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for 212 years. Prior to accepting this assignment I was vice president and director of traffic for General Mills, Inc. I have been engaged in the transportation field for over 36 years, all but 2 of which were in the industrial traffic management field.

The opportunity to give this subcommittee the views of the Department of Defense on H. R. 525 and those portions of H. R. 6141 and 6142 proposing to modify the Government rate provisions, is deeply appreciated.

H. R. 525 is a bill to amend section 22 of the Interstate Commerce Act, as amended, and for other purposes. It proposes to remove the present authority under which common carriers may establish reduced rates for Government traffic. The companion bill introduced in the Senate is S. 2114.

H. R. 6141 (Mr. Priest) and H. R. 6142 (Mr. Wolverton) are substantially identical bills to amend the Interstate Commerce Act, as amended, so as to provide for a stronger national transportation industry, and for other purposes. They propose to enact into legislation recommendations contained in the report of the Presidential Advisory Committee on Transport Policy and Organization. They propose (among other things ) certain modifications with respect to the provisions of section 22 of the Interstate Commerce Act. Š. 1920 is a companion bill introduced in the Senate.

In view of the statement presented to this subcommittee by the Secretary of Defense supporting the recommendations of the report of the Presidential Advisory Committee—and I might remind you he was a member of that Committee, I shall confine my remarks to the proposed repeal or modification, as the case may be, incorporated in the above-described bills with respect to the provisions of section 22 of the Interstate Commerce Act.

Your attention is called to the fact that at the conclusion of testimony of the Secretary of Defense your chairman very kindly accepted my offer to supply your subcommittee with copies of a 16-page monograph ? prepared by the Department of Defense which explains in some detail our operation and experience under section 22 of the Interstate Commerce Act.

Included in that monograph as set forth on pages 70 to 89 of the hearings, was a chart (p. 77) showing the Department of Defense dollar disbursements for fiscal year 1954 as related to domestic freight transportation. Your committee would probably now be interested in later statistics for the fiscal year 1955, as relating to both passenger and freight disbursements for domestic transportation. I have these charts with me, and with your permission will make them available for inclusion in the record.

Before commenting specifically on the respective bills it seems pertinent at this point to recite the provision of the Interstate Commerce Act which is the basis for the proposals made in the respective bills.

Mr. HINSHAW. Mr. Chairman, may I interrupt to ask whether or not these charts will be available to the committee for discussion, or whether they are merely received for the record ?

1 Transport Policy and Organization, pp. 54, 56, and 57, hearings before a subcommittee of the Committee on Interstate and Foreign Commerce, House of Representatives, 84th Cong., 1st sess., September 19, 20, 21, and 22, 1955.

3 Transport Policy and Organization, pp. 70 to 89, inclusive, of reference 1 *

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Mr. WILLIAMS. Will these be made available to members of the committee individually? I believe they are included as part of your statement; are they not?

Mr. SMITH. They are attached to my statement.
Section 22 (49 U.S.C. 22) provides :

That nothing in this part shall prevent the carriage, storage, or handling of property free or at reduced rates for the United States, State, or municipal governments * * * or the transportation of persons for the United States Government free or at reduced rates. * * *

Without going too much into the history of section 22 which has been covered rather extensively in the monograph previously filed with your subcommittee, and mentioned above, it should be said that prior to 1940 transportation of property and personnel for the Government was not large; but with the expanding war production during World War II, transportation for the Government became big business. Since that time the Department of Defense has become the largest single user of transportation services in the United States. Although the carriers have long used section 22 for granting rate adjustments to the Government, it was not until the repeal of the Land Grant Act on October 1, 1946, that section 22 came into full use. In the intervening period we have had ample opportunity to observe both the strength and weaknesses of this particular provision. There are definite advantages resulting from section 22 as well as disadvantages.

At this juncture, and while these factors are set forth in part in the monograph above referred to, I want to repeat and underscore the advantages and disadvantages to the present provisions of the Interstate Commerce Act (sec. 22).

ADVANTAGES

The principal benefits to both the carriers and the Department of Defense, in the utilization of the provisions of section 22 of the act, are as follows:

(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

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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 your 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.)

DISADVANTAGES (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.

(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 tariff's; 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.

(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.

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 numbers of rate tenders, negotiated and nonnegotiated, received from rail and mctor carriers by the military departments for the period January 1, 1954, to December 31, 1954. I now have available corresponding figures for the period January 1, 1955, to December 31, 1955. They are as follows: Rail negotiated (586) Rail nonnegotiated (1,618). And may I note 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.

Because of the situation that has existed since repeal of the Land Grant Act, the subject has been given considerable thought by both Government agencies and shipping interests. These considerations led to discussion of this subject by both the subcommittee of the Committee on Organization of the Executive Branch of the Government and by the Presidential Advisory Committee on Transport Policy and Organization. Neither of these committees recommended outright repeal of the provisions in the Interstate Commerce Act dealing with Government rates. The Presidential Advisory Committee

Percent

26. 6 73.4

recognized the benefits of this legislation and made the following recommendation with the accompanying observations:

Recommendation.-Continue authority for carriers to establish voluntary special Government rates but subject such rates to all provisions of the act (including public filing) except suspension and long-and-short haul provisions, with authorization for application of special Government rates retroactively and on shor notice in special instances and with authorization for waiver of filing requirements in cases where national security is involved.

The use by carriers of that portion of secton 22 of the Interstate Commerce Act granting free or reduced-rate transportation to Government traffic has

given rise to abuses and evils which are not in the public interest. It is recog1. nized also, however, that Government procurement practices and the peculiar

exigencies affecting movement of its traffic as distinguished from normal movement in commercial channels require special consideration.

For these reasons existing statutory provisions authorizing carriers to tender special Government rates and fares to the United States, State, and municipal [ governments should be amended in such a way as to preserve the features which

accommodate the special needs of Government traffic movements yet will overcome the present abuses. * * *

H. R. 525

In view of my comments on the amendments proposed in H. R. 6141 and H. R. 6142 with respect to modification of the Government rate provisions, I shall not dwell on our recommendation that H. R. 525 be not favorably reported. The comments and recommendation of this Department on S. 2114, the companion bill to H. R. 525, were transmitted to the chairman of the House Committee on Interstate and Foreign Commerce by the Assistant Director, Bureau of the Budget, on February 24, 1956. The Bureau of the Budget and the Department of Commerce also recommend against enactment of H. R. 525. I want to emphasize, however, that unless modification is made of the Government rate provisions in the Interstate Commerce Act, as proposed in sections and 9 (a) of H. R. 6141 and 6142, this Department is opposed to any bill, including H. R. 525, which proposes to repeal the Government rate provisions of section 22 of the act.

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H. R. 6141 AND 6142

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At this point is seems appropriate to reproduce those parts of the above captioned bills which propose to modify the Government rate provision in section 22 of the Interstate Commerce Act as set forth earlier in this testimony. The proposed provisions read as follows:

Section 9 (a) provides that: “Section 22 of the Interstate Commerce Act, as amended, is amended by striking from the first clause thereof the words 'for the United States, State, or municipal governments, or' and `or the transportation of persons for the United States Government free or at reduced rates,'

(b) Nothing in this section shall be construed to affect the validity of any free or reduced rates, fares, or charges for transportation service rendered prior to the effective date hereof, and outstanding contracts providing for such rates, fares, or charges shall be filed and published on the effective date of this section as provided in subparagraph (5) of section 15a, and shall be subject to all other applicable provisions of such subparagraph.

Section 8 proposes to repeal section 15a of the Interstate Commerce Act, as amended, and substitute in section 15a (5) the following:

The establishment, maintenance, publication, and application of rates, fares, charges, and rules and regulations of special application for transportation service to the United States, State, and municipal governments by carriers subject to this Act is hereby authorized. Rates, fares, charges and rules and regulations so limited shall be subject to the traiff filing and publication require ments of the Act: Provided, however, That (a) such rates, fares, charges, and rules and regulations may be filed on short notice, or made retroactive, where the circumstances so warrant, and (b) the provisions of the Act with respect to filing, publication, and posting of tariff schedules and contracts may be waived where the security of the United States so requires upon the filing of an appropriate statement in writing with the Commission by the head of the Government agency concerned. Such rates, fares, charges, and rules and regulations shall not be subject to suspension or to the provisions of section 4, but shall be subject to all other applicable provisions of the Act. Transportation services rendered by carriers subject to the Act for such governments other than under such rates, fares, charges, and rules and regulations of special application shall be subject to all the provisions hereof : Provided, however, That the provi. sions of the Act with respect to filing, publication and posting of tariff schedules and contracts may be waived where the security of the United States so requires in the manner provided herein with respect to waiver for those of special application.

For clarity, each phase of the foregoing proposed sections 8 and 9 will be treated individually (in reverse order).

Section 9 (a) would merely assist in transferring the Government rate-making provision from section 22 of the Interstate Commerce Act to a proposed new section 15a (5) of the act. This transfer, it should be said, is concurred in by the Department of Defense-contingent on the enactment into law of the new section 15a (5).

The above section 9 (b) is merely a proposed savings clause to preserve the legality of rates charged the Government by the carriers, under the provisions of section 22 of the act, for services previously performed for the Government. It further provides that outstanding contracts providing for such rates, fares or charges shall be filed pursuant to the new section 15a (5). This is consistent with the comment in the report of the Presidential Advisory Committee on Transport Policy and Organization.

As already indicated, section 8 proposes to repeal section 15a of the Interstate Commerce Act, as amended, and substitute in section 15a (5) the following (treated phase by phase):

PHASE 1

The establishment, maintenance, publication, and application of rates, fares, charges, and rules and regulations of special application for transportation service to the United States, State, and municipal governments by carriers sub ject to this Act, is hereby authorized. This sentence merely continues in effect the authority now in section 22 of the act to grant special rates to the various named governments. But it seems to be more precisely worded than is the present section 22.

PHASE 2

Rates, fares, charges, and rules and regulations so limited shall be subject to the tariff filing and publication requirements of the Act. * * *

This provision proposes that the rates, fares, charges and rules and regulations of special application for transportation service to the Government shall be subject to the tariff filing and publication requirements of the act. This is a new requirement because section 22 does not now invoke this control over section 22 rate tenders. This proposal that rates of special application shall be published and filed in tariffs with the Interstate Commerce Commission, in one sweep will, we believe, cure all of the disadvantages recited earlier in this tes

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