is that they are small businesses and cannot demand or command congressional relief as the railroads are doing. But I suggest to this committee that these barge operators deserve enough attention from this Congress to spare them from cutthroat railroad competition such as we believe would result from enactment of the proposed change in ratemaking rules. Transportation rates are now regulated within the framework of the Interstate Commerce Act, which is administered with a view to carrying out the national transportation policy, written into the law in 1940. As a standard of Government policy, we believe this language could hardly be improved upon. Any criticism of the regulation of competitive ratemaking more properly should be directed at the administration of the law, the way it works out in practice, rather than at the congressional purposes set forth in the act, because these purposes, we believe, are sound. The railroad industry complains that it is unduly restrained in its ratemaking by the Interstate Commerce Commission and that such restraint is largely responsible for its being in financial difficulties. The railroads propose that the statutes be amended to end any consideration of the effect of their ratemaking on other forms of transportation. At this point let me say that we in the barge industry sympathize with the plight of the railroad industry, confronted as it is with the terriffic problems of providing passenger service for a vanishing clientele, and carrying a tax burden so heavy as to make almost insoluble its problems of equipment replacement. We sincerely hope they may be afforded constructive assistance. We do not believe, however, that constructive assistance should include a license to engage in destructive competition, and this, we believe, is exactly what is proposed. Other small businesses today are protected by the antitrust laws from the misuse of economic power by their bigger, more financially powerful competitors. In the transportation industry, this protection is provided by the Interstate Commerce Act. The railroad proposal seeks to emasculate the Interstate Commerce Act so that railroads may engage in destructive competition with other forms of transportation at their option and without such restraint as is now afforded by the act. In such a contest between the railroad industry and the barge industry, with the latter enjoying revenues only about 3 percent as great as the former, can anyone doubt the ability of the railroad industry to wipe out whole segments of the barge industry? If this were accomplished by across-the-board price competition without discrimination and at rates which returned full cost to the railroads, perhaps we could not complain. But we believe it would be accomplished-in fact, that it could only be accomplished-by selective price cutting, by using depressed and unremunerative rates to beat us to our knees while placing the burden of railroad overhead and profit on noncompetitive traffic. What other industry enjoys this predatory privilege? We might properly also ask, what circumstances warrant extending this unique privilege to the rail industry? Would the tactics permitted by such a license produce long-term benefits to the rail industry and to the public, or would the exercise of such cupidity merely destroy small healthy water carriers, now performing at a profit a type of service the railroads can only perform at something less than full cost? The railroads are not alone in feeling sometimes that they are treated unfairly by the Interstate Commerce Commission. The barge lines and the trucklines frequently feel that justice has miscarried. However, the Interstate Commerce Act is a complicated statute with a great deal of room for administrative discretion in the handling of cases which fall upon the Commisison and its staff in mountainous detail. Some inconsistency in deciding cases is inevitable, but a proper summary of the reasons for occasional apparent inconsistencies was made by Commissioner Howard Freas in his testimony before the subcommittee of this committee on March 28, wherein he blames an inadequate record for a great deal of the inconsistency in decisions. Note that he did not blame the act. This is an explanation that goes far toward throwing a spotlight on the root of the troubles that have led to the proposal which this committee is now considering. However, to correct this situation by revoking the Commission's authority to consider the relation of competitive rates would be a return to the law of the jungle in ratemaking and not a constructive progressive move. Particularly we believe it would not be constructive help to the railroads to permit them to exhaust themselves financially and aggravate their equipment situation in even more intense efforts to kill off water carriers with rates depressed even further than their water competitive rates are now depressed. Considering the low level of the revenue that this water traffic commands, as well as the relatively small volume of the traffic, the railroads could hardly look for significant revenues from this source. It would be more constructive, we believe, to improve the standards of regulation by clarification so as to simplify and make more consistent the Commission's procedures and decisions in these competitive rate cases. Competent authorities on every hand agree that the administration of transportation competition should be such as to bring about the movement of traffic by the carrier who is best fitted to handle it. The Surface Transportation Subcommittee, itself, said this in its report issued on April 30, 1958, following lengthy hearings on railroad problems. This subcommittee said: It is a policy of this subcommittee, and it is believed to be the policy of the Congress, that each form of transportation should have the opportunity to make rates reflecting the different inherent advantages each has to offer, so that in every case the public may exercise its choice, cost and service both considered, in the light of the particular transportation task to be performed. We find no difficulty in agreeing with that principle. It points up a relevant question as to how can the Interstate Commerce Commission make a decision as to where lies the public interest in the level of a disputed rate without considering the effect of the rate on this competition? The various provisions of the act are now written with that purpose in mind, and if we maintain that purpose in the act and in the interpretation and administration of the act, the transportation policy provisions will be preserved and the growth of a sound national transportation system promoted further, as it has already been promoted under the Act so far. Senator LAUSCHE. May I at this time interpose? Senator LAUSCHE. Questions have been asked by the chairman of the relative returns of the different modes of carriage. And I have here page 1250 of the record, which is a communication addressed to the Honorable George A. Smathers, by the Interstate Commerce Commission. And I would like to give the figures here. The class 1 linehaul railroads, in 1956, had a rate of return on investment of 4.16; class 1 motor carriers' property, 1956, a rate of return of 10.4; regulated water carriers for 1956, 11.3. The comparative figures are 4.16 for railroads, 10.4 for truckers, and 11.3 for water carriers. I suggest that that be inserted in the record here because of the pertinence to the words just expressed by the witness. Senator SMATHERS. If there is no objection, we will make that a part of the record. All right, sir. (The letter referred to is as follows:) INTERSTATE COMMERCE COMMISSION, Washington, D. C., March 27, 1958. Hon. GEORGE A. SMATHERS, Chairman, Subcommittee on Surface Transportation, United States Senate, Washington, D. C. DEAR CHAIRMAN SMATHERS: In compliance with you recent request for the rate of return upon the investment for class I railroads, class I motor carriers of property, and carriers by water, the attached information is furnished for the year 1956. Data necesary to make the computations for the year 1957 are not yet available. As you will note from the attached table, the rate of return computed for class I line-haul railroads is 4.16 percent; class I motor carriers of property, 10.4 percent; and large water carriers, 11.3 percent. A number of different rates of return can be compiled for carriers. In past railroad general revenue proceedings the Commission has utilized three separate formulas: namely, net investment, ex parte 175, and ex parte 115 methods. The latter two are based on valuation statistics which are not available for either water or motor carriers. In the attached table, therefore, the figures for all three groups of carriers have been placed as nearly as practicable on a comparable basis using the net investment method. Investment in property used in transportation minus accrued depreciation and amortization, without any allowance for working capital, has been used for all three classes of carriers. A figure corresponding as nearly as feasible to the net railway operating income for railroads has been constructed for motor carriers and carriers by water. The Association of American Railroads computes its rates of return on a slightly different basis from the above which accounts for a small difference: 3.96 percent published by them as the rate of return of class I railroads compared with 4.16 percent computed by us. On March 17, 1958, we furnished Mr. Frank Barton, counsel for the subcommittee, a rate of return for large water carriers of 12.7 percent instead of the 11.3 percent shown on the attached table. In the computation furnished Mr. Barton the water carriers' net income included certain income due to noncarrier operations, such as dividends, interests, etc. In order to make the figure comparable to net railway operating income such items were deleted. Net railway operating income represents the financial results of the operation of the railroads and is the difference between the total railway operating revenues and the sum of railway operating expenses, taxes (including income taxes), and equipment and joint facility rents. It excludes financial items such as dividend and interest income, income from miscellaneous nonrailroad operations, fixed and continued charges, etc. I trust the above information sufficiently answers your inquiry. However, if it does not or if we can assist you in any other way, please feel free to call on us. Sincerely yours, 26212-58-8 HOWARD FREAS, Chairman. Class I line-haul railroads, 1956 1. Investment in property used in transportation_ 2. Less accrued depreciation and amortization__ 3. Net investment____ 4. Net railway operating income- Rate of return on investment (4 divided by 3) (percent) –. Class I motor carriers, property, 1956 1. Investment in carrier property-- Rate of return on investment (4 divided by 3) (percent)– $33, 338, 792, 745 7,686, 356, 085 Rate of return on investment (4 divided by 3) (percent) -- 25, 652, 436, 660 1,068, 245, 689 4. 16 $1,903, 258, 991 937, 135, 351 966, 123, 640 100, 649, 105 10.4 1 Excludes amounts for class C water carriers (those with operating revenues of less than $100,000 a year). Senator POTTER. I am wondering at this point, Mr. Chairman, if I could bring up a point. Senator SMATHERS. Yes, sir. Senator POTTER. From the policy of the subcommittee as stated in the report, where you state, as has just been read by the captain, so that in every case the public may exercise its choice, cost and service both considered. Now, if the ICC, in dealing with ratemaking for railroads, cannot consider the effect on any other mode of transportation, how can they determine the service as set out in the policy of the subcommittee? Senator SMATHERS. Well, I would be glad to try to answer that, again only speaking for myself, and not speaking for the subcommittee or anybody else. But I would say this, that Are you directing that to me? Senator POTTER. Yes, for my information. Senator SMATHERS. What we are seeking to do here-first, I am sure you understand that the Commission has to give a certificate to the motor carriers, water carriers, and also of course the regulated railroad carriers. Now, if the railroads can make a-can offer a lower rate on a particular item, they, of course, petition the Commission to do it. The Commission then has to hear, and it is filed, unless there is an action filed on the part of a competing mode, it is not suspended. That is why most of them are granted. If they have an inherent advantage, they can reflect it in the price that they offer to carry the article. Now, if the water carriers want to come in and object on the charge that it is destructive, actually it is not compensatory, that it does not meet the standards of a minimum reasonable rate, then they are permitted to do that. The Commission would then have to decide. Senator POTTER. Let me use an example. Senator SMATHERS. All right. Senator POTTER. The water carriers, a barge line, for example, would have certain inherent advantages for bulk cargo. Senator SMATHERS. Right, and they do. Senator POTTER. And the railroads came in and asked for a lower rate between certain points, in competition with the barge lines, with a possibility of getting that cargo. Now, under the language of the bill, where the ICC would consider the rate, in determining the rate, could not look at its effect on other modes of transportation, I am wondering if Senator SMATHERS. We are not trying to restrict it. It may be that we will have to change this language. When I say "we," again, I am sorry, I am not trying, and I don't think anybody else on the subcommittee is trying to stop the Commission from considering what are destructive rate practices as distinguished from what is a rate that reflects an inherent advantage of a mode of transportation. The reason we are trying to do that is to get the Commission away from a practice that it has fallen into in the last 5 years, where certain of these cases, which I wish that you would read, they have said, even though an application for a rate-even though that rate would be compensatory, even though it would return a profit, and so on, we are not going to let them lower the rate because in lowering the rate, they would injure another mode of transportation, with the result that we have high prices, then, for these articles, fixed usually on what would amount in that particular instance to the less competent mode of transportation. So the public gets hurt in that particular situation, was our belief. So in order to get them away from that practice and to follow out the theory of the 1940 act, which you heard Senator Wheeler enunciate here again yesterday, where the inherent advantages-we say they can fix it if they have an inherent advantage, then they don't have to be concerned about whether or not it would be hurtful to the other mode of transportation, so long as it was not done with a destructive, malicious, prejudicial matter in mind. That, of course, is left to the Commission, and they have to be solemn on all of these things, anyway, but it is merely an effort to get the rates lower. Senator POTTER. Would it be your opinion that a destructive practice would be a practice where a mode-the railroads, for example, could come in and take freight which it-where the barge lines have the inherent advantage, normally? Would you consider that a destructive practice? Senator SMATHERS. Sure. Because in many instances the barges can carry many commodities, certainly bulk commodities, much cheaper than the railroads can. I think the Commission understands-in fact, they do understand that. A railroad actually could not come in for that matter and offer a rate below a compensatory rate to them. So I don't think that particular occasion very often arises. Senator POTTER. That is all right. Senator SMATHERS. I think that is a correct statement. If I am incorrect, Mr. Counsel, straighten me out. All right, Captain. |