Thank you very much.

The CHAIRMAN. Mr. Rogers?

Mr. ROGERS. Mr. Leighton, you didn't even make Mr. Leighty's list? Mr. LEIGHTON. No. We are way below that. As I say, our gross revenues are $4.4 million.

Mr. ROGERS. That is all, Mr. Chairman.

The CHAIRMAN. Mr. O'Hara?

Mr. O'HARA. Is there any directorate relationship between Seatrain and your company?

Mr. LEIGHTON. No, sir. They are simply our most valuable source of business, but no corporate relationship of any sort.

The CHAIRMAN. Mr. Flynt?

Mr. FLYNT. No questions, Mr. Chairman.

The CHAIRMAN. Mr. Hale?

Mr. HALE. No questions.

The CHAIRMAN. Mr. Younger.

Mr. YOUNGER. No questions.

The CHAIRMAN. Thank you very much.

Mr. LEIGHTON. May I file a statement? This came to us over the weekend, and I sent a night letter which I understand has not been received. I would like to file a statement tomorrow.

The CHAIRMAN. You may file a statement.

(The statement referred to follows:)

Hon. OREN HARRIS,

House Office Building, Washington, D. C.

NEW YORK, N. Y., May 23, 1958.

DEAR CONGRESSMAN HARRIS: Thank you for having given me the opportunity of appearing before your committee, and of submitting this short supplemental statement.

The language of proposed paragraph (3) of section 5 of H. R. 12488, as suggested by the Interstate Commerce Commission, fully effectuates the purpose of the bill, without injuring any form of transportation. As the Commission points out (Chairman Freas' statement, pp. 6-7):

"Certainly full costs in the aggregate have to be obtained if our transportation system is to be kept healthy. In many instances, however, the full cost of the low-cost form of transportation exceeds the out-of-pocket cost of another. If, then, we are required to accept the rates of the high-cost carrier merely because they exceed its out-of pocket costs, we see no way of preserving the inherent advantages of the low-cost carrier. In any event, that other mode would be compelled to depress its rates below full costs in order to preserve its inherent advantages against the high-cost form of transportation. This would mean that the carrier with the inherent advantages would be forced into an unhealthy situation, or that higher rates would have to be charged on noncompetitive traffic in order to make up the deficit, for certainly the full cost of performing a transportation service must come from somewhere."

The weakness in the present language of the section in H. R. 12488 is that it would enable the railroads, with their greater financial advantages, to drive competing forms of transportation out of certain fields, and after having destroyed the competition to raise their prices again. This is one of the "unfair or destructive competitive practices" which is contrary to Congress' declaration of the national transportation policy, and frustrates the spirit and purpose of the Robinson-Patman Act. See discussion of legislative history in dissenting opinion of Mr. Justice Reed in Standard Oil Co. v. Trade Comm'n. (340 U. S. 231, 256– 261 (1950)).

It is noted that the Commission's statement specifically says that such language "would not affect the special provisions in section 305 (c) relating to water-carrier rates and practices, which we accept as representing a settled policy of the Commission."

"It was recognized in the debates on the bill that became the Transportation Act of 1940, that manipulation of rail rates downward might deprive water carriers of their ‘inherent advantages' ***. It was emphasized that one of the evils to be remedied was cutthroat competition, whereby strong rail carriers would reduce their rates, putting water carriers out of business" (Dixie Carriers v. United States (351 U. S. 56, 59-60, 1956)). Examination of the Congressional Record during that period demonstrates overwhelmingly the positive intention of Congress to preserve the inherent advantages of water transportation. See opinion of Black, J., in I. C. C. v. Mechling (330 U. S. 567, 574–7 (1947)); and his dissenting opinion in I. C. C. v. Inland Waterways Corp. (319 U. S. 671, 697-700 (1943)).

Unless this policy be restated in any present amendment affecting railroad rates, its omission might be urged as an argument of repeal by implication. If I can be of any help in drafting such a restatement, I will be glad to confer with the committee's counsel at any time on 1 day's notice.

Respectfully yours,

LEON LEIGHTON,

Vice President, New York, Susquehanna & Western Railroad. The CHAIRMAN. Let me ask you this question, sir. You are a lawyer. Have you been involved with rate cases in your experience? Mr. LEIGHTON. Only through reading of them. If I may answer your question to Mr. Weller in regard to the new automobile case, as to which my recollection is not too clear, but as I recall it-because I was with the Office of Defense Transportation when that whole problem was being discussed-the objection there was made by the motor carriers that they thought the motor carriers could not carry the automobiles at the rate which the railroads offered and the motor carriers had to charge a higher rate.

The Commission was satisfied that the railroads were getting a return of full cost on the carriage of the automobiles and that they ought not to require them to take a higher rate to protect the motor carriers. I am thoroughly in accord with that thinking.

If I may say so, Mr. Younger, I respectfully disagree with your suggestion about abolishing the ICC. I feel with them as Judge Learned Hand felt about the Supreme Court.

In his lectures at Harvard he indicated he didn't like a number of things that the Supreme Court was doing, but he said they were better than nothing and we must have someone.

The ICC has never done a perfect job, but by and large, with the criticism of the administrative agencies that you hear, they have done an outstanding job and history shows that. As a practical matter, this is what they are up against.

The railroads come in with increases, where they want to increase all of their rates, and they need the increase, and there is no question about that. They urge the ICC to act expeditiously as they should do. The joker in the situation as far as Seatrain is concerned is that the railroad take certain holddowns, saying those are necessary in order to meet competition and they will not put the increase on those commodities.

The holddowns may cover 3,000 or 4,000 items. are the items where they compete with Seatrain. existing rates.

Buried among those
There they hold the

On the other hand, where they join with Seatrain on the rail portion of the movements, the railroads carry it from Portland to Edgewater and Texas City to Dallas; there they take the increase so that by increasing their share they require Seatrain to decrease its rate to keep the prevailing differential.

If the railroads went to the Commission and said, "We want to reduce a rate in order to cut Seatrain out of business," they would throw them out. But since they bury this by putting in a holddown, in other words increasing everything but this and 1,000 others, it is not so obvious to the Commission and that is the way they have been able to get by with a good deal of it.

I say that as a railroad man who has a great deal of sympathy for the railroads. They have not been playing cricket, and that is why the bill has to be amended.

The CHAIRMAN. All right.

You say that you agree with the philosophy stated in the New Automobiles case by the Commission?

Mr. LEIGHTON. Yes, sir.

The CHAIRMAN. Let me see what it says. The Commission says, "As Congress enacted separately stated ratemaking rules for each agency, it obviously intended that the rates of each such agency should be determined by us, the Commission, in each case according to the facts and circumstances attending the movement of the traffic by that agency."

You said you agreed with that?

Mr. LEIGHTON. Yes, sir.

The CHAIRMAN. All right. Section 5 proposed by the Senate committee in S. 3778, reads:

In a proceedings 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.

Is that not stating precisely what the Commission stated in the New Automobiles case?

Mr. LEIGHTON. Not exactly.

The CHAIRMAN. Explain the difference from your viewpoint.

Mr. LEIGHTON. Let us take the situation I mentioned from Albany to Dallas where a railroad is competing with Seatrain, and let us assume the distance is 1,000 miles and they fix a rate of $1 on a particular commodity for the 1,000 miles.

Let us assume they similarly have a rate from Denver to Dallas, which I will assume is also 1,000 miles, of $1. Then they decide they want to undercut Seatrain. Then they come to the Commission and say, "We can afford to carry this from Albany to Dallas for 90 cents and we propose to keep the rate at 90 cents," keeping all of their other rates in force but undercutting the Seatrain rate.

Under this section, unless you put in an antidiscrimination, such as you indicated might be running through your mind, Mr. Chairman, under this section, if the railroads satisfied the Commission that they could afford to carry it for 90 cents from Albany to Dallas, the Commission would have to permit them to do so. I have no objection to

that.

The CHAIRMAN. Right there, if the carrier can convince the Interstate Commerce Commission that the 90 cents is fully compensatory, then should not the shipper have the benefit of that rate?

Mr. LEIGHTON. If it is fully compensatory; yes, sir. But the railroads will not write that into the bill.

The CHAIRMAN. The railroads are not going to write it.

Mr. LEIGHTON. I understand that. I didn't mean to offend you. I understand that. You were sort of suggesting maybe a compromise could be worked out.

The CHAIRMAN. I am trying to get the facts and what you believe in, what the water carriers believe in, the trucks, the railroads, the Commission, and everybody. We will see about what we can write.

Mr. LEIGHTON. My belief is stated. If a rate is fully compensatory, by a full allocation of costs, of course the railroads ought to be allowed to make the rate.

The CHAIRMAN. Or any other carrier.

Mr. LEIGHTON. That is right. But if they are charging all of their overhead to other traffic and saying "On this particular item, since it is competitve, we just want to get back our actual out-of-pocket cost," that is vicious, I say. That is what happened in the old days of the passenger railroads, when the New York Central used to charge $1 from Chicago to New York to drive the Erie out of business.

If they can make a fully compensatory rate, then by all means no other form of transportation has a right to be kept in business as a standby for war or anything else.

The CHAIRMAN. In other words, if the objective of the Senate committee proposal can be carried out, and what they intend would be the final result, you would be for it?

Mr. LEIGHTON. If they would allow a railroad to make a rate which is fully compensatory and nondiscriminatory, then I would be fully for it. That is the way I understand the New Automobiles case.

The CHAIRMAN. They quote the "New Automobiles case," and they say their language is designed to carry out precisely the policy of the New Automobiles case.

Mr. LEIGHTON. I think as a lawyer, sir, you realize that frequently the statute does not fully correct the situation, and that is why the Supreme Court has to decide the issues they do.

The CHAIRMAN. Yes, and sometimes they get us into awfully tight spots.

Mr. LEIGHTON. I am sure the attorneys for Seatrain and Pan-Atlantic and myself would be glad to sit down with your staff and see if we could work out something that would accomplish our purpose, and accomplish the avowed purposes of the Senate committee report. The CHAIRMAN. We will be glad to hear anything that you may wish to submit.

Mr. Hale has a question.

Mr. HALE. If I understood you correctly, you say that the difficulty comes in deciding whether a rate is in fact compensatory? Mr. LEIGHTON. Fully compensatory, yes, sir.

Mr. CHAIRMAN. Will the gentleman yield right there?

Mr. HALE. Yes.

The CHAIRMAN. Is there any difference between compensatory and fully compensatory?

Mr. LEIGHTON. Yes, sir. The way it is used in railroad accounting there is much difference. You have what you call the out-of-pocket cost; that is, the cost of the crew, the fuel, and the car and locomotive maintenance on the particular train. Many railroads will allege, when it serves their purpose, that a rate is compensatory if that actual cost of the crew, fuel, and maintenance is $1,000 on a train and they get $1,005. They will say that rate is compensatory.

On the other hand, you have maintenance of roadbed, you have depreciation of equipment, you have allocation of executive overhead, and all of that sort of thing, and if they do not get any return from that on the destructive rate that they have made, the other people have to bear a disproportionate share of it.

The CHAIRMAN. If it is compensatory, it is compensatory. The bucket is just as full. You cannot put any more in it.

Mr. LEIGHTON. It is a matter of definition. Any businessman knows when he figures the price of his product that he allocates a certain percentage of his overhead to each thing he sells. Otherwise, he would soon go broke.

While a department store may sell men's shirts or women's handbags at an attractive price, because they are getting back what they paid the manufacturer for it, if they did it consistently they would go broke.

The CHAIRMAN. If someone abuses what the actual truth is in the use of a word, that cannot be the fault of the Congress or the legislative language.

Mr. LEIGHTON. If, Mr. Chairman, you mean by compensatory to get back a fair allocation of their full cost of operation, then we are all in accord. But if compensatory means to get back the out-ofpocket cost of that particular operation, that is when you run into difficulty.

I had all of that in a passenger abandonment case that we had in New Jersey, and that was the whole controversy. Mr. Leighty touched on that in his testimony.

You see, when a railroad comes in with just a single rate, the Commission does not have a chance to go into all of their accounting. The railroad will show that it cost so much to operate this train and they get back more money and they feel they are all right. But if they had many rates like that, they would soon go broke because they would not make their overhead, their maintenance of roadway, or other items.

The CHAIRMAN. Pardon me for interrupting you, Mr. Hale.

Mr. HALE. That is all right. I was pursuing the same line of inquiry.

To go back to this illustration you gave, the rate of 90 cents from Albany to Dallas, you are assuming that that was a compensatory rate?

Mr. LEIGHTON. No, sir. I was assuming it was not compensatory, because they charged $1 at other places for the same distance, and Í am assuming the same transportation conditions, which indicated they thought $1 was what they needed.

Mr. HALE. Let us assume that the $1 rate gives them a profit and the 90-cent rate is still compensatory.

Mr. LEIGHTON. They should have a right to charge the 90-cent rate. Mr. HALE. Notwithstanding that they charged more for a haul of equal lengths in some other places?

Mr. LEIGHTON. Then you run into discrimination which should also be outlawed by the act.

Mr. HALE. That is what I am getting at. It must be not only compensatory but nondiscriminatory?

Mr. LEIGHTON. Yes, sir. I was trying to separate your question,