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We have explained to him that if we go to this expense and he goes to the expense of erecting this shoreside warehouse at Detroit, we are not so sure but what one of the railroads servicing that area would ask for relief from the Commission and get a reduction in the rail rate and undercut the movement and put him in a bad position with his competitors in the area.
Mr. Harris. It struck me as a very interesting statement and I was just wondering what you meant by it. I would welcome any further expansion on the statement.
Mr. SULLIVAN. Let's add this other thought: The interchange of freight as between rail and water if we could obtain joint rates with the railroads on grain, and grain products, and so forth, just to decide where one of us ends off and the other takes up.
Mr. HARRIS. The interesting thing about it and the reason I asked a moment ago, is whether you thought that regulatory agencies should determine who should carry what traffic. If it means that, it seems to be a rather far-reaching proposal.
Mr. SULLIVAN. No; it is not who carries what; but whether they are allowed to engage in cutthroat competition with each other.
Mr. HARRIS. Very well. Thank you very much.
STATEMENT OF JOHN H. EISENHART, JR., COUNSEL, THE GREAT
LAKES SHIP OWNERS ASSOCIATION
Mr. EISENHART. Mr. Chairman, my name is John H. Eisenhart, Jr. I am and have been for the past several years counsel for the Great Lakes Ship Owners Association, on whose behalf I wish to make this statement. I am also general counsel for the American Waterways Operators, Inc., the national association of small-vessel operators, which group has been ably represented before your committee by its president, Mr. Chester Č. Thompson. The Great Lakes Ship Owners Association is comprised entirely of common carriers by water which have been certificated by the Interstate Commerce Commission for the transportation of commodities generally throughout the Great Lakes.
If you would permit, Mr. Chairman, at this point I would try to answer your question to Mr. Sullivan. In connection with his statement to which you referred, as to the administration of the existing transportation laws both by the administrative agency and in turn by the Congress, I touch on that a little more fully later, but briefly, it is not our
position that an actual allocation of traffic should be made either by the administrative agency or the Congress. However, on the other hand, we feel that the administrative agency-and we would advocate the Congress, too-should clarify, first, the policy of the present act and bend it in the direction in which it was first directed in 1940 and second, insofar as the Commission is concerned particularly, to firm their ratemaking policies in such a way that we in the watercarrier industry know what we have to confront. We swing a pendulum in this competitive field from having to meet railroad rates which in many instances are substantially below the so-called out-of-pocket costs of the railroads to the other extreme, where the railroad rates are three or four hundred times the fully distributed costs. I will document that subsequently.
I know of no product in the United States-and transportation service is a product—that is sold on that kind of a basis and I think that is what Mr. Sullivan had in mind, sir.
It was my intention originally to cover in great detail the bills here under consideration, with particular emphasis on those sections which, if enacted into law, would most adversely affect the welfare of the members of the Great Lakes Ship Owners Association. As a matter of fact, the membership believes that many of the provisions of these bills would, if enacted, bring about a discontinuance of the service now offered by these carriers. Since the preparation of the original draft of my statement, several factors have intervened which have somewhat changed my presentation. The first of these was the statement by Mr. Jervis Langdon, Jr., on behalf of the railroad industry. At the first reading of Mr. Langdon's statement, it appeared that the railroads had entirely abandoned H. R. 6141 and were suggesting in lieu thereof the enactment of three apparently simple "shall nots" and an innocuous-appearing amendment to section 4 of the Interstate Commerce Act (H. R. 6208). A rereading of Mr. Langdon's statement, however, shows clearly that I was mistaken. This gentleman referred at length to the statement made by the late Mr. Carter Fort before this committee in September of 1955, on the Presidential Advisory Committee Report on Transportation Policy and Organization. This, as you know, is the organic work from which has sprung H. R. 6141 and 6142. A thorough reading of Mr. Langdon's statement shows he reiterates the position taken by Mr. Fort in September of last year and readopts the position taken by the railroads at that time. He suggests, however, that the situation might be cured insofar as the railroads are concerned, probably temporarily, by the simple expedient of amending the Interstate Commerce Act by adding the now well-known three "shall nots” and appending thereto H. R. 6208.
The second intervening factor is the announcement by the chairman of this committee about 2 weeks ago that because of the fact that the instant hearings had consumed such a large amount of the committee's time, and since many other most-important matters had to be considered by the committee before adjournment this season, it would be necessary to terminate the hearings at the close of business on June 15, 1956. In view of the large number of witnesses then scheduled to appear, it was obvious that curtailment would have to be made by all parties to bring about the result desired by the chairman. In view of the railroad position, I feel it necessary to present a full statement on this subject to the committee. Also, I believe it necessary to have officials of the common water carriers operating on the Great Lakes present statements in order to place on the record practical operating conditions including competitive conditions, which the industry is forced to meet now, and those which it can be expected they will have to meet if H. R. 4161 is enacted, or in the alternative, if H. R. 6208 and the three shall nots" become law,
I am most appreciative, therefore, of the opportunity given to Mr. Sullivan and myself to appear before this committee to present orally the views of the industry, I would like at this time to ask permission, as I mentioned this morning, to file two additional industry statements at a later date and also to augment by another late-filed statement the abbreviated statement I am now about to give.
The committee has heard Mr. Arthur Sullivan, president of the Gartland Steamship Co., briefly outline the views of the industry. It will be my purpose to deal with the more technical features of the legislation. Before proceeding to this, it might be of some interest for the record for me to outline briefly my personal experience in the field of regulation. In 1934 I became a junior examiner for the United States Shipping Board and continued with its successor organizations as a trial examiner, administering the regulatory statutes then applicable to carriers by water until the enactment of part III of the Interstate Commerce Act, at which time I transferred to the Interstate Commerce Commission as a trial examiner. Subsequently, I became Transportation Counsel of OPA, in which capacity I set up a rather extensive Transportation Division for Leon Henderson, the first Administrator of that agency. Subsequently, during World War II, I became assistant to the late Hon. Joseph B. Eastman, at that time Director of the Office of Defense Transportation. In addition, I have done a great deal of research work in regulation, having written several articles and books on the subject. In short, I have been engaged in this business as my principal livelihood for some 22 years. I have, somewhat like Mr. Knudson, spent my life in regulation.
I have heard it said at several of the sessions of this committee that many of the statements in connection with the bills have been cumulative. While it is true that this type of thing makes for a voluminous and sometimes cumbersome record, it is by the same token most persuasive. Leaning on the old adage that where there is so much smoke there must be fire, it has become apparent, I think, that there is something drastically wrong with the bills here under consideration, since practically everyone appearing has been opposed to them in whole or in part.
This committee has heard from outstanding men in the field of transportation. Each of them has presented different though in many cases overlapping thoughts as to the impact of the bills on their particular industries. While many of the adverse effects they have described would fall upon the common water carrier industry on the Great Lakes, it is felt that the industry I represent has additional problems. It is these that I wish to emphasize, but before doing so permit me to lay a brief foundation.
The hearings now being conducted, and those which were conducted by this committee in September of last year on the Cabinet committee report, all stem, of course, from that report, which in turn came about as a result of railroad agitation to do something for the sorry plight of that industry. To say that the railroad industry is in a sorry condition is not a fact. Therefore, the fundamental premise is an error and naturally the conceptions that arise therefrom must be fraught with such error. The Cabinet committee report in the first instance centers around the change in transportation policy and recommends that Federal regulation be changed from control by the Government, to free enterprise. The term used throughout the report and which you have heard here "ad nauseam" is dynamic competition. The Interstate Commerce Commission has come up with the best translation of this phrase that I have heard. Its report to you on H. R. 6141 suggests that this bill will return transportation in this
country to the law of the jungle. I would like to go one step further with this. It is in fact an invitation to the railroad industry to use its still present economic monopoly to throttle its competitors.
I might say, parenthetically, that the people I represent are opposed to the bill in toto.
The Cabinet committee premises its recommendation on the theory that railroad monopoly has now disappeared because they find that today the field is highly competitive due to the existence of trucks, buses, airlines, and water carriers. This is only a half-truth and like such things is really more dangerous than an outright error. It is true these other forms of transportation exist, but economically they could not last 6 months in an all-out rate war with our powerful friends in the railroad business. In short, the effectiveness of the "old" railroad monopoly still exists. Only the form has changed. Now it is basically economic.
I don't think there has been a single instance where the railroads have gone out to make an "honest effort” to eliminate us by competitive rate reductions that they have been unsuccessful. Curtailment or elimination of water-carrier service has followed railroad rate reductions as night follows day.
Mr. Wildman presented certain statistics to you which showed without any question that under present regulation the rail carriers were doing better than good. Specifically, his batting average on protests prior to last fall was 50 percent. Since that time, or coincidental with the rise to prominence of the Cabinet committee report and the legislation here under consideration, his protest batting average fell to about 16 percent. This simply means that his people were able to get to bat, that is, even be heard, in about only 16 percent of the reduced rail rate cases. While he wasn't able to give you the outcome of the 16 percent since many of the matters are still pending, based on experience only about half, or roughly 8 percent of the railroad rate reductions would be disallowed and then generally not in toto.
What has been the experience on the Great Lakes! In the last 6 months, about 15 protests have been filed against competitive railrate reductions, allegedly to meet water competition on the Great Lakes. These I have personally filed. Most of these reductions were not to meet competition, as I shall demonstrate specifically in a moment, but were to drive water carriers out of existence. The astounding thing is that not one of these reductions was suspended. As a result the water carriers have lost the traffic. Prior to last fall the average number of suspensions granted, in terms of the protests filed on the Great Lakes, was about 50 percent and in about 25 percent of these cases the suspended rates were found unlawful in whole or in part. The experience of the water-carrier industry throughout the Nation seems therefore to be cut according to the same pattern. As you can see, my batting average of late has been substantially below Mr. Wildman's lately. I cannot explain this phenomenon. The fact remains that for a water carrier to obtain a suspension of a competitive rail reduction from the Suspension Board of the Interstate Commerce Commission seems to be an extremely difficult if not impossible job, even under the present law as now administered. In view of this fact I don't understand the railroads position with respect to their requiring more "managerial discretion” and less
regulation, which I understand is the purport of this bill from their standpoint. It seems to me that any less regulation would be no regulation. The simple truth of the matter seems to be that the railroads are asking this Congress to direct the Commission, by means of this legislation, to guarantee the railroads a complete monopoly. When this comes about-and I hope it doesn't-the water-carrier interests which I represent will very quickly cease to exist. They will then be in no position to aid the country in the event of another national emergency or in a war state, a task which they so ably performed in World War II, as mentioned by Mr. Sullivan.
As typical of what I am talking about, let me briefly detail for you the facts in an actual situation. There is and has been for some time a substantial movement of “skelp.”-I found out that skelp.is sheet steel and used for the rolling of pipe--from Youngstown, Ohio, and Trenton, and Detroit, Mich., to Welland, Ontario. This has in the past moved via rail-water from Youngstown, and water direct from Trenton and Detroit. In the case of the Youngstown movement, it was rail to Cleveland and vessel beyond. The rail lines, however, decided to eliminate the water carriers so they made a 25-percent reduction in their rail rate direct from Youngstown to Welland. At the same time they held their proportional rate, which is used in connection with transshipment by water, on the old basis. Also at the same time they had in effect two other rates from Youngstown to Cleveland. The reduction in the through rate was protested and the Commission refused to suspend. When the reduced rail rate went in the water carriers lost the tonnage and the rate situation was precisely this: An-rall rate, Youngstown to Welland..
$6.63 Proportional rate, Youngstown to Cleveland, for use in connection with water carriers.-
4. 12 Interstate rate from Youngstown to Cleveland, not usable via water carriers --
3. 02 Intrastate rate, not usable via water carriers, Youngstown to Cleveland.- 2.76
In short, the railroads had the water carriers completely boxed and, contrary to usual ratemaking practices, had a proportional rate approximately 35 percent higher than the local rate. Despite this, the Commission did not suspend or even investigate. Subsequently, in April of this year the rail carriers proposed a reduction in the skelp rate from Trenton and Detroit, Mich., to Welland, thus spreading their competitive rate structure, which incidentally is the pattern usually followed by the rail lines. In this case the rate from Detroit was reduced from $10.05 to $3.26, or a reduction of $6.79—approximately 70 percent. In the case of Trenton, the rate was reduced from $12.56 to $3.46, a reduction of $9.10 or in the neighborhood of 75 percent. What were the water carriers costs at this time!
From Youngstown to Welland via the rail-water route, the charges were $6.88, which was 25 cents a ton above the reduced all-rail rate. In the case of Trenton the water costs were $4.09 a ton, and from Detroit $4.88 a ton. Therefore, in each of these instances the reduced rail rate which the Suspension Board refused to suspend, even though protests were filed in each instance, was substantially below the water costs. How much more managerial discretion is possible? How could a rate reduction be more destructive?