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And that is listed as an advantage to section 22.

Mr. SMITH. Yes, sir.

Mr. HINSHAW. Do you mean to say you can order rates over a circuitous route and obtain the same total rate as you would over the direct route?

Mr. SMITH. That is true under section 4. What we mean here is that we can get these departures from section 4 without the carriers first having to get approval of them from the Commission, which would have to be done under section 22.

Mr. HINSHAW. That is correct.

Mr. Smith. And there are cases where circuity is a feature in connection with this, because it happens that we move traffic over routes which would cause a violation of section 4 in the ordinary course of business.

Mr. HINSHAW. Not being thoroughly familiar with such business, and not understanding why you would want to move military traffic over circuitous routes, there are no Indians in this country nowadays, and they are not going to be fooled by the direction in which you start out.

Mr. SMITH. You may have overlooked the fact that we have shipments in the military departments which for height reasons or width reasons cannot go over certain routes, because of the clearances of the tunnels and bridges.

Mr. HINSHAW. Why should you not pay more, then, to go circuitously? You cover more mileage and have more ton-miles. Fou incur more expense.

Mr. SMITH. Wait a minute. We have to pay the rate that applies over that route. But it may be a rate that would be less for the longer haul than it would be for the shorter haul.

Mr. HINSHAW. That goes back to the land grant rates, then.

Mr. SMITH. We have to pay the rate that applies over the route we use.

Mr. HINSHAW (reading):

(f) Security as to the commodity, movement, and other conditions often required in movement of highly classified material can more effectively be provided through the medium of section 22 publication.

Well, I suspect that we cannot inquire too closely into highly classified material, although I have been dealing with highly classified material for quite a few years in the Joint Committee on Atomic Energy, and they managed to get around the country.

Mr. SMITH. I think all the traffic of the Atomic Energy Commission moves under section 22 rates.

Mr. HINSHAW. I think probably it does. They could establish a rate for special material very easily if they wanted to, by classifying special material as special material A, B, and C. And that could be done very neatly, and nobody would be fooled

(9) Rates negotiated between the carriers and the Department of Defense which are published by the carriers pursuant to section 22 do not place a burden on commercial shippers, inasmuch as they are fully compensatory to the carriers. Are you sure that you mean that statement?

Mr. SMITH. So far as the Department of Defense is concerned, I mean that statement generally, yes, sir.

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Mr. HINSHAW. Is not the term "fully compensatory” such as to include a fair and reasonable profit and all of the overhead?

Mr. SMITH. Yes, sir.
Mr. Hinshaw. Then it is a just and reasonable rate, is it not?

Mr. SMITH. We think they are all right, or we would seek lower he rates.

Mr. HINSHAW. Well, I think that that is enough questioning on that score. I could go on to the disadvantages, and I would find criticism of that section, too, but I think we have covered enough, here.

Mr. SMITH. I might point out there, in connection with the advanna tages, as to that item (9): I think it was perhaps poor preparation m on our part to call that an advantage. That should have been merely y a statement of fact, rather than being shown as an advantage. The

point isn't material, but I think we did a poor job of preparing that Elle part of the statement.

Mr. HINSHAW. Mr. Smith, I might say to you that the Congress has a long felt that the Government should not be a preferred shipper

except to the extent that cars should be made available and routes

open, and that the shipments should be expedited as rapidly as is reahis sonably possible, and that whenever a conflict occurs, of course, the di entire transportation facility of the United States, by all means, is i tu available to the Government at whatever time it wants, and the Gov

ernment regulates the traffic. It regulates the amount of civilian

traffic and places priorities on it, and it has full control. And that u is the reason why we have to have a transportation system, so that

traffic can move. lis Now, if you do not pay the rates necessary to yield a fair and reague sonable profit for return on the investment, then somebody else has got to. I think that is a corollary; is it not !

Mr. SMITH. I think it is. But after spending 30 years on the industrial side of the picture and 21/2 years on the Department of Defense side, I will say that the rate level paid by the Department of Defense is as high as paid by industry, and there is no preference in the Department of Defense in the revenue derived from its traffic.

Mr. HINSHAW. Well, if that is the case, then what is the objection to knocking section 22 out, as far as the Defense Establishment is concerned! If their rates are just as high; because the commodity rates apply. That is what I would like to know. I do not see the argument.

Mr. SMITH. The argument is that section 22, or modified section 22, as presented in this legislation

Mr. HINSHAW. I am going to have an awfully hard time going to that page 2 of the bill._ "I will talk about that after you get through with your statement. I am sorry to have interrupted you.

Mr. SMITH. That is merely the vehicle by which the Government, and I am speaking particularly of the Department of Defense, is able to get quickly and conveniently a basis of rates which is reasonable to the carrier, reasonable to the Department of Defense, and reasonable to the taxpayer, whereas we would otherwise pay rates which would be unreasonable to the Department of Defense and to the taxpayer.

Mr. HINSHAW. Well, the taxpayers are the shippers and the consumers, and the consumers pay the rate finally for any shipments. And they pay the cost for the transportation system of the country ultimately, do they not?

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Mr. SMITH. Yes, and I think the Department of Defense pays relatively more than the commercial shippers pay.

Mr. Hinshaw. That has to be demonstrated. In other words, there is a Q. E. D. on that. And if you say they now pay 14 percent more, then I will submit to you a little later on, if you will sit back here and watch, some carriers that will claim the opposite. And it probably is 14 percent below commodity rates, especially in certain types of shipment.

Mr. SMITH. That was not our calculation. That was the calculation of the Bureau of Transport Economics and Statistics of the Interstate Commerce Commission.

Mr. HINSHAW. Well, I do not know whose calculation it was, but I think it can be demonstrated.

Mr. Chairman, I suspend and thank the gentlemen for his patience with me and his courtesy in answering the questions.

Mr. HARRIS. Mr. Hale, any questions?
Mr. HALE. Yes. I have 2 or 3.

On this question of circuitous routes: On page 16, you mention the north Africa and Normandy invasions. You say it was necessary to move 9 divisions of troops and their supporting equipment through 2 east coast ports, which was accomplished with a single set of transportation equipment, which you say means 1 railroad.

Mr. SMITH. No, I probably should have said by one mode of transportation, as well as one set of transportation equipment. It was all done by the railroad.

Mr. HALE. All done by the railroad. Actually, in the case of north Africa, for example, did everything clear through one port?

Mr. SMITH. Throught 2 ports, 2 east coast ports.

Mr. HALE. Is there anything classified about that now? What were the ports?

Mr. SMITH. I couldn't tell you. Mr. FLYNT. Norfolk and New York, I think. Mr. SMITH. New York and Hampton Roads. Mr. HALE. When, for example, you shipped the division through Norfolk, you did not get the same rate as you did shipping it through New York. You did not mean that?

Mr. SMITH. I don't think we have any reference here to what we paid. It is merely a matter that perhaps some of this traffic might ħave moved down through Birmingham in order to get up to Norfolk, but we had the privilege of circuity, here, in order to keep the traffic moving without congestion.

Mr. HALE. Yes. And I suppose if these east coast ports had been threatened for any reason, you might have wanted to use 6 or 8 instead of 2.

Mr. SMITH. That is right. And we might have wanted to use those on the gulf instead of those on the east coast.

Mr. HALE. Yes, but you say: "It does not apply to inhibit the military departments using rates over circuitous routes more advantageous to Departments for security and other purposes.” When you use a circuitous route, you pay the regular rate for the circuitous route, don't you?

Mr. SMITH. That is right. We pay the rate that applies over the route of movement.

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Mr. HALE. In other words, you can ship anywhere you please and pay the rate for the route which you select; is that right!

Mr. SMITH. Yes, but we might get some adjustment of the rate over that route, if it is considered to be too high.

Let's see if some member of my staff can't give you a clearer answer on that.

Mr. Francis X. Dunleavy can maybe give you a better answer on that.

Mr. DUNLEAVY (Francis X. Dunleavy), assistant for traffic management). I didn't get the question, Mr. Hale.

Mr. Hale. I had better ask a new question. When you shipped, for example, through Norfolk, you paid regular rates through Norfolk; didn't you?

Mr. DUNLEAVY. Yes, sir. Are you referring to this instance with respect to the nine divisions ?

Mr. HALE. Yes, that is the point.

Mr. DUNLEAVY. In that particular situation, those troops were moving from all parts of the country. The situations that confronted the military at that time were terrific shortages of equipment. Now, in order to move a division of troops and its equipment, it involves a minimum aggregate of 75 to 100 trains. In the face of that situation, arrangements were made with the railroads to set up a single set of equipment to accommodate a certain portion of the total moved. Then, through the movement of those troops and their equipment over routes over which traffic normally would not move, it was possible through the medium of section 22 to eliminate any normal obstacles that you would find in the tariffs to such moves.

Now, for example, how that can work: A movement from Camp Lejeune: passengers moving by rail from Camp Lejeune, N. C., as an example, to Norfolk. The only passenger service you would normally have by rail, through service, would be south to Wilmington, and north on other lines connecting with Norfolk. That is the way your through rates would apply. But under section 22, in the instance of the Norfolk & Southern Railroad, which is normally a freightcarrying railroad, troop movements would move direct over the freight line in passenger service. You do not have normal arrangements for the public on such movements. Section 22 works to the advantage of the military in such an instance.

Mr. HALE. You have got special passenger rates over a line which did not ordinarily carry passengers.

Mr. DUNLEAVY. That is correct.
Mr. HALE. What you might call an ad hoc rate.
Mr. DUNLEAVY. If you wish to use that term, yes.
Mr. HALE. Well, I like that term.

Mr. DUNLEAVY. Many movements where for example you move troops and their impedimenta, such movements are top secret, and to have to deal with them on a public basis would be really acting in an imprudent manner from the standpoint of security. In fact, it would be practically impossible.

Mr. HALB. But if you moved troops over ordinary passenger routes, do you not pay ordinary passenger fares ?

Mr. DUNLEAVY. We have in effect, under probably what you would call the auspices of section 22, passenger agreements which grant to all travelers moving for the military a 10-percent reduction.

Mr. HALE. A 10-percent reduction?

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Mr. DUNLEAVY. Yes, sir. Mr. HALE. Is that under section 22? Mr. DUNLEAVY. Yes, sir. Mr. HALE. That is all. Mr. HARRIS. Any further questions? Well, gentlemen, thank you very much. Does that conclude all you have to say at this time? Mr. ROTHSCHILD. Mr. Chairman and gentlemen, this does conclude all that we had to say, and we have said it through our statements and through subsequent answers to questions. At this time we would, however, as Mr. Weeks indicated in his opening statement, like to have the privilege of either adding to the record or answering some points at a later time, if your schedule will permit that.

Mr. HARRIS. Well, ordinarily we do ask the agencies involved in these matters to hold themselves available for the committee on any matter in which we feel it might be helpful. So you will undoubtedly be called upon for further information later on down the road. And at that time, of course, you may complete the record as you desire.

Mr. Hinshaw wanted to ask you another question, Mr. Smith.

Mr. HINSHAW. I just wanted to ask Mr. Smith whether the Gorernment-furnished equipment on contracts for defense materials was shipped under section 22 of the determination of rates, or whether it was shipped under commodity rates.

Mr. SMITH. I do not believe I got the question.

Mr. HINSHAW. A great deal of the material that is supplied to the Government under defense contracts requires that certain portions of the material shall be Government furnished. In other words, you acquire engines for airplanes from Pratt & Whitney, from the General Electric Co., the Westinghouse Co., and the General Motors subsidiary, whatever its name is. Now, do you pay commodity rates on those shipments, or do you pay section 22 rates?

Mr. SMITH. I think it would be a combination of both. A good deal of that traffic would move on Government bills of lading, and there is a possibility that if there is a commodity rate established, which is considered to be reasonable, that would be paid; on the other hand, if it were felt there was a class rate which was too high, unreasonably high, it might be a reduced rate provided to us through a section 22 tender. It could be a combination of both.

Mr. Hinshaw. Why would it not be a commodity rate!

Mr. SMITH. It would not be a commodity rate if there were no commodity rate there, or if the commodity rate were considered to be unreasonably high.

Mr. HINSHAW. Who is going to consider it unreasonably high!

Mr. SMITH. The Department of Defense, together with the carriers involved.

Mr. HINSHAW. That is what I was talking about a moment or two ago, somebody else substituting its judgment for the Interstate Commerce Commission, which is appointed to represent the Congress for just that very thing.

Mr. Smith. I think that is one of the advantages of this proposed modification in the bill. Because then the Interstate Commerce Commission can be the judge, where they cannot today.

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