Parenthetically it may be noted that, in citing instances where the railroads have invoked the so-called fair-share test in litigation before the ICC, witness Aitchison includes none which involves railroad competition with unregulated Transportation, particularly unregulated highway transportation which accounts for an estimated two-thirds of the ton-miles on the intercity public roads.

Third. The motor carriers are wrong in saying that the proposed legislation would open the door to discrimination against (1) small communities and small shippers or (2) so-called noncompetitive traffic.

(a) Discrimination against the small community and small shipper

ATA's opposition to the proposed legislation is partly based on its concern for the welfare of the small shipper and the small community, and its witness Turney said:

"Competitive rate cutting leads inevitably to discrimination. The history of regulation under the Interstate Commerce Act provides myriad examples of the necessity for governmental control of carrier selfishness in order to prevent preference of the large shipper and discrimination against the small shipper (Tr. 837).

"The small shipper and the small community, as I have said, are the usual victims of discrimination because the amount of traffic that they can offer does not incite the avarice of the carrier traffic manager. At the same time, a discrimination case under section 3 under the rulings of the courts and the Commission casts upon the complainant a burden of proof so onerous that only large and financially strong shippers or receivers can afford to sustain it" (T. 838). It is interesting to test the accuracy of those statements against the showingmade by the same witness Turney-of voluntary rate reductions made by the railroads in the three territories of the country during the period 1950-55. (See appendix A as incorporated at pp. 41-43 of witness Turney's statement entitled "Statement Respecting Ratemaking Provisions.")

Every rate reduction listed in his appendix A was made uniformly throughout the territory indicated on the appendix-without distinction as to community or shipper. This means that, within the indicated territories, every community, large or small, and every shipper, large or small, received the same measure of reduction in rail rates. Thus does the motor carriers' own showing repel their argument that the "small shipper and the small community*** are the usual victims of discrimination because of the amount of traffic they can offer does Lot incite the avarice of the carrier traffic manager."

ATA also takes the position that the proposed legislation "would remove any effective remedy for discriminatory pricing by the carriers" (Tr. 837). Witness Turney proceeds:

*** the small shippers and small communities have relied in the past on the general relief from discrimination accorded by the Commission under the present law in general rate proceedings where the Commission prescribes a just and reasonable rate adjustment. This would no longer be possible.

"For many years a substantially lower basis of rates existed in official territory, the territory east of the Mississippi River and north of the Ohio-Potomac, than existed in other parts of the country, and its discriminatory effect was the subject of repeated complaint by the Southern and Western sections of the Nation. The Commission undertook to correct this discriminatory situation by prescribing a uniform scale of class rates east of the Rocky Mountains in docket 28300 and also to prescribe a uniform classification nationwide in docket 28310. "Neither of these momentous decisions, which did so much to bring about equality, could have been effectuated under H. R. 6141 and 6142 which have eliminated the power of the Commission under section 15 to prescribe a basis of rates to eliminate discrimination" (Tr. 838-839).

There is nothing to such an extravagant statement.

No one has suggested, nor does the proposed legislation in any way provide. that the ICC's present power to deal with discriminatory rate practices be curtailed, even in the slightest degree. Spokesmen for the report of the Cabinet Committee which inspired H. R. 6141 have repeatedly emphasized this point.25 If, as an unintended consequence of the recommended withdrawal of the ICC's power to fix "the" reasonable rate (as distinguished from the reasonable min

Report of the Presidential Advisory Committee on Transport Policy and Organization. at pp. 10-11 hearings before subcommittee on this report, September 19, 1955, at pp. 22.

imum or maximum rate), the power of that body to cure discrimination would be affected—a result sharply disputed by spokesmen for the Cabinet Committee 20-ATA needs no longer be concerned. The reason is that, in the view of the railroads at least, the basic recommendation of the Cabinet Committee can be accomplished without any withdrawal of the ICC's present power to fix "the" reasonable rate. (See AAR statement, by witness Langdon, received by subcommittee at hearing May 8, 1956, at p. 20.)

(b) Discrimination through "selective" rate cutting

Each of the competing forms of transportation accuses the railroads of wanting to reduce rates "selectively," and by this, each competing form means the rates on the particular traffic which is its mainstay. Thus the regulated motor carriers, with a preference for traffic in the form of higher valued manufactured products, are fearful of competitive rates on their traffic and point to the alleged ability of the railroads to recoup their losses on such "captive traffics *** as coal, ore, and agricultural commodities for which the trucks at least are not competitive" (Tr. 829). The water carriers, on the other hand, are fearful of reductions in rates on the bulk commodities in which they specialize--some of the same commodities which the motor carriers regard as "captive" tonnage for the railroads-and they say:

"We move no people as passengers, no poultry, livestock, nor perishable goods, as the railroads do. They move everything a barge can, plus many commodities barges cannot move" (Tr. 527).

Curiously enough, both the motor carriers and the barge lines regard agricultural products, including livestock, as constituting "captive" railroad tonnage. This will be news indeed to the exempt agricultural hauler on the highway and bulk grain barges whose competition from a railroad point of view is most

severe.

The truth is that, broadly speaking, there is no such thing as "captive" railroad traffic. It is all competitive. Over a quarter of a century ago and as the depression of the 1930's was coming to an end, witness Aitchison, while a member of the ICC, pointed out:

"No form of transport now has such a monopoly as was assumed when Congress assigned the ratemaking problem to its Commission. * * * The services of every transport agency are now freely reproducible in essence, if not in terms.

"No patron of a carrier will continue to use unduly expensive or inefficient modes of transport, or pay more for a given service than it is worth, when several different agencies are in the market clamoring for his business. Nor need he pay or will he pay more than the sum for which he himself can perform the service. The familiar substitution principle of economic doctrine fixes the value of the service at the level of the cost of the cheapest available form of carriage. The private vehicle owner on the highway or the waterway believes he holds the whip hand. To the extent that he is willing to act on that belief, he becomes the key to the traffic situation. By eventual reduction of the economic cost of transport by common carriers so that the price they must exact is below the amount for which the private vehicle owner can serve himself, the private operator will be eliminated as the controlling marginal user, and he will no longer set the maximum price for the carriage of his competitor's goods, as well as his

own.

9927

This appraisal of the competitive situation, as we have seen, was made more than 27 years ago. Since then, the proportion of the Nation's ton-miles handled by railroad has declined much further-from 64.4 percent to roughly 50 percent.” The result is that while the trucks and the barges may claim to be "specialty" carriers (Tr. 848), their specialties are different and, when aggregated, cover as broad a field as transportation itself. The fact that a carrier may be successful in avoiding true common carrier status and limiting itself to the particular transportation jobs it finds most remunerative should give it no immunity (through umbrella ratemaking or otherwise) from rail competition. Obviously the railroads do not escape competition from the specialists who, when con

28 Tr. 57-59, 202 (witness Rothschild); Tr. 200-201 (witness Ray). Evolution in Transportation Economics, by Clyde B. Aitchison, Interstate Commerce Commissioner, printed in ICC Practitioners Journal, vol. VII, No. 6, March 1940, at pp. 323. 324.

28 Statement No. 568, file No. 10-D-7, Interstate Commerce Commission, Bureau of Transport Economics and Statistics, February 1956.

sidered as a whole, occupy the field from one end to the other, and do so most successfully.

Fourth. It is contrary to fact to say that, by taking traffic away from the trucks at compensatory rates, the rails would only worsen their net revenue position.

The motor carriers assume that their competitive traffic would be diverted to the rails if a 20-percent reduction in rail rates were made; but they claim that the net result would be to put the railroads in a worse net revenue position than at present. While gross revenues for the railroads would be greatly increased (because of the traffic diverted from the motor carriers and despite the 20-percent reduction in rates), the added cost to the railroads of handling the increased volume would, according to the motor carriers, more than offset the added revenues (Tr. 858-869).

The only way that the motor carriers can arrive at such a result is to assume, as they do, that a truckload of freight with an average weight of 15 tons, when diverted to the railroads, would fill a boxcar-even though comparable traffic on the railroads loads at an average of more than 30 tons. In other words, an average boxcar will take two average truckloads. This obvious oversight leads witness Turney to overstate the rail costs for the diverted traffic by some 77 percent, or by $457 million in the aggregate. When this one error is corrected, the ATA calculations show that, under its assumptions, the railroads could improve their net railway operating income over 1955 by $79 million (despite the 20-percent reduction in rates).

Another equally misleading assumption in the ATA calculations is that the railroads would reduce their rates by 20 percent on less-carload traffic-a type of traffic which, under the figures used by witness Turney, the railroads already handle at a loss-for the purpose of acquiring more traffic of the same character now moving by truck. In other words, witness Turney would have the railroads incur $1,545 million of additional expenses in order to improve their gross revenues by $1,150 million. Even witness Turney should think twice before attributing such stupidity to railroad management.

The net results of witness Turney's calculations-if he had confined them to truckload traffic and had used rail costs for such traffic at 30 tons per car instead of 15 tons-are net savings to the public of $1,047 million in freight charges and a net gain to the railroads of $225 million in earnings.

CONCLUSION

In their opposition to the proposed legislation the spokesmen for the motor carriers distinguish between (1) the so-called fair-share test, that is to say, the effect of rates on the competing mode, and (2) the fixing of rate differentials which "permit all carriers an equal opportunity to compete for available traffic" (Tr. 815). Moreover, they insist that the ICC never applies the fair-share test in its control of competition. "Rather," they say, "it has concerned itself uniformly with the maintenance of conditions which would permit all carriers an equal opportunity to compete for available traffic" (Tr. 815). And: "This has frequently meant, as Commission Aitchison points out, the establishment of rate differentials which would overecome service disadvantages of the railroads or the water carriers, and thus permit the shipper to choose among the competing modes freely" (Tr. 815-816).

Whatever they want to call it, the truth is that the motor carriers have put their finger on the precise practice of the ICC which denies to the public the benefits of each mode's economic, competitive potential, a practice which would be stopped under the basic ratemaking recommendation of the Cabinet Committee. That recommendation, it will be recalled, is that the ratemaking of one mode of transportation be regulated without regard to the effect on competing modes and that the ICC's feeling of obligation to produce competitive balance through its control of competitive rates be terminated in the public interest. In concluding this supplementary statement, the railroads would respectfully request the subcommittee to review the proposed legislation (in the form of the three "shall nots") in the light of the truckers' repeated advocacy of "conditions which would permit all carriers an equal opportunity to compete for available traffic" (Tr. 815).

If, as the motor carriers agree, the railroads should have "equal opportunity to compete for available traffic," on what ground can they be denied the right to publish reasonably compensatory rates which do not discriminate against shippers? Every other form of transportation has an unquestioned right to ad

vance without regulatory restraint-its inherent advantages in the competitive struggle.

(a) Certainly there is no doubt on this score so far as all unregulated transportation is concerned, and it must not be forgotten that this constitutes an estimated 90 percent of the traffic on the inland waterways and about two-thirds of the freight on the highways.

(b) Nor is there any doubt in this regard when it comes to the rates of regulated water transportation. This is because of the preferential provisions of section 305 (c), and the decisions of the ICC in the Memphis Cotton case" and the Supreme Court in the Mechling case."

30

(c) Finally, there can be no doubt on this point when the competition is provided by regulated motor carriers. In the ordinary case, their inherent advantage is faster and more flexible service, and certainly the ICC does not make fast service slow, or flexible service inflexible for the purpose of equalizing the competitive opportunities of the railroads. And if, for certain hauls, the motor carriers have the added advantage of lower costs, the proposed legislation would allow them to be reflected in motor carrier rates without interference from the railroads.

It is the railroads' firm conviction that when the Congress enacted the Motor Carrier Act of 1935 (now pt. II of the Interstate Commerce Act) and the Transportation Act of 1940 it was intended that the rates of each mode of transportation should be regulated in the light of its particular conditions, unaffected by the conditions of the competing mode. Appendix A to this supplementary statement is a fuller development of this point. If the railroads are correct in this respect, the Congress, by enacting the three "shall nots," "31 would do no more than to set the ICC back on the course originally charted for it.

If any form of transportation, including railroads, has an inherent advantage of lower costs in competing with another form, the assertion of that advantage should not be denied by the ICC because of its effect upon such other form. That is a basic recommendation of the Cabinet Committee and is obviously made in the interest of an efficient and economical overall transportation system for the Nation as a whole. The fact that in their competition with the railroads, the motor carriers have inherent advantages other than lower costs (for the most part) does not entitle them to immunity from price competition or give them a legal right to preserve high railroad rates on high-valued products. The public will choose its mode of transportation on the basis of price and service-depending upon the particular transportation job to be done. The Cabinet Committee would give the public this choice and, at the same time, make sure that the rates are reasonably compensatory and do not discriminate among shippers. Certainly the motor carriers, because of their generally higher costs, should not be permitted to limit the public's choice by confining the competition to service the competitive area where they are apt to excel. The public will rightfully insist that the competition also include price. Such insistence is at the heart of the Cabinet Committee report.

APPENDIX A

MEMORANDUM ON THE QUESTION OF CONGRESSIONAL INTENT AS TO THE CONTROL OF ICC OF THE RATEMAKING OF ONE MODE OF TRANSPORTATION WHEN IN COMPETITION WITH ANOTHER MODE

There is no doubt that, during the time the Transportation Act of 1940 was under consideration,' various Members of the Congress expressed concern over the possibility that the proposed regulation of water carriers was being sponsored in the interest of the railroads and that its long-range effect would be to force water rates up to the level of rail rates and thus destroy the inherent advantage of

29 Cotton from Memphis and Helena to New Orleans, 273 I. C. C. 337 (1948) at 365. 30 Interstate Commerce Commission v. Mechling, 330 U. S. 567 (1947).

31 As set forth in proposed sec. 15a (1) of H. R. 6141. The railroads' suggestion is that the following simple addition be made as paragraph (3) to the present sec. 15a:

(3) In the exercise of its power to prescribe just and reasonable rates, the Commission shall not consider the effect of such rates on the traffic of any other mode of transportation or the relation of such rates to the rates of any other mode of transportation; or whether such rates are lower than necessary to meet the competition of any other mode of transportation.

The bill that ultimately became the Transportation Act of 1940 was S. 2009, which was first passed in differing versions by both houses in 1939, but not passed in its final form until 1940.

water transportation. What these Members of Congress insisted upon was assurance that rates of water carriers would not be controlled-under the guise "of developing, coordinating, and preserving a national transportation system" in accordance with the national transportation policy-in the interest of the railroads, and they demanded specific provisions which would require the Commission to forget about other forms of transportation when passing on rates for water carriage and to guard the inherent advantages of that form of transportation. But not only did the Members of Congress demand such assurances, they received them in the form of specific statutory provisions.

At the time the Transportation Act of 1940 was in conference, there was added to the ratemaking rule 2 in each of the three parts of the act the italicized phrase quoted below:

"In the exercise of its power to prescribe just and reasonable rates *** the Commission shall give due consideration, among other factors, to the effect of rates on the movement of traffic by the carrier or carriers for which the rates are prescribed * * *”

Moreover, in connection with the same legislation, the Congress added a proviso to the antipreference provisions in each part to the effect that they should not be construed to apply to discrimination, prejudice, or disadvantage to the traffic of any other carrier of whatever description. Professor Oppenheim in his book, The National Transportation Policy and Inter-Carrier Competitive Rates (1945) states, at p. 51:

"Both amendments grew out of the insistent demands of the water carriers for safeguards against nullification of their inherent advantages by forcing their rates to the level of competing rail rates. Fear was expressed that, by reason of its background of railroad regulation, the Commission might administer the act in a manner that would permit the railroads to achieve their purported aim of preventing differential lower rates for competing forms of transport."

Further and unmistakable evidence of the legislative intent is found in the rejection by the Congress of the so-called Miller-Wadsworth amendment of May 24. 1939. That amendment would have clearly spelled out the right of each form of transportation to make compensatory rates "in order that the public at large may enjoy the benefit and economy afforded by each type of transportation." In the comments of the Commission on the proposed legislation, it is said: **** Apparently it is feared that the Commission might, merely to protect to competing carrier of another type, prevent a carrier from reducing rates, notwithstanding that when reduced they would still cover all costs, plus a profit *** In our judgment, the provision in question is not necessary in order that the public at large may enjoy the benefit and economy afforded by each type of transportation. The requirement in the ratemaking rule that the Commission give due consideration to the effect of rates on the movement of traffic by the carrier or carriers for which the rates are prescribed and also to the need in the public interest, of adequate and efficient transportation by such carrier or carriers at the lowest cost consistent with the furnishing of such service, coupled with the admonition in the declaration of policy in section 1 that the provisions of the act be so administered as to recognize and preserve the inherent advantages of each mode of transporation, will afford adequate protection in this respect. If experience should show that further protection is needed, contrary to our expectation, Congress can then amend the act by such a restriction as is now proposed is, we believe, both unnecessary and undesirable." [Italic supplied.]

There had been a similar understanding when, 5 years earlier, the motor carriers had become subject to the Motor Carrier Act of 1935, now part II of the Interstate Commerce Act. At that time, the Congress provided the motor carriers with their own "Declaration of policy and delegation of jurisdiction to the Interstate Commerce Commission" which made clear the “policy of Congress to regulate transportation by motor carriers in such manner as to recognize

Pt. I. sec. 15 (2): pt. II, sec. 216 (1); and pt. III, sec. 307 (f). See S. Rept. 433, 76th Cong., 1st sess., May 16, 1939, at pp. 2-3.

3 Proviso in pt. 1. sec. 3 (1), reading:

"Provided, however, That this paragraph shall not be construed to apply to discrimination. prejudice, or disadvantage to the traffic of any other carrier of whatever description." Comparable provisos are found in pt. II, sec. 216 (d); and pt. III, sec. 305 (c).

H. Rept. No. 2832, 76th Cong.. 3d sess. (second conference report on S. 2009), at p. 88: 84th Congressional Record 6073: 86th Congressional Record 10187. 10191, 10192. 5 Letter from chairman of the Legislative Committee, Interstate Commerce Commission, entitled "Omnibus Transportation Legislation," 76th Cong., 3d sess., on S. 2009 (January 29, 1940), at p. 51.