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We always felt in connection with carload rates that first we had to have a differential under rail or we wouldn't get any of them. We always felt that we should absorb that difference, that we should not ask the rail carriers to do it. We always felt that we should give the rail carriers the same division out of a joint rate with us that they would get if they interchanged with a railroad. We always felt that we had to give the shipping public a differential. If we couldn't do that, we agreed that we were an uneconomic system of transportation and should get out of it.

We did get out of it in 1947.

Mr. DOLLIVER. Let me call your attention to one final matter.

In the conclusion of your statement on page 33, beginning at the bottom of page 32, and I am reading from your paper, you say:

In the face of such circumstances and in the light of the fact that water carriers would not handle a pound of traffic unless their charges are below those for rail carriage, it is perfectly obvious that the "ratemaking initiative" bestowed upon the water carriers is an empty term. Moreover, they cannot walk into the Commission and get a 6-percent increase or any other increase in revenue unless the rail carriers go along with them and ask for the same increase.

I am puzzled as to why you make that statement.

Mr. AMES. Yes, sir. I think I can explain that to you, sir. Let us assume that the rail rate is $1 a ton and ours is 80 cents. We would get no business at all if we made ours a dollar.

Mr. DOLLIVER. Why do you say that?

Mr. AMES. Because no shipper in his right mind would use a barge for 500 tons of freight if he could get the same rate from the railroad. It is not in the cards. Could you picture yourselves as shippers going to the trouble and getting 500 tons of freight together and handling it by barge for that slow service? It never has happened and never will happen.

Mr. DOLLIVER. Then actually the only advantage the barge line would have, as far as the transfer of goods from one place to another, is the low rate which you are able to charge for your services.

Mr. AMES. If it weren't for that, sir, we would not be in the business. No shipper would even look at us. We would not even solicit his freight unless we could offer him a substantial saving under what he would have to pay the rail carrier. That is axiomatic.

Mr. DOLLIVER. In other words, your statement where you say you cannot get an increase is based wholly on the economic rather than the legal situation.

Mr. AMES. That is right. Technically we could go in and ask for it but where would it get us? If we went in and asked for a dollar and they did not go in and ask for $1.20, we would lose the traffic. It is one of those damnum adsque injuria. We have a remedy, but it does not do us any good.

Mr. DOLLIVER. Thank you, Mr. Chairman.
Mr. HARRIS. Mr. Mack?

Mr. MACK. No questions.

That is all.

Mr. HARRIS. Mr. Ames, you have been in this business for a long time and you have had a lot of experience with the Interstate Commerce Act. You have referred to the act of 1920, in which substantial amendment was made to the Interstate Commerce Act, and you have described the advantages that came from the amendments in the 1920 act.

What was it that happened after that time that made it necessary for the Congress to change the law which became the Transportation Act of 1940?

Mr. AMES. Well, there was great agitation on the part of the railroad industry particularly, and I think they were justified in it. They said that as long as the railroad industry is regulated we should regulate the water-carrier industry.

That was the chief motivation for the regulation.

When the S. 2009 was first sent to Senator Wheeler, it was, in effect, a codification of existing law, but in addition bringing in the watercarrier industry under a complete regulation. As a water carrier, and we were alone in that respect, we came down here and supported regulation on the ground that I mentioned in my testimony, because we thought it was only fair that if the Commission had before it a competitive rate situation, it should have power over both rates, not just

one.

Mr. HARRIS. Water carriers were not regulated in any event until 1940, were they?

Mr. AMES. We were given regulation in what you might call a second-hand way. If we had joint rates and through the arrangements with rail carriers, we were under regulation. But without the joint rates, we were without regulation. The Dennison Act did that. Mr. HARRIS. When was the Dennison Act?

Mr. AMES. No, I am mistaken about that. The Dennison Act did not do that. The Dennison Act came later. But section 1, I believe, was the same in 1887, and it gives the Commission jurisdiction over common arrangements with rail and water carriers for the through handling of traffic.

Mr. HARRIS. But what was the underlying principle behind the amendments, both in 1920 and then again in 1940?

Mr. AMES. In my judgment, it would be because the Commission could more effectively regulate the competition, having both types of carriage before it, could do a better job of regulation. That would be my idea of the chief motivation.

Mr. HARRIS. I am beginning to get the impression thus far from the hearings that those in the industry indicate that the reason for the Interstate Commerce Act was to protect a mode of transportation. I am just wondering if the Congress did not have in mind serving the public interest at the same time and trying to set up a provision where one mode of transportation might be permitted to stay in business.

Mr. AMES. Of course Congress had in mind the public interest. Otherwise, it never would have regualted the carriers. But I think Congress had in mind protecting all modes of transportation.

Mr. HARRIS. I fully realize the importance of maintaining a sound transportation system. All modes of transportation are a part of it, and the public is protected as long as we maintain that. But as the hearings apparently are developing, as I see it, and I hope that I can get a little different slant on it as we proceed-the advocates proposing these changes, and giving their reasons for it, and those opposing the changes and giving their reasons for it, are basing it all on the question of who is going to get the greatest advantage, or who is going to be put to the greatest disadvantage as competing for the traffic.

Mr. AMES. I think the rail carriers hope to secure from this legislation a greater freedom in competition and a minimizing of the Commission's power over that competition.

Mr. HARRIS. Could you say on the other hand that the water carriers are trying to prevent them from obtaining that in order that they could get the greatest possible advantage out of it?

Mr. AMES. The only thing the water carriers are asking is to continue the present protection of the Interstate Commerce Commission over competition. That is all we are asking. We are not saying we have been badly treated by the Commission or the public either.

Mr. HARRIS. That may be true. I fully realize that.

Then you disagree with my contention that under the present law any mode of transportation is at a disadvantage over another mode of transportation?

Mr. AMES. Do I feel that any mode of transportation is at a disadvantage over any other mode?

Mr. HARRIS. Yes.

Mr. AMES. Under the present law, I would say that they are all equally taken care of. Under this proposed law, I don't know what will happen.

Mr. HARRIS. In other words, under present law and administration by the Interstate Commerce Commission under this law, with its rules and regulations, you say that no mode of transportation has any advantage over any other mode of transportation?

Mr. AMES. Or disadvantage.

Mr. HARRIS. Or disadvantage.

Mr. AMES. Well, the only advantage that the railroad industry has over us is that it is so much bigger, and, as I said in my testimony twice, I believe, they can go into the Commission and get these general increases where we cannot. In other words, we just cannot cope with that. If it becomes destructive or relentless we have no means of coping with it at all. We do not have the war chest, we do not have the surplus. In short, we don't have the money. I read the other day where Mr. Robert Young suggested that the railroad industry spend $100 million just to acquaint the public with their troubles. We don't have that kind of money. With $100 million you could buy all the water carriers, I think.

Mr. HARRIS. In other words, he indicated he is willing to put up quite a little chest to admit they have troubles.

Mr. AMES. I do not think they have troubles. Under the present law I do not think they do. We know we would have a lot of trouble under the new law, and I don't think they would have any.

Mr. HARRIS. Ninety percent of the traffic by water is unregulated, is it not?

Mr. AMES. That figure could be deceptive. That 90 percent includes private transportation. Take the United States Steel hauling their own coal, or Pittsburgh Consolidated hauling their own coal, all of that is included in the big package of 90 percent, which you could not touch anyhow.

I do not like to have the committee feel that we are here talking about any 10-percent deal. The 10 percent, or anything that is left to the water carriers after this private carriage comes out, is an important item of traffic, and we should not look upon it as any 10-percent deal. Mr. HARRIS. I can appreciate that.

Mr. AMES. That is important. That is our lifeblood.

Mr. HARRIS. I certainly have that in mind as we are considering this

matter.

Under the present transportation policy, and I do not have the language before me right now, it is stated that the act shall be administered that all modes of transportation should be protected, that there should not be any discrimination permitted.

Some have indicated that the policy of the Commission as it has been administering the act, is toward the rule that even if you have a transportation system of a particular kind that must have a high rate in order for it to remain in business and serve the public, it will prevent another type or kind of transportation from giving a reduced rate even if it can do it on a fully compensatory basis.

Do you agree with that?

Mr. AMES. That is the Ma Kennedy question, and it is a fair question.

I think you are entitled to a fair answer.

I took the trouble to write out and answer last night. I do not want to overlook any detail of it.

Mr. HARRIS. I am glad you finally talked me into it since you have prepared your answer.

Mr. AMES. It is not as simple as you might think.

The point, as I understand it, is that if a railroad can reduce the rate on any given commodity below its present charge and still come out whole on fully distributed costs, it is a same and a crime not to allow that railroad to do that.

Mr. HARRIS. If you want to frame the question in your way, that is perfectly all right with me, so that I get the point.

Mr. AMES. Do you agree with mine? I agreed with yours. Do you agree that I have stated it properly?

Mr. HARRIS. No, I do not. I did not say anything about it being a shame and a crime.

Mr. AMES. We will delete those words.

Mr. HARRIS. I am trying to talk about what would be a sound approach and what is mean by a particular type of policy, where language is included in that policy in a effort to finally get to a resolution as to whether or not it has accomplished the objective it sought to accomplish in 1940, or have the years that have elapsed proven that it was something different insofar as the general public is concerned.

Mr. AMES. Well, as I say, your question is a fair question and it is entitled to an answer. It can't be too much simplified, but I will try to answer it.

We start with the proposition that you have two competing carriers, rail and water, both of which are charging their normal rate on a particular commodity as to which they are in competition with each other. That is your starting premise.

In such circumstances, the rail rate is always higher than the water rate because, as I have explained, the water route would not participate without that difference.

This normal rate that the rail carriers are charging is not an excessive or unreasonable rate. It simply cannot fall in that category because it is part of a rate structure under which the rail carriers have

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found it necessary to go to the Commission 10 or 12 times since the war and ask for authority to increase.

The rail carrier feels that it is not getting what it deems a fair share of the traffic in respect to the select commodity, so it reduces its rate to the same level as the water carrier's rate, and still is over its fully distributed costs.

The water carrier knows, the Commission knows, everyone knows, that that state of affairs cannot last. Either the water carrier must reduce its rate to a level lower than the rail rate or retire from the business. Under the transportation policy as it now exists, the Commission steps in, as it should, and puts a stop to this competitive whipsaw before it starts. In other words, it forestalls a downward spiraling of rates before it starts so that rates will not gravitate to the bottommost level of reasonableness.

I have shown you where the Supreme Court has upheld that policy. That is the Scandrett case.

In these competitive struggles the Commission must choose whether it is going to preserve a rate structure which permits carriers of all kinds to maintain sound economic conditions, or whether it should stand by and witness a cat and dog competitive battle which, in the end, will break down at least one, if not both, of the participants.

It has ably expressed its reason for choosing the first alternative in the Coke case, which I read to you. It is a good policy, and under it both carriers are maintained in a healthy condition. It is a policy which the Commission has used for years in preventing destructive competition within the railroad industry.

A case in point is the Salt cases of 1923 (6 F. (2d) 315). That is why I think the Commission steps in and stops this downward spiraling of rates which you would be bound to have if the Commission did not step in.

You have a situation here now. It is so current it just came out in the newspapers a day or two ago. You have in effect what we call a port relationship of North Atlantic ports, under which Baltimore has a differential under Boston, say. The carriers serving Boston are not satisfied with Boston's participation in export and import business, so they are proposing to reduce it to the level of the Baltimore rate. The Baltimore carriers are going in and reducing that rate to Baltimore, thus recreating the differential.

Is that good ratemaking to stand idly by and watch that go?

I will say this about Ma Kennedy. Put Ma Kennedy out in Topeka, Kans., and ask to buy some sugar from Colorado, and see what Topeka pays against St. Louis. That is the way to test the Ma Kennedy situation. We have been reading Ma Kennedy in all the magazines for 2 or 3 months. We get it in our annual reports from the railroad companies.

Mr. HARRIS. Tell some of us who Ma Kennedy is.

Mr. AMES. Ma Kennedy. She bought 5 pounds of sugar in St. Louis, and the Commission will not let her reduce the rate. You have seen Ma Kennedy in the magazines.

Mr. HARRIS. Probably so.

Mr. AMES. I have here, Mr. Chairman, something that I think would be interesting to you, and it comes from the grassroots.

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