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The CHAIRMAN. The next witness is Mr. John L. Weller, president, Seatrain Lines, Inc.

STATEMENT OF JOHN L. WELLER, PRESIDENT, SEATRAIN LINES, INC., NEW YORK, N. Y.; ACCOMPANIED BY L. A. PARISH, VICE PRESIDENT, PAN-ATLANTIC STEAMSHIP CORP., MOBILE, ALA.

The CHAIRMAN. Mr. Weller, you may proceed. Mr. WELLER. Thank you, Mr. Chairman, and members of the committee. My name is John L. Weller. I am president of Seatrain Lines Inc., 711 Third Avenue, New York, N. Y. I am appearing on behalf of my own company, and also on behalf of Pan-Atlantic Steamship Corp., 61 St. Joseph Štreet, Mobile, Ala. o are very grateful for giving us this time today. Mr. Parish, of Pan-Atlantic Steamship Corp., is with me. We have asked, in the interest of brevity, to ask for one appearance in behalf of both of us. We are two small, unsubsidized coastal shipping lines, who have not i. represented in these hearings by any associations who have been ere. Seatrain Lines, Inc., is a common carrier by water, certificated by the Interstate Commerce Commission for transportation of commodities generally between the ports of New York, Savannah, New Orleans, and Texas City. Pan-Atlantic Steamship Corp. is a common carrier by water, holding certificates authorizing service between Atlantic and gulfports, and also intercoastally, Although I understand that your committee has been considering a number of proposals for assistance to the railroad industry, I wish to direct my remarks today to the proposed changes to the rule of ratemaking in the Interstate Commerce Act. I should explain that Seatrain Lines, Inc., and Pan-Atlantic Steamship Corp. are competitors, but our views with respect to this matter are identical. From the very beginnings of our country until World War II, there was a thriving coastal shipping industry conducted in deepwater vessels. I would like to go back to the testimony of the last witness, who mentioned that the traffic carried by the competitors of the railroads was traffic originally taken from the railroads. This is certainly not true in our case. We were there long before the railroads and the traffic was ours to begin with. Just before the outbreak of that war, there were 19 deepwater shipping lines engaged in the coastal trades, operating ap roximately 139 vessels. Ten of these companies were engaged in the Atlanticgulf trade. - As of now, Seatrain Lines, Inc., and Pan-Atlantic Steamship Corp. are the only two left in business. They operate a total of 10 ships. }. 1937, the Atlantic-gulf operators carried more than 5,600,000 tons of traffic regulated by the Interstate Commerce Commission; by 1957, the traffic of our 2 surviving companies had declined to less than 1,200,000 tons, a decrease of 79 percent. During the same period, railroad tonnage increased 42 percent.

I understand your committee's hearings are primarily directed toward the problems of the railroads, for which I have the greatest opoly. I have been a railroad man during a good part of my e

The railroads are concerned that despite the increase in their tonnage, their share of the Nation's transportation is declining. Coastal water carriers have suffered not only reduction in their share of the total, but an absolute and drastic reduction in the tonnage that they transport. I am sure your committee would not wish to take any action which though ostensibly in relief of the railroads would seriously injure or destroy the coastal shipping industry.

The causes of the decline in deepwater coastal shipping are many, but I shall confine myself today to those related to the matters under discussion by your committee. On the entrance of the United States into World War II, the industry was completely shut down, its vessels having been conscripted for the conduct of the war. The coastwise traffic which these ships had carried either disappeared, or was taken over by the railroads.

When the war ended many of the ships had been lost or damaged in action. In line with an accelerated rise in the general cost of doing business shipbuilding and conversion costs had increased enormously, as did the costs of operating terminals and wharves. The railroads obtained a series of general rate increases—I believe 12 in the last 12 years—however, they applied “hold downs” to rates between the areas previously ...' by the water carriers, not applying the Increases, so that most of those engaged in coastal water transportation before the war found it impossible to reenter the business. Only three—Seatrain, Pan-Atlantic, and Newtex Steamship Co., were able to operate in the Atlantic-gulf trades for any time after the war.

Newtex has since ceased operations, so that now there remain only two. The War Shipping Administration also conducted a coastal service for a short period after the war, but because of this rate situation lost money and had to discontinue operations.

Seatrain and Pan-Atlantic have been able to survive only by reason of having invested great sums in technological developments which revolutionized the former concept of coastal water operations. Until a few years ago, freight was brought to the coastal harbors in trucks or railroad cars, unloaded on the piers, and then reloaded into the vessel. On termination of a voyage, the freight was once more put on the pier, and reloaded into trucks or railroad cars for delivery to the consignee. Notwithstanding the low cost of the water transportation itself, the costs of this freight transfer created an increasing burden.

More than 25 years ago, §. pioneered what is now popularly called the fishback type of operation. Its specially built ships, with the aid of expensive shoreside facilities, are able to accommodate 100 freight cars each, which are moved from the railroad tracks into the * or vice versa, without transfer of the lading.

bout 3 years ago McLean Industries, Inc., acquired ownership of Pan-Atlantic Steamship Corp., and converted since then its breakbulk operation into one utilizing containers which are transferred between its vessels and highway trailers, thus also eliminating the transfor of lading. McLean Industries, Inc., has invested approximately million in vessels, containers, and highway equipment for the

C0ast-wise trade.

Seatrain Lines has also been engaged in a 2-year engineering program for the development of a truck-container operation to be conducted in the same vessels and in conjunction with our present freight-car service. We call this the seamobile system, and we are about to place it in operation.

The main contribution of the deepwater coastal carriers to our transportation system is low cost of operation, and the ready availability of the vessels for the military in a national emergency,

In 1952, for example, the Interstate Commerce Commission found, in the fourth supplemental report in docket 28300, that Seatrain's cost for transportating a ton of freight between New York and its Texas port was approximately one-third of the all-rail cost for moving a ton between the same points; and that the average costs of all the water lines, including the higher cost break-bulk operations, was approximately 62 percent of the all-rail cost between New York and Houston.

The Interstate Commerce Act now recognizes, and the decisions of the Commission and the courts have held, that the public is entitled to the benefits of the lower costs accruing from water transportation, and that coastal water transportation could not survive unless its low costs are translated into differentials under the rates of the all-rail routes.

If these differentials did not exist, the slower and less frequent water services could not get any traffic. Railroad and shipper witnesses testified to this fact in case before the Commission as recently as last month.

Since the railroads have many sources of traffic besides the areas contiguous to ports served by the water lines, their historic tendency has been to depress rates where water competition is encountered, until the competition is destroyed. The complete success of that monopolistic tendency has been frustrated, in part, by the enactment of law, by your declaration of transportation policy, and the decisions of the Commission and courts.

You, in your wisdom, recognized that if there is to be water carriage, there must be regulation and administration of transportation in such a way as to preserve the inherent advantage of each form. Recognition of the need for differential water-carrier rates appears variously in the Water Carrier Act and in the decisions. Reaffirmation of the need for water differentials expressed in clear and unequivocal language must be an essential part of any new ratemaking legislation. The Senate subcommittee recommends that the Commission consistently follow the principle of allowing each mode of transportation to assert its inherent advantages, whether they be of service or of cost.

The proposed new rule of ratemaking—and I am speaking of the rule which is in the Smathers committee report—would prevent fulfillment of that very desirable objective.

In the past few months, the railroads have embarked on a campaign apparently designed, as a matter of policy, to conduct an all-out rate war and destroy the coastal water carriers once and for all. They have filed numerous rates to undercut the rates of the rail-water and the motor-water routes regardless of the earnings yielded by this traffic to the railroads, and despite simultaneous increases in the general level of rates.

Seatrain and Pan-Atlantic have petitioned the Interstate Commerce Commission for suspension of these destructive rates; in some cases the suspensions have been granted but in others they have not. As the Senate subcommittee said: It nevertheless appears that the Interstate Commerce Commission has not been consistent in the past in allowing one or another of the serveral modes of transportation to assert their inherent advantages in the making of rates. Presently the Commission has before it a series of cases involving these rate-cutting practices. If the jo were allowed to achieve their obvious aim there soon would be no coastal water carriers left at all. This is of concern to the shipping and consuming public, particularly along the Atlantic coast, because the low-cost transportation presently available by water no longer would be there, and the economy of these regions would suffer. Even under the administration of the present law, the railroads have been able to accomplish a great deal of their aim insofar as Seatrain is concerned by putting in reduced all-rail commodity rates between the points we serve; simultaneously increasing the local rates to and from the ports; and refusing to join the Seatrain in o: point rates that preserve the differentials prescribed or approved by the Commission. Thus, Seatrain is subjected to a double squeeze; the through rates with which it must compete are depressed, and the local rates to and from the ports are increased, so that Seatrain's port-to-port rates must take a double shrink to stay in the competitive picture. The report of the Senate Subcommittee on Surface Transportation dated April 30, apparently recognized the existence of these destructive rate practices. I quote from page 7 of the report: As has been confirmed by the statements made in the recent hearings, the Commission appears to be losing control over rate relationships. When carriers are permitted to meet competition by other carriers or by private carriage at limited points without reference to the rates at other points, it legalizes the disturbance of rate relationships to the detriment of shippers. I certainly concure that better administration of the existing law by the Commission is required. However, the amendment of section 15 (a) of the Interstate Commerce Act proposed in section 5 of S. 3778 introduced by Senator Smathers, and in H. R. 12488, apparently is intended to remove any power by the Commission to prevent destructive rate-cutting practices. It would reward the poaching hitherto conducted by the railroads by granting them an unlimited hunting license with which to destroy the coastal water lines. The proposed change in the ratemaking section appears to me to be completely inconsistent with other provisions o the Interstate Commerce Act, and impossible of administration. The national transportation policy provides for fair and impartial regulation of all modes of transportation—to recognize and preserve the inherent advantages of each—to develop, coordinate, and preserve a national transportation system, by water, highway, and rail, as well as other means; and it lays upon the Commission—an impartial factfinding body—the duty of administering all of the provisions of the act with a view to carrying out that policy. Yet, section 5 of S. 3778 and of

H. R. 12488 proposes that the Interstate Commerce Commission put on blinders and ignore any facts but those presented by the railroads in a proceeding invoking competitive ratemaking.

This one-sided proposal is particularly dangerous, because under section 5 (a) of the Interstate Commerce Act, the railroads are largely removed from the coverage of the antitrust statutes, and this proposed amendment of section 15 (a) would enable them to pursue collusive destructive rate practices, without fear of antitrust prosecution, so that neither the public nor the coastal waterlines would have the protection of the antitrust laws.

In passing, section 6 of S. 3778 and of H. R. 12488 provides Government-guaranteed loans to the railroads which could be used to finance them in continuing destructive rate wars. I have no objection to financial assistance for the railroads, but I do not think it should be combined with the issuance of a hunting license against their competitors.

Congress has repeatedly affirmed the need of the United States for merchant shipping to be available in time of war. We have spent over $500 million in the past 5 years, subsidizing construction and operation of ships in the offshore trades. The vessels of the coastal shipping lines are built and operated with private funds, and without one penny of subsidy, through special tax treatment or otherwise. I understand before World War II, 70 percent of our merchant marine were vessels in the coastal trade.

Moreover, they are specialized vessels, particularly adapted to containerized transport of military materiel, and are always located within a few hours steaming of a continental United States port. The Department of Defense and indeed the Congress have repeatedly declared that a strong coastal shipping industry is a vital segment of our coastal defense.

Certainly it would be foolish for the United States to continue appropriating millions to subsidize ships in the foreign trade, and simultaneously allow its coastal shipping industry to be demolished in a destructive rate war unhampered by antitrust laws and financed by Government-guaranteed loans.

I should like to point out that the national transportation policy has been and is the cornerstone of transportation regulation in this country. Under it our country has evolved the strongest, most efficient transportation plant in the world and the only large one under private ownership.

The development of this transportation plant in all of its ramifications was made possible only as a result of the foresight of the Congress in enacting the national transportation policy and requiring the Commission to administer and enforce it. The proposed rule of ratemaking would tear out the very cornerstone of our national transportation structure by destroying all surface transportation other than the railroads and in turn leading to the eventual destruction of the railroads themselves under private ownership.

In passing, I think I should call attention to the fact that the proposed rule of ratemaking vitiates, so far as the railroads are concerned, the relief provisions of section 4 of the act, a development which I am sure the proponents of the proposed new rule of ratemaking never contemplated

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