EXHIBIT D

(To pt. VII, ch. 9)

BRIEF ANALYSIS OF BASIC PROBLEMS OF PIGGYBACK AS EXCERPTED FROM ARTICLE BY MR. HERBERT O. WHITTEN

Mr. Herbert O. Whitten, senior consultant, the Chesapeake & Ohio Railway Co., recently had some pertinent comments regarding the possible effects of the piggyback operation on the entire railway industry. These are as follows:

However, rails have been giving away their "franchise rights" to provide terminal pickup and delivery service, and in some instances the rights to supply equipment, even the rail cars themselves. Some railroads have been passing such rights to freight forwarders and other competitors; plans I, III, IV, and V piggyback each pass rail rights to serve shippers and receivers directly to competing modes of transport, to a greater or lesser degree, depending upon the plan. Now, the basic ideas behind these coordinated forms of transport are believed to be correct as they improve the service to the Nation by expanding the area, which can be served by the low-cost railroad road haul transportation system. However, the offering of such services at rates established, while continuing a monopolistic type of rate complex for regular rail carload traffic, is most certainly endangering such traffic and the revenues therefrom, by subsidizing competitors who are able to erode such traffic from direct rail service, and enabling such competitors to then return the traffic to the rails through container plans at perhaps one-half or less of the former rail revenues.

The figures which follow are purely illustrative and do not apply to any specific situations. They are believed to be "in the ballpark" as the saying goes but actual situations might differ somewhat, higher or lower.

Under each of the plans of container (piggyback) service, the total charges to shippers (or receivers) of freight for a 40,000-pound load (approximately a capacity load in a 35-foot van of a commodity weighing 20 pounds or more per cubic foot) moving about 250 miles would be about $200 to $250 per container load shipment. This is, of course, gross revenues to the competing carriers. It is based upon about $75 to $100 to cover the gathering and distribution service, and about $125 to $150 to cover both the road haul service and the equipment supply service. In certain situations of heavy movements the charges are lower, and for some movements they are higher. Existing complexities and inconsistencies in the present monopolistic rail rate complex will also affect this as the motor carrier has only to meet this structure and beat the railroads because of better and more flexible performance.

The payment to the railroads for performance of the road haul service, under plans I, III, IV, and V, are only about $50 to $60 per container load for a 250mile haul. This leaves the rails' competitors with $150 to $190, more or less, per container load to cover the cost of the gathering and distribution service and equipment supply service for a 2- to 3-day movement. Thus, our competitors receive two to three times as much revenue as do the rails, who furnish the transport system which makes possible the lower cost road haul service.

If the railroads performed the complete service themselves, in an adequate manner, presumably they also might be able to obtain some place in the neighborhood of the $200 to $250 per container load of 40,000 pounds for a 250-mile haul. This would still leave the rails with the excess of $150 to $190 above the road haul service with which to supply the distribution and gathering service and equipment supply service under rail ownership. (The fact that rail revenues for plan II service may not have been this high is due to failure to obtain a high degree of utilization of heavy loading containers at capacity load.) However, it appears likely that these rates quoted are so high that private, exempt, and contract carriers are able to cut beneath them for movements of very heavy volume.

Using the paint scale as a yardstick measure of a level of rates which might be expected to return large volumes of traffic to the rails, we find that a 40,000pound-capacity load for a 250-mile haul would produce $156 in revenue. If we deduct the approximate amount that the railroads are now receiving for plans I, III, IV, and V containerized service, an average of about $55, we find that

the railroads would have a balance of $100 available with which to provide distribution and gathering service and equipment supply service. This balance is almost twice the railroad revenues from supplying only the road haul service. In other words, if the railroads were to supply all three basic functions, using plan II containerized service, as now franchised, their gross revenues would be perhaps a minimum of two to three times what they promise to be for any freight diverted to container service from regular rail service.

It is true that less investment and less labor are applied in the case of the plans other than plan II, but it is a truism that earnings and profits come from efficient application of capital and labor to work and service performance. It is also rather well known that he who controls the market (in our case direct service to the shipper or receiver) in large measure controls the profits which will be earned.

The only growing branch of rail service today is piggyback service, which has been growing at an extremely rapid rate of about 50 percent per year. Of the various plans the ones which have been growing at the fastest pace are the plans for which the rails do not supply all three basic functions of rail transport. Specifically, the gathering and distribution service and the equipment supply service are supplied entirely by others in the case of plans I, III, and IV and only in small part by rail in the case of plan V. Plan II service, embracing all three basic functions of rail transport (i.e., gathering and distribtuion service and equipment supply service, as well as road haul service), has been in many instances costly to operate and revenues have not always been satisfactory.

The possible adverse effects of plans I, III, IV, and V on railroad earnings, as summarized by Mr. Whitten, follow:

The trend toward plan I, III, IV, and V piggyback requires less car investment by the railroads, but the railroads lose the opportunity of earning from the leverage of comparatively low investment rates in equipment supply service relative to the earnings rate on the gathering and distribution service.

Bottlenecks of equipment handling may be expected to develop (indeed, have already developed) through queuing of tractors and inefficient handling of piggyback trailers in terminals and in pickup and delivery service. With heavy increase of volumes this congestion will be increased.

It would appear that the railroads will face a further loss of traffic as erosion increases at a greater rate due to the subsidy provided by the railroads themselves to their competitors through these plans. The railroads will be even more unable to finance new equipment from a combination of shrinking traffic and greater erosion of revenues. The investment requirements for terminal operations under these plans will be somewhat changed but rail revenues will be decidedly reduced.

The heavy present investment in terminal facilities (accurate estimates have not been located but it appears that about $13.5 billion of net book investment is tied up on distribution and gathering service and equipment supply service within the terminal city areas) may well not be covered by the reduced revenues from plans I, III, IV, and V piggyback and may be still another contributing factor to future rail bankruptcies.

It would appear that plans I, III, and IV piggyback service and to a lesser extent plan V service, are not by themselves a solution to the problem of creating growth for rail transport in order to better serve the needs of the Nation and in fact, may well be a contributing factor to a worsening of the present poor financial condition of the railroad industry.

As stated repeatedly, none of these figures are considered to be necessarily firm or fixed but are presented as a basis for making a plea that the railroad industry find out the true economic facts based upon sound research.

As has been shown, perhaps the major inherent disadvantage of the railroad industry has been in the poor utilization of the car fleet together with the disutility of operations in the terminal. While the railroads have been able to achieve low-cost movement in road haul service, their performance in the gathering and distribution service and equipment supply service have often completely dissipated the revenues earned.

The above, of course, explains the current interest in the piggyback plans I, III, IV, and V, as opposed to plan II. However, it is believed that the institution of such plans, embracing new pricing concepts, without correction of the other inadequate services, together with a continuation of the present monopolistic rate complex for existing traffic, will only result in the transference of all

potentially vulnerable present rail traffic to those new types of service and pricing.

These new plans, together with the all-rail ownership plan II, are aimed at overcoming the rails disability in the terminal area and making it possible to provide more reliable, flexible, and safe service to the shippers and receivers of freight in competition with the highway movement. These aims are of course desirable.

What has not been recognized, at least by any major action on the part of the railroads, is that a major technological obsolescence exists in the entire railroad terminal system of conversion from road haul service to the distribution and gathering service and that the equipment supplied for "normal" rail service by the equipment supply service is also largely obsolete in that it does not provide for ease in conversion between the basic functions. Because of these two facts, extremely low utilization of car equipment exists, and service to the shippers and receivers of freight are rendered almost completely inadequate. Developments in the container field are proceeding at such a pace that the railroads may well lose still another battle with obsolescence. Trailer equipment is normally depreciated over about 6 to 8 years, while rail cars are depreciated over 30 years. Thus the obsolescence factor is much less important in trailer design. A high rate of utilization of trailer equipment compared to rail equipment accounts for the fact that trailer equipment can be kept modern. A trailer which has a cubic capacity of less than one-half of a boxcar and a weight carrying capacity of perhaps only one-third, may very well carry as much traffic in 6 years as a rail car carries in 30 years.“

CHAPTER 10. LABOR AND MANAGEMENT IN TRANSPORTATION

It is neither within the purview nor the intent of this report to take sides in the longstanding differences between labor and management in transportation nor to attempt to offer detailed solutions therefor. In the first place, the Interstate and Foreign Commerce Committee does not have labor jurisdiction. In the second place, our limitations of time and budget precluded the exhaustive study that should be given this conflict that has retarded development for the past generation.

On the other hand, vehicles and other facilities, without the essential work force, cannot produce transportation. No study of transportation can ignore the effect of labor relations upon the development of the best possible national transportation system. For this reason we believe it both appropriate and mandatory that some comment on this aspect of the transportation problem be included in our report, together with such recommendations as we feel qualified to offer.

It has been truly said in recent months that our form of government is on trial before the world. New nations are watching our conduct and wondering whether our ideals and practices are effective and adaptable to their own problems. Our success or failure to meet controversial questions calmly, as intelligent men working together toward the best solution for all, cannot fail to have a profound effect on the shape of world government in years to come. Positive, constructive leadership in domestic problems, without trace of coercion on the part of Government, will unquestionably help swing world opinion toward our way of life.

Responsibility for perpetuation of long-term labor differences in transportation must be divided four ways between the public, government, management, and labor leadership.

"Whitten, Herbert O., senior consultant, revenue research, the Chesapeake & Ohio Ry. Co., entitled "The Creation of Growth in Rail Transport," Feb. 2, 1960.

The general public gets the first share for its failure to acquaint itself with the facts and for the apathy it displays toward a situation in which the public itself is the greatest loser. Historically, when our people have bestirred themselves to make their voice heard, their views have proven both sound and effective. In the absence of manifest public concern, pressure groups of both sides are left free to exert what influence they can muster in their own, rather than the public, interest.

It is in the lap of Government that we must lay the lion share's of responsibility. A good referee senses growing tensions on the field and nips them in the bud before they explode into a slugfest. Our executive and legislative branches of Government, however, seem to avoid preventive action in this sensitive field, preferring to keep hands-off until the crisis arrives, then jumping in to put out the fire by measures ranging from mediation on the one hand to taking over facilities on the other. The legislative pendulum swings from Wagner Act to Taft-Hartley and Landrum-Griffin without producing that approach to labor peace in which all hands work together for their own and the national good. It is the responsibility of Government, through continuing study, to identify causes of friction in vital industry before they become critical, to determine the true facts and make them available to the whole public, together with the best possible objective analysis of their short- and long-term implications. Government should courageously take a position of leadership in bringing together the opposing interests in search of constructive solutions. Labor-management disputes should be settled at the bargaining table, it is true, but public interest demands that these disputes not be mitted, through lack of public leadership, to reach that stage of emotion which precludes give-and-take in the long-range interest of both sides and of the Nation as a whole.

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Whatever remains of responsibility for current conflict can be divided about equally between management and labor leadership. Both sides have shown an intransigence which has led them to positions from which they are unwilling to retreat-positions which stand as barriers to adoption of advanced technology and to the flexibility so essential in modifying old concepts to changing times. Both sides have been guilty of misleading the public by attempting to inflate socalled horrible examples into major issues. Both sides have consistently refused to recognize that what is good for the Nation is not only good for their particular segment of the industry but, indeed, may be the only way to preserve it at all. It is unfortunate that the public interest is not a part of the record made at the bargaining table. Speaking of management and labor in 1937, that great and effective friend of labor, Franklin Delano Roosevelt, said: "A plague on both your houses." He would have little reason to change his view today. Some years ago John L. Lewis was the firebrand of the labor world. There came a time, however, when he apparently realized that he could easily destroy the industry on which his people depended, that there could be an end of the UMW-from that moment on better production per man-hour was his goal, so that the results could be shared by his people. He saw to it that they were. All, today, agree that his achievements in raising the living standards of his people have been good for our country. Railway, merchant marine, and terminal