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Mr. HINSHAW. It is a very simple little bill.

Mr. ARPAIA. I understand that that bill was not listed for this hearing when Mr. Spicer asked which were the related bills which were going to be taken up.

Mr. HINSHAW. I would like to know why. Have you a letter there?
Mr. SPICER. I do not believe we have, Mr. Chairman.
Mr. ARPAIA. Apparently this letter did not request it.

Mr. HINSHAW. This certainly is a related subject and I would expect it to be a part of these hearings. I do not know who failed to include it.

Mr. Harris. Well, of course, I might say that possibly it would be my fault; but I was not aware that the biil was introduced, and was before us at this time, or else it would have been included.

Mr. HINSHAW. It was certainly listed.

Mr. HARRIS. But in view of the fact that it does affect the same subject matter, you may cover it in the record.

Mr. ARPAIA. We will obtain a letter to incorporate in the record on that bill and do that perhaps before tomorrow.

Mr. HARRIS. Very well.

(The letter on H. R. 9177 was later received and is inserted with other letters.)

Mr. ARPAIA. The sixth is a letter dated April 19, 1956, addressed to the Honorable J. Percy Priest, chairman, House Committee on Interstate and Foreign Commerce, and signed by Anthony Arpaia, chairman, commmittee on legislation, Interstate Commerce Commission, commenting on H. R. 9772. (The letters above referred to are as follows:)

DECEMBER 22, 1955. Hon. J. PERCY PRIEST, Chairman, Committee on Interstate and Foreign Commerce,

House of Representatives, Washington, D. C. DEAR CHAIRMAN PRIEST: Your letter of May 11, 1955, requesting comments on a bill, H. R. 6141, introduced by you (by request), to amend the Interstate Commerce Act, as amended so as to provide for a stronger national transportation industry, and for other purposes, has been given careful consideration by the Commission and I am authorized to submit the following comments:

H. R. 6141, introduced May 10, 1955, would implement various recommendations made in the report of the President's Advisory Committee on Transport Policy and Organization. Before discussing the bill it appears desirable to comment on some of the general features of that report.

On page 5 of the report in the draft released at the White House, April 18, 1955, four major objectives are listed as follows:

1. Increased reliance on competitive forces of transportation in ratemaking * *

2. Maintenance of a modernized and financially strong system of commoncarrier transportation;

3. Encouragement of increased efficiency and economy in the management of all transportation services in order to give the ultimate consumer the benefit of the lowest possible transportation costs; and

4. Development of an efficient transpo tion system for defense mobilization or war. Nos. 3 and 4 above listed require no comment. There is no possibility of disagreement as to their desirability.

The report indicates that the Advisory Committee considered the second objective to be of paramount importance, as it stated on page 3 of the report:

"The public interest requires the maintenance of a sound and vigorous common-carrier transportation service by all of the available means of transport, each operating within its respective capabilities and developing in accordance with the indicated demand for its services."

With this objective we are completely in accord. Therefore, we are in favor of the recommendations of the Advisory Committee with respect to redefinition of private and contract carriers by motor vehicle (with suggested modifications), bulk commodity exemptions, freight forwarder associations, and intrastate "service deficits.” At the same time we believe that the Advisory Committee might well have favorably considered certain other measures clearly needed for improving the position of common carriers to which we have called the attention of the Congress in our annual reports of the past several years. These include the repeal of the Federal transportation taxes and adequate control of tripleasing practices. Another subject of much importance in the same connection is that of agricultural commodity exemptions, mentioned only briefly in the report with an indefinite recommendation that "the act should be clarified to indicate what exemptions the Congress now wishes to give without undue interference with the main purposes of the legislation."

The Advisory Committee's first-listed major objective, "increased reliance on competitive forces of transportation in rate making * * *” requires more extensive comment. Under the heading “Obsolete Regulation" the committee expresses the view that “in many respects, Government policy at present prevents, or severely limits, the realization of the most economical use of our transportation plant.” In the introduction to the report it states that the "underlying concept of this regulation has continued to be based on the historic assumption that transportation is monopolistic, despite the fact that the power of individual transportation enterprises to exercise monopoly control has been rapidly eliminated by the growth of pervasive competition.” These statements, we submit. are based on a misconception of the true situation.

Prior to the advent of the motor carrier, regulation was in large measure controlled by both monopolistic conditions and excessive competition. With the phenomenal development of highway transportation by for-hire carriers and by proprietary haulers, the emphasis has shifted largely, but not exclusively, from intraagency to interagency competition.

When transportation was dominated by railroads the practice of charging many times as much "for a ton of diamonds as for a ton of coal,” to use the classic example, even though there was little difference in the cost of performing the service, had universal approval. Under today's conditions strict adherence to such a practice in carrier competitive situations would be wholly unrealistic. High grade traffic, if charged substantially more than the cost of the service is readily diverted to other and unregulated forms of transportation. As a result, the regulated carriers who continued to adhere to the former practice of ratemaking would be left with little more than the traffic which others found undesirable to handle. In the face of these economic realities, the task of ratemaking has changed. Greater emphasis must now be placed upon cost and competitive considerations. This does not mean that competition should be permitted to run riot or that all existing principles of ratemaking should be made to give way to an inflexible statute requiring a fixed and rigid course of action, It means rather that there should be an orderly transition from a justifiable past practice to one that recognizes and gives effect to the exigencies of the present. We are satisfied that a careful analysis of recent action of this Commission will show abundant evidence of the recognition of the changes in the competitive transportation picture and of the fact that with few exceptions these changes may be given adequate consideration under present laws.

The history of transportation regulation in the United States shows clearly that unregulated or inadequately regulated competition may be quite as much of a public evil as unregulated monopoly. Full understanding of this fact on the part of the Congress is shown by the evolution of the Interstate Commerce Act.

Before the original enactment of the act of 1887 the Cullom Senate commitmittee, the predecessor of the present Senate Committee on Interstate and Foreign Commerce was concerned with "indiscriminate and cutthroat competition of the carriers.” As stated by an outstanding writer in this field, William Z. Ripley in his Railroads—Rates and Regulation (p. 449) “Competition had run mad.”

The most important amendments to the act from 1887 to the present time have been in the nature of restraints on that competition.

Early declarations of congressional policy regarding the restraints of competition were in substance repeated in the more comprehensive statement of national transportation policy which now serves as a preface to the Interstate Commerce Act. This statement was formulated only 15 years ago at the time of the last comprehensive revision of the act when water carriers were subjetced to broader regulation thereunder.

In the present statement of policy the Congress has directed that the act be so administered as “to encourage the establishment and maintenance of reasonable charges for transportation services without * * * unfair or destructive competitive practices.” The Advisory Committee apparently deems the removal of this last admonition necessary in order to achieve the maximum effect of "increased reliance on competitive forces of transportation in rate making.”

We do not quarrel with the view that competition in transportation under present-day conditions should be given adequate play. However, we caution agains too great a removal of restraints. Resort to the laws of the jungle with competition in full play will not produce the desired transportation system. This is recognized on page 8 of the Advisory Committee report in the statement: “There is, however, danger that unrestrained rate competition may result in undue depression of rate levels.” Complaints against reductions in rates on the claim that they unnecessarily dissipate carrier revenue frequently arise. Those complaints are by railroads against railroads and motor carriers against motor carriers. They ask protection by the Commission against such disruptive practices. If the law were amended as suggested by the Advisory Committee this source of redress would be unavailable.

It seems appropriate to emphasize what we have already suggested, that in the main the indicated objectives of the Advisory Committee may be effectuated within the framework of the present statutes. The dominant effect of the proposed legislation would be to permit all rates to gravitate to the bare compensatory level. In administering the present act this Commission has encouraged healthy competition between different transport agencies and between competing carriers in the same agency. At present one of the duties of the Commission is to determine the reasonableness of rates. What are reasonable rates is not delineated in the present act, but is left to be determined by certain standards and guideposts provided by the Congress. The avowed purpose of Congress was to foster sound conditions in transportation required in the public interest. What the report proposes and the bill would require is that the duty to establish reasonable rates be maintained, but that the Commission be left without power to restrain excesses. We seriously question the prudence of this proposal.

As a preliminary to the preparation of this report we submitted the proposed legislation to each Bureau of the Commission for thorough examination, so that we might have the benefit of their comments and criticisms on the matters with which each is particularly concerned. To a considerable extent the views thus elicited are reflected in the discussion of individual sections of the bill appended to this letter. Respectfully submitted.

J. M. JOHNSON, Acting Chairman.

APPENDIX-H. R. 6141

SECTION 1

This section requires no comment except an observation that the short title of the act might well be shortened to “Transportation Act of 1956."

SECTION 2

In this section it is proposed to rewrite the statement of national transportation policy, which is the initial provision of the Interstate Commerce Act, added thereto in 1940. Previously there had been no such general statement, although some expressions of legislative policy were included in certain particular provisions of the act. Those expressions had been interpreted by the courts and this Commission as indicating the hopes of Congress concerning the practical working of the provisions in question rather than as specific directions.

When the 1940 legislation was under consideration we made the following comment to the congressional committee chairmen immediately concerned with the bills then pending:

"A statement of the policy of Congress is often useful as a guide in the construction and interpretation of specific provisions imposing duties or prohibi.

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tions or making certain actions or results lawful or unlawful. It is, however, an inapt and maybe an ineffective way of making law.”.

We also pointed out the dangers of lack of clarity in such statements. Our experience with the existing statement makes it desirable to repeat those words

of caution. ri

Necessarily statements of this kind must be couched in very general terms, which are susceptible of various interpretations. The Advisory Committee is

of the view that the “tone" of the present statement (and others) "as inter1

preted, has been relied upon to justify the substitution of the judgment of the regulatory body for that of management."

Every exercise of regulatory authority to some extent involves a limitation upon the freedom of action of management. This Commission, however, med throughout its history has undertaken to refrain from encroachment on carriers' 19 managerial functions to the fullest degree possible in performing its statutory

duties.

The proposed policy “to reduce economic regulation of the transportation industry to the minimum consistent with the public interest” would constitute a continuing source of confusion, as an arguable question would arise in each instance of possible exercise of regulatory authority as to the scope of “the minimum consistent with the public interest." In our opinion the Congress should not attach such a restriction to the performance of administrative functions for which it finds a need.

There are other expression in the proposed statement which have an uncertain meaning. Whạt would be the characteristics of a transportation system developthe ed “under the free enterprise system of dynamic competition'? What criteria are

to be used in judging the financial soundness of a “national transportation industry by water, highway, and rail, as well as other means” shaped by competition of that kind? What steps are necessary to encourage technical innovations, the development of new rate and services techniques, etc."'? What is the nature of the contemplated "innovations" and "techniques” and how can they be brought about by administrative action or inaction?

These questions are not raised in any spirit of faultfinding. They are suggested mu by the fact that such phraseology doubtless will cause the courts to speculate as ed

to whether the Commission in a particular determination has duly considered

the bearing of the policy statement on its action. Unless the statement is simple ft and definite, complexity in the administrative process is inevitable. For the

foregoing reasons we urge that if a statement of national transportation policy is considered desirable the present statement be modified only after careful consideration.

SECTION 3

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In this section it is proposed to make certain formal amendments to paragraphs (4), (5), and (6) of section 1 of the Interstate Commerce Act, considered necessary for consistency with proposed amendments to other sections of the act for the purpose of prohibiting the Commission from prescribing maximum and minimum rates.

Under section 1 (4) it is now the duty of common carriers subject to part I of the act to establish reasonable through routes and "just and reasonable rates, fares, charges, and classifications applicable thereto." The proposal is to change the wording with respect to rates, etc., to “rates, fares, charges, and classifications, regulations, and practices to be applied in connection therewith which result in charges not less than just and reasonable minimum charges nor more than just and reasonable maximum charges."

The present wording is substantially the same as it was before 1920 when the Commission was empowered to prescribe maximum reasonable rates only. Even if our powers to prescribe rates were changed as proposed, no correlative modification of section 1 (4) would be necessary, but the matter is of no practical importance.

The foregoing observations apply in principle also to the proposed amendments to section 1 (5) and (6).

Editorially, it appears that the word “to” in line 1, page 4 of the bill should be changed to “of."

SECTION 4

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In this section it is proposed to make a fundamental change in section 4 (1) of the Interstate Commerce Act, comprised of the long-and-short haul and aggregateof-intermediates clauses together with a proviso which permits the Commission to authorize exemption from the prohibitions of those clauses under administrative procedure classed as licensing.

Under the proposed amendment the prohibition of violations of the long-andshort-haul clause would be continued but rates in excess of aggregates of intermediate rates would not be prohibited. Thus section 4 (1), exclusive of the proviso, would read as follows, the present words which would be omitted being italicised:

"It shall be unlawful for any common carrier subject to this part or part III to charge or receive any greater compensation in the aggregate for the transportation of passengers, or of like kind of property, for a shorter than for a longer distance 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 the intermediate rates subject to this part or part III, but this shall not be construed as authorizing any common carrier within the terms of this part or part III to charge or receive as great compensation for a shorter as for a longer distance:"

This would be subject to the following new proviso:

Provided, however, That such common carrier may charge less for longer than for shorter distances for the transportation of passengers or property if the charge established to or from the more distant point (a) is necessary to meet actual competition of another carrier or carriers, and (b) is not less than a just and reasonable minimum charge.”

Apparently the advisory committee is of the view that this amendment would free the rail and water carriers from what is regarded as a burdensome procedural requirement, for it refers to the change in a recommendation phrased as follows:

“Remove requirement that rail or water common carriers obtain prior approval for charging greater than aggregate of intermediate rates, and for charging less for longer than for shorter distances * * * if necessary to meet actual competition and the charge is not less than a minimum reasonable rate."

As the proposed amendment is worded it might well be more burdensome to the carriers than the present section 4 (1). Long-and-short-haul departures per se would continue to be unlawful as they are today, but the machinery for granting exemption through a license from the Commission would be abolished. Carriers which published tariffs embodying departures. presumably could be subject to prosecution under section 10 of the act, which provides a fine of not more than $5,000 to be levied against a common carrier or its officials, etc., who “shall willfully do or cause to be done * * * any act, matter, or thing in this part prohibited or declared to be unlawful, etc."

If a carrier were to be so prosecuted, apparently it could assert as a defense that the charge to or from the more distant point “(a) is necessary to meet actual competition of another carrier or carriers, and (0) is not less than a just and reasonable minimum charge." The court would then have to determine whether the facts shown came within (a) and (b). Conceivably there might be a trial by jury of these issues—a form of remedy long recognized as inappropriate in the regulation of transportation rates.

Furthermore, the Commission's power to authorize departures under the present law is quite broad, as it may be exercised “in special cases” which are not defined. Under the proposed draft the unlawful act would be excusable only where there is actual competition of another carrier. For technical reasons the meaning of the word “carrier" as here used is not free from doubt.

The Advisory Committee states in its report that fourth-section relief accorded by the Commission is “usually after a hearing." This statement is incorrect. In the year which ended October 31, 1954, the carriers filed 1,244 applications for such relief. Of this number only 43 applications were denied, the remainder having been granted in whole or in part, either on a continuing or temporary basis. Only 21 applications, however, were the subject of a hearing.

The long-and-short-haul clause of the Interstate Commerce Act throughout its history has been surrounded by more controversy than any other provision. It was the subject of a major portion of the congressional debate when the original act was under consideration in 1887. In the ensuing 10 years a series of court decisions, rendering it ineffectual, interpreted the statute as it was then worded as permitting the carriers to determine for themselves whether long-and-shorthaul departures were unlawful.

Dissatisfaction with the resulting situation led to the amendments in 1910 and 1920, by which the clause was strengthened, and the Commission was given

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