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Mr. STALEY. I do not know the history of that, sir; but it has been there for some time.

Mr. HARRIS. Do you have any way of obtaining that information! Mr. STALEY. Yes; I am sure I can develop that and I will be glad to do so and, if I may, I will send you a letter to be put into the record. Mr. HARRIS. What I want to know is whether or not the Government is requiring the railroads to adopt this as a policy, and whether the railroads are not in agreement with it, or is it a general understanding? How it is done.

Mr. STALEY. You are talking now about the 10 percent?

Mr. HARRIS. Yes, sir; the standing reduction that you referred to. Mr. STALEY. I think that can be developed, but I do not have the information.

Mr. HARRIS. If you are able to obtain that and supply it, we will be glad to have it.

Mr. STALEY. I can do that, and you can be sure that it will be done. (The information requested follows:)

Hon. OREN HARRIS,

THE QUAKER Oats Co.,
Chicago, Ill., June 18, 1956.

Chairman, Interstate and Foreign Commerce Committee,

House Office Building, Washington, D. C.

DEAR MR. HARRIS: When I appeared before your subcommittee on May 2 in support of H. R. 525 you asked me some questions about the 10-percent reduction under section 22 on military passenger business, which I was then unable to answer. I promised to develop some information on this subject, and I think the memorandum, first attached, tells the story.

I have also prepared and attached a memorandum showing in what respects the recommendations of the so-called Hoover Commission relating to section 22 differed from the recommendations of the Commission's Transportation Subcommittee.

Thirty copies of these memorandums are enclosed for use of the committee and its staff. I trust they can be included in the record in connection with my testimony.

Yours very truly,

J. R. STALEY, Vice President.

SUPPLEMENTARY MEMORANDUM

Subject: Section 22 of the Interstate Commerce Act-Reduced railroad fares for account of Department of Defense.

The railroads in the United States have extended, as a section 22 quotation, at flat 10-percent reduction on all passenger fares for the Department of Defense. The quotation actually takes the form of an agreement or negotiated contract signed by the chairmen of the various carriers' passenger associations and by officials of the several divisions of the Department of Defense. The reduced fares apply only to tickets purchased on Government transportation requests. For more than 50 years the organizations which now comprise the Department of Defense had the advantage of special rates from some carriers under land-grant deductions. As early as 1914 there was a general section 22 quotation made to the various military services, granting them generally a flat 3-percent reduction in fares plus whatever land-grant deduction was applicable, or a flat 5-percent reduction in fares when no land-grant mileage was involved. When the Land Grant Act was repealed effective in October 1946, the rail carriers worked out an agreement and contract with the military services which allowed them a flat 10-percent reduction for all military passenger traffic moving on transportation requests. This agreement was considered an exclusive or preferential contract under which the military services virtually agreed to give all of their passenger business to the rail carriers. Among other considerations, the military services agreed to let the rail carriers select the routing for all group movements of 15 or more people. These arrangements eliminated any

expense to the carriers for soliciting the business. The agreement is quite comprehensive with detailed specifications for all types of passenger movements, including the movement of impedimenta, kitchen cars, soldiers' remains, meals, hospital cars, etc. The carriers were well satisfied with the preferential contract for it assured them a substantial military movement, and they felt the 10-percent reduction was offset by the advantages which accrued to them. It has been said this reduction is equivalent to the commission the rail carriers pay to travel agencies on all-expense tours.

The agreement was on a year-to-year basis and about 1950 or 1951 the exclusive or preferential provisions were removed. In 1952 the Department of Defense, which had been criticized by other forms of transportation for its deal with the railroads, began asking for bids from various competing forms of transportation on group movements of 15 or more people. The nonscheduled airlines avidly sought this traffic and the rail carriers' share fell to a little under 35 percent of the total. After losing such a large portion of their military passenger business the railroads authorized their passenger associations to study these bid requests in relation to railroad costs, to calculate costs of competing forms of transportation and to go after the business. They have been doing this and are now handling about 65 percent of the military passenger traffic. I am told there are several thousand requests for bids per year. The only restrictions placed on the passenger organizations who make the bids is that the revenue must exceed their calculated out-of-pocket costs.

Thus it is that military passenger traffic is put on the auction block.

No such reductions have been extended to other Government agencies, because it is explained none of them control any group movements of passengers. JOHN R. STALEY.

CHICAGO, ILL., June 15, 1956.

SUPPLEMENTARY MEMORANDUM

Subject: Section 22 of the Interstate Commerce Act-Recommendations of Committee on Organization of the Executive Branch of the Government versus recommendations of its Transportation Subcommittee.

The Transportation Subcommittee recommended section 22 of the Interstate Commerce Act be amended by eliminating the provisions which authorized movement of Government traffic at free or reduced rates.

In recognition of certain claimed difficulties and to prevent alleged inequities, the subcommittee also recommended:

(a) Amendment of section 6 to authorize the ICC to permit retroactive application of rates on Government traffic.

(b) Requiring contract motor carriers to file actual rates on Government traffic.

(c) Subjecting all air carriers handling Government traffic, for hire, to CAB rate regulation.

(d) Establishment of necessary rules pertaining to publication of rates on classified military property.

The Hoover Commission, however, declined to concur in the basic recommendation, i.e., elimination of the free or reduced rates provisions from section 22. Instead, the Hoover Commission recommended:

(a) Amendment of the national transportation policy to make it more definite and detailed and that the Government should, as a user of transportation, conform to that policy.

(b) Rates on Government traffic be made public as soon as they are negotiated, except where national security is involved.

(c) Promulation of rules and regulations pertaining to movement of classifiled military property.

The latter two recommendations make no sense, because if section 22 is continued, there is no need for special rules covering movement of classified property; and to recommendation (c), there is no advantage in making public a Government rate after it has already been negotiated. As a matter of fact, that is what the Government agencies are doing today.

CHICAGO, ILL., June 15, 1956.

JOHN R. STALEY.

Mr. HINSHAW. Mr. Staley, my purpose in mentioning that subject was to find out, if possible, how to make it possible for our industry and commerce generally to receive the lowest reasonable rate for their transportation, because, after all, those rates are reflected in the prices that the people must pay for the things that they purchase.

Now, one of the arguments made by the General Services Administration in favor of section 22 rates was that they had to have rates on very short notice and on 1 or 2 days' notice, at least.

Do you think that the General Services Administration could get a special order from the Commission under section 6, of the Interstate Commerce Act to establish such rates on 1 or 2 days' notice?

Mr. STALEY. I am so glad you asked me that question. Right in the GSA there is a lack of organization as between procurement and transportation that created that condition at times. It is not a constantly recurring thing, but that instance referred to a case where they had a shipload of ore, or some other commodity, coming in and the traffic department of the GSA did not learn about it until a day or two before the ship was to dock; but other men in the GSA knew about it months before that time, because they had made contracts, and they did not notify their traffic department.

I think in cases like that they do not deserve any consideration.

Mr. HINSHAW. I am trying to bring out the fact, as I did when it was under direct discussion, that somebody in GSA should have known about the shipment at the time it was actually shipped out of the port abroad.

Mr. STALEY. You have put your finger on it, Mr. Hinshaw. Of course, people knew when that stuff was going to be moved and should have lined up their traffic departments so that they could get the business and get these rates.

It is very difficult to negotiate rates on 1 or 2 days' notice. You do not think that the American Smelting & Refining Co., or anybody else, would be caught like that? Of course not. It is sloppy organization in the GSA.

Now, Mr. Hinshaw, in our report of the task force, we pointed out things like that, and we recommended that the General Services Administration set up a separate Traffic Department on an equal basis with its Purchasing Department, and that liaison be established between them, so as to avoid the precise thing you are talking about. And, the organization is now working to that end. And, when they get these organizations on a business-like basis, they will not have conditions of the kind I have related.

Mr. HINSHAW. It seems to me unbelievable that a shipload of anything could arrive in a port, consigned to the United States Government, and somebody in the United States would not know about it.

I will not ask you to comment on that. But, obviously, there needs to be a little liaison between the Purchasing Department and the Transportation Department of the GSA.

Mr. STALEY. Mr. Hinshaw, we hammered on that all through our report and, it is not only true in the GSA, but in the Department of Defense. We found some conditions there where there was lack of coordination between the Transportation Department and the Procurement Department in the Department of Defense, and we pointed out that that is one of the most essential phases of commercial traffic management. There must be a tieup between purchasing and traffic.

Mr. HINSHAW. Mr. Chairman, have the views of the Hoover Commission on this section 22 been presented at a time when I was not here, perhaps? I do not remember having heard it before.

Mr. HARRIS. No, nobody presented the Commission's views. It has been referred to by this witness.

Mr. STALEY. Mr. Hinshaw, the task force report has some very strong views about section 22; but the Hoover Commission itself did not follow all the recommendations expressed by the task force in relation to section 22. I was told that they thought it was too controversial.

I do not want to express what I really think about it.

Mr. HINSHAW. Well, Mr. Chairman, I really believe that, for the information of the committee and the Members of Congress, this matter should be put in the record so that we will have it when it is brought before the House. I believe that the views of the task force should be spread before us on the record, in connection with this subject, so that we will have them for the Members for their consideration, in the event other views are presented, may I ask that the task force views be spread upon the record at this point, or some other appropriate point?

Mr. HARRIS. That is the task force that you have there now?

Mr. STALEY. This is a task force report on transportation. This is the Hoover report. This is the Hoover Commission Report on Transportation which summarizes much of this; and they do not go nearly as far as the task force did. That has disturbed a great many people. Mr. HARRIS. Could you prepare a brief memorandum as to what the task force position was, and outline what is in the little booklet that you have there, regarding section 22?

Mr. STALEY. Yes, sir.

Mr. Chairman, I think if we were to reproduce all that the task force said about section 22, it might make as much as 8 or 10 double spaced pages.

Mr. HARRIS. I did not ask you to reproduce all that they said about it. I just asked you to prepare a brief memorandum as to what the task force's position was.

Mr. STALEY. I will be glad to do that, and I can have it in your hands some time next week.

Mr. HARRIS. Will you also prepare for us a brief memorandum on what the Hoover Commission's report was?

Mr. STALEY. I shall be glad to do so.

Mr. HARRIS. Is that satisfactory?

Mr. HINSHAW. Yes, that will be very fine, Mr. Chairman.

I believe that it may be necessary, in connection with this matter, to be aware of that subject, and have it ready to quote.

Mr. HARRIS. You may prepare those two memorandums for the record and we will let it be included with your statement of this morning.

Mr. STALEY. Thank you.

(The information requested was supplied by Mr. Staley and appears on p. 445.)

Mr. HINSHAW. One more question, Mr. Staley. Mr. Smith brought out in his discussion, I believe, before the Commission, that it was necessary--I do not know that he stated it that way-that the Govern

ment makes shipments all over the country and hence was entitled to secret rates on account of roundabout shipments, and shipments to odd points, and places.

Would you discuss that subject a little bit?

Mr. STALEY. Well, if that is not non sequitur, I do not know what is. Just because they make shipments to odd places, odd corners of the country, should not entitle them to seek special rates. If anything, they ought to pay higher rates for asking for unusual movements. Mr. HINSHAW. That is the way it seemed to me, because if they are asking for one-way movement, they ought to have to pay higher rates than where traffic can be found to move in both directions; and that is one of the reasons why their rates are somewhat higher than the commercial rates.

Mr. STALEY. Mr. Hinshaw, I am so glad that you brought that up. I have personally examined lots, thousands of Government bills of lading and reports of shipments, and this condition you speak of is greatly exaggerated. I mean to say that they make a mountain out of it, and literally that would be but a small percentage of their total business that would move to these obscure places. It happens, but they still ship a lot of freight from Philadelphia to Chicago, and Dallas to New Orleans.

Mr. HINSHAW. That is all. Thank you.

Mr. HARRIS. Mr. Mack?

Mr. MACK. I have no questions, but I would like to commend Mr. Staley for his forthright statement here today. As we would say in Illinois, he has laid it on the line, and I am sure that the committee members understand your position, Mr. Staley.

Mr. STALEY. That was my objective, sir. Thank you.

Mr. HARRIS. Are there any other comments from the members of the committee?

Mr. Hale, do you have any questions?

Mr. HALE. I do not have any questions.

Mr. HARRIS. AS I understand from your statement, Mr. Staley, you say that the Government shipped 348,000 carloads in 1954?

Mr. STALEY. Well, it should be 328,000. I corrected that.

Mr. HARRIS. Would you say that that was the total shipment of freight for the entire Government during 1954?

Mr. STALEY. Mr. Chairman, that was just the Army. Now, that information, as well as the information about other freight shipments by the Government, is included in this task force report.

We got that information from the Army and it is public information in this task force report.

I would like to make another comment, if I may.

The amount of business that is now moving for the Government is very substantially less than that and that is reflected in the exhibit that was presented by the witness, Smith, on April 24, in which he showed that in fiscal 1954, the Department of Defense total freight bill was $816 million, and fiscal 1955 it had dropped to $537 million, because the Korean situation was cooling down.

So the Government ships a lot less freight now than it did 2 or 3 years ago.

Mr. HARRIS. $537 million?

Mr. STALEY. Yes, sir.

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