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(Charles R. Seal) This proposal would deprive the Commission of the power to proscribe precise rates, a power which it properly has used sparingly. But there are occasions when the power is needed in order to provide stable rate adjustments and relationships of rates, and in the fixing of joint rates and divisions where the carriers are unable or unwilling voluntarily to do so. It is not believed that an instance can be found where the exercise of this power has imposed hardship or undue restraint upon any carrier or group of carriers (R. 994).


(J. Haden Alldredge) It has long been recognized that in removing discriminations the Interstate Commerce Commission may prescribe the exact rate or rates to remove the discrimination found to exist, or it may leave it to the carriers to do so under its control and direction. With the Commission's authority to prescribe the exact or precise rates eliminated from the statute, as contemplated by the proposed law, control over discriminations would be considerably weakened if not completely shattered.

The essence of freight classification is the establishment of relation: ships among commodities or articles of freight for transportation purposes, that is definite and precise relationships. The proposed legislation seeks to limit the Commission's authority to the establishment of minimum and maximum relationships. Such action would undo all the constructive work heretofore accomplished over a period of seven decades. It would be the beginning of the end of systematic classification of freight in the United States (R. 1698–1699).


(Matt Triggs) The federation believes that proposed rates should be approved if they return fully allocated costs of service regardless of the cost of competing carriers of the same or other modes, but it is opposed to the almost complete elimination of other criteria for ratemaking and the use of out-of-pocket costs as the floor for reductions. Use of the latter would inevitably result in discriminatory and selective rate cutting which would favor large shippers and cities. Since rail direct costs are about 65 percent of total costs and trucks are about 90 percent, the former could cut the latter out of any selected movement. Thereafter, rails would be free to increase their rates to the maximum, with the Commission having no authority to prevent the increase (R. 1225– 1226).


(Richard Webber) The proposal seriously prejudices the interest of the members of the federation, all of them shippers and receivers of small shipments, most of whom are located in the smaller towns and country communities having only limited transportation service. The result undoubtedly would be that the noncompetitive traffic would have to shoulder the burden of successive rate reductions secured by the various modes of transportation in the major centers, where there is an intense competition between carriers (R. 1089).


(J. M. Hood) It is difficult to see how the change proposed in present section 1 (4) would bring about any change in procedure presently followed by the Commission when passing on proposed rates. In the usual case the Commission is asked to determine whether a rate is below a lawful minimum or above a lawful maximum. It is unlikely that the shipping public or the regulated carriers would be affected by the change (R. 888-889).


(Dr. John H. Frederick) The proposed legislation would remove the jurisdiction of the Interstate Commerce Commission with respect to rate changes within a broadly defined "zone of reasonableness." Selective rate cutting to maximize profits may be the objective, but is likely that it will not be kept selective but will be applied to the majority of commodities. Profits will be maximized then only by a considerable increase in volume which must come either from the extermination of competitors or from an increase in the volume of competitive traffic.

Under the proposed legislation, no rate could be suspended as being too low if it returns the "ascertainable direct cost" of a given mode of transportation. The phrase is not defined; if it means variable costs, no business could long survive on such a general pricing basis. A significant part of total carrier costs cannot be traced to particular services. The proposed legislation would enable the railroads, particularly, to juggle rates to eliminate competition and to charge all that noncompetitive traffic can bear (R. 731-732).

Contrary to the basic premise of the proposed legislation, past experience has shown that competition within broad limits cannot be relied upon as the regulator of transportation prices. Railroads have a much greater amount of fixed capital in relation to traffic carried. The direct operating costs of other modes are larger per unit of service. A reduction of rates by motor carriers for the purpose of meeting competition has a more significant effect on their net revenue than a like reduction has on the net revenue of the railroads. Consequently, if widespread reductions occurred the motor carriers would be weakened financially, and in due time eliminated. Moreover, operations of motor carriers are more severely limited than rails. The selective rate cutting possible under the proposed legislation within the maximum-minimum rate level might deprive a motor carrier of so much of its traffic as to critically injure or destroy it.

It is apparent that the beneficiaries of savings as a result of reduced rates would be the large shippers with the most worthwhile traffic and in the best bargaining position. Discrimination by the railroads against the shipping public generally was the basis for the act of 1887 which thereafter provided equal treatment for all shippers (R. 732-734). AMERICAN TRUCKING ASSOCIATIONS, INC.

(John R. Turney) The Interstate Commerce Act now requires that carriers publish and maintain just and reasonable classifications of property in order to insure reasonableness and equality in class rates among articles having the same transportation characteristics. The proposed bill in effect would make it possible for any carrier so inclined to disregard the basic principles of classification. The bills make reasonableness of classification depend solely on the question whether or not the resulting charge is above a minimum reasonable charge or below a reasonable maximum charge (R. 660-661).



able * *'*

(Jervis Langdon, Jr.) The proposed change in section 15 (1) of the present act would, in effect, withdraw the ICC's power to prescribe "the ***

rate,” as distinguished from the "reasonable minimum or maximum rate.” In the field of ratemaking, the railroads' principal objection is to the faulty standard of ratemaking which the Commission has frequently used in the past. Since the proposed rule of ratemaking satisfies this objection, the railroads do not regard it as necessary to make any change in the power to prescribe the reasonable rate (R. 537-538).

The railroads regard the proposed standards for determining maximum reasonable rates as both confusing and unnecessary. The proposed rule establishes "full cost of performing the services *** exclusive of losses in other services" as the floor for reasonable maximum rates. The general use of such a standard would be inconsistent with the present general nature of the rate structure which is not based entirely on cost of service. Consequently, there is some validity to the objections already voiced by the shipping interests against adoption of the proposed maximum rate rule. Apparently, one purpose of the rule is to protect shippers of noncompetitive freight, if the basic proposal to prohibit consideration of the effect of rates on other forms is adopted. The precedents already established by the ICC'in its review of reasonable maximum rates may be relied upon to protect these shippers. Shippers of noncompetitive freight need no special protection. What they must guard against is the draining of competitive traffic from the rails, thus increasing the rate burden to be borne

by their noncompetitive traffic or traffic which must remain on the rails (R. 538-539).

The witness responded to certain questions as follows:

On the question of regulating competition between the railroads themselves, the ICC's control over minimum rates, passed by Congress in 1920 should be continued. The same rule should not be applied as between competing modes because they have vastly different service and cost characteristics. If the railroads have a competitive advantage it is in lower operating costs, and the trucks have the advantage of better service. If railroads move competitively it is in the direction subject to ICC restraint, but there is no force to prevent the motor carriers from using their competitive advantage. The ICC cannot force the trucks to deliver traffic in 48 hours when they are diverting rail traffic by providing 36-hour service (R. 550–551).

The present act does not define a reasonable maximum rate. The only standards for determining reasonable maximum rates are to be found in the decisions of the ICC. To a certain extent, the standards reflect what the traffic may reasonably bear. They are also based on analogy. If the Commission has before it a rate on commodity X, which is comparable to commodity Y, and the rate on commodity Y has previously been fixed by the Commission, the Commission will normally prescribe the same rate on commodity X. The railroads do not want the act to contain any definition of a reasonable maximum rate (R. 550–557).

A reasonably compensatory rate is one which covers long-term variable costs, plus a contribution to the overhead. There are two types of out-of-pocket costs. Short-term out-of-pocket costs vary with the traffic as it moves tomorrow, and are the additional cost which a railroad incurs because the added car is in the train. The out-ofpocket costs used by the ICC consider the variability of expenses over a long period of time, and include a return on the investment in the cars necessary to move the new traffic, plus a pro rata share of the maintenance expense of the track, and so forth (R. 557–558).



(Thomas L. Preston) The railroads oppose the proposed amendment of section 15 (3). The present section leaves it to the discretion of the ICC whether it will consider a proposed cancellation of a through route or joint rate, fare, charge, or classification. However, the proposed section would make it mandatory upon the Commission to hold a hearing in every instance in which tariff cancellations of this nature are proposed. Such a mandatory procedure would logjam these matters before the ICC. The present, more flexible, procedure should be continued.

None of the proposed bills would amend present section 15 (+). However, Mr. James M. Hood, witness for the American Shore Line Railroad Association, proposes certain amendments to present section 15 (4). The Association of American Railroads opposes Mr. Hood's proposed amendments to that section (R. 1713–1716).


(C. B. Culpepper) No need is seen for taking away the power of the Commission to prescribe precise rates where the circumstances developed at a hearing indicate that a certain level is necessary to protect the interests of all concerned. No instance is recalled in which it could be charged that the Commission had abused its discretionary power to fix a precise rate (R. 1234-1235).


(John H. Eisenhart, Jr.) "Minimum or maximum" rate power, which would be substituted for minimum and maximum or actual rate power," was the power cont

ned in the Shipping Act of 1916 which was administered without any real benefit to anyone. When a regulatory body is unable to fix an actual rate, it is a useless thing, and the specified act was later amended to give the Maritime Commission actual rate power. The subject is considered at length in Intercoastal Investigation (1935, 1USSBB 400) (R. 1592).


(Anthony F. Arpaia)

The present wording of section 1 (4) is substantially the same as it was before 1920 when the Commission was empowered to prescribe maximum reasonable rates only. Even if powers to prescribe rates are changed as proposed, no modification of this section is necessary. The same observations apply in principle to the proposed amendments to section 1 (5) and (6) (R. 263).

The proposed change of the provision added to the act by the Panama Canal Act of 1912, and amended in 1920 which, among other things, authorized the Commission to establish proportional rates by rail to and from ports on waterborne traffic has been used very little. Since the Commission would still have the authority to establish proportional rates, that is, the precise rate to be charged, the proposed amendment is of slight importance (R. 265).

The Commission opposes the proposel to remove its power to prescribe the precise rate, or a "zone of reasonableness." This power was conferred in 1920, and it has been used in relatively few instances. The power should be available for use where there is a clear need for its exercise.

The use of the word “relationship” in connection with "classification, regulation, or practice” may give rise to controversy over its interpretation, and it is not needed.

The power to prescribe the exact rate in connection with the establishment of through routes is of importance, since some of the affected carriers would establish joint rates only under compulsion.

The proposal with respect to cancellation of through routes should be clarified to definitely place the burden of proof upon the carriers proposing the cancellation (R. 266-267).

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