TRANSPORTATION ACTS AMENDMENTS-1962

FRIDAY, JULY 13, 1962

HOUSE OF REPRESENTATIVES,

COMMITTEE ON INTERSTATE AND FOREIGN COMMERCE,

Washington, D.C.

The committee met, pursuant to recess, at 10:15 a.m., in room 1334, New House Office Building, Hon. Oren Harris (chairman of the committee) presiding.

The CHAIRMAN. The committee will come to order.

In resuming the hearings this morning on transportation, our first witness will be Mr. D. W. Brosnan, president of the Southern Railway System.

Mr. Brosnan, we are very glad to have you with us and we will be pleased to have your statement.

STATEMENT OF D. W. BROSNAN, PRESIDENT, SOUTHERN RAILWAY

SYSTEM

Mr. BROSNAN. Thank you, Mr. Chairman.

Mr. Chairman and gentlemen, my name is D. W. Brosnan. I am president of the Southern Railway System, which operates some 8,200 line-miles of common-carrier railroad serving the entire southeastern portion of the United States. I appear here in support of H.R. 11583 the so-called minimum rate bill.

No one would deny that the condition of the railroad industry is critical. For that matter, the entire common-carrier industry is in difficulty. Also, it is true that the public is paying higher than necessary prices for the transportation of freight.

These conditions exist despite the fact that railroads have been regulated since 1887, and other segments of the common-carrier industry for two decades or more.

If regulation is the cure-all that its proponents say it is, these conditions should not exist. In my judgment, excessive regulation is the chief cause of the ills not only of railroads but of all common carriers. If this regulation is continued in its present form and direction, Government ownership is inevitable for railroads and for the common carrier trucks and barges. Experience in other countries shows the disaster that this produces.

The railroads have been regulated almost to death, and other common carriers are now beginning to feel the blighting effect of excessive regulation.

It is high time that the main reliance be placed on competition, as is called for in this bill, rather than on regulation. No man, nor group of men, can possess the omnipotent ability that would be required to

pass judgment on every transaction that is made in the transportation business. Competition, subject to control of maximum rates and the usual antitrust controls, can provide the needed freedom for decision and policymaking to lower transportation costs to the public and to help the ills of the common-carrier industry.

While all regulated common carriers have difficulties stemming from regulation, the inequality of regulation between the various modes is especially vicious. For example, the water carriers, both regulated and nonregulated, haul a long list of bulk commodities which are exempt from any regulation. These commodities are regulated when handled by either the common-carrier railroads or trucks. On the other hand, the so-called agricultural exemptions, which cover a long list of farm and related products, free these products from regulation when hauled by unregulated or regulated trucks, but they are regulated when hauled by bargelines or railroads.

There is no justification for this discrimination. It is a disgrace that it is permitted to exist in our country where we talk so much about freedom and equality. These discriminations, which kill competition, are extremely costly to the public through the artificially high prices or rates which they produce.

Private, unregulated carriage, in both barges and trucks, is increasing by leaps and bounds to the detriment of all of the common carriers truck, barge, and rail. Private carriage grows because it is highly profitable. A large part of this high profit results because common-carrier rates are held at unnecessarily high levels by Government regulation. Regulation that causes artificially and unnecessarily high rates provides the cover under which illegal or so-called gray area operations can take place. And artificially high rates provide the high earnings that fuel these illegal operations in much the same fashion as the Volstead Act fueled the outlawry of the 1920's. Competition as provided by the minimum rate bill can control the outlawry of illegal transportation in much the same way that bootlegging was controlled when prohibition was repealed; that is, by lowering the opportunity for high profit.

The territory served by Southern Railway System is highly industrialized and in addition has extensive mining operations and has a diversified agricultural pattern. Consequently, Southern is called upon to handle substantial amounts of so-called bulk commodities as well as agricultural products. In fact, in 1961 these bulk and agricultural commodities comprised 67 percent of our tonnage and more than 50 percent of our net revenue.

We have severe competition from regulated and nonregulated highway and waterway carriers in the transportation of all commodities. The toughest competition is from the unregulated or so-called private truck. With respect to exempt agricultural commodities the competition of private or unregulated trucks is particularly vicious.

My appearance before you today in behalf of H.R. 11583 results from my strong conviction that the public interest requires that all modes of common carriage must have the right to compete fairly and equally in the transportation market without regulatory discrimination. That right is nonexistent today because of excessive and contradictory regulation. This is especially true where bulk movements or agricultural products are involved.

The absurdities in today's regulatory requirements as to both bulk commodities and agricultural products can be pointedly illustrated by Southern's present attempt to reduce its freight rates by some 60 percent for the movement of grain into and within the Southeast.

These rates were published by Southern last summer to become effective on August 31, 1961. After protests were filed, they were suspended by the Interstate Commerce Commission. The Commission started hearings on these rates on January 8, 1962. These hearings are continuing to this day, and the end is not yet in sight.

These rate reductions were made possible by improvements in the art of railroading—including the development by Southern of a new aluminum-body, 100-ton-capacity, lightweight freight car and improved methods of operation. We know that we can make a good profit on these rates. Since these rates were published, we have hauled, as of July 10, 1,445 cars of grain on these rates in intrastate movements and in interstate movements of Government grain, and it is no longer an arguable question whether we make a profit. We do make a handsome profit. And we know, too, that these rates will result in spectacular savings to the public that foots the transportation bill.

It is significant to me, and I feel sure it will be significant to you, that we are finding it much harder to reduce a rate on a single commodity on a single railroad than experience has shown it to be to increase rates on all commodities on all railroads. Any time in this country of ours when it becomes more difficult to lower prices than it is to raise them, it is obvious that changes should be made.

In Southern's grain rate case, the reason is easy to spot-discriminatory regulation. The fact is that the transportation of grain is not subject to regulation except when it is moved in a railroad car.

Water carriers with their bulk commodity exemptions move grain free of regulation. Highway carriers haul grain without rate regulation because it is an agricultural commodity. The asininity of these regulations is shown by the fact that the law would permit a railroad to buy trucks and haul grain in those trucks without regulation. But the minute it is put in a railroad car, it is regulated and at higher than necessary rates.

The common-carrier truck can haul grain without regulation, but actually hauls very little of it. A large volume is hauled by some private business concerns, who haul their own product on one leg of the trip and fill up with grain on the other leg for whatever charge they can get on the spot, with the idea that such a charge makes some contribution to their costs of getting back home. This is a product of regulation, and this discriminatory and unequal treatment is an injustice to the railroads and the American public. Furthermore, the competitors of such business firms are badly disadvantaged especially where they must depend on common-carrier transportation.

The great bulk of the grain, however, is hauled by itinerant, unregulated trucks. They haul grain from one section of the country to another-for example, from the Midwest to any point in the Southeast, where the grain is unloaded; the truck continues to Florida and picks up a load of perishables for the return trip home. This is a particularly vicious two-way cut for the railroads that is condoned and, in fact, is a commonplace product of discriminatory and unjust regulation.

Rate reductions such as we have proposed in our grain rates can provide tremendous savings to the public. There is nonrailroad testimony in the grain rate hearing that these rates will save the public in the Southeast from 10 to 12 cents a bushel on grain. The volume of grain moving into the Southeast has been estimated by reliable sources to be some 370 million bushels per year. At 10 cents per bushel the saving would be some $37 million in the Southeast alone on this one commodity. It is plain that nationwide, on the long list of items which are considered to be agricultural and bulk commodities, the savings to the public would be enormous. Hundreds of millions of dollars a year is very likely an understatement of the potential savings that would result if railroads were free, as other carriers are, to set minimum rates on these products without regulation.

It is not my purpose to try our grain rate case before this committee. I have mentioned it because the mere description of what has taken place is one of the best proofs that the present regulatory system is wrong. If it were not for this system, we could have put the rates in effect a year ago with tremendous savings to the public and profit to ourselves. Instead, we have had to spend thousands of dollars and unending time and effort to justify giving the public a substantial savings in the cost of getting grain.

Chairman Murphy, of the Interstate Commerce Commission, has recently said that common carriers have lost 60 to 70 percent of intercity traffic to private, exempt, or illegal transportation. He called upon the common carriers to stop fighting among themselves and to devote their energies to regaining this traffic. This is not the big reason for the loss of this traffic. Regulation itself is in large measure responsible for the promotion and growth of private transportation, through stifling competition and forcing the maintenance of higherthan-necessary freight charges. These higher charges provide a fat and attractive profit cushion for the expansion of private carriage, but at the expense of the public and to the detriment of the regulated common carriers. A most potent weapon-competition-for use in regaining this traffic is provided for all common carriers in the min

imum rate bill.

Some segments of the common carrier industry are opposing the minimum rate bill. Already, there are arising the old familiar cries of "monopoly" and "bloody rate wars" to put barges and trucks out of business, after which, so opponents say, railroads would hike their rates sky high.

I have no desire to put anybody out of business; my concern is to stay in business.

These cries are designed to blind the public to the fact that these other carriers are lusty giants in the transportation field, not infants; that railroads no longer have a monopoly; and that keeping railroads hamstrung with moss-grown regulations is costing the public untold millions in higher-than-necessary transportation costs.

Railroads certainly do not have a monopoly when they today account for only 43 percent of the total intercity freight ton-miles, down from 74 percent in 1930.

How can railroads have a monopoly when the total revenues of the intercity trucking industry-ICC regulated as well as non-ICC regulated-were $19 billion in 1961, as compared with railroad freight

revenues of $8 billion? This $8 billion, incidentally, compares with the Transportation Association of America's estimate of $100 billion a year as the total transportation cost for the Nation. It is crystal clear that railroads are a small part of the total transportation industry and have no monopoly. Any such charge is merely a smokescreen to hide the facts.

The Interstate Commerce Act was passed in 1887 when the railroads had a near monopoly of transportation. That monopoly began to fade away during the 1920's. But railroads are 100 percent regulated today as though they still were a monopoly, while only one-third of truck traffic is regulated, and only one-tenth of barge traffic is regulated. The plain truth is that the railroads have almost been regulated to death. Instead of this regulation promoting competition, it has had directly opposite results. It has stifled competition. It has kept railroad rates at unnecessarily high levels to provide an umbrella which other modes of transportation use to exact from the public higher-than-necessary freight charges. This same high level has forced the growth of private carriage to the detriment of all common carriers-truck, barge, and rail-by making it economically attractive to use private carriage.

Opponents of the minimum-rate legislation are doing a lot of talking nowadays about rail transportation becoming obsolete. That is stuff and nonsense. But if we are actually to become technologically and economically obsolete, we in the railroad industry want that to happen in the competition of a free market. We do not want to be regulated into obsolescence by the Federal regulatory powers. The inconsistency of statements such as "railroad obsolescence," "passing from the scene," and "the death of the iron horse" is clearly shown when those elements in the transportation field who are making such statements cry out for protection from the competition of this "dying horse." The truth is that behind these phrases degrading the railroads is a desire to protect higher-than-reasonable rates at the expense of the public, under the guise of protecting the public.

Opponents say, too, that if railroads are given minimum-rate freedom, they would lower their rates only long enough to put other modes out of business, and then up would go the rates. This is ridiculous. Under this bill the Interstate Commerce Commission would still retain control over rate increases. It would be economic suicide for any carrier to reduce its rates below cost in order to try to corner the business. The Commission could and would break such an offender by the simple device of refusing to approve the increased rates. This threat alone is in reality the best and most powerful control.

As to the substitution of the antitrust laws for regulation in certain. areas of rail ratemaking, I want to make it perfectly clear, speaking for my company, that I prefer freedom of action to compete, to try to do a proper job of serving the American public economically and at low cost. We do our business face up on the table, and I do not mind having the Department of Justice looking over my shoulder.

This I do know-freedom to act, even subject to antitrust laws, is far more challenging and productive than being shackled by regulation which often blindly prohibits the exercise of managerial discretion in the use of technological improvements to produce the greatest

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