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FRIDAY, MAY 4, 1956
HOUSE OF REPRESENTATIVES,
Washington, D. C. The subcommittee met, pursuant to adjournment, at 10 a. m., in room 1334 New House Office Building, Hon. Oren Harris (chairman of the subcommittee) presiding.
Mr. HARRIS. The committee will come to order.
The Chair is advised that Mr. Harry C. Burnett, traffic manager, Inland Navigation Co., Vancouver, Wash., and the River Terminals Co., The Dalles, Oreg., is here and desires to submit his statement.
Is Mr. Burnett here?
STATEMENT OF HARRY C. BURNETT, TRAFFIC MANAGER, INLAND
NAVIGATION CO., VANCOUVER, WASH., AND RIVER TERMINALS CO., THE DALLES, OREG.
Mr. BURNETT. Yes, sir. Please, sir, I am unprepared to submit my statement now, but I ask your permission, if you please, sir, to be permitted as soon as I return to Vancouver to have a statement prepared, and forward it to the committee with your kind permission.
Mr. HARRIS. We will be very glad to have you do that, Mr. Burnett, and you have that permission.
Mr. DOLLIVER. May I inquire what particular section of the proposed bill you wish to comment on?
Mr. BURNETT. Yes, sir. Mr. Chester Thompson yesterday was asked by members of the committee whether he had specific reference and specific instances as to what managerial discretion would do to the river lines. He said that he did not have those; but I wish to point out to the committee what the bill would do to us in the Pacific Northwest along the Columbia River, giving details of what has happened over the past 5 years; what we can expect, if the railroads are permitted to make specific rate cuts wherever they see fit and base those rate cuts on system average costs, and I think it would be of interest to the committee.
Mr. HARRIS. Thank you very much, Mr. Burnett. We will be glad to receive your statement.
Mr. BURNETT. Thank you, sir.
STATEMENT OF HARRY C. BURNETT, TRAFFIC MANAGER, INLAND NAVIGATION Co.
Gentlemen, I had the pleasure of being present on Thursday, May 3, and Friday, May 4, at the hearings before your committee, with reference to H. R. 6141 and 6142.
On Thursday, May 3, following the testimony of Mr. Chester C. Thompson, who appeared on behalf of the American Waterway Operators, Inc., Mr. Thompson was asked by members of your committee for specific instances where the railroads had by “spot” rate reductions attempted to publish rates so low that the operators of competing barge lines could not exist under the unreasonably low level of such reduced rates. Following the hearing that day I requested permission to file with your committee a short statement citing an instance of such "unfair or destructive competitive practices," as they affect water transportation on the Columbia River and in the Pacific Northwest. At the opening of the hearing on Friday, May 4, Chairman Harris, on the record, very kindly granted my request and this letter is respectfully submitted in compliance therewith.
Inland water transportation on the Columbia and Snake Rivers in the Pacific Northwest is not comparable to water transportation on the Mississippi River system.
The history of settlement and development of the Pacific Northwest will show that, prior to the coming of the iron horse, the sternwheel steamer afforded practically the only means of transportation in the area of the Columbia River. With the building of the two railroads, on the north and south banks of the Columbia, by means of rate reductions the railroads forced the sternwheelers off the river. With no water competition the railroads immediately increased their charges far above the old water-line rates. This process of elimination of water transportation has been in constant operation from that day to this. By the use of modern diesel-powered towboats ranging up to over 4,000 horsepower and the use of modern steel barges, the water carriers have been able in the last 15 years to reestablish navigation and have forced rail rate reductions so that the economic development of what is known as the Inland Empire has prospered and the wheat producer alone has been saved approximately $6 million in that period by the presence of competitive water transportation.
Do not be deceived, however, into thinking that the competitive rail carriers are not still doing everything within their power to drive navigation off the Columbia River.
After a series of Interstate Commerce Commission investigation and suspension proceedings extending over a 10- year period, the railroads of this area in January 1953 filed with the Commission further rate reductions on bulk petroleum, reducing the rates and estimated weights by amounts ranging from 25 to 40 percent. The 1953 proposed rates of the rail carriers were below the level of rates in effect in 1935. Upon complaint of both the competing motor carriers and barge lines the proposed rates were suspended (1. & S. 6062). After lengthly hearings the Commission finally rendered its decision permitting the reduced rates to become effective. This decision of the Commission was based upon a purported showing by the rail carriers that the proposed rates were not below an out-of-pocket cost. You will note, that the use of the out-ofpocket-cost theory was permitted to prevail in this case rather than the proper theory of fully distributed costs. Following this decision of the Commission the competing motor and water carriers obtained from the Federal court an injunction and restraining order on the strength of the erroneous out-of-pocket cost and also on the fact that the Interstate Commerce Commission had not given due consideration to the “unfair or destructive competitive practices" present in this proceeding contrary to the national transportation policy. Factually, this case has now been remanded to the Interstate Commerce Commission for rehearing.
By reciting the above facts it is evident that even under the present Transportation Act and the present national transportation policy it is possible for competing railroads to so reduce specific rates as to drive river transportation out of business.
Your committee is well aware of the fact that since 1942 under ex parte proceedings Nos. 148, 162, 166, 168, 175, the railroads of the Nation have increased their general level of freight rates by 79 percent. The decisions of the Commission granting the carriers these general freight-rate increases were not worded so that the railroads "shall” increase the rates by a certain percentage but the orders were permissive in that the Commission told the railroads you “may” increase your rates by certain percentages. Therefore, under these general freight-rate increases the railroads of the Pacific Northwest have not applied any
of these increases since 1942 to their rates on petroleum and petroleum products in competition with the barge lines on the Columbia River. It is evident from the foregoing that while the railroads on the north and south banks of the Columbia River have been able to increase their general commodity rates 79 percent, they are handling petroleum in competition with the barge lines on the basis of the rail petroleum rates in effect in 1942.
While I do not have the proper technical citation authority (i. e., page number of the transcript of the oral argument) it is a matter of record that in the oral argument before the entire Commission when the Interstate Commerce Commission was considering the 15-percent general freight-rate increase in Ex parte 175, Commissioner Aitchison and Commissioner Knudson asked the attorneys for the western railroads and the Association of American Railroads whether, if the Commission were to grant any or all of the requested increase would they apply such increases to their petroleum rates in the Pacific Northwest. In answer to these direct questions the railroad attorneys answered in the affirmative. However, under the permissive language of the Commission's order that the railroads “may” increase their rates, the Pacific Northwest railroads took advantage of the managerial discretion provided by the technical language of the decision and did not apply the increase to their rates on petroleum products in this area due to the competition of the barge lines on the Columbia River.
I was not present at the hearing when Mr. Jervis Langdon, Jr., presented his testimony to your committee on behalf of the Association of American Railroads, but I do have a copy of his testimony.
I am sure that the general impression among transportation men throughout the country is that the railroads of the Nation were solidly behind the provisions of the legislative proposals contained in the so-called Cabinet Committee report. However, Mr. Langdon in his presentation to this committee denies on behalf of the railroads any intent to change the national transportation policy, and denies any complicity on behalf of the railroads in the Weeks report. They do, however, according to Mr. Langdon's testimony want only three changes in the Transportation Act, as follows:
“That the Interstate Commerce Commission, when considering competitive rates of one form of transportation against the other shall not consider (1) the effect of such rates on the traffic of any other mode of transportation; (2) the relation of such rates to the rates of any other mode of transportation; and (3) whether such rates are lower than necessary to meet the competition.”
It is obvious with these changes none of the other changes in H. R. 6141 and H. R. 6142 would be necessary to enable the railroads to put water carriers out of business on the Columbia River.
In connection with H. R. 6208 it should be stated that it appears innocuous, as merely permitting circuitous lines to get automatic fourth section relief when direct lines have a lower rate. However, the direct line rate is not confined in the bill to railroads, but may be a water carrier direct line rate. If this interpretation is followed, rail lines can immediately come down to meet the water line direct rate on the nose and the Commission would have no suspension power under the fourth section and section 15 (7).
Any transportation man, be he railroad, truck, or water carrier, knows full well that with the above three changes in the Transportation Act and with H. R. 6208, it would not make any difference what the transportation policy of the Nation might be. In other words, if the railroads cannot kill barge and water transportation one way, they will find many other methods to bring about its demise.
I have tried to make this recitation of facts as short and concise as the subject will permit. Permit me at this time to extend to the members of your committee our deep appreciation for the privilege granted in this instance to bring to your committee's attention how, even under the present Transportation Act and the national transportation policy, the railroads of the Pacific Northwest have continued their 'rate wars against water transportation in this area.
Mr. HARRIS. Yesterday, Mr. Chester C. Thompson, president of the American Waterways Operators, Inc., concluded his statement, and we were to have with us this morning Mr. Harry C. Ames, also of the American Waterways Operators.
Mr. Ames, we will be very glad to have you present your statement at this time.
STATEMENT OF HARRY C. AMES, ATTORNEY, WASHINGTON, D. C.,
REPRESENTING WATERWAYS FREIGHT BUREAU
Mr. AMEs. May it please the committee, my name is Harry C. Ames. I am an attorney with offices in the Transportation Building, this city. Before entering the private practice of law, I served for 10 years as an attorney-examiner for the Interstate Commerce Commission. I have represented the Mississippi Valley Barge Line Co. as its commerce counsel since it began operations. For 10 years or more I served as chairman of the legislative committee of the Association of Practitioners before the Interstate Commerce Commission. I am appearing today for the common carriers by water which operate on the Mississippi-Ohio Rivers, and tributaries, including the GulfIntracoastal Canal, which are members of the Waterways Freight Bureau, a voluntary nonprofit association of common carriers by water, organized pursuant to section 5 (a) of the Interstate Commerce Act.
As common carriers by water regulated under Transportation Act, 1940, we are opposed to the changes in the bills under consideration in respect of
(a) the transportation policy;
(d) the ratemaking rules, particularly as they bear upon questions of carrier competition. As a preclude to my testimony I should like to refer briefly to some legislative and adminstrative history.
In the late thirties President Roosevelt appointed a Committee of Six to make recommendations, among other things, for bringing domestic water carriage in the United States under regulation by the Interstate Commerce Commission, hereinafter called the Commission, similar to that imposed upon the railroad industry. As a result of the deliberations of that Committee there was sub
ittee mitted to the Congress, early in 1939, draft of a bill identified as S. 2009, which was referred to as follows by Chairman Wheeler of the Senate Committee on Interstate and Foreign Commerce, on April 3, 1939, when public hearings opened:
I might say that the President appointed a committee consisting of 3 railroad executives and 3 representatives of the brotherhoods, and they presented their report to the President. Thereafter a bill was drafted. That bill was used as a basis for the preparation of the present bill which we are not considering, through S. 2009 differs in a number of important ways with the bill prepared by the Committee of Six.
That bill was bitterly opposed by the water carrier industry generally, chiefly on the ground that it was railroad inspired and had as its objective à leveling off of water rates, thus eliminating water competition and depriving the public of the benefit of low-cost water transportation.
At the public hearings the only privately owned water carrier on the Mississippi-Ohio River system which favored regulation was the Mississippi Valley Barge Line Co., and my testimony was referred to by Chairman Wheeler during the debates on the bill, as follows at page 8277, Congressional Record, May 22, 1939. I am quoting Senator Wheeler:
So, when it is stated that merely the railroads are asking for the regulation proposed, I think it is plainly apparent that that is erroneous. I will quote the testimony of Mr. Ames, of the Mississippi Valley Barge Line
And on behalf of that company I desire to go on record as saying that we are not opposed to regulation; in fact, we favor regulation which will bear equally and protect equally all forms of transpotration. We do not favor the regulation of water carries for the benefit of rail carriers, or vice versa, but we do favor reasonable regulation.
I would like also to point out to the committee that the lack of regulation of a water line has not the benefit that some people advocate for it, but in many respects it is a disinct handicap. Let us assume that the rail carriers reduce a rate which is competitive with the water carrier; the water carrier appears before the regulatory body, protesting that reduction and the water carrier itself is not regulated. There is a tendency on the part of the regulatory body, and I think it is a pardonable and justifiable tendency, to say, “Why should we prevent the rail carrier from reducing its rate when we cannot prevent you?”
The Mississippi Valley Co. felt then, as all of us feel now, that when the Commission is called upon to act as arbiter in a rate dispute between competitive forms of transportation it should have regulatory power over the rates of both types. But we also felt then, as we do now, that the act should be so written and administered as to give equal protection to both types of transportation. If the bills before you, or any of them, should be enacted into law our hopes for regulation would be shattered, and the fears of those who opposed regulation in 1940 would be fully realized.
I know that your committee is told from time to time the effect of bills might be the defeat of certain things, and I know perhaps you get tired of hearing that. But, so far as the inland water transportation is concerned the rail carriers completely dried up the rivers prior to World War I, and it took intercession and subsidy on the part of the Federal Government to revive it. To establish my point I need go no further than to quote to you from a concurring expression by Commissioner Eastman written by him in 1933, in a case involving rail and water competition-Petroleum From New Orleans (194 I. C. C. 31) — wherein he said:
This promises to be the begininng of a return to a policy of railroad ratemaking which existed for many years and reached its fullest development in the southeastern portion of the country. That section forms a peninsula surrounded by the navigable waters of the Atlantic Ocean, the Gulf of Mexico, the Mississippi River, and the Ohio River and penetrated by many other navigable streams. The railroads in their early years encountered stiff competition from many steamboat lines plying upon these waters, and they proceeded to meet this competition ruthlessly. Eventually they swept the waters clean of the competing craft, except on the ocean and the gulf, and even there the competition was greatly weakened.
This was done by cutting rates where the competitors existed, to whatever extent was necessary to paralyze it, at the same time maintaining rates at a very high level elsewhere. The steamboats did not have this reservoir of noncompetitive traffic to help them out, and hence perished in the unequal struggle. Some large interior cities which did not have water competition were able to utilize the competition of the railroads with each other to break down their rates in somewhat the same manner, but interior points which had little or no competition of any character were out of luck. Their rates were on what the railroads called a “normal level," which was preposterously high. All this made, of course, for a very uneven development of the country and it was one of the main factors which precipitated the creation of this Commission in 1887.
The theory on which the railroads drove out water competition by these low rates was a simple, but, as I see it, dangerous theory. They argued that their trains would run anyway, that the added expense of taking on more traffic would be comparatively little, and that if they could get water-cofpetitive traffic at soine margin over this “added” or “out of pocket” expense, it