makes it the "duty of rail carriers to establish reasonable through routes with common carriers by water and reasonable rates applicable thereto," and equitable divisions, and reasonable facilities for the interchange of traffic,12 the rail carriers have not distinguished themselves for their zeal in fulfilling this duty.13 Furthermore, despite the restrictions upon its power, the Interstate Commerce Commission could have expedited these cases and asked Congress for more power, if necessary, to deal with this type of case and compel through routes and joint rates where it receives no cooperation from one or more litigants. We recommend granting the regulatory agency broadened powers in this respect, where evidence of bad faith exists. Certainly, there is precedent such as in the Labor Relations Act for this criterion being used.

Proponents of diversification also claim that approval of their proposals would insure maximum development of containerization and piggyback. There should be no question that certain present adverse management attitudes toward this progressive step might be changed, but we find no evidence to indicate that diversification is essential to this development. There is no reason why the regulatory agency could not regard a demonstrated favorable attitude toward piggyback and containerization in an applicant for physical integration of different modes as one indication among others that common ownership would not be abused by the applicant.

Opponents of diversification seem to base their position on the fear that the owning (dominant) carrier in such a combination would use the owned carrier as a tool of unfair competition against independent carriers of the owned mode. We do not suggest any change in the provisions of the Interstate Commerce Act and other existing law which prohibit unfair methods of competition. Common carriers by highway which are now in operation will still be protected by certificates of convenience and necessity and new certificates will still be denied in the absence of a need being shown for additional service. The regulatory agency will still have the duty to weigh the policies expressed by our antitrust laws in passing upon the transfer of certificates or the granting of new certificates. The regulatory agency will still have maximum and minimum rate powers which it can make use of to prevent rates being charged when they are below a compensatory level. As a matter of fact, our recommendations for a cost related pricing system to be developed 14 should make it a much easier task for the regulatory agency to prevent unfair or otherwise illegal methods of competition once the true costs in all modes of transportation are better known.

Opponents of the physical integration of modes also point to public statements of proponents to support the point that the owned carrier would not be permitted to compete for traffic with parallel service of

12 See "National Transportation Policy" with respect to "coordinating," and secs. 1(4), 3(4), 15(3), 305(b), 307 (d), and 6(11) of the Interstate Commerce Act.

13 In 1928, several bargelines tried to coordinate barge and rail transportation by the establishment of joint rates with connecting railroads on specific items of traffic. These cases were consolidated in 1934 after years of hearings and legal maneuvers. More hearings were held. In 1948, the Commission handed down a decision which was appealed to the Supreme Court of the United States which ruled in favor of the bargelines in 1951, but the economies of barge transportation had changed so drastically that the decision was practically meaningless. See ICC docket No. 26712-1934. Several similar examples, where years were used up in litigation between rail carriers and barge operators rather than coordination and cooperation being attempted could be cited.

14 See pt. VI.

the owning carrier, this to the detriment of the user. Unfortunately, some proponents of common ownership have in their statements given cause for such apprehension. In the application by the Illinois Central and the Southern Pacific Railroads for authority to buy the John I. Hay Barge Line now pending before the Interstate Commerce Commission, cross-examination of Mr. Wayne Johnston, president of Illinois Central Railroad in March 1960 brought out the following information:

Question. Or if the line was not being operated to the best interests of the railroad, you would then interfere, would you not?

Answer. To the best interests of the railroad, and to the bargeline, and to the public, we would then have to interfere.

Had the exchange ended there, there could be no criticism, as this should be the attitude of the dominant carrier.

The cross-examination went on to bring out this further disconcerting attitude:

Question. And the railroad interests would necessarily come first?
Answer. Certainly, because that is where our first interest is

Question. Your first responsibility, insofar as protecting investments, is the railroads' investment?

Answer. That is right.

It is because of this attitude which exists among many carriers that we have ventured the prediction that true transportation companies, as we view their role in the public interest, are still a far way off and that we do not anticipate a rash of grants of applications by the regulatory agency in the event our recommendation for dropping the special restrictions in this respect are enacted into law. The regulatory agency can, as at present, occasionally grant applications for physical coordination even with the less desirable attitude outlined above when the immediate end is to bring out the full potential of the dominant carrier and the agency is convinced that the net effect will be in the interest of the public as a whole and in the long run interest of the shipping public, but this latter finding is much more difficult to arrive at when the attitude is thus egocentric rather than directed primarily at the strengthening of our transportation system as a whole and designed primarily to increase the service to all shippers. The regulatory agency should forecast the future of an applicant's conduct in the public interest from the record of his past attitude towards such things as intramodal and intermodal coordination, piggyback, modernization of equipment when warranted by adequate profits, etc. Under proper supervision by an alert regulatory agency, common ownership need not and, of course, should not result in monopoly. While recognizing that monopoly could result from common ownership if only one such combination existed in the area, we are forced to reject the possibility that this would be the case. In fact, such common ownership between a rail carrier, trucking companies and water carriers on the one side could well bring about the balance necessary for all of them to compete on equal terms with a powerful rail carrier in the same area of the country. In some sparsely settled areas, even a monopoly could better serve a region than the incomplete and unsatisfactory individual services being rendered presently by a small number of companies constantly on the brink of financial disaster and unable to meet the needs of the public. Cer

tainly the Congress cannot decide these questions in the public interest by a blanket refusal to allow all modes to integrate. The expert body, the regulatory agency recommended in this report, would be the only one in a position to adjust the various ingredients of our national transportation policy to a complicated set of facts concerning the carriers involved and to the national, regional, and local interests in a rapidly changing technology. This is the sound approach dictated by the ever changing needs of the greatest transportation system in the world, which is still wed unfortunately to 19th century methods, and is an approach which is divorced from the partial considerations of what is best for a particular carrier or mode.

There is no question that physical coordination or integration of the services offered by the various modes is a highly desirable development in our transportation system and a first step towards common ownership. Such coordination has been advocated for years by most students of transportation and its desirability has been recognized to a limited extent by section 1(4) and 305 (b) of the Interstate Commerce Act establishing a duty on the part of rail and water carriers to publish joint rates upon reasonable application therefor.

It has been noted, however, that this duty has been evaded far more than it has been fulfilled. Evasion has been possible because application of the joint rates sought has in some cases been delayed through protracted court action until, when finally approved, as has always been the case, the traffic for which the rate was intended has disappeared.

Despite the discouraging history of joint-rates and through routings we believe that this approach to coordination should be tried once more before it is discarded, but to have any chance of success certain other actions as recommended below should be taken.

1. Repeal the broad congressional policy against rail carriers engaging in other forms of transportation except in special circumstances and allow the regulatory agency, under the factual situation presented in each application, to determine for any and all carriers whether ownership of one or more modes or an extension of the present "auxiliary and supplemental" test for a particular carrier of any mode is in the public interest. As in the case of applications for radio frequencies or television channels before the Federal Communications Commission, the regulatory agency should be allowed to grant authorizations henceforth for common ownership of different modes for a period of 3 years. After each 3-year period, when the applicant renews his or its license, it would have to give an account of its stewardship. If it is abusing its license, the permit could be denied. Conditions designed to protect the public interest could be attached to the grant on a take-itor-leave-it basis. The regulatory agency should, also, as in the case of the Federal Communications Commission under the Federal Communication Act of 1934, as amended, as a result of complaints or upon the regulatory agency's own initiative, have the power to order the applicant at any time to come in and establish to the satisfaction of the regulatory agency that its license to engage in intermodal ownership should be continued. In the event that the grantee of such a license is in violation of law, or if the regulatory agency finds that the applicant is not conducting its

business in the public interest, the grantee could be ordered to divest himself or itself of the additional modes which were authorized under the license and the grant of the franchise for other modes of transportation could be awarded to another applicant or applicants. In this manner, the public interest could be protected at any time, rather than for the public to be saddled permanently with the results of an initial error of judgment on the part of the regulatory agency. A transfer of the franchise, of course, could be made only with the approval of the regulatory agency which should have the right to inquire into the qualifications of the transferee and to deny for cause the license. În addition, the grantee under such a setup has a constant incentive to live up to his or its public trust. The requirements should be uniform for all carriers. Consolidated Freightways, Inc., a large motor carrier, has expanded into steamship operations, railroad tank car leasing operations and the manufacture of such commodities as rail car frames. A water carrier, Pan Atlantic Steamship Corp., controls extensive motor carrier operations. Motor carriers are now attempting to expand into the field of freight forwarding. Freight forwarders are carriers under the Interstate Commerce Act. All of these situations are equally fraught with danger to the public and they should be tested similarly by the expert body, the regulatory agency, as in the case of a rail carrier seeking to expand into other modes, at the touchstone of the public interest.

2. Extend the provision of section 1(4) requiring intramodal joint rates and through routings by railroads to apply to common carriers of all modes.

3. Extend the provisions of section 1(4) and 305 (b) of the Interstate Commerce Act, requiring through rates and joint rates as between rail and water carriers to apply to all modes so far as the regulatory agency finds the traffic is suitable to the mode.

4. Extend the present interchange requirements imposed on rail carriers to apply to intramodal and intermodal interchange by all common carriers insofar as traffic reasonably suitable to the mode is concerned. Routing to be the privilege of the user in all cases. 5. Establish regional joint rate bureaus under the antitrust umbrella to facilitate and expedite all rate actions as well as, specifically, intermodal joint rates, and through routings. Place a regional chief examiner of the regulatory agency with an adequate staff in charge of the regional rate bureau.

6. Broaden the powers of the regulatory agency beyond the Interstate Commerce Commisison's present powers with respect to through routes and joint rates by giving the power to the regulatory agency to compel such when it receives no cooperation from a carrier involved and the latter's acts or refusals to bargain upon the matter amount to bad faith. The regulatory agency's power in this respect should extend to the issuance of a regulation, if it deems that one is needed, which would create a prima facie presumption that the failure to establish coordinated service simultaneously with the establishment of service by one mode alone, if unexplained and good cause is not shown for such action, would amount to discrimination against other modes desiring and willing and able to participate.

7. Provide by legislation that a user as well as a carrier may initiate an application for joint rates and through routings by

common carriers.

8. Require by law that an applicant for joint rates and each respondent and intervenor submit, under oath, full cost information pertinent to his part in the action, to the extent that costs can be ascertained. The knowledge of costs will improve as a result of our recommendations in another part of this report.15

9. Facilitate action by railroads to substitute interchange with highway common carriers at main traffic centers for unprofitable branch line and way station rail service.

CHAPTER 4. CONSOLIDATIONS AND MERGERS

A. INTRODUCTION: THE PROBLEM TODAY

The chairman of the board of the Nation's No. 1 railroad in terms of investment, Mr. James M. Symes, stated that:

If someone asked me what I consider the most important single thing the railroads can do to get the industry back to its healthy and vigorous status of 30 years ago and ready to take a progressive place in the transportation of tomorrow you have been talking about, I would answer in one word-mergers.1

During the past 6 years there has been a renewed and increasing interest in consolidation of the Nation's railroads. It is a revival of an old issue, but appearing in a somewhat new garb. In this discussion of consolidation it should be clear that it means the actual unification of properties under single corporate management with a result that they can be managed and operated as a unit. In this sense, consolidation includes merger, consolidation, long-term lease control, and ownership of all the assets of corporations still legally existing in name only when the result is unified operation. To the railroads and to the Nation as a whole, the issue of consolidation no longer has for its primary objective the equalization of rate of return between weak and strong railroads, the exercise of control to assure participation in interchange traffic or as an alternative to coordination of activities to reduce waste here and there through isolated local activities. The issue is more and more a matter of survival of a privately owned railroad industry which is able to exploit to the fullest the inherent advantages of railroad transportation set about as it is with growing competition with other modes of transportation.

There is nothing new about consolidation in the history of American railroads. Mergers and consolidations characterize their entire history. Our present 500, and more, operating railroads have evolved by merging and consolidating what was once 6,000 railroads. The Pennsylvania Railroad system itself represents a combination of 600 roads. The question before us then is, not one of introducing consolidation for the betterment of American railroad industry, but attempting to answer the question as to why this process which characterized the progress of the industry for so many years has ceased to do so when the stakes are as high, if not higher, than ever before, then to consider

16 See pt. VI of this report.

18 Remarks of James M. Symes, chairman of Pennsylvania Railroad at Southern Research Institute Conference on "Tomorrow's Transportation," Birmingham, Ala., Sept. 30, 1960.