SECTION 18 WOULD DESTROY NONPROFIT SHIPPING ASSOCIATIONS

One of the most disastrous provisions of these bills is included in section 19, which proposes to amend setction 402 (c) of the Interstate Commerce Act; 402 (c) permits nonprofit shipping associations to be exempt from Interstate Commerce Commission regulation. To get this matter clearly before your committee, it is necessary to describe what a shipping association is and what it does.

It is an incorporated or an unincorporated instrumentality through which merchants in a particular city can, cooperatively, channel their shipments of merchandise from great producing markets such as New York City, Chicago, and Philadelphia through one carrier, to reduce transportation costs and secure faster transit time.

For example, the merchants in Minneapolis have formed such a shipping association and through an agent in New York City they load several railroad cars every business day, thus receiving the benefit of the much lower carload rates. At destination they employ an agent who is a truckman, to distribute the shipments to the stores that are members of the shipping association.

This association is incorporated and is governed by a board of directors, composed of Minneapolis merchants. They make the decision as to who shall and shall not be admitted to the association. They will not handle the shipments of any firm that is not a member of the association. The members of the association pay dues. It is nonprofit and any surplus left over at the end of the year is returned to the members in proportion to their yearly tonnage. So it simply comes down to a group of businessmen in one locality working together to reduce freight costs in the interest of economical transportation and in the ultimate interest of the consuming public. It is not a public utility. They do not actually, physically, perform a transportation service. Everything they do is in the public interest. They bring about economy in transportation so as to keep prices low for the consuming public. Also, you should take cognizance of the fact that the freight carriers who actually, physically transport the merchandise, such as the railroads, motor carriers, waterlines, and the Railway Express Agency, are not asking for any additional legislation in regard to section 402 (c).

While the railroads generally are in support of H. R. 6141 and 6142, you will note that in their testimony before your committee they take no position in regard to section 19. The motor carrier industry who are in opposition to H. R. 6141 and 6142 oppose section 19 along with all other provisions of the bills. The water carriers are neutral on this point. In fact these freight carriers are enjoying a profitable business with the shipping associations because they receive merchandise in carloads and truckloads and other volume quantities, which formerly moved in small shipments and greatly reduce the carriers costs of performing their service. It is only the freight forwarders who are pressing for this legislation.

So we repeat there is no need for any revision of section 402 (c). When Congress regulated freight forwarders in 1942 they included in the legislation this provision which preserves for shippers or groups of shippers the right to pool their own freight on a nonprofit basis. In fact Congress would not have passed the legislation without this proviso.

78456-56 - pt. 2 27

"The Commission is in receipt of your letter of May 12, 1955, in which you express concern over the possible effects of bill H. R. 6208 proposing amendment of section 4 of the Interstate Commerce Act.

"You may rest assured that the Commission proposed this amendment in the knowledge that it does not detract substantially from its authority. This action should be of benefit to all concerned. Under section 1, it is felt that adequate coverage is given the compensatory nature of all rates brought to the Commission's attention. The compensatory feature is one of several factors which must be indicated as a necessary part of showing rates proposed, or assailed, are just and reasonable.

"The Commission has gone to considerable length to alert Congress and the public to the various aspects of the proposed bill, and will attempt to answer fully any further questions which may arise."

I do not consider the Commission's communication a reassuring response to my request that the Commission advise the Congress of the precise effect of the proposed elimination of the reasonably compensatory requirement. The Commission's statement to me that the compensatory feature is one of several factors which must be indicated as a necessary part of showing that rates are just and reasonable is no satisfying substitute for the present fourth section prohibition which forbids the Commission to permit departures from the long- and short-haul clause unless the long-haul rate is reasonably compensatory for the service performed.

H. R. 6141, like H. R. 6208, would remove the reasonably compensatory provision from the fourth section; and couples this elimination with the elimination of the "destructive competition" prohibition in the policy and with a very substantial weakening of the very powers of the Commission cited in the Commission's reply to my letter. Here is what the Advisory Committee said to the President in connection with unreasonably low rates. I quote from page 11 of its report:

"Hence it is proposed to continue regulatory authority: (1) to prescribe minimum rates of common carriers subject to the Interstate Commerce Act which shall not be less than a just and reasonable minimum. The Committee believes that rates are unreasonably low when not compensatory, i. e., when they fail to cover the direct ascertainable cost of producing the service to which the rates apply."

In other words, the Committee says that a rate is not unreasonably low if it is compensatory, and that it is compensatory if it covers the direct ascertainable cost of producing the service to which it applies. That's a far cry from the Commission's definition of "reasonable compensatory" as that term is used in the -fourth section. I won't repeat that entire definition again, but I do want to emphasize the fact that the committee's idea of a compensaory rate doesn't even meet the first provision of the Commission's definition of "reasonably compensatory," enunciated in 1922, which said that to be reasonably compensatory under the fourth section, a rate must "cover and more than cover the extra or additional expenses incurred in handling the traffic to which it applies"; and the further fact that under the Committee's idea of things Lone of the other provisions of the Commission's definition of a reasonably compensatory rate would be met. I shall deal further with the proposed exceedingly limited minimum rate requirement, including its effect on the fourth section, when I discuss section 8 of H. R. 6141.

In discussing its recommended changes in the fourth section, the Committee, on page 14 of its report, makes this extraordinary statement:

"Should instances arise where economic interests would be subjected to undue disadvantages by reason of this proposed amendment to section 4, remedial measures remain available under section 3 which prohibits undue or unreasonable preference or prejudice."

It can hardly be denied that the intercoastal carriers, as well as other transportation groups, constitute economic interest. Section 3 of the Interstate Commerce Act referred to in the report as prohibiting undue or unreasonable preference or prejudice contains a proviso that its provisions "shall not be construed to apply to discrimination, prejudice, or disadvantage to the traffic of any other carrier of whatever description." Where do the intercoastal carriers get off under section 3?

You can be very sure that other sections of the act provide no remedial substitute for the fourth section changes proposed in these bills. Under the act as it now reads, it is not at all unusual for the transcontinental railroads to charge

no more for a 3,000-mile haul than for a 1,500-mile haul. Only the fourth section, as it now reads, has prevented the transcontinental railroads from charging less for the 3,000-mile haul than for the 1,500-mile haul. If you remove from the fourth section the reasonably compensatory requirement, as interpreted by the Commission for nearly 35 years, you take the heart out of the fourth section. If you live in a State bordering on the ocean, you can expect to suffer the loss of whatever transportation benefits you have derived directly and indirectly from domestic water carriers operating on the high seas. You will see destructive competition, or should I say dynamic competition, with a vengeance. If you live in the interior of our country, perhaps this thought does not disturb you, even though the loss of our domestic, oceangoing merchant marine would be a severe blow to our national defense. Army, Navy, and other governmental agencies have repeatedly pointed to the imperative need for a substantial domestic merchant marine of oceangoing vessels and their experienced crews, readily available in domestic waters, as an auxiliary in time of war or threatened war. The domestic fleet of merchant vessels in operation is today much less than half the size it was before the outbreak of World War II. But there is another point to be considered by the residents of places not readily accessible to our coastal waters. It is customary for us to say that the fourth section is a barrier to the charging of less for the long haul than for the short haul, but the prohibition in the fourth section actually says the same thing in a different way. It prohibits the charging of more for the short haul than for the long haul. Those who live in the interior of the United States should ponder on that protection which the law now gives them, and which the Cabinet Committee recommends be taken away. I have said that the elimination of the reasonably compensatory requirement from the fourth section takes the heart out of that section. When you couple that elimination with the other changes in the forth section proposed by H. R. 6141, the fourth section is completely emasculated. The long and short haul prohibition that remains becomes an empty gesture. The railroads are given complete freedom of action to violate the prohibition, provided the rate for the long haul "is necessary to meet actual competition of another carrier or carriers, and is not less than a just and reasonable minimum charge." What is meant by the phrase "necessary to meet actual competition," I don't know. In practice, if this legislation is enacted, I have no doubt that it will be interpreted to mean that the long-haul rail rate can be reduced at least to the waterline rate between the two points involved. Since the water route is slower than the rail route and has other disadvantages, this matching of rates would eliminate the water carrier from the competitive picture. That's dynamic competition.

The committee has misled the Congress and the public, quite unintentionally, of course, in stating that under the present wording of the statute relief from the fourth section is only granted by the Commission "usually after a hearing." The Interstate Commerce Commission itself has stated that in the year ending October 31, 1954, the Commission received 1,244 applications for such relief, that only 43 applications were denied, the remainder having been granted in whole or in part, and that only 21 applications went to hearing.

In his testimony given before this Subcommittee on Interstate and Foreign Commerce on September 19, 1955, in connection with the Presidential Advisory Committee's Report, Secretary Weeks referred to the proposed changes in the fourth section as the elimination of the procedural requirement that carriers secure prior approval of the Commission prior to charging less for the longer distance than for the shorter distance. Secretary Weeks was ill-advised in his use of the adjective "procedural." The fourth section changes proposed are substantive, not procedural. The fourth section was modified in 1940, 16 years ago, to permit the filing of tariffs proposing rate changes subject to the provisions of the fourth section simultaneously with the filing of the application for necessary fourth section relief, and to require the Commission in the event the application is granted to permit changes to become effective on 1 day's notice. Because of the enactment of this procedural change, 16 years ago, evidently overlooked by Secretary Weeks, considerably over 90 percent of all tariff filings involving fourth section relief go into effect within the same statutory notice period as is applicable to rate changes for which fourth section relief is not necessary. So much for the proposed changes in the fourth section as set forth in section 4 of H. R. 6141. Coupled with the proposed changes in the policy section and other sections of the act, such legislation would sound the death knell of the intercostal and coastwise trades and do untold harm to other economic interests.

Returning to H. R. 6208, I wish to emphasize the fact that this committee and others have been misinformed by statements that the bill is noncontroversial. The intercosatal carriers object to it, and other interests will voice similar objections before these hearings are over, if they have not already done so.

Our objections are not confined to the proposed deletion of the reasonably compensatory requirement and our failure to secure from the Commission an adequate explanation of the significance and exact effect of such change. There are other objectionable points.

Under the changes proposed by H. R. 6208 any common carrier subject to either part 1 or part 3 of the act, operating over a circuitous line or route, could meet the charges of another carrier or other carriers operating over a more direct line or route, to or from competitive points, without complying with the fourth section prohibition against charging less for the long haul than for the short haul. That expression "meet the charges" is a red flag. If a railroad under this provision should reduce a rate to the same rate as a water competitor, the fourth section prohibition would not come into play. Given the choice of the rail route and the water route at the same rate, the shippers would, of course, choose the rail route, because of its superior service. The water carrier is thus eliminated from the movement. It is true that a water carrier with a less direct, or more circuitous route than a rail carrier, could also meet the charges of the rail carrier, and escape the prohibition of the fourth section. But the rates being equal, the rail carrier would still get the business. It is hard to believe that the Commission intended to propose such unjust treatment.

From the position of shippers located at intermediate points, there are many other things that could be said against H. R. 6208. I seriously doubt if they understand what can happen to them under the provisions of this bill. As the fourth section now functions, proposed departures from its prohibition are sig naled to the public by the fact that the filing of the proposed rates is accompanied by an application setting forth the proposed departures. H. R. 6208 eliminates the signal.

At the present time, many shippers located at intermediate points have the benefit of the so-called intermediate application rule, under which the railroads accord such shippers for their shorter hauls the low rates the railroads have published for the long hauls. Under H. R. 6208, railroads could withdraw such benefits by merely canceling the application of their intermediate rules.

It is not my intention to discuss each statutory change proposed by H. R. 6141. Many of them would affect only indirectly the people I represent, if at all. Nor is it my intention to point out typographical and other errors in draftsmanship. I assume the sponsors of this legislation have discovered, or will discover, such errors themselves.

The next provisions of H. R. 6141 of direct interest to us are those contained in section 7 (a) and section 7 (b). These provisions, among other things, would take from the Commission its power to fix precise rates. It is the main section of the bill dealing with this matter. Sections 3 and 5 are largely supplementary thereto. Ever since the issuance of the Cabinet report, railroad presidents and other officials have journeyed up and down the land, appearing before chambers of commerce, giving out interviews to the newspapers, publishing advertisements, handing out leaflets and booklets-telling the American public that under the Interstate Commerce Act as it now reads, their rates have become inflexible; the railroads have been placed in a strait-jacket, the Government has usurped the power of ratemaking to such an extent that railroad executives have lost the right of managerial discretion. Gentlemen, in one word:

"POPPYCOCK"

During the 12 months ending October 31, 1955, there were filed with the Commission approximately 150,000 tariff publications containing rate changes or establishing new rates. Many of these publications contained many rate changes. Many hundreds of thousands of rates were involved. In the vast majority of cases the Commission permitted the rate changes to go into effect as published. Nearly all of these changes were initiated by the carriers themselves, exercising managerial discretion.

As far as fixing a precise rate is concerned, this is a power that the Commission has rarely used. Moreover, the Commision has seldom exercised even its power to fix both maximum and minimum rates on the same article or com modity over the same route so as to prescribe a zone of reasonableness between

such a minimum and such a maximum. It has exercised its power to fix maximum rates when it thought the carriers were getting too greedy; it has exercised its power to fix minimum rates when it thought the carriers were cutting throats. It has used its power to fix a relationship between rates for the purpose of removing undue preference and prejudice. In most instances, the Commission has used such powers only when economic interests affected by rates of the carriers have complained to the Commission and only after being convinced that only by using such powers could a wrong be redressed. The removal from the Commision's hands of the power to fix precise rates wouldn't change the Commission's ordinary practices in such matters. But when you add that change to all the other proposed changes, you remove from the Commission's hands a weapon of last resort.

The mere existence of such a power-the power to fix a precise rate has served the Cabinet Committee and the railroads as one of their best talking points with the public in asking for its suport for the many legislative changes now sought. The public has no knowledge of the exceedingly limited extent to which such power has been used.

Witness Rothschild, on page 29 of his prepared testimony presented to this committee on April 24 in support of H. R. 6141, after explaining section 7 (a) has stated that a similar modification of the Commission's authority over joint through rates is contained in section 7 (b) of the bill. Witness Rothschild is mistaken. Section 7 (a) of the bill amends paragraph (1) of section 15 of the act so as to modify the Commission's power to fix joint rates precisely in the same manner as it modifies the Commission's power to fix individual rates. Section 7 (b) of the bill modifies paragraph (3) of section 15 which deals with the power of the Commission to initiate through routes and joint rates and its powers with respect to proposed cancellations of through routes or joint rates. I confess that I do not understand exactly what the proponents of this legislation will accomplish by section 7 (b). For instance, it appears that the Commission would be powerless to stop the cancellation of a joint rate. Is that the intention? You can have a through route without a joint rate. I respectfully suggest that the Cabinet Committee should be called upon to explain exactly what section 7 (b) of the bill is intended to accomplish.

Section 7 (c) of H. R. 6141 proposes certain changes in the Commission's power to suspend rate changes. We strongly oppose the proposed shortening of the maximum period of suspension from 7 months to 3 months. If the suspension was justified in the first place, 3 months is entirely too short a period for any adequate investigation by the Commission and the presentation to the Commission by interested persons, including the carriers affected, of facts and arguments for the Commission's consideration. A power of suspension has been in the Commission's hands since 1910. The statute has been changed from time to time so that the possible suspension period has ranged from approximately 5 months to approximately 10 months. The present period of 7 months, which has been in effect since 1927, is no longer than is necessary to give the Commission and interested persons adequate time.

I am somewhat sympathetic with the apparent purpose of the second proposed change in the suspension power, which would specifically require a showing that the proposed change would probably be unlawful and that it would result in injury for which adequate remedies, in the event of no suspension, are not available. I believe, however, that even as the statute is now worded, substantially this same principle should be the Commission's guiding standard.

The third proposed change in the suspension power changes the statutory requirements concerning burden of proof in suspension proceedings. The burden of proof is now on the carrier proposing the change under suspension. The proposal would make an exception in cases where the complainant is also a carrier. The proposal ignores the fact that it frequently happens that both carriers and other persons request suspension of the same tariff change. I doubt, moreover, if the proponents of H. R. 6141 have considered the fact that chambers of commerce and other similar bodies who protest rate changes and ask for suspension sometimes number carriers as well as other persons in their membership.

In actual practice, this "burden of proof" is little more, if anything more, than a "burden of procedure." Since the carrier proposing the rate change has full knowledge of the facts believed to justify the change, it is only natural that such carrier should present such facts prior to the formal presentation of the case of those protesting such change. If proper procedure has been required