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equipment to service the traffic is coming from, not where the traffic is coming from. There is the further fact that the earnings of the railroads during 1955 sbow a marked improvement over 1954. Actually, the boom_is already in progress. Witness for example, that the June 1955, issue of Transport Economics published monthly by the Commission's Bureau of Transport Economics and Statistics, discloses that for the first 4 months of 1955 the net railway operating income of the class I railroads was $319,555,000, by contrast with $204,981,000 for the corresponding 4 months of 1954. We submit that from these figures and from the aforementioned forecasts for 1956 it is quite clear that the railroads have fallen far short of demonstrating a revenue need for the permanent addition, beginning on January 1, 1956, of the increases now temporarily authorized.
2. Included in the foregoing figures of course are the deficits growing out of passenger and allied services (passenger, baggage, mail, express, milk, and incidental services). And these deficits are steadily increasing. In the calendar year 1953, for example, the last year for which figures are available to us, the railroad passenger deficit soared to the unprecedented sum of $704,574,000. This threat to the economic stability of the railroads is likewise a threat to the fresh fruit and vegetable industry, which is called upon to pay higher and higher freight rates to offset these huge passenger deficits and hence finds itself forced to turn to motor carriage for a measure of relief.
We should perhaps add that the extremely serious nature of this problem of rail passenger deficits has been recognized by the Commission itself and by the Special Committee of the National Association of Railroad and Utilities Commissioners on Cooperation with the Interstate Commerce Commission in the Study of the Railroad Passenger Deficit Problem. At page 37 of its 68th annual report, for example, the Commission has pointed out that "additional measures must be found to reduce the losses from passenger traffic if the rail passenger service is to be available for national defense as well as for peacetime use"; and in its 1954 report the aforementioned committee of the National Association of Railroad and Utilities Commissioners stated that “There is pressing need for immediate and effective cooperation to eliminate the many handicaps to removal of the passenger deficit drain on the economic lifeblood of the Nation's railroads."
As a condition precedent to a grant of authority to the railroads to continue to impose these burdensome increases on fresh fruits and vegetables, we suggest that they should be required to give in detail the efforts which they have exerted to eliminate these passenger deficits and what if any success has attended their efforts. The Commission will recognize that this drain on the railroads and on the industries so largely dependent upon them (including the fresh fruit and vegetable industry) cannot remain unchecked and that the problem is not to be solved by repeated increases on freight traffic while the losses on passenger traffic continue unabated and the railroads make no effort to prove that the passenger and kindred services are being conducted efficiently and economically. Human nature being what it is, it is only fair to assume that unless the railroads are brought sharply to a realization that the freight traffic cannot be saddled ad infinitum with all the burdens of the mounting passenger deficits they will rest content to take the easy way out by seeking and obtaining compensating increases on freight traffic.
It seems unnecessary to launch upon a prolonged discussion of the wisdom of providing relief for the railroads from the necessity of continuing passenger-train schedules which cause such heavy operating losses as those mentioned in my above-quoted statement. The Commission, too, has now recognized the necessity by issuing an order under date of March 19, 1956, in No. 31954, entitled “Railroad Passenger Train Deficit," instituting an investigation on its own motion intopossible ways and means of reducing and eliminating the railroad passengertrain deficit which has been incurred in recent years.
But this belated recognition on the part of the Commission will not vest it with jurisdiction to take action against the intrastate passenger services which are draining away the revenues derived from profitable services of other sorts. Unless granted the authority proposed in these pending bills, this investigation by the Commission will be largely fruitless. We strongly favor the enactment of section 6 (a) and (b) of the pending bills.
We should comment, however, on one phase of the proposal in question which impresses us as anomalous. By this we mean that while section 6 (a) and (b) would authorize the Commission to take remedial action, at the instance of the railroads, to terminate wasteful intrastate services, the Commission would be left without corresponding authority over interstate service. In other words, however strongly the Commission might feel that given interstate passenger operations of the railroads were uneconomical and even wasteful, it could not bring them to an end unless given additional power. Only the railroads themselves could do so.
And the very causes of continuance of inefficient intrastate operations by the railroads might well cause them to hesitate to take remedial action unless such action could be taken behind the shield of Commission orders. We hardly need comment that opposition by powerful interests, which the railroads are reluctant to offend—the discontinuance or curtailment of unprofitable passenger-train services is not necessarily confined to intrastate schedules.
That concludes my part of the statement, Mr. Chairman. I do have a resolution here sent in by the California Grape & Tree Fruit League, of San Francisco, Calif., one of our members endorsing our stand, and I would like to have that following our statement inserted in the record.
Mr. WILLIAMS. How long is that?
CALIFORNIA GRAPE & TREE FRUIT LEAGUE,
San Francisco, Calif. April 20, 1956. CLERK OF SUBCOMMITTEE ON TRANSPORTATION AND COMMUNICATIONS, House Committee on Interstate and Foreign Commerce,
New House Office Building, Washington, D. C. DEAR Sır: We are advised that the House Subcommittee on Transportation and Communications will begin hearings on H. R. 6141 on Tuesday, April 24, 1956. We request that the enclosed resolution adopted by this league be distributed to members of the subcommittee and that it be entered in the hearing record on H. R. 6141.
We further request that we be allowed to submit for the record in the immediate future a written statement. Sincerely,
E. ALAN MILLS,
Assistant Manager, in Charge of Traffic. RESOLUTION BY THE CALIFORNIA GRAPE & FRUIT TREE LEAGUE TO JOIN UNITED
FRESH FRUIT & VEGETABLE ASSOCIATION IN OPPOSITION TO CERTAIN PROPOSALS BEFORE THE CONGRESS OF THE UNITED STATES
It is hereby resolved by the California Grape & Fruit Tree League, in 20th annual convention at Yosemite National Park on April 7, 1956, that we join the United Fresh Fruit & Vegetable Association in opposition to H. R. 6141 containing certain proposals for legislation which would weaken the Interstate Commerce Act in the following respects:
1. To repeal the Interstate Commerce Commission's authority to prescribe specific rates, and limiting its power to the establishment of only maximum and minimum rates ;
2. To reduce the period for which rates may be suspended from 7 to 3 months, and requiring the petitioning party to prove that he would suffer irreparable damage if suspension were not granted;
3. To cancel the existing provision that carriers may not charge a rate between two given points which is greater than the sum of rates between intermediate points.
4. To establish a rule of ratemaking which would eliminate, among other provisions, a requirement that the Interstate Commerce Commission shall give full consideration to the probable effect of proposed rates upon the movement of traffic.
Mr. WILLIAMS. Thank you very much, Mr. Seals.
I am informed by the committee counsel that Mr. Gilbert R. Johnson is here and must leave town if possible. He is scheduled to appear tomorrow. I understand Mr. Johnson has a statement that he would like to make and a statement to insert in the record.
Mr. Johnson, before you proceed, I have several statements here to be submitted for the record. There is one from Mr. H. Everett Woodruff of the investment department of the New York Life Insurance Co., along with several other letters and statements, Ingram Barge Co., Oliver & Donnally Investment Co., and several other statements which I will hand to the reporter.
(The documents referred to are as follows:)
My name is H. Everett Woodruff. I am vice president in charge of the investment department of New York Life Insurance Co. This company is a member of the Transportation Association of America, and I am a member of the investor panel of that association. I have been interested in the transportation industry for a number of years and spent considerable time on railroad reorganizations during the late thirties and early forties as an employee of New York Life Insurance Co. This company's investments cover railroads, pipelines, a national bus operation, and, indirectly, other modes of transportation. In fact, our interest is very broad because we are concerned with the costs of accumulating raw materials used in the manufacture of end products, as well as the cost of distribution of these end or finished products. Such costs are important elemnents of operating expenses in other industries.
My appearance before you is evidence of my further interest that stems from a desire to see our country have a strong transportation system and industry. I believe that a step in that direction will be taken through the enactment of a bill such as H. R. 6141 and H. R. 6142, particularly the competitive ratemaking features thereof.
My approach to this bill is a general one and covers the broad basic principles and proposals. I want it also clearly understood that I do not appear before you as a rate expert, but merely as one who from past experience believes that many of the changes proposed as amendinents to the present Interstate Commerce Act go a long way to provide for and develop a strong, efficient, and financially sound national transportation industry by water, highway, railway, as well as other means.
With the substantial growth of automobile, bus, truck, pipeline, air cargo, and waterway industries, the railroad industry can no longer be considered as a monopoly. If, for no other reason, this fact alone suggests the necessity for some alteration in regulations so as to take cognizance of this transition.
With the growth of our country and the decentralization of its industry many changes have taken place in the flow of traffic, and these changes require a new approach in several areas, and particularly in the area of divisions and joint rates, fares, and other charges, so as to establish just, reasonable, and equitable conditions which are not unduly preferential to any participating carrier. All modes of transportation should be developed and encouraged. Some have natural advantages over others, and it should be the goal to have each participate more actively in the field where it can hest perform its services at the cheapest cost, thereby benefiting the entire Nation.
All segments of the transportation industry should be in a position to actively compete for traffic on the same basis and under the same rules and regulations, so as to reflect their full competitive economic capabilities. However, rates,
fares, and all other charges must be compensatory and should not lean on excessive and unreasonable charges on noncompetitive traffic.
With a forthright, honest, and cooperative approach by all segments of the industry, and with the Commission recognizing each segment as a competitive part in the overall scheme of national transportation, a stronger system could be developed.
WASHINGTON, D. C., June 4, 1956. Re H. R. 6141, to amend the Interstate Commerce Act before the Subcommittee
on Transportation and Communications.
Washington, D. C. DEAR MR. LAYTON : Arrangements had been made through you for the appearance of Mr. R. Stewart Rauch, Jr., president of the Philadelphia Savings Fund Society, to present a statement on behalf of the National Association of Mutual Savings Banks on the above subject before the Subcommittee on Transportation and Communications either on June 7 or June 8, depending upon the pleasure of the subcommittee chairman.
I have now been informed that Mr. Rauch cannot be here on either of these dates. Therefore, I wish to withdraw our request for permission for him to appear, and instead to request permission to file with the subcommittee the statement which he had intended to make in person. Accompanying this letter are 50 copies of Mr. Rauch's statement.
It would be greatly appreciated if the statement could be directed to the attention of the subcommittee and could be made a part of the record in these hearings. I want to thank you for your many kindnesses with respect to this matter. Very truly yours,
HARRY E. PROCTOR.
STATEMENT OF THE NATIONAL ASSOCIATION OF MUTUAL SAVINGS BANKS
My name is R. Stuart Rauch, Jr. I am president of the Philadelphia Savings Fund Society, and I am appearing here today on behalf of the National Association of Mutual Savings Banks. The association represents 520 of the 527 mutual savings banks of this country. As of December 31, 1905, they had total assets of $31,350 million and total deposits of $28,188 million, representing 20,990,000 depositors.
In the past, the mutual savings banks of this country have been substantial investors in railroad securities. In 1931 their railroad investments totaled $1,540,038,000, or $13.98 percent of their total assets. With the depression and its many railroad insolvencies, a gradual liquidation of large portions of these railroad securities set in, principally because State banking authorities would not permit mutual savings banks to retain defaulted or depreciated railroad bonds in their portfolios for sufficient time to test the possibility of their return to value. Even in the absence of State banking authority pressure to dispose of railroad securities, the mutual savings banks, by virtue of their duty to their depositors, were impelled to reduce these nonearning and defaulted railroad investments.
By the late 1930's, railroad securities were a discredited form of long-term investment. By 1944, holdings of railroad securities by mutual savings banks had fallen to $145,009,000, or 3.02 percent of their total assets. The savings banks were wary of railroad bonds and for good cause. In 1954, they held $844,920,000 in railroad securities, or 2.89 percent of their total assets.
World War II, with its unprecedented activity in transportation, brought new life to railroading, earnings mounted, roadbeds were rebuilt, equipment was modernized, and the reorganization of insolvent roads was expedited. The accelerated economic activity of the Nation during the last 10 years has been reflected in railroad activity but, in spite of this deceptive appearance of bealth. the railroads are not enjoying the contidence of long-term investors which the magnitude of their operations and their importance in the national economy warrants. The reason for this lack of confidence stems from their meager earnings and consequent vulnerability even to minor recessions or adjustments in the Nation's economy. As was pointed out by the spokesman for the Asso
ciation of American Railroads last September in his appearance before the House Committee on Interstate and Foreign Commerce, railroad earnings are insufficient and far below satisfactory levels. According to the same authority, these railroad earnings are very low as compared with those for other industries during the postwar period.
There seems to be only one answer to this dilemma: the railroads are the most overregulated of all major industries in this country. As the result they are not able to profit by cost advantages and they are hampered by procedural delays.
The report to the President by his Advisory Committee on Transport Policy and Organization and the bill, H. R. 6141, which has been introduced to effectuate the report, have pointed the way to a return to a dynamic concept of railroad management and operation through a more nearly free state of competition. We believe that the adoption by Congress of the Cabinet report through the enactment of H. R. 6141 will result in a better transportation system for this Nation and a corresponding improvement in railroad securities in a highly competitive market for capital funds without hurting other forms of transportation competing with the railroads. The emphasis of the report to the President is on two policies :
“(1) To permit greater reliance on competitive forces in transportation pricing; and
“(2) To assure the maintenance of a modernized and financially strong system of common carrier transportation adequate for the needs of an ex
panding and dynamic economy and the national security." We believe that the second of these policies, that is, the modernization and improvement in the financial health of the railroads, naturally follows from the adoption of the first policy, that is, a transportation system permitted to rely principally on competitive forces. It is fundamentally axiomatic in this country that the free play of competition in industrial and commercial fields results in the greatest good to the general public. It follows that, generally speaking, economic use should determine the flow of traffic to all modes of transportation. Let each profit by its natural advantages. This we believe to be the basic reasoning of the report to the President and, as the investors of other people's savings in long-term securities, we urgently support the enactment of the policies recommended in the report.
As explained by Secretary Weeks in his September testimony before the House Interstate and Foreign Commerce Committee, the report to the President recommends that the ratemaking provisions of the Interstate commerce Act be amended in four principal ways, as follows: (1) Limit regulatory authority to the prescription of reasonable minimum or maximum rates; (2) modify the regulatory authority's power to suspend rates; (3) revise the long-and-short-haul clause; and (4) authorize volume rates.
The recommendations would limit the Interstate Commerce Commission authority to the prescription of minimum or maximum rates and would do away with the authority of the ICC to prescribe precise rates. The recommended change would establish a “zone of reasonableness" within which all common carriers subject to the act would have freedom to adjust their rates and compete for traffic pursuant to their own business judgment. In the report and in the bill to implement it, safeguards are recommended against rate discriminations and against unreasonably high rates in noncompetitive situations. In the absence of a monopoly, the ability to compete should be the principal factor in determining rates of public carriers. Certainly this principle has worked to the best advantage of the general public in all other fields. To follow a policy of ratemaking based on the protection of another uneconomic carrier is to deny the shipper the benefit of lower rates justified by the lower costs of a competing carrier. Ultimately, the public must pay for any such artificial maintenance of a rate structure. As Secretary Weeks pointed out, such policy results in a failure to realize the full economic capabilities of the several modes of transportation.
We subscribe to the view of Secretary Weeks that the protective policy of ratemaking now in force has resulted in the substitution of the judgment of the regulatory body for that of the carrier management, thereby preventing lower rates which should have resulted from economics. As the spokesman for the Association of American Railroads pointed out in his September testimony, the fair share test of the reasonableness of carrier rates as applied by the Interstate Commerce Commission deprives the public of the economies which would