Since the passage of the Transportation Act of 1958 the rail carriers have made several rate adjustments in grain and grain products for the purpose of comDeting with other modes of transportation. They have recently effected reducions in rates on grain when moving in export to gulf ports, the Great Lakes, and the west coast. They have also reduced their rates on grain from country stations to primary markets, and from country stations directly to points of consumption. A reduction in rail grain rates is of direct benefit to the producer as the producer historically sells his grain for the market price, less freight. Possibly minimum rate controls may be necessary to prevent unfair and destructive competitive practices. However, as previously stated, we believe the Interstate Commerce Commission already possesses that authority as set forth in the national transportation policy, and because the Commission does possess this authority, the legislation here under consideration is unnecessary and should not be aprpoved.

We believe that selective rate reductions are not unfair or destructive but will provide means to modernize present railway structure and reflect the advantages of rail transportation; and that selective rate reductions by railroads will provide means to that end.

Therefore, I strongly urge and trust that the Congress will not take any steps that would change the provisions as established by Congress in the Transportation Act of 1958.

M. E. NEELY, Executive Vice President. APPENDIX A

MEMBER FIRMS OF THE OMAHA GRAIN EXCHANGE

STATEMENT OF W. B. OLDHAM ON BEHALF OF THE NATIONAL RETAIL LUMBER DEALERS ASSOCIATION IN OPPOSITION TO S. 1197

My name is W. B. Oldham of Dallas, Tex. I am president of the Oldham Lumber Co. This statement is being presented in my capacity as president of the National Retail Lumber Dealers Association, of which my company is a member, and in which I have been active for many years. The association opposes bill S. 1197 and requests the committee not to recommend its enactment.

The National Retail Lumber Dealers Association is a nationwide organization of retail lumber and building material dealers; its membership includes 32 State and regional associations composed of retail dealers in all areas of the United States, all of which have a common and substantial interest in transportation matters. Its membership makes use of all forms of transportation. The association's only interest in this hearing is to assist in the promotion of a sound transportation industry.

The association has been active in matters of transportation importance since its inception and has followed closely the work and recommendation of former congressional committees and of the Congress. The enactment of section 15(a) (3) was constructive legislation.

Bill S. 1197 proposes to change the rule of ratemaking so as to render nugatory the intent of Congress and the law, as it is now written. It would amend section 15(a) (3) so as to require the Commission, in a case involving competi73155-62-pt. 2-23

tion between carriers of different modes of transportation, to consider (1) the effect upon the earnings of the carrier to which the rate is applicable; (2) the competitive necessity for the rate; (3) its effect upon a lawful rate structure: (4) its tendency to cast an unjust burden on other traffic, and (5) to provide that the rates of one carrier shall not be held up solely to protect the traffic of any other mode of transportation.

As we understand S. 1197, the effect of this legislation would be to have the Commission substitute its judgment for that of management when dealing with the making of competitive rate reductions, and would further require the carrier to prove a competitive necessity when a proposed rate is challenged by a com peting mode of transportation. It would further require the Commission to consider the effect of a proposed rate upon the rate structure of another mode of transportation and would permit the Commission to condemn the rate redue tion if it were lower than a maximum reasonable rate maintained by the other mode. Management's freedom to make competitive rate adjustments is, indeed. limited at the present time, and the amendment to section 15(a) (3) will tend to influence the Commission to become even more restrictive in the consideration of competitive rate cases.

This association believes that a regulation must be impartial and must not attempt to preserve one mode of transportation as against another. The association believes that the responsibility in making competitive rates should be in management, with a minimum of governmental supervision and control. We feel that this inures to the benefit of the shipper and the public.

It is the position of this association that rates should be made according to the transportation circumstances and conditions surrounding the particular movement, rather than the effect such rates may have on some other carrier or mode of transportation.

A study of the bill would indicate that the primary aim of S. 1197 is to prevent reduction in rates that are made selectively. The bill would require the Commission to consider the effect of such reductions on the lawful rate structures of the competing carriers. We do not believe this is to the best interests of the shippers and the consumer public.

To force the railroads to continue to adhere to the value of service principal or to prevent them from making rate adjustments if and when necessary to attract traffic would be to deny the inherent cost advantage of rail transportation whenever it exists. Unless rates can be made on the basis of the cost of provid ing the service, it is obvious that the system cannot exercise this advantage Furthermore, to prevent railroads from taking advantage of their low-cost service, the shipping public, as well as the general public, suffer. We all realize that competition also exists among shippers and, consequently, any savings in the form of transportation charges ultimately are passed on in whole or in part to the actual consumer, while, at the same time, allowing all modes of transpor tation to compete equally for the particular traffic involved. This is particu larly true in the highly competitive lumber and building material industry. That transportation charges play an important part in the pricing of our prod ucts is without question. Consequently, when transportation charges increase. the price of our product is increased. However, as stated, in our highly co petitive industry we are not free to increase this price indefinitely and continue to market our product. Therefore, when this "saturation point" is reached. We are forced to look to private carriage for relief. Under the proposed legisla tion, the lumber and building material industry, the shipping public and the consumer public, as well as the transportation industry, suffer.

In behalf of itself, the shipping public and the consumer public, the associatio urges the committee not to approve or recommend bill S. 1197 to Congress.

STATEMENT OF JAMES C. O'MALLEY, THE O'MALLEY LUMBER CO., PHOENIX, ARIZ IN OPPOSITION TO S. 1197

My name is James C. O'Malley. I am president and general manager, reta division of the O'Malley Lumber Co. of Phoenix, Ariz. My company acts distributor of lumber and millwork. The company operates 21 retail yards, wholesale distribution yard, and 5 sash and door companies. Its main office Phoenix, Ariz.

Texas.

We have branches throughout Arizona, New Mexico, and we

I am making this statement in opposition to S. 1197, which would amend section 15a (3) of the Interstate Commerce Act, to restrict rail common carriers from exercising a fundamental freedom of fixing rates for their transportation services.

The basic law which this bill seeks to amend was enacted as a part of the Transportation Act of 1958. At that time numerous and extended hearings were held before congressional committees, and prior to enactment of the present law every aspect of all matters affecting the establishment of rates for transportation services were fully and fairly considered.

The present attempt to amend this law so recently enacted is based upon the purely selfish interests of competing modes of transportation. This is. selfevident by a reading of the bill which imposes unjust and unwarranted burdens upon a carrier to support its publication of a particular competitive rate. Among other things, it would require that the Interstate Commerce Commission consider (1) the effect upon the earnings of the carrier to which the rate is applicable, (2) the competitive necessity for the rate, (3) its effect upon a lawful rate structure, and (4) its tendency to cast an unjust burden on other traffic. In Arizona, which is often referred to as the "wide open spaces," we are greatly dependent upon rail and truck transportation, principally the latter, and I firmly believe that both of them are most essential to our economy. Not long ago we received a substantial rail rate reduction in interstate shipment of lumber and plywood from Oregon and California into Arizona, and this was certainly proper and equitable and did not hurt the franchised truck carriers. It did stifle a lot of unfair and so-called wildcat trucking competition which we all know is not good for the economy, and many of their rigs are dangerous on the highways because they do not keep their equipment up to minimum standards.

I believe that it would be improper and inequitable to impose on our rail carriers these burdensome restrictions which would deprive rail carriers of the right to exercise a basic freedom in the competitive economy in which the transportation industry is operating. The basic law under which the railroads are operating with respect to establishment of their rates is fair and reasonable and in accord with the American tradition of free enterprise.

I strongly urge this committee to allow the basic law so recently enacted to remain in effect and that it not approve or recommend the legislation proposed by Senate bill 1197.

STATEMENT OF THOMAS C. PALMER, VICE PRESIDENT OF COMMERCIAL OIL TRANSPORT, INC., FORT WORTH, TEX., IN SUPPORT OF S. 1197

My name is Thomas C. Palmer. I am vice president of Commercial Oil Transport of Fort Worth, Tex. Our company is a specialized common carrier providing tank truck service on a number of products primarily between points in the Middle West. We have annual revenue approaching $3 million and provide employment for some 170 people. We are subject to regulation by the Interstate Commerce Commission and the Interstate Commerce Act.

Regulation of carriers of interstate commerce by the Federal Government is to a large extent prompted by practices indulged by the railroads contrary to the public interest and requiring regulation in the public interest. The fact is that the railroads are powerful organizations-economically, politically, and financially. They use this power to advance their own interests. The trucking industry is made up largely of many small companies, most of them headed by their founders, who in many cases started as a truckdriver. Our company, for example, was started during the depression in the 1930's when our president bought one Dodge truck with a tank mounted on the back and started delivering fuel oil. These companies are no match for the railroads. In the absence of regulations the railroads can pick out individual truck carriers or groups of truck carriers and cut the rates on particular commodities or between certain towns and put those carriers out of business or thoroughly discourage any strong competition from them.

Why would the railroads want to do this? Because in the absence of strong competition they can charge more for their service and make more money. This is no way to build strong, free enterprise: this is the way to build monopoly and guarantee higher transportation costs for the public to pay. In other words the railroads want freedom like the Russians, to destroy others-not to serve the general interest. That is why S. 1197 is essential legislation to spell

out Congress' intent in amending the Interstate Commerce Act in 1958 and stop further experimentation by the Interstate Commerce Commission to de terioration of the national transportation situation.

Our company has been the target of the railroads on a least two occasions That we are still in business shows the strength and value of free enterprise When we were hit flat on our backs instead of going to the Government and asking for help (like our railroad friends do) we set about seeing what we could do for ourselves by doing a better job of running our business and serving our customers better. We aren't out of the woods yet, but we are still paying our bills and steadily improving our position.

The following explains what happened to us, what we did about it, and is effect.

The great majority of our interstate business has been the transportation of crude vegetable oils from producing mills to refineries and of refined vegetable oils from refineries to their customers. Probably the greatest concentration of vegetable oil refineries anywhere in the United States is to be found in Texas Initially, our operation was intrastate; and, though a half dozen carriers in Texas had authority to render service, we specialized in it; and, with few exceptions, provided all of the common carrier tank truck service for the re finers in Texas. These refiners then asked us to commence interstate operations We applied for the necessary authority and were granted it by the Interstate Commerce Commission.

Our business steadily grew on the foundation of rendering the customers the kind of service they needed. Not only was it our policy to give good service which we did, but we were compelled to; otherwise, competitors would have been granted authority, and we would have lost the business after investing great deal in building it up.

In order to give the service required of us by our customers it was necessary to go into an expansion program which more than doubled our volume in a short period of time. It was necessary for us to build a new terminal; to expan terminal facilities; to hire, train, and build an organization; to buy hundreds of thousands of dollars of equipment; and to learn, the hard way, the expensive way, through experience. This expansion cost us a lot of money. We were able as a result to take care of every demand made of us for service during this period of time. We became the largest motor transporter of vegetable oils in the Middle West. The great weakness in all this was that our interstate business was almost entirely in vegetable oils. Our equipment though usah for other commodities was designed to transport vegetable oils and due to s and weight problems and other special features was not really suitable fr handling other commodities such as petroleum products. This put us in a very vulnerable position in the event of any diversion of traffic from our company " other modes of transportation.

Prior to and during this period the railroads demanded and got a number rate increases on vegetable oils, and insisted on another such increase at the same time as they were considering the possibility of cutting their rates. We cannot understand how the railroads can be allowed rate increase after r increase (14 actions raising rail rates on vegetable oils were allowed by the Interstate Commerce Commission in the 11 years immediately before the ve table oil rate cut: see app. A) and then be allowed to single out a specific o modity they previously refused to exclude from the general rate increases and to drastically cut the rate on the selected commodity. Since in this case the railroads were making their plans to cut the vegetable oil rate at the same time they insisted it be included in a general rate increase, it seems clear they we counting on the increase in other commodities to make up the impending l of revenue on vegetable oils. We cannot see how this is in the public interes Instead of cutting their rates to meet our rate level, their alleged competitive they applied for rates substantially below our own (app. B). Since the amo of traffic our company handled was relatively small compared with the t vegetable oil traffic handled by the railroads, the proposed rate cut was so gre that even if the railroads got all of the traffic back, not only from our compa but from all the other tank truck operations, they would have wound up w off than if they had not cut the rates at all, and let trucks retain the amount of traffic they had been handling.

The National Tank Truck Carriers Association protested the railroad cut (February 13, 1958), and the Interstate Commerce Commission suspende the rate (April 18, 1958) and ordered that an investigation be made and a bes”

ing held. (The steps in this case are listed in app. C). Excerpts from this protest establishing the grounds on which suspension was sought are attached to copies of this testimony in appendix D and document in detail the terrible destructiveness of such railroad rate cuts. Before the hearing could be held, amendments were made to the Interstate Commerce Act. The railroads were then able to circumvent the suspension and to get cut alternate rates published which the Interstate Commerce Commission did not suspend. These cut rates became effective on October 27, 1958.

It is interesting to note that the biggest month in our company history was the same month of October 1958, when in order to discharge our responsibility to the shipping public, in accordance with our certificate from the Interstate Commerce Commission, we were required to operate the largest number of trucks we had ever operated in order to handle the traffic tendered to us by our shippers. We had to do this in spite of the fact that we knew that after October 27, there would be a drastic reduction in the use of our service because the rail rates would be lower than our own. After having authorized our service and having found it to be required by public convenience and necessity, and after laying the responsibility on us for rendering this service, the Interstate Commerce Commission did absolutely nothing to protect the continuation of that service. I am sure that no private businessman not so regulated and obligated would ever expand his operations to the maximum he had ever provided knowing that in the next month his operations would be severely curtailed if not eliminated. It would be absolutely unreasonable and unjustified from an economic standpoint. (The effect on our business of the rail rate increases and rate cut

are shown in app. E.)

As a result of the rate cut we had no alternative but to cut our own rates as much as possible. It was impossible for us to meet the rail rates generally. We did meet the rail rates at as many points as we felt that we could and cover our out-of-pocket expense plus at least some contribution to our overhead and fixed charges with which we had been saddled as a result of the great expansion in our business. Our next step was to put our drivers into business. We found that by having each driver own his own truck and run his own business we could get the job done for less than it had cost us previously. Of course, some of the men went broke trying it, but the remainder are getting the job done, illustrating the fundamental soundness, strength, and importance of free enterprise as contrasted with monopolistic cartel-dominated economies. We and our independent contract operators were then aided by increased weight limits, so we have been able to stay in business while alternate commodities and services could be developed to replace the lost vegetable oil business. Without these adjustments, we would have been forced to price ourselves out of the market; we would have no longer been in a position to sustain the necessary reserve equipment and support organization and facilities necessary to render the kind of service which we have found that the vegetable oil refining industry expects of a common carrier.

Because of the specialized nature of our business, a reduction such as we have experienced is particularly damaging since it constituted the largest single segment of our business and our equipment was not readily marketable for other uses. We were not in a position to expand our operations in other fields overnight. Our terminal facilities were not well located with respect to handling other business since they were established to take care of this particular industry.

We have been offered a number of opportunities to extend our service for shippers in various fields since we have experienced this damaging blow in the vegetable oil business. We have turned down these propositions even though there was no bulk service available to the shipper and it would be an asset to their business. The reason we turned down this business is because we knew that we would receive absolutely no protection from the Interstate Commerce Commission from destructive, punitive, selective rate cutting by the railroads. We would be compelled by the Interstate Commerce Commission to make the necessary investment in equipment, organization, and other facilities to handle the business we would be authorized to handle or be faced with authorization of additional service by other carriers or revocation of our certificate. Naturally it is impossible to operate under such conditions and foolhardy to make investments in such a situation. If the Interstate Commerce Commission authorizes a service for the shipping public, the specialized character of which requires the investment of thousands of dollars in order to render the service, the carrier must be protected from the indiscriminate and intentionally destructive, selective