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Mr. HALE. Then if they reduced the rate from $1 to 90 cents from Albany to Dallas, you say they have to do the same thing from Denver to Dallas? Mr. LEIGHTON. I would say then they should make a 10 percent reduction all over their system. Mr. HALE. And then you would be happy? Mr. LEIGHTON. We would be happy because they wouldn't do it, sir. Mr. HALE. You wouldn’t be happy, but you wouldn’t feel you had a right to complain? Mr. LEIGHToN. The reason we would be happy is if they had to make the same reduction all over the system, they would not do it. They make these reductions only in isolated instances where it serves their purpose. That is the check we have. The CHAIRMAN. Would the gentleman yield there? Mr. Leighton, does not the volume have something to do with it, and density of traffic? Mr. LEIGHTON. Surely, but you do not pick out a particular segment of the traffic saying this will give you the greater volume. We had that in the Robinson-Patman Act, too, in the Goodyear Tire case and a number of others, where the manufacturer said, “If I can sell Sears Roebuck that will increase my volume so much that I will operate at less cost.” The Federal Trade Commission supported by the sixth circuit said, “That is fine, but don't give the reduction only to Sears Roebuck, but give a pro rata reduction to all of your customers in recognition of the volume. In other words, if you can cut the price 60 cents to Sears Roebuck, cut it 20 cents all around and see if you can get the volume that way.” Mr. YoUNGER. Do I understand you correctly, I, being the nonlawyer member of this committee, that the difficulty arises from the fact that the railroads outsmart the ICC members? Mr. LEIGHTON. I would not put it that way, Mr. Younger. The railroad goes in with a single item. They say, “Our actual out-of-pocket expenditure on this item is 85 cents. Therefore, if we get 90 cents we are all right.” The ICC does not have time to make them give a complete cost accounting. Mr. YoUNGER. They have plenty of time. They have the same 24 hours a day that the railroads have. Mr. LEIGHToN. But those proceedings are tremendously involved. The ICC recently had a case involving a charge of railroad cars, per diem for the rental of railroad cars. They would not go into a fulldress investigation because they said, “We don’t have the time to do it.” The statutory court in Boston set the order aside because you have to do it. That investigation will take 3 or 4 months. The check we have upon railroad selectivity is to require them to make the same benefit available to all their shippers, which they should. If they did that, we wouldn't have the problem about cost. But when they go in and pinpoint one item here and there, the Commission does not have the chance to check them and they are able to put in rates that destroy a particular competitor, and when they get rid of him 2 or 3 or 4 years later, they can raise the rates. That is one reason why these coastwise steamships, as Mr. Weller explained it, went out of business.

Mr. YoUNGER. If we could give the ICC more time, you could solve the whole problem? Mr. LEIGHTON. I was going to suggest if they got larger appropriations they could do a better job; yes, sir. But that is not in this committee. The Senate committee said of the ICC, “Every case is * cas; and regardless what it involves, it gets the same amount of time. I do think they could reorient their procedures and concentrate more heavily on the more important cases and give a little less time to the less important. But they are overburdened, as anyone knows who appears before them. They have neither the time nor staff to do this job thoroughly. A railroad comes in with a welter of figures. If this law were enacted it would cost the Seatrain and Pan-Atlantic so much money in accounting fees to try to meet the railroads case they would probably go out of business as a result of that independent of competition. The purpose of this, as I read it, is to set out broad principles on which §. ongress agrees, lack of compensation, and discriminatory routine, but the way it is written by the Senate committee it is wide open, because you are not supposed to consider the facts and circumstances attending the movement of the traffic by any other mode. Under those circumstances, the Commission could not even investigate to see whether the railroads purpose was to drive another mode of transportation out of business, because they are not supposed to pay any attention to that at all. Mr. HALE. I did not get that last part, because they are supposed to what? Mr. LEIGHTON. Consider the facts and circumstances attending the movements of the traffic by railroad and not by such other mode. If I appeared before the Commission and said: “This rate is not proposed in good faith, but for the purpose of driving Seatrain out of business,” they would say, “We cannot consider that. That is not within our power. We have to consider the facts and circumstances surrounding the movement of the traffic by railroad.” Then I would say, “I do not believe this rate is fully compensatory. I want the railroads to produce all their costs on all of their freight.” The Commisison would say, “We cannot go into that. That would take us a year on any railroad.” As Mr. Weller pointed out, you have another difficulty. The Bulwinkle bill has exempted railroads from any antitrust supervision. It was a necessary bill because railroads could not make rates independently. Otherwise, you would have the same sort of cutrate competition that we feel will happen here. The railroads asked for and got the protection of the Bulwinkle bill, probably, to keep one another from cutting the legs out from another, but now they propose to use that power convertedly and cut out the small competitors like the Coastwise Steamship Lines. The CHAIRMAN. Thank you very much. We appreciate having your testimony. The committee will recess until 10 o'clock in the morning, at which time the Chairman of the Interstate Commerce Commission will be the first witness. (Whereupon, at 4:25 p.m., the committee recessed to reconvene at 10 a.m., Tuesday, May 20, 1958.)

RAILROAD PROBLEMS

TUESDAY, MAY 20, 1958

HOUSE OF REPRESENTATIVES, COMMITTEE ON INTERSTATE AND FOREIGN COMMERCE, SUBCOMITMTEE ON TRANSPORTATION AND COMMUNICATIONS,

Washington, D.C. The subcommittee met at 10 a. m., pursuant to adjournment, in room 1334, House Office Building, Washington, D. C., Representative Oren Harris (chairman) presiding.

The CHAIRMAN. The subcommittee will come to order. This morning the subcommittee continues hearings on the problems of the transportation industry, particularly with reference to the items before us on abandonment of service, construction reserve, competitive and intrastate rates, and other matters affecting the transportation industry of the country.

We are pleased to welcome back to the committee the Honorable Howard G. Freas, Chairman of the Interstate Commerce Commission.

Mr. Freas, we are glad to have you with us this morning. We recognize, of course, you were before the committee a few days ago, when you gave us the benefit of the views of the Commission regarding the proposals made by the Secretary of Commerce on behalf of the administration. Since then, there have been some developments with reference to these and other items which the committee is considering. We have had some rather extensive testimony regarding some of these problems, and there have been some rather sharp issues drawn.

Because of this situation and its importance, the committee felt it would be advisable for the Commission to come back and give the committee the benefit of its views and suggestions with reference to these various topics.

I believe you advised me yesterday you would be ready to present such yiews this morning.

Mr. FREAs. Yes, Mr. Chairman. STATEMENT OF HON. HOWARD G. FREAS, CHAIRMAN, INTERSTATE

COMMERCE COMMISSION Mr. FREAS. I think we were specifically talking at the time about the critical nature of the railroad situation, or the extent to which it is critical. I quickly prepared a brief statement in that regard. I would like to go ahead and deal with that if it is all right with you, and then if there are any questions on the broader base, I shall be happy to do what I can to answer those. The CHAIRMAN. Very well, you may proceed.

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Mr. FREAs. For the record, I am Howard Freas. I have been a member of the Interstate Commerce Commission for the past 4% years, and since the first of this year I have served as its Chairman.

In a statement filed with the Surface Transportation Subcommittee of the Senate Committee on Interstate and Foreign Commerce on March 28, 1958, and offered for this record, we stated:

Undoubtedly the overall rail situation is critical.

Representatives of railway labor organizations have taken a different view. This difference is explained in large part, I believe, by the different periods to which their statements are directed. It was our purpose to depict the situation as currently as was practicable, whereas the labor organizations’ statement which have come to my attention are directed to the calendar year 1957 as a whole. Trafficwise, the year 1957 was a fairly good one. In that year, revenue ton-miles were less than 5 percent below those of 1956, which was close to a peacetime record. The important thing to note, however, is the differenec between the first 8 months and the last 4 months of the year 1957. During the first 8 months, ton-miles had dropped off but 1.6 percent. However, in September they were 6.7 percent below September 1956; in October they were 8.4 percent below the corresponding month in 1956; in November, the drop was 9.8 percent; and in December, 14.5 percent. We do not yet have the ton-mile figures for 1958, but the trend is closely indicated by the carloadings for the first 4 months of this year. In January 1958, freight carloadings decreased 15.4 percent below the corresponding month of the previous year; in February, 21 percent; in March, 21.7 percent; and in April, 21.9 percent. Thus, it seems clear that the falloff of traffic which started about Labor Day of 1957 has not only continued but has accelerated. It is also clear that trafficwise, the railroad situation since last Labor Day and particularly during the early months of 1958 are very different from what they were if 1957 is taken as a whole. The Commission's conclusions regarding the railroad situation are based on a number of considerations. Among them are the financial and operating reports filed with us by the carrier, the sworn testimony of witnesses at public hearings, our day-to-day contacts, and the testimony of witnesses during several months before the Senate subcommittee. In our general increase proceedings, extensive records were developed not only by the carriers but by those holding opposing views. The testimony is under oath and is subject to detailed cross-examination. After extensive inquiry in such a proceeding in 1952, the Commission stated: Judged by any standard shown of record, the rates of return earned or prospectively to be earned by the railroads by the districts and regions specified in our former reports in this case are substandard. Some important roads are earning little enough that a continuance of the earnings situation will imperil their solvency, while some are in comfortable condition. Neither the strongest nor the weakest lines can control the rate adjustment; and, as has been shown, the great body of the rail carriers are in the middle class with aggregate earn

ings that for the immediate future must be considered as substandard and inadequate.

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