Common carriers of general freight, 1st quarter, 1958 and 1957

Mr. ROBERTS. Thank you, Mr. Pinkney. The committee will resume its hearing at 1:30 this afternoon. I believe the next witness at that time will be Mr. Robert J. Corber, National Association of Motor Bus Operators.

The committee will be in recess until 1:30 this afternoon.

(Whereupon, at 12:05 the hearing recessed, to reconvene at 1:30 p. m. of the same day.)

AFTERNOON SESSION

Mr. ROBERTS. The subcommittee will please be in order.

Our next witness is Mr. Robert J. Corber, National Association of Motor Bus Operators, Washington, D. C.

Mr. Corber, the committee welcomes you, and you may proceed with your statement.

STATEMENT OF ROBERT J. CORBER, COUNSEL, ACCOMPANIED BY HAROLD R. HOSEA, DIRECTOR OF RESEARCH, NATIONAL ASSOCIATION OF MOTOR BUS OPERATORS, WASHINGTON, D. C.

Mr. CORBER. Thank you, Mr. Chairman.

My name is Robert J. Corber. I am counsel for the National Association of Motor Bus Operators. My appearance today is on behalf of that association. It is the national trade association for the interstate motorbus industry.

It was our hope, Mr. Chairman, that we would have someone from one of the operating companies among the membership of NAMBO in making this appearance today, but it wasn't possible in the time available. In lieu of that, I have brought with me two statements which were made on behalf of the national body before the Surface Transportation Subcommittee of the Senate Interstate and Foreign Commerce Committee during its investigation of the current railroad problems. Those statements were made by Mr. Claude Jessup, who is the president and general manager of Virginia Stage Lines at Charlottesville, Va., and Mr. Arthur S. Genet, who is president of the Greyhound Corp. Both of these gentlemen are also directors of the national body.

I would like to request, Mr. Chairman, that those statements be received in the record as a part of these hearings. They are, as I say, the statements of representatives of operating companies, and they are directed to matters under consideration by the subcommittee. Mr. ROBERTS. Without objection, the statements will be received. (The statements referred to follow :)

STATEMENT OF NATIONAL ASSOCIATION OF MOTOR BUS OPERATORS

My name is Claude A. Jessup. I am president and general manager of Virginia Stage Lines, Inc., Charlottesville, Va., an affiliate of the National Trailways System. I am also a director of the National Association of Motor Bus Operators, I appear before your committee today on behalf of the National Association of Motor Bus Operators. NAMBO is the national trade association for the intercity motorbus industry. It serves as spokesman for nearly 1,000 carriers which account for about three-fourths of the intercity motorbus transportation in the United States.

The intercity bus industry serves all the major cities in this country. What is even more important, it furnishes the only means of public passenger transport in thousands of communities which, for economic reasons, the railroads and airlines do not serve. The bus industry also supplies the only package express and firstclass pouch mail service in many of these communities. Service to the smaller communities is growing in importance with the railroads' gradual withdrawal of trains. At the present time, exclusive of mass commutation travel, intercity buses transport some 35 percent more passengers than the railroads.

I might explain that my purpose here is not to belittle the seriousness of the railroads' plight or to attempt to throw roadblocks in the path of their efforts to obtain relief. Their testimony clearly indicates that they are rapidly moving

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toward financial failure. As a member of our national transportation system, the intercity bus industry is naturally concerned about this growing crisis which threatens the entire transportation industry. No one would seriously question the fact that the railroads are an essential part of our transportation structure. So are the intercity bus companies, I might add. The Nation cannot afford to lose either of these forms of transportation through financial failure. Accordingly, the intercity bus industry supports efforts of the railroads to obtain legislative relief. In fact, it may be pointed out that the intercity bus industry has equally grave problems not unlike those of the railroads. It is hoped that some measures may be forthcoming which will enable the transportation industry as a whole to surmount its common difficulties.

This is not to say that every proposal advanced by the railroads should be adopted. In considering their proposals, it is important not to lose sight of the fact that our transportation system is made up of a number of different modes of transportation, each contributing its part to our Nation's transportation needs. One of these is the intercity bus industry and another is, of course, the railroads. All are essential to a sound transportation system properly serving national needs. It is the function of Federal regulation to weld these various forms of transportation into a coordinated system which can serve the broad national interest in adequate transportation even where some of their interests may conflict. Congress clearly expressed its views in this regard in the national transportation policy where it was provided that regulation of carriers subject to the Interstate Commerce Act should preserve the inherent advantages of each and be directed "to the end of developing, coordinating, and preserving a national transportation system by water, highway, and rail, as well as other means, adequate to meet the needs of the commerce of the United States, of the Postal Service, and of the national defense." (Act Sept. 18, 1940, 54 Stat. 899.)

Many of the proposals of the railroads are consistent with these principles. We therefore support (1) the proposals to eliminate the burdensome transportation excise taxes, (2) the proposals for tax relief in connection with the replacement and modernization of new equipment and facilities, (3) the proposal to restrict the inroads made on public transportation by so-called private carriage, (4) the proposal to establish Federal responsibility in the discontinuance of unprofitable passenger operations, and (5) the proposal to provide for compensatory mail rates. The intercity bus industry supports these proposals because, in our opinion, they will serve national interests by benefiting carriers in a way which will benefit the public.

One proposal by the railroads, however, does not meet these requirements and we must oppose it. That is the proposal to establish the three so-called “shall nots” of ratemaking.1 It gives the railroads the almost unrestricted right to underprice other modes of transportation. This would only result in weakening our national transportation system as a whole, and will not help the rails to solve their economic problem.

Before discussing these matters in detail, I should like to correct some misunderstandings which may have developed in the course of the presentation by the railroads. One implication of the railroad testimony appears to be that the railroads are the only form of transportation experiencing critical times. This is not correct.

The precarious financial predicament of the intercity bus industry is not a matter of mere conjecture. Of 126 class I intercity bus companies (i. e., those with annual gross revenues of $200,000 or more) for which final reports are available for 1957, 34, or one-fourth, incurred overall deficits, and 4 others just broke even. While precise figures on a current basis are not available, it is common knowledge that the smaller intercity carriers, which far outnumber the class I group, are in a much more precarious financial condition. Many have been forced out of business. A recent study in the State of New York showed, for example, that about 10 percent of all companies failed in less than 2 years.* An additional indication of the financial difficulty of the intercity bus industry is that class I carriers showed a combined operating ratio of over 90

1 Specifically, the proposed amendment would provide that, in prescribing just and reasonable rates for carriers subject to the act, the Commission "shall not" consider (1) the effect of such rates on the traffic of any other mode of transportation, (2) the relation of such rates to the rates of any other mode of transportation, or (3) whether such rates are lower than necessary to meet the competition of any other mode of transportation. 2 Report of the Special Committee Appointed by the Governor for the Study of the Problems of the Privately Owned Motor Bus Industry, State of New York, Transit Study Committee, 1954.

percent (before income taxes) in 1957. The margin of revenues over expenses which this reflects is too narrow for financially sound operations. A ratio of expenses to revenues of 85 percent is generally considered by the Interstate Commerce Commission to be reasonable and necessary for this type of operation.

One important fact, not generally recognized, is that the fares paid by passengers on regular scheduled bus operations are insufficient to meet expenses on a great many of the routes operated. In fact, the study made by the New England Governors' Conference showed that total regular-route passenger revenues were insufficient to meet total operating costs over the entire region. Wherever this is true, it is obvious that continuation of the essential regularroute service has been possible only by subsidizing it with revenues from charter operations and the transportation of mail and express.

The governors and legislatures in the six New England States and in Iowa, Pennsylvania, New York, Ohio, and Michigan have become so concerned with the problem of maintaining the essential passenger service of the buslines that they have recommended, and in some cases effected, remedial measures in the form of tax relief for the carriers. A select committee of the house of the Michigan Legislature used the following language in strongly recommending tax relief for intercity bus operators:

"It should be noted that there has been established in Michigan a comprehensive system of intercity motor bus routes over which individual carriers operated pursuant to authority granted by the Michigan Public Service Commission, but whose operations are coordinated through the medium of joint-line service so as to produce maximum service to the public. These carriers serve the entire State, and if it were not for their respective services, there would be many areas of this State without any form of public transportation of passengers and related traffic. Representatives of traveling, shipping, and receiving public appeared before this committee and testified as to the absolute necessity for maintaining this service and to the dire results which would befall this State if such service were to be discontinued. * * * Based upon the findings of facts hereinafter set forth, your committee concludes that both the local and intercity divisions of the common motor carrier bus industry of this State are in dire financial straits and that, if the government of this State as well as local units of government do not take immediate, progressive, and objective action, through the medium of tax relief, the above-quoted transportation policy of this State will be thwarted and the public interest *** will be irreparably injured and eventually destroyed."

The second implication in the railroad testimony is that bus companies are subsidized as a result of their use of highway facilities maintained at public expense. Nothing could be more erroneous.

The latest figures available to the National Association of Motor Bus Operators show that in 1956, class I intercity bus companies paid total State and Federal taxes of around $55 million. All other intercity bus operators are estimated to have paid another $10 million in taxes. Of the taxes paid by class I carriers, an aggregate of $29.7 million, or over 52 percent, represented special levies paid only by highway users.

Attached to my statement as exhibit A is a table showing the taxes paid by all class I intercity bus operators per bus-mile operated for use of highways. The table shows that State and local taxes for use of highways averaged about 2.1 cents per bus-mile operated for all carriers in 1956 as estimated by the National Association of Motor Bus Operators. When other user charges, such as tolls, are added to this, the total charges average 2.5 cents per bus-mile. In addition to these taxes, the class I intercity carriers pay about $8 million annually (or 9 mills per bus-mile) for Federal taxes paid exclusively by highway users.

It may be added that Federal highway-use taxes paid into the highway trust fund alone average $540 per year for each bus operated by class I carriers. This takes no account of the other Federal highway use taxes paid into general funds. The $540 for a single bus is equivalent to the Federal highway use taxes paid annually into the highway trust fund by no less than 27 average private automobiles. Moreover, the average State highway use taxes per bus paid by class I carriers is $1,575 per year, exclusive of the $310 per bus paid each year as tolls. It takes the State highway use taxes paid by 34 average private

Report of Committee on Bus Company Failures, Journal No. 16 of the House of Representatives, 68th Legislature, Lansing, Mich., February 7, 1957.

automobiles each year to equal the $1.575 paid for each bus. The figures given here are for all types of buses, whether large or small. They demonstrate beyond question that the intercity bus industry's use of the Nation's highways is not subsidized by taxpayers.

The points I make here are that the bus industry (1) is paying at least as much for the use of our Nation's highways as it receives in value from the use of those highways, and (2) is subject to deteriorating economic conditions not unlike those affecting the railroads. In fact, general reasons advanced in support of legislative relief for the railroads also support relief for bus operators. Both industries are in need of help.

With these general comments I should like now to turn to specific proposals made to the committee in these hearings:

THE THREE "SHALL NOTS" OF COMPETITIVE RATEMAKING

Perhaps enactment of H. R. 5523 and H. R. 5524, now pending in the House of Representatives, would provide some limited and short-range help to the railroads. But they would not provide, as I believe the railroads would agree, any real solution to this problem. They are clearly unjustified because they are discriminatory and unfair to other modes of transportation. These bills would prevent the Interstate Commerce Commission from considering the effect of rates of one mode of transportation (e. g., the railroads) on another mode (e. g., the buslines). The consequence of this legislation would be to give the railroads an unwarranted competitive advantage over other carriers. This would not be consistent with sound principles of transportation regulation nor with the development of a broad-based national transportation system. Aside from this, a telling consideration against this proposal is the position of the railroads themselves that the proposal should not be applied to them in the area of intramode competition.

This legislation would restrict the ratemaking power of the Commission to a determination whether rates are compensatory to the carrier publishing the rates. The "compensatory" standard of ratemaking is generally understood to allow carriers to fix rates on the basis of their out-of-pocket costs rather than total costs. No carrier could be expected to base rates on out-of-pocket costs for very long, but it would be and is done for purposes of underpricing competitors on a temporary basis to the end of capturing the competitor's traffic. Because the intercity bus industry is primarily a service industry, i. e., one having a relatively small investment in property in relation to services performed, its total costs are made up largely of direct or out-of-pocket costs. Railroads, on the other hand, having large investments in property in proportion to services performed, experience small out-of-pocket costs in comparison to fixed costs. These differences in cost characteristics of rail carriers and bus operators would, under the "compensatory"" ratemaking standard, enable rail carriers to charge lower rates than bus operators for the purely competitive purpose of capturing traffic of the buslines notwithstanding the fact that the total cost to the rail carriers in providing the partciular services may greatly exceed the total costs of competing buslines. This clearly gives one mode of transportation, viz, rail carriers, a competitive advantage over motorbus operators which cannot be justified on economic grounds.

The greater vulnerability of motorbus carriers to revenue changes as compared with rail carriers further compounds the unfair competitive rate advantage this legislation would provide rail carriers. Motor carrier investment in property is made up largely of operating equipment with a relatively short life. This requires a rapid turnover of capital. In order to achieve this rapid turnover, motorbus carriers must endeavor to operate with a close margin of operating revenues over expenses. The situation is different with rail carriers. Their investment is in property having a long useful life. Capital turnover is thus much less than in the case of motorbus carriers, and there is a much greater margin of operating revenues over expenses. Conequently, railroads are considerably less vulnerable to revenue changes than are motorbus operators. Further, the diversified transportation interests of rail carriers enable them to absorb losses from passenger service through revenues derived fom feight operations. Thus, for years, rail carriers have underwritten passenger deficits with profits from freight operations. In short, losses in passenger revenues resulting from below-cost rates cause little damage to the overall operations of rail carriers, but they quickly cripple motorbus lines.