Mr. HARRIS. I assume that the graphs will be included, too. However, they will not appear in the record in color as you have them. That would be somewhat difficult at the Government Printing Office.

Mr. TURNEY. I understood that, and they have been so drawn that when the colors are taken out it will be possible to differentiate them by the difference in the lines which appear on them.

Mr. HARRIS. You may proceed.

Mr. TURNEY. First, the alleged evil which the proposal is advanced to remedy is a claimed artificial allocation of traffic, resulting from socalled restrictive and outmoded regulatory policies. It is the purpose of this statement to show that no such evil exists, that traffic is not allocated, regulations are not unduly restrictive, and that the proposed amendments to the act would result in substantial injury to the national interest.

I will not read the paragraph which quotes from the present national transportation policy. I want to say that under that policy I think that the following is the interpretation and the manner in which that policy has been implemented by the Interstate Commerce Commission with respect to competition among carriers; not merely carriers of different modes of transportation, but carriers within the same mode. First, the Commission holds uniformly that the carrier has the right to initiate rates to meet competitive rates of other carriers. The only limitation is that the rates must not be less than compensatory.

Second, that a carrier may not be required to refrain from establishing rates which are otherwise lawful for the purpose of providing an umbrella to enable another carrier of the same or a different mode of transportation to retain traffic.

That one is an extremely important principle. So far as I know, and I think I am familiar with the decisions in this particular field, it has never been departed from. Strange as it may seem, an umbrella was first requested by the railroads who desired to be protected from rate cutting by motor carriers. The commission held, and very properly, that the motor carrier would not be required to maintain an umbrella over the rail rates. Since that time, in numerous cases, it has held with respect both to motor carriers and railroads that under no circumstances will it provide an umbrella one for the other. The third, and this is equally important holding which the Commission makes is that carriers have the duty to maintain a just and reasonable rate adjustment, and this is extremely important, under which all articles may move freely and no class of traffic is unduly burdened.

Finally, they hold that carriers should not be permitted by competitive rate cutting to reduce the charges upon particularly desirable classes of traffic to the lowest possible compensatory level.

Their reason for this holding, contrary to what has been stated in this record, is the resulting increases in the burden to be borne by other traffic and the destructive effect of such rate cutting upon the adequacy and financial soundness of the national transportation system.

To prevent destruction rate wars, the Commission has required and does require all carriers, subject to its jurisdiction, who proposed competitive rate reductions, to show, first, that the proposed rate is

compensatory; and second, that it is no lower than necessary to meet demonstrated competition. In other words, it holds that carriers should not establish rates at a lower level than that at which they compete on even terms for the traffic and participate freely in the traffic movement without handicap.

The charge has been made that Commission is engaged in allocating among the carriers. It was phrased in this record by the vice president and general counsel of the Association of American Railroads, Mr. J. Carter Fort, in his testimony before the subcommittee last September. It is quoted in my statement and I will not quote it again except to say that it is claimed that the so-called fair share test is regarded by the Commission as of overwhelming importance. Former Commissioner Clyde B. Aitchison has made an analysis and refutation of this statement in his Fair Share of Competitive Traffic as a Test of Rate Reasonableness. This statement is appended as Appendix C.

The term "fair share" was first given currency in rate cases by the railroads. The first time I ever heard it was when I asked one of my freight agents who was soliciting for the railroad, what he was doing with respect to the traffic of a certain shipper. His reply was that he was getting his fair share of it. I have heard it quite frequently since that time, but almost invariably as a part of the railroad charges.

It was at the insistence of the railroads that the national transportation policy in 1940 first required the Commission to consider the effect of its rate regulation upon the movement of traffic by the carriers affected. The use of "fair share" in Commission cases, and this, I think, will be shown by Commissioner Aitchison's analysis, has been either a recitation of statements made in the record, generally by witnesses for the railroads attempting to justify rate reductions, or as a shorthand expression for the longer phrase "a fair opportunity for the carrier to compete for the traffic."

The latter phrase very nearly expresses the Commission's concept of the objective of regulation of interagency competition.

The courts were called upon as early as 1940 to overrule the same fallacious and misleading argument which is now pressed upon this committee. In Scandrett v. United States, the dissenting opinion in which I observe witnesses for the Commerce Department have quoted freely from, the three-judge court, later affirmed per curiam by the Supreme Court, said:

Petitioners urge that it is not the function of the Commission to apportion the traffic. We do not understand that the Commission did or intends to "apportion" the traffic. It merely equalized, by differentials, the prospects or opportunities for procuring traffic.

It is difficult to see anything so reprehensible about the application of the principle that rate regulation should be such that all carriers have a fair opportunity to compete for traffic. Certainly I believe no carrier can fairly contend that it should be given more than a fair opportunity to compete for traffic. It has never been the policy of the Commission to attempt to allocate traffic among competing modes or to determine what is for particular modes a "fair share" of a particular traffic. Rather it has concerned itself uniformly with the maintenance of conditions which would permit all carriers an equal opportunity to compete for available traffic.

This has frequently meant, as Commissioner Aitchison points out, the establishment of rate differentials which would overcome service disadvantages of the railroads or the water carriers, and thus permit the shipper to choose among the competing modes freely.

My friend, the next to the last witness for the railroads, mentioned the Urea Fertilizer case. In that case, the protested rail rate on Urea Fertilizer was established for the purpose of placing the rail carriers in a position to successfully compete for a fair share of the traffic.

The claim that the railroads have been prevented by the Commission from making drastic competitive rate cuts is equally untrue. Last September in a presentation made by the railroads as a group in connection with the wage adjustments which were made in the fall of 1955, the railroads presented a list of important commodities upon which they had made drastic reductions in rates. At page 41 of this statement I have reproduced that list. It is on 3 pages and it shows the extent to which rates were reduced in all of the 3 territories.

The claim has been made here, and certainly anyone reading the record would get the idea, that the railroads have been helpless in attempting to get fair adjustments, that their tariffs are regularly suspended.

In 1955, 126,790 rail, water and motor carrier traffs were filed witn the Commission. Of that number, 3,974, or 4 percent, were protested. Of the protested tariffs, there were 776 rail tariffs. Of those 776, 181 were suspended, which was 23 percent of the protested tariffs, and a very small, infinitesimal fraction of the total tariffs filed. On the motor carrier side, there were 2,990 tariffs filed, and of that number 1,774 were suspended, which was 59 percent. Against the railroad tariffs, 82 of the protests were by other railroads, 456 were by motor carriers, 5 by forwarders, 94 by water carriers, and 148 by shippers.

I might say that the actual record before the Commission entirely refutes the claim made that there has been any unfair treatment either of the railroads or the motor carriers with respect to their ability to file tariffs. In the reductions which are listed in appendix A, at 41, the reduction was greatest in the case of steel in the eastern or, as it is called, official territory. There two reductions were made, one in 1950 and another in 1954, and they aggregated 39 percent. The first one, as I recall, was about 24 percent. That reduction upon a large part of the steel traffic did not gain the railroads any appreciable tonnage. They lost net 24 percent of the revenue which they had been receiving. They again reduced in 1954. So the total reduction upon that traffic is now 39 percent.

In the pending case it was computed that the rail and motor carriers by reason of the rate war that has been in effect in that commodity have lost at least $60 million a year in revenues for the last 5 years.

Finally, if a comparison is made it will be found that over the past several years the Commission has disapproved at least three motor carier reductions for each rail reduction in rates which it has condemned.

The next matter which I will discuss is the proposed rate making standards as set out in the bill and as explained by the Cabinet Committee report.

78456-56-pt. 2-2

Under the rate making provisons of the bills, it is made the duty of carriers to publish

not less than just and reasonable minimum charges nor more than just and reasonable maximum charges

and any charge

which is less than the just and reasonable charge or more than a just and reasonable maximum charge

is declared unlawful. It is further provided that when the Commission finds that this section has been violated it shall deterimne the reasonable minimum or maximum rate resulting in charges not less than just and reasonable minimum charges nor more than just and reasonable maximum charges.

Unlike the report of the Advisory Committee, the bills do not purport to define what is meant by the term "reasonable minimum charge." They indicate that in determining a just and reasonable "maximum charge" the Commission shall not require such charges to be reduced below the full cost of performing the services to which they apply, exclusive of losses in other services.

In other words, contrary to usual regulatory provisions, an attempt is made to set a floor but not a ceiling for a "maximum reasonable charge." Inasmuch as the Commission over a long period of years has determined under the present act the meaning of the standards "just and reasonable maximum charge" and "just and reasonable minimum charge," under generally accepted canons of statutory interpretation the courts might well hold that those terms would be carried into the proposed amendments with the same interpretations.

However, in view of the fact that the report of the Advisory Committee and the statements made in support of this legislation by its proponents define a reasonable minimum charge as one which means "directly ascertainable cost" and a maximum reasonable charge as one which meets the "full cost," it is also possible that these latter connotations will be substituted for those heretofore used by the Commission and for that reason I will assume for the purpose of this statement that such is the intention of the framers of the proposed bills.

A great difficulty with the proposed revisions is that they cast aside standards for the determination of lawful and reasonable rates which have been developed by Congress, by the courts, and by the Commission over the years and embark on the uncharted sea of vagueness. The standard of "directly ascertainable cost" is one which so far as I know has never been authoritatively defined. Some statisticians say that it approximates the long range view of "out-of-pocket cost" used by the Commission, others that it is what the economists call "average variable cost," and still others that it means the extremely limited or momentary range of out-of-pocket cost which would be about half of the cost used by the Commission. It may be that what is meant by the Cabinet Report is "out-of-pocket cost" but even this concept is an indefinite one.

On page 9 I set out a statement which shows the entire operating expenses of all of the class I railroads in 1954 treated as a single system, for the purpose of illustrating just how indefinite this concept of a directly ascertainable cost is. It should be premised that the railroad expenses are recorded in functional accounts, depending on the pur

pose for which the material is purchased, or on the labor which is performed.

The cost of inserting a tie is placed in one account, and the cost of it in another; and the cost of a rail is one account and the cost of laying it is another, the track-laying account. These are all called primary accounts and there are 150 separate accounts, many of which have from 3 to as many as 6 or 7 subaccounts. In the table on page 9, I have compressed these 150 separate primary accounts into 27 more or less homogeneous groups merely to get the information on the page. It cannot be compressed in making the cost study. The amounts of money shown in the columns are those which were expended in 1954, in the first column. In the second column there is shown common expense, common between freight and passenger. In the third column there is shown the apportioned common expense that is apportioned to freight. In the fourth column is the amount of direct freight expense. It will be observed at the very start that in the freight and passenger distribution alone, about 40 percent of the expenses are common to freight and passenger, and, therefore, are not directly ascertainable.

What is true with respect to freight and passenger is amplified many times over when the attempt is made to take these 150 accounts and spread them over, first, the service units of rail operation—that is, the line units, running trains, intermediate terminaling, etc.-and then to spread the same accounts over classification, switching, house, team and industry tracks, interchange, and then over station, clerical, platform, et cetera. After you have gotten there, you have just begun apportioning and allocating expense in order to get even out-of-pocket cost, because the largest and the most important and the most complicated step is the translation of the line and terminal service unit expenses into the true traffic unit expenses, which are hundredweight and hundredweight-miles.

The foregoing sketchy outline of the costing procedure should reveal the utter absurdity of speaking of either "directly ascertainable" or "ascertainably direct" cost of providing railroad transportation. Strictly speaking, few, if any, costs of transportation can be said to fall within either of those concepts.

Mr. Chairman, on the next line there is a typographical error which I would like to have corrected. In the title it is impossible to establish a nondiscriminatory rate structure, the word "cost" has been dropped. It should be inserted between "nondiscriminatory" and "rate structure."

It should be premised that the rate structures of the rail and motor common carriers have never been predicated upon costs. The cost of providing transportation service by the railroads has been of significance chiefly in determining the overall level of rates within a given territory and in more recent years, the determining whether or not a particular rate was compensatory, the latter issue arising in cases where destructive competition was claimed by competing carriers. Entirely aside from the question of desirability of such a structure, it is virtually impossible to establish a cost rate structure which meets the equality requirements of sections 3 and 4 of the

act.