heavy loading we lower our unit refrigeration cost. "In transit" concessions and the privilege of one or more stops en route have also been powerful factors. Essentially, the consideration that holds this business to the rails is lower cost to us.

Motor carriers generally offer a service advantage over rail movement. There are some limited areas in our business where service is the main consideration. The gathering of cream at local stations, for example, or even its movement to concentration points is handled by truck because of the convenience. I have seen the trucking business grow into great proportions because of service advantage and because truck rates on the commodities we handle have been somewhat below rail rates.

The 95 percent of our dairy products business which moves by truck today does so because it costs us less than by rail. Butter from Omaha to New York arrives third morning by truck, compared with fourth morning arrival by rail, but this difference in service of 1 day is not the controlling factor. Rather, our competition forces us to avail ourselves of the lower truck rates on dairy products.

Nearly any traffic manager with long experience will tell you the same story. Freight rates that are lower than rail rates have been the principal factor in the spectacular growth of the trucking business. We regularly do business with many classes of motor carriers, including common, modified common, contract and carriers of commodities exempt from regulation.

Motor carriers of all classes do now, and for many years have engaged in competition with the railroads on the basis of lower rates. In my opinion the railroads have not moved far enough and rapidly enough to meet this competition. They have certain advantages which they have not fully exploited. These advantages include the ability to haul tremendous loads at low unit cost, the universal service which they render which permits them to spread costs over many commodities and many movements in the same and opposite directions, and "In transit" and "stopover" privileges where the remainder of the through rate can apply. Certainly there should be no legal obstacle to the reduction of rates by a carrier who can do so without undue discrimination and who can still make money on the reduced rate.

I can see no foundation for the argument that the railroads will put the motor carriers out of business. Such a contention is not realistic. There is more basis for expecting the motor carriers to drive the railroads out of business. Our own experience is a fairly good example with 95 percent of our traffic in dairy products and 65 percent of our total traffic on the highways today.

I sincerely feel that, if the railroads are to survive without subsidy, the heavy hand of Government should be lifted enough to allow them to defend themselves in the competitive struggle. All forms of transportation should not only be allowed, but should be encouraged to make full and prompt use of every natural advantage which they possess, so that in every case the shipping and consuming public would have the benefit of the most efficient form of transportation.

Wherever it may be necessary the law should be so amended to permit each form of transportation to make use of its full economic capabilities without the responsibility of supporting or protecting any other form of transportation.

Mr. EISENHART. May it please the chairman, may I ask Mr. Sullivan to precede me, sir?

Mr. HARRIS. Yes; Mr. Arthur Sullivan.

STATEMENT OF ARTHUR C. SULLIVAN, PRESIDENT, GARTLAND STEAMSHIP CO.

Mr. SULLIVAN. Mr. Chairman, my name is Arthur C. Sullivan. I am the president of the Gartland Steamship Co., and I am also president and general manager of the Western Navigation Co., vice president of the Great Lakes Ship Owners Association, and vice chairman of the Great Lakes Freight Bureau.

The Gartland Steampship Co. owns and operates six steamships on the Great Lakes and has been an operator of vessels on the Great Lakes and St. Lawrence River continuously since 1901.

At the present time our company is operating vessels ranging in size from 7,500 to 10,500 tons capacity in the general grades on the Great Lakes. We serve all Great Lakes' ports carrying both bulk and general commodities. This traffic divides itself into two categories, bulk commodities carried under contract with various shippers and general commodities subject to regulation by the Interstate Commerce Commission and which are carried for the shipping public.

Bulk commodities consist primarily of iron ore, grain and grain products originating in the Northwest, and coal from the mines of West Virginia, Kentucky, and Illinois. Industries served directly by our vessels represent a cross section of heavy industry in the Great Lakes area, including among others the paper, cement, steel, and utilities industries.

Of general commodities subject to governmental regulation under the Interstate Commerce Act, we carry automobiles, from the Detroit area to the Northwest, pig iron, scrap, paper, and finished steel.

Beginning in the period immediately following the First World War, our company was particularly concerned with the movement by water of general freight. We served small industry, as represented by local flour mills, lumber dealers, and retail coal dealers, as well as the merchants taking packaged freight from the East. With increased competition from rapidly expanding railroad facilities, this traffic disappeared, particularly with respect to packaged freight. Our customers were attracted by the advantages of less-than-carload shipments and the convenience of moving their requirements in small quantities. By its very nature, the economies inherent in water transportation depended upon the movement of commodities in units of large volume. Shore facilities of capacity to load and unload expeditiously in large volume were also required. The relatively low cost of moving commodities by vessel on the Great Lakes meant little unless there was adequate shore equipment to load and unload rapidly or the vessels were equipped with special heavy machinery to load and unload themselves.

Beginning in 1923, we sought to recapture the traffic in general commodities and packaged freight which we had previously enjoyed. Five

small vessels were purchased on the west coast and others were chartered, bringing our fleet to 15 vessels. Terminal arrangements were made at various Great Lakes ports as far east as Ogdensburg, N. Y. Agreements were made with rail carriers to interchange freight at terminal points. On the whole, this venture prospered in its initial stages. Merchandisers in the Midwest purchased packaged goods from New England mills and manufacturers on the eastern seaboard, and shipped via rail to our terminals from whence we loaded and delivered the merchandise to midwestern consumers. When unloaded at western ports, we had return cargo in the form of grain, sugar, and lumber for the East. After 3 years of operation, this traffic disappeared. The rail carriers enlarged their concepts to include through transportation on a transcontinental scale by means of what the Supreme Court referred to as, "The manipulation of rates." The rail carriers raised the short haul rate from eastern mills to our terminals and lowered the through rail rate. Our westbound traffic came to a halt and the traffic which we had previously carried them moved by rail to western destinations.

Profits from our operation diminished rapidly. Chartered vessels were turned back to their owners and others were sold or converted to different uses. An effort was made through the Interstate Commerce Commission and the Federal courts to obtain relief, but due to the large number of rail rate cases moving through the Commission and the large volume of litigation in the courts, several years passed by before we could obtain a hearing. By that time, our resources were fairly well exhausted and it was necessary to engage our remaining vessels in other traflic. As might have been expected, as soon as water competition was effectively removed, rail rates increased abruptly. Beginning in 1929, we began, over a 4-year period, converting several of our vessels for special trades on the Great Lakes. The conversion involved among other things the installation of heavy machinery for loading and unloading cargo rapidly from either dock or railroad cars. Several other operators of Great Lakes vessels also embarked on similar programs, moving approximately 3 million tons annually on the Great Lakes waterway of commodities subject to regulation by the Interstate Commerce Commission. Our vessels in these trades operated profitably in competition with the rail carriers until 1940, when they were requisitioned by the War Shipping Administration for war service on tidewater.

During the 5-year period of the second war, there remained in our fleet no vessels able to participate in common carrier traffic. Restrictions on commercial shipbuilding prohibited new construction for the common carrier trades on the Great Lakes. Immediately following the war, the effects of price and currency inflation increased the cost of vessel construction on the lakes twofold from its 1939 level. Building or conversions costs in Great Lakes yards today represent a fourfold increase over 1939 costs. Notwithstanding the effects of inflation on our financial reserves or the effect of high taxes on our income, our company is most anxious to improve our position as a common carrier on the Great Lakes and to finance with out own means the construction or conversion of vessels for the common carrier trades. The single important deterrent our our plans is the policy of the Interstate Commerce Commission in granting the railroads

relief from the long-haul, short-haul provisions of the Interstate Commerce Act, by which the rail carriers are permitted to reduce rates by unreasonable amounts. In granting this relief to the rail carriers, it is necessary for them only to show that the possibility of water competition exists for them to obtain a reduction in rate. Since the last war, so assiduously have the rail carriers pursued this policy that they have frequently obtained rate reductions on traffic on which it was impossible for water carriers to compete.

In granting rate reductions to the railroads, the Interstate Commerce Commission apparently does not concern itself as to whether the rates adequately compensate the rail carriers for their service, nor does the Commission concern itself as to whether such rates may or may not be discriminatory as between shippers or in the public interest. Our company would be foolish indeed if we were to invest our capital in providing additional ships to supplement our existing service, no matter how badly these ships may be needed to provide the service, unless we are entitled to some protection under the existing laws. It is our deep feeling that the administration of the existing transportation laws in the country needs tightening up instead of new legislation, removing the various carriers from regulation. It is impossible for us to compete with rail carriers if they are permitted by law to reduce their rates when competing with us and compensate for these reductions by increasing rates where there is no water competition. Although we are pressed by the shipping public to increase our service, we do not feel that it is prudent to do so until both the Congress and the regulatory bodies within the Federal Government clarify the relative position and relationship of all common carriers, and we can rely on the intent of Congress being carried out for the protection of each carrier against unfair competition.

Mr. HARRIS. I thank you very much, Mr. Sullivan. I wonder if you would care to comment further on the last part of your last statement,

* until both the Congress and the regulatory bodies within the Federal Government clarify the relative position and relationship of all common carriers** ***

I just wonder what you have in mind in that statement.

Mr. SULLIVAN. Specifically, Mr. Harris, our relation with the railways, who are our main competitors in the transportation of regulated commodities. I perhaps should not have said "all," because the truckers do not compete with us except to a very, very limited extent, and of course we have no competition either from the river operators.

Mr. HARRIS. Do you have in mind, for instance, that the share of traffic be determined by the regulatory authority under congressional policy?

Mr. SULLIVAN. I am not a lawyer, Mr. Harris. However, I think what Mr. Eisenhart, who will follow me, has to say will help clarify this last sentence in my statement. As an example, we have a very good customer in the Detroit area who is a small steel manufacturer. He is anxious to open a warehouse in Chicago and to rely entirely on water transportation. He has water facilities at this plant where he can load vessels with his products and bring them into the Chicago It would require us to build or reconstruct at least one more vessel to take care of the servicing of his proposed warehouse.

area.

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.

Mr. Eisenhart.

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 C. 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.

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