England, but the Great Lakes region and the gerrymandered central eastern region covering the triangle between New York, Washington, and Pittsburgh, and a huge region north of the Ohio and east of the Illinois Rivers, where many railroads are prosperous. Nevertheless, a simple analysis of ICC reports on net railway oper ating income as compared with net railway investment will prove my point. In the year 1960, for example, the percentage of return on net investment of railroads in the eastern district amounted to less than one-quarter of the percentage of return on investment of the railroads of the rest of the country. In this eastern area, water carriers, too, have been losing ground as compared with their own records of earlier years, and there is, as I have said, proportionately less bulk traffic than in other areas. If deregulation of bulk traffic by rail will help them take tonnage away from water carriers they will have much less to gain here, where both modes are having difficulty, than in other parts of the country, where the railroads are generally more prosperous. Nationwide averages for the railroads are heavily influenced by the unhappy results of the roads serving the thickly populated East. In short, insofar as rail and water transportation are concerned, the eastern area of densest population is a distressed area. The new plants of heavy industry have almost all been located elsewhere in recent decades, while, in the area in question, the growth has been in other directions-banking and insurance, industrial and scientific re search and development, education, recreation, headquarters of all kinds, residential development, the technical and electronics industries and similar enterprises which employ our highly skilled labor, but involve no heavy tonnage of freight. But none of these requires the transportation of the bulk materials. of industry and agriculture whose growth in other parts of the country has brought prosperity to railroads and water carriers alike. Congress has been asked to do something for the railroads. What a tragedy it would be if, because of the serious financial distress of the railroads in one region of the country, strong legislative medicine were applied to upset the delicate balance of competitive forces in transportation in the rest of the country, where the healthy competition among all modes of transportation has produced a steady growth of traffic of benefit to the carriers as well as to the public. In all humility, I recommend that Congress look upon the problem of transportation in the Northeast as only a symptom of an industrial change of far wider incidence than the transportation field alone, with broad repercussions in the unemployment problem and other aspects of the regional economy. Let Congress determine whether the rapid industrial development of other areas of the Nation has not now been so successful as to leave the Northeast in a condition of relative decline. If industrial growth in the Northeast needs to be stimulated, let some means be found to do that. If, however, it is in the public interest for heavy industry in the Northeast to continue its decline while other areas of the country grow in this respect, then special measures should be taken in the Northeast to adjust for the change. Let the commuter problems and other rail passenger service be separated from the freight service. By all means, let's do something for sick railroads to preserve essential services, but first let us study the basic problem instead of merely the symptoms. The population explosion is upon us. The logistical problems of the thickly populated region which is now only a portion of our total area will, in fact, be nationwide in another couple of generations. The lessons we can learn from such a study now will be all the more important in the solution of the problems of our grandchildren. I should like, now, to anticipate questions which the committee may have as to the consistency of the position of the Council in advocating a broadening of the bulk commodity exemption for water carriers while at the same time opposing the grant of such an exemption from minimum rate regulation for railroads. Such apparent inconsistency is only superficial. The fact that one mode of transportation is unregulated does not necessarily mean that another mode of transportation must be unregulated. The policy of the Congress has been clear up to now that bulk transportation by water carriers does not need to be regulated in the public interest, while such transportation by railroads does. Even the draftsmen of the bill before you recognized a vast difference in the need for regulation as between water carriers and railroads. They have not proposed to exempt the railroads from maximum rate regulation or from regulation seeking to eliminate discrimination with respect to bulk commodities, although they continue and expand the exemption of water carriers from such regulation. The reason for their distinction in treatment is obvious. Railroads generally enjoy a natural monopoly of railroad services, based on their ownership of their roadbeds. Many shippers are entirely dependent, for railroad service, upon single railroads. And in many instances rail is the only feasible means of transportation. This is particularly true for dry bulk commodities. For overland hauls of such commodities beyond 300 miles or so the cost of trucking is generally too great and rail service is irreplaceable. To protect shippers against the possible abuse of such monopoly, regulation is essential. On the other hand, water carriers operate on publicly owned rightsof-way physically open to all the public, and no carrier is irreplaceable. The existence and the possibility of competition on the waterways are sufficient to provide protection against the charging of exorbitant rates and against unjust discrimination among shippers. This is why, so far as we are aware, no shippers have ever asked for the extension of regulation to the water transportation of bulk commodities. There are, therefore, sound grounds for treating railroads and water carriers differently where maximum rates and discrimination are concerned. The superficial sweeping argument for so-called "equality of treatment" in the regulation or exemption of all carriers alike thus breaks down. A repetition of the slogan will not justify the proposal to exempt. railroads from minimum rate regulation in the transportation of bulk commodities merely because water carriers have such an exemption. It is necessary to examine the purpose served by minimum rate regulation and to determine whether such regulation is equally needed in the case of railroads and water carriers. The unequal nature of competition between railroads and water carriers, as described by former Commissioner Joseph Eastman, has been referred to by an earlier witness, Mr. Sam Moerman. Present distinctions in the provisions for regulation of transportation were evolved only after careful consideration and study and years of experience. They were not produced by inadvertence. While of course we do not contend that changes should not be considered, it would be wise to observe the old maxim against tearing down a fence until one finds out why it was put up in the first place. When Congress, after careful consideration, in 1920, amended the Interstate Commerce Act to give the Commission specific power to establish minimum rates for railroad transportation, it was, of course, conscious that it was treating water transportation differently. The committee report on the bill which became the 1920 act states that one of the important purposes for giving the Commission the minimum rate power was that of protecting water carriers against selective rate cutting by the railroads. It said: * With this power the Commission could prevent a rail carrier from reducing a rate out of proportion to the cost of service, by establishing a minimum below which such carrier could not fix its rate. It would also prevent a rail carrier from destroying water competition between competitive points by prohibiting such carrier from so reducing its rates as to destroy its water competitor. Circumstances have been cited where the rail carrier destroyed its water competitor by such a reduction of rates as to make it impossible for the water carrier to survive. When once competition was thus driven off the rail rates would be restored or would rise to even higher levels *. (H. Rept. 456, 66th Cong., 1st sess., 1919, p. 19.) Congress saw no need to impose similar minimum rate regulation on the water carriers. There was no danger that they could injure the railroads by a selective rate-cutting process. There are obvious reasons why this was true in 1919 and is true today. Railroads generally operate networks. Bargelines, on the other hand, operate on a linear basis. The railroads have a vast amount of land-locked traffic on which they can rely to make up for the losses which they may temporarily incur by cutting their watercompetitive rates to eliminate water competition. As I have pointed out, this opportunity is particularly effective in the case of dry bulk commodities on long hauls beyond the economical trucking distance. No such opportunity to recoup from other traffic exists for the bargelines. The bargelines cannot afford to cut their rates generally below cost in order to take traffic away from the railroads, because they have no traffic protected by nature against railroad competition out of which they can recoup their losses. Their rates must, on an average, cover their costs or they will soon be out of business. Moreover, the vastly greater resources available to the railroads make it possible for them to absorb losses due to temporary selective rate cutting designed to destroy water competition. We, therefore, urge the continuance of minimum rate regulation of rail transportation of bulk commodities. For the reasons indicated in the testimony for American Waterways Operators, we do not consider that the proposed subjection of the railroads to the antitrust laws will provide adequate protection of water transportation. It has been a policy of the Congress ever since the original enactment of the Interstate Commerce Act to attempt to protect water carriers against destructive practices of the railroads. In the congressional debates on the bill which the Interstate Commerce Act, Senator John Sherman said: They the railroads- can run anything out of the water and they did impair the boating interests in the great Northwest, and actually laid up boats that would otherwise have been running at abnormally low rates; and then when they drove the boats out of business they resumed operations again. It is to prevent that that I desire to see the railroads compelled by the rule of equity to maintain a reasonable rate. Despite the long-standing purpose of Congress to protect water carriers against the railroads, it was not until after a considerable series of amendments having this purpose had proved ineffective that in 1920 the minimum rate power was given to the Commission. If this is now withdrawn, we will be remitted to the situation existing in the era when the railroads were able, without effective regulation or opposition, to run the water carriers, as Senator Sherman said, "out of the water." We do not want to turn the clock back, and we feel fully warranted in urging Congress to continue a distinction in treatment that has existed for 42 years and a policy intended by the Congress, if only imperfectly realized at times, since 1887. Mr. Chairman, I am grateful for the opportunity of appearing here. The CHAIRMAN. Mr. Wright, thank you very much for your statement to the committee on this subject matter. Are there any questions, Mr. Williams? Mr. WILLIAMS. No, I have no questions. Mr. YOUNGER. Just one. Mr. Wright, you have not followed the recommendations of most of the water carriers which is to, rather than rescind the minimum rate, they would prefer to have the exemptions abolished. Do you still believe that, or is that a belief of your organization, if had a choice between the two? you Mr. WRIGHT. We do not feel that these are the only choices avail· able, Mr. Younger. The unregulated water carriers, as well as other members of our organization, have vigorously and repeatedly opposed the extension of regulation to the water transportation of bulk commodities. We are now opposing the deregulation of railroads. We do not concede that it is necessary for us to choose between the alternatives which you have presented. We advocate another alternative, namely, continuation of the present distinction in regulation made by Congress in enacting the 1920 act. Mr. YOUNGER. Thank you very much. You have added some new material here that has not been given before. Thank you, Mr. Chairman. The CHAIRMAN. Mr. Kornegay? Mr. KORNEGAY. Thank you, Mr. Chairman. I am sorry, Mr. Wright, that I was a little late in getting here to hear your statement. As I understand, from your statement to Mr. Younger, you feel that we should continue the present system with no minimum rates on water carriers for bulk products Mr. WRIGHT. That is correct. Mr. KORNEGAY. But with regulations on the rail carriers in the same field? Mr. WRIGHT. That is correct. Our organization supported the broadening of the exemptions applicable to water carriers, as recommended in section 2 of H.R. 11583, but opposed the extending of the exemptions to the rail industry. Mr. KORNEGAY. You do not consider that discriminatory against the railroads? Mr. WRIGHT. Mr. Kornegay, I am sorry you were not here earlier. I devoted a good portion of my statement to this superficial inconsistency. There is nothing more to it than recognition of the fact that the rail industry operates in one system of economics, owning their own roadbeds, operating a network, and in order for a water carrier system, operating a linear service, a small business, to exist in competition with the railroad industry, there must be restraints upon the railroad industry. This was recognized by Congress, which sought a means of protecting water carriers from 1887 until 1920, when the minimum rate regulation of railroads was enacted. Water carriers were being put out of business by railroads, since the date when railroads were invented up until about 1900. There was no water transportation to about that time. And it took Congress literally from 1887 to 1920 to find out what measures were necessary, in order to make it possible for a water carrier industry to exist in competition with the rail industry. The mechanism discovered was the minimum rate regulation which it is now proposed to repeal. Mr. KORNEGAY. You feel, sir, then if it were repealed we would revert back to what we had prior to 1900? Mr. WRIGHT. That is correct. Our industry cannot exist if rails are permitted to indiscriminately cut rates. Mr. KORNEGAY. That is all, Mr. Chairman. The CHAIRMAN. Thank you very much, Mr. Wright. We are very glad to have had your presentation. Mr. Walter G. Baskerville, Sr. STATEMENT OF WALTER G. BASKERVILLE, SR., PRESIDENT, UPPER MISSISSIPPI TOWING CORP., MINNEAPOLIS, MINN. The CHAIRMAN. Mr. Baskerville, you may identify yourself and proceed. Mr. BASKERVILLE. Mr. Chairman, and members of the committee, my name is W. G. Baskerville, Sr. I am president of the Upper Mississippi Towing Corp. of Minneapolis, Minn. We wish to extend our thanks for this opportunity to appear before you today. The Upper Mississippi Towing Corp. is a Minnesota corporation, incorporated in 1937. Its business is that of transporting liquid and dry bulk commodities via barge on the inland waterways. We are an exempt carrier of bulk commodities owning and operating a substantial fleet of dry and liquid cargo barges as well as diesel towboats. The geographical area of our operations may be |