(2) In determining whether rates, fares, or charges, or classifications, regulations, or practices to be applied in connection therewith, result in charges more than just and reasonable maximum charges, as used in this Act, the Commission shall not require such charges to be reduced below the full cost of performing the services to which they apply, exclusive of losses in either services. In making such a determination, the Commission shall take into consideration the extent and effect of competition with respect to the service to which the charges apply to the end that carriers will be prevented from imposing excessive or unreasonable charges on traffic which is noncompetitive.

The railroads believe that the provision would be at once confusing and unnecessary.

In setting "full cost of performing the services *** exclusive of losses in other services" as the floor for reasonable maximum rates, the proposed legislation would adopt a standard which, in the case of particular traffic, would be helpful to the railroads in forestalling the prescription of rates below cost. Such rates the ICC has prescribed, and they have been upheld under special circumstances by the Supreme Court. However, the general use of such a standard would not presently consist with the general nature of the rate structure, which is not based wholly on cost of service," and for this reason the railroads recognize some validity in the objections heretofore voiced by shipping interests against its adoption.

40

Apparently, one purpose of the Cabinet Committee in recommending different standards for reasonable maximum rates is to protect the shipper of noncompetitive freight if, in accordance with its basic recommendation, the competitive rates of one form can be made without regard to their effect upon the competing form. This is suggested by the second sentence in the above-quoted proposed section 15a (2) which in turn reflects a discussion of the subject at page 11 of the Cabinet Committee report.

It is the position of the railroads that if the shipper of noncompetitive freight needs any special protection in these circumstances, the precedents established by the ICC in its review of reasonable maximum rates may be relied upon.

But what is more important, the shipper of noncompetitive freight needs no special protection. After all, the only motive or purpose a railroad would have in publishing reduced competitive rates would be to better its net revenue position by retaining or attracting greater traffic volume than would otherwise be possible, and instead of hurting noncompetitive traffic, such competitive rates would benefit it by reducing the share of fixed expenses the noncompetitive traffic is called upon to bear. What the shippers of noncompetitive traffic must guard against is that competitive traffic will continue to be drained from the rails thus increasing the burden to be borne by their traffic, the traffic which must remain on the rails.

The railroads do not advocate section 15a (2) as included in H. R. 6141 and H. R. 6142. At the present time, the railroads do not urge any change in the ratemaking rule found in the present section 15a (2). (e) The recommended changes in the national transportation policy: Under the present policy, the Interstate Commerce Act is to be so administered

40 Texas Citrus and Vegetable Growers and Shippers v. A. T. & S. F. Ry. Co. et al., 279 I. C. C. 671 (1950); 284 I. C. C. 206 (1952); Baltimore & O. R. R. Co. v. United States, 345 U. S. 146 (1953).

41 Sugar Cane from South Florida to

78456-56-pt. 1-35

Clewiston, 281 I. C. C. 47 (1951), at 63.

as to recognize and preserve the inherent advantages of each (mode of transportation subject to the provisions of this Act) *** and to encourage the establishment and maintenance of reasonable charges for transportation services, without *** unfair or destructive competitive practices.

The difficulty with this policy has not been its language, but its interpretation. Generally speaking, the policy has been accepted as the equivalent of a substantive provision of law, and the ICC has therein found the legal basis for rejecting compensatory rates proposed by one form of transportation because of their promised adverse effect upon the competing form. In other words, à proposed rate which promised to attract more than what the ICC conceived to be a proper share of the traffic has been held to be an "unfair or destructive competitive practice" and thus contrary to the national transportation policy, no matter how compensatory the rate promised to be and no matter what the inherent advantages of the mode proposing it.

In speaking of the policy, the Cabinet Committee says:

The declaration of policy should be revised to make it clear (1) that common carriers are to be permitted greater freedom, short of discriminatory practices, to utilize their economic capabilities in the competitive pricing of their service, and (2) that in all such matters the regulatory Commission is expected to act as an adjudicator, not a business manager.

The primary change which is contained in the policy declaration proposed by the Cabinet Committee and set forth in H. R. 6141 is the elimination of the prohibition against "unfair or destructive competitive practices." The apparent purpose is to make sure that the ICC will not, by resorting to the policy, reject a rate which reflects the "inherent advantages" of the mode proposing it simply because it promises to attract more than what it regards as a proper share of the available business.

If in its interpretation of the present policy the ICC would define an "unfair or destructive competitive practice" as limited to rates which are noncompensatory, there would be no occasion to change its language.

The railroads believe that such a revised interpretation of the present policy would follow as a matter of course if the three shall-nots as previously identified were enacted into law. For as we have seen, they would constitute a positive command to the ICC to exclude a faulty standard in its review of competitive rates, and such a mandate, in the form of a provision of substantive law, would necessarily modify the ICC's definition of an "unfair or destructive competitive practice. Otherwise stated, if the ICC, in passing upon rates designed to meet the competition of another form could not take into account their effect upon such other form but was confined to a consideration of whether the proposed rates were reasonable per se and nondiscriminatory, it is not likely that the present policy prohibition against "unfair or destructive competitive practices" would constitute an obstacle or otherwise jeopardize this basic recommendation of the Cabinet Committee.

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.

PART 2. OTHER RATEMAKING RECOMMENDATIONS

I pass now to the remaining three recommendations of the Cabinet Committee which are included under the heading "Increased Reliance on Competitive Forces in Ratemaking." As set forth at pages 11-14 of the report, they are the proposed revisions of "elements of current statutory provisions" relating to suspension powers; the long-andshort-haul clause, section 4; and volume freight rates."

1. Suspension powers:

Under this title, the recommendation of the Cabinet Committee is: Continue on a more restrictive basis Commission's authority to suspend proposed changes in rates: Shorten suspension period to 3 months; and, continue provision that places the burden of proof upon carrier proposing a changed rate, unless the protestant is also a carrier.

The railroads agree that the suspension power should be exercised on a more restrictive basis and "be considered as a special and unusual remedy." 42

So far as the suspension of reduced rates is concerned, the elimination of the faulty standard for competitive rates as covered in proposed section 15a (1) would constitute an important step in this direction, for the grounds upon which suspension could then be obtained. would be narrowed.

The railroads also agree that the suspension period should be shortened. If, in view of the large number of cases to be handled, a suspension period of 5 months is thought to be more realistic than the period of 3 months proposed by the Cabinet Committee, the railroads would not disagree.

Contrary to the recommendation of the Cabinet Committee, however, the railroads are of the opinion that the burden of proof should remain with the sponsoring carrier even if the protestant is a carrier. The reason is that, with the elimination of the faulty standard for competitive rates discussed before, the compensatory character of such rates would become the turning point of most suspension proceedings, and on this point the proponents of the rates are best equipped to furnish the necessary proof.

2. Long-and-short-haul clause. Section 4:

Under this title, the recommendation of the Cabinet Committee is: Remove requirement that rail or water common carriers obtain prior approval for charging greater than aggregate of intermediate rates, and for charging less for longer than for shorter distances over the same line or routes in the same direction, the shorter being included within the longer, if necessary to meet actual competition and the charge is not less than a minimum reasonable rate.

The railroads have long advocated the outright repeal of section 4 because (a) it operates as a serious handicap to competition among themselves, as well as with other forms of transportation, and (b) it provides no protection to the shipping public from discriminatory rate practices which could not be obtained under other sections of the the Interstate Commerce Act, notably section 3.

Consequently, any recommendation to make the provisions of section 4 less restrictive meets with railroad approval.

42 See report cited, note 2, supra, at pp. 12-13

The Cabinet Committee recommends that prior approval of the ICC to publish rates which depart from the provisions of section 4 no longer be required if the rate is

necessary to meet actual competition and not less than a minimum reasonable rate. (See p. 13 of the Cabinet Committee report.)

It is realized, of course, that the recommendation of the Cabinet Committee, if adopted, would make it easier for the railroads to compete with other forms of transportation, particularly the motor and water carriers, and for that reason our competitors will doubtless oppose it.

It may also be opposed by shipping interests located in those inland sections of the country which traditionally have supported section 4. While in no wise conceding any validity to such opposition, the railroads would suggest in the interest of avoiding controversy and taking one step at a time, that the committee might prefer, at this hearing, to consider the provisions of H. R. 6208, a bill which, introduced by Chairman Priest at the request of the ICC and with its special endorsement, would "amend paragraph (1) of section 4 of the Înterstate Commerce Act, as amended."

This bill, which I shall hereinafter refer to as the ICC bill, would not change the restrictions which section 4 now imposes on the railroads when they undertake to meet the competition of another form of transportation nor would it modify the protection which that section presently gives to shipping interests at the so-called intermediate points. On the contrary, the ICC bill would terminate only that part of section 4 which makes it necessary for the ICC to authorize "fourth section departures" over circuitous rail lines, departures which exist only because circuitous rail lines desire to meet the competition of direct rail lines. It would accomplish this purpose by removing from section 4 (1) the language which directs the ICC, in authorizing departures:

Not (to) permit the establishment of any charge to or from the more distant point that is not reasonably compensatory for the service performed

and by inserting in this same section the following proviso:

And provided further, That any such carrier or carriers operating over a circuitous line or route may, subject only to the standards of lawfulness set forth in other provisions of this part or part III and without further authorization, meet the charges of such carrier or carriers operating over a more direct line or route, to or from the competitive points;

The background for the ICC bill is this:

On October 22, 1953, the railroads of the country, supported by the National Industrial Traffic League, the leading shipper organization of the country, filed an application, FSA No. 28580, with the ICC which sought blanket relief from the provisions of section 4 when a circuitous rail line should undertake to meet the competition of a direct rail line. The argument was that section 4 was really intended to control the ratemaking of direct rail routes in competition with other forms of transportation, and that its application to competition between direct and circuitous rail lines not only went beyond its real

43 See brief of National Industrial Traffic League dated July 19, 1954, in F. S. A. No. 28580. Rates and Charges Over Circuitous Routes in the United States.

Rates and Charges Over Circuitous Routes in the United States (294 I. C. C. 714 (1955)).

objective but caused the expenditure of hundreds of thousands of dollars for endless red tape and complicated tariff provisions which only confused the shipping public. A further argument was that, in trying to eliminate undue circuity in the movement of railroad traffic through the imposition of arbitrary standards for determining "reasonably compensatory" routes, the ICC was acting unrealistically because, in accordance with all of the tests which had been made, railroad traffic was largely confined to service routes, with an average circuity of no more than 14 percent, and protection against the use of unduly circuitous routes was not necessary.

47

46

But the ICC, acting through its Division 2, denied the application in a decision dated April 26, 1955. While expressing sympathy with the end result sought by the application, the ICC pointed out:

We conclude that we are prohibited by the statute from issuing any general order giving all carriers a carte blanche to move traffic over all the circuitous routes in the country without limitation of any kind. If we were to act otherwise we would, in effect, be in the position of repealing provisions of the statute by administrative fiat and would be subject to the charge that we were abdicating our administrative responsibilities.

While denying the application, the ICC, on the same day, announced its unqualified support of an amendment to section 4 which would achieve the same purpose. This is H. R. 6208, of the ICC bill, and in requesting Chairman Priest to introduce it, the then Chairman of the ICC, Mr. Mitchell, said in part in a letter of transmittal dated May 3,

1955:

After an intensive review of the operation of the fourth section of the act, with particular reference to its impact on the work of the Commission and the ratemaking function of the rail carriers, the Commission has come to the definite conclusion that this section should be amended so as to eliminate therefrom all unnecessary refinements of the long- and short-haul principle, but at the same time retain the central objective of the fourth section, i. e., departures from the long- and short-haul principle over direct routes.

Furthermore, the ICC submitted with H. R. 6208 a statement of justification reading in part as follows:

The proposed amendment is specifically designed to make the fourth section self-operating with respect to the right of a circuitous route to meet the rate or rates legally established between competitive points over the more direct routes. No further authorization from the Commission would be required other than the standards laid down by other sections of the act. As an incident of this suggested change we are proposing to remove from section 4 the so-called reasonably compensatory provision. This, in our opinion, would eliminate from section 4 all of the unnecessary refinements of the long- and short-haul principle, would terminate our responsibility with respect to fourth section departures over circuitous routes, and would limit our jurisdiction to authorizations of relief over direct routes, upon application and after investigation, where special justification for such relief is shown.

Experience has demonstrated that the public interest is not being served by the imposition of the restrictions in question. The history of their administration has proved them to be excessively burdensome to all concerned. Together they have resulted in disproportionate expenditures of time, labor, and funds by both the carriers and the Commission in comparison with the relatively small benefits derived. Moreover, almost all of the dissatisfaction with section 4, which is expressed periodically by carriers and shippers alike, appears to stem from the same burdensome provisions.