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H. R. 6142 be favorably considered insofar as they relate to rates to the Government.

REASONS FOR OPPOSITION TO H. R. 525

GOVERNMENT TRAFFIC IS NOT COMPARABLE TO COMMERCIAL The development of the country industrywise and transportationwise has established rather definite locations of industrial production and patterns of movement for industrial traffic. Initially, when the volume of industrial traffic was small, shippers and receivers moved their traffic under so-called class rates. These class rates were and are uniform mileage rates applied to each particular commodity under established classification ratings recognizing its particular characteristics. However, as the movement of goods increased in volume and regularity individual industrial shippers and receivers induced the carriers to establish so-called commodity rates, lower than the class rates. Over the years the industrial commodity rate structure both in volume and pattern has developed until today private industrial shippers and receivers have a commodity rate structure at rates lower than the class rates for the greater majority of the traffic they ship. It has been stated that less than 10 percent of this freight traffic of the large shippers moves on class rates (p. 217).

On the other hand the Government with its far-flung operations and large volume of traffic does not enjoy the overall stability of traffic movement that is today natural to industrial shippers. While the Government does enjoy to some degree the use of commodity rates (p. 242, 243) which have been established for commercial shippers, because of its far-flung operations and because a larger volume of its traffic must move to meet emergencies than can be anticipated, a great portion of such traffic would necessarily move on the class rates if it were not that those rates were made lower by the carriers under the authority of section 22 (p. 242). Rates made by the carriers under section 22, for the Government, in effect are actually serving the purpose of commodity rates. In spite of the availability of rates under section 22 comparable to commodity rates a great volume of traffic of the Government continues to move on class rates. The inherent instability of Government programs, particularly as they relate to military operations and training programs, cause large volumes of military traffic to generate between points where commodity rates do not apply. The level of activity among the far-flung installations of the Government is constantly changing so that it is almost imposssible to establish overnight a proper rate structure for an establishment as large as the United States Government (pp. 217,322,333).

Section 22 provides flexibility and allows heavy movements of traffic to be made on a few hours' notice with rate adjustments being either accomplished or made retroactive to the initial date of movement.

INCREASED COST TO THE GOVERNMENT The repeal of section 22 by H. R. 525 will increase the cost of Government transportation operations. In addition to requiring the taxpayers to pay bills at unreasonable rate levels, increases in Government personnel will be necessary to comb carefully all tariffs issued for transportation services. The staffs of regulatory bodies, particularly

the Interstate Commerce Commission, will require substantial increases because of the enormous amount of litigation that will be caused in order to resolve future rate matters. Corresponding increases in personnel and operating costs will also fall on the carriers (pp. 218, 248, 249, 323, 330, 335).

GOVERNMENT RATE NEGOTIATIONS ARE REASONABLE It is not the policy of the Government to attempt to negotiate rates that do not provide a reasonable rate of return to the carriers (p. 247). The traffic is not put up to the lowest bidder among the carriers. In fact, the proposals made by the Government to carriers in negotiations are predicated on the same principles that ethical industrial traffic management departments would employ presenting a similar problem (p. 219). It is only in very rare and in unusual instances of specific moves that a situation arises that a section 22 rate does not return reasonable revenue to a carrier and then the rate is never one that has been negotiated between the carriers and the Government but has been filed voluntarily by the carrier or carriers involved for their own purposes. Various studies have been made respecting the reasonableness of section 22 rates. Many of these studies are a matter of record in dockets on file in reports of the Interstate Commerce Commission and in testimony submitted by Government agencies to various committees of Congress (pp. 211, 212).

The normal practice in Government rate negotiations is that if traffic is to move and it is felt that the rates which are available in commercial tariffs are unreasonably high or not as low as they properly should be negotiations for adjustments in the rates are instituted in the same manner as any commercial shipper would do. THE GOVERNMENT DOES NOT REQUEST OR REQUIRE THE USE OF SECTION 22

PREROGATIVES BY CARRIERS When the Government and the carriers in the course of negotiations agree upon a rate adjustment, that adjustment is made available to the Government at the discretion of the carrier through the medium of section 22 tender or quotation rather than a tariff publication. The use of the section 22 privilege is something that is permissive to the carriers. However, it is naturally contended that the Government is responsible for the tender and also is paying less than tariff rates (pp. 219, 323, 333).

PASSAGE OF H. R. 625 WILL COMPLICATE RATHER THAN SIMPLIFY RATEMAKING

PROCEDURES RETWEEN CARRIERS AND THE GOVERNMENT The repeal of section 22 outright will impose upon relationships between carriers and the Government the complexities of procedure which presently prevail in filing of tariffs with regulatory bodies to the end that cost to the Government and cost to the carriers will increase, and particularly in the case of military programs the defense effort will be unnecessarily encumbered with paperwork and details which do not normally affect it today.

ESSENTIAL SPEED IN NEGOTIATIONS WILL BE ELIMINATED An important distinction in traffic which normally moves on commercial tariffs as against traffic of the Government is the fact that

because of the fixed position of production and consumer areas commercial traffic by commercial shippers can normally be programed for and planned far in advance of the actual time of shipment. Government traffic and particularly military traffic, because of some emergency, may require major changes at say 5 p.m. Obviously there is not time to negotiate rates or service arrangements or have them filed on 30 days' notice or even on a short notice procedure under section 6 of the Interstate Commerce Act as would be necessary in the absence of a statutory sanction similar to section 22. History is replete with events providing pertinent examples of the effect of emergency conditions on the volume and direction of military traffic (pp. 218, 246, 248, 330).

REASONS FOR SUPPORT OF H. R. 6141 AND 6142 The Departments' testimony supported the enactment of H. R. 6141 and H. R. 6142 as they pertain to modifications of section 22 of the Interstate Commerce Act respecting Government rate provisions because it recognized the need to preserve the following principle benefits (pp. 211, 212) to both the carriers and the Government when carriers utilized the provisions of section 22:

(a) Rates, fares, charges, and rules and regulations may be established expeditiously.

(6) Retroactive application may be authorized where justified.

(c) Cancellation of the quotation may be accomplished quickly when need for the quotation no longer exists.

(d) Rates, fares, charges, and rules and regulations are not subject to suspension by the Interstate Commerce Commission.

(e) Section 4 of the Interstate Commerce Act does not apply to inhibit the military departments using rates over circuitous routes more advantageous to departments for security and other purposes.

(f) Security as to the commodity, movement, and other conditions often required in movement of highly classified material can more effectively be provided through the medium of section 22 publication.

(9) Rates negotiated between the carriers and the Department of Defense which are published by the carriers pursuant to section 22 do not place a burden on commercial shippers, inasmuch as they are fully compensatory to the carriers.

The assertion stated in (9), above, is adequately supported by reports of the Bureau of Transport Economics and Statistics of the Interstate Commerce Commission which show that the average level of section 22 quotations was above that of comparable commodity rates by 14 percent for years 1950 and 1952 and by 13 percent for the years 1953 and 1954. (In the monograph tendered to the subcommittee the figure of 22 percent was shown for 1952, but this figure was corrected by the Commission's Bureau to 14 percent in September 1955.)

The Government also recognized that the method of employment of section 22 by carriers had caused sufficient difficulty in Governmentcarrier relationships to warrant modification of the Interstate Commerce Act to preserve the inherent advantages of section 22 and at the same time place any special rates, fares or charges to the Government under a reasonable amount of jurisdiction by the Interstate Commerce Commission. The disadvantages (p. 212) which the Government recognized as sufficient to warrant the changes proposed by H. R. 6141 and H. R. 6142 are as follows:

(a) Section 22 places the option in the carriers to submit to the United States Government rates lower than those provided in their published tariffs, without limitation as to time, or as to the need of the Government for rates to move present or potential traffic-hence they engender rate cutting to attract business (p. 212).

(6) Section 22 contains no standards as to format or organizational content of the documents on which carriers will tender to the Government rates lower than those provided in their published tariffs; consequently the military departments and the auditing agencies employ unprofitable man-hours in ascertaining the correct rates which the carriers actually intended to make available (p. 212).

(c) The volume of tenders made by carriers to the military departments, in the hope of participating in military traffic, imposes an enormous administrative burden on the departments without compensating benefits-opening letters, stamp dating, acknowledging, filing, ascertaining the correct rates which the carrier intended to make available, and whether lower than the carriers published tariff rate (p. 212).

With reference to (c), above, the monograph as set forth on pages 70 to 89 of the hearings included a tabulation (p. 74) showing the number of rate tenders, negotiated and nonnegotiated, received from rail and motor carriers by the military departments for the period January 1, 1954, to December 31, 1954. Corresponding figures for the period January 1, 1955, to December 31, 1955, are as follows:

Percent Rail negotiated (586).

26. 6 Rail nonnegotiated (1,618)

It may be noted that those 2 percentages added together make 100.
Motor carrier negotiated : 321 or 1.8 percent.
Motor carrier nonnegotiated : 16,641 or 98.2 percent.
Total rail and motor carrier negotiated : 907 or 4.7 percent.
Total rail and motor carrier nonnegotiated : 18,259 or 95.3 percent.

Some magnitude of the administrative task can be gathered from the fact that 18,259 or 95.3 percent of all the section 22 tenders received by the military departments from the carriers were nonnegotiated, or voluntary offers never sought by the Government (p. 212).

H. R. 6141 and H. R. 6142, if enacted, respecting rates, fares and charges to the United States, State and municipal governments, would require, except in cases involving the security of the United States, the filing of all rates to the Government in accordance with rules prescribed by the Interstate Commerce Commission, would exempt such rates, fares and charges from suspension and also exempt such rates, fares and charges from the provisions of section 4 of the Interstate Commerce Act; and would make such rates, fares and charges subject to all other provisions of the act (p. 213).

In addition, it would assure in the elimination of the possibility of secrecy in relationships between Government and negotiators or their agents on routine movements of Government traffic.

73. 4

AMERICAN SHORT LINE RAILROAD ASSOCIATION

(J. M. Hood) While taking no position with respect to the continuance of section 22 Government-traffic quotations, the association is unanimous that

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they should be published and when used for the movement of traffic, the charges should be final and not subject to reparation (R. 891). ASSISTANT COMPTROLLER GENERAL OF THE UNITED STATES

(Frank H. Weitzel) The proposed amendment of section 22, without the inclusion elsewhere in the act of a compensating or mitigating provision, would greatly increase the cost of Government operation. A statistical study of all movements of household goods by motor carrier shows that, if all traffic were required to move under rates provided in M. F.-I. C. C. No. 57, rather than at rates provided in other tariffs actually used apparently by virtue of section 22 agreements, an increase of $11.5 million annually in cost to the Defense Department would result. The probability of rates being obtained below a compensation level under section 22 is sufficiently negatived by the fact that the authorization in section 22 is permissive only, and by the further fact that the interests of performing carriers would not seem to be served by any consistent policy of furnishing Government transportation at a loss.

It would seem that section 8 of the bill, if enacted, would still require that Government rates be subject to the minimum and maximum rate provisions of the bill. It would seem, also, that the provision in section 8 of the bill, making the rates on Government traffic subject to all other applicable provisions of the act, except as specifically provided by section 8 of the bill, would render questionable whether the provisions of section 16 of the Interstate Commerce Act might not be considered as applicable to proceedings instituted by the Government. Any limitation of less than 3 years for instituting proceedings before the Interstate Commerce Commission to seek reparation as for unreasonable rates, with respect to transactions occurring during times of emergency, would be wholly inadequate to the due protection of the Government's interest. If the provisions of section 16 with respect to limitations upon suits to recover overcharges, were to be considered applicable to the Government, the incongruous result would ensue that under judicial interpretations of section 16 the carriers would be permitted 6 years within which to bring suit against the Government for collection of undercharges, as compared with the shorter period of 2 years prescribed in section 16 with respect to suits by shippers for recovery of overcharge. The provisions of the bill should be clarified in this respect (R. 23-24).

With respect to H. R. 525, it is recommended that it not be given favorable consideration (R. 33).

BUREAU OF THE BUDGET

(Percy Rappaport) H. R. 525 would remove the present authority under which common carriers may establish reduced rates for Government traffic. H. R. 6141 attempts to retain for Government rates a special status consistent with the unusual character of Government traffic movements and the need for expedition, especially in national emergencies. Military shipments need the flexibility and speed provided through special rate procedures in order to obtain reasonable rates. Large amounts of

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