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factors used in making freight rates and if costs alone are to control, nothing but unrealistic decisions can be expected.
Under the proposed amendments, where the Commission is confronted with issues of unreasonableness and undue prejudice and preference in the same case, how can the latter issue be determined without considering the rates and traffic of other modes of transportation? The meatpackers agree with the purpose of the proposal to disregard the effect on the rates and traffic of other modes in passing upon proposed rates, but believe that its adoption could lead to unforeseen complications in administering section 3, concerning undue prej. udice and preference. Sole reliance on the out-of-pocket cost limitation on competitive rate reductions would unduly deplete carriers' revenue and create objectionable discrimination between persons and places.
Other questions raised by the proposal are whether railroads will be permitted to restore previous rates after reducing rates and wiping out competition, and whether rail and motor common carriers, with a freer hand in ratemaking, will arrange a working alliance and make shippers pay more for transportation in the future (R. 1789-1792).
PROPERTY OWNERS COMMITTEE
(William N. Maddox) The committee is opposed to the change in the rule of ratemaking. The proposed section 15 (a) does not include the present sound rule of ratemaking, but would substitute therefor the force of competition, the prescription of minimum and maximum charges, and a prohibition of excessive or unreasonable charges on traffic which is noncompetitive. The use of “full cost of performing the services to which they apply, exclusive of losses in other services” as a standard for maximum reasonable rates is unrealistic. The use of such a standard, as pointed out by the railroads, would not be consistent with the general basis and nature of the present rate structure, which is based upon many relevant factors, including the cost of service. The railroads suggest that their objective can be obtained by the addition of the three shall nots to present section 15 (a), and no objection thereto is taken if the ratemaking rule is further supplemented by the following: Providing such just and reasonable rates will cover the cost of performing the contemplated service and make a reasonable contribution to the general burden of each mode of transportation. Unless this is added, inevitably great volumes of traffic would be handled at out-of-pocket cost, with noncompetitive traffic subjected to excessive rates. The Commission must have authority to prevent rates which make no contribution to overhead (R. 1071-1072).
TRANSPORTATION ASSOCIATION OF AMERICA
While there was disagreement among factions of the association's membership, the board of directors is not in favor of repealing section 15a of the Interstate Commerce Act, but recommends deleting that clause which requires the ICC to give consideration “to the effect of rates on the movement of traffic by the carrier or carriers for which the rates are prescribed"; and adding to section 15a a clause to the effect that it is the intention of Congress to permit the maintenance of carrier credit and the attraction of equity capital. In taking this position, it did not have in mind any change in the principles of ratemaking embodied in other portions of the act, and the interpretations thereof. It was agreed that the value-of-service concept of ratemaking should not be jeopardized.
The association believes that the Commission should not use section 15a as a basis for substituting its judgment for that of management as to the effect of proposed rates on carrier earnings. However, since the whole problem of revision of the rule of ratemaking has been greatly complicated by the proposals in the Cabinet Committee report, the association does not list the elimination of the phrase regarding "the effect of rates on the movement of traffic by the carrier or carriers for which the rates are prescribed” as a priority recommendation at this time. It does believe that the addition to section 15a of the clause to the effect that it is the intention of Congress to permit the maintenance of carrier credit and the attraction of equity capital is important (R. 374375).
UNITED FRESH FRUIT AND VEGETABLE ASSOCIATION
The effect of this provision would be to free railroads and motor carriers of all competitive restraints and encourage unfair practices. With the greater financial resources of the railroads, motor carriers would eventually be driven to the wall, and shippers of fruits and vegetables would be deprived of services now available to them. Shippers are entitled to have all forms at their disposal, but they would not if the proposed bills are enacted (R. 1122).
WATERWAYS FREIGHT BUREAU
(Harry C. Ames) The proposed rules of ratemaking implement the proposals to eliminate the power of the Commission to prescribe exact (or maximum and minimum) rates, and the present provision in section 305 (c) of the act, which states that:
Differences in the classifications, rates, fares, charges, rules, regulations, and practices of the water carrier in respect water transportation from those in effect by a rail carrier with respect to rail transportation shall not be deemed to constitute unjust discrimination, prejudice, or disadvantage, or an unfair or destructive competitive practice, within the meaning of any provision of this Act.
Under the proposed provisions the Commission will be precluded from considering the effect of reduced rates on any other mode of transportation, or whether they are lower than necessary to meet the alleged competition. This restriction on the Commission's authority will also preclude courts from considering these matters. Barring the Commission from considering the "relation of such charge to the charge of any other mode of transportation,” if applied retroactively, would have invalidated in the past all decisions in which the Commission, following its congressional mandate in the so-called Denison Act of 1948, prescribed barge-rail rates differentially lower than all-rail rates. If it was considered desirable in the past to prevent unfair and destructive practices within the railroad industry by conferring upon the Commission the power to prescribe minimum and exact (maximum and minimum) rates, it is even more desirable to prevent such practices in the competition among different agencies of transportation (R. 488-489).
Under the proposed amendments the Commission could not condemn a rate unless it found that it constituted “less than a reasonable minimum charge,” which means (according to the definition in the Advisory Committee's report) a charge not less than the direct ascertainable cost of producing the service. There is no objective way of ascertaining this cost as to any particular commodity, and if it were possible, such a determination should not be the sole criterion for the condemnation of a competitive rate. As observed by the Commission in Petroleum Between Washington, Oregon, Idaho, and Montana (234 I. C. C. 609), it was given the power to fix minimum rates primarily for the purpose of preventing destructive rate wars and promoting financial stability of the transportation agencies, and its duty in the exercise of that power is not done if it allows competitive rates to gravitate to the lowest possible level. (Other decisions cited, R. 491-494.) Since 1930, competition has effectively regulated the quantum of rates. The task of the Commission now is the regulation of the competition, but in the proposed amendment to section 15 (a), the Commission is told, in effect, that in cases involving competition it can consider everything but the effects of the competition (R. 190–491).
To show the purpose of section 305 (c), which would be eliminated, the witness quoted from the legislative history of the 1940 act, and from the decision of the Supreme Court in Dixie Carriers, Inc. v. United States, case No. 233, October term 1955, in which the Court said:
It is recognized in the debates on the bill that became Transportation Act of 1940, that manipulation of rail rates downward might deprive water carriers of their "inherent advantages” and therefore violate the act. It was emphasized that one of the evils to be remedied was cutthroat competition whereby strong rail carriers would reduce their rates, putting water carriers out of business. The proposed legislation would do away entirely with the specific provisions for the protection of the water-carrier industry (R. 494497).
The witness responded to certain questions, as follows: The railroads have the same right of protesting and securing suspension of rates as the water or motor carriers. Joint rail-barge rates on carload traffic exist only in a limited number of cases, and in view of the high transfer cost, the water carriers do not favor these arrangements and have discontinued participating in them since 1947. On the question of whether or not the present policy of the Commission protects a high-cost transportation system against reduced rates offered by a lower-costmode, the Commission has consistently stepped into the competitive struggles between the different carriers and stopped any downward spiraling of rates so that they should not gravitate to the bottommost level of the reasonableness, considering in such situations not only the compensatory feature of a rate on any individual commodity, but also the effect on other commodities and on other carriers. It has not been the Commission's purpose to prevent a rail carrier from making a reduction where such reduction is justified, but to protect the rate structure and the transportation system as a whole (R. 499–515).
In response to a question whether a railroad should be prevented from reducing a rate if it returns fully distributed costs plus a profit, if the rate might have a harmful effect upon a competing mode, the witness filed a supplemental statement summarized as follows:
If only 1 commodity and 1 movement could be considered, the answer is in the negative. But each major change in a rate must be considered in its relation to the rate structure as a whole. The total transportation burden must be distributed among the thousands of commodities in such a fashion that they all will move, or on the basis of what the traffic will bear. Considering the wide range of rail rates, it is easy to select a commodity, reduce the rate, and still earn full costs, but when the burden is eased on that commodity the slack must be assigned to another or the entire rate structure will be undermined (R. 1678).
Assume there is a rail rate high enough to cover full costs and a profit, and a water rate lower in recognition of lower cost and inferior service, but also presumed to cover full costs and a profit. If the rail rate is reduced to the level of the water rate, the latter must be reduced if the carrier hopes to continue handling the traffic, and if the Commission must permit one it must permit the other. The resulting downward spiraling of rates can do no permanent good. The time to stop a rate war is in the beginning.
The reduction of a rate is not so simple as some of the protagonists of absolute freedom believe. Full power should continue to reside in the Commission to curb competitive excesses and preserve the rate structures of all modes (R. 1679).
WATERWAYS FREIGHT BUREAU
(W. Y. Wildman) The railroads desire an amendment to the rule of ratemaking which will require the Commission to disregard the effect of rail rates on other modes of transportation. If Congress accedes to that request, it will spell the end of water transportation.
In 1940, Congress recognized a need for protecting the water carrier industry and had a similar provision (sec. 305 (c)) put into the act. It was also recognized that in order for water carriers to participate in traffic in competition with railroads a differential in rates must exist in favor of the water carrier. This policy was affirmed by the Supreme Court of the United States in Alabama G. S. R. Co. v. United States (310 U. S. 216), where it was said that rate differentials were justified because barge service is worth less, and that to require rate parity would send all freight to the railroads. The incorporation of the provision suggested by the railroad industry along with other proposals, would take away any protection that the water carriers now have (R. 973-976).
WATERWAYS FREIGHT BUREAU
(C. E. Childe) Present regulation is only partially successful in preventing discriminations which permeate the railroad rate structure today, and which are increasing. The proposed bills, which would deprive the Interstate Commerce Commission of the power to consider the rates
of other forms of transportation in fixing railroad rates, would greatly increase discriminations which would be destructive to carriers and injurious to our national commerce. Present regulations should be tightened, instead of loosened, to require that rates of all carriers should bear a reasonable relationship to the cost of performing the transportation service under efficient and economical management, and should be free from unjust discriminations against competing shippers, as well as competing carriers (R. 1643). Additional opponents
American National Cattlemen's Association, Lee J. Quasey (R. 1816).
California Farm Research and Legislative Committee, Charles S. Gubser (Member of Congress), (R. 805).
California Grape & Fruit Tree Leagues, E. Alan Mills (R. 1125).
Fargo (North Dakota) Chamber of Commerce, J. I. Finsness (R. 999).
Local 557, Baltimore, Md., Ralf S. Norton (R. 1268).
National Wool Growers' Association, Lee J. Quasey (R. 1816).
Pacific American Steamship Association, Ralph B. Dewey (R. 1001).
Public Service Commission of Wisconsin, A. Wilford Lawson (R. 519).
Truck-Trailer Manufacturers Association, Inc., Marvin J. Barloon (R. 1347-1350).
V. LONG-AND-SHORT HAUL CLAUSES
Provisions of Interstate Commerce Act
Section 4 (1) of the Interstate Commerce Act prohibits any common carrier subject to part I or part III thereof from charging or receiving any greater compensation for the transportation of passengers, or like kind of property, for a shorter than for a longer distance over the same line or route in the same direction, the shorter being included within the longer distance, or from charging any greater compensation as a through rate than the aggregate of the intermediate rates. The section further provides that upon special application the Commission may, in special cases, after investigation, authorize such carriers to charge less for the longer than for the shorter distance, and from time to time prescribe the extent to which such common carriers may be relieved from the provisions of the section. In exercising such authority, the Commission may not permit the establishment of any charge to or from the more distant point that is not reasonably compensatory for the service performed, nor grant such authorization on account of merely potential water competition not actually in existence.