Six months later the Division reversed itself on reconsideration and authorized the reduced rate, almost 2 years after it had first been proposed.26 The reason for the reversal was the ICC's understanding that the proposed rate would create a lesser differential under the truck charge than had previously existed 'When, according to the record, the rail carriers enjoyed a 'good share' of the traffic," and—

It is thus reasonable to assume that the proposed rate would draw to the respondents no more than a fair share of this traffic and thus would not be lower than necessary to meet the motor carrier competition."

It is not to be inferred from the foregoing examples that all competitive rates proposed by the railroads are suspended and investigated by the ICC. According to public information on this subject, 68 percent of the tariffs of all forms of transportation which are protested are suspended.28 Many rate changes go into effect more or less automatically because they are not protested, but in the case of reduced rates which promise competitive impact, protests can of course be expected. In that event, as indicated, the ICC will suspend and investigate in the majority of the cases.

99 29

Nor is it to be inferred that when the ICC approves competitive railroad rates it is likely to do so only after reconsidering its original decision. There are many decisions wherein the proposed rates have been upheld in the first instance, and the ICC has found them necessary for a railroad opportunity "to retrieve some of the traffic,' "attract only a portion of this traffic," 30 or "regain any of it," 31 or "regain a fair share," 32 or "obtain a fair share," 33 or "to share in the traffic." 34 The relation of proposed railroad rates to railroad costs is seldom an issue and, indeed, seldom mentioned except casually.

or

The point however remains that whether the ICC approves competitive rates (as in the two typical instances set forth above) or whether it disapproves them (as in the three typical instances also set forth above) a principal standard or yardstick which it is apt to employ in reaching its decision is basically faulty and at direct variance with the public interest in an economical and efficient overall national transportation system. This faulty standard is the full cost to the shipper of using the services of the competing form, as adjusted up or down by the ICC's notion of the comparative values of the competing services.

The use of such a standard denies to the railroads the right to base their rates on their operating conditions and denies to the trucks the right to base their rates on their operating conditions. The use of such a standard, in other words, necessarily produces arbitrary apportionments of traffic among competing modes of transportation without regard to their economic capabilities or fitness for different types of transportation jobs. We do not suggest that the Commission is constrained by the act as presently worded to employ this faulty stand

26 Gun Wad Felt from Newark, N. J., to Anoka, Minn., 294 I. C. C. 404 (1955). 27 Id., at 406.

28 See printed record cited note 1 supra, at p. 118.

29 Malt Liquors and Containers between New Jersey, Maryland, and the District of Columbia, 294 I. C. C. 420, 422 (1955).

30 Oleomargarine, Cincinnati and Columbia to East, 294 I. C. C. 349, 354 (1955).

81 Iron or Steel Wire, Buffalo, N. Y., to Kitchener, Ont., 294 I. C. C. 515, 517 (1955).

32 Emery Transportation Co. v. Baltimore & O. R. Co., 292 I. C. C. 346, 348 (1954).

33 Drugs, Medicines, etc., In Official Territory, 284 I. C. C. 33, 37, (1951).

34 Cigarette Paper-New Jersey to Louisville, Ky., 294 I. C. C. 596, 598 (1955).

ard. Nevertheless, there have been so many cases in which the Commission has taken this course that the Congress, to assure the application of a correct and consistent policy in these regards in the future, should enact the proposed amendment to section 15a which will be referred to later.

It must be realized of course that, in its frequent use of this faulty standard for competitive rates, the ICC has only the railroads and one-third of the trucks to work with. Two-thirds of the intercity tonnage on the highways and nine-tenths of the traffic on the inland waterways are exempt from all rate regulation, according to reliable estimates, and thus beyond any possible obligation to "share" their traffic with the railroads or regulated trucks.35 Moreover, when it comes to protecting a fair share of the traffic for the railroads, the ICC is directed by section 305 (c) of the present act to exempt the relatively few barges which are subject to its regulation.

36

To bury this indefensible standard for judging competitive rate reductions is the first "element" of the "modernized regulatory program" which, as I have mentioned before, the Cabinet Committee recommends as the "cornerstone" of its report. In H. R. 6141 and H. R. 6142 this would be accomplished by the provisions which I shall now consider in detail.

(a) The proposed provision which would eliminate the faulty standard for competitive rates:

As an amendment to the present section 15a, H. R. 6141 and H. R. 6142 would provide as follows:

SEC. 15a. (1) In determining whether a rate, fare, or charge, or classification. regulation, or practice to be applied in connection therewith, results in a charge which is less than a reasonable minimum charge, as used in this Act, the Commission shall not consider the effect of such charge on the traffic of any other mode of transportation; or the relation of such charge to the charge of any other mode of transportation; or whether such charge is lower than necessary to meet the competition of any other mode of transportation: Provided, however, That the provisions of this paragraph shall not be construed to prohibit any carrier subject to this Act from protesting or complaining in the event that a rate, fare, or charge is filed or made effective which it believes to be less than a reasonable minimum charge.

It is important to observe that this provision would apply to all forms of transportation subject to the Interstate Commerce Act. Its obvious purpose is to allow the several forms, in their competition with other forms, to make their competitive rates on their operating conditions-not the operating conditions of the competing mode. For example, if the operating costs of motor carriers are less in certain circumstances, reduced rates reflecting that advantage would be allowed by the ICC, and this would be true even if the motor carriers also provided superior service. The same principle would apply to the rate-making of the other forms, including the railroads. No longer could the ICC feel under obligation to bring about competitive balance by fixing rates in such a way as to produce arbitrary "shares" of the traffic for competing forms. Instead, the "share" for the motor carriers would be that share which, because of lower costs or superior service or both, the motor carriers should carry in the interest of economical and efficient transportation. The "share" for the railroads would be that share which the shippers would give them because of

35 See printed record cited, note 1 supra, at pp. 114-116.

36 See printed record cited, note 1, supra, at p. 120.

their particular economic advantages in certain areas of transportation. The same type of "share" would of course go to the water carriers.

There would appear to be deep public interest in such an approach to the competitive ratemaking of the regulated forms of transportation. How else is the public ever going to discover their relative economy and fitness for the various types of transportation jobs? How else can the public ever promote the use of each form "for purposes which it can serve best and most economically?" 37 How else can the public avoid the encouragement of services which are more costly and less efficient?

The railroads regard the proposed elimination of the faulty standard for the fixing of reasonable minimum rates as the basic recommendation of the Cabinet Committee. We are in favor of such elimination as set forth (in the form of three "shall-nots") in section 15a (1) of H. R. 6141 and H. R. 6142. At the conclusion of this testimony, I shall refer to the slightly different method which we suggest for achieving the same result.

(b) The proposed provision which would emphasize the elimination of the faulty standard for competitive rates:

In passing upon the lawfulness of those relatively few water carrier rates over which it has jurisdiction, the ICC is instructed by section 305 (c) of the present Interstate Commerce Act as follows:

*** Differences in the classifications, rates, charges, rules, regulations, and practices, of a water carrier in respect to water transportation from those in effect by a rail carrier with respect to rail transportation shall not be deemed to constitute unjust discrimination, prejudice, or disadvantage, or an unfair or destructive competitive practice, within the meaning of any provision of this Act.

Referring to this provision, the ICC has held :

There seems to be a view prevalent among protestants that we have authority to find a local port to port rate of a water carrier unlawful because it may adversely affect rail lines and the all-rail rate structure, even though it may not be unlawful under any substantive provision of the act. Unsoundness in this view is apparent in its inconsistency with the proviso in section 305 (c)

* ** 38

In H. R. 6141 and H. R. 6142 the obvious purpose of proposed section 15a (3) is to provide like exemption for other forms of transportation. This is simply another way of adding emphasis to the elimination of the faulty standard for competitive rates which is accomplished directly by proposed Section 15a (1).

The railroads support the proposed section 15a (3).

(c) The recommended emphasis upon the existence of a zone of reasonableness:

By section 15 (1) of the present Interstate Commerce Act, the ICC in the event of a violation has the power to

determine and prescribe what will be the just and reasonable individual or joint rate, fare, or charge, or rate, fares, or charges, to be thereafter observed in such case, or the maximum or minimum, or maximum and minimum, to be charged, and what individual or joint classification, regulation, or practice is or will be just, fair, and reasonable, to be thereafter followed.

By section 7 (a) of H. R. 6141 and H. R. 6142, the ICC's power under section 15 (1) would be to

37 I. C. C. Ann. Rept. (1938), at pp. 23-24.

38 Coetton from Memphis and Helena to New Orleans, 273 I. C. C. 337 (1948), at p. 365.

determine and prescribe such just and reasonable minimum or maximum rate, fare, or charge, or such relationship, classification, regulation, or practice, as in its judgment may be necessary to remove such violation.

The effect of this proposed change would be to withdraw the ICC's present power to prescribe "the *** reasonable *** rate" as distinguished from the "reasonable minimum or maximum rate."

To appreciate the significance of such a change, it is necessary to recall that that body, the ICC, with the support of the courts, has for years recognized the existence of a zone of reasonableness within which, in the absence of discrimination, the carriers are free to adjust their rates. In practical application, this has meant that when a carrier proposed a rate which was protested as too high, the ICC could exercise its power to prescribe a reasonable maximum rate; and when a carrier proposed a rate which was protested as too low, the ICC could exercise its power to prescribe a reasonable minimum rate. But always there has been this zone of reasonableness, and if the ICC has determined that the challenged rate was within the limits of this zone, it has been held to be reasonable.

Recently, however, in its frequent use of the faulty standard for determining competitive rates discussed above, the ICC has come close to repudiating the existence of a zone of reasonableness. Moreover, in its decisions concerning competitive rates (particularly those wherein proposed rates have been rejected but without prejudice to the establishment of higher rates) it has not always been clear whether the ICC was using its power to fix a reasonable minimum rate or its power to fix "the" reasonable rate itself. In either event, by recommending that the ICC power to prescribe "the" reasonable rate (as distinguished from either the reasonable maximum or reasonable minimum rate) be terminated, it is the obvious purpose of H. R. 6141 and H. R. 6142 not merely (1) to confirm the existence of a zone of reasonableness within which carriers are free to make their rates but also (2) to assure against ICC use of the power to prescribe "the" reasonable rate in such a manner as to defeat the objective of proposed section 15a (1) and section 15a (3).

The railroads agree that neither in the exercise of its minimum rate power nor the exercise of its power to fix the reasonable rate should the ICC be free to condemn competitive rates proposed by one form of transportation simply because of their adverse effect upon another form. But the railroads believe that if (following the method which is set forth in the conclusion of this testimony) this faulty standard is eliminated in the exercise of the ICC's power to prescribe "reasonable rates," the ICC could not employ it in the exercise of its power to fix "the *** reasonable *** rates."

Consequently, in order to carry out the basic proposal of the Cabinet Committee to eliminate the faulty standard for competitive rates before discussed, the railroads do not regard as necessary any change in the ICC's present power to prescribe "the *** reasonable *** rate."

(d) The recommended change in the maximum rate rule: In addition to the proposed three shall-nots, the legislation to implement the Cabinet Committee report would also redefine the standards for reasonable maximum rates. Section 15a (2) as proposed by H. R. 6141 and H. R. 6142 would provide as follows:

30 See note 5, supra.

(2) In determining whether rates, fares, or charges, or classifications, regulations, or practices to be applied in connection therewith, result in charges more than just and reasonable maximum charges, as used in this Act, the Commission shall not require such charges to be reduced below the full cost of performing the services to which they apply, exclusive of losses in either services. In making such a determination, the Commission shall take into consideration the extent and effect of competition with respect to the service to which the charges apply to the end that carriers will be prevented from imposing excessive or unreasonable charges on traffic which is noncompetitive.

The railroads believe that the provision would be at once confusing and unnecessary.

In setting "full cost of performing the services*** exclusive of losses in other services" as the floor for reasonable maximum rates, the proposed legislation would adopt a standard which, in the case of particular traffic, would be helpful to the railroads in forestalling the prescription of rates below cost. Such rates the ICC has prescribed, and they have been upheld under special circumstances by the Supreme Court. However, the general use of such a standard would not presently consist with the general nature of the rate structure, which is not based wholly on cost of service," and for this reason the railroads recognize some validity in the objections heretofore voiced by shipping interests against its adoption.

40

Apparently, one purpose of the Cabinet Committee in recommending different standards for reasonable maximum rates is to protect the shipper of noncompetitive freight if, in accordance with its basic. recommendation, the competitive rates of one form can be made without regard to their effect upon the competing form. This is suggested by the second sentence in the above-quoted proposed section 15a (2) which in turn reflects a discussion of the subject at page 11 of the Cabinet Committee report.

It is the position of the railroads that if the shipper of noncompetitive freight needs any special protection in these circumstances, the precedents established by the ICC in its review of reasonable maximum rates may be relied upon.

But what is more important, the shipper of noncompetitive freight needs no special protection. After all, the only motive or purpose a railroad would have in publishing reduced competitive rates would be to better its net revenue position by retaining or attracting greater traffic volume than would otherwise be possible, and instead of hurting noncompetitive traffic, such competitive rates would benefit it by reducing the share of fixed expenses the noncompetitive traffic is called upon to bear. What the shippers of noncompetitive traffic must guard against is that competitive traffic will continue to be drained from the rails thus increasing the burden to be borne by their traffic, the traffic which must remain on the rails.

The railroads do not advocate section 15a (2) as included in H. R. 6141 and H. R. 6142. At the present time, the railroads do not urge any change in the ratemaking rule found in the present section 15a (2). (e) The recommended changes in the national transportation policy: Under the present policy, the Interstate Commerce Act is to be so administered

40 Texas Citrus and Vegetable Growers and Shippers v. A. T. & S. F. Ry. Co. et al., 279 I. C. C. 671 (1950); 284 I. C. C. 206 (1952); Baltimore & O. R. R. Co. v. United States, 345 U. S. 146 (1953). Clewiston, 281 I. C. C. 47 (1951), at 63.

41 Sugar Cane from South Florida to

78456-56-pt. 1-35