rates between different types of carriers. I do not wish to convey the impression that I do not believe efforts in this direction are a wholesome thing, and I am in favor of obtaining all of the advantages that we can in this direction. Nevertheless, I am convinced that a unified transportation company, operating under one management in several different fields, can attain flexibility and efficiency which cannot be attained otherwise; certainly single managerial responsibility would be a distinct advantage to the shipping public.

As to joint rates and routes, our experience, while admittedly somewhat limited, has left something to be desired. We have found, for example, in establishing joint rates and routes that the water carriers are only interested in doing so at a level of rates lower than that of the all-rail routes which tends to divert traffic to such routes which could otherwise move all-rail. The advantages of such joint rates and routes, if there are any, have all accrued to the water carriers. Joint rates with the the motor carriers are probably best exemplified by the transportation of motor common carrier trailers on railroad flat cars"piggy-back" service. We on the Illinois Central have not engaged in this kind of operation thus far. The studies we are making in that direction have not advanced to the point where we can determine the advantages of such an operation as contrasted with our present method of handling in boxcars via all-rail routes.

It is common knowledge that perhaps the most outstanding development in the business world in the years since World War II has been the diversification of industrial concerns into other lines, generally but not always related, to the end that losses in one field may be offset in another. Not so in the railroad business, although we submit that in justice there is no reason why we should not have an equal opportunity to diversify. The result would be greater financial stability and the opportunity to earn an adequate rate of return, both of which are desirable from the standpoint of the public.

I would like now to say a few words about the continued granting of governmental subsidies to agencies which compete with the railroads. The Illinois Central parallels navigable rivers throughout its system, and it is subsidies to water carriers operating on these rivers to which I draw particular attention. What I say, however, has equal application to highway and air carriage.

It simply cannot be denied that any action by Government which has the effect of relieving any transportation agency from bearing the full costs of providing the transportation services which it furnishes is contrary to the public interest. The extent to which these subsidies exist and to all transportation except railroads is known only to students of the subject and not to the general public. The cost of transportation is an integral part of the cost of all production and should be borne by industry itself, as any other of its production costs is borne, and not by the general taxpayers.

The choice of shippers and travelers among competing services is largely determined by relative rates rather than by relative costs. Unless, therefore, the prices charged by each mode of transportation reflect its true and full costs, there cannot possibly be an economic distribution of traffic among the various agencies, and it is only through an economic distribution of traffic among them that there can be any hope of developing and preserving the inherent advantages of each, as envisioned by the national transportation policy.

The Illinois Central has lost to the water routes which it parallels untold tonnage which it would not have lost if those operating barges on the rivers were required to pay the Government what it costs to make those water routes available. This not only injures the Illinois Central, it puts a double burden on the public: The public is taxed to provide the railroad's water competitors a free waterway, and the railroad rates which the public pays reflect the higher unit costs resulting from the railroad's loss of traffic to the water routes.

In recent years the desirability of making charges for the use of federally provided transportation facilities has come to be almost universally recognized. In 1952, the Congress, in the Independent Offices Appropriation Act, adopted a general policy of requiring reimbursement of costs of federally provided services and facilities by the users or recipients thereof.

As late as November 19, 1957, the Director of the Budget instructed all agencies of the executive branch of the Government to submit to the Bureau of the Budget by February 1, 1958, drafts of legislative proposals which would enable them ultimately to recover full costs for Government services which provide special benefits to individuals or groups. The Director's instructions carry out a request of the President that the Bureau of the Budget initiate action on

the problem of user charges from the viewpoint of the Government as a whole, in accordance with recommendations resulting from a recent interdepartmental review. The railroads hope for prompt enactment of legislation which will correct this situation which not only is basically unfair but injurious to the railroad industry and the public.

Mr. Chairman, I understand that others in the railroad industry are also testifying before your committee and will talk on other advisable pieces of legislation which I have not touched upon. I do not wish to leave the impression that I believe the matters I have discussed are the only ones Congress need be concerned with. I have mentioned just a few of those I regard as of great importance.

The solving of the transportation problem, if we wish to call it such, requires considerable moral courage and some good statesmanship. I want to stress that it is vital that we no longer take a laissez faire attitude and permit a worsening of conditions with the railroads' hands tied behind them. There are a lot of people who are pursuing selfish interests at the expense of our economy. I am sure that this committee will dedicate itself to the task of building an adequate transportation system that will not be fraught with the dangers of destruction and demoralization of the railroad industry that is so essential to our great country. I am certain that the committee realizes it is in this spirit of public interest that we have come before your committee. I feel certain that much good can grow out of this hearing if the right approach is taken.

I again say that I have every confidence in the Congress of the United States and appreciate the invitation to appear before this committee and the privilege of testifying.

Mr. JOHNSTON. For the record, my name is Wayne A. Johnston. I am president of the Illinois Central Railroad. I have been an employee of that company for 38 years, and have been its president for the past 13.

I would like to also say for the record that I have read the statements of the other presidents, and with a few minor exceptions I agree with what they have said.

I also heard the questions asked by those who have preceded me, and I heard the answers and I, for the most part, agree with what they have had to say.

With that prelude I would like to address myself now to some of the aspects of my views on the subject which I would like to stress.

Our railroad, which is the Illinois Central, is known as the main line of mid-America. It is in the shape of a 7. It starts at the Missouri River, at Omaha, Sioux City, and Sioux Falls, and runs to Chicago, thence south to Birmingham, New Orleans, St. Louis, and Indianapolis. There are approximately 6,500 miles.

We are in 14 States and serve 2,200 communities. We like to believe that we have been just a teeny bit frugal. We are 108 years old. We were established back in 1851. We still have our original corporate name, and we have never been through receivership. We are the 10th largest system in the United States.

Like other railroads, we have been progressing in doing those things which we in management feel we can do, in order to provide a sound financial, corporate, fiscal, and physical structure. And I would like to just mention a few of those.

Back in the 1940's we had 57 varieties of mortgages and properties, some of which we owned, some of which we leased. We began a program then of assembling those, and we have believed in mergers, and we have merged our property so that we have now 1 property of 6,500 miles and 1 mortgage.

We reduced our total funded debt from a peak of $400 million to $188 million, and our fixed charges from $18,500,000 to around $8 million.

We have done like the rest of the folks who have talked here before me, completely dieselized our property. We reduced our employees by automation and by mechanization from 64,000 in 1926 to 29,000 in November of 1957. And I come back to that subject just a bit later. We started back in 1933 on a program to eliminate what we called branch lines and unprofitable passenger trains. In 1930 we had 16 million passenger-train-miles. In 1956 we have 6 million miles, or we have reduced 62 percent of our mileage. We have 3,912 miles of the 6,500 miles of our property without a single solitary passenger train. However, on the fully allocated basis prescribed by the Interstate Commerce Commission in 1956, we had a passenger deficit of $18,800,000. We are the second largest commuter operator in the United States, the Long Island Railroad being the first. We handle over 70,000 suburban passengers in the city of Chicago daily. And we lost, in 1956, $1,142,000. I come back to that situation just a teeny bit later.

We are not in conformity with some of what our predecessors have said with respect to this commuter business. We have the feeling that we have an obligation to the community, and if we can work out with the Chicago Transit Authority the thing which we think is right for them and which is right for us, that we can solve our commuter problem, provided the passengers pay a fair price for the transportation from their home to their office, and from their office to their home. One of the sad parts about our situation is that our working capital has been reduced. In 1955 it was $53,227,000. At the end of 1956 it was $49,800,000. And in 1957 it has dropped to $40,775,000.

Now we are not at the high end of the totem pole, neither are we at the bottom. We are about in the middle. But we believe that there is a drastic situation which must be dealt with here.

For the 10 years ending in 1957 our return was 5.05 percent. But in 1957 it dropped to 3.16 percent. Now as to what should be done to help us strengthen the position of our railroad so that we can grow and we can serve the economy of these United States.

The Illinois Central has been bedeviled by water transportation ever since it was conceived in 1851: The Mississippi, the Ohio, the Missouri, the Illinois, and the Calumet Sag. And we have been trying to meet that competition. Back a good many years ago we made some calculations to the effect that this traffic on the waterways was about $18 million a year out of our coffers. And we believe sincerely, gentlemen, that there should be a user charge assessed on these water operators.

Secondly, we believe that we should be permitted to get into the barge business so that we can provide the kind and type of service that our competitor is providing for those who operate now on the river.

There has been a lot said about competitive ratemaking, and I will only touch on that subject. We believe, likewise, that we should be permitted to make competitive rates. As I say, we believe we should be permitted to engage in the barge business. We also believe we should be permitted to engage in the trucking business.

Back in 1946 we made application to the Civil Aeronautics Board for the privilege of operating in airways, and we were denied equality of treatment and that privilege in 1948. I think we can all agree that

the railroads of the United States are essential to its progress, and therefore I would urge that prompt action be taken to place the railroads in a strong competitive situation, and to remove the present inequities. It is the inequities of the transportation business that is strangling the railroads of this country.

To permit the present situation to drift, or to continue, is a dangerous situation. Congress should be concerned, and I hope that this committee will bring forth such reports and recommendations as will keep the railroads an essential means of transportation and in a healthy state.

There are a number of things I was thinking about this last night. As I said, we are not at the top nor the bottom of the totem pole. But if what happens to the Pennsylvania, as is predicted if this situation isn't corrected, or what will happen, as predicted by Mr. McGinnis, to the other railroads of the East, they will be dragging ahold of my heels and dragging me down. I may not go under, but I will be pretty close to the surface.

Therefore, we have gone about since last November trying to put our house in order. We have reduced our forces by 4,000 people. That is one-eighth of our total employment as of November 1, 1957. If you multiply that by 4-and in the Middle West we have 4 members to the family-you have 16,000 people who are depending upon the livelihood of the Illinois Central who are now depending upon unemployment insurance.

Gentlemen, that is not too great a thing for a corporation to have to do. And having been a poor boy all my life, I can realize what is happening in some of those families.

Secondly, I said to my purchasing agent, we must reduce our purchases and materials in stores $6 million in the next 6 months. What does that mean? That means that we are going to dry up the materials and supplies which we are purchasing, and it is going to affect the economy of the suppliers which we have in our territory in the Mississippi Valley.

Next, normally we lay 200 miles of rail-that is 40,000 tons. In 1958 I have reduced that to 30 to 40 miles, or 6,000 to 8,000 tons. The steel people are going to suffer because we have reduced our steel purchases in 1958. And I am sure, from my knowledge, that if all the rest of the railroads do as I am going to do, it will have an effect on the economy of the steel industry.

We are doing the same thing in our car program. We build most of our own cars. We are building 2,000 cars at the moment in our shops at Centralia. And that will be completed in February. And I have shut down the building of additional cars and the purchase of steel.

Normally, we build 2,000 cars a year to keep a proper car supply, the retirements plus the additions which we need for normal transaction of business; and that again is going to affect the steel industry and the employment in that industry.

We are doing the same thing in our tie program. We are reducing the number of ties which we have been putting in, which has been running about a million ties a year. We are going to reduce that to about 400,000 ties. We are not buying any lumber for the repair of cars. We are going to scrap what we have got, because we don't need the cars for the business is down.

STATEMENT OF JOHN P. KILEY, FORMER PRESIDENT OF THE CHICAGO, MILWAUKEE, ST. PAUL & PACIFIC RAILROAD CO.

(The prepared text follows:)

STATEMENT OF JOHN P. KILEY

My name is John P. Kiley. I am consultant to and former president of the Chicago, Milwaukee, St. Paul & Pacific Railroad Co., also known as the Milwaukee Road.

The Milwaukee Road operates almost 10,600 miles of road through 13 States. Its lines run from Indiana to the State of Washington through Chicago, Illinois, Wisconsin, Minnesota, the Dakotas, Montana, and Idaho. It also covers the State of Iowa, and is an important link in transcontinental rail service through the Missouri River gateways, such as Omaha and Kansas City. It serves an important function both as a transcontinental and as a western trunkline carrier and many communities and districts are dependent upon the Milwaukee for rail service. Its physical operations and service are typical of western railroads serving the same general territory.

The Milwaukee Road is 100 percent dieselized or electrified and since World War II has kept pace with all technological improvements in the railroad industry to the extent permitted by its finances. It is our desire to continue in this course. Certain unfavorable conditions, however, have developed in the transportation field, which legislation is now needed to correct.

EXEMPT COMMODITY TRANSPORTATION

We are particularly alarmed at the extension by judicial interpretation of the group of commodities, the transportation of which is exempt from regulation by the Interstate Commerce Commission. The inclusion of dressed poultry and frozen fruits and vegetables among such commodities is a recent example. The Milwaukee Road serves more packinghouse shippers than any other railroad in the country. We have seen our long-haul traffic in meat and packinghouse products taken from us by truckers who have capitalized on the exempt commodity provision of the Interstate Commerce Act. In a recent proceeding before the Interstate Commerce Commission, I. C. C. Docket 32252-Fresh Meats Transcontinental-Westbound, the evidence showed that the Milwaukee Road had suffered an 81 percent decline in its fresh meat and packinghouse products traffic from Midwest points to the State of Washington, 1954-56. Heavy losses have also been encountered by other lines serving the Pacific coast. In striking contrast, the number of truck shipments of such commodities from the Midwest to the Pacific coast increased several hundred percent.

Attempts by the railroads to regain a portion of the lost traffic by reducing their rates were opposed by motor carriers who had commenced operations within the past 8 years using leased equipment, and are already enjoying receipts of millions of dollars a year. On the return trip agricultural commodities are hauled. Without the return traffic, which at least one of the truckers admitted was carried at times for less than actual cost, the trucking operation would be financially impractical. Further expansion of the exempt commodity group would enable both the partially regulated as well as the wildcat truckers to capture additional traffic from the railroads with resulting higher rates on remaining traffic or a deterioration of rail service.

The use of private transportation is sometimes attributed to the failure of the railroads to provide adequate car supply, particularly for grain loading. Recently complaints of this nature were made with respect to the State of South Dakota in which the Milwaukee operates substantially more mileage than any other carrier. I had our people tabulate daily for the period July 15 to August 31, 1957, the number of cars ordered for grain shipment, number of cars that had been spotted, and the carloads of grain loaded. The tabulation showed that we had sufficient cars on hand practically in every case to cover the orders, and in every case had anywhere from 3 to 5 or 6 times the number of cars that were loaded. We were thus able to take care of our requirements promptly even though it meant a very large increase in our expense for extra equipment that was not needed being held for possible loading.