In announcing the hearings, three main areas were suggested as topics for attention. First, the matters on which the railroads could help themselves; second, desirable changes in ICC policy and practices, and third, new legislation necessary to revitalize the railroad industry * * *.

These quotes appear on page 8 of the committee report.

It is obvious from the foregoing that the committee then thought it was making some change in ICC policy and practice. Then the report goes on to comment on what the testimony developed. The following few sentences paint the picture:

the uncontrovertible testimony revealed that the decline in the railroad position was occurring at a greater rate than the decline in the Nation's economy.

*** the railroad's share of freight traffic had declined from 74.9 percent of the total intercity ton-miles in 1929 to 48.2 percent in 1956.

And gentlemen, it is still going down.

Unemployment in the industry is accelerating rapidly. There has been a decrease of 348,182 jobs from March 1953 to March 1958;

These quotes appear on page 8.

I will show you figures in a little while indicating that the trends in these areas are still downward.

Next the report assigns four reasons for the railroads' decline. Epitomized, they are:

** the development of newer methods of transportation that offer intense competition to the railroads.

Government assistance offered to the railroads' competitors.
overregulation.

A failure (by rail management) 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 (p. 10). [Emphasis added.]

Under the heading "Help by the Industry" the report states that the railroads should, among other things, devote attention to "modernization of the freight rate structure."

These are the official and uncontroverted reasons for the Transportation Act of 1958. Now, how about the meaning of section 15a (3)? The report puts that matter beyond the realm of speculation also. Again a few cogent quotes:

It is the policy of this subcommittee, and it is believed to be the policy of the Congress, that each form of transportation should have opportunity to make rates reflecting the different inherent advantages each has to offer ***.

** the Interstate Commerce Commission has not been consistent in the past in allowing one or another of the several modes of transportattion to assert their inherent advantages in the making of rates. The subcommittee recommends, therefore, that the Commission consistently follow the principle of allowing each mode of transportation to assert its inherent advantages, whethter they be of service or of cost. In 1945 in New Automobiles in Interstate Commerce (259 I.C.C. 475), the subcommittee believes that the Commission properly construed the intent of Congress in this respect when it said:

"As Congress enacted separately stated ratemaking rules for each transport agency, it obviously intended that the rates of each agency should be determined by us in each case according to the facts and circumstances attending the movement of the traffic by that company. In other words, there appears no warrant for believing that rail rates, for example, should be held up to a particular level to preserve a motor-rate structure, or vice versa (259 I.C.C. at p. 538)."

The subcommittee wishes to affirm the interpretation of the Commission given in the Automobile case epitomized in the words quoted above. The subcommittee therefore believes it necessary to amend the act only so as, in effect, to admonish the Commission to be consistent in following the policy enunciated in the Auto

mobile case thus assuring reasonable freedom in the making of competitive rates (p. 18).

After quoting the proposed amendment to section 15a (3) the report continues:

The subcommittee anticipates that the broad effect of this amendment will be to encourage competition between the different modes of transportation to the benefit of the shipping public (p. 18).

Finally, on the meaning of section 15a (3), the report cites a Supreme Court decision in Schaeffer Transportation Co., et al. v. U.S., 355 U.S. 83, and quotes with approval the following language from that decision:

The ability of one mode of transportation to operate with a rate lower than competing types of transportation is precisely the sort of "inherent advantage" that the congressional policy requires the Commission to recognize (p. 19).

That is what your committee, which authoried section 15a (3), said that it meant, and that is the basis on which Congress accepted your recommendations and enacted the new rule. What somebody may have thought, or now says he thought the section meant is not important. To now contend that Congress accomplished nothing by the enactment of the new rule of ratemaking; that the language I have quoted does not convey a clear and unmistakable intent to permit greater freedom in ratemaking and abolish umbrella-type ratemaking, is an absurdity on its face. (For additional information on this point, see app. A hereto.)

Clear as this legislative history is, the fact remains that no really substantive interpretations of section 15a (3) have become final through actions of the Commission and the courts. We are, in a sense, shadowboxing, and the testimony adduced at these hearings cannot help but intimately involve issues that are pending before the ICC and in the courts.

Freight forwarders are vitally concerned with many of the proceedings centering on the interpretation of section 15a (3). Forwarders utilize the published rail rates and the rail services known as piggyback plans III and plan IV. At this moment substantially all of those rates are at issue before the Commission. The principal cases were argued on November 2, 1960, and are now awaiting decision by the full Commission. (See app. B.)

Forwarder volume rates, made possible on a wider scale by the rail piggyback rates, are also at issue. These rates have been approved by the ICC but are pending for decision in two Federal courts. Again for lack of time I have included, as appendix B to my statement, a documentary of the pending piggyback and forwarder volume rate

cases.

All of these matters are pending for decision on exhaustive factual records before either the ICC or the courts. The bill under consideration would rewrite the rules while the evidence is still being weighed.

Piggybacking, though a vital issue, is not the only target of attack of those who now seek to revise or reverse the policy represented by section 15a (3). Other charges used as weapons in the arsenal of those who have declared war on 15a (3) are:

1. That the railroads, abetted by the ICC, have all but destroyed American coastal shipping;

2. That section 15a (3) has encouraged and the Commission has permitted "selective" rate cutting that is driving motor carriers as well as domestic water carriers to the wall;

3. That the railroads are destroying traditional or historic patterns of ratemaking in their current competitive efforts;

4. That although section 15a (3) was intended to encourage competition it was not intended to permit destructive ratemaking. It is my intention now to discuss each of these charges and to demonstrate how invalid each one is and, in so doing, prove that the legislation which is being considered because of these arguments is both unsound and unnecessary.

Before I do, however, let me make this observation. Everyone knows that during the past year all industry, not alone the transportation industry, has been going through a most unprecedented era in the history of our country. Notwithstanding almost record-breaking highs in the gross national income, as well as the gross national product, all business has been subjected to what is aptly termed a "costprice squeeze," where prices do not or cannot rise as rapidly as costs. This is having a devastating effect on the levels of profit for all business. To seize upon this unfortunate situation to try to create the impression that the financial distress of the trucking industry and of some segments of the water carrier industry is caused by predatory, destructive, and unfair competition of the railroads, is not only a distortion of fact but a faulty and misleading appeal to Congress.

It is well known that the basic problem plaguing the common carrier industry, both in volume of traffic handled and in the level of rates charged, is the intensified competition from the private carrier, the "gypsy," the buy-and-sell operator, the exempt carrier, the carriers operating in the "gray area" of transportation. There are spiraling increases in labor costs and costs of material and supplies. This difficulty is compounded by the fact that the private carrier looks to the sale of his goods as the source of profit and seeks no more from transportation than the return of his out-of-pocket cost. This is largely true with the buy-and-sell hauler, the gypsy, and the unregulated transporter of exempt commodities.

NEITHER THE ICC NOR TIE RAILROADS SANK COASTAL SHIPPING

One of the persistent contentions of those who advocate putting competitive rates in a straitjacket is that the ICC and the railroads have conspired to sink American coastal shipping. The facts simply do not support such a conclusion.

You will recall that in hearings held before the Merchant Marine and Fisheries Subcommittee during the first half of last year consistent assertions were made that the ICC and the railroads are jointly responsible for the declining position of the American coastwise and intercoastal shipping industry.

It is a fact that American coastal shipping has deteriorated very materially in the past 20 years. But if we are going to conduct a post mortem we should examine the record before we start hanging the anchors of sunken ships around the necks of the ICC and the railroads. The U-boat did its share of the sinking of our domestic fleet during World War II, and labor costs, construction costs, mainte

nance and operating costs-spiraling costs of all kinds took over from there.

After the war and for a period of years the Nation's railroads published one horizontal rate increase after another. As a consequence there could have been no better time, as far as the level of rates was concerned, for coastwise water carriers to reinstitute their operations. Why didn't they start? Not because the railroad rate structure was so low as to prohibit a reasonable differential water rate, but because after study the water operators voluntarily came to the conclusion that the high cost of ship construction and stevedoring just would not permit a profitable operation. During the period of the successive rail increases after the war the trucks, regulated common and contract motor carriers, gypsies, private carriage-all seized the opportunity to capture the traffic of the railroads, and of the water carriers who were so busy trying to make up their minds what to do.

Meanwhile, in 1932, Seatrain Lines had started their method of loading vessels with freight laden boxcars between the northeast coast ports and Cuba and the southwest. Seatrain was successful and there were no serious complaints by other carriers about their differential rates, except by the break-bulk steamship lines. Then in 1957 PanAtlantic, a competitor of Seatrain, expanded the Seatrain principle by loading converted vessels with 226 trailers each. Their initial rates filed with the Commission were considerably under the rail rates. The rails requested the Commission to suspend the rates but suspension was denied. Thereupon the rails published rates in an attempt to retain the traffic which was so rapidly being lost to PanAtlantic, but the rates were, for the most part, suspended upon protest of the motor carriers and Pan-Atlantic. During this time the trend of Seatrain's profits took a drastic turn for the worse, not because of rates initiated by the rails, but rather because of the competition of Pan-Atlantic.'

And gentleman, may I just interject one brief comment. The reason I put these comments in my statement was to present to this committee what the real facts are on coastwise shipping, because Seatrain and Pan-Atlantic are about the only substantial coast wise operators in the field. Therefore they are worthy of mention.

The majority report of the Merchant Marine and Fisheries Subcommittee itself warns about drawing any conclusions from charges made against the Interstate Commerce Commission during the course of the hearings. The majority state:

Although these figures show a sharp and alarming decrease in the size and commercial participation of the domestic water carriers from the time the ICC became the regulatory agency, standing alone they would not support the accusations made against the Commission. Every domestic deep water vessel, including many of the smaller vessels on the Great Lakes, was taken over by the Government at the outset of World War II; a great number were lost and many owners elected not to resume operations because of high replacement and operating costs. The newer vessels that are now in the trades are faster, which adds to the carrying capacity of each ship over a period of time. Moreover, there has been a growth of contract and industrial water carriers. [Emphasis added.]

Even before the ships of domestic water carriers were taken over during World War II the industry was in trouble. In Consolidated Southwestern cases, 276 I.C.C. 349, decided by the Commission in

1949, the Commission said, speaking of operations in the North Atlantic-Gulf trade:

From 1931 to 1940, inclusive, the break-bulk lines (not including Newtex Steamship Corp.) sustained an aggregate operating deficit of $8,140,814.

The same situation prevailed on the Pacific Coast.

In All Rail Commodity Rates Between Calif., Oreg., and Wash., 277 I.C.C. 511 decided in 1950, the Commission said:

The plight of the waterlines is not caused by an unreasonably low level of rail rates, but is primarily due to their own high terminal costs and to the accessorial costs incurred when a shipper uses water service.

Cost figures introduced in the foregoing case showed that the water operations along the Pacific coast incurred port costs which alone substantially equaled the entire cost of handling the traffic by rail. How could the Commission possibly require the railroads to maintain a rate structure high enough to hold an umbrella over such costly and inefficient service?

Gentlemen, I am making an observation here that has never been made before to my knowledge. For many years it was taken for granted that water service would and should be priced at a differential under rail rates. That differential reflected the difference in price which the shipper was willing to pay for a slower as against a faster service, or the reverse. Things have vastly changed and I am afraid we may be confusing to issues here.

The coastal water carriers flourished in the days before the advent of the trucks, and in an era when rail service was almost incredibly slow by today's standards. I remember when a less-than-carload shipment of freight by rail took 2 or 3 weeks from New York to Chicago 4 weeks from New York to Los Angeles. By boat through the canal it took longer, of course, but there was enough comparability in the services-timewise-to afford a reasonable basis for a logical differential.

Today the time gap between the two services has changed so radically as to render it almost useless as a measuring stick for a differential.

Gentlemen, the time from New York to Chicago today in rail piggyback is 19 hours, almost as fast as the 20th Century. The time today from New York to Los Angeles by piggyback freight is fourthnight arrival. Just get the distinction in the point I am trying to make here.

The superhighway-the roller-bearing flatcar-piggyback service which eliminates yard and terminal delays-these and many other technological improvements have revolutionized surface transit time. The increased speed of modern ships has not kept water service within measurable distance of land service, in terms of transit time. And make no mistake about it, shippers do not buy water service or motor or rail service-all they buy is transit time, and their rate formula is time and price.

Thus, the historic reason for a differential that will provide an incentive adequate to make water service fully competitive with land transportation has all but faded back into history. It was an economic reason, and it would be a mistake to try to revive it by artificial respiration in the form of statutory rate umbrellas such as S. 1197 provides.