some care and there has been a daily digest of each day's testimony placed on my desk, most of which I have gone over personally. As you have suggested, Mr. Chairman, my further appearance here today, together with my associates, Mr. Rothschild, Under Secretary for Transportation, and Mr. Ray, General Counsel for the Department of Commerce, and Mr. Smith, Director of Transportation, Department of Defense, is in response to your acknowledgment of our request for an opportunity, at the close of the hearings, to present additional material by way of clarification or in response to specific matters which have been brought to our attention since we presented the Department's views at the beginning of these hearings. We greatly appreciate this opportunity. I commend and thank the members of this committee for hearing, receiving, and studying the views of all persons and groups who have expressed an interest in the transportation recommendations made by the President's Advisory Committee. I should like also to compliment those who have appeared before this committee for their well prepared and ably presented views. I believe the quality of these presentations was influenced by the committee's sincere desire to explore this matter thoroughly and objectively. We are confident that through the combined efforts of the Congress, the executive branch, the transportation industry and its customers, the shippers and the public at large, there will be developed a transportation regulatory policy that is truly responsive to today's national economic and security requirements. May I say parenthetically that my testimony today is in a sense a summary, not a complete summary of course, but a pulling together of certain comments with our responses, comments made by the various segments of the using public and the transportation industry. Obviously we disagree with some of the conclusions and we agree with others. We have changed our viewpoint in one or two instances, as it will develop during my testimony. AGREEMENT WITH GENERAL PRINCIPLES OF THE REPORT The great majority of those who have testified on H. R. 6141 and H. R. 6142 agree that some change in transportation regulatory policy is necessary. The National Industrial Traffic League, which is the largest national organization representing those directly and individually engaged in shipment and receipt of commodities, expresses its general agreement in these terms: If [the National Industrial Traffic League] is in general agreement with the theory and underlying philosophy of those recommendations and strongly supports them.1 The Association of American Railroads said: * the railroad industry endorses and supports, in general, with certain reservations*** the purposes and objectives of the several recommendations of the Presidential Advisory Committee on Transport Policy and Organization as those recommendations are proposed to be implemented by the provisions of the identical bills, H. R. 6141 and H. R. 6142.1 1 P. 1, statement of William H. Ott. P. 2, statement of J. Carter Fort. The Federation of Railway Progress, which organization represents individual and corporate members having an interest in the progress of American railroads, such as banks and other financial institutions, concerns selling their products to railroads, and companies dependent on railroads for transportation, said: We favor in principle the main recommendations of the so-called Cabinet Committee report on transportation policy—and the proposed legislation now being considered by your committee of the Congress, designed to give effect to the recommendations of the Cabinet Committee report.3 The Interstate Commerce Commission expresses itself as being in full accord with those recommendations of the Advisory Committee's report concerning a strong system of common-carrier transportation. As a matter of fact, its letter of December 22, 1955, recommends additional ways which it believes possible to strengthen the industry. The Interstate Commerce Commission, however, voices reservation with respect to those recommendations which would amend the Interstate Commerce Act so as to provide for increased reliance on competition in ratemaking. At the same time, the Commission details at some length the increasingly important part that competition is playing in the making of common-carrier rates. This detailed statement was summarized by the Commission in saying: Greater emphasis must now be placed upon cost and competitive considerations. The Commission goes on to say, however, that the full effect of cost and competitive considerations upon ratemaking today can be secured without changes in the present laws. These expressions are gratifying, for they show an awareness of a need for changes in regulatory policy and their general tenor constitutes substantial endorsement of the major policy principles recommended to the President by the Advisory Committee. Even carriers who oppose the Cabinet Committee's recommendations in their entirety admit to the existence of problems within the regulatory area. The American Waterways Operators, Inc., in their statement discussing present problems in the field of regulation stated: While generally satisfied with the present law, there is widespread dissatisfaction within the industry over its administration." The American Trucking Association in the September hearings testified that: Many of our conferences in the ATA, for differing reasons, believe that the law governing private contract, and exempt commodities should be changed (p. 160, September hearings). Again alluding to these problems, in the recent hearings the ATA stated that: We do not feel that this is the occasion to deal with these issues." Implicit in these statements is a clear recognition of a need for changes in regulatory policy. Despite this substantial agreement on the basic issues, the hearings have disclosed certain differences of opinion on how these concepts might be translated into law. P. 2, statement of James G. Lyne. P. 5, ICC statement, December 22, 1955. P. 3, statement of James F. Pinkney. Nearly all of the specific amendments have had some support from individuals interests. But, as we anticipated, such support in some instances has been conditioned on amendatory language. Others, while supporting specific amendments in principle, have expressed the view that the change could be accomplished either through amendments or through changes in present administrative policy. As I indicated in my previous testimony, the Advisory Committee has no pride of authorship. We stand ready to assist the committee and its staff in any way it deems appropriate in working out language that will bring about the desired results. Needless to say, the Advisory Committee and the Department, too, have gained greater knowledge and insight into the issues here involved from its analysis of the various viewpoints expressed during the hearings. We remain convinced that the proposals are basically sound. RELIANCE ON COMPETITION Squarely presented for consideration by this committee is the issue to what extent should we rely on competitive forces in transportation! The Advisory Committee believes that the widespread competition that exists in the transportation industry today, properly harnessed to avoid unjust discriminations and unreasonable extremes, can be made to work for better and more efficient transportation for the consuming public. Economic necessity, with appropriate safeguards for the public, we feel will better serve to spur progress in transportation and to allocate traffic among carriers in accordance with true capabilities. To accomplish this objective we propose: (1) A revised declaration of transportation policy which emphasizes that carriers shall have greater freedom for competitive pricing, reduces economic regulation to the minimum consistent with public interest, and eliminates from the present declaration of policy language which has been construed to offset the benefits of price competition to the public, and (2) Revisions in substantive ratemaking provisions of the act to assure relatively greater freedom for carriers to fix competitive rates. The ICC characterized the recommended regulatory concept in these words: The key to the whole thing, in our opinion, is the elimination of the words "unfair and destructive practices" from the present declaration of policy." The Interstate Commerce Commission, in developing the reasons why the present concept should not be changed, stated that its obligation is to insure: **that competition does not get to the point where it destroys the ability of the carrier to stay in business and improve and innovate and that is the danger line.s For example, in reference to the Motor Carrier Act of 1935, it was explained that the objective was not entirely to benefit the carriers as such: If a carrier benefits from the stability which regulation offers; if the other competition is foreclosed out; it is not because you want to benefit them par 7 Transcript, p. 260, Chairman Arpaja. 8 Transcript, p. 275, Chairman Arpaia. ticularly; it is because the public depends upon reliable, continuing transportation services, and cannot allow it to break down." You will recall that in my statement on April 24 I discussed this matter of the ratemaking processes of the carriers and made the following observation: In the channels of commerce we exercise vigilance under antitrust laws to prevent combinations which throttle competition. But in transportation, instead of using competition to spur the carriers to greater efficiency, we impose ratemaking restraints that inhibit the carriers from demonstrating true cost and service capibilities and to a large extent substitute Government fiat for free market judgment." It was due to the existence of this state of affairs that I stated to you that the proposed change in basic policy was for: The public interest-the interest of all our citizens in the best kind of transport service our economy can provide at the least cost." I stated further in reply to your question that: The whole premise of our proposal is that if a given segment of the transportation industry can offer a better rate, the shipper and the general public are entitled to the service that is provided by that better rate." DECLARATION OF TRANSPORTATION POLICY Agreeing that the proposed emphasis of the report was the referredto changes in the declaration of policy, the chairman of the Federation for Railway Progress stated why it is necessary in the public interest to adopt the new concept: If carriers of any kind can afford to offer a lower price for their services than a competing type of transportation can make then the carrier that can offer the public that kind of a bargain ought to be permitted to do so. Otherwise the public is going to have to pay more for its transportation service than there is any good reason for its paying. If the trucks are not going to be able to compete with the railroads when truck costs are lower than railroads' cost-and vice versa-then where is the incentive for either the railroads or the truck operators to try to improve their efficiency and decrease their costs? If some form of transportation is to be protected by the regulators not allowing its competitors to underprice it, then the transportation industry is bound to become stagnant." The carrier industries generally have expressed opposition to amendment of the declaration of national transportation policy. Motor and water carriers object strenuously to elimination of the phraseology referring to "inherent advantages" and "destructive competition." The water-carrier industry, which at present is 90 percent exempt from regulation, apparently believes that the present national transportation policy declaration is its primary safeguard against railroad competition, for they state: After careful study of the pending legislation, it is our opinion that the railroads seek the right to destroy barge competition by destroying the present national transportation policy safeguards which directly preserve the inherent advantages of the various modes of transportation by prohibiting unfair and destructive competitive practices." Transcript, p. 278. Chairman Arpaia. 10 P. 4, statement, Secretary Weeks. "P. 3, statement, Secretary Weeks. Transcript, p. 163, Secretary Weeks. 13 P. 2, statement of James G. Lyne. 14 Pp. 8-9, statement of Chester C. Thompson. 78476-58-pt. 3- 30 They go on to say that: It is not in the interest of the barge and towing vessel industry to solve [the railroad problem] by destroying parts of *** [the waterway] industry." The American Trucking Associations also expressed a fear that changes in the national transportation policy would damage their competitive opportunities. In their testimony they stated: The deletion of the provisions condemning unfair or destructive practices and the provisions charging the Commission to promote sound conditions in transportation could set out great transportation systems and its regulation back to pre-1920 days.' 15 Much of their testimony was devoted to defending the Commission's interpretation of the present national transportation policy, particularly the doctrine that rates be no lower than necessary to meet demonstrated competition. The railroads apparently limit their endorsement of the concept of greater ratemaking freedom to the regulation of intermode competition. The Association of American Railroads, in their detailed presentation, stated: Increased reliance upon competitive forces in ratemaking constitutes the cornerstone of a modernized regulatory program. It is one which railroads emphatically endorse." But later on they stated that: It is the position of the railroads that a change in the national transportation policy is not necessary to achieve the basic proposal of the Cabinet Committee. With respect to freedom of competition between individual railroads, the AAR, in reply to a specific question by the committee, stated: So far as competition between the railroads is concerned, that we ought to continue to have the ICC control over minimum rates such as was given to it back in the 1920's.1s 18 The American Short Line Railroad Association supported the position of the AAR with this observation: Recent decisions appear to recognize the desirability of permitting one form of transportation to meet the competition of other forms * Despite this progress, it is my belief that there may be more assurance of the continuation of these constructive practices by the regulatory body through legislation expressing congressional policy with respect to freedom of competition among the various forms of transportation *** 19 [Emphasis added.] In contrast, shippers generally have supported revised statement of policy. The National Industrial Traffic League: ** strongly supports the essentials of this first objective, a greater degree of freedom to the management of individual carriers, less detailed control and regulation by Government agency, and a greater reliance upon competitive forces, particularly in ratemaking, as providing adequate protection of the public interest." 20 The strong feeling that the league has in this matter is borne out in their recommendations that the national declaration of policy could 15 P. 2, statement of James F. Pinkney. |