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which are happening as a result of our orders are no good, and we will ask the Congress to pass a law that will get rid of this thing."

The Commission is in full agreement with this thing. This 6208 was issued at their instance. They could not go along with us and could not interpret the law that they have that authority today. I think they have it, but I am not a lawyer. I couldn't persuade them.

Mr. DOLIVER. Isn't it a fact that this 133 percent limitation on the length of the circuitous route is a wholly artificial and administrative limitation?

Mr. STALEY. Indeed it is.

Mr. DOLLIVER. That isn't the law at all, is it?

Mr. STALEY. It is artificial but they said to us, "we believe that we must do that under the law as it reads today," and this is the reason why: Because the law has certain little words in it. It says they shall not give relief in respect to any rates which are not reasonably compensatory. So in order to salve their consciences they said, "We can't let you take the rate which pays 40 cents a car-mile and apply it over a route which gives you 10-cents a car-mile. We don't think that would be compensatory."

So they hung this limitation on there to salve their consciences, because that was in the act. But they said that in reality and in practicality nobody should use these screwball routes except the United States Government for the routing of its freight. I could tell you about that sometime.

Mr. DOLLIVER. That is another issue in this hearing, section 22. Mr. STALEY. Yes, the wasteful and circuitous routes used by the Government. The Commission said we have to put that limitation on it. We don't believe in that. We don't think it does any good. We agree that it messes up these tariffs. We will ask Congress to change it. Mr. DOLLIVER. Let me ask you this question: As a practical matter would a railroad which has a circuitous route between two given points in excess of 1333 percent of the short route be likely to offer an identical rate with the short route if they have that many more miles to carry the stuff?

Mr. STALEY. Quite often they can and they do and they likely would and they would make money out of it. For example, we happen to be on the Rock Island Railroad at St. Joseph, Mo. They have a long route to Memphis. We have a delivery that is on the Rock Island Railroad at Memphis. If we turned it over to another railroad they would have to absorb the Rock Island switching charges at St. Jo, the switching charges at Memphis. The Rock Island might just as well put it down there and put it in itself through its coordinated train service and we would get it down there quicker. We would actually get our freight quicker because it would not be interchanged with 2 or 3 other railroads. Surely there would be instances where more circuitous routes would be used. On the other hand, we think it should be left to managerial discretion to determine whether they want to participate in a rate from St. Jo, Mo., or from Cedar Rapids, Iowa, to Memphis, Tenn., over their circuitous route. If they think they can handle it and make money, that is their business.

Mr. DOLLIVER. What does that do, however, to the intermediate points?

Mr. STALEY. It doesn't do anything if this bill is passed. It will remain in status quo. It won't involve the intermediate points. You

will let the Rock Island Railroad meet the short line routes. For example, the Illinois Central has a single line railroad from Cedar Rapids to Memphis. So has the Rock Island. The Rock Island is the longer route. If the Illinois Central has the rate, why should not the Rock Island meet that rate if they want to without bothering about rates at intermediate points. That is what the Commission recommends that you Congressmen let them do.

Mr. DOLLIVER. I think you have made your point very clear.
Mr. STALEY. Thank you, sir.

Mr. HARRIS. Mr. Staley, I do not want to prolong this discussion. We had Mr. Markham with us this morning from Spokane. You were here I believe and heard his testimony. You heard him relate the discriminations that existed prior to 1910 and out of the discrimination that he described came the fourth section of the act. Do you agree with that?

Mr. STALEY. I have quite a bit of knowledge of that subject. I was chairman of the southwestern fourth section committee some years ago. I think I know what the man was troubled about. He was troubled about the provisions of 6141.

Mr. HARRIS. He was speaking directly in opposition to the provision in 6141 which would repeal outright the fourth section of the act. Mr. STALEY. Yes, sir. Speaking for the league and speaking here today for the Quaker Oats Co., I am taking no position on 6141 and neither is the league.

Mr. HARRIS. You said that before, but I wanted to ask you if you agreed with what he said as to the existence of discrimination at inland points, as he explained, which brought about the enactment of the fourth section.

Mr. STALEY. I think there were some grave abuses, yes, sir. You had them in the South and the Southwest. I can remember when the rate on pipe from Pittsburgh to Eldorado was a lot higher than the rate on pipe to Houston and Galveston, and that didn't make good sense. Somebody may have thought it was good, but that was a discrimination which I think was unjustified. I am quite familiar with these cases that the man from Spokane talked about. I would not want to see those conditions recur. As I said in my direct testimony, we believe that the suggestions in 6141 relating to the long and short haul rule will require a long, hard look from Congress. We don't advocate that now. I don't think that the conditions that the man complained of were sound.

Mr. HARRIS. You are an experienced man in this field?

Mr. STALEY. About 30 years.

Mr. HARRIS. I have been quite impressed with your testimony and presentation here today. Would you say categorically that such a condition would not exist with the enactment of 6208?

Mr. STALEY. Such as the man from Spokane feared?

Mr. HARRIS. Yes.

Mr. STALEY. I would unhesitatingly say that the enactment of 6208 would not in the slightest degree restore any of the conditions about which he was complaining.

Mr. HARRIS. Would a coastal point or would a point that has water transportation, called the outlet area, have any advantage over the inland points?

Mr. STALEY. Not as a result of 6208.

Mr. HARRIS. That is what I wanted to be certain about. Thank you very much.

Mr. STALEY. I assure you that. I am very earnest and sincere that 6208 will not create any conditions of that character.

Mr. HARRIS. Mr. Staley, you may proceed with your second

statement.

Mr. STALEY. Mr. Chairman, because of my testimony which follows, I wish to qualify myself.

I have had 38 years of experience in traffic and transportation with several carriers associations; 20 years in various official capacities in the traffic department of the Missouri Pacific System lines.

I held at one time or another virtually every official title in the traffic department of a large railroad. I can say that of vice president.

I was charged with the responsibility for adjusting and negotiating freight rates, including making of section 22 quotations.

I was also responsible for the solicitation of freight with particular reference to Government freight.

For nearly 10 years I have been the vice president of this company. In 1954 and 1955, I spent the greater portion of my time as a member of the so-called Hoover Commission task force. I was the acting director of the Task Force on Transportation and we had occasion to go deeply into the subject of section 22 quotations for the Government here in Washington and in many other cities and places, and putting it bluntly, what we found stumped us.

I appear here in several capacities; primarily as chairman of a special committee on Government rates under section 22 of the National Industrial Traffic League. This is an organization with a membership of nearly 1,700 shippers and associations of shippers in every State in the Union. The league's members are buyers and users of all kinds of transportation; they are large and small operators; and include shippers of agricultural products, livestock products, forest products, and products of mines, as well as manufactured articles.

Additionally, I appear as a private citizen, as an officer of the Quaker Oats Co., and not least-but of primary importance in my mind-as a taxpayer.

POSITION OF THE LEAGUE

The National Industrial Traffic League's special committee, of which I am chairman, does not endorse the changes in section 22 of the Interstate Commerce Act, reflected in H. R. 6141; in lieu we support the suggestions of H. R. 525, subject to some minor modifications which we will explain, and we urge that H. R. 525 be separately considered and acted upon, and we hope it will be acted upon at this session of Congress.

It is our belief the many issues embraced in H. R. 6141 are so far reaching in their consequences that the whole subject necessarily will require prolonged consideration. Whereas the phase in which we are interested, namely, our troubles under section 22, can and should properly be considered by this term of Congress and legislation along the lines of H. R. 525 enacted.

My specific instructions from the league are reflected in the record made at the 1953 annual meeting of the National Industrial Traffic League, subsequently twice reconfirmed, which I have reproduced in appendix A to this prepared statement.

There are many in the league who would favor the adoption of H. R. 525 as it stands. This, as I read it, is a complete repeal of those provisions of section 22 which permit free or reduced rates to Federal, State, and municipal government, on both freight and passengers. There are others who have the opinion, seemingly shared by the Interstate Commerce Commission, that military considerations require some provision for establishment of reduced rates or special rates for military purposes during times of emergency.

OBJECTIONS OF THE LEAGUE TO PRESENT LAW

The objections of the National Industrial Traffic League to the existing provisions of section 22 rest on many and varied grounds. I do not believe is necessary to recount in detail the history of section 22, for I believe you must be familiar with most of it. Essentially the provisions of section 22 are as they appeared in the original act to regulate commerce, with minor modifications. It was intended to permit so-called non-land-grant railroads to meet the reduced rates. which were available to the United States Government as result of land grant agreements. Prior to the repeal of the land grant provisions of the Interstate Commerce Act, substantially the only use made of section 22 was to permit the equalization of competing routes. This section of the act was not resorted to by the Government for any substantial movement of freight or passengers except for these equalizing purposes.

The act repealing the land-grant provisions became effective October 1, 1946, and stated the Government should pay "the full applicable commercial rates, ***"

THE BIRTH OF ABUSE

But after the repeal of the land-grant provisions, certain people in the Government, not only in the military department, but elsewhere, realized that the wide-open provisions of section 22 permitted them to bargain with the carriers under peculiar circumstances and to secure for the Government special privileges and reduced rates thereby nullifying the obvious intent of the land-grant repeal. These special rates are not subject to any of the normal standards of reasonableness or prohibitions of discrimination or preference, such as must be observed in connection with rates used by the ordinary shippers of the country. It has been repeatedly averred in public hearings (and I have had personal attention called to many of these situations), some people in the service of the Government have deliberately invited one form of transportation to bid against another form of transportation for a specific allotment of Government tonnage; or they would ask for a special rate frequently with one of the normal standards of justification being advanced; in effect, simply saying "here is a piece of tonnage we are going to move and what kind of a rate will you give me for it?"

The ordinary standards or principles under which the carriers are approached in seeking readjustments in rates were abandoned in favor of the auction block.

The insidious thing about this business of cutthroat ratemaking is that it is not necessary to publish these rates; no one need know anything about them. In fact, one of the agencies, and a rather important one, makes a practice of keeping the secret quotations secret until after the routing of the traffic has been set up.

CARRIERS NOT BLAMELESS

All of the blame or criticism for this practice should not be placed on the shoulders of the Government's representatives. Many carriers learn of anticipated movements and approach representatives of Government agencies-not only the Department of Defense, but of civilian agencies and privately, secretly, in the dark of the moon, offer a secret reduced rate in order to secure a certain piece of tonnage. Sometimes there is no moon.

In hearings before the Interstate Commerce Commission and in the files of the so-called Hoover Commission-I happen to have been a member of its Task Force on Transportation-there is evidence of this type of chiseling on the part of one carrier against another, as well as on the part of certain Government agencies holding out special inducements in the form of additional traffic if one carrier will get out and cut the other carrier's throat.

To the credit of the Department of Defense, and I think this may well be true of other agencies, efforts have been made to curb this unscrupulous bidding for traffic by one carrier against another without consideration for the normal standards of ratemaking.

But, Mr. Chairman, if I understand the evidence given your committee by Mr. Earl Smith, of the Department of Defense, they are not very successful, because he said that last year they had over 18,000 rate reductions offered them under section 22. Now, those things just did not happen, because somebody wanted to be nice to somebody on his birthday. It was a case of these carriers finding out about a piece of freight that was to be moved and running in and offering a reduced freight to get that business; if you have 18,000 of those in one department in a year there is not very much control of that abuse.

CIVILIAN AGENCIES NOT ENTITLED TO PREFERENCE

It can well be recognized by almost anyone that during time of war or a national emergency there may be reasons why the military services need to get special rates in a hurry for the movement of troops or military traffic, but it is hard for ordinary shippers to understand why the United States Government, which is supposed to set an example of fair play and honesty and live up to the ideal and principles which have motivated the regulation of transportation, should get a special or secret rate for a civilian agency.

For example, in the movement-to take one out of many-of aluminum ingots from points in Texas to Davenport, Iowa, why should the government have a lower rate than private companies shipping between the same points? Yet the facts are the railroads, barges and truck lines have special section 22 rates for the Government. On

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