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Yount, chief of transportation for the Department of the Army, in response to a congressional inquiry in February 1954. General Yount added : "In the interest of national defense it is considered necessary that an adequate system of transprtation, embracing all modes, be immediately available. Many military installations, including antiaircraft weapons sites within and around cities, require truck transportation to move ammunition to the point of storage and issue.”
PART IV. RATE BACKGROUND
Explosives from a classification point of view have been traditionally high rated. The National Classification Board has stated that for the most part explosives are of relatively high density, and where such is the case the Board has always taken the position that of the 15 elements that go into classification making the 2 most important with respect to ammunition and explosives are ralne and risk. The consideration of these two important factors is in con$ubance with Commission findings as far back as the very first ICC volume published. In II. C. R. 465 the Commission stated : "Hazardous and extrabazardous freight *** are considerations of a controlling nature.” And again in Rates on Powder and High Explosives (151 ICC 163), the Commission stated :
“However, there is merit in the carriers' contention that every carload of dangerous explosives must be regarded as carrying a potential disaster in a degree much in excess of that of other traffic, and that notwithstanding the tery many precautionary measures taken for safety there remains a danger in handling explosives which cannot be removed by human effort.
*In fixing rates on these commodities we should of course take into consideratinn the dangers attendant to their transportion and the service afforded by the carriers in order to avoid accidents from such transportation.”
Mbre recently, in War Material Reparations cases (294 ICC 144), the Commission in finding the 65 percent of first-class rate, which was at issue in the proceding, not to have been unreasonable pointed out that “another pertinent consideration in judging the reasonableness of the rates is the high value of explosives and ammunition."
From World War II to October of last year the generally accepted rate on militars ammunition and explosives under section 22 was approximately 65 percent of the first class rate-the same rate the Commission found to be reasonable. Then, last October, in the face of the Commission finding, the military asked the railroads for a drastic reduction on these commodities and the railriads in official territory granted a rate reduction through the medium of section 22 which slashed the rate to approximately 40 percent of first class on 2 volume minimum carload weight of 90,000 pounds. The railroads in western territory were not agreeable to this decrease and reduced their rates only to approximately 55 percent, while the southern territory railroads declined ir reloce their rates at all. At that time, the reparations cases were still fening and the railroads had been arguing vigorously that they couldn't posably have gone below the 65 percent rate at issue. So we were confronted with the interesting anomoly of the railroads reducing the rate to 40 percent in Dial territory to remove motor carrier competition, and at the same time petitioning the Interstate Commerce Commission for a 7 percent increase on rummercial shipments of general commodities.
PART V. SECTION 22 TODAY
The late Joseph Eastman, in his testimony supporting repeal of the landant rate concessions, said:
“It seems to me the Government ought to pay the same rates for carriage of trafbe as are paid by its own citizens who really make up the country.”
That the Congress agreed with the soundness of this view was reflected in the repeal of the land grant acts on October 1, 1946. Yet, section 22 is today being used as an extension of the rate concessions the railroads granted the Gurernment under the land-grant acts.
Sow, it might be asked : “Why all this emphasis on section 22?" The answer to this question must be given in three parts: (a) The magnitude of present Creament shipments vis-a-vis commercial shipments; (b) the lack of an adJadirator on section 22 movements; and (c) human nature.
19) The Government today is the largest single user of transportation in the rantry. The Department of Defense alone has a domestic transportation bill of approximately $700 million annually, which is about 4 percent of the operating revenues of the eight groups of carriers subject to ICC jurisdiction for the year 1955. But this does not tell the whole story. Within our conference, as well as other segments of the trucking industry, the percentage of Government traffic in relation to the carrier's overall operation runs in some cases as high as 100 percent. In many cases Government traffic constitutes from 10 to 30 percent of the motor carriers' business. Included within this group are carriers grossing less than $100,000 a year to as high as $50 million annually. So it can seen that section 22 is not an inconsequential matter.
(6) The carriers that comprise our national transportation system, and the shippers and receivers who make up the user group have the right to appear before the Interstate Commerce Commission to protest any action taken by a shipper or a carrier which in the protesting carriers' opinion constitutes an unreasonable or discriminatory action. And the carrier can look forward to a fair hearing and a reasonable adjudication of his complaint. No such right is available to the carrier of Government freight. Nor are the Government shipping agencies in fact capable of determining the reasonableness or unreasonableness of a particular rate, as was brought out by Assistant Comptroller General of the United States, Frank L. Yates, in a letter to the late Senator Tobey dated May 19, 1953, as follows:
55 * * * We have neither the facilities nor the experience to go into the complicated field of ratemaking. Besides, that is a function placed by Congress in the hands of the ICC * * *
** * * It is difficult to understand how shipping and procuring officers of the Government, not having available to them the detailed facts available to the regulatory bodies or adduced at open hearings held by them, and not enjoying ordinarily the broad perspective which those bodies acquire through their comprehensive and continuing study of transportation facilities and economics, can be expected adequately to balance and apply the factors inherent in ratemaking or rate-adjustment problems and give due consideration to the provisions of the act relative to the establishment of just and reasonable rates *
A year later, April 26, 1954, Deputy Attorney General William P. Rogers in a letter to Senator Bricker, stated :
"** * * The determination of the reasonableness * * * of future rates is a quasi-legislative function vested in the ICC, an independent agency * * *."
With the Attorney General's office citing an opinion that the Interstate Commerce Commission has been charged by the Congress with determining the reasonableness of a rate; the Comptroller General's office stating that Government shipping and procuring offices are not to be expected to adequately balance and apply the factors inherent in ratemaking or rate-adjustment problems and give due consideration to the provisions of the act relative to the establishment of just and reasonable rates ; and the Interstate Commerce Commission ostensibly disclaiming any responsibility for the handling of section 22 rates, the carriers are left to themselves to offer any rate which in their judgment will secure them traffic, notwithstanding the disruptive effect the tendering of these rates will have on other carriers and on other shippers. The real import of this looseness in the handling of section 22 rates was recently brought out rather clearly by a representative of the Department of Defense before a three-judge court in California, when it was stated :
*** * * we are constrained to use that rate (the lowest rate), even in face of knowing it is considerably lower than the going rate * * *."
(c) Human nature, being what it is, has caused many of the problems stemming from section 22. With no one to act as a referee, and with the Government shipping and procuring officers feeling that they are constrained to accept the lowest rate, the rate level can go only one way, down, to the detriment of the carriers, the Government, and commercial shippers who must necessarily pay higher rates to offset the losses incurred by carriers caught in the labyrinth of destructive rate cuts.
PART VI. EFFECTS OF DESTRUCTIVE RATE CUTTING Members of the conference I represent have been transporting explosives for many years, some since 1920. Because of the inherently hazardous nature of this commodity, the rate has been justifiably higher than other commodities inor. ing freely in commerce-a conclusion reached by the Interstate Commerce Commission in the war materials reparations cases. With the rate, then, at a reason. able and stable level, the emphasis in competition was placed on service, and the motor carriers of munitions more than held their own.
Last October, however, the railroads, just prior to their asking the Commission for a 7-percent increase in freight rates for commercial shippers, slashed the rate on section 22 movements of ammunition and explosives. I would like now to cite just a few examples of what happened.
(a) On movements between Picatinny Arsenal, Dover, N. J., and Seneca OrdDance, Kendaia, N. Y., the rate up to October of 1955 was $1.11 per hundredweight. This rate was cut in October of last year to $0.77, a reduction of 31 percent.
10) On movements between Joliet Arsenal, Joliet, Ill., and NAD, McAlester, Okla., the rate up to February 1 of this year was $2.31 per hundredweight. This rate was cut to $1.56, a reduction of 33 percent.
(c) On movements between Indiana Arsenal, Charleston, Ind., and Camp Stanley, Tex., the rate up to February of this year was $3.33 per hundredweight. This rate was cut in February to $1.73, a reduction of 48 percent.
(d) On movements between Ravenna Arsenal, Atlas, Ohio, and Milan Arsenal, Jilan, Tenn., the rate up to April 1 was $2.38 per hundredweight. This rate has been cut by the railroads to $1.29, a reduction of 46 percent.
le) On movements between Indiana Arsenal, Charleston, Ind., and Milan Arsenal, Milan, Tenn., the rate up to April 1 of this year was $1.74 per hundredweight. This rate has been dropped by the railroads to $0.88, a reduction of 49 percent.
The average across-the-board decrease in rail rates on ammunition and ex: plosives approximated 38 percent. It is interesting to note here that the accumulative percentage increase in the general commodity rate structure for the loited States as a whole has increased 88.9 percent over the rate level existing in 1916, while the average level of rates on military ammunition and explosives moring under section 22 between 23 points in Southern territory is 9.9 percent less now than it was 10 years ago (see appendix B).
It will be noted from the figures shown in appendix C that the rate reductions bare been destructive from the point of view of four regional exclusive motor carriers of munitions. The revenue derived at the 40-percent level does not even curer the costs incurred in transporting explosives for the military. And it should be pointed out that the four carriers used for the purpose of this appendix have been transporting these commodities for the military for many years.
It is also interesting to note in appendix D that between the same 2 points, and over the same lines, the rate of military explosives moving under section 22 is far below the rate on the same commodity transported for commercial shippers under the jurisdiction of the Interstate Commerce Commission. Equally interesting is the fact that the rate now in effect on rail shipments of military esplosives is far below the commercial commodity rate on books, boiler cleansing compounds, and machinery, n. o. i. b. n., as reflected in appendix E.
PART VIII. WOULD REPEAL OF SECTION 22 BE DISASTROUS ? The Government agencies concerned with transportation have frequently citrd the following advantages allegedly received under the provision of section 22:
1o) Rates are expeditiously established.
re) Commercial shippers do not have to stand the brunt of higher rates since Artion 22 rates are fully compensatory.
It might be helpful to this committee, Mr. Chairman, if we took just a few moments to analyze these alleged advantages :
(0) Allegation that rates can be expeditiously established.-We must conriode from this statement that a large percentage of the Government traffic toores on such short notice that rates must be established on less than the 30das tariff publication notice required by section 6 (3) of the Interstate ComDerce det. It is not abundantly clear, however, why so much weight should be given to this argument since a Department of Defense witness recently testiBed that their traffic generally moves on tariff rates. And in Department of Defense testimony before this committee it was stated that of the 19,166 sec
tion 22 quotations received by the military in 1955, 18,259 or 95.3 percent of the total were voluntarily submitted by the carriers and not, the Department of Defense states, sought by the military departments. Only 907 tenders, then, or 4.7 percent of all the tenders received and processed by the military resulted from negotiation between the military and the carriers. It was not stated by the Department of Defense how many of these 907 tenders were of such urgency as to become effective on less than statutory notice, but assuming each to constitute an emergency only 4.7 percent of all the tenders processed by the military would require publication of rates on less than the 30-day notice required by the Commission. Nor is it clear how this so-called advantage of section 22 offsets the "enormous administrative burden," as Mr. Smith put it, in "opening letters, stamp dating, acknowledging, filing, ascertaining the correct rates which the carrier intended to make available, and whether the rate was lower than the carrier's published tariff rate."
Should, however, it become necessary for the Government to have rates available on less than 30-day statutory notice, this may be presently accomplished under section 6 (3) of the act, which for good cause shown provides for the publishing, posting, and filing of tariffs on less than 30 days notice. This deviation from the 30-day requirement is now being used in meeting emergencies of both carriers and commercial shippers. The 69th annual report of the Commission, for example, shows that of 11,315 applications filed in the year ending October 31, 1955, 9,965 or 88.1 percent of the total were approved allowing the publication of rates on less than 30 days' notice—some on as little as 1 day's notice. This same statutory avenue is open to the Government transportation agencies in those instances where emergencies require the establishment of rate or rule on less than 30 days' notice. In this connection, Mr. Chairman, Mr. Dabney T. Waring, executive vice president of the Middle Atlantic Conference, an organization serving over 1,300 motor carriers in Middle Atlantic and New England territories as a freight rate and tariff agency, has authorized me to * attach his statement concerning this matter to my testimony. With your permission, Mr. Chairman, I would like to have Mr. Waring's statement, attached to my testimony as appendix F, entered into the record.
(6) Allegation that section 4 allows circuitous movements in the interests of security.—Under present Commission regulations there are available procedures whereby relief from section 4 may be obtained. This is so stated in section 4 today. The extent to which this form of relief is utilized is shown in the Commission's 69th annual report wherein it is stated that of 1,421 applications filed for the year ending October 31, 1955, for relief from the provisions of section 4, only 77 or 5.4 percent of the total were denied. It would appear, therefore, that the Government would have little, if any, difficulty in obtaining relief from the fourth section provision where there is proper justification for such relief.
(c) Allegation that retroactive application of rates can be achieved.—The provision in section 6 (3) which provides for establishment of rates on less than 30 days' notice should preclude to a large degree the necessity for retroactive application. Should there be cases, however, where the reasonableness of the rate charged on movements which have taken place is questioned, avenues are again open to the Government under section 16 (1) and section 308 (d) pertaining to rail and water carriers respectively. Awards of reparation can be made under these sections where after complaint and hearing the Commission determines the complaint is justified. Reparations can also be obtained on truck shipments if court action is brought and then held in abeyance pending formal complaint to the Interstate Commerce Commission respecting the reasonableness of the past rate (43 M. C. C. 337).
(d) Allegation that rates are not subject to suspension by the Commission.When carefully analyzed it may be found that the lack of suspension on section 22 rates is more of a disadvantage to the Government shipping agencies than an advantage, for it requires the Government traffic management agencies to substitute their judgment for that of the Commission-a task for which the Govern. ment traffic management agencies are, as was pointed out by the former Assistant Comptroller General of the United States, neither qualified nor authorized to perform. An important consideration here is that the Government as a shipper must pay the freight charges incurred on its shipments and is not in a position, therefore, to decide without bias what the rate should be. Experience has shown, and written testimony reflects, that the Government does not give full cognizance to the factors considered by the Commission in determining the reasonableness of a rate. The Government for example does not consider the
effects of drastic rate reductions on other modes of transportation. It does not consider the effects of rate reductions on the traffic of commercial shippers. It does not consider whether reduced rates are lower than necessary to meet competition. It is primarily because the Government, in the role of a shipper, is not without prejudice that the lack of the suspension power acts as a disadvantage to the Governemnt. For it places the Government traffic management agencies in the position of substituting their judgment for that of the Commission, and thereby they subject themselves to much abuse and many derogatory remarks.
(e) Allegation that commercial shippers do not have to stand the brunt of higher rates since section 22 rates are fully compensatory.-Much emphasis has been placed by the Government traffic management agencies on the ICC Bureau of Transport Economics and Statistics reports which from time to time have stated that section 22 rates, on the average, exceed those of comparable commodity rates. But as was pointed out by Mr. Jelsma of the Commission staff before this committee the word "comparable" does not mean “identical,” and the fact that section 22 rates are below established rates is in no way changed by the statistics cited in the above-mentioned Bureau report. That some section 22 rates are higher than established commodity rates is explained by the Bureau of Transport Economics and Statistics in the following manner:
***. The fact that this level is somewhat higher than the average of comparable commodity rates is not unexpected in view of the different type of traffic Involved. A substantial portion of the section 22 reductions apply where there is (a) infreqeuent movements, (b) the only movement, (c) a movement in the opposite direction of the established volume traffic. Commodity rates, of course, apply primarily to volume traffic and average somewhat lower Section 22 quotations, however, are always reductions below established rates and provide for lower freight charges to the Government than otherwise would be the case.”
It drastic reductions are put into effect on a commodity being moved by the military under section 22, and no additional traffic is obtained by the carrier offering the reduced rate, it follows that the reduction in revenue sustained must be obtained from commercial shippers, and usually in a noncompetitive area. That such discrimination takes place is evidenced by the figures shown in appendix D.
(f) Allegation that security is compromised.–Since it has been stated by the Government witnesses that the preponderance of military freight moves today under rates, charges, and rules and regulations which are duly published by the carriers and filed in tariff form with the Interstate Commerce Commission, it must be assumed that the number of shipments involving the element of “security" would be small. There is ample evidence that the Commission is now authorized to provide for the security of Government shipments under existing procedures. ICC special permit No. 868 may be cited as an example of the Commission's present authority to provide for the "safety and security" of Gov. ernment shipments.
PART VIII. EVILA OF SECTION 22 The provisions of section 22 which allow "free or at reduced rates to the Gov. erument" inherently invite rate abuses of the worst type. It allows discriminattoo as between commercial and military shipments to take place on the same mmodity, between the same two points, and over the same route. It provokes distrust between carriers in different modes of transportation, as well as carriers within the same mode of transportation. It has an upsetting effect on the finandal stability of carriers since the Government can and does seek overcharges frrin carriers many years after the movement took place. It permits rates to spiral downward unchecked. It promotes the substitution of judgment on the part of Government traffic management agencies in matters relating to the reaonableness of rates for that of the Commission. It imposes a burden on comSercial shippers who must necessarily pay higher rates to offset the effects of trestrained rate reductions to the Government. It promotes discrepancies in Etters relating to the handling of rates on the part of Government agencies. And it places an enormous administrative burden on the Government transportattoo agencies.
PART IX. 22 VIEWS ON THE SECTION
I Presidential Advisory Committee on Transport Policy and Organization."The tise of that portion of section 22 * * * granting free or reduced-rate trans