In considering a proposal similar to this particular provision in H. R. 6141, the board supported the comments of its policy group that it was not convinced that the lack of regulation of the water carriage of bulk commodities has a substantial effect on the competitive situation between bulk water carriers and other carriers.

One of the fundamental ground rules on which TAA operates is that:

No regulation shall be imposed upon any means of transportation merely because the public interest requires that it be imposed upon one or more other means of transportation.

This places a heavy burden of proof on those who recommend additional regulation.

The board did not feel that the need for more regulation had been sustained.

(Additional statement on bulk-commodity exemption, is as follows:)

BULK-COMMODITY EXEMPTION

NATURE OF THE SUBJECT

There are essentially four different exemptions from the provisions of part III of the Interstate Commerce Act.1 Of these, only those relating to the water carriage of dry or liquid cargoes in bulk apply to common carriers and are of substantial importance.

While these exemptions apply by their terms to all for-hire carriers by water, the use of the dry bulk commodity exemption by common water carriers has been limited to some extent by the language of the statute and by administrative interpretation. The standard method of operation on the inland waterways is to transport cargo in a tow consisting of several barges propelled by a towboat. In determining whether the qualifications for these exemptions have been met, the entire tow is considered as one vessel. If, as is often the case, a tow contains several barges, some loaded with bulk commodities but some with products not in bulk form, or where the aggregate number of dry bulk commodities being carried in a single tow exceeds three; then the exemption is not available. The economics of the industry, which require some common carriers to handle property delivered to them in these mixed tows, thus often prevent those carriers from taking advantage of this exemption. On the other hand, those common water carriers authorized to handle only a few commodities, and contract carriers, can operate more readily under the dry bulk commodity exemption and thus avoid regulation.

2

Since it appears that almost all domestic waterway traffic consists of dry and liquid commodities moving in bulk which are therefore eligible for exemption, for-hire water carriers who cannot take advantage of the dry bulk commodity exemption, and many carriers by other forms of transportation, must compete with unregulated for-hire water carriers for a significant part of the traffic they seek to carry.

ACTION OF THE PANELS

The issue presented to the panels in this subject was whether the exemptions discussed above should be withdrawn, modified, left unchanged, or extended. In their discussions, the panels gave detailed attention to the various bulk cargo exemptions for water carriers.

1The exemptions from regulation of transportation by water (1) of commodities in bulk without wrappers or containers when a vessel is carrying not more than three such commodities (sec. 303 (b) of the Interstate Commerce Act); (2) of bulk commodities carried by a contract carrier in a nonoceangoing vessel on the Great Lakes (sec. 303 (c)); (3) of liquid cargoes in bulk in tank vessels designed for such use exclusively (sec. 303 (d)); and (4) by contract carriers which, on application by the carrier, the Commission exempts from regulation as not actually or substantially competitive with transportation by other common carriers subject to its jurisdiction (sec. 303 (e) (2)).

Figures prepared by the Army engineers introduced in the S. Res. 50 hearings indicate that about 95 percent of the tonnage moving along the coast and through inland rivers and canals is made up of bulk commodity movements. On the Great Lakes this figure is nearly 97 percent. A large amount of this bulk traffic is undoubtedly private transportation and 18, of course, not subject to regulation.

The railroad panel report, citing the large amounts of traffic moving in bulk by water and the difficulty rail carriers have in competing for this traffic because of the exempt water carriers' ability to change rates freely, recommended repeal of these exemptions. The investor panel took the same position.

The user panel, on the other hand, did not believe any useful purpose would be gained by the extension of regulation resulting from such repeal and opposed any change in the present law. The majority of the waterway panel, after considerable discussion of the advisability of partial repeal of the dry-bulk commodity exemption, voted against any change in the water carrier exemptions. Two members of this panel dissented and advocated elimination of the dry-bulk commodity exemption for traffic moving on the Mississippi River system and connecting waterways.

The pipeline panel also opposed any repeal, while the air transport, highway, and freight forwarder panels chose to take no position on this question.

COMMENTS OF THE POLICY BOARD

The policy board after reviewing the panel's positions stated:

"Only two panels have favored repeal or any limitation of these exemptions. We are not convinced that the lack of regulation of the water carriage of bulk commodities has any substantial effect on the competitive situation between bulk water carirers and other carriers. Under such circumstances, we should not and do not recommend extension of regulation."

RECOMMENDATIONS OF THE BOARD OF DIRECTORS

The board of directors approved the above conclusion and comments of the policy board.

COMPARISON WITH H. R. 6141

H. R. 6141 would repeal subsection (b) of section 303, which exempts from regulation the movement by water of three or less commodities, in bulk in a single vessel, which includes two or more vessels navigated as a unit. It would also give "grandfather" operating rights as common carriers to presently exempt water carriers.

TAA opposes any change in the present exemption provision applying to water carriers of bulk commodities.

Mr. BAKER. That takes us to the eighth position, maximum rate regulation.

The TAA board of directors after careful consideration of the views of its eight permanent policy-formulating panels and its policy group, recommended:

Detele from section 15a of the Interstate Commerce Act that clause which requires the ICC to give consideration "to the effect of rates on the movement of traffic by the carrier or carriers for which the rates are prescribed," and add to section 15a a clause to the effect that it is the intention of Congress to permit the maintenance of carrier credit and the attraction of equity capial.

In taking this position, the board did not have in mind any change in the principles of ratemaking embodied in other portions of the act, and the interpretation thereof.

The board particularly was agreed that the value of service concept of ratemaking should not be jeopardized. While there was agreement on this principle, it has not been possible to get agreement on exact legislative language wording to insure this.

H. R. 6141 advocates a complete change in the concept of minimum and maximum ratemaking powers of the Commission, on which TAA presently has no position. Included in H. R. 6141 is a new section 15a.

The association still believes that the Commission should not use section 15a as a basis for substituting its judgment for that of management as to the effect of proposed rates on carrier earnings.

However, since the whole problem of revision of the rule of ratemaking has been greatly complicated by the proposals in the Cabinet Committee report, the association does not list the elimination of the phrase:

the effect of rates on the movement of traffic by the carrier or carriers for which the rates are prescribed.

as a priority recommendation at this time.

It does believe that the addition to section 15a of a clause to the effect that it is the intention of Congress to permit the maintenance of carrier credit and the attraction of equity capital is important. (Additional statement on maximum rate regulation is as follows:)

MAXIMUM RATE REGULATION

ACTION OF THE PANELS

At one time the user panel considered adopting a proposal put forward by one of its members to permit carriers to increase rates freely, provided that such increases were not discriminatory and did not violate "the common law of extortion." This suggestion was not approved, and since that time discussions concerning maximum rate regulation have centered around suggested revisions in the rules of ratemaking for common carriers in parts I, II, and III of the Interstate Commerce Act.

The majority of the user panel initially recommended the repeal of the rules of ratemaking on the grounds that carrier management rather than the regulatory authority should have the responsibility for setting rates which will achieve maximum carrier revenues as long as such rates do not violate any of the other provisions of the act. User panel members felt that the ratemaking rules, and particularly the language in them which directs the Commission, in the exercise of its ratemaking powers, to consider the "effect of rates on the movement of traffic by the carrier or carriers for which the rates are prescribed," have caused the Commission to substitute its judgment for that of carrier management in deciding whether proposed increased rates are likely to increase revenues or will, on the other hand, because of traffic losses, actually decrease revenues. They believed that the Commission in making a maximum rate decision should confine itself to deciding whether or not the maximum rate is unreasonable with respect to the shippers who must pay that rate, leaving to the judgment of the carriers the question of whether the rates in issue are wise from a revenue standpoint.

The investor and railroad panels were also concerned about the Commission's exercise of what should be managerial functions and originally proposed that the "effect of rates on the movement of traffic" clause be eliminated from section 15a, the railroad ratemaking rule, but that the remainder of that section be retained. The reluctance of these panels to support the user panel proposal for repeal of section 15a, in addition to the opposition of the highway and waterway panels to the repeal of that section or of the ratemaking rules applicable to their forms of transportation, resulted in attempts to formulate amendments to the ratemaking rules. Since the user, investor, and railroad panels were concerned primarily with changes in the railroad rule of ratemaking and since the highway, waterway, and freight forwarder panels did not suggest any modifications relating to maximum rate regulation in the ratemaking rules in the other parts of the act, the remaining panel deliberations were limited to proposed changes in section 15a.

The investor and railroad panels, besides advocating the repeal of the "effect of rates on the movement of traffic" language in section 15a, were anxious to add wording indicating congressional intent that the Commission in fixing rates should give consideration to the need of railroads for sufficient revenue to attract equity capital. In addition, the investor panel had urged the insertion of language in section 15a referring to the necessity of revenues adequate to permit carriers to depreciate their property during its economically justifiable life. The following indicates the changes in section 15a first put forward by the investor panel representatives (language to be deleted is in black brackets and new language italicized):

"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 by the carrier or carriers for which the rates are prescribed]; 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, to depreciate their depreciable property during its economically justifiable life, and to attract equity capital."

All of the modifications in section 15a suggested above were soon criticized. The user panel indicated its willingness to forego its recommendation for repeal of the entire section and support instead deletion of the "effect of rates on the movement of traffic" clause, but at that point representatives of the highway and other panels took the position that elimination of this wording might call into question the power of the Interstate Commerce Commission to consider the value of service in ratemaking. It was stated that, although value of service had existed as a rate concept before the appearance of the ratemaking rule in the Interstate Commerce Act, removal now of the only statutory language which may be interpreted as explicitly referring to value of service might result in further emphasis on costs as a ratemaking factor.

In response to this thought an attempt was made to replace the "effect of rates on the movement of traffic" clause in section 15a with a direct reference to the value-of-service principle and to add a proviso directing the Commission to accept the judgment of the carriers as to the effect of proposed rate changes on revenues.1 User, investor, and railroad panel spokesmen did not approve of this means of handling the problem; and, when it later appeared that the highway panel would oppose any modification of the present "effect of rates on the movement of traffic" clause, the user, investor, and railroad panel representatives returned to their previous recommendation that the clause be deleted from section 15a.

There was further difference of opinion over the additions proposed by the investor panel at the end of section 15a referring to depreciation and the attraction of equity capital. While no panel objected to the addition of the phrase "to attract equity capital," the railroad panel wished to include in addition another provision directing the Commission to exercise its ratemaking functions in such a manner as to make possible the achievement of railroad net income approximating a 6 percent return on the fair value of transportation property."

However, neither the pipeline panel nor investor panel representatives favored a provision setting 6 percent as the proper rate of return, and user panel members doubted the advisability of this step.

The investor panel proposal to add to section 15a a phrase relating to depreciation of carrier property met opposition from the pipeline and user panels. User panel representatives argued that such action might necessitate argument over the depreciation policies of the carriers in every important rate case, thus further delaying final action in these proceedings. Investor panel representatives, on reconsideration, were willing to drop this suggestion.

At this point panel representatives reviewed their basic positions on the question of what should be done about section 15a. It was found that the user, investor, and railroad panels were in fundamental agreement first, as to the desirability of strengthening the power of railroad management to make basic rate policy decisions and particularly to predict the effect of rate changes on traffic volume without interference from the Commission; and second, as to the

1 See footnote for a draft of sec. 15a (2) incorporating these changes.

2 The following is a draft of sec. 15a (2) incorporating the changes discussed in the last two paragraphs of the text (language to be deleted is in black brackets and new language italicized):

"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 by the carrier or carriers for which rates are prescribed,] to the value of the service for which the rates are prescribed; to the need, in the public interest, of adequate and efficient 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, to depreciate their depreciable property during its economically justifiable life, and to attract equity capital; Provided, That the Commission shall accept the judgment of the carriers as to the effect of proposed rate changes on carrier revenues.

"It shall be the duty of the Commission to maintain, as far as possible, a general level of railroad rates which, over a period of years, will produce revenues consistent with the standards set forth in this section and a net income return approximating 6 percent on the fair value of railroad property devoted to public use."

necessity for giving further emphasis to the financial health of the carriers as one of the aims and purposes of regulation. In spite of their agreement on the two broad principles, these three panels continued to differ over the means of implementing them.

It was against this background that the investor panel reconsidered the original user panel proposal for complete repeal of section 15a. One result of the long discussions concerning the "effect of rates on the movement of traffic" clause had been to raise some doubt as to whether its repeal would accomplish the end desired. At least one user panel representative had argued that, as long as other provisions of section 15a direct the Commission to minister to the revenue needs of the carriers, conscientious performance of this duty would require the Commission in any event to consider the probable effect of rate increases on the movement of the traffic in order to determine to its own satisfaction whether proposed rate increases would actually result in increased carrier revenues. The investor panel finally decided to adopt the user panel position for repeal of section 15a, provided that the statement of national transportation policy in the Interstate Commerce Act were amended to make maintenance of carrier credit and the attraction of equity capital one of the explicit aims of regulation. The user panel approved this suggestion, and with this proposed amendment the pational transportation policy would read as follows (new language in italic): "It is hereby declared to be the national transportation policy of the Congress to provide for fair and impartial regulation of all modes of transportation subject to the provisions of this act, so administered as to recognize and preserve the inherent advantages of each; to promote safe, adequate, economical, and efficient service and foster sound economic conditions in transportation and among the several carriers; to permit the maintenance of carrier credit and the attraction of equity capital; to encourage the establishment and maintenance of reasonable charges for transportation services, without unjust discriminations, undue preferences or advantages, or unfair or destructive competitive practices; to cooperate with the several States and the duly authorized officials thereof; and to encourage fair wages and equitable working conditions-all to the end of developing, coordinating, and preserving a national transportation system by water, highway, and rail, as well as other means, adequate to meet the needs of the commerce of the United States, of the postal service, and of the national defense. All of the provisions of this act shall be administered and enforced with a view to carrying out the above declaration of policy."

The railroad panel favored repeal of "the effect of rates on the movement of traffic" clause and the addition of language to section 15a referring to the maintenance of carrier credit, the attraction of equity capital, and the making of improvements in the art of transportation as factors to be considered by the Commission in the exercise of its rate powers. This panel opposed repeal of section 15a because it believed that such action might be construed as an indication that Congress wished to give the regulatory authority broader discretion to exercise its judgment on matters which should be left to carrier management. The panel did not oppose the change in the declaration of national transportation policy proposed by the user and investor panels.

The highway panel report opposed any change in section 15a. This panel believed that repeal of this section or of "the effect of rates on the movement of traffic" clause in section 15a would permit railroads to reduce rates at will to out-of-pocket cost levels. The highway panel also objected to the addition to the declaration of national transportation policy of the phrase referring to carrier credit and the attraction of equity capital on the grounds that this language was designed to fit only the railroad situation and hence should appear in part I of the act. The panel's principal fear in this connection was that the Commission might construe such language in the policy statement as a directive to use the return-on-invested-capital theory in the regulation of maximum motor carrier

rates.

The waterway panel opposed repeal of section 15a but approved the change proposed in the national transportation policy statement. The pipeline panel approved repeal of section 15a provided that a direct reference to the value-ofservice principle similar to that discussed by the panels was included elsewhere in the act, perhaps in the transportation policy statement. This panel also approved the proposed inclusion of the carrier credit and equity capital language in the transportation policy statement. The air transport panel, though it took no positive position on these proposals, did not oppose them.

Eleven members of the user panel dissented to the majority position for repeal of Bec. 15a.