APPENDIX F

STATEMENT BY DABNEY T. WARING IN RE MOTOR CARRIER RATES ON GOVERNMENT PROPERTY

We are operating under a ratemaking procedure approved by the Interstate Commerce Commission in section 5a application No. 23 (reported in 283 I. C. C. 683). Our application according to the terms of section 5a of the Interstate Commerce Act was approved on December 19, 1951. By virtue of this procedure, so long as we conform thereto, we have immunity from antitrust law prosecution. At the hearing of our application, we had the support of practically all of the shippers familiar with it and practically no opposition from anyone. It is a very liberal and democratic procedure and is as expeditious as cautious consideration permits.

Proposals to change rates or anything else that might effect the amount of transportation charges may be filed by a shipper, a member carrier or anyone else directly interested. There have been remarkably few complaints about our committee decisions or delays in disposing of proposals. Under the Interstate Commerce Act, changes in tariffs may not be made on less than statutory notice except upon approval of the Interstate Commerce Commission and changes cannot be made effective retroactively. However, in unusual circumstances, the Interstate Commerce Commission will grant authority to publish changes on short notice and we very frequently have occasion to ask the Commission for such authority. The notice required in lieu of the regular statutory notice of 30 days is usually from 1 to 15 days. In addition to the frequent publication of rates, with approval of the Commission, on less than the regular statutory notice, we have within our approved procedure an emergency procedure under which our standing rate committee is committed to dispose of emergency proposals within 15 days. The Government may be assured that if and when an emergency arises and shipments must move before a proposed rate could be acted on, published and made effective through our regular procedure, either under our emergency procedure or by asking the Commission for authority to publish on less than statutory notice, we would be able to meet its requirements. Therefore, I can see no danger whatever of any undue delays in making changes in rates effective in time for any important movements of Government freight.

In passing on the merits of any proposed change in rates our committees are guided by the time-tested and approved considerations which enter into the determination of reasonable and lawful rates in accordance with the Interstate Commerce Act as interpreted over a period of 50 years by the Interstate Commerce Commission and the Federal courts.

Briefly, the primary considerations are the compensatory character of a rate, its relationship to other rates in the same general area, and the possible effect which any proposed rate might have on some other rates.

If section 22 of the Interstate Commerce Act were repealed, proposals of any Government agency would be handled in the same manner as we handle proposals of the general public, which generally has been satisfactory.

As a matter of fact, in several instances an agency of the Government has asked us to make some changes for it and I am sure that we have acted on the requested changes in a manner satisfactory to the agency requesting the changes. Instrating this, I will cite two of them. One was to change the grouping of Franconia, Va., at the request of General Services Administration. We approved transferring this point from the Accotink, Va., to the Alexandria, Va., group. In another case, we reduced the rating on certain types of ammunition, explosives, etc., from class 75 (75 percent of first class), to class 70 (70 percent of first class). In both of these cases the disposition of the requests (or proposals) of the Government agencies were disposed of to the satisfaction of the Government and there were no complaints about delays or anything else connected with their processing.

Dated at: Washington, D. C., May 24, 1956.

Mr. BURNS. Thank you, sir. I won't go into part 1 of my testimony dealing with the history, evolution and intent of section 22, but on page 4 I would like to just very briefly discuss the findings.

Section 22 was, in my opinion, intended to be nothing more than a method to lawfully extend the rate concessions which had been given

to the Government by the railroads for many years prior to the inception of the Interstate Commerce Act, and which was destined to continue through the land-grant acts for many years subsequent to the passage of the act.

From 1887 to 1946 the Government moved most of its traffic under the land-grant rate concessions, and as was pointed out by Mr. Earl Smith, Director of Transportation and Communication for the Department of Defense, "it was not until the repeal of the land-grant rate concessions to the military on October 1, 1946, that section 22 came into full use."

With the repeal of the land-grant acts in 1946, much of the early Government rate concession philosophy was vitiated. Certainly, the Congress never foresaw the growth of our Military Establishment from 27,791 men we had in the Army in 1887 to the 3 million we have in our Armed Forces today.

It never contemplated a situation where the Government as the largest single shipper in the United States could receive lower rates than are available to commercial shippers. It never envisaged the possibility of section 22 inherently inviting destructive rate cuts.

I will skip over parts II and III, Mr. Chairman. Suffice to say that the motor carriers during the Korean war transported 50 percent of all the ammunition and explosives moved for the military departments, and statement after statement by military representatives have attested to the absolute essentiality of maintaining in being a strong, healthy motor carrier industry of munitions.

In part IV, I will just summarize that rate background. Generally speaking, over the years the rate on ammunition and explosives has been approximately 65 percent of the first-class rate. In October of last year, just after the Interstate Commerce Commission had completed its findings on the famous war materials reparations cases and found that the 65-percent rate was a just and reasonable rate, the railroads slashed the rate from 65 to 40 percent of the first-class rate, ostensibly to remove motor carriers from competition.

This rate approximated a 38-percent increase. At the same time that this rate was being reduced to 40 percent and in the face of the Commission's finding that the rate of 65 percent was a reasonable rate, the railroads at the same time petitioned the Interstate Commerce Commission for a 7-percent increase on commercial rates of general commodities.

I will skip over section V and get into part VI on page 10.

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 moving freely in commerce-a conclusion reached by the Interstate Commerce Commission in the war materials reparations cases.

With the rate, then, at a reasonable and stable level, the emphasis in competition was placed on service, and the motor carriers of munitions more than held their own.

I have already referred to the rate reductions effected in October. I would now briefly like to just refer to one example of what happened in that rate-cutting program effected by the railroads.

In paragraph (a), on movements between Picatinny Arsenal, Dover, N. J., and Seneca Ordnance, 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 77 cents-a reduction of 31 percent.

In subparagraphs (b) through (e) it can be seen that the reductions approximated 33 percent, 48 percent, 46 percent, and 49 percent. respectively.

The average across-the-board decrease in rail rates on ammunition and explosives approximated 38 percent. It is interesting to note here that the accumulative percentage increase in the general commodity rate structure for the United States as a whole has increased 88.9 percent over the rate level existing in 1946, yet with the reductions effected by the railroads in October, the rate between 23 points in Southern territory on ammunition and explosives is now 9.9 percent less than it was in 1946.

I pass on now to part VII on page 12. which I think is very important.

The Government agencies concerned with transportation have frequently cited the following advantages allegedly received under the provisions of section 22:

(a) Rates are expeditiously established.

(b) Section 4 allows circuitous movements in the interest of security.

(c) Retroactive application of rates may be achieved.

(d) Rates are not subject to suspension by the Commission.

(e) Commercial shippers do not have to stand the brunt of higher rates since section 22 rates are fully compensatory.

(f) Security.

It might be helpful to this committee, Mr. Chairman, if we took just a few moments to analyze these alleged advantages.

(a) Allegation that rates can be expeditiously established: We must conclude from this statement that a large percentage of the Government traffic moves on such short notice that rates must be established on less than the 30-day tariff publication notice required by section 6 (3) of the Interstate Commerce Act.

It is not abundantly clear, however, why so much weight should be given to this argument, since a Department of Defense witness recently testified that their traffic generally moves on tariff rates.

In Department of Defense testimony before this committee it was stated that of the 19,166 section 22 quotations received in 1955 by the military, 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

78456-56-pt. 3-4

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, you have already indicated it would be considered part of my testimony, but I would like to refer very briefly to the fact that Mr. Dabney T. Waring is one of our elder statesmen in the trucking industry in the rate and tariff field. He has allowed me to cite his statement for this record which, in his opinion, the Government agencies would have little, if any, difficulty regarding rates from a security, from an expeditious, from a fourth section point of view, should the provisions of section 22 now in effect. be repealed.

Mr. HARRIS. Is his statement included in this?

Mr. BURNS. Yes, sir; it is attached to my statement here as an appendix F.

Under the fourth section allegation, the present Commission regulations now provide for relief from section 4. I will not go into all that. It can be seen in the testimony that a very high percentage of the applications filed are approved by the Commission.

In paragraph (c) on page 15, retroactive application, 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.

Now, with respect to suspension, when carefully analyzed, Mr. Chairman, 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 Government 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 Government, 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.

Now, with respect to the compensatory aspects of section 22 rates, Mr. Jelsma in some detail pointed out that the statements made by the Department of Defense with reference to section 22 rates being somewhat higher than commodity rates was not a fair representation of the situation as it exists today.

Assuming, however, that there are some section 22 rates higher than commodity rates, that can be justified, as is pointed out in the paragraph quoted from the Bureau of Transport Economics and Statistics at the bottom of page 16.

As far as security is concerned, there is within the province of the Interstate Commerce Commission today the ability to provide for the security of military shipments. An example is the ICC special permit No. 868 which is now in effect regarding the transportation of munitions by truck, and there are several other examples to justify the statement that the Commission is presently able to provide for the security of military shipments.

In part VIII, Mr. Chairman-and I am getting to the conclusion of this statement-the provisions of section 22 which allow "free or at reduced rates to the Government" inherently invite rate abuses of the worst type. It allows discrimination as between commercial and military shipments to take place on the same commodity, 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 financial stability of carriers since the Government can and does seek overcharges from 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 reasonableness of rates for that of the Commission.

It imposes a burden on commercial shippers who must necessarily pav higher rates to offset the effeects of unrestrained rate reductions