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So, when it is stated that merely the railroads are asking for the regulation proposed, I think it is plainly apparent that that is erroneous. I will quote the testimony of Mr. Ames, of the Mississippi Valley Barge Line
And on behalf of that company I desire to go on record as saying that we are not opposed to regulation; in fact, we favor regulation which will bear equally and protect equally all forms of transpotration. We do not favor the regulation of water carries for the benefit of rail carriers, or vice versa, but we do favor reasonable regulation,
I would like also to point out to the committee that the lack of regulation of & water line has not the benefit that some people advocate for it, but in many respeets it is a disinct handicap. Let us assume that the rail carriers reduce a rate which is competitive with the water carrier; the water carrier appears before the regulatory body, protesting that reduction and the water carrier itself is not regulated. There is a tendency on the part of the regulatory body, and I think it is a pardonable and justifiable tendency, to say, “Why should we prevent the rail carrier from reducing its rate when we cannot prevent you?”
The Mississippi Valley Co. felt then, as all of us feel now, that when the Commission is called upon to act as arbiter in a rate dispute between competitive forms of transportation it should have regulatory power over the rates of both types. But we also felt then, as we do now,
that the act should be so written and administered as to give equal protection to both types of transportation. If the bills before you, or any of them, should be enacted into law our hopes for regulation would be shattered, and the fears of those who opposed regulation in 1940 would be fully realized.
I know that your committee is told from time to time the effect of bills might be the defeat of certain things, and I know perhaps you get tired of hearing that. But, so far as the inland water transportation is concerned the rail carriers completely dried up the rivers prior to World War I, and it took intercession and subsidy on the part of the Federal Government to revive it. To establish my point I need go no further than to quote to you from a concurring expression by Commissioner Eastman written by him in 1933, in a case involving rail and water competition-Petroleum From New Orleans (194 I. C. C. 31) wherein he said:
This promises to be the begininng of a return to a policy of railroad ratemaking which existed for many years and reached its fullest development in the southeastern portion of the country. That section forms a peninsula surrounded by the navigable waters of the Atlantic Ocean, the Gulf of Mexico, the Mississippi River, and the Ohio River and penetrated by many other navigable streams. The railroads in their early years encountered stiff competition from many steamboat lines plying upon these waters, and they proceeded to meet this competition ruthlessly. Eventually they swept the waters clean of the competing craft, except on the ocean and the gulf, and even there the competition was greatly weakened.
This was done by cutting rates where the competitors existed, to whatever extent was necessary to paralyze it, at the same time maintaining rates at a very high level elsewhere. The steamboats did not have this reservoir of noncompetitive traffic to help them out, and hence perished in the unequal struggle. Some large interior cities which did not have water competition were able to utilize the competition of the railroads with each other to break down their rates in somewhat the same manner, but interior points which had little or no competition of any character were out of luck. Their rates were on what the railroads called a “normal level,” which was preposterously high. All this made, of course, for a very uneven development of the country and it was one of the main factors which precipitated the creation of this Commission in 1887.
The theory on which the railroads drove out water competition by these low rates was a simple, but, as I see it, dangerous theory. They argued that their trains would run anyway, that the added expense of taking on more traffic would be comparatively little, and that if they could get water-cofpetitive traffic at some margin over this “added" or "out of pocket" expense, it would help them just that much. The danger in this theory is twofold. In the first place, the railroads have always had very imperfect knowledge of this "added” expense, and in the old days it was more of theory than anything else. They went out frankly to cut the throats of their water competitors and made the rates whatever was necessary for this purpose. In the second place, the theory places the chief burden of sustaining the profits and credit of the railroads upon the noncompetitive traffic, and this burden is likely to increase progressively. Commerce and industry tend to center at the favored competitive points, and their traffic tends to increase while that at the "normal rate" points tends to decrease. Gradually the traffio moving on the low rates ceases to be mere added traffic and the out-of-pocket expense swells in volume. So does the burden upon the noncompetitive traffic.
The danger of following this theory under present conditions is obviously much greater than it was in the old days, for the trucks, pipelines, and electric transmission lines have greatly curtailed the amount of strictly noncompetitive traffic.
After the railroads swept the inland waterways practically clean of competing traffic two influences set in. One was a public demand upon Congress for appropriations for the improvement of waterways, so that they could handle traffic more cheaply and efficiently. The other was a gradual revision of the railroad rate structure to a so-called "dry-land” basis, owing to the absence of water competition which could be used to justify fourth section relief. These two influences have brought a return to the water competition, which had dis appeared, and it is progressively increasing.
This return of competition has so alarmed the railroads that they are clearly about ready to go back to the old policy of rate cutting, and have already made several moves in this direction, of which that which is here under consideration is one.
If they continue with this policy unchecked, I have little doubt that they will eventually cripple their water competitors as they were crippled in days gone by.
Out of an experience of more than 25 years in the litigation of cases of this character I say to you that if the ratemaking rules which are in these bills are enacted, history will repeat itself as surely as night follows day. Right at this moment the rail carriers in at least four cases are proposing rail rates which equal cent for cent the overall costs incident to transportation in bargeloads in quantities of 500 tons, between the same points. No shipper in his right mind would go to the expense of getting together a shipping unit of 500 tons and utilize the slow and inferior barge service, if he could secure rai] service, in carloads, at the same cost.
Now, if I could refer to what has happened before, I think I can tell you. We were regulated in 1940. The war came on in 1941 and kept everybody busy until late 1945, and the railroads had all of the traffic they could handle. After the war there were postwar adjustments, but the time has come now when they have really gone to work and there are at least half a dozen major cases now pending before the Commission in which they seek to do exactly the things that Commissioner Eastman said they did.
Generally speaking, we believe that the present act, properly administered, has proved to be a workable act in most respects and has provided fair treatment to all types of carriers, including the railroads, insofar as the interplay of competition is concerned. We are in complete accord with the statements at page 7 of the letter of Commission accompanying its report on S. 1920 addressed to Senator Magnuson, under date of December 22, 1955, which read:
It seems appropriate to emphasize what we have already suggested, that in the main the indicated objectives of the Advisory Committee may be effectuated within the framework of the present statutes. The dominant effect of the proposed legislation would be to permit all rates to gravitate to the bare compensa. tory level. In administering the present act this Commission has encouraged
healthy competition between different transportation agencies and between competing carriers in the same agency. [Emphasis mine.
In the following discussion I shall consider the changes proposed in the transportation policy; the fourth section; the suspension process, and in ratemaking provisions of the bill.
THE NATIONAL TRANSPORTATION POLICY
Apart from the plain purpose of the restated transportation policy to
(a) give carriers more freedom than they now have to cut competitive rates, and
(6) reduce materially the power of the Commission to deal
with such reductions, there is not a single objective in the restatement of the revised policy running directly to the broad interests of the public and the national defense which could not be achieved under the present policy.
One very significant deletion made in the proposed new policy is the elimination of the inhibition against "unfair or destructive competitive practices.” As a substitute for that salutary prohibition we are deluged with such high-sounding expressions as "dynamic competition," "new rate and service techniques," "technical innovations, all to the alleged end of reflecting“full competitive economic capabilities.'
The water carrier industry is neither deceived nor comforted by this grandoise language. As I have pointed out, as fast as they can get around to it, the rail carriers are endeavoring to put their carload rates on an exact parity with our bargeload rates. There is no doubt in our minds that the expression “full competitive economic capabilities” in the eyes of our railroad friends will be translated into rates which will divert all of the traffic now handled by the barge lines to their service.
At pages 3 and 4 of its above cited report in S. 1920 the Commission has noted the procedural and administrative difficulties entailed when expressions of this character are embodied in a statute and has urged extreme cautiton in any amendment of the policy.
In other words, the Commission is asking the very fair question, what is "dynamic competition?"
THE FOURTH SECTION--LONG AND SHORT HAUL CLAUSE
I come to the fourth section, the long and short haul clause.
Since the original passage of the Act To Regulate Commerce in 1887, Congress has made it unlawful for a carrier to charge a higher rate to a nearer than to a farther distant point over the same route in the same direction. Without more, the prohibititon would be absolute. However, the statute has always contained a proviso under which the Commission may in special cases, after investigation, grant authority to depart from the otherwise rigid terms of the statute.
Section 4, as it is now carried in the act, has always acted as a deterrent against destructive competitive practices at terminal points and as a protection against the imposition of higher rates at intermediate points not directly affected by water competition.
All previous efforts to repeal this section of the statute—and I may say they have all come from the railroads—or to render it innocuous have been rejected by Congress. Indeed, in 1920 Congress amended the section in several respects, the most important of which was the provision that theCommission shall not permit the establishment of any charge to or from the more distant point that is not reasonably compensatory for the service performed. This amendment to the fourth section was made concurrently with others, including the power to prescribe minimum rates, at the time the railroads were returned to private control, all of which amendments were designed to tighten up the act and give the Commission added power over practices theretofore beyond its control. The changes made by the 1920 act were summed up by Mr. Chief Justice Taft in Dayton-Goose Creek R. Co. v. United States (263 U. S. 456, at 478), as follows:
The new act seeks affirmatively to build up a system of railways prepared to handle promptly all the interstate traffic of the country. It aims to give the owners of the railways an opportunity to earn enough to maintain their properties and equipment in such a state of efficiency that they can carry well this burden. To achieve this purpose, it puts the railroad system of the country more completely than ever under the fostering guardianship and control of the Commission, which is to supervise their issue of securities, their car supply and distribution, their joint use of terminals, their construction of new lines, their abandonment of old lines, and by a proper division of joint rates, and by fixing adequate rates for interstate commerce, and, in case of discrimination, for intrastate commerce, to secure a fair return upon the properties of the carriers engaged.
I ask Your Honors to square, if you can, that fostering guardianship and control which you bestowed upon the Commission in 1920, with the emasculation of the powers of the Commission proposed in these bills.
The Commission was very quickly called upon to interpret and apply the “reasonably compensatory” rule in a major proceeding involving a request for fourth-section relief, entitled "Transcontinental Cases of 1922" (74 I. C. C. 48). After setting forth that in its judgment the 1920 amendment was Congress' way of stating that the Commission should be less liberal than it had been in granting relief under the section, it went on to set forth what in the future it would consider to be a "reasonably compensatory” rate, and I ask you carefully to note this:
Such a ratesaid the Commissionmust (1) cover and more than cover the extra or additional expenses incurred in handling the traffic to which it applies; (2) be no lower than necessary to meet existing competition; (3) not be so low as to threaten the extinction of legitimate competition by water carriers; and (4) not impose an undue burden on other traffic or jeopardize the appropriate return on the value of carrier property generally, as contemplated in section 15a of the act. It may be added that rates of this character ought, wherever possible, to bear some relation to the value of the commodity carried and the value of the service rendered in connection therewith. We also find that where carriers apply for relief from the long, and short-haul clause of the fourth section and propose the application of rates which they designate as “reasonably compensatory," they should affirmatively show that the rates proposed conform to the criteria indicated above. It goes without saying that carriers should not propose rates or rate structures for approval in a fourth-section application which create
infractions of other provisions of the Interstate Commerce Act, and particularly of section 3.
It is those elements of a "reasonably compensatory” rate which relate to water competition which are so gălling to the railroads. As I have stated, they are now embarked upon a definite policy of reducing their carload rates to the level of overall charges of bargeload traffic. Since a barge line cannot hope to participate in competitive traffic unless its charges are substantially below those of rail carriers, it follows that rail rates on a parity with ours are not only lower than necessary to meet our competition, but are also so low as to threaten the extinction of water competition.
So long as the fourth section remains as it is, and so long as the principle
enunciated in Transcontinental cases of 1922, supra, remains in force, the water carriers have a measure of protection against destructively competitive rates. As a matter of fact, the Commission ordinarily requires that rail rates be made differentially higher than overall barge rates. (See Pig Iron From New York Points and Detroit, 296 I. C. C. 747; Sugar, Atlantic and Gulf Ports to Ohio River Crossings, 296 I.C.C. 127.)
Under the fourth section as it is here proposed, these safeguards would be lost. While the opening sentence of the new section would contain an absolute prohibition, the exception would no longer be left to the discretion of the Commission in “special cases after investigation” as it is now. The career would determine in the first instance whether there is "actual competition of another carrier or carriers" and whether the rate it establishes is not less than a just and reasonable minimum charge.” For all practical purposes administration of the long- and short-haul clause would pass from the Commission to the carriers.
What would be the remedy of the water carrier if the railroads did publish a rate lower than necessary to meet competition or lower than a just and reasonable minimum charge? Certainly it would not be found in the right to protest and request suspension. Under the changes proposed in the suspension provisions the Commission would be powerless to suspend the rate longer than 3 months and in that period it would be utterly impossible to make out a case, have a hearing, and secure a decision that a rate, for example, would be less than a reasonable minimum rate. The fact that the differences between the existing rate and the proposed rate could be impounded would serve no useful purpose to the water carrier because even if it succeeded in the final analysis it would have no status to recover the amount impounded, as reparation.
As an added precaution and in order to nail down the inability of anyone to secure relief against any competitive rate proposed, the bili in section 15a (1), which I shall discuss in detail later, provides that in determining whether a rate is unreasonably low the Commission is specifically precluded from considering,
(a) the effect of such charge on the traffic of any other mode of transportation, or
(b) the relation of such charge to the charge of any other mode of transportation, or
(c) whether such charge is lower than necessary to meet the competition of any other mode of transportation.