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summarizing this history in chronological fashion, tracing the evolution of the provision from the early days of the Eastman report of March 10, 1934, through the year-by-year consideration which culminated in the enactment of section 303 (b) in the act of September 18, 1940, which became Public Law 785, 76th Congress.

From this legislative history certain very relevant points stand

out:

(1) The exemption of the transportation of bulk commodities by water from the general scheme of regulation was a thoroughly and carefully considered step.

(2) The exemption was based on the principle that enterprise and competition in transportation on the waterways should remain free except to the extent that the public interest required regulation, leaving the inherent advantage of low-cost transportation afforded by the waterways to free and unrestricted use.

(3) The exemption was accordingly based upon the determination that there was no substantial competition between bulk transportation on the waterways and transportation by rail, and that, therefore, the exemption did not place the regulated carriers under unfair competitive disadvantage.

(4) The reasons for the bulk exemption extend as much to the inland waterways as to the Great Lakes. Any limitation of the exemption to bulk movements on the Great Lakes would discriminate against communities and shippers on the inland waterways, particularly on the upper Mississippi River.

Then, as now, the representatives of the Interstate Commerce Commission, sought the authority to regulate bulk movements urging that to the degree that regulation was unnecessary the Commission would exercise administrative exemptions. Significantly, the Congress at that time refused to accept the concept of administrative exemptions and in July 1939 the House committee, predecessor to this committee, devised section 303 (b) in substantially its present form and included it in the bill reported out.

Let us examine the applicability of these reasons of 1940 to the current situation.

Is there any further reason for preserving the freedom of enterprise and competition on the waterways as an incentive to the development of their full use? Despite the astounding growth of bulk commodity movements on the inland waterways in the last 16 years, the potentialities of further increased use of this cheapest form of transportation are still great. Freedom of enterprise and competition are as necessary to the development of the use of waterways as they were in 1940. The future of water transportation in bulk commodities on existing waterways, the program of further inland waterway development extending and improving the navigable channels into areas where water transportation in bulk commodities will become a vital factor, and the outlook for the future development of particular industries requiring cheap water transportation of bulk commodities all suggest future potentialities. We cannot wrap up competition and enterprise and put them on the shelf insofar as water transportation of bulk commodities is concerned. The utilization of free enterprise on the rivers for further growth and development must not be halted by the specter of monopoly and regulation. That reasoning of the Congress in 1940 applies equally today.

The Congress based its determination in 1940 that bulk commodity movements on the waterways should be exempt on its finding that there was no substantial competition between this bulk transportation on the waterways and rail transportation and that, therefore, the exemption did not place the regulated carriers under unfair competitive disadvantage. As Congressman Hinshaw said in the course of debate on the floor:

As far as bulk carriers are concerned, those hauling sand and gravel, coal, oil, and similar materials in rough bulk, it was thought that these commodities were of such a nature that the handling of such cargoes was not competitive. Consequently, they were left out. In this bill we are interested in competition (Congressional Record, July 22, 1939, p. 9750).

With the vast improvement in movement and handling of bulk commodities on waterways, the margin of cost between that method and the movement of bulk commodities by rail has been further widened in the intervening years. Therefore, it follows that if Congress enacted the exemption originally on the ground that there was no substantial competition at that time on a cost basis, then, the same conclusion is much more justified today. However, the report of the Advisory Committee and the spokesmen for the railroads assume their major premise, namely, that there is keen competition now between rail and water carriers in the movement of dry bulk commodities. No proof of this statement is offered of this fact which was found to the contrary by the Congress 16 years ago.

Of course, it goes without saying that if cost is not a consideration rails could compete with water carriers for the movement of dry bulk commodities where there are existing waterways. But, in view of the great disparity of costs between the two types of transportation, a gap which has been enlarged instead of being diminished since 1940, there can be no true competition on a cost basis. In effect, what the railroads are seeking is one of two things or possibly a combination of both:

(a) A regulation of the rates of barge bulk movement by water upward to a level where they could conceivably compete on a cost basis.

(b) A right to handle movements competitive with barge transportation without charging a full and proper share of the cost of such movement to the shipper; in fact, allowing the railroads to pick up nondiscriminatory bulk traffic at the expense of shippers in areas where there is no water transportation available.

We invite the committee to examine the basic premise of those who recommend the elimination of the exemption, namely, that there is competition between rail and water carriers in the movement of dry bulk commodities on a realistic cost basis requiring the regulation of the one in order to protect the other.

Another reason why Congress enacted the dry bulk exemption in section 303 (b) in 1940 was that it had already determined to exempt such movements on the Great Lakes by a specific section which became section 303 (c). In this connection your committee's attention is invited to the rather interesting evolution that has occurred in the minds. of proponents of this bill and this section with regard to bulk movements on the Great Lakes. The language of the President's Advisory

Committee clearly contemplated the repeal of the bulk commodity exemption "on the inland waterways, coastal waters, and deep sea routes, and the Great Lakes." Indeed, the draft bill before this committee implementing this report seemed designed to include a lifting of the exemption on the Great Lakes. During the course of the hearing, however, there seemed to have been a change of heart. At least in the sense that the legal spokesman for the Department of Commerce, Mr. Philip Ray, in response to questions by the Committee clearly indicated that there was no intention now of asking that the exemption of bulk movements be lifted insofar as it applied to the Great Lakes. If the proponents of the bill are to follow the same standards of fairness and seek to avoid regional discrimination as Congress did in 1940, it would seem to follow that they would withdraw in its entirety the recommendation embodied in section 14. Any other course would result in unfair discrimination against cities, towns, industries, and populatitons located on the other inland waterways in favor of those located on the Great Lakes. As long as the exemption is maintained in the Great Lakes the exemption is equally well justified on the other inland waterways as a means of avoiding that discrimination, just as it was in 1940.

By the same token, removal of the bulk commodity exemption would handicap the carriers and shippers dependent upon it who must compete against the large private shippers who can and do maintain and operate their own fleets. Congress feared this handicap in 1940 when it decided to exempt bulk movements as a means of protecting the user who could not afford to own and operate his own fleet.

III. THE EXTENSION OF REGULATION ON OUR INLAND WATERWAYS TO THE TRANSPORTATION OF DRY BULK COMMODITIES WOULD SUBSTITUTE A REGULATED CARTEL FOR A WORKING SYSTEM OF FREE COMPETITIVE ENTERPRISE

My third point is as follows: The extension of regulation on our inland waterways to the transportation of dry bulk commodities would substitute a regulated cartel for a working system of free competitive enterprise.

Although they have not appeared here in support of section 14 of H. R. 6141, because they are opposed to the legislation as a whole, a small group of barge line operators have in the past sponsored this type of proposal which was introduced as S. 3111 in the 83d Congress and as S. 951 in the 84th Congress. Neither proposal has been the subject of hearings or further legislative action beyond initial inotroduction of the bills. The backers of these two bills which are the predecessors of section 14 of H. R. 6141 established an organization called Conference for Inland Waterways Dry Bulk Regulations. This activity split the common front of the barge and towing industry and necessitated the creation of the organization I speak for here today.

Reluctant as I am to do so under circumstances where the 4 large common carrier barge lines have submerged their advocacy of the repeal of section 303 (b) to their overall opposition to this bill, I feel that the committee is entitled to know the early background of the proposal embodied in section 14. It represents a legal maneuver by the railroads and a few of the large common carrier barge lines to divide up among themselves the present and future business in the

movement of dry bulk commodities enjoyed by many hundreds of small, exempt carriers and also many regulated smaller common carriers with limited operating rights.

If this legislation should be enacted, these few large barge lines who founded the so-called Conference for Inland Waterways Dry Bulk Regulation, would be enabled, by law and regulation to prevent new entries into the business of hauling bulk commodities; they would also be empowered to freeze existing operators to the narrow confines of existing movements; and thereafter, it would be inevitable that the combined pressures of an inability to grow or modify operations to meet new conditions and the pressures of detailed regulation on small businesses ill-adapted to such regulation would result in the barge and towing business becoming monopolized in a few hands.

One of the expert witnesses appearing here on behalf of the Waterways Council whose presentation will follow mine, namely, James K. Knudson, will develop by technical testimony the impact of regulation under part III of the Interstate Commerce Act on the unregulated barge and towing industry as presently constituted. He will make clear to you the technical reasons for the statement I have just made concerning the future, if this exemption from ICC regulation is removed.

In brief, our position is that, buttressed by the legal restrictions on competition that normally attend the regulated industries (see Schwartz, Regulation, Restriction of Competition in the Regulated Industries, 67 Harv. L. Rev. p. 436 et seq.; Diminishing Applicability of the Antitrust Laws and Regulated Industries, 28 Indiana Law Jrl. 194), the end result of the extension of regulation under section 14 would be to substitute a regulated cartel for a system of free competitive enterprise in the transportation of bulk commodities on the inland waterways.

The drift of administrative practice, particularly in the Interstate Commerce Commission, and the policy of judicial noninterference would create a broad immunity for private combination in restraint of trade. The admission of new competitors into the hauling of bulk commodities would become increasingly difficult, expensive, and hazardous. When it becomes known that every proposal to render new service will encounter the objection that it is not needed or that the need will be supplied by existing operators who have a preferential right to provide it, only a large business corporation will go to the trouble and expense (engineering, accounting, legal, et cetera) of preparing, filing, and fighting through an application.

The same attitudes and policy drifts of administration of regulated industries that leads to restrictive entry and, under section 14, to a freeze on the further growth and expansion of existing entries, in time would produce merger, consolidation, or bankruptcy of the vast majority of exempt carriers and regulated common carriers with limited operating rights. It is no wonder that the shippers who utilize and, indeed, require for their economic position, this service have appeared and will appear in almost, if not completely, unanimous opposition to section 14.

They know that the consignment of an area of transportation to a few large regulated carriers is quickly followed by legislative or administrative indulgence of competitor collaboration in ratemaking

which has characterized the regulated transportation industries on land, air, and water in the past decade. When competitor collaboration on the fixing of rates is established it can be reasonably anticipated that rates will not be as low as under the spur of competition. The buying and consuming public that uses the waterways for the transportation of bulk commodities feel that they have a stake in the low cost and low rate patterns that the free competitive enterprise system presently in vogue has provided.

In order that this committee may see clearly and specifically who stands to be benefited in addition to a few of the railroads whose lines parellel our national waterways, I have prepared an exhibit. From the testimony the committee will receive it should be clear that the beneficiaries of section 14 are not the shippers, not the industries which utilize dry bulk commodities in their productive processes, not the farmers and farm groups who depend upon exempt transportation, not the roughly 1,000 presently exempt contract carriers, not the great preponderance of regulated contract and common carriers who have been granted only limited operating rights by the ICC. No: none of these are beneficiaries.

The beneficiaries are a few railroads whose lines and operating rights are well known and need not be detailed here, and a small group of 4 large regulated barge lines operating in the Mississippi River system, 5 smaller connecting barge lines who are dependent upon the major carriers, and 1 isolated operator on the east coast with extensive operating rights.

The exhibit I shall now present graphically portrays the existing operating rights of this small but powerful group of regulated barge lines which are the only inland water carriers to our knowledge who have ever come forward to advocate the extension of Interstate Commerce Commission regulation. The existence of this interest, the breadth and scope of their rights, when viewed in the perspective of their ability under law and regulation to prevent the growth of further competition and to gradually suffocate and eliminate their competitors under ICC regulation is at the very root of the issue presented to this committee by section 14.

The exhibits consists of an outline chart of the waterways of the United States and the east coast and an overlay superimposed on the chart showing the operating rights under the Interstate Commerce Commission for each of the 10 companies who are the only ones who have come forward as advocates of the extension of ICC regulation on water transportation.

The red line indicates the most general operating rights in each case. The other colors indicate somewhat more limited rights.

As I hold two overlays, one for each of the companies concerned, it will be observed that they build up gradually to form a complete pattern which blankets the inland waterways of the Eastern United States, completely covering all of the navigable inland waterways other than the Great Lakes and the waterways of New York State.

It will be seen, therefore, that in any case where presently exempt carriers who would become regulated under section 14, if they sought to extend their operating rights on application of the Interstate Com merce Commission, they would be opposed by 1 or 2 or possibly even 4 or 5 of these particular carriers who have advocated the extension of regulation.

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