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It is an editorial from the Argus, published in Rock Island, Ill., and it is entitled "The Penalty of Bigness."

I am quoting from it. The following remark by Commerce Secretary Sinclair Weeks, made at centennial ceremonies for the first railroad bridge at Rock Island, seemed to make a lot of sense:

"If one transportation agency can carry freight at a better rate per ton-mile than another, why should the results not be available to the public who have to pay the bill?

He was speaking in support of a Cabinet recommendation to give carriers greater ratemaking freedom.

Unfortunately, it can't always be that way. The last war demonstrated that the country must have waterway and truck transportation. Regardless of the intention of the railroads, greater competition in ratemaking would give them the power to undercut their small competitors and force them to their knees.

Their very size would permit them to absorb the losses until the elimination of competition enabled the railroads to recoup their losses with something to spare. Then if some great emergency, like war, should put an extra load on our transportation system, it would be wholly inadequate.

While the Quad Cities have gained some benefit from water travel, we don't feel that we are being subsidized. The Midwest watched the building of the Panama Canal to the advantage of eastern and western interests, then the rigging of rail rates so that it was cheaper to ship from one coast to the other than from the Midwest to either coast.

But we know that the Panama Canal was necessary to the national welfare, just as we know today that Mississippi water travel is necessary to round out an adequate national transportation system. We don't want to see any competing systems given the power to wreck it, no matter how sincere its intentions may be.

The railroads, which on the whole have served the Natiop well, will have to go on paying the penalty of size. They can do so with the realization that our growing economy will give them all the business they can bandle.

That is an editorial from the Argus, Rock Island, Ill., dated April 24, 1956.

Mr. HARRIS. You have expounded your own thinking on it, but still you have not answered my question to my satisfaction, I must say in all frankness.

I based the question first on the language in the national transportation policy adopted in 1940, whereby it is stated that all forms of transportation must be maintained—which we all agree with—to encourage the establishment and maintenance of reasonable charges for transportation services—which everybody agrees with, too-withont unjust discrimination, undue preferences, or advantages, or unfair or destructive competitive practices.

The point I raised was: Is that language being construed in the administration of the act to mean that if one mode or carrier could, not by cutthroat practices, not by destructive practices, but by fully allocated cost, compensatory rates, give the public a certain service, would they be prevented from doing that because of its economic effect on some other carrier?

That is the question I asked.
Mr. Ames. Well, I will try to answer it.

If we were dealing with i commodity and 1 isolated piece of transportation, there is no answer to your question. It would put water carriage out of business without a doubt.

Mr. HARRIS. I am not asking you what would be the effect of it, or if it does it may put them out or may not. I am asking you a question as a matter of policy.

Has the Interstate Commerce Commission administered the act where that policy that I-have just stated is carried out?

Mr. Ames. Do you mean preventing somebody from reducing a rate?

Mr. Harris. Where it could give it after it was determined that the cost was fully allocated and compensatory to that carrier.

Mr. AMES. I would say no.

Mr. HARRIS. That is what I am trying to find out, whether or not that had been the truth.

Mr. AMES. No, in my judgment it has not. The Commission has stopped that kind of business, and it has considered not only the compensatory feature of the rate, but it has considered the effect on other commodities and on other carriers, which I think the Commission should do. You cannot handle these cases in a vacuum.

The point I make, Mr. Chairman, is that even though the railroads can come out with a fully compensatory rate, they are reducing a rate from a normal level which can't possibly be regarded as excessive, because under that rate structure they have gone to the Commission 10 times since the war to get an increase.

If you will read that Petroleum case (234 I. C. C.) which I have cited here, and the Coke case, I think you will get the Commission's philosophy. It is not to prevent a rail carrier from making a reduction where a reduction is in order. It is to try to protect the rate structure and the transportation systems as a whole, and I don't think the Commission has ever had any other idea in mind in administering this law.

Mr. HARRIS. Those who prepared this Cabinet Committee report under the direction of the Secretary of Commerce, contend that that is the effect of the administration of the Transportation Act of 1940.

If they are right—and you say they are not-do you then say that that is a good policy?

Mr. AMEs. If they are right in criticizing the Commission ?

Mr. HARRIS. No, if they are right in their contention that the administration of the Transportation Act of 1940 is such that maintains higher rates, and that if a carrier is able and can give a lower rate it cannot do it because of the effect on some other mode of transportation. Then do you say that that is a good policy?

Mr. AMEs. Stated that way, I could not say so.
Mr. HARRIS. Of course not.

Mr. Ames. But as I said a while ago, you cannot handle this situation in a vacuum.

And here is another thing I want to call your attention to: They talk about rates being fully compensatory. How do they know they are fully compensatory? "It is the hardest thing in the world to prove the costs.

Mr. HARRIS. I am getting to that just now.

If you will permit me to ask you a few questions on this so I can get some answers from you, it might help me a little bit.

Mr. AMEs. Surely.

Mr. HARRIS. On page 10 of your statement, you say—and this is in view of our colloquy here, the questions and answers

The rate of the water carrier between its ports must be a complete rate. That is, it must reflect in full the cost of operation, the investment in equipment, taxes, and a profit.



Is there any reason why that same situation should not apply to the motor carriers or the rail carriers or any other carrier?

Mr. AMES. What situation? Do you mean that the water carrier should be permitted to reduce its rate under those conditions ?

Mr. HARRIS. You say that the rate of the water carrier between its ports must be a complete rate, that that rate must reflect these four things that you have said.

Mr. AMEs. That is right.

Mr. HARRIS. I assume you meant by that that it is necessary in order to give it a rate it should have.

Mr. Ames. Yes, sir.

Mr. HARRIS. Should not the same apply to other modes of transportation!

Mr. AMEs. I have no objection to it applying to others. I think it should.

Mr. HARRIS. Then you go right on down and say the water carrier, unlike the rail carrier, has no reservoir of noncompetitive traffic.

By way of contrast, the so-called rates which rail carriers ordinarily propose to meet the rates of the water carriers are not normal rates in any sense of the word.

If they are determined on an entirely different basis, I wish you would explain to us what they are.

Mr. AMES. In that particular passage with which you are dealing now, I was discussing the fourth section of the act. Under the fourth section of the act, the railroads ordinarily apply low rates, say, to St. Louis, and then get relief to apply a higher rate at Topeka, say, on traffic from Colorado.

It was in connection with the fourth section that I made that statement.

Mr. HARRIS. Am I correct, then, in getting from what you have said that your discussion here in giving these illustrations, which have been very good on this whole thing, are based on particular rates or individual rates from one point to another!

Mr. HARRIS. The fourth section is a long-short-haul effect. be based on a particular rate. Otherwise you would have no fourth section situation.

Mr. Harris. The fourth section is a long-short haul effect.
Mr. Ames. That is right. You would have to have a particular
situation there. You could not avoid it.

Mr. HARRIS. What we are trying to consider here is what is the best approach to as sound a transportation policy as the Congress can provide, whether or not the policy of 1940 was the answer to it, or whether or not the contentions made by some that there are discriminations that are existing now, and the public is not being benefited by it.

That is what we are trying to figure out, should there be any changes in the policy.

I doubt if the Congress is capable at all of considering any kind of transportation policy on these individual bases. We have to take it across the board.

Taking it across the board, which you describe so far as the complete rate of the water carrier, based on these four points here, then why could not the same four points determine the rate of a motor carrier or a rail carrier?

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Mr. Ames. They would.

Mr. HARRIS. You say that they are depressed rates, that they need only to cover the “direct ascertainable cost of producing the service."

Mr. Ames. Yes, sir.

That is still speaking, of course, under the fourth section. I was not speaking under the general ratemaking practices.

The fourth section does not come into play until you do depress your rate. By depressing your rate at the terminal points, you have a higher rate at the interior, and that is what Congress prohibited when it passed the act in 1887. But it stated in cases where there is competition at the terminal point which is not in effect at the interior point, you can depress your rate at the terminal point and maintain your higher level in the interior.

That is what I was talking about there. I want to answer you if Mr. HARRIS. I appreciate that.

I know that the policy statement that was referred to goes to the entire provision of the Interstate Commerce Act, all four parts.

Mr. AMES. That is right.

Mr. HARRIS. I have been quite impressed with some of the contentions that have been made here as to the advantages of one kind over another, and particularly in view of the fact that we are seeing the rate structure which the public has to pay going up and up and up.

Someone told me not long ago that since the war, the rates to the public of this country had gone up 80 percent or more. That is a pretty high rate.

Of course, everything else has gone up. Our economy has expanded. But if we are going to maintain, it seems to me, the policy where your rate structures are going up and up all the time, and then have a provision of law administered by the Commission, as it has been contended, that would prevent a carrier, or a mode of transpor, tation, from developing under the ingenuity of good business and good judgment, and of giving the public a lower rate if it can do SO,

without discriminatory practices and throatcutting practices, it seems to me it is not a good policy.

What I want to do is find out whether or not that situation exists today.

Mr. Ames. I do not want to talk too much here, but if you will permit me to just make one observation about the danger of considering this competitive angle from the standpoint of one commodity only and trying to draw a pattern out of it, this is your trouble: The railroads have a general burden of transportation to distribute among the commodities they haul. In other words, they have an overall

total cost of performing what they do. They haul everything from sand and gravel to television sets and valuable things of that kind.

So they have to do what we call in this parlance of ours distribute that transportation burden among commodities.

Obviously, on cost of transporting sand the drawbar pull of the locomotive is no different than when they haul television, so your cost line goes horizontally. But when it comes to distributing the general burden of transportation, they have to assign to pipe, for example, iron and steel pipe, a higher place in that burden than they establish for coal. So in the final analysis you will find that your

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rate on pipe is high in the scale of costs, because it has to make up for the coal which is low in the scale of cost.

If you take that pipe and let the railroads cut that rate just to meet competition, and you do that with all the other commodities as they come up, you are going to have a terrible time with that transportation burden, and that is exactly what Commissioner Eastman said in that concurring expression of his that I read to you. That is the danger, sir, of the Ma Kennedy illustration. They just use the one commodity, sugar.

You will have that and I don't care what you do.

wr. HARRIS. I certainly would not claim to be an expert on ratemaking. I am afraid I would not be very good at that business. It is very highly complicated.

That is the reason that I was hoping that if there is something lacking in our transportation policy today, to continue the sound program of transportation that we have in this country, I do not care whether you call it dynamic or not, we do have one and it is a good one, under our system, a competitive system, where it is regulated, we have to be very careful that we do not let one type destroy another type. It is just as important to one as it is to another.

Certainly it is not to my mind just good sense, where the Congress has appropriated millions and millions of dollars every year to develop waterways and highways in order to help serve the public in our economy that we maintain in this country and at the same time proceed with a regulatory ratemaking process that says you cannot get the advantages of it if it can be offered. That is the thing that bothers me thus far.

I am going to watch it pretty closely as these hearings proceed. I just do not think we can try to promote something for the benefit of the public one way and then say on the other hand that

it has to be administered where they cannot have the advantages of it. Is there anything further? Mr. Hale? Mr. HALE. I want to ask 2 or 3 questions prompted by Mr. Harris. You can carry gasoline in a barge from New Orleans to St. Louis; can you not! Mr. AMEs. Yes, sir. Mr. Hale. We will say that the rate for that carriage is X cents a hundred

gallons, or whatever it may be, and your rate is a purely compensatory rate which means that you charge exactly what your costs may be plus what you deem to be a reasonable profit, a profit which will make the business interesting to you. Mr. AMEs. Yes, sir.

Mr. Hale. The railroads can carry the gasoline from New Orleans to St. Louis, a railroad or a group of railroads, and they make a rate which is purely compensatory. Their rate is always higher than yours, is it not? Mr. AMES. It would have to be, sir, or we would not get the business. Mr. HALE. They are a more expensive form of transportation. Mr. AMEs. More desirable, I would say. Mr. HALE. More what? Mr. AMES. More desirable. They are a superior form compared

with us.

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