timony, namely: (a) control, but not stop, the granting of special rates to the Government; (b) put the special rate tenders in proper format and organizational context so that such documents may be easily read and interpreted; and (c), eliminate the administrative burden now experienced by the military departments.

PHASE 3

** Provided, however, That (a) such rates, fares, charges, and rules and regulations may be filed on short notice, or made retroactive, where the circumstances so warrant. * * *

This proviso would authorize filing of rates on short notice (perhaps 1-day notice) or permit them to be made retroactively, where warranted. This would preserve an important feature of ratemaking for the Government. Emergencies arise where time does not permit negotiation with the carriers-let alone filing with the regulatory bodies on statutory notice. In such instances it is necessary to commence shipping and engage in after-the-fact negotiation with the carrier. The above proposal would embed in statutory language the existing practice.

PHASE 4

[Provided, however, That] "(b) the provisions of the Act with respect to filing, publication, and posting of tariff schedules and contracts may be waived where the security of the United States so requires upon the filing of an appropriate statement in writing with the Commission by the head of the Government agency concerned."

The element of "security" is of no less importance than the elements of "emergency" and "level of rates." Military traffic and its movment must be surrounded with at least minimum standards of security if not complete security. Under section 22, rates on military traffic can be negotiated with carriers without the fanfare and publicity attendant to normal publication of rates under section 6 of the Interstate Commerce Act. The above provision would merely continue in effect the advantage implicit today in section 22, namely, security protection of the movement of military traffic and particularly patterns of traffic, which can be ascertained from publicly filed documents.

PHASE 5

Such rates, fares, charges, and rules and regulations shall not be subject to suspension or to the provisions of section 4, but shall be subject to all other applicable provisions of the Act.

The above provision would prescribe suspension of the rate adjustment by the Interstate Commerce Commission, and preclude application of section 4 of the act to such rates. Making subject to the suspension provisions of the Interstate Commerce Act, any rates, fares, charges, and rules and regulations for special application to traffic of the Government would completely frustrate the very objective of a provision in that act for special Government rates to meet the peculiar transportation operating problems of the military departments.

Carrier and shipper interests would very often request suspension of such special rates for various reasons. The objective of carriers seeking suspension would probably be primarily to arrest temporarily or permanently any competitive advantage which might accrue to the

carrier or carriers filing the special rate. The special rate, of course, could not be used if suspended by the Interstate Commerce Commission. In fact it might never be available, depending on the course pursued by the proponent carrier. If the proponent carrier should elect to cancel rather than defend the establishment of this special rate and go through the expensive and protracted investigative procedure, it could never be used by the military departments. In any event the rate, if suspended, could not be used until the termination of an expensive and protracted rate hearing. Consequently the military departments could not hope to take advantage of a special Government rate, if suspended, until a favorable decision had been reached by the Interstate Commerce Commission with respect thereto.

Such suspension and investigative proceedings would divert on a massive scale, the employment of the limited traffic management personnel into areas of litigation, rather than more important military traffic operational duties.

Rail carriers, as you know, are prohibited by section 4 of the Interstate Commerce Act from charging or receiving any greater compensation in the aggregate for the transportation of traffic for a shorter than for longer distances over the same line or route in the same direction, the shorter being included within the longer distance, or to charge any greater compensation as a through rate than the aggregate of intermediate rates. Motor carriers are not subject to section 4. Providing for relief from the application of section 4 will place all carriers on an equal footing with respect to the establishment of special rates, et cetera, for the Government.

This relief is of vital importance to the military departments in the following respects:

(a) It will eliminate delay in processing special Government rates; (b) It will permit the establishment and application of rates over routes via which such rates would ordinarily be prohibited; and, (c) It will aid in the protection of traffic requiring unusual security

measures.

The proposals in phase 5 above will merely continue in effect the practices now permitted under section 22 with regard to application of the "suspension" and "long and short haul" provisions of the Interstate Commerce Act.

PHASE 6

Transportation services rendered by carriers subject to the Act for such governments other than under such rates, fares, charges, and rules and regulations of special application shall be subject to all the provisions hereof: Provided, however, That the provisions of the Act with respect to filing, publication, and posting of tariff schedules and contracts may be waived where the security of the United States so requires in the manner provided herein with respect to waiver for those of special application.

The third, fourth, and fifth phases of proposed section 15a (5) in section 8 of the bill which I have discussed would automatically preclude the application of certain provisions of the Interstate Commerce Act to rates, fares, charges, and rules and regulations of special application on shipments of the Government. But it is obvious that not all shipments of the Government move today under special rates, fares, charges, and rules and regulations provided under section 22 of the act nor would all such shipments of the future move under special

rates, fares, charges, and rules and regulations provided under proposed section 15a (5) of section 8 of the bill. As a matter of fact, the preponderance of military freight traffic moves today under rates, charges, and rules and regulations which are duly published by the carriers and filed in tariff form with the Interstate Commerce Commission.

Now, the above proposed phase 6 of proposed section 15a (5) of section 8 of the bill merely provides that with respect to this particular traffic (or in connection with the transportation services rendered incident thereto) the rates, fares, charges, and rules and regulations applicable thereto shall be subject to all of the provisions of the Interstate Commerce Act. There shall be no exceptions for the Government with respect to that traffic.

This would clarify a point about which there has been some doubt and some difference of opinion under present section 22 of the act.

At this point it seems appropriate to call to your attention some cogent reasons why the military departments need flexible statutory rate authority in the Interstate Commerce Act in order to meet the exigencies of the military operations. The conditions surrounding military traffic differ materially from those surrounding industrial or commercial traffic.

The development of this country both industrywise and transportationwise has established rather definite locations of industrial production and patterns of industrial traffic. Initially when the volume of industrial traffic was small, shippers and receivers had their goods transported at so-called class rates, which were and are merely uniform mileage rates applied to each particular commodity under an established classification rating recognizing its particular characteristics. However, as the interchange of goods increased in volume, individual industrial shippers and receivers induced the carriers to establish so-called commodity rates. These commodity rates are lower than class rates and have been established by the carriers largely because of the volume shipped and the regularity of movements. Over the years the industrial commodity rate structure both in volume and pattern has developed until today private industrial shippers and receivers have a commodity rate structure for the greater majority of traffic privately moved. In Class Rate Investigation 1939 (262 I. C. C. 447), it was stated that less than 10 percent of the freight traffic of this Nation then moved on class rates.

In marked contrast to the situation prevailing with respect to these commodity rates used by private industrial shippers and receivers, a great volume of traffic of the Government moves on class rates, or would move on class rates, were it not for those rates made lower than class rates under authority of section 22 of the act. This situation is due to the fact that military installations are generally located in places remote or at some distance from the large industrial cities. These installations are constantly, for one reason or another, being deactivated or reactivated. The direction of military traffic flow is also quite different to that of industrial or commercial traffic and is under constant change due to the emphasis on defensive needs caused by the changing international situation. Then too, a proper rate structure for an establishment as large as the Department of Defense cannot be accomplished overnight.

Another important distinction between traffic of private industrial shippers and receivers and traffic of the military departments is the time element. Military traffic may, because of some emergency, require major changes in movement requirements at say 5 p. m.-obviously there is not time to negotiate rates or service arrangements or have them filed on 30 days' notice under section 6 of the Interstate Commerce Act as would be necessary in the absence of statutory sanction similar to section 22. History is replete with events providing pertinent examples. The invasions of north Africa and Normandy caused tremendous changes in operations, many of them spontaneous in nature. In one instance it was necessary to move 9 divisions of troops and their supporting equipment through 2 east coast ports. This was accomplished in 28 days with a single set of transportation equipment.

Mr. HALE. May I interrupt there, Mr. Chairman?

"With a single set of transporting equipment"; what does that mean?

Mr. SMITH. The railroads entirely. Railroad equipment.
Mr. HALE. You mean it was moved entirely by rail?
Mr. SMITH. That is right.

In the winter of 1944-45 the severe snowstorms completely dislocated the transportation system on the eastern seaboard supporting European operations-this at the same time as the Bastogne breakthrough. The military traffic involved had to move regardless but by unorthodox arrangements with carriers. Diversions of critical traffic were accomplished without severe detriment to the taxpayer and the military operation. When the Korean emergency began suddenly on June 25, 1950, it became necessary to immediately adjust our traffic patterns, and establish appropriate rates, so as to channel huge quantities of supplies and personnel to west coast ports for movement to the Korean theater. It should be emphasized that emergency movements of traffic are not peculiar only to war periods. On the contrary, day-to-day changes in logistic support constantly arise due to changes in military programs.

It should be pointed out here that there is now in the Interstate Commerce Act adequate legislative authority to give preference to the movement of military traffic in such emergencies, title 49, United States Code, section 1 (15), and title 49, United States Code, section 6 (8). Similar authority for handling rate matters is of equal importance.

The security factor is another matter which is not implicit in the industrial operation, but since we have touched on this matter previously it will not be further discussed here.

From the above it should be readily seen that section 22 has provided a very effective and expeditious medium to the carriers for according to the Military Establishment rates on military traffic comparable to commodity rates used by private industrial shippers and receivers. Stated differently, section 22 tenders of rates have been and are to the Government what commodity rates are to the commercial shipper and receiver. To take from the military departments the rates they now have in the form of section 22 tenders would be tantamount to taking from the commercial shippers their commodity

rates.

As a matter of fact, and as was explained in the 16-page monograph supplied to this subcommittee last September, "the Department of Defense follows the same procedure employed by the ethical commercial shippers in seeking rate adjustments." When a commercial shipper and a carrier agree upon a rate adjustment, the rate agreed upon is duly published in tariff form by the carrier and filed with the Interstate Commerce Commission. On the other hand when the military departments and the carrier agree upon a rate adjustment, that adjustment is made at the discretion of the carrier through the medium of a section 22 tender or quotation rather than tariff publication or amendment. Thus, it is naturally contended the Government is paying less than tariff rates.

Of course, that is true, but there seems little, if any, evidence that the rates per se, paid generally by the Government, are less than compensatory or less than would be paid by commercial shippers on like traffic, between the same points, in the same volume, and with like regularity.

Before coming to the Department of Defense I spent over 30 years in the industrial traffic management field; and now that I have lived with the Department of Defense traffic picture for 21/2 years

that everything considered, the rate level paid by the military departments is relatively higher than that paid by large shipping interests of this country. In fact, I have said over and over to the top officers of the Department that our rate level is too high. We are getting organized to do something about it. It should have been done sooner-but we in Defense are dealing with a monster of a problem. Let me conclude this particular observation by pointing out that before living with the situation at the Department of Defense. I thought the section 22 situation in the Government traffic picture was a monstrosity-among the many traffic and transportation situations in this country as a whole. That was because of ignorance of the facts.

It is believed that the proposed provisions of section 8 of H. R. 6141, creating a new section 15a (5), would preserve the desirable benefits of the Government rate provisions which are so helpful and essential to the military operations and would, at the same time, eliminate the abuses that have become associated with the use of section 22 of the act. Additionally it would preserve the competitive characteristics which should be implicit in any such legislation.

In closing let me say that we heartily support the Government rate proposal in H. R. 6141 as to section 22 and its modifications, and urge that it be favorably reported. It should be reiterated that we recommend that H. R. 525 be unfavorably reported by your committee. Mr. WILLIAMS. Thank you, Mr. Smith.

I am pleased to note that Secretary Weeks has returned from an enagagement with another committee this morning. Welcome back to our committee, Mr. Weeks.

Now, if there are any questions from the members of the committee, we will take them.

Mr. Mack?

Mr. MACK. What protection do the transportation carriers have in dealing with the Government? Aren't they at the mercy of you gentlemen and accept what you want to offer them?

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