Is there any reason why that same situation should not apply to the Etor 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 forts 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 provde, 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 1. 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?

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 I can.

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 transportation, 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 hauf 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

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 transportaton 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

Mr. 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 s 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 reguisted, 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.

Mr. HALE. Why do you say that?

Mr. AMES. Because our service is known as an inferior service. We have a slow transit time and we have a very high minimum.

Mr. HALE. You have only the route God gives you and the railroads have the route they made.

Mr. AMES. That is right.

Mr. HALE. But for doing business over the routes on which you and the railroads can compete, you can always charge a lower compensatory rate than the railroads; can you not?

Mr. AMES. We have to charge a lower rate. I don't know how they would figure in the scale of being compensatory. I think our costs are lower, if that is what you mean.

Mr. HALE. What worries you is that the railroad cannot come down to your rate and still charge a compensatory rate. It is just like price cutting-we had this fair-trade legislation in the committee--and the druggists do not like to see price cutting on Dr. Lyons toothpowder, and you do not want to see the railroads price cutting on rates in order to deprive you of your natural advantage. That is what worries you, is it not?

Mr. AMES. Yes, sir.

Mr. HALE. You think under the legislation they can do it and they cannot do it now, is that right?

Mr. AMES. I think they could certainly do it under the proposed legislation, and I would think that the Commission would stop them under the present law. We have a forum to which we can go.

Mr. HALE. At the present time you feel that the Commission can and will protect you, and under H. R. 6141 it will not?

Mr. AMES. Yes.

Mr. HALE. That is the jist of your whole testimony today, is that right?

Mr. AMES. Yes, sir, with the added admonition that you cannot handle the rate situation by isolating your consideration to one commodity. It just cannot be done.

Mr. HALE. There is one other thing.

If you figure the whole transportation service of the Nation as a big, round pie, the railroad slice has been diminishing for a long time, has it not?

Mr. AMES. I could not say about that. Do you mean their share of the total transportation?

Mr. HALE. That is right.

Mr. AMES. I don't know. I have not seen any figures.

Mr. HALE. There is no doubt but that the airplane's share has been increasing by leaps and bounds.

Mr. AMES. Yes. I would say that is right.

Mr. HALE. And the truck share has increased by leaps if not by bounds.

Mr. AMES. Yes, and so has the general pool of traffic.

Mr. HALE. And the water lines have at least maintained their position, percentagewise, have they not?

Mr. AMES. Yes, I think so.

Mr. HALE. I believe that is all.

Mr. HARRIS. Mr. Ames, I did have this other thing I wanted to inquire about.

Have you had occasion to consider H. R. 6208, which the Intertte Commerce Commission recommends?

Mr. AMES. That is the circuity four section bill?

Mr. HARRIS. Yes.

Mr. AMES. Not in the detail I have considered these bills. I have 4 given it any consideration at all as to the detail I have given this oze here.

Mr. HARRIS. You are not in a position to state, then, whether you erpose or support it?

Mr. AMEN. I don't know what it is, really, sir.

Mr. HARRIS. Would you care to look at it and consider it and give the benefit of your views?

Mr. AMES. Do you mean a memorandum on it?

Mr. HARRIS. Yes.

Mr. AMES. Yes, I will be glad to.

Mr. HARRIS. Thank you very much.
We have enjoyed your presentation.
Mr. AMES. Thank you.

Mr. HARRIS. At this point, for the record, I have a communication from Mr. Austin L. Roberts, Jr., general solicitor, National Association of Railroad and Utilities Commissioners, together with a resolution adopted by the association in support of H. R. 6208. It may be received for the record at this point.

Information referred to follows:)

NATIONAL ASSOCIATION OF RAILROAD AND UTILITIES COMMISSIONERS, Washington, D. C., April 18, 1956. HOREN HARRIS,

Chairman, Subcommittee on Transportation and Communication,
Interstate and Foreign Commerce Committee,

House of Representatives, Washington, D. C.

DEAR CHAIRMAN HARRIS: It is noted that hearings will shortly begin before Par subcommittee on H. R. 6141, the so-called omnibus transportation bill. This bill contains a proposed amendment to section 4 of the Interstate ComDerre Act. There has also been introduced in the House, H. R. 6208, which would amend section 4 so as to permit the Interstate Commerce Commission to grast relief from that section insofar as it relates to circuitous railroad routes eting the rates of direct railroad routes.

The National Association of Railroad and Utilities Commissioners has gone o record favoring the enactment of H. R. 6208. To the best of my knowledge there is no opposition to the amendment to section 4 proposed by H. R. 6208. For this reason I write to inquire whether it would be possible to set separate bearings for H. R. 6208 apart from the hearing set for H. R. 6141, or even, in Yew of the noncontroversial nature of the bill, to have it favorably reported without hearing. Attached hereto is a copy of the resolution duly adopted by this association.

Thanking you for your cooperation in this matter, I remain

Sincerely yours,

AUSTIN L. ROBERTS, Jr.,

General Solicitor.

RESOLUTION FAVORING ENACTMENT OF H. R. 6208, 84TH CONGRESS Whereas this association's special committee on tariff simplification, in conJunction with parallel committees representing the National Industrial Traffic League and the railroads of the United States, has made commendable progress -ward simplifying and making tariffs of railroad freight rates more clear, definite, and uniform ; and

Whereas, as the work of the association's committee progressed, it became Increasingly apparent that the program's major progress was being obstructed by the administration of section 4 of the Interstate Commerce Act, as it relates