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large sums, is designed to remedy the inadequacies of the present facilities in order to permit further growth commensurate with the natural economic potential of the valley.

The railroads themselves have been among the principal beneficiaries of this river-stimulated development.

The extensive industries recently established along the Ohio River and its tributaries bring in bulk materials and fuels by water and both receive and ship major volumes of high-value products by rail. Industrial development has thus generated highly lucrative railway traffic. In a study of Ohio Valley railroads submitted to the Surface Transportation and Communications Subcommittee of the Senate Interstate and Foreign Commerce on March 26, Prof. Marvin J. Barloon, of Western Reserve University, conclusively documented the operating prosperity of Ohio Valley railroads. Since the end of World War II, their experience has been markedly superior to the national average of class I railroads, with respect to volume of freight, freight revenue, and operating profits. Railway carloadings in the Ohio Valley have likewise increased more than the national average, especially in more recent years.

. Indeed, Ohio River barge traffic contributes to railroad prosperity outside the valley. A growing portion of Ohio River traffic moves in and out of the Mississippi River, carrying massive tonnages to and from points as far away as Minneapolis and New Orleans. Professor Barloon's testimony demonstrated that the railroads of the Mississippi Valley likewise have been enjoying a markedly higher volume of freight, freight revenue, and operating profit than the national average and that this is particularly true of 2 out of 3 of the lines most exclusively waterway competitive.

Since the end of World War II, the volume of freight carried by barge on the Ohio and Mississippi Rivers has more than tripled. If waterway competition were damaging to the railroads, one would consequently have expected the rivervalley railroads to be among the chief sufferers. In extensively documented detail, however, Professor Barloon's testimony demonstrated them to have been among the chief beneficiaries. Your attention is respectfully invited to his testimony as it appears in the records of the Smathers committee hearings.

Enactment into law of the principles embodied in section 5 of S. 3778 would invite a shortsighted rate-cutting attack by these railroads on their smaller waterway competitors. Because of high fixed costs, railroad management is subject to the irresistible temptation to cut competitive rates below cost, and because of their huge backlog of non-water-competitive traffic, both inside and outside the river valleys, the railroads can replenish their competitive losses indefinitely. Railroads are vastly bigger business firms than the more specialized water carriers, and by selective rate cutting, they can destroy the water carriers one by one. Having cleared the field of significant waterway competition, the railroads would then be free to restore rates to higher levels, the historically invariable sequel to transportation rate wars. If any doubt persists as to the realism of this prospect, reference to the competitive extermination of waterway transportation prior to the adoption of the Act To Regulate Commerce of 1887, should dispel the uncertainty. Indeed, the terms of the Smathers bill impose an even greater threat. In the setting of the financial assistance to the railroads provided in the Smathers bill, the rate wars permitted by section 5 would in effect be underwritten by the Federal Government.

May this association respectfully point out that the objective of the Smathers bill is to relieve the railroads from operating and financial distress. In its destructive impact on industrial development in the Ohio Valley, section 5 would have the opposite effect. Only in the short run and in a superficial sense, would it provide any assistance to the valley railroads. Its enduring effects, on the other hand, would be the stifling of further industrial growth, based on riverborne commerce, to the long-run hardship of the valley railroads themselves. To permit the railroads to embark on this destructive course of conduct would deprive the Nation of the inherent advantages of low-cost water transportation and of a major national defense asset-the modern barge fleet. It would, moreover, directly conflict with the established policy of Congress, reflected in the Hoch-Smith resolution and the national transportation policy to encourage all modes of transport and to preserve the inherent advantages of each. Reestablishment of the railroad monopoly would inevitably increase transport costs and thus discourage industrial development based upon water transport; it would moreover penalize the farmers with lower realization for grain, and it would result in the raising of prices to consumers of electric power and countless commodities essential to daily life.

Finally, adoption of this provision would impair the entire national investment in improved navigation facilities on the inland waterways and nullify the hopes of many millions of people in the great river valleys for a better life based upon the improvement and fuller utilization of the Nation's waterways as arteries of commerce.

Under such a shortsighted policy, the railroads themselves would be among the principal sufferers. For in the river valleys where bulk commodities and fuel move by water at low rates to industrial plants, the railroads have reaped a rich harvest in higher value freight on finished goods.

This association is keenly aware of the importance of the railroads to the national economy. It favors such sound and constructive measures as may be required to relieve their financial difficulties. But it is also convinced that all means of transport must be fostered and preserved and that no one mode should be permitted to destroy the others.

We respectfully submit the principles of section 5 of the Smathers bill are contrary to the national interest and should not be enacted into law.

Mr. ROBERTS. This concludes the hearings other than leaving the record open to receive the statements of Messrs. Langdon and Fort. I would like to thank all the witnesses who have participated and the members of the subcommittee for their attendance.

The hearings have been long, I think, but I think the subcommittee has received a lot of wonderful information, and we are grateful to all who have participated in the hearings.

The committee will be in recess.

(The following material was submitted for the record :)

CONGRESS OF THE UNITED STATES,
HOUSE OF REPRESENTATIVES,
Washington, D. C., June 4, 1958.

Hon. OREN HARRIS,

Chairman, Interstate and Foreign Commerce Committee,

House of Representatives, Washington, D. C.

DEAR MR. CHAIRMAN: I am attaching herewith a photocopy of a letter I have just received from the State Corporation Commission of Virginia.

Although I am in substantial agreement with the majority of the recommendations embodied in H. R. 12488, I should like to express to the committee my complete support of the position of the State Corporation Commission of Virginia on the specific points contained in the attachment.

With very best wishes, I am
Sincerely yours,

J. VAUGHAN GARY.

COMMONWEALTH OF VIRGINIA,
STATE CORPORATION COMMISSION,
June 2, 1958.

Hon. J. VAUGHAN GARY,

House Office Building,

Washington, D. O.

DEAR MR. GARY: The State Corporation Commission of Virginia objects to those provisions of Senate bill 3778 that transfer from the States to the United States jurisdiction over railroad operations that has been exercised by the States since railroads were invented.

The existing authority of the Interstate Commerce Commission over intrastate rates is entirely adequate to keep State commissions from discriminating against or burdening interstate commerce and ought not to be expanded.

Jurisdiction over discontinuanec of passenger trains and other railroad facilities should be left with the State commissions. They are better equipped than the Interstate Commerce Commission to do justice between the railroads and the public. They have given the railroads all the relief that they can reasonably claim. For example, the Virginia commission during the past 3 years passed on 19 applications to curtail passenger service and let the railroads discontinue 40 of the 42 trains that they wanted to discontinue. In 50 cases seeking the removal of station agents it granted the relief sought in 45 cases. It allowed curtailment of station services in 11 cases out of 11. In 47 cases seeking dis

The

continuance of express service it granted the relief sought in 46 cases. State corporation commission acts promptly in all cases. Virginia is one of 48 States. If Virginia had 127 cases in 3 years the country as a whole must have had 6,000 cases in the same period. The Interstate Commerce Commission would be swamped by these cases. It could not dispose of them as promptly as the State commissions. It could not possibly be as familiar with local conditions as the State commissions.

The proposed invasion of the rights of the States is contrary to the best interests of the people of all the States, which means that it is contrary to the best interests of the people of the United States.

Yours very truly,

H. LESTER HOOKER, Chairman.
RALPH T. CATTERALL, Commissioner.
JESSE W. DILLON, Commissioner.

THE PROPELLER CLUB OF THE UNITED STATES,

Hon. HERBERT C. BONNER,

Port of Houston, Houston, Tex., May 16, 1958.

Chairman, House Committee on Merchant Marine and Fisheries,

House Office Building, Washington, D. C.

MY DEAR CONGRESSMAN: It is my understanding that the House Committee on Merchant Marine and Fisheries is now considering a companion bill to Senate bill 3778. This bill deals with proposed legislation to aid the railroads based on the Smathers committee report.

Recommendation 3 of the Smathers committee report would grant authority to the railroads to lower the rates on traffic which is competitive with the inland waterways carriers. These rates could be lowered to a point where they would be destructive of waterways competition.

We, of the Propeller Club, are opposed to recommendation 3 of the Smathers committee and have strongly voiced such opposition with the Senate subcommittee now considering S. 3778. At the 31st annual convention of the Propeller Club the following resolution was adopted:

"The Congress is urged to decline to give consideration to any bill inequitably dividing transportation costs among users, or any bill permitting competitive practices destructive to one or more modes of transportation, or any bill providing one mode of transport with an unfair advantage over another."

The inland waterways industry has raised no opposition to the proposed legislation other than opposition to recommendation 3 of the Smathers committee report. We trust that your committee will see fit to oppose this recommendation and not permit the towboat and barge industry to be burdened with unfair competition which could lead to the complete destruction of this industry.

Yours very truly,

G. HARRIS EMIG, President.

STATEMENT OF ANGUS MCDONALD, COORDINATOR, DIVISION OF LEGISLATIVE SERVICES, NATIONAL FARMERS UNION, IN OPPOSITION TO SECTION 5 OF S. 3778

Mr. Chairman and members of the committee, before commenting specifically on section 5 of S. 3778 to which we wish to address our remarks, we will make a general statement in regard to the position of the National Farmers Union pertaining to transportation regulation. We believe history has proved that regulation by a Federal agency is not only necessary to protect the public interest but is absolutely essential to protect the national transportation system from the ravages of cutthroat competition. It is also necessary to protect shippers, farmers, and others from abuses which existed before they were made illegal by the Interstate Commerce Act.

During the last half of the 19th century the farmers of the Nation suffered immeasurably from the pernicious practices of the railroads. These abuses took the form of discriminatory rates, of rebates to large shippers not enjoyed by smaller ones, and other various practices which brought about a scandalous situation finally resulting in the passage of the Interstate Commerce Act.

The earlier laws were found insufficient to control properly the growing and changing transportation system. As a result, the ICC Act was revised from time to time. Taken into account were various changes in the railroad segment of the transportation system and the advent of motor transportation. With the growth of all the segments of the transportation system, including railway, water, truck, and air, it was found necessary, in order to prescribe just and reasonable rates, to give consideration to certain factors. These factors have come to be known as the three shall nots. They include the effect of rates on the movement of the traffic by the carrier by which the rates are prescribed; consideration of the need of adequate railway transportation at the lowest possible cost consistent with the good business principles and the need of revenues sufficient to enable the carrier to provide sufficient service under economical management. Another factor given consideration has been the need for a strong national transportation system consisting of all modes of transportation. While the railroads may be considered the strongest segment of transportation, and perhaps the most necessary, this does not lessen the importance of our great system of water transportation, motor transportation, and air transportation. All are important and necessary to our economy, to the welfare of farmers, consumers, and shippers and to the national defense. In the past when these standards were not given consideration, the result was cutthroat competition and the elimination of vital water transportation. It should be emphasized that cutthroat competition temporarily benefitting shippers and consumers, in the long run is adverse to their interest. When competition is eliminated by cutthroat methods, the dominant carrier, secure in his monopolistic position, raises rates arbitrarily and unduly to the detriment of all of those who use the transportation system or are affected by it.

We are cognizant of the precarious financial conditions of the railroads at the present time. Their plight has been well publicized at public hearings and in newspapers and in various other publications. The perennial passenger deficit of the railroads have been known to this committee, to Farmers Union and we assume to most literate persons in the Nation for many years. It is also well known that the farmers of the Nation indirectly pay their way insofar as transportation costs of commodities they buy and sell are concerned.

Farmers pay transportation costs on every bushel of wheat and on every other commodity which they sell. The price of wheat at Chicago or other terminal points includes the transportation cost of the wheat from the point of production to Chicago or other terminal points. The farmer receives the Chicago price less the transportation cost. The farmer also pays the transportation costs on other commodities and supplies that he buys. Freight charges are automatically added to the free-on-board price of every ton of fertilizer and every farm implement which he buys.

The farmer during the last 12 years, beset by many economic ills, including rising costs and monopolistic prices of things he buys and low prices of things he sells, has been faced with spiraling transportation costs. The Interstate Commerce Commision, supposed to be an agency to regulate the transportation system in the public interest and in the interest of farmers, has been very solicitous of and responsive to the pleas of the railroads. Although freight traffic was paying its way, the ICC response to the growing passenger deficit was to repeatedly raise rates on farm commodities-12 across-the-board freight-rate increases have been granted during the last 12 years. During this period farm income steadily declined except for the brief period of the Korean war.

We fail to see what purpose is to be served by treating unfairly other modes of transportation because the railroads are in economic straits. The passenger deficit, we presume, is here to stay, even if water and truck transportation is eliminated altogether. The Senate subcommittee has given us a clue which perhaps will help solve the mystery of the plight of the railroads. We quote from the committee's report:

"A fourth reason (for the decline of the railroads) is the attitude of some railroad managements. There has been a failure to recognize changing conditions, times, and tastes. A failure to compete aggressively for business by use of modernized equipment, by adjustments in plant and financial structures, as well as failure to adjust rates to compete effectively for traffic.

"The railroad industry has not, in the subcommittee's opinion, been sufficiently interested in self-help in such matters as consolidations and mergers of railroads; joint use of facilities in order to eliminate waste, such as multiple terminal and yards that require expensive interchange operations; reduction of duplications

in freight and passenger services by pooling and joint operations; abandonment or consolidation of nonpaying branch and secondary lines; abolishing of unnecessarily circuitous routes for freight movements; improved handling of less-thancarload traffic; coordination of transportation services and facilities by establishment of through routes and joint rates, with other forms of modernization of the freight-rate structure, including revision of below-cost freight rates to levels that cover cost and yield some margin of profit as well as adjustment of rates excessively above cost to attract traffic and yield more revenue.

"The subcommittee realizes that the railroads' financial condition results in a large measure, from the general passenger deficit of about $700 million in 1956, and similar amounts in recent years."

For the above reasons, the National Farmers Union is emphatically opposed to section 5 of S. 3778 which would strike down section 15a of part I of the ICC Act, titled "The Rule of Ratemaking." We believe that the enactment of section 5 would not only adversely affect other modes of transportation but is contrary to the interest of farmers, consumers, and shippers in general and even contrary to the interest of the railroads themselves. We recommend not a weakening of the regulation but a strengthening of it with due consideration given to the economic well-being of the railroads and other modes of transportation.

In the event that the railroads are unable to solve their problems with the help of the Commission, we suggest that this committee seriously consider the possibility of initiating an investigation to obtain all of the facts in regard to the dilemma of the railway systems. In order that the committee may make recommendations to the Congress which would in some way get the railroads out of the morass in which they find themselves, every possible economic solution should be considered, including that of Government ownership. We do not think the shibboleth of so-called free enterprise should prevent the Congress from taking the proper steps. Other nations have found it necessary, in order to have a strong transportation system, to assume managerial functions in order that the interest of all economic segments of the Nation may be protected and the national defense assured. It may well be that this Nation should seriously consider taking such a step. At any rate the railroads should be put on notice that they must put into effect economies and eliminate glaring inefficiencies and duplications of service as speedily as possible.

Hon. J. J. DEMPSEY,

LAS VEGAS, N. MEX., May 28, 1958.

Washington, D. C.

House of Representatives,

DEAR MR. DEMPSEY: Your support of H. R. 12488 for beneficial railroad legislation will be appreciated.

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DEAR CONGRESSMAN DEMPSEY: Companion bill H. R. 12488 to S. 3778, is an excellent solution to the financial status of our Nation's railroads, and I urge you to support H. R. 12488.

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A study has convinced us that S. 3778 contains provisions which would ultimately help the schools of New Mexico; therefore, we respectfully request your favorable consideration of it.

TOM WILEY, Executive Secretary, NMEA.

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