extend the Commission's authority over matters that have mitigated against the maintenance of a healthy common carrier system.

Continuing on page 4, Mr. McDonald states, “* * * our great transportation system will return to the law of the jungle. We think there is a fallacy running through the report. This fallacy is that cutthroat competition between the different types of transportation will strengthen our better transportation system."

He then presents briefly his analysis of "what cutthroat competition will mean." The substance of his analysis is that because the railroads are the "strongest" segment of the transportation industry it could drive trucks out of business by cutting rates on truck competitive traffic and make up their losses on noncompetitive traffic by charging unreasonably high rates. This, he implies, would result in discriminatory rebates and other practices and deprive the public of uniformity in rate treatment.

The Advisory Committee has no intention of instituting a system of "cutthroat" or ruinous competition in the transportation industry. As indicated above, it recommends rather that greater reliance shall be placed on competitive forces of transportation in ratemaking so as to stimulate carrier initiative toward developing and making their inherent advantages more readily available to the public. Low cost to the user of transportation services and the consumer is one of the more important inherent advantages.

All types of carriers, motor, rail, and water, do not require and should not rely on regulatory rate umbrellas to compete in the modern day transport system. Each performs distinct transportation functions which are geared to the needs of various types of traffic and users and which should not require regulatory props from the Government. Within the minimum and maximum rate limits proposed by the Committee, every regulated carrier would have reasonable opportunity to quote rates which will attract traffic that can use its facilities advantageously. To deny this opportunity creates a policy of preference for carriers having service advantages who at equal rates would have a near monopoly of the traffic.

The real objective of placing greater emphasis on competitive factors in ratemaking is more equitable distribution of traffic among competing carriers in accordance with their economic capabilities and the attainment of the lowest cost transportation system consistent with the public's requirements for service. It is contrary to sound public policy to deny shippers the benefits available through both inherent cost and service advantages of every mode of transport. Carriers with cost advantages should be permitted to offer service at competitive rates which do not unjustly discriminate against other patrons of the carrier or fall below the recommended lower limit of reasonableness. Other forms of transportation characterized by distinctive service advantages, such as rapid delivery, door-to-door handling, and low cost on shorter haul or small volume traffic, may capitalize on their superior services which should be expected to command a rate premium. Under the committee's recommendations, carriers could better reflect differences in service quality in their rates, and the public could purchase service at a price more in keeping with the quality it desires. Mr. McDonald inaccurately implies that motor carriers have no noncompetitive traffic. Trucks have great inherent service and cost advantages in short-haul traffic extending sometimes to intermediate distances and the range of such advantages has been lengthening. Truck flexibility is of great value where the shipping or receiving point is located away from rail or water facilities—a situation becoming more common today with improved highways, business decentralization, and service requiring split deliveries. In addition, for certain types of commodities, such as perishables, service considerations far outweigh rate considerations.

The ICC has been policing competitive ratemaking for many years and would continue to do so under the proposed changes. The changes simply provide for greater and, in the committee's opinion, more equitable latitude for all types of common carriers to adjust rates within reasonable limits. Such rate flexibility, under regulatory supervision and within reasonable bounds, should not result in the railroads or any other one form of transportation eliminating all others. On the contrary, public interest in maximum utility of transportation resources is served better by a policy which encourages the market to determine the appropriate use of each form in accord with shippers' judgments of carrier fitness in terms of both cost and service. Where the emphasis in rate reduction is put upon the development of cost reduction, the spur to efficiency should be considerably enhanced.

Turning now to the question of uniformity in rates, it seems well settled that a main purpose of the Interstate Commerce Act was to remedy the abuses and evils incident to the near monopoly position of the railroads. Supreme Court Justice White stated in New York, New Haven and Hartford Railroad Company V. Interstate Commerce Commission (200 U. S. 361, 391, (1906)):

"It cannot be challenged that the great purpose of the act to regulate commerce, whilst seeking to prevent unjust and unreasonable rates, was to secure equality of rates as to all and to destroy favoritism, these last being accomplished by requiring the publication of tariffs and by prohibiting secret departures from such tariffs, and forbidding rebates, preferences and all other forms of undue discrimination." [Italic supplied.]

Thus, personal discrimination of the kind resorted to by railroads in the preregulation era and which Mr. McDonald seems to fear will again oppress the shipping public has been banned for nearly 70 years. The advisory committee's report recommends no change in these controls; in fact, it actually tightens them by redefining private and contract carriage, by subjecting contract carriers to publication of actual rates, and by removing the dry-bulk commodity exemption for water carriers.

No one would dispute that shippers and travelers are entitled to uniformity in rate treatment. That is the rule for all common carriers under the common law and regulatory statutes. But uniformity in rate treatment does not imply uniform rates for all. What is required when unequal rates are quoted is that dissimilarity in rates cannot exceed dissimilarity in the conditions and circumstances surrounding the movements in question. In other words, discrimination is not unlawful unless it is unjust. In this accepted sense, if a rate does no more than reflect differences, there is no discrimination at all, as there is when it fails adequately to reflect these differences. This concept is fundamental and is found in all rate structures.

Rate uniformity as between competing carriers of different types does not exist today. For example, in some instances, truck rates are established and maintained at a point above rail rates where service considerations slightly overbalance the higher rates. Again, water carrier rates are frequently set below those of land carriers by an amount believed to compensate for service disadvantages. If. however, shippers attach value to superior service, they presumably would be willing to pay for it. Opportunity for carriers to adjust rates more closely to costs will afford shippers this election, and provide a test of the value assigned to the service.

Reasonably, if uniformity of rates were to be compelled by regulation, then niformity of service should likewise be compelled in fairness to the various types of carriers. Neither, however, is desirable under our modern dynamic transport system.

In many instances service competition cannot exist unless there is also rate competition. Very often, the dissimilarity of operating conditions, economic characteristics, and physical properties makes it impossible for carriers of different modes to compete servicewise, or if possible, only with substantial increases in cost which would likely make the service unprofitable. Carriers offering suitable and efficient though less complete services should not be prevented from adjusting their rates, within reasonable limits, to the extent necessary to meet shippers' requirements for quality and price of service. To operate effectively, a carrier irrespective of mode must reach traffic which can advantageously use its service, even though its service may differ in quality from that offered by another type of carrier. Fair opportunity to do so within lawful mits would provide added incentive for improving efficiency and service. There is an appropriate place in the transportation system for adequate lower cost services if efficiently performed. All forms of transport, including the railroads, have made and should continue their efforts to improve their services, but not in a way that perverts their inherent characteristics in order to approximate the characteristics of quite different types of carriers.

On page 5 of his statement Mr. McDonald opposes “weakening” or “dispensing with the ICC minimum rate power stating that under the Committee's proposal, railroads might be able to stifle truck competition without reducing their rates below out-of-pocket costs.

It should be perfectly clear that the Advisory Committee does not advocate the establishment of rates on any traffic below the directly ascertainable costs of producing the service. It intends that any rates which do not contribute something to overhead would be unlawful. The provisions of the proposed legislation now before the Congress provide that the determination of reasonable

minimum rates should be left to the judgment of the Commission and permits it to give such weight to value of the service as it may deem justifiable and employ such cost standards as it considers appropriate. The bill would not, however, permit the Commission to give consideration to the effect of such rate on the traffic of any other mode of transportation, or the relationship of such rate to the rate of any other mode of transportation, or whether such rate is lower than necessary to meet the competition of any other mode. The Commission would be guided instead by the conditions surrounding transportation by the carrier or carriers that propose the rates.

Under the Committee's recommendations, the regulated trucking industry would have the same opportunity as the railroad and water common carrier industry to adjust rates in respect to shipper demands for service. Where carriers of any mode are willing and capable of providing an acceptable although less complete service at lower rates, the shipping public should not be denied that service merely because a higher cost or superior service carrier wishes to continue under the protection of earlier established rate umbrellas. This situation is just as much an abuse of the shipping public as were monopoly compelled or discriminatory rates in the earlier days.

Carriers such as railroads and water carriers offering mass transportation can usually handle added traffic at relatively lower unit costs. For this reason, fuller utilization of existing facilities made possible by the added traffic, even at lower rates, will always be profitable if the rates more than cover the added costs of providing the service. Any contribution such traffic makes in excess of these costs will reduce the overhead burden that has to be borne by other traffic. It is reasonable to expect that rather than causing an increase in rates on other traffic, this overhead contribution might make decreases possible if overall profits should exceed a reasonable return. As long as unused carrying capacity is available on the railways, highways, or waterways, maximum efficiency and lowest possible transportation costs will not be achieved.

As already indicated, service considerations should attract many shippers to use motor transportation even though the railroads or other carriers established lower rates. Reference has been made also to the substantial development of off rail industry. For example, in less truckload traffic, motor carriers appear to have an advantage in cost over a considerable range of distances even where the comparison is with rail out-of-pocket cost. In addition, in many cases, such as back-haul traffic, the motor-carrier costs are probably so low that the railroads would have difficulty competing on a cost-of-service basis, even if service considerations were disregarded. It is probable also that considerable short-haul rail traffic would be diverted to motor carriers if certain of the rail rates were brought up to the basis proposed. Where unreasonable rate adjustments are made by regulated carriers, recourse to the Interstate Commerce Commission would always be available. It is also of particular importance that the Committee would retain section 3 of the act unimpaired and extends no license to selective rate cutting.

DECEMBER 14, 1955.

EXHIBIT 6 (A)

SUPPLEMENTAL TESTIMONY OF SECRETARY OF COMMERCE WEEKS ON THE ADVISORY COMMITTEE REPORT ON TRANSPORT POLICY BEFORE THE SUBCOMMITTEE OF HOUSE INTERSTATE AND FOREIGN COMMERCE SEPTEMBER 19, 1955

MEMORANDUM ON CHANGES IN MINIMUM-MAXIMUM RATE CONTROLS PROPOSED BY THE PRESIDENTIAL ADVISORY COMMITTEE ON TRANSPORT POLICY AND ORGANIZATION

Until 1920 the only ratemaking powers vested with the Interstate Commerce Commission were the authority to prescribe maximum rates and, in situations where unjust discrimination was shown to exist, to order a carrier to remove the unjust discrimination. The carrier was free to correct the discrimination as it chose providing that the resulting rates were not unreasonably high.

As originally enacted in 1887, the Act To Regulate Commerce did not empower the Commission to prescribe rates. The Commission assumed that it had an implied power to prescribe maximum rates and did so until 1897, but in that year the Supreme Court ruled that the Commission was without power to prescribe rates for the future.' It was not until 1906 that the Congress gave the

1ICO v. Cincinnati, New Orleans & Texas Pacific Railway Co., 167 U. S. 479 (1897).

Commission authority, upon complaint, to prescribe a reasonable maximum rate. This power was to be exercised only when the Commission found the existing charges to be unlawful under the provisions of the act. While prior to this time, the Commission could condemn an unreasonably high rate and award reparations, it could not remedy the situation for the future. After 1906, if upon complaint the Commission found the assailed rate to be unreasonable, it could not only award reparations but could also require that the rate for the future should not exceed a prescribed maximum.

This authority, however, applied only in respect to rates already in effect because the Commission had no authority to entertain the question of the reasonableness of a proposed rate. It was for this reason deemed to be an inadequate remedy for shippers under certain circumstances. Hence, in 1910, Congress granted authority to the Commission to suspend proposals to change rates before they went into effect pending a determination of their lawfulness. As originally enacted, suspension power applied only to proposals for increased rates. Under this provision, a shipper would continue to enjoy the old rate until the Commission had determined whether the proposed rate was lawful, or until the suspension period expired.

At the close of World War I the Congress after taking a new look at railroad regulation introduced several important amendments to the act. The Congress added to the Commission's rate powers by granting authority to prescribe reasonable minimum rates in the place of rates found to be unduly low and authority to prescribe precise rates. The suspension power became available in instances where rates were alleged to be too low as well as where they were alleged to be too high. The later development of a growing competition by other types of transportation was not, however, foreseen in 1920. At that time Congress did not anticipate that suspension power would come to be used principally in respect to reduced rather than increased rates. This has, however, been the history as carriers of one type have sought to prevent carriers of another type from putting reduced rates into effect.

In 1935 motor common carriers in interstate commerce, other than carriers of exempt commodities, were brought under standards and procedures essentially the same as those hitherto aplicable to railroads except that the long-and-shortbaul prohibition was not made applicable to them. In 1940 water common carriers in domestic service, other than exempt carriers, were placed under regulation. In 1942 freight forwarders were brought under control except for application of the long-and-short-haul clause. What is hereinafter said will refer to all common carriers subject to the Commission's ratemaking jurisdiction.

Carriers are required by the act as it now stands, as at common law, to establish just and reasonable rates. Carriers also are required to initiate rates. They do this by publishing a new tariff to take effect in the place of an existing tariff, or by publishing a supplement to an existing tariff which cancels portions of the old tariff and substitutes changes in the rates, rules, or regulations. These tariffs are published and filed in accordance with the provisions of the tariff circulars which the Commission has issued. Except upon special permission from the Commission carriers may not place rates into effect in less than 30 days after the date of filing and of posting in the public tariff files, which they are required to maintain. Literally thousands of new or changed rates are so initiated and become applicable without protest or suspension and investigation by the Commission.

Any tariffs issued, however, are subject to suspension upon the Commission's own motion or upon protest by shippers or by carriers. Ordinarily, the Commission does not endeavor to check new tariff filings except for conformance with the requirements of its tariff circulars. It generally relies upon protest to call to its attention changes in rates, rules, or regulations which might be unlawful under the act. In the presence of substantial protest, it normally suspends for investigation and in the meantime the old tariff remains in effect. The Commission may, without any findings as to what would be a lawful rate, prevent carriers from putting the proposed rates into effect by simply finding them unlawful in some respect and requiring the offending tariff to be withdrawn. As a result the old tariff remains in force until the carrier finds some proposal which the Commission will consider to be lawful and which it will allow to go into effect. In other instances the Commission may find the proposed rates lawful or may prescribe what will be lawful rates for the future.

Apart from carriers' proposals for new or changed rates, any party properly entitled to complain may lodge a complaint with the Commission against any existing tariff rate, charge, classification or rule or regulation alleging the specific ways in which he believes the charge in question is unlawful. Such a complaint will normally determine the character of the action which the Commission will consider. The complaint may allege that the rate is so high as to be in excess of a reasonable maximum rate by a specified amount. If the Commission finds that the complaint has merit, it may in such an instance prescribe a reasonable maximum rate for the future and, on occasion, for the past as well in order to permit the shipper to pray for reparations. Again, the complainant may allege that the rate creates an undue preference and an undue prejudice. If the Commission finds such prejudice and preference to exist it may require the carrier to remove it. Or again, the complainant may allege that the rate is below a reasonable minimum level and pray the Commission to prescribe a reasonable minimum rate at some higher level specified in the complaint. If the Commission finds such a complaint to have merit, it will normally prescribe a just and reasonable minimum rate for the future.

The Commission does not ordinarily prescribe precise rates although its actions not infrequently have that effect. When, for example, the Commission considers proposed rate changes which are under suspension, and finds them unlawful, its action approximates the fixing of precise rates by indefinitely keeping the existing rates in force. When also, as section 13 (4) authorizes, the Commission requires intrastate rates to be raised to the current interstate level to remove any undue preference or prejudice against interstate commerce, it is in effect fixing precise rates. Likewise, when the Commission finds that the rates of one type of carrier should be related to the rates of another by a fixed differential expressed in cents per 100 pounds, it is in effect prescribing a precise rate.

The position is one where the Commission can, and frequently does, require carriers to keep in force or to place in effect rates which lie somewhere within what the court has normally construed to be the zone of reasonableness. In other words, these rates are neither reasonable mi..imum rates or reasonable maximum rates, but lie somewhere between.

It should be understood that the Commission considers the lawfulness of only a small portion of the rates that are proposed by carriers and embraced in tariffs which are lawfully published and filed. The Commission does not fix rates of any kind except when it has occasion to investigate the lawfulness of the rates initiated by the carrier. When it does have occasion to prescribe reasonable minimum or reasonable maximum rates, or for any reason precise rates, the resulting rates apply only to the traffic for which they were prescribed. While prescribed rates have some value as evidence in cases involving other rates, they are not definite guideposts either as to what constitutes reasonable maximum or reasonable minimum rates in conditions other than those to which they specifically apply.

A very considerable portion of the rates in existence are not rates which have ever been prescribed by the Commission nor are they rates applying on traffic for which the Commission had prescribed either maximum or the minimum rates at some time in the past. Furthermore, the Commission normally is called upon only to fix either a minimum or a maximum rate depending upon the circumstances surrounding the issues which are brought before it. The occasion would hardly arise where the Commission would prescribe both reasonable minimum and reasonable maximum rates applying to the same traffic. Since the maximum-rate law has been much more frequently exercised than the minimum-rate power, much more of the rate structure is controlled by outstanding orders fixing reasonable maximum rates than orders fixing minimum rates. The ability of the Commission to require the cancellation of tariffs in suspension and investigation cases frequently makes unnecessary the prescription of minimum rates, although the carrier is nonetheless prevented from putting reductions into effect.

It occasionally happens, of course, that traffic for which the Commission at some time in the past has prescribed reasonable maximum rates has for one

2U. S. v. Chicago, M., St. P., and P. R. Co., 294 U. S. 499 (1935).