Conclusion:

From the point of view of the public's interest in an economical and efficient overall transportation system for this country, with each form of transportation doing the jobs for which it is best suited and equipped, the basic recommendation of the Cabinet Committee may be stated in simple terms. It is that when the ICC reviews proposed competitive rates of one form of transportation the ICC shall not consider:

1. The effect of such rates on the traffic of any other mode of transportation;

2. The relation of such rates to the rates of any other mode of transportation; or

3. Whether such rates are lower than necessary to meet the competition.

That the enactment of these three "shall nots" would advance the interest of the public in a sound national transportation system can hardly be denied. No longer could the higher cost of form of transportation or the form with the less desirable service be protected with arbitrary parts of available traffic.

In competing for the public's favor, whether with lower rates reflecting lower costs or higher rates reflecting better service, the railroads and the regulated trucks would of course still be subject to ICC control over reasonable maximum rates; over reasonable minimum rates, with the elimination of the faulty standard embraced in the three "shall nots" listed before; and over discriminatory rate practices. But competitive railroad rates would be judged in the light of railroad operating conditions; competitive motor-carrier rates would be judged in the light of motor-carrier operating conditions; and both would be put in the same position as the regulated water carriers already occupy by virtue of the special provisions of section 305 (c).

The reason why the railroads generally favor the basic recommendation of the Cabinet Committee is that it appears to be a step in the direction of (1) clearing the way for an exercise of self-help, always subject, it should be emphasized, to the normal restraints against unreasonableness, both on the high and low sides, and discriminatory rate practices; and also of (2) producing a slightly better balance in the conditions which underlie their competition with the other forms. The railroads have no vested interest in any traffic. Nor has any other form of transportation. Traffic should flow, and given an opportunity will flow, to whatever form of transportation is in position, price and service considered, to offer the most attractive proposition. Certainly the several forms of transportation are entitled to assert their respective competitive capabilities in seeking traffic. If, under these conditions, the competitors of the railroads should continue to take over increasing proportions of available traffic as they have done in every year since World War II, they would do so with economic justification. On the other hand, if the downward trend in railroad ton-miles should be arrested or reversed, this likewise would be with full economic justification.

49

49 Monthly comment by ICC Bureau of Transport Economics and Statistics, October 1955, at p. 5. Statement No. 568, File No. 10-D-7, February 1956, shows the picture in graph form.

It is appreciated that the ICC, speaking through its then Acting Chairman, Johnson, has commented unfavorably upon the principal objective of H. R. 6141 and H. R. 6142.50 In its submission to Chairman Priest of the Committee on Interstate and Foreign Commerce, the ICC suggests that one of the principal purposes of the original Interstate Commerce Act of 1887 was to curb "indiscriminate and cutthroat competition of the carriers," and, quoting the ICC, "we caution against 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." 51

And after pointing out that "in the main the indicated objectives of the Advisory Committee may be effectuated within the framework of the present statutes," the ICC goes on to say:

The dominant effect of the proposed legislation would be to permit all rates to gravitate to the bare, compensatory level. * * * 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.52

I respectfully submit that this ICC criticism is unsound.

The basic proposal of the Cabinet Committee has nothing to do with the act of 1887 or any power thereby given to the ICC. On the contrary, this proposal would eliminate a faulty standard which the ICC has been frequently using in the exercise of its minimum rate power, a power which the ICC did not even possess until 1920 and a power which, after it was granted, the ICC repeatedly said should be exercised only "sparingly."

97 53

For in the final analysis, as I have said before, what the Cabinet Committee recommends is that railroad rates be allowed to reflect railroad conditions and truck rates be allowed to reflect truck conditions, just as the public already is allowed water rates which reflect water carrier conditions. To suggest that such a change in ICC control of reasonable minimum rates would bring "resort to the laws of the jungle with competition in full play" or leave that body “without power to restrain excesses" only betrays a failure to comprehend the recommendation itself. For under this recommendation:

1. The ICC would continue to have the same control over reasonable maximum rates as in the past.

2. The ICC would continue to have control over reasonable minimum rates, the only change being the elimination of the faulty standard for judging them as embodied in the three "shall nots" set forth in proposed section 15a (1).

3. Under this proposal, the ICC would continue to have complete control over discriminatory rate practices. Repeatedly in the report of the Cabinet Committee and in the testimony of the committee members at the September hearings of this subcommittee was it emphasized that the recommended increased reliance upon competitive forces in ratemaking did not contemplate any relaxation of ICC power to protect the public from discrimination.

50 See ICC Comments on H. R. 6141 as forwarded to Chairman Priest with letter dated December 22, 1955, from then Acting Chairman J. M. Johnson.

51 Id., at p. 6.

52 Id., at pp. 7-8.-

53 Sugar cases of 1922, 81 I. C. C. 448 (1923) at p. 472; Petroleum and Petroleum Products, 241 I. C. C. 21 (1939) at p. 41; New Automobiles in Interstate Commerce, 259 J. C. C. 475 (1945) at p. 535.

Moreover, to suggest as the ICC does that the "dominant effect of the proposed legislation would be to permit all rates to gravitate to the bare compensatory level" is believed to be misleading. In the first place, under the provisions of H. R. 6141 the ICC would continue to have power to reject noncompensatory rates, and in this connection it is perhaps significant that the out-of-pocket cost scales developed by the ICC's staff, by including some return on investment,54 are clearly above "the bare" compensatory level which it criticizes. Secondly, as often recognized by the ICC,55 rates based on considerations other than cost of service are having an increasingly difficult time to survive in the competitive era which has taken over the business of transportation. The "gravitation" to which the ICC refers is in motion in any event, and its pace may well accelerate as unregulated and private transportation continue to grow.

In its comments on the basic proposal of the Cabinet Committee the ICC gives the impression that the alternatives before the Congress are: (1) A well regulated and evenly balanced control of transportation wherein competition is "given adequate play" but not too much play; and (2) "resort to the laws of the jungle with competition in full play" with the ICC powerless to "restrain excesses." The truth is no such alternatives exist.

56

Today, the "laws of the jungle with competition in full play" exist with reference to two-thirds of the transportation on the highways and nine-tenths of the transportation on the inland waterways, and with those immensely important segments of transportation, the ICC has no rate control of any kind, let alone the power to set aside competitive rates because they are noncompensatory. Thus the Cabinet Committee proposal would, at best, affect only the railroads and the one-third of the highway transportation which is subject to the Interstate Commerce Act.

54 Speaking of the "reasonably compensatory" provision in sec. 4, the ICC's division 2 recently said in Rates and Charges Over Circuitous Routes in the U. S., 294 I. C. C. 714 (1955), at p. 718:

*** Initially, we were satisfied if the departure rates met out-of-pocket costs, but since 1920, when the reasonably compensatory clause was added, we have required the rates to meet out-of-pocket costs and to add something to the indirect or overhead costs. Senator Cummins, chairman of the Senate Committee on Interstate and Foreign Commerce at that time, the man who was probably more conversant than anyone else with the intent of Congress with respect to the meaning of reasonably compensatory, when queried, indicated that he believed reasonably compensatory rates should at least cover the full share of operating expenses incurred on the long-haul traffic and yield something toward the fixed charges. As a result, where previously the administration of the fourth section had been very flexible, the prohibition against approving other than reasonably compensatory rates tended to make it more rigid, although not completely so, for we rejected the interpretation that to be reasonably compensatory a rate must bear its full share of indirect expenses

55 See ICC comments referred to in note 50 supra. At pp. 4-5 thereof, it is said: "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 a 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 competition 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.

56 Note 35, supra.

I have previously pointed to the express exemption of the small part of water transportation which is regulated by the ICC from any requirement to share competitive traffic with the railroads.

Consequently, instead of the alternatives suggested by the ICC's comments, the true alternatives before the Congress are: (1) A continuation of the present practice under which the railroads and the regulated trucks, although surrounded by completely unregulated agencies of transportation which "resort to the laws of the jungle with competition in full play," are often stopped from publishing reasonably compensatory rates because they promise adversely to affect the competing form; and (2) a modified practice under which the railroads and the regulated trucks, still surrounded by the same unregulated and completely uncontrolled competition, would at least be able to publish compensatory and nondiscriminatory rates without regard to their effect upon the competing form. I emphasize that even under the modified practice contemplated by the basic recommendation of the Cabinet Committee, the ICC could still make sure that the competitive rates of the railroads and regulated trucks were reasonably compensatory and nondiscriminatory, a review which the ICC would be powerless to exercise in the case of the rates of two-thirds of the highway and nine-tenths of the waterway transportation.

To summarize: In their competition with the other forms, the railroads want the right to make their rates based on their operating conditions, subject, of course, to the ICC's continuing control over maximum reasonableness, minimum reasonableness, and unjust discrimination. The basic recommendation of the Cabinet Committee would give this right not only to the railroads but to each and every form of transportation. To implement it, we suggest that the following simple addition be made as paragraph (3) to the present section 15a, and it would, of course, be added to the ratemaking rules in the other parts of the act.

(3) In the exercise of its power to prescribe just and reasonable rates, the Commission shall not consider the effect of such rates on the traffic of any other mode of transportation; or the relation of such rates to the rates of any other mode of transportation; or whether such rates are lower than necessary to meet the competition of any other mode of transportation.

Other provisions in H. R. 6141 which are designed to produce "increased reliance on competitive forces in ratemaking" are not regarded as essential to the achievement of this basic recommendation of the Cabinet Committee.

In addition, the railroads are most anxious, as stated before, to have the relief from the provisions of section 4 contemplated by H. R. 6208. While this would not affect their competition with other forms of transportation, it would save much money and redtape in the conduct of the railroad business and facilitate the publication of tariffs which the shipping public can readily understand.

That is my paper, Mr. Chairman.

Mr. HARRIS. I want to compliment you on a very fine and wellprepared statement. I believe you have approached this in a way to make it as simple as possible under the circumstances, and yet to make very definite what the industry that you represent would like to have done. These are concrete and specific proposals. They will be very

helpful in narrowing the issues which have been pointed up in this entire subject.

Mr. Dollinger, do you have questions?

Mr. DOLLINGER. No questions.

Mr. HARRIS. Mr. Dolliver.

Mr. DOLLIVER. Mr. Langdon, I join with the chairman in gratitude and gratification that you have simplified the issues here very materially by your statement, representing as you do the American Association of Railroads as well as having the specific responsibility of the Association of Southeastern Railroads.

Mr. LANGDON. Yes, sir.

Mr. DOLLIVER. Is there any difference in the rates between the southeastern group, the western group, and the northeastern group of railroads? We have heard that bandied about the Congress a good deal and then we have had a little information that any variation in those rates, basic rates, in those three areas, have been leveled off by action of the Commission. What is the fact in that respect?

Mr. LANGDON. Sir, the class rates, the basic class rates, are on the same level throughout the country with the exception of the so-called Mountain Pacific territory where the rates are still on a somewhat higher level but under review in a special proceeding that is now pending before the Interstate Commerce Commission. So far as the South and the Midwest and the North are concerned, their class rate levels are uniform and prescribed as such by the Commission in a case known as docket 28300.

Mr. DOLLIVER. Is that on a level of ton-mile cost? Is that what you are referring to?

Mr. LANGDON. No, sir. The rates are all related to a basic firstclass scale, so much per hundred pounds. Once you set the first-class rate, then there is a uniformity throughout the country of the class rate relationships following the first class. You drop down to second class, third, fourth, fifth, and so on.

There is also uniform classification throughout that part of the country. Of course, sir, there are exceptions. There are exceptions to the classification and there are, of course, commodity rate levels, and some of them are related to this basic class rate structure and others are not.

Generally speaking, there may be some differences. Take lumber in the South. It may move at a lower rate level than lumber in the North. But, generally speaking, I think the rates throughout the country are closer to being upon the same level than they ever have been before, including the rates other than the class rates which are prescribed on the same level.

Mr. DOLLIVER. The very lifeblood of the transportation industry is the rates charged. It is perhaps the major factor in maintaining a sound system of transportation; the right kind of rates that will move the traffic.

If I get the general gist of your statement, it is that the railroads feel that they have been put at an unfair competitive disadvantage, specifically with the trucks, because the commission has consistently taken into consideration in fixing rates the effect that those rates would have upon a competitor. Is that correct?