a satisfactory disposition of these proceedings. Mr. HARRIS. Seven months is the minimum time? Mr. ARPAIA. It is the maximum. Mr. HARRIS. Maximum time. Mr. ARPAIA. It is the maximum that the law allows. After 7 months, that rate goes into effect; the rate that has been suspended. We only have the power to suspend for 7 months unless it is voluntarily postponed. Mr. HARRIS. Another thing that has been contended, that is, that should one carrier propose a certain tariff and it would run into this policy problem as to the effect of a competing carrier, that the burden is on the carrier who proposes the tariff to show that it does not adversely affect the economic status of the other carrier, competitive carrier. Mr. ARPAIA. The burden of proving that the rate is lawful is on the proponent of the rate. However, if he shows that that rate is compensatory and if, as a result of the type of traffic that is involved it is making a proper contribution and does not unfairly burden the traffic, and things of that kind where the public interest is involved, the other party might show that it is competitively unnecessary, the protestant has the burden of going forward as it is called in the law, but the ultimate burden of proof is on the proponent of the rate. He is the one that has the facts. The proponents are the ones that know their costs. They are the ones that have had a rate under consideration for quite a while before it ever gets to us. So if you shifted that burden to a protestant, he would not be able to ever prove that the rate is compensatory. He would have difficulty. Mr. HARRIS. I am not sure I made myself clear. I am not talking of the burden of proof of showing that it was compensatory. Mr. ARPAIA. To show that it is competitively necessary. In order to do that, is the burden upon the initiating carrier to show that that competitive situation is such that it will affect the economic status of the competing carrier? Mr. ARPAIA. No; it is not quite like that. He has to show that there is some competitive necessity for his introducing a rate which is drastically lower only after the issue is raised. Generally, he merely has to show that the rate is compensatory. This "fair share of the traffic" idea is something that originated, as a matter of fact, in the briefs of the carriers themselves; it is another way of saying that the rate is competitively necessary, but the burden of showing that it is competitively necessary where you have these elements put in issue is on the one who proposes it. You show what the situation is as far as traffic is concerned now. How does it move? We allow an opportunity to compete to all carriers. Mr. HARRIS. Yes, but is he required then to show that it will have serious economic effect on the competing carrier in doing so? Mr. ARPAIA. No; he has to show that he needs it— |