(The following letter was later received with respect to the above discussion :) Hon. OREN HARRIS, INTERSTATE COMMERCE COMMISSION, Chairman, Committee on Interstate and Foreign Commerce, House of Representatives, Washington, D. C. DEAR CHAIRMAN HARRIS: This has reference to my testimony before the Transportation and Communications Subcommittee on May 20, 1958, relating to railroad problems. Attached to the prepared statement which I presented on that date were two exhibits, the second of which set forth selected income and balance-sheet items of class I railroads in the United States. In connection with that exhibit, Mr. Springer asked the following question: "Mr. SPRINGER. Mr. Chairman, how many of those 62 that are presently showing a profit are in a classification of what you would call marginal? By that I would mean earning, we will say, as much as a half a percent." I stated that I would submit the exact figures later, as I did not have them readily available at that time. Accordingly, there is attached hereto a list of the class I railroads showing comparisons between the rates of return for(a) the calendar year 1957 and the year ending March 1958; (b) the 3-month period ending March 1958 and the 3-month period ending March 1957; and (c) the month of February 1958 and the month of February 1957. Using the one-half of 1 percent basis upon which Mr. Springer desired the figures, there were 40 carriers which were marginal during the month of February 1957, as compared with 54 which were marginal during the month of February 1958. A comparison of the two 3-month periods ending March 1957 and March 1958 shows 40 carriers which were marginal during that period in 1957, as opposed to 52 carriers which were marginal during the corresponding period in 1958. In the calendar year 1957, there were 43 carriers which were marginal. However, during the 1-year period ending March 1958 there were 47 carriers which were marginal. I believe that this completes the information which the subcommittee has requested the Commission to furnish. If we can be of further assistance, however, please let us know. Sincerely yours, Mr. SPRINGER. What would you give as the reasons for the increase in the number of those in the red last year, from 24 to, this year, 45? Mr. FREAS. Primarily the falling off in traffic, which affects the earnings of a carrier very rapidly, at least until adjustments in operating arrangements catch up with us. To a certain extent the falling off in traffic can be offset by other economies, but those economies usually do not keep up with the falling off in traffic. Mr. SPRINGER. Could you give the reasons for the falling off in traffic, in your estimation? Mr. FREAS. The first and foremost reason would be a falloff in line with the general decline in our economy. Mr. SPRINGER. Would you add anything else to that? Mr. FREAS. Yes. The further reasons are the declining position of the railroads in the competitive struggle, both with for-hire transportation and with proprietary hauling. Mr. SPRINGER. What percent of the total traffic would you estimate that the railroads have lost to other forms of transportation within that period of time? Mr. FREAS. Again, on that basis of the percent of the loss within. that period, those figures would have to be compiled. Maybe this will throw some light on it, though: In the statement to which I previously referred, which was offered for filing with this committee and has been filed with the Senate Subcommittee on Surface Transportation, we point out that: While precise figures are not available, it is estimated that the sweep of regulation embraces but 11 percent of the passenger-miles and about 68 percent of the ton-miles of transportation service. Of that which is regulated, the rail lines' share is steadily declining. In 1956, it amounted to about 36 percent in the passenger field and 71 percent in the movement of property. Here is just one more statistic that I think will be helpfulMr. SPRINGER. Mr. Chairman, I have to get this straight. How do you estimate that 71 percent? I did not get how you arrived at a 71 percent decline in the freight traffic. Mr. FREAS. Regulation embraces 68 percent of the total ton-miles. Of this 68 percent, in 1956, the traffic of the rail carriers amounted to 71 percent in the movement of property. Mr. SPRINGER. Then, in 1957 what did it reach? Mr. FREAS. In 1957, we did not have the tonnage figures, but I am coming to revenue figures for 1957 that would throw some light on that. Mr. SPRINGER. All right. Mr. FREAS. In the 12 months ending June 30, 1957, the rails' share of the total revenue resulting from the transportation of property by regulated carriers was 56.8 percent, and this may be contrasted with their share of 73.6 percent 10 years earlier. In other words, during that 10-year period, the rail lines lost some 17 percentage points. Mr. SPRINGER. In the 10 years before 1957, 1947 to 1957, they lost 17 percent of the tonnage. Is that correct? Mr. FREAS. They lost approximately 17 percentage points. It would be a little bit more, figured on their basis. Mr. SPRINGER. I understand. How much did their passenger service decline in the same time, or how many points' loss was there in passenger mileage? Mr. FREAS. Again, I do not have the figures before me in that form. There has been a drop. I am inclined to think it was pretty nearly the same percentage, but I would not want to say that positively. Mr. SPRINGER. Has there been anything, Mr. Chairman, that would help to make up for this loss of 17 percent in actual dollars earned? That is, has there been an increase in fares, has there been an increase in allowances that have been made to you for carriage? Mr. FREAS. There have been numerous increases. All told, since World War II, there have been about 15 general increases. However, as I stated earlier, by and large those increases have been designed to return the then current increases in operating expenses, to keep the carriers in much the situation in which they were before the increases in expenses occurred. Mr. SPRINGER. Have those 15 increases since World War II equaled the amount of loss in general revenue which these figures show here of 17 percentage points? Mr. FREAS. The general revenue has held fairly steady. It has been over $10 billion for quite some little while, but that revenue has been obtained from the somewhat higher rate and on a lesser volume of traffic. Meanwhile, the operating costs have gone up so that the net has not held up that same way. Mr. SPRINGER. I believe that is all, Mr. Chairman; thank you. The CHAIRMAN. May I have the indulgence of the members of the committee to ask Mr. Freas a question at this time, because I have another committee waiting that I must return to. Mr. Chairman, how long have you served on the Interstate Commerce Commission? Mr. FREAS. About 4 years and 9 months, I believe. The CHAIRMAN. Then, you have had quite a lot of experience in considering the problems of the railroad industry, the trucking industry, the waterways, and so forth? Mr. FREAS. I have. The CHAIRMAN. You have had an opportunity to study and observe, consider, and make decisions with reference to the Interstate Commerce Act during that time. Mr. FREAS. That is right. The CHAIRMAN. And therefore, you are quite familiar with the provisions of that act. You are, of course, familiar with the stated policy in the very first section of the Interstate Commerce Act as it is today. I believe you are familiar with that, are you not? Mr. FREAS. Yes, sir. The CHAIRMAN. Is it your belief, Mr. Chairman, and the position of the Commission, that each form of transportation should have opportunity to make rates reflecting the different inherent advantages each has to offer? Mr. FREAS. Yes, sir. The CHAIRMAN. Is it your feeling and the position of the Commission now that the public should have an opportunity to exercise its choice with reference to the service of these various modes of transportation? Mr. FREAS. Yes. The CHAIRMAN. Have you considered the proposed language that is suggested in the Senate bill S. 3778 on ratemaking? Mr. FREAS. I have given it some consideration, and the Commission as a whole is in the process of considering it now. We are trying to get together a statement which I propose to present before the Senate Interstate and Foreign Commerce Committee tomorrow. The CHAIRMAN. Are you not in a position to state the position of the Commission before this committee today? Mr. FREAS. The statement when completed, I believe, will indicate that the Commission's ultimate position on this proposal to which you refer is about the same as it was with respect to the so-called three "shall nots." By that I mean that while there are some instances in which it would not make any real difference in the ratemaking process, there are others in which it would unnecessarily and unduly circumscribe the regulatory process. For those reasons, and because we see no compelling reason for it, and because of the extent to which it would circumscribe what we believe is necessary regulation in line with the national transportation policy, we will recommend against that bill. The CHAIRMAN. Are you analyzing it to show that in certain instances it will make no difference, but in other instances it might? Are you explaining those instances in connection with your statement? Mr. FREAS. Yes; we are in substance. We are not giving any con crete examples as it stands at the moment, but we will in substance. I shall be glad to furnish this committee with a copy of that statement as soon as it is available if it is desired. The CHAIRMAN. The committee would be very glad to have it, and as soon as you have it ready, you may present it to the committee so that it may go in the record at this point, in order that we may have the position of the Commission on it. (The statement referred to is as follows:) Hon. OREN HARRIS, MAY 23, 1958. Chairman, Committee on Interstate and Foreign Commerce, House of Representatives, Washington, D. C. DEAR CHAIRMAN HARRIS: At the hearing before the Transportation and Communications Subcommittee on May 20, 1958, on the railroad situation, you asked me during the course of my testimony whether the Commission had considered the proposed language in section 5 of S. 3778 relating to the rule of ratemaking. I replied that the Commission had given it some consideration and was in the process of preparing a statement thereon for presentation at a hearing to be held before the Senate Committee on Interstate and Foreign Commerce. I also stated that I would be glad to furnish you with a copy of that statement. I am, therefore, transmitting herewith for the record, and for the information of the members of the subcommittee, 30 copies of my prepared statement of May 21, 1958, before the Senate committee. You will note that on page 8 of the statement the Commission, while adhering to its position that no change should be made in the rule, suggested substitute language in the event the committee should nevertheless feel that some change should be made. It should be further noted in this connection that the suggested substitute language would apply to intramode as well as to intermode competitive situations. Senator Smathers indicated that making the proposed substitute language apply intramode might not be timely, and, as we understand it, requested the carriers to submit their views on the proposed substitute, amended to apply only intermode. So amended, the language now under consideration, as we understand it, is as follows: "(3) In a proceeding involving competition with another mode of transportation, the Commission, in determining whether a rate is lower than a reasonable minimum rate, shall consider the facts and circumstances attending the movement of the traffic. Rates of a carrier shall not be held up to a particular level to protect the traffic of a less economic mode of transportation, giving due consideration to the inherent cost and service advantages of the respective carriers." For convenience of reference there is also enclosed a statement showing comparatively the language now under consideration, that in S. 3798, and that set forth in the prepared statement. I hope that your subcommittee will find this helpful in its deliberations. Sincerely yours, HOWARD FREAS, Chairman. (The following statement of Mr. Freas was included in the record for the information of the committee:) STATEMENT OF HOWARD FREAS, CHAIRMAN OF THE INTERSTATE COMMERCE COMMISSION, BEFORE THE SURFACE TRANSPORTATION SUBCOMMITTEE OF THE SENATE COMMITTEE ON INTERSTATE AND FOREIGN COMMERCE ON THE RAILROAD SITUATION, MARCH 28, 1958 Mr. Chairman, and members of the Surface Transportation. Subcommittee, my name is Howard Freas. I have been a member of the Interstate Commerce Commission for the past 4 years. Since the first of this year I have served as its Chairman. It is on behalf of the Interstate Commerce Commission that I submit this statement. I am generally familiar with the testimony which the rail representatives presented during the week of January 13, as well as with that of subsequent witnesses. Undoubtedly, the overall rail situation is critical. The country's dependence upon this important segment of our transportation system makes |