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COMMITTEE ON INTERSTATE AND FOREIGN COMMERCE

AMENDMENTS TO INTERSTATE COMMERCE ACT

Statement Respecting Ratemaking Provisions

My name is John R. Turney. I am an attorney with an office at 2001 Massa

chusetts Avenue, N. W., Washington, D. C. For the past 39 years I have been exposed to transportation rate and cost problems. I was counsel of the St. LouisSouthwestern Railway System from 1917 to 1929, and from 1929 to 1933, Vice Presi

dent in Charge of Law and Traffic of that system. I served as Director of the Sec

tion of Transportation Service under the late Joseph B. Eastman, Federal Coordinator

of Transportation, beginning with the institution of that agency in 1933 and ending

in 1935. As Director of the Section of Transportation Service, I made extensive surveys, analyses and reports respecting transportation problems and particularly

rates and costs. These reports, known as "Merchandise Traffic Report", "Pas

senger Traffic Report", "Freight Traffic Report" and "Traffic Organization Report",

covered railroad, express, bus and truck operations insofar as information was

then available. In 1942 I organized and served as Director of the Divisions of

Traffic Movement and Transport Conservation in the Office of Defense Transpor

tation, again under Mr. Eastman who was Director. From 1935 to 1942 and follow

ing my service with the Office of Defense Transportation, I have been engaged in

the private practice of law, principally before the Interstate Commerce Commission

in rate and other transportation proceedings.

H. R. 6141 and 6142, which I will refer to as the Bills, would make funda

mental changes in the policy which the Congress has he retofore followed in respect

to the regulation of transportation agencies. Since the enactment of the Interstate

Commerce act the Congress has relied upon regulation by the Interstate Commerce Commission to assure just and reasonable charges by carriers. Under that policy, a comprehensive system of rate regulation has been developed which generally has

proved satisfactory to the shipping public and under which the finest transportation system in the world has developed. The bills substitute for this system complete reliance upon rate competition as a means of assuring reasonable rates.

This proposal is based upon the premise of the Advisory Committee that unhampered freedom to engage in competitive ratemaking would offer an incentive

for service improvement and would permit the shipping public to select the most

economical and efficient means of transport on the basis of cost and service con

siderations. The alleged evil which the proposal is advanced to remedy is a claimed

artificial allocation of traffic, resulting from so-called 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 na

tional interest.

COMMISSION DOES NOT ALLOCATE TRAFFIC

Congressional Policy

The present transportation policy, inso

far as it relates to ratemaking is "to pro

vide for fair and impartial regulation of all modes of transportation *** so admin

istered as to recognize and preserve the inherent advantages of each" and "to en

courage the establishment and maintenance of reasonable charges for transportation

services, without unjust discriminations, undue preferences or advantages, or un

fair or destructive competitive practices; * * * all to the end of developing, co

ordinating and preserving a national transportation system by water, highway, and rail, adequate to meet the needs of the commerce of the United States, of the Postal Service, and of the national defense."

Commission's Implementation

Under these provisions the Interstate

Commerce Commission holds that

carriers:

(1) Have the right to initiate rates to meet competitive rates of other

carriers;

(2) May not be required to refrain from establishing rates which are otherwise lawful for the purpose of providing an umbrella to enable another carrier to

reta in traffic;

(3) Have the duty to maintain a just and reasonable rate adjustment under

which all articles may move freely and no class of traffic is unduly burdened;

(4) Should not be permitted by competitive rate cutting to reduce the charges

upon particularly desirable classes of traffic to the lowest possible compensatory level, because of the resulting increase in the burden to be borne by other traffic and the destructive effect of such rate cutting upon the adequacy and financial

1/ Dundness of the national transportation system,

To prevent destructive rate wars, the Commission has required all carriers subject to its jurisdiction who propose competitive rate reductions to show (1) that

the proposed rate is compensatory, and (2) that the rate is no lower than necessary to meet demonstrated competition. In other words that carriers should not estab

lish rates at a level lower than that at which they can compete on even terms for

the traffic and participate freely in the traffic movement without handicap.

"The Fair Sha re" Canard

The charge that the Commission is engaged

in allocating traffic among the carriers

was thus phrased by the Vice President and General Counsel of the Association of

1/ 293 I.C.C. 133; 63 M.C.C. 54. The Commission has been upheld by the courts

in these interpretations of the Act. Scandrett v. United States, 32 F. Supp. 995, aff'd per curiam 3.2 U. S. 661.

American Railroads, Mr. J. Carter Fort, in his testimony before the Sub-Committee of the House of Representatives on September 20, 1955:

"When competitive rates proposed by the railroads are assailed by
either motor carriers or water carriers, and when competitive rates
proposed by motor carriers are assailed by railroads, the so-called
fair share test, that is to say, the effect of the rates on the compet-
ing mode, is regarded by the Commission as of overwhelming im-

portance". Former Interstate Commerce Commissioner Clyde B. Aitchison has made an anal

ysis and refutation of this statement in his "Fair Share Of Competitive Traffic As

Test Of Rate Reasonableness", which I have appended to this statement as Appen

dix C. The phrase "fair share" was first given currency in rate cases by the rail

roads. 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 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 short hand 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 inter-agency competition.

The courts were called upon as early as 1940 to overrule the same fallacious

and misleading argument which is now pressed on this committee. In Scandrett v. United States, 32 F. Supp. 995, the three judge court, later affirmed per curiam by

2/ 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".

2/ It is interesting to note that the Assistant Secretary of Commerce leans heavily

upon the dissenting opinion in this case,

Sound Policy

It is difficult to see anything reprehensi

ble 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 establish

ment of rate differentials which would overcome service disadvantages of the rail

roads or the water carriers, and thus permit the shipper to choose among the

competing modes freely.

The claim that the railroads have been prevented by the Commission from

making drastic competitive rate cuts is equally untrue. 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 upoa

which they had made drastic reductions in rates. In Appendix A is shown the list of

these commodities, and the amounts of the reductions as listed by the railroads.

The greatest reduction was in the case of steel where the rates are approximately

39 per cent below the normal rates.

The reductions in rail revenues upon this

one commodity on the Eastern railroads amounts to at least $60 million per year.

If a comparison be made it will be found that over the past several years the Commission has disapproved at least 3 motor carrier reductions for each rail

reduction which it has condemned.

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