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Mr. HINSHAW. No; you have mostly commodity rates.

Mr. Smith. You do where you have a movement, and where you have got them established. But where you have movements that are

against the grain, we will say, or to communities outside of the regular ae edition of the tariff, you have lots of class rates. al

Mr. HINSHAW. You say in here: 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 defenrej sive needs caused by the changing international situation.

Is that a good reason for having a lesser rate, or a higher rate ? org

Mr. SMITH. No; it is a good reason for getting a rate promptly, such as we would have under this legislation, and as we have under present legislation.

Mr. HINSHAW. If the rates have not been filed, the carrier has a e right to file a rate at any time, and 30 days later, of course, it may be

approved by the Interstate Commerce Commission. But if no rate :6 is in existence, they can file a rate, can they not?

Mr. SMITH. They can file it, but it would become effective on 30 days' notice. hu Mr. HINSHAW. That is correct. On the other hand, the Government

of auditing of rates is considerably further behind than that, is it not? I Mr. SMITH. Oh, yes, considerably. But I do not think that has any mt bearing, since carrier bills are paid promptly on presentation.

Mr. HINSHAW. And then you say: Then, too, a proper rate structure for an establishment as large as the Department of Defense cannot be accomplished overnight.

I do not know what that has to do with it.

Mr. Smith. Well, it has this to do with it: The military movement, as great as it is today, is a big movement, and it is one for which ulti

mately the rates should be so adjusted that you might not need a secE tion 22 or anything like it. But it is such a vast job that you cannot

do it in a short period of time. Maybe in 4 or 5 years we would not be in here talking about a section 22.

Mr. HINSHAW. Now, if I may, I would like to refer to the next parae graph and read fairly well along in it. It says:

Another important distinction between traffic of private ind al shippers and receivers and traffic of the military departments is the time element. Milie tary 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 of 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. And then we go on with a lot of movements that took place during the war. Did we not have during the war the Office of Defense Transportation ?

Mr. SMITH. Yes, sir.

Mr. HINSHAW. Did they not provide cars and equipment and practically govern the railroads and the carriers during the war?

Mr. SMITH. I think that is true.
Mr. HINSHAW. Then what does this reference have to do with it?

Mr. SMITH. They had absolutely nothing to do with freight rates, nothing whatever.

Mr. HINSHAW. I do not know whether I should read that again or not. You are referring, I believe, to the establishment of rates quickly.

Mr. SMITH. That is right.

Mr. HINSHAW. That is right. And is there anything in a war situation that does not enable a rate to be established at any time subsequent to the action? Do you expect to establish rates now for any 5 p. m. action in any direction whatsoever that may be caused to move, that is, the Defense Establishment may cause to move?

Mr. SMITH. If we haven't any knowledge of when it might come, we would certainly not expect to establish anything in advance.

Mr. HINSHAW. Nor at 5 p. m., would you, at the time the movement is supposed to take place?

Mr. SMITH. We might do it the next day and get it retroactive.

Mr. HINSHAW. Well, you can do it 30 days from now and get it retroactive.

Mr. SMITH. Not under today's law, you can't.

Mr. HINSHAW. The carrier can make a rate any time he wants to and file it with the Interstate Commerce Commission, and you can knock it down within 30 days.

Mr. SMITH. Yes, but the carrier cannot make it retroactive, and if we have a movement on the higher rates, we could not do anything about it unless we had a litigation proceeding and tried to prove the higher rates unreasonable. Mr. HINSHAW. Well,

renegotiation enters into the thing also, and claims, and so forth. The services and the industrial shippers and everybody else have had claims filed for as long as 5 or 10 years ago, I believe, in some instances.

Mr. SMITH. If a reduced rate were filed today effective 30 days from now, in the interim the traffic would move on the higher rate, and the only way we could recover would be through a complaint through the Interstate Commerce Commission to seek authority for reparation by the carrier. That is the thing we would like to avoid.

Mr. HINSHAW. Now, more or less in conclusion, I hope, of this subject: You have stated, on page 6 of your testimony, that from January 1, 1955 to December 31, 1955, the rail negotiated rates constituted 26.6 percent of the

Mr. SMITII. Of the rate tenders.
Mr. HINSHAW. The rate tenders under section 22?
Mr. SMITH. Yes.
Mr. HINSHAW. And the nonnegotiated rates, 73.4 percent.
Mr. SMITH. Yes, sir.

Mr. HINSHAW. I am sorry, but I do not quite get what you are referring to there. Maybe I misunderstand.

Mr. SMITH. Well, the 586 plus the 1,618 are the total rate tenders received by the military departments from the railroads during that year. Now, we negotiated for 586 of those rate tenders, which was 26 percent, but we did not negotiate for the 1,600, and never did ask for them. They were voluntarily given to the military departments, without any solicitation on our part.

Mr. HINSHAW. Did you use them?
Mr. SMITH. We probably did.
Mr. HINSHAW. But otherwise they were just filed with the military?

Mr. SMITH. That is right. And in turn with the General Accounting Office and other places where we have to file them.

Mr. HINSHAW. The 586 rates that you negotiated I presume applied to actual shipments?

Mr. SMITH. They were sought for actual movements; yes, sir.

Mr. HINSHAW. Is the dollar volume or ton mileage available? That figure?

Mr. SMITH. You mean the amount of traffic that moved under the 586? Is that what you mean?


Mr. SMITH. I expect maybe it could be, with a great deal of effort, brought together. But it isn't available in one place today.

Mr. HINSHAW. Is it a large amount?
Mr. SMITH. Yes, I expect it would be a rather large amount.
Mr. HINSHAW. Are those rates determined to be compensatory?

Mr. SMITH. Yes, sir. If they are not compensatory, we don't intend to ask for them. We make a study to determine what we think should

be a reasonable compensatory rate before we ever seek it. Mr. HINSHAW. Are they what we call fully compensatory, or merely out-of-pocket compensatory? • Mr. SMITH. Well, we think they contribute something to the profit or the overhead of the railroads in addition to the out-of-pocket.

Mr. HINSHAW. You say the profit, or the overhead!

Mr. SMITH. Yes. * Mr. HINSHAW. Well, of course, that is a big difference. "Contribute to the overhead” means they are slightly more than out-ofpocket.

Mr. SMITH. I will say this: If the railroads think in their opinion they do not contribute something more than the out-of-pocket costs, they should not give them to us. That is more for their judgment than it is ours. If they think we have gone too low, they certainly should raise the ante. 1. Mr. HARRIS. Will you yield ? 5 Does it only apply to railroads? I Mr. SMITH. Oh, no. No; railroads, motortrucks, water lines. It doesn't apply to airlines. It doesn't apply to pipelines or airlines, but it applies to surface transportation.

Mr. HARRIS. Then your statement as to the railroads a while ago would apply to motortrucks.

Mr. SMITH. Yes, we are coming to motortrucks in that next item he is talking about.

Mr. HINSHAW. You point to 321 rates negotiated by you with motor carriers, amounting to 1.8 percent of the number of rates filed, I take it.

Mr. SMITH. Could I point out here that the 321 may not mean 321 rates. It may mean a thousand rates. It was 321 rate tenders. Some of them might apply to an area where there would be dozens of rates. But there would be 321 tenders, which probably does not make much difference as far as your questioning is concerned.

Mr. HINSHAW. And I take it that similarly the motor carrier nonnegotiated tenders of 16,641 were just a number of documents filed with the defense establishments; is that correct?

Mr. Smith. Yes. A great many of them were filed to maybe meet something that had been filed by the railroads or something filed by one motor carrier to meet another motor carrier, or something of that you?

character, which in the final analysis meant nothing to the Department of Defense insofar as dollars are concerned. Just a “me too" proposition.

Mr. Hinshaw. Then your statement that 98.2 percent of the tenders were nonnegotiated does not mean anything, does it?

Mr. Smith. Well, it means that we had to do all of the administrative work associated with those.

Mr. HINSHAW. Of receiving them?
Mr. SMITH. Yes.
Mr. HINSHAW. I suppose you filed them in the circular file, did

Mr. SMITH. Oh, no. You can't do that. No, sir. They have to be kept available and filed with the General Accounting Office. You can't throw them in the round file.

Mr. HINSHAW. I am surprised. But at least you do not know what percentage of those rates you availed yourself of, do you?

Mr. SMITH. Offhand, no.

Mr. HINSHAW. Then, of course, it has no meaning, except as a pile of paper.

Mr. SMITH. That is right. It is a burden on us. That is what we are trying to show: that it is a burden on us to take care of all those.

Mr. HINSHAW. Let us go back to the advantages that you list, on page 4. I am kind of working back in your statement, you see. You say:

The principal benefits to both the ca iers and the Department of Defense, in the utilization of the provisions of section 22 of the act, are as follows: Now, obviously if section 22 were amended by H. R. 525, these advantages would appear, most of them, equally well. For instance, the rates, fares, charges, and rules and regulations have already been established, have they not?

Mr. SMITH. No.
Mr. HINSHAW. Oh, I thought they were in the tariffs.

Mr. SMITH. Well, there are some rates and fares and charges in the tariffs. But anybody would be foolish to pay them without some adjustment to a reasonable basis.

Mr. Hinshaw. Why is that! They are established, are they not? In other words, section 22 gives you the opportunity to negotiate. Now, if you take that opportunity away, of negotiating a rate, then the rate is established, is it not? It is established expeditiously?

Mr. SMITH. No. Section 22 has nothing to do with the negotiation. We can negotiate at any time with or without section 22. But after the negotiation has been completed, then is when section 22 comes into play. It gives the carrier an opportunity to do the publication or to provide a rate tender overnight, or in 15 minutes if he wants to do it. He doesn't have to print a tariff. He doesn't have to file with the Interstate Commerce Commission. He doesn't have to wait for 30 days. He doesn't have to think about the fourth section. He doesn't have to think about suspension. It is there.

Mr. HINSHAW. Well, of course it is, because he just simply says, “I'll carry it for so much.” And it may be different one time or another. But if the rates were the rates established by the Interstate Commerce Commission, and not subject to negotiation, then, of course,

they would be established expeditiously, would they not? Already established ?

Mr. Smith. Yes, but I do not think we will ever come to that day in our time.

Mr. HINSHAW. Well, they did not think that we would repeal the Land Grant Rate Act, either, but we did.

Mr. SMITH. There will always be a rate of some kind in the tariff for the movement of traffic. But surely the Government would not be expected to pay those on Government traffic if they are unreasonably high. And that is the difficulty today.

Mr. Hinshaw. Now, you say one of the advantages of utilization of section 22 is that retroactive application may be authorized where justified. Retroactive application for how long may be justified?

Mr. SMITH. I think we have had retroactive applications that went back as far as 6 months. In other words, the negotiations were started, and it took, we will say, 6 or 7 months to agree upon them, to agree upon what we were seeking. And after that was agreed upon, then they were made retroactive back in one instance, I believe, as far as 6 months. That is very, very unusual. .

Mr. HINSHAW. Well, I would hope so. Because apparently the carrier had figured that he had that much money in his pocket, and then you renegotiated the rate and took it away from him. Another advantage is that the cancellation of the quotation may

be accomplished quickly when need for the quotation no longer exists?

I don't see that that is an advantage.

Mr. SMITH. I do not think that is worth wasting time on, because I would more or less agree with you that it is not any advantage. Although there might be some cases where, if a rate were established in the tariff and used by somebody, somebody else might find reason for complaining about a cancellation. I do not place much weight on that item (c).

Mr. HINSHAW. Thank you.
Under (d), you say:

Rates, fares, charges, and rules and regulations are not subject to suspension by the Interstate Commerce Commission. In other words, as I understand it, you would substitute the judgment of the Defense Establishment for that of the Interstate Commerce Commission, which is supposed to establish just and reasonable rates, and under the terminology "just and reasonable rates” you mean such rates as may, under economical management, and so forth, yield a return of something like 61/2 or 7 percent, do you

not? Mr. Smith. Well, under the proposal which is here before the subcommittee, the rates would not be subject to suspension, but they would be subject to all other provisions, which is sections 1, 2, and 3, for example. In other words, they might go into effect, but they might be attacked by a complaint tomorrow, when the Commission would have to determine their reasonableness, the same as they would any other rate. Mr. HINSHAW. Then, under (e), you say:

Section 4 of the Interstate Commerce Act does not apply to inhibit the military departments using rates over circuitous routes more advantageous to Departments for security and other purposes.

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