Of the remaining changes in rate procedures the industry regards as significant, and hence has a firm position with regard to (1) the limitations imposed upon the Commission's powers proposed by new section 15a (1), and (2) the proposed revision of the suspension powers as now contained in section 406 (e) of the act. The freight forwarders oppose these changes for reasons which I will briefly state. Under proposed new section 15a (1) the Commission, in determining whether a given rate is less than a reasonable minimum charge, would be prohibited from considering: (a) the effect of such rate on the traffic of any other mode of carriage, or (b) the relation of the rate to the charge of any other mode of transportation, or (c) whether such charge is lower than necessary to meet the competition of any other mode of transportation. These limitations on the Commission's powers, taken together with the proposed changes in the suspension powers and the revised transportation policy, would make it virtually impossible for any freight forwarder to bring into issue any judgment or determination the rates of any of its competitors, whether within or without the freight forwarding industry. In the first place the complaining forwarder, as a prerequisite to suspension, would be required to establish, by sworn complaint or affidavit, that the rate would "probably be unlawful," that it would result in injury to complainant, and that other remedies were inadequate. If this almost impossible burden of proof should be made and suspension should result, complainant then, contrary to all established concepts, would have the burden of proving that the assailed rate was less than a "reasonable minimum charge." While that term is not defined, according to the Cabinet Committee report a rate is less than a reasonable minimum charge when it fails to cover the "direct ascertainable cost of producing the service." When it is considered that the carrier having the burden, first of making out a case justifying suspension under these rigid requirements, and second of showing that the assailed rates do not cover the cost of producing the service, is not in possession of any of the revelant facts, it becomes clear that the suspension power under the pending proposals would be of no value or protection whatsoever to the forwarder. The freight forwarding industry is particularly vulnerable to the type of rate cutting and rate wars which the changes proposed by the bills might be expected to engender. Forwarders' costs are substantially fixed, as much as 75 to 80 percent thereof being the cost of transportation paid to the physical carriers. The industry traditionally operates on a very narrow margin of profit. The operating ratio, or relationship between operating revenues and expenses, is normally in the neighborhood of 99 percent. Freight forwarders have no "captive traffic" with which to subsidize rate cuts on other traffic. All of their traffic is in the highly competitive less than carload and less than trainload field. The industry simply could not survive a large-scale and extended rate war under conditions where the Commission would have virtually no power to interfere. Accordingly, we strongly recommend that your subcommittee reject the proposed changes in rate and suspension provisions, as well as the recommended changes in the declaration of national transportation. policy. FREIGHT FORWARDER ASSOCIATIONS The third provision of the omnibus bills with which the forwarding industry is vitally concerned deals with what is, in fact, unregulated competition within the industry. I refer to the proposed amendment to section 402 (c), which is found in section 19 of the bills. The purposes sought to be achieved by this amendment, as explained in the Cabinet Committee report, are essential to the well-being of the freight forwarding industry. And let me say in the very beginning that while there is a good deal of controversy about the language of the amendment as set forth in section 19 of the bills, there is almost no dispute about the fact that there is a problem and that something should be done about it. Substantially all of my testimony at the September hearings on the Cabinet Committee report was devoted to an explanation of the prob lem of unregulated freight forwarders under the guise of associations, and I will not burden you at this time with a repetition of what I then said, except to the extent necessary to make our position clear on this record. Section 402 (c) of the act, insofar as pertinent here, provides that part IV shall not be construed to apply to the operations of a shipper, or a group or association of shippers, In eresolidating or distributing freight for themselves or for the members thereof, on a nonprofit basis, for the purpose of securing the benefits of carload, trucklond. or other volume rates.. The foregoing provision was included in the act not as an exemption, but as a clarification of the definition of freight forwarder. This is clear from the language of section 402 (c) which begins: "The provisions of this part shall not be construed to apply *." It is made doubly clear by the language of the report with which the House Committee on Interstate and Foreign Commerce reported the original forwarder bill in 1941. In that report the committee said: Subsection (c)— that is 402 (c) as has been previously pointed out, is a clarifying provision rather than exemption (H. Rep. 1172, 77th Cong., p. 7). [Emphasis has been supplied there i The courts, nevertheless, have held that section 402 (c) is an exen-ption, and because of the broad and general nature of its terms it has become a loophole through which almost anyone with an inclination to engage in the business of freight forwarding may do so without benefit of permit or burden of regulation. The Interstate Commerce Commission first took notice of the problem created by unregulated freight forwarding operations 10 years ago in its 60th annual report to Congress. In every report since that time, down to and including 1956, the Commission has discussed the problem with increasing alarm, and has recommended corrective legislation action. At first the Commission undertook to pierce the structure of these so-called nonprofit operations and deal with the situation by the exercise of its powers under the act. In one case it found that an operator claiming exemption under section 402 (c) was, in fact, conducting freight forwarding service without lawful authority, and ordered such operations to cease. (Pacific Coast Wholesalers' Association Investigation of Status, 269 I. C. C. 504.) Upon appeal the district court, later upheld by the Supreme Court in a percuriam decision, reversed the Commission and held that the organization was entitled to the "exemption." (81 Fed. Supp. 991; 338 U. S. 689.) After that decision, in 1950, the Commission reported to Congress that: "In view of the conclusion reached by the courts in the Pacific Coast Wholesalers case it is difficult effectively to police and deal with operations of associations claimed to be exempt under section 402 (c) (1) (64th annual report). In my September testimony I discussed thoroughly the Commission's comments and recommendations, and the Courts' decisions. To bring the record down to date let me quote from the latest (69th) annual report of the Commission to Congress, wherein it is stated: Freight forwarders are experiencing increased competition from shippers' associations and agents operating under the exemption provides in section 402 (e) of the act. In some cases the earnings of forwarders have sharply decreased. One forwarder discontinued operation for the stated reason that it was unable to compete with exempt shippers' associations (69th Annual Report of I. C. C., p. 119). [Emphasis supplied.] I could offer more extensive, but certainly no more persuasive proof that operations claiming exemption as nonprofit associations are a serious threat to the stability of the regulated freight forwarding industry. It is axiomatic that Congress did not intend to enact optional regulation, leaving it to the operator to decide whether he will submit to the act or call himself an "association." Clearly a problem exists which must be solved. But the matter of finding the solutionof clearly drawing the line between regulated and unregulated activities as Congress intended initially to do, is not quite so simple. The Cabinet Committee report simply recommends that the law be revised to Provide definite statutory standards for determining which shippers or shipper associations involved in consolidation or distribution of volume freight on a nonprofit basis for securing lower rates are entitled to exempt status (Recommendation "(d)" on p. 17 of report). The drafters of the omnibus bills, in undertaking to carry out the foregoing recommendation, followed substantially the terms of a prior bill, H. R. 4503, introduced by Congressman Wolverton, by request, in the 83d Congress. That bill followed very closely the recommendations of the Interstate Commerce Commission in its comments to the Senate Interstate and Foreign Commerce Committee with regard to bill S. 2713, on which hearings were held by that committee during the 82d Congress. (For the Commission's comments see transcript of hearings printed in a document titled "Domestic Land and Water Transportation," 82d Cong., 2d sess., at p. 1349). Opposition was expressed to the prior bills, after which section 19 of the present bills is patterned. In our opinion the arguments advanced by the opposition were concerned only slightly, if at all, with the merits of the issue, but were directed solely to the language used by the bills. While there are some few who take the stubborn and unrealistic position that no problem exists and hence that nothing should be done, the majority of those who oppose the bills recognize that there is a problem. In addition to the Interstate Commerce Commission and the Cabinet Committee, a similar recognition of the problem has been expressed by the Transportation Association of America. The only question is whether the language used by the bills offers the proper cure. The freight forwarding industry recognizes the right of shippers to pool or consolidate their own freight for the purpose of effeting savings in freight rates. It is only when such consolidating activities are conducted as a transportation enterprise, for the purpose of gain or profit, that they are cause for any valid complaint on the part of the industry. We have no revisions of langauge to suggest at this time. During the last several years representatives of the forwarding industry have undertaken to determine what type of revision of section 42 (c) would satisfy the shipper groups who oppose the language that has been brought forward into these bills. So far we have not been surcessful. We hope that those who speak on this provision of the blis before your subcommittee at these hearings will offer constructive suggestions and not merely voice objections to present language. I no such constructive suggestions are forthcoming then no one should be heard to object to whatever remedial measure this subcommittee and the Congress shall agree is best suited to the needs of the situa tion. We are confident that when the record is closed the need for remedial action will be clearly manifest and that regardless of what happens to other sections of the omnibus bill, an amendment to section 402 (c) should result. FREIGHT FORWARDER BILLS-H. R. 9548, H. R. 9771, AND H. R. 9772 Now, I come to the freight forwarder bills, H. R. 9548, H. R. 9771, and II. R. 9772. Three of the bills which have been scheduled for hearing at this time, as I have previously indicated, propose to amend the regulations provided for freight forwarders under part IV of the act, and for identification I will call them freight forwarder bills. Two of these bills, H. R. 9771 and H. R. 9772, are designed to cor rect inequities in part IV of the act, and propose to bring freight forwarder regulation into line with that provided for other common carriers under the act. The other, II. R. 9548, supplies the regulatory authority for freight forwarders to participate in a current and pop-ular development in transportation known as piggyback, The freight forwarding industry strongly endorses each of these bills, and reccommends them to your prompt and favorable cons.deration, for reasons which I will presently state in more detail. Corresponding bills have been introduced in the Senate as follows: S. 3365, corresponding to H. R. 9772. S. 3366, corresponding to H. R. 9548. S. 3367, corresponding to H. R. 9771. Hearings were held on the Senate bills on April 9 and 10, 1956 Bill S. 3365 was favorably reported, without amendment, on May 24, 1956 (see Rept. No. 2040). The other two bills are still under consideration by the Senate committee. Testimony in opposition to one or the other of the Senate bills was offered by representatives of certain railroads and motor carriers as well as by persons who spoke for shippers or shipper associations who consolidate their own freight. Almost without exception the objections follow lines of reasoning that were advanced in connection with previous freight forwarder legislation and have been emphatically rejected by Congress. Some of the objections interposed to the Senate bills have already been stated before your subcommittee during the present hearings, and others will undoubtedly be heard. We could produce numerous witnesses, both carrier and shipper, who would rebut what has been said in opposition to these bills. Out of respect for the time of the subcommittee, and in view of the fact that the answers to the objections are already very largely a matter of record, we have not asked authority to produce any such witnesses. However, so that you may have both points of view before you when you come to consider the validity of the objections, I will refer briefly to the opposing arguments as I proceed to discuss the bills. The three bills I am about to discuss are not compliacted, and they do not involve any basic questions of regulatory policy since they do not propose to afford freight forwarders any rights or privileges not already enjoyed by all other regulated common carriers. They are designed rather to afford freight forwarders equal treatment under the law, and to remove present provisions which discriminate unfairly against forwarders and in favor of their competitors. In the light of these facts we hope that your subcommittee will act promptly on these bills, irrespective of the time schedule which may be involved where other bills now before you are concerned. The need for these bills is urgent and the justification for them will be clear when I have finished. BILL H. R. 9548 (To amend section 409 of the Interstate Commerce Act, as amended, to authorize contracts between freight forwarders and railroads for the movement of trailers on flatcars.) Bill H. R. 9548 would authorize the making of contracts between freight forwarders and railroads governing the movement of highway trailers on flatcars-a service popularly know as "piggyback." To accomplish its purpose, the bill adds a new paragraph to section 409 (a) of the act. That section already authorizes contracts between. freight forwarders and motor carriers and provides, in subsection (b), that such contracts shall be filed with and subject to the jurisdiction of the Interstate Commerce Commission. The same requirements would, of course, apply to contracts for "piggyback" between forwarders and railroads. In order to show the proposed changes in their proper context I have prepared, and there is attached to my testimony marked as "Exhibit A," a comparative print of section 409 with the amendments made by the bill underscored. I offer the exhibit for the record, Mr. Chairman. EXHIBIT A COMPARATIVE PRINT OF SECTION 409 (Proposed changes in italic) SEC. 409. (a) (1) Nothing in this Act shall be construed to prevent freight forwarders subject to this part from entering into or continuing to operate |