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is designed to accord to all forms of public transportation including the railroads, an opportunity to compete for traffic under fair and impartial regulation." Implicit in this statement, it seems to me, is an acknowledgment by the spokesman for the railroads that the present Interstate Commerce Act permits the railroads to compete "under fair and impartial regulation."

Why do the rails now claim otherwise?

The present regulations maintain a healthy competitive balance, in the interest not only of the shipping public, but of the carriers as well. Thus, competition is controlled, rather than cut-throat. And as a result, freight rates are stable, rather than chaotic.

H. R. 6141, on the other hand, may well lead to cutthroat carrier competition and produce uncontrolled rate wars so that freight rate stabilization between individual shippers, areas, or territories become impossible to maintain.

There is no sound reason for believing that today's competition between different modes of transport, if freed of restraint under present rules, would not be destructive of fair and just shipper rate relations, as was the case prior to 1887. Hamstringing other forms of transportation to help the railroads is not the way to achieve an economical, efficient, coordinated privately operated national transportation system. Only through intelligent regulation can we guard against rate-setting which discriminates against commodities, territories, States and cities. Inadequately regulated competition may be quite as much of a public evil as unregulated monopoly.

There are countless communities in the United States served solely by trucks. If truck lines serving the major cities are weakened by railroad rate cuts, how are these small communities which do not have rail or water carriers to receive their daily necessities? Will enough trucklines survive to furnish transportation to these communities? Will they be able to provide adequate service? Isn't it also likely that both business and consumers in these communities will have to pay higher prices?

Competition in the best interests of a well-rounded transportation system should be based on service, not price. You all know the evil effect of price wars, particularly on the "little fellow." The present rules of the game have not meant the end of competition, nor have they prevented growth and expansion of all types of carriers.

Summary

I should like to summarize the main points of this statement. These conclusions are, in my judgment, based upon sound economic principles and are supported both by recognized, independent transportation authorities, and by our industrial history.

If H. R. 6141 and companion bills are passed:

1. Railroads are likely to obtain a monopoly over intercity freight transportation. With unlimited financial resources, the rails can afford to cut rates until they have either driven trucks off the road or forced them to sell to the railroads. Then, without competition, the rails can use the maximum rates to make shippers and consumers pay the costs of the transportation war and whatever the traffic will bear in the future.

2. The development of strong, stable modes of transportation under independent ownership, with its impetus for progress, will be jeopardized.

3. By establishing price as the sole factor in ratesetting, rather than traditional "value of service" principles, the existing equitable and stable rate structure will be discarded and chaos will probably result. Marketing practices, as they presently exist, will be disrupted, since producers will no longer be assured that competitors would be required to bear a comparable transportation cost. 4. Since the ICC will lose virtually all its authority to protect both carrier and shipper against unfair rates, smaller shippers and smaller communities will again face the disastrous effects of volume and long-haul discrimination.

Mr. Mohn, vice president of the International Brotherhood of Teamsters, has Indicated to you the interest of our organization in H. R. 6141. It is worth repeating them, in the light of the foregoing analysis.

1. The Teamsters' Union is interested in the continued health and prosperity of the industry which provides employment to its members.

Trip Leasing (Interstate Commerce Act).

Hearings before the Committee on Interstate and Foreign Commerce, House of Representatives, 83d Cong., 1st sess., on H. R. 3203. April 21, 22, 23, 24, 30, and May 7, 1953, p. 232. Emphasis supplied.

2. The union is interested in preserving the job opportunities of its members. 3. The union is interested in securing the highest possible benefits for its members. For this reason, it desires fair and equitable rules which will permit the trucking industry to retain sufficient competitive vitality to make progress and thereby permit the union to negotiate freely for wage increases and other benefits. 4. The union is interested in continuance of a privately owned, independent transportation system which is not, and will not become, a mere appendage of another mode of transport.

Mr. HARRIS. I have a request from Mr. Thomas L. Preston, vice president and general counsel of the Association of American Railroads, to file a supplemental statement of Mr. Jervis Langdon, Jr., on behalf of the association. I might say that this is a statement which is the result of a conversation that I had with Mr. Carter Fort just before his death, in which he requested that the association have permission to file an additional or supplemental statement, and it will be received at this point.

Mr. HINSHAW. Is that statement to follow another statement, or will it be placed separately?

Mr. HARRIS. I believe it is requested that this statement follow the testimony of Messrs. Turney and Aitchison.

(The statement referred to was inserted as indicated and appears on p. 742.)

Mr. HARRIS. We have a supplementary statement of Mr. James G. Lyne to be inserted. Mr. Lyne has previously testified so I suppose this will become a part of his other testimony, Mr. Clerk.

(The statement referred to was inserted following Mr. Lyne's testimony and appears on p. 414.)

Mr. HARRIS. We have a statement requested by our colleague, Mr. Bob Jones of Alabama, for inclusion in the record, a statement of Mr. Milton Cummings of Huntsville, Ala. It is a rather voluminous statement. It may be included in the record.

(The statement referred to follows:)

STATEMENT OF MILTON K. CUMMINGS, HUNTSVILLE, ALA.

SUMMARY

ANALYSIS OF REPORT OF PRESIDENTIAL ADVISORY COMMITTEE ON TRANSPORT POLICY AND ORGANIZATION AND OF H. R. 6141 AND RELATED LEGISLATION

The background of the report of the Presidential Advisory Committee on Transport Policy and Organization (the Weeks report) is one of pronounced bias in favor of railroads and against waterway and highway transportation. The study from which it emerged was a response to a memorandum to the President from the Association of American Railroads pleading for more privileged statutory treatment. The working group which participated in preparation of the report consisted exclusively of persons with a background or interest in rail transportation and of railroad specialists. The report itself proposes drastic changes in regulatory law designed to shift the balance of competitive forces radically in favor of the railroads and against the interests of water and motor carriers.

The recommendations of the Weeks report are derived from a structure of fallacious premises as to present regulatory law. The report asserts that present regulation is based on the obsolete assumption that the railroads have a monopoly of intercity transportation. But, in fact, Federal regulation has never been based on this as a primary assumption. On the contrary, since 188., regulatory law has been more pointedly directed at predatory and destructive competitive practices and at the resulting discriminations between shippers and communities. The report asserts further that regulation has failed to keep pace with the development of highway and waterway carriage. In fact, however, the portions of the

Interstate Commerce Act dealing with railroads have been amended 144 times, and the acts of 1935 and 1940 were specifically framed to adapt regulation to the development of highway and waterway carriage. The recommendations which emerge from the fallacious premises of the Weeks report are necessarily equally invalid.

It is true that every railroad is a monopoly in the legal sense that it has exclusive access to a right-of-way acquired through the exercise of eminent domain. But, far more significant to regulation was the prevalence of disorderly rate wars between railroads and against water carriage which culminated in the Act to Regulate Commerce of 1887. After 1869, railroad history and practice were characterized by construction subsidies, overexpansion, excess capacity, secret rebates to large shippers, predatory ratecutting on competitive traffic, and excessive charges on poncompetitive traffic. The resulting commercial and community inequities and dislocations led to the public demand for regulation and to the Act of 1887. As stated by Commissioner Kenneth Tuggle of the Interstate Commerce Commission in 1955:

"There is no sound reason for believing that carrier competition today, especially between different agencies of transport, if freed from all restraints, would not be destructive of fair and just shipper rate relations, as was the case prior to 1887." The rate wars preceding regulation were particularly severe because of the ability of the railroads to cut rates selectively, carrying competitive commodity movements at less than full cost and recouping the consequent losses by excessive rates on noncompetitive movements. The loss rates were especially prevalent on water competitive movements, and the ever-recurring rate wars eventually destroyed much of the water transportation industry. The intermittent rate wars and truces introduced a serious element of uncertainty into agriculture and industry dependent on stable and fair transportation costs.

The Weeks report proposes to tree the carriers to utilize their economic capabilities in the competitive pricing of their service. The economic capabilities peculiar to railroads are those of predatory and destructive attack. The railroad systems were generally completed before the Transportation Act of 1920, so that the railroad lines lie along the most advantageous routes wherever the railroad promoters choose. By contrast, much of the volume of motor truck transportation has come into being since the requirements of certification were imposed in 1935, and, in consequence, the motor carrier is limited to routes and commodities approved by the I. C. C. This circumstance narrows the area within which a railroad needs to concentrate its competitive attack. Other localities and commodities are left in a noncompetitive field where they can be exploited for high railroad profits to finance the rate wars elsewhere.

The railroads have a proclivity for discriminatory ratecutting built into their cost structure. Because so much of their costs are fixed, regardless of traffic volume, they find it easy to regard only the incremental or out-of-pocket cost as the real cost of moving any newly acquired traffic. Therefore, they quote a cut rate based only on the out-of-pocket cost and fail to recover the fixed cost. In 1953, according to the Interstate Commerce Commission, 87 out of 256 commodity groups moved at less than fully distributed cost. This is 32.7 percent of the total. In fact, in their enthusiasm for ratecutting, the railroads moved 40 commodities, or 153 percent of the total, at even less than out-of-pocket costs. The resulting losses were made up by excessive charges on the remaining 169 commodities. Fifty-three commodity groups, or 19.9 percent of the total, moved at charges exceeding 150 percent of fully distributed costs, and 8 commodity groups yielded the railroads over 200 percent of fully distributed costs.

By contrast, waterway operators and trucklines have a higher percentage of ont-of-pocket costs and are compelled to charge rates on all movements exceeding fully distributed costs by narrow margins. According to Dr. Ford K. Edwards, from 25 to 30 percent of railroad costs are fixed in contrast to only 10 percent for water carriers and intercity truck lines. This gives the railroads a majʊr rate-war weapon not possessed by their competitors.

The Weeks report would sharpen this cost-cutting weapon by providing a minimum rate standard of direct ascertainable cost, presumably the same thing as out-of-pocket cost. In representative cases cited herein the Weeks standard would permit particular railroads to cut rates by as much as 18 percent below minimum rates allowed under the present statute, and thereby to destroy the compentive waterway and highway traffic.

Railroad spokesmen complain that other modes of transportation are subsidized. Actually, however, the discriminatory rate structure of the railroads constitutes

a private subsidy system of major proportions. The losses the railroads take on traffic competitive with waterways and truck lines have to be made up from some source to avoid bankruptcy. This is substantially the same process as a Government subsidy which compensates a private operation for losses taken on belowcost business. The source from which the railroads obtain the subsidy funds is the excessive revenue from noncompetitive traffic, a species of private excise tax. According to data published by the Interstate Commerce Commission, the railroads financed losses amounting to $1,158,494,000 in this manner in 1953, a private subsidy of major proportions. By way of comparison, the outlay of the Federal Government in 1953 on the 12 major active waterways was only $55,800,000-less than 5 percent as much as the private railroad subsidy.

One of the most formidable of the economic capabilities of the railroads for competitive purposes is large size. The revenue of the average class I railroad in 1953 was about 40 times as great as that of the average motor or water carrier. Eight railroads had revenues exceeding $200 million each, ranging up to $848 million for the Pennsylvania. The largest intercity truckline in the country had revenues just short of $48 million, less than 6 percent as big. Furthermore, the railroads are much more diversified as to routes served and commodities carried, permitting them to pick off the more specialized small carriers by highway and waterway 1 by 1.

The fallacy of the economic-capabilities doctrine is that in the field of transportation; the power of the railroads to take business from competing modes does not reflect superior efficiency. The fixed cost structure, the private subsidy system, their overwhelmingly large size, and their diversified traffic are capabilities of economic warfare which are irrelevant to efficiency. Consequently, the successful exercise of these capabilities would commonly transfer traffic from the more efficient agency to the less efficient.

Congress was aware of the dangers of the economic-capibilities doctrine in the formulation of the Transportation Act of 1940. The recorded deliberations of the Congress demonstrate that the provision to foster the inherent advantages of each mode of transportation was specifically intended to prevent the exercise of destructive economic capabilities.

The Weeks proposals are especially threatening to the small shipper and the small community. Small industrial and mercantile firms are not in a position to bargain for cut rates in the manner of the traffic executives of their large corporate competitors. Recurrent general rate increases fall heavily on the small shipper, and the selective exceptions and retreats from these rates go primarily to the large shipper. The virtual repeal of the long-and-short-haul clause proposed by the Weeks report would be a severe blow to the many landlocked communities and farm regions dependent on the railroads. These are the areas subjected to the private excise tax of superprofitable rail rates collected to finance the private subsidy of competitive traffic.

Indeed, even the apparently favored large shippers and communities would receive only a temporary benefit. The intent of predatory rail competition, if unleashed by the Weeks proposals, would be to destroy competitors. Once this objective had been achieved, no further motive would remain for the railroads to continue the depressed rates, and higher rate levels would be restored. It is notable that the Weeks report contains no proposals whatever to heighten competition between railroads.

While proposing to unleash the railroads for attacks upon small carriers in other modes, the Weeks report would constrict the other modes even more than at present. Thus, the activities of private and contract motor carriers would be sharply delimited by redefinition of those terms, tending to place them in the more tightly regulated common carrier category. Activities of freight forwarder associations would be curtailed. The bulk commodity exemption for water carriers would be repealed. The philosophy of the report is internally consistent. It would strengthen the big and correspondingly weaken the small. The Weeks report has serious implications as to regional development. Industrial growth in the South and West has been especially dependent on waterway and highway carriage. The Mississippi, the Ohio, the Tennessee, the Cumberland and the Warrior-Tombigbee River systems and the Gulf Intracoastal Waterway are main avenues of traffic and are predominantly southern. From 1946 to 1954 the tons of inland freight moved on the Mississippi and its tributaries increased by 69.7 percent, while the carloadings of freight in the Southeastern States served by these rivers increased only 9.7 percent. Similar observations could be made with respect to the waterways of the West. In the valleys of the Columbia, the Missouri, and the Arkansas, water transportation promises to play an increasing role in regional development.

1

Highway trucking is of particular importance to the South and the West. The four census regions of the East South Central, the West South Central, the Mountain, and the Pacific States all have lower average rail trackage density than any of the remaining census regions of the country. Therefore, their industrial and agricultural development has had to depend much more on highway transportation than elsewhere. From 1940 to 1953, every one of these southern and western regions enjoyed a larger percentage growth in highway tracking than any of the remaining regions of the country and, at the same time, a larger percentage growth in income payments to individuals. The proposal to attack and constrict the highway trucking industry is thus a proposal to block the further economic development of the South and the West.

The railroads are continuously pleading economic distress. In fact, however, their freight business is highly profitable and they are in reasonably good financial condition. Over the long run their rates have gone up more than the general level of other prices. There is substantial evidence of improvements in rail efficiency. These two factors combine to make railroad freight movement a distinctly profitable activity. Large losses occur in the passenger business, bringing down the general average of rail return on investment. During the 8 years, 1947 through 1954, the rate of return on freight business alone varied between 7.1 percent and 10.5 percent, a showing as good or better than that of the leading gas and electric utilities of the country. The mileage of railroad now operated under receivership is the lowest in many years. Thus, the complaints of the railroads have no foundation beyond the need to deal constructively with the passenger problem.

The Weeks report proposes to repeal the dry bulk commodity exemption on the inland waterways so as to bring a large volume of waterway traffic under full economic regulation. There is no problem or crisis among the shippers or carriers on the waerways nor in the waterway communities to justify such a step. Waterway carriage is by far the oldest mode of transportation. It has served the American community since the founding of the Colony of Virginia in 1607. During much of its history waterway movement has been the chief mode of mass transportation on the continent. Yet the waterways served well, competitively, and progressively without ever raising any general demand for regulation. Not until the railroad financial crisis of the late 1930's was any of the waterway traffic brought under regulation. The only earlier exceptions had been waterway movements controlled by railroads and certain regulations as to railroad interchange rates. On the historical record it is clear that water carrier regulation is a product of railroad regulation and railroad complaint. No railroad crisis confronts the Nation at the present time, so that even this limited reason for instituting regulation in 1940 is now absent.

Waterway carriage is constructively competitive. Regulation would terminate this feature of the industry by introducing the requirements of certification and operating permit. During the period from 1940 to the end of 1955, less than 25 percent of operating applications were granted, including those filed under the grandfather clause. Thus, entry into the industry would be constricted and competition curtailed.

The history of water carrier regulation thus far indicates something of this constrictive effect. On the Mississippi River, the Ohio River, and the Gulf Intracoastal Waterway, the growth in traffic since regulation was instituted in 1940 has been lowest in the commodity movements subject to regulation. The limitations of operating rights, the restriction of new entrants into the industry, and the resulting effects on rates and service appear a logical explanation of this disappointing picture. As time passes under regulation, the obstacles to new operations become more forbidding. Procedures of application are complex, expensive, and time-consuming, and established operators present an array of opposition progressively more seasoned and effective.

Furthermore, operating restrictions would serve as a lever to suppress further improvement of the Nation's navigation facilities and channels. The economic justification upon which the Congress authorizes improvements rests upon the prospective traffic an improvement will carry. By holding down the volume of traffic through restrictive regulation, the prospective benefits can be made to appear inadequate to justify further improvement.

The effect of extending waterway regulation would be detrimental to shippers and communities. It is noteworthy in this connection that the user panel of the Transportation Association of America, consisting of representatives of shipping interests, has expressed itself decisively against repeal of the bulk commodity exemptions.