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form of interest, let us say, on capital expenditures, plus a little something extra, they are ahead of the game rather than being stuck with these fixed costs, the interest payments and the like, the heavy financial overburden on the industry, without any traffic, with locomotives and freight cars and similar equipment standing idle.
The very nature of the cost structure of this industry requires a lot of volume and any revenue above, slightly above out-of-pocket cost is so much to the good from their point of view.
I think the very same point was made by Mr. Langdon this morning in the little example he gave you of the $4, $3, $312.
The trucks, on the other hand, have a much smaller capital investment. After all, the cost of a truck, tractor, or trailer, is far less than the cost of a locomotive. The cost of a truck terminal is far less than union station or a freight yard with all of the switching equipment.
So that anything you get to meet your financial obligations incurred. in developing and maintaining and operating these heavy fixed costs is to the railroad's advantage and explains why they have to get volume and explains why they are susceptible to rate cutting.
Mr. ROBERTS. I certainly am not qualified to engage in an argument as to the economics of this thing, but it would seem to me that those high fixed costs, constant costs, would tend to make the rail management very reluctant to get a rate that did not take those heavy investments into consideration.
Anyway, I thank you for your testimony.
Mr. MACDONALD. I got so involved in economics that I forgot to ask my main question.
You said that in the short range the public would benefit.
Mr. WEISS. On the assumption that the lower rates actually resulted in lower prices.
Mr. MACDONALD. You fixed that at about 10 years?
Mr. MACDONALD. I meant to ask you, and I now do ask you: Why would the public suffer in the long run?
Mr. Weiss. Because the long run, as I see it, and I am not trying to raise just a specter, will be a railroad industry controlled transportation system with the trucking industry and other modes of transportation greatly reduced in scope and in competitive vitality.
You know as well as I do from your history what happens when one form of public utility, and railroads are in essence a public utility, gets the upper hand. It is that very fact that caused the ICC act to be enacted in the first instance, because I think you will have debilitated, weakened a transportation system which has strong vital, independent competing modes of transportation.
I want to see all of them competing with each other because the unity which is and should be the transportation system of this country will be greatly enhanced than if you had essentially one dominant mode of transportation.
That is my answer to you, sir.
Mr. MACDONALD. That is an answer, but I do not know if it was the answer I was looking for. I was asking why.
Mr. WEISS. Once the railroad industry gains control, then it will act as a monopolist, and you know what happens to prices under a monopoly situation. Mr. MACDONALD. Let us say we follow your reasoning and say that prices are cut with resulting benefit to the public. What is going to then reraise the prices? Mr. WEISS. The fact that the trucking industry and other modes of transportation will be greatly weakened or virtually nonexistent and the railroad as a monopolist, then can raise rates. Mr. MACDONALD. You say the trucks cannot operate at this price that the railroads can, so I take it your argument is that that will drive the trucks off the roads? Mr. WEISS. Yes. Mr. MACDoNALD. We both know that there are plenty of places where trucks are doing good business now because the railroads cannot go there in the first place; is that not right? Mr. WEISS. Yes. Mr. MACDONALD. So they are not going to be affected? Mr. WEISS. There is an adverb missing there, affected little or large? Mr. MACDONALD. Adversely affected? Mr. WEIss. I would say they would be. Mr. MACDONALD. If the railroads cannot go there how would it affect the trucks? Mr. WEIss. Just in those areas where the railroads cannot go. Mr. MACDONALD. The railroads have a fixed roadbed; they can only go where it goes. They are not going to branch out, they are not going to start building new roads. Mr. WEISS. In those areas where the railroads do not operate the trucklines will continue to operate, but the question is Mr. MACDONALD. Will those trucklines be hurt? Mr. WEISS. That depends on whether there is enough traffic solely within those areas in which the railroads do not operate to provide for an efficiently functioning and profitable truckline. Mr. MACDONALD. Is it not the fact that a lot of truckers move into railroad terminals? Mr. WEISS. Certainly. Mr. MACDONALD. Therefore, if the rates are lower on the railroads, which you say they will be if this thing turns out, there will be more traffic on the railroads? Mr. WEISS. Yes. Mr. MACDONALD. And, therefore, the truckers will in turn have more tonnage to be worked upon because of their share of transferring the tonnage of freight from the terminals out to the places where the rest of the railroad cannot go. So in reverse wouldn’t it help the trucking industry? Mr. WEIss. No, and I would like to explain, sir. The railroads operate between the major freight and commerce areas of our country, between the major production cities and trade cities of our country. Very, very often the trucklines run along parallel highways, competing for that traffic. If my argument is valid that this section 5 gives an undue competitive advantage to the railroads the conse
quences which are that the rails will take over that traffic, then the trucks in those competing areas go out of business.
That is the tenor of my argument.
Mr. MACDONALD. The public benefits because they get lower rates; is that right?
Mr. WEISS. That is a very big if in my mind.
Mr. MACDONALD. If the trucks can carry it at the same rates the railroads will, they will not go out of business and if they do not the public will get the savings?
Mr. Weiss. If the trucks are carrying it at the same rate as the railroads?
Mr. MACDONALD. Yes.
Mr. MACDONALD. So how would the public be hurt in the short or long run. As soon as the railroads raise their rates to the point whero the trucks can compete again the trucks will be back in business again.
Mr. Weiss. That means you will have to reconstitute a trucking industry or trucking firm which is not done overnight.
Mr. MacDONALD. The trucking industry is a bit of a monopoly, itself. Isn't it difficult to get a license between two points?
Mr. Weiss. Quite to the contrary. Ease of entry is the usual case.
Mr. MACDONALD. You have been talking to different truckers than those whom I have talked to. Have you been on an ICC hearing when X line wants to run between Boston, Mass., and Dover, Del.? Every other trucker between here and the New York line, Albany, Portsmouth, Boston, is in to say no, this trucker should not have the route.
Mr. Weiss. Ísn't the proof of the pudding whether ICC does award operating rights to a new firm or extend the operating rights of an existing firm?
Mr. MACDONALD. I do not want to prolong the hearing because we have been here a long time, but just suggest that you take a look at how many new lines have been given by the ICC to truckers in the past year or so in New England as a concrete example.
I think you will be surprised.
In closing, I will say this, I still have not heard how the public is going to be hurt in the long run.
Mr. WEISS. At the risk of repeating myself, I say the public will be hurt in the long run because competing modes of transportation will be largely put out of business.
The railroad industry will be in a monopolistic position and rates will rise accordingly, and that you will not have a uniform vital transportation system, and I emphasize the word "system,” which is composed of strong units comprised of various modes of transportation and not only mainly one.
Mr. MACDONALD. Thank you, sir. Mr. ROBERTS. Thank you, Mr. Weiss. Mr. Langdon, I want to get through here about 4 o'clock, if possible. The staff has handed me the language adopted by the Senate subcommittee with reference to section 5, subsection 3. "Let me read the language and would you care to comment on your position with reference to that language.
I realize it may be an imposition on you. If you would rather file your statement with reference to your position, that will be perfectly all right.
STATEMENT OF JERVIS LANGDON, GENERAL COUNSEL, THE BALTI
MORE & OHIO RAILROAD, BALTIMORE, MD.-Resumed Mr. LANGDON. I am wondering if that might not be better to defer our comment until tomorrow. It was just handed to me, too. I have some first reactions, but sometimes I have expressed first reactions and then regretted them later.
So I would like to have a chance to study this thing carefully if I might and possibly tomorrow morning, with Mr. Prince, submit our understanding and appraisal of this.
Would that be satisfactory?
Mr. ROBERTS. I think so, without objection from the members of the subcommittee, because that language has just come to the attention of the committee today.
I note that the staff has reminded me that Mr. James Fort of the American Trucking Associations is also present.
Would you care to avail yourself of the same privilege?
Mr. ROBERTS. The record will remain open to receive those statements.
(Comments of the Association of American Railroads and of the American Trucking Associations follow :)
ASSOCIATION OF AMERICAN RAILROADS,
Washington, D. C., May 27, 1958. Congressman OREN HARRIS, Chairman, Transportation and Communications Subcommittee, Committee on Interstate and Foreign Commerce,
House of Representatives, Washington, D. O. DEAR CONGRESSMAN HARRIS: This is in response to a request, which Congressman Roberts addressed to representatives of the Association of American Railroads at the conclusion of hearings before your subcommittee yesterday, for comments on section 5 of S. 3778 as approved by the Senate Committee on Interstate and Foreign Commerce May 26, 1958. This section would add a new subparagraph (3) to the rule of ratemaking as set forth in section 15a of the Interstate Commerce Act.
In 1940 the Congress made clear its intent that all forms of transport be governed by the same basic rule of ratemaking under which railroad rates would be based on railroad conditions, truck rates on truck conditions and watercarrier rates on water-transportation conditions. While the language of the revised rule is not as definitive as had been hoped, we believe it constitutes a reaffirmation of this purpose of the Transportation Act of 1940 and a bar to the paternalistic approach of disallowing a carrier's rates to protect the traffic of another mode of transportation.
Put in another way, this provision recognizes the soundness of the interpretation placed on the act by the Interstate Commerce Commission in the New Automobiles case and should prevent future deviations from it.
In general, it may be said that this proposal does not give us the full measure of relief we sought in the making of competitive rates but clearly it does permit the forces of competition to play a stronger part in ratemaking than heretofore. Accordingly, we intend to support the proposal. Respectfully yours,
DANIEL P. LOOMIS.
STATEMENT BY GUY W. RUTLAND, JR., AMERICAN TRUCKING ASSOCIATIONS The trucking industry has consistently opposed any weakening of the Interstate Commerce Commission's power to prevent destructive competition in transportation. The proposed amendment to the ratemaking provisions of the Smathers bill, S. 3778, as reported out by the Senate Committee on Interstate and Foreign Commerce, appears to retain such essential power in the ICC. To the
extent that the writing into statutory form of the present policy of the ICC, may once and for all put an end to the continuous complaint of the railroads, that a so-called umbrella is being held over the rates of rail competitors, the trucking industry does not oppose this specific proposal.
Mr. ROBERTs. I have one other statement for the record. The statement of Harry M. Mack, president of the Ohio Valley Improvement Association, in opposition to section 5 of S. 3778, which will be filed for the record.
(The statement referred to follows:)
STATEMENT of HARRY M. MACK, PRESIDENT, OHIO WALLEY IMPROVEMENT Association, INC., IN OPPosition To PRINCIPLEs of SECTION 5 of S. 3778
My name is Harry M. Mack. I am president of the Ohio Valley Improvement Association, Inc., a nonprofit corporation of the State of Ohio, with its principal office in Cincinnati, Ohio. This association, organized in 1895, is dedicated to the development and more effective use of water resources in the Ohio River Basin, including particularly improvement of navigation facilities, domestic and industrial water supply and flood control. Its membership includes industries such as coal, oil, steel, aluminum, chemicals, and power, as well as chambers of commerce, shippers, banks, river operators, merchants, citizens, and civic groups who support its work and program. This association is grateful for this opportunity to present for your consideration its views in opposition to the principles embodied in Section 5 of the Smathers bill, S. 3778. This section, if adopted, would amend section 15 (a) of the Interstate Commerce Act by adding a new paragraph as follows: “(3) In a proceeding involving competition with another mode of transportation, the Commission, in determining whether a rail rate is lower than a reasonable minimum rate, shall consider the facts and circumstances attending the movement of the traffic by railroad and not by such other mode.” We believe that this provision would be severely damaging to existing industry and to further industrial development in the Ohio Valley, a community of over 19 million persons extending over 650 miles through 7 States, and that it would be injurious to the railroads themselves. The membership of this association has formalized its firm opposition to any change in existing law which would have the effect of depriving the public of the inherent advantages of low-cost water transportation and which would, therefore, in the long run, result in stifling economic growth and industrial development through increased freight costs. This opposition is expressed in the following paragraph from the preamble to resolutions adopted by the membership of this association at its annual meeting held October 4, 1957: “The availability of low-cost water transportation is a result not only of improved waterways and technical improvements in water-carrier operations, but also of a Federal regulatory policy which recognizes the inherent advantages of each mode of transportation and requires that such advantages be protected against destructive competitive practices. Any radical change in Federal regulatory policy tending to shift the balance of competitive forces against the water carriers would deprive the public of the benefits of low-cost water transportation and would in the long run result in increased freight costs. The orderly development and economic progress of the Ohio Valley and the Nation will be best served by continuation of the tested and proven principles of transportation policy embodied in existing law.” It is our firm conviction that sound development of the Ohio River and its tributaries to provide low-cost water transportation, abundant water for human, agricultural, and industrial use, and protection against the ravages of floods, is a major factor in the overall growth and prosperity of the regional and national economy. Past experience affords eloquent confirmation. Despite inadequacies in the existing navigation and flood-control facilities, the Valley has witnessed a phenomenal economic growth in the postwar period. Indeed, our most recent Survey shows that investments, made or announced, for construction of new and expanded plant facilities in the counties bordering the Ohio River and its navigable tributaries, have totaled more than $13 billion since January 1, 1950. The availability of low-cost water transportation and adequate water Supply furnished by the river system is the foundation of this entire structure of growth. The program of navigation, flood-control, and water-storage improvements for the Ohio Valley, for which Congress has already appropriated