section 305 (c). (See proposed sec. 15a (3) at p. 14 of H. R. 6141 and H. R. 6142.)

(c) The proposed withdrawal from the ICC of the power to fix precise rates (as distinguished from reasonable maximum or reasonable minimum rates) as a means of emphasizing the existence of a zone of reasonableness within which, in the absence of discriminatory rate practices, carriers should be free to make competitive rates. (See, for example, the proposed sec. 15 (1) at pp. 8-9 of H. R. 6141 and H. R. 6142.)

(d) The proposed elimination of the present ratemaking rule in section 15a and the substitution of different standards for reasonable maximum rates. (See proposed sec. 15a (2) at p. 14 of H. R. 6141 and H. R. 6142.)

(e) The proposed change in the declaration of national transportation policy which is designed to support the foregoing substantive recommendations of the Cabinet Committee.

In part 2 of this testimony of mine will be considered further specific recommendations of the Cabinet Committee which concern themselves with competitive forces in ratemaking, including:

(a) The recommended changes in the procedure for ICC suspension of proposed rates. (See proposed sec. 15 (7) at pp. 11-13 of H. R. 6141 and H. R. 6142.)

(b) The proposed amendment by which the long-and-short haul clause and the aggregate of intermediate rule of sec. 4 would be modified. (See proposed sec. 4 (1) at pp. 5-6 of H. R. 6141 and H. R. 6142.)

(c) The recommendation as to volume freight rates. (See proposed sec. 15a (4) at p. 15 of H. R. 6141 and H. R. 6142.)

I proceed now to a discussion of the several recommendations which, grouped under part 1 as outlined above, represent the heart of the Cabinet Committee report.

PART 1. MAXIMUM-MINIMUM RATE CONTROL

In its advocacy of "increased reliance on competitive forces in ratemaking" as "the cornerstone of a modernized regulatory program, the basic proposal of the Cabinet Committee is set forth in its report under the title of "Maximum-Minimum Rate Control." This will be considered first in my testimony.

The precise recommendation of the Cabinet Committee is this:

Limit regulatory authority of the Interstate Commerce Commission to determination of reasonable minimum or maximum rates with no change in existing provisions making undue discriminations and preferences unlawful.

The principal target of this recommendation is the ICC's frequent refusal to allow competitive railroad rates to reflect railroad operating conditions and competitive truck rates to reflect truck-operating conditions when such rates are involved in competitive struggles between the two modes. Often does the ICC's use of its power to fix reasonable minimum rates have the result of apportioning available traffic between such forms without regard to their economic capabilities. As explained in the report (at p. 10):

If the market is to determine the appropriate use of each form of transportation in accord with shippers' judgments of the utility to them in terms of

cost and service, rates must be allowed to reflect cost advantages whenever they exist and to their full extent. * * *

In brief, these rate maladjustments, in part enforced by regulation, deprive the public of the economy which would result from a distribution of the traffic in accord with the real capabilities of the several types of carriers just as they deprive the shipper of many valid choices which would be available to him were rate competition more free from restraint as to its character and timing.

Nowadays, when the ICC undertakes, in consequence of the protest of a competing motor or water carrier, to review the proposed competitive rate of a railroad, the question is not usually confined to its reasonableness per se and nondiscriminatory character. On the contrary, an important additional issue to be decided often is, How will the proposed rate affect the competing motor or water carrier? If the proposed rate promises to affect it adversely by attracting more than what the ICC regards as a proper share of the business, it will probably be found unlawful. If on the other hand, the proposed rate promises to retain or regain no more than what the ICC says is a proper share of the business, it will probably be found lawful. Underlying this concept, of course, is the notion that the railroad is not entitled to compete for more than a part of any particular traffic-an idea wholly at odds with freedom on the part of the several forms to base their rates on their operating conditions (as opposed to the operating conditions of some competitive form).

In applying such a test-and the same one is often used when the reduced rates of regulated motor carriers are under review-the ICC's first step is to add up the costs to the shipper of using the competing forms of transportation-both under the rates as they are and as proposed. As stated by the ICC's Division 3 in 1950:

To determine a just competitive basis between the rail and motor-carriers rates, it is essential that the total transportation costs to the shipper incurred in the respective forms of transportation be considered.*

Then, with the comparative costs thus compiled (and page after page in the ICC reports is devoted to resolving controversies in this connection), the ICC's second step is to weigh their influence with the shipper and, speifically, to consider whether the form of transportation with the lower costs will carry the business or whether the higher cost form of transportation will move it because of better service say, overnight truck service as compared with 2-day rail service. And finally, on the basis of findings such as these, the ICC will arrive at what it regards as a competitive balance and (1) either allow the competitive rates as promising to attract no more than what it regards as a proper share of the business, or (2) disallow them as threatening to obtain more than such share.

Such an approach to the review of competitive rates-an approach which, as I shall emphasize later, the Cabinet Committee rejects as contrary to the public interest-is best illustrated by the use of a few specific instances.

Three representative decisions rejecting competitive rail rates will first be summarized.

7

(1) In 1954 the railroads proposed a reduced rate of 36 cents on tinplate moving from Fairfield, Ala., to New Orleans to meet the competition of (1) the Warrior & Gulf Navigation Co., a contract barge

Boots and Shoes from Misawaka, Ind., to Boston, Mass., 278 I. C. C. 773, 776 (1950). Petitions for reconsideration denied March 12, 1951.

Tinplate from Fairfield, Ala., to New Orleans, 294 ICC 397 (1955: Div. 2).

line carrier, at an aggregate cost of 35.965 cents (later adjusted to 36.715 cents) and (2) trucks with rates ranging from 45 to 48 cents. The traffic, formerly moving all-rail, was moving in part over the barge route, and also in important volume by truck. The railroads showed that their car-mile revenues under the 36-cent rate would be 4 to 5 times their average car mile expenses, and the ICC said thatat least over the more direct routes, the proposed rate would be reasonably compensatory.

But the ICC found the 36-cent rate

lower than necessary to afford the carriers concerned a fair opportunity to compete for this traffic

and held that a higher 40-cent rate would be "competitively fair."" The 40-cent rate was thereupon published, and with the exception of a brief interval when strike conditions prevailed over the barge route, the rails have had no "opportunity to compete for this traffic," let alone a "fair opportunity."

(2) In the same year of 1954 the railroads, having lost most of their sugar traffic to destinations on the Ohio River, proposed 10 reduced rates, including one of 58 cents from New Orleans to Cincinnati, which approximated the cost to the shipper of using barge service. The ICC found that these rates "would be reasonably compensatory" as shown by "convincing" evidence." However, following an exhaustive inquiry into the comparative costs to the shipper of using rail and barge services, the ICC concluded that the proposed rates would be too low because

in these and similar proceedings, the rail carriers have been limited to rates approximately 10 percent higher than the over-all water costs.'

12

Instead of the proposed 58-cent rate, the ICC authorized to Cincinnati a rate no lower than 65 cents-a rate which would reflect its view— that, to some extent at least, the rail carriers provide a service superior to that of barge-line transportation, a factor which the ICC has recognized in past proceedings of this kind."

This finding of greater value in the rail service was not supported by the shippers. In fact, the testimony on this point was that—

the slowness of barge transportation is often advantageous to the shipper where storage may not be available."

(3) In 1950 tank truckers operating in Southwestern States filed a complaint 15 against the level of reduced railroad rates on petroleum products. At the time the railroad share of this traffic was only 12.3 percent as compared with 47.1 percent in 1930.16 In its consideration of the complaint, the ICC indicated

that the assailed rates are compensatory—

and indeed, that

Id., at 400.

Id., at 403-404.

19 Sugar from Atlantic and Gulf Ports to Ohio River Crossings, 296 ICC 121 (1955, Div. 2). Petitions for reconsideration denied October 17, 1955.

Southwestern Tank Truck Carriers Committee et al. v. Abilene and Southern Ry. Co. et al., 284 I. C. C. 75 (1952).

2 Id., at 82, 84.

car-mile revenues under the assailed scale are substantially higher than the average for all carload traffic.

It also found

that truck service is of greater value to the shipping public than rail service." Nevertheless, the ICC sustained the complaint and ordered the railroads to increase their rates. This was done because the rates were regarded as "lower than necessary" to arrest further diversion from the railroads and competitively unfair to the tank truckers who— admit that their rates must be increased at least 10 percent or some of them will be forced to discontinue this interstate service.18

Now, turning to two representative decisions approving competitive rail rates will next be summarized.

(1) To become effective March 10, 1953, the railroads proposed 19 a reduced rate of $6.83 on iron and steel billets, minimum 25 gross tons, from Houston, Tex., to Baton Rouge, La. Following suspension upon the protest of the competing barge lines, the ICC's Division 2, although finding the proposed $6.83 rate "reasonably compensatory," ordered its cancellation because

lower than necessary to afford a fair opportunity for both modes of transportation to compete for this traffic.

20

Later, on reconsideration, the $6.83 rate was approved by the entire Commission which, in a report dated July 30, 1954, observed, among other things:

In view of the amount by which the total cost of transporting by rail under the proposed rate will exceed the total cost by barge it is unlikely that the proposed rate will divert an undue amount of traffic, if any, which now moves by barge from Houston to Baton Rouge."

Thus 16 months after it was proposed, the $6.83 rate was finally approved. By that time, the movement for which it was designed had terminated.

(2) For over 2 years the rail and truck rates on gun wad felt moving from Newark, N. J., to Anoka, Minn., had been on a "virtual parity," but the trucks were moving all of the business.22 In order to handle a fair share of the traffic," the railroads proposed a reduction to a level which would be 23 cents less than the truck rate, but this was vigorously protested by the competing trucks as constituting "an unfair and destructive competitive practice inconsistent with the national transportation policy." 23 In its first decision the protest of the trucks was upheld-even though the compensatory character of the proposed rate was unquestioned.24 The ICC's Division 2 pointed out:

A showing that a rate is compensatory is not itself justification for its establishment for the purpose of meeting competition, although compensatory the establishment thereof could constitute an unfair or destructive competitive practice. The evidence of record does not present any basis for a conclusion that fair competition requires a rate difference of 23 cents, as proposed.25

17 Id., at 81, 83, 84.

18 Id., at 84.

19 Iron and Steel Billets, Houston to Baton Rouge, 292 I. C. C. 7 (1954).

20 Id., at 9, 11.

21 293 I. C. C. 233 (1954) at 235.

22 Gun Wad Felt from Newark, N. J., to Anoka, Minn., 293 I. C. C. 318 (1954). 23 Id., at 319.

24 Id., at 320.

25 Id., at 319.

Six months later the Division reversed itself on reconsideration and authorized the reduced rate, almost 2 years after it had first been proposed. The reason for the reversal was the ICC's understanding that the proposed rate would create a lesser differential under the truck charge than had previously existed 'When, according to the record, the rail carriers enjoyed a 'good share' of the traffic," and

It is thus reasonable to assume that the proposed rate would draw to the respondents no more than a fair share of this traffic and thus would not be lower than necessary to meet the motor carrier competition."

It is not to be inferred from the foregoing examples that all competitive rates proposed by the railroads are suspended and investigated by the ICC. According to public information on this subject, 68 percent of the tariffs of all forms of transportation which are protested are suspended.28 Many rate changes go into effect more or less automatically because they are not protested, but in the case of reduced rates which promise competitive impact, protests can of course be expected. In that event, as indicated, the ICC will suspend and investigate in the majority of the cases.

Nor is it to be inferred that when the ICC approves competitive railroad rates it is likely to do so only after reconsidering its original decision. There are many decisions wherein the proposed rates have been upheld in the first instance, and the ICC has found them necessary for a railroad opportunity "to retrieve some of the traffic," 29 or "attract only a portion of this traffic," or "regain any of it," or "regain a fair share," or "obtain a fair share," 33 or "to share in the traffic." The relation of proposed railroad rates to railroad costs is seldom an issue and, indeed, seldom mentioned except casually.

1932

30

31

The point however remains that whether the ICC approves competitive rates (as in the two typical instances set forth above) or whether it disapproves them (as in the three typical instances also set forth above) a principal standard or yardstick which it is apt to employ in reaching its decision is basically faulty and at direct variance with the public interest in an economical and efficient overall national transportation system. This faulty standard is the full cost to the shipper of using the services of the competing form, as adjusted up or down by the ICC's notion of the comparative values of the competing services.

The use of such a standard denies to the railroads the right to base their rates on their operating conditions and denies to the trucks the right to base their rates on their operating conditions. The use of such a standard, in other words, necessarily produces arbitrary apportionments of traffic among competing modes of transportation without regard to their economic capabilities or fitness for different types of transportation jobs. We do not suggest that the Commission is constrained by the act as presently worded to employ this faulty stand

Gun Wad Felt from Newark, N. J., to Anoka, Minn., 294 I. C. C. 404 (1955).

" Id., at 406.

See printed record cited note 1 supra, at p. 118.

Malt Liquors and Containers between New Jersey, Maryland, and the District of Columbia, 294 I. C. C. 420, 422 (1955). Oleomargarine, Cincinnati and Columbia to East, 294 I. C. C. 349, 354 (1955). Iron or Steel Wire, Buffalo, N. Y., to Kitchener, Ont., 294 I. C. C. 515, 517 (1955). Emery Transportation Co. v. Baltimore & O. R. Co., 292 I. C. C. 346, 348 (1954). Drugs, Medicines, etc., In Official Territory, 284 I. C. C. 33, 37, (1951). Cigarette Paper-New Jersey to Louisville, Ky., 294 I. C. C. 596, 598 (1955).