These dams by means of the pools will extend low cost transportation throughout the Columbia Basin.

The Columbia Basin in our area is known as the inland empire. This comprises an area of almost a third of a million square miles, which according to certain sources, is projected to have one of the greatest expansions of our Nation in the next 20 years.

Already many, many industries-chemical, steel, metal-all types, have established plants on these waterways. However, we feel that with the passage of these bills proposed or even the threat of their passage, a partial utility of this navigational system and dam facilities would be impaired. This would come about by virtue of the fact that water carriers would be reluctant to invest the large sums-for us large sums necessary to build equipment, when, after the completion of the equipment, the rates could be reduced to the point where we would have to abandon the traffic to outside modes of transportation. And regrettably there is not adequate or sufficient business to utilize this equipment elsewhere along this waterway. We will not attempt to duplicate the comparative statements of rail rates versus water rates. This has been ably done previously in this hearing by Mr. Ingersoll, Mr. Hershey, and Mr. Russell.

We assure you that these comparisons hold true for our own area. Nor would we attempt to deal with the Robinson-Patman Act, or the antitrust provisions of the Sherman Antitrust Act. We consider, as far as we can evaluate them, that they would be ineffective in providing us with any protection.

We feel, as an organization, small as we are, although we do represent the entire common carrier water traffic there, that the solution to this problem would be the elimination of the bulk and agricultural exemptions, and extend regulations to all modes of transportation.

I would like to thank you, gentlemen, for appearing before you. Senator THURMOND. We are glad ot have you, Mr. Shaver. Your recommendation then is: instead of deregulating the railroads, to regulate the water carriers and the trucks; is that right?

Mr. SHAVER. That is the feeling of our organization.

Senator THURMOND. In other words, put them all in ICC?

Mr. SHAVER. Yes, sir; remove the bulk exemptions, the agricultural exemptions that we now operate under.

Senator THURMOND. How would it affect the farmer if you removed that bulk exemption?

Mr. SHAVER. How would it affect the farmers?

Senator THURMOND. Yes.

Mr. SHAVER. It would regulate the transportation of the commodities. We find that in the transportation of commodities, that the shipper benefits by this. There is stability in the rate structure. there is stability in the service provided to the shipper.

Senator THURMOND. On June 13, 1963, you wrote me a letter concerning this matter. Did you want this to go into the record? Mr. SHAVER. I do sir.

Senator THURMOND. Without objection, your letter to me dated June 13, 1963, will go into the record.

(Letter from Mr. Shaver follows:)

COLUMBIA BASIN RIVER OPERATORS,
Portland, Oreg., June 13, 1963.

Senator STROM THURMOND,

Chairman, Senate Subcommittee on Surface Transportation,
Washington, D.C.

DEAR SENATOR THURMOND: This organization is composed of various tugboat and barge operators which are listed on this letterhead, constituting practically all of such water carriers operating on the Columbia and Willamette Rivers. We wish to take this opportunity to express our opposition to S. 1061 and S. 1062, which are now before your committee, that have been precipitated by the Kennedy legislative transportation proposal. We appreciate the fact that the administration wishes to resolve the transportation problems confronting this Nation, but certainly we do not feel that the administration has a clear understanding of the entire transportation problem.

We sincerely believe that the entire transportation law should be revised and that every mode of transportation in the United States be given a fair and equal representation before a centralized regulatory body. The proposed legislation before your committee seeks to remove minimum rates on bulk and agricultural commodities for the railroads. The Interstate Commerce Law was originally passed to impose this minimum rate legislation on railroads, because the railroads at that time were engaged in destructive rate-cutting competition.

The President's transportation message and the resultant legislation therefrom will recreate the same condition wherein the railroads may again engage in this destructive competition, wherein the shipper who is geographically limited to the use of the railroads alone, will support the railroads' competition with other modes of transportation. This naturally will lead to the preponderance of a single mode of commodity transportation and such monopolistic practices will inevitably lead to the detriment of this Nation.

We must emphasize that freedom from regulation of minimum rates on these bills for the railroads, is the route of chaos for all: The shipper, the carrier, and the general public. The railroads, motor carriers, airlines, and water carriers are public utilities and the public interest requires that they be regulated as any other public utility such as an electric power company or a telephone company. The complaint of the railroads that they are at a disadvantage when they must compete with carriers who are not regulated is true, and they have justification for their complaint, but the solution is in the extension of minimum rate regulation to the water carriers coupled with the removal of 303B from part III of the Interstate Commerce Act which allows the water carrier's exemption on bulk commodities and the motor carrier's exemption on agricultural products. This is the alternate proposal in the President's message and if adopted, the railroads will have equality in opportunity for fair competition.

This alternate action has been recommended by the majority of the ICC itself, and we fully believe that the ICC realizes the seriousness of the situation as it relates to the water carriers. In the past, water carriers, certainly in our own area, have been reluctant to support the removal of these exemptions because of the extreme and complex difficulties involved in evaluating railroad cost information. Presently, however, we feel that the extension of minimum rate regulation coupled with significant amplification of the regulatory powers of the water carrier bureau of the ICC will be the optimum solution.

Certainly, if the railroads prevail, and this proposal becomes law, they must accept the burden along with the rest of us and live under all facets of the antitrust law. However, the problem is that by the time investigations are properly processed, other carriers will be financially destroyed as they do not have the ample finances of the railroads.

We are expanding rapidly in the Pacific Northwest in developing our great Columbia River system with dams and water resource projects. The water carriers are unable financially to cope with the current railroad competition, for example, in the last 2 years, the railroads have reduced the price for transporting grain by 50 percent in these areas, and only those areas served by the bargelines operating on the Columbia and Snake Rivers. These rate reductions are incomprehensible in light of rising costs and also in consideration of the fact that rails have not reduced such grain costs where they are not competitive with water.

Every mode of transportation must be judged upon its ability to handle the commodity and upon its costs to transport this commodity. We all know that water transportation is the most economical way of transporting large volume

We also know that the elimination of the water carriers on our great river system will eliminate our big industries that have come to the water for low-cost transportation.

We sincerely hope that our views in this matter will be considered by the Subcommittee on Surface Transportation, in opposition to S. 1061 and S. 1062. Respectfully submitted.

G. H. SHAVER, Chairman.

Mr. STILWELL. Mr. Shaver, I believe you said all of the operators in the Columbia River Basin Association are regulated common carriers. Is that right?

Mr. SHAVER. That is true.

Mr. STILWELL. How many exempt carriers do you have in the Columbia River Basin?

Mr. SHAVER. We have very few, I would estimate not over three carriers operating under exempt rights and they are gravel carriers. Mr. STILWELL. Has this been a consistent number or has there been a significant decline in the number of exempt carriers in the last few years?

Mr. SHAVER. No, sir; there has not.

Mr. STILWELL. It has been about this number for a number of years then?

Mr. SHAVER. Basically the exempt carriers are operating in the sand and gravel business.

Senator THURMOND. Thank you, Mr. Shaver, for appearing here and testifying in this hearing.

We appreciate your testimony.

Our next witness is Mr. David A. Wright, president of Marine Service, New York.

STATEMENT OF DAVID A. WRIGHT ON BEHALF OF WATERWAYS BULK TRANSPORTATION COUNCIL, INC.

Senator THURMOND. Mr. Wright, you may proceed in either of two ways. You can read your entire statement, or we can place it in the record where every one can read it, and you may comment in addition to the statement. Which do you prefer to do?

Mr. WRIGHT. Mr. Chairman, it is a rather extensive statement. I think in the interest of saving time, it would be desirable to have the entire statement entered into the record and I will attempt to summarize it, if I may. I will read certain portions of it.

Senator THURMOND. All right.

Off the record.

(Discussion off the record.)

Senator THURMOND. On the record. You may proceed.

Mr. WRIGHT. My name is David A. Wright. I am appearing today on behalf of Waterways Bulk Transportation Council, Inc. The council is a nonprofit organization of shippers, carriers, and others interested in the maintenance of the exemptions in section 303 of the Interstate Commerce Act and in the development of bulk transporta tion on the inland waterways of this country. Forty-five percent of the members are shippers. They use all modes of transportation.

Last year I appeared before your full committee to testify on the similar bill which it then had under consideration. At that time, I did not comment specifically on the provisions of the proposal tr

deregulate the railroads, other than to say that we supported the views expressed by witnesses for American Waterways Operators, Inc.

This year I should like to comment in more detail on these provisions of the bill which is before you.

In what I am about to say, I shall try to approach the problem from the point of view of the public interest, which is your main concern, and not merely from the narrower point of view of those using or providing a competing mode of transportation.

The proposal to exempt the railroads from minimum rate regulation in respect to the transportation of bulk and agricultural commodities and of passengers was intended to conform with a transportation policy described by President Kennedy in his recent letter to the President of the Senate as assuring the availability of services

to

move people and goods *** at the lowest cost consistent with health, convenience, and national security ***.

In particular, it was intended to carry out his recommendation that

there should be maximum reliance on the forces of competition consistent with a continuing need for protection against destructive competition between forms of transportation or between competing carriers.

We warmly subscribe to these statements of general objectives. The basic philosophy of our organization is that there should be no unnecessary restriction on freedom of competition. In the case of the transportation of bulk commodities by water, we believe that such freedom has served and is serving the public interest well.

We favor extending this freedom of competition as far as possible without opening up opportunities for destructive or unfair competition. That is why we support the expansion of the water-carrier, bulkcommodity exemption as provided in section 2 of the bill.

And we would support proposals which would enable other modes of transportation to engage in what we would call honest rate competition. If in honest competition, the rails can take traffic away from the water carriers, they are entitled to it.

Because of this basic philosophy, our organization has this year carefully reexamined the provisions of section 1 of the bill to see if they would assure that railroad rate competition with the bargelines would be honest and that the water carrier industry would be protected against destructive and unfair competition.

We believe that if these questions cannot be answered affirmatively, the proposal is not in the public interest. We think that the availability of water transportation, at least where it is the truly low-cost mode of transportation, is of great importance to shippers, the public, and the Nation.

What safeguards against destructive competition by the railroads would be left by the bill in the absence of the Commission's minimum rate power, and how effective would they be? The bill makes reference to a number of statutory provisions that would restrain the railroads in connection with their rates on the exempted commodities: (1) Section 2 of the Interstate Commerce Act, making unlawful any unjust discrimination in rates between shippers.

(2) Section 3(1) of the act, making unlawful any undue or unreasonable preference or advantage in rates.

99-564-64-pt. 2 -7

(3) Section 1 of the Sherman Act, making illegal contracts and combinations in restraint of trade.

(4) Section 2 of the Sherman Act, making it criminal to monopolize, or to attempt to monopolize, or to combine or conspire to monopolize any part of interstate commerce.

Our considered opinion, after reviewing these restraints and the history of their application, is that these are completely inadequate to prevent the destruction of the water carrier industry by the railroads through competition which we would not consider honest.

Before analyzing each of these statutory provisions, let me review the background against which the legislation would operate.

No legislation can possibly equalize the quality of service of the competitive strength of water and rail carriers. Water service is, in several respects, inherently inferior. It is slower. It is generally available only to minimum loads of much larger size than railroad minimum loads. It is confined to the banks of the waterways, whereas the railroads reach all parts of the country. Combining water transportation with rail or truck to reach points off the waterways involves an added expense, the cost of transshipment.

Because of these disabilities, the water carriers could not possibly exist in competition with the railroads, except for one advantage they do have the advantage of much lower fully distributed cost.

The average actual fully distributed cost to water carriers of moving a ton of commodities 1 mile is approximately 4 mills. The aver age actual fully distributed cost to rail carriers of such movement is approximately 14 mills.

Where the advantages of rail service that I have mentioned are not so important to a shipper as low cost of transportation, the water carriers have an essential role to play. If the railroads made rates based upon the true cost of providing their service, there is no doubt that the water carriers would be able to survive and to continue to perform the role of providing low cost transportation. Unfortunately, when the railroads find themselves in competition with the lower cost barge lines, they are willing largely to ignore factors of cost in their efforts to kill off the water carriers, except as they may in some way be restrained by the Interstate Commerce Commission or other agency.

The ICC figures for the year 1960, the last year for which figures ar available, show that 72.5 percent of the total freight tonnage and over 65 percent of the total ton-mileage of class 1 railroads was handled ' less than fully distributed cost. The same figures indicate that over percent of the tonnage and nearly 16 percent of the ton-mileage was delivered at less than out-of-pocket cost.

The railroads can afford to cut rates to kill competition, with litt or no regard for costs, because of five characteristics in which ther differ from the bargelines. These differences, Mr. Chairman, I particu larly wish to invite your attention to.

(1) The railroads have a huge amount of traffic, in the same conmodities as those carried by the water carriers, that is not subject to water carrier competition. On such landlocked traffic they can, suh ject to such restraints as may be placed on them by the competition of other railroads and of trucks (which are usually higher cost carrier however) and by the Commission, raise rates so as to recoup the loss incurred by rate cutting on water-competitive routes.