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quoted at p. 12 of the report of the Senate Subcommittee on Surface Transportation). On the contrary, the deviations which the Commission undertook to resolve in the Automobile case have continued, and there is today great confusion as to what the rules are when it comes to the making of rates to meet the competition of another mode.
The time is long overdue for the ICC to be put back on the track intended by the Congress in the Transportation Act of 1940-an intention which the Commission itself recognized in the Automobile and other earlier cases. The specific amendment (in the form of a new paragraph (3) to section 15 (a) as suggested by the Senate subcommittee to accomplish this purpose would seem to be altogether appropriate).
Certainly its prompt enactment is desirable in the interest of basic fairness to the railroads and also in the larger interest of a national transportation system, with each form doing that part of the overall job for which it is fitted and for which it has the best economic qualifications.
Senator SMATHERS. Mr. Hoyt Haddock, we will have you next, and then we will have the members of the Commission.
All right, Mr. Haddock, if you are ready to proceed, we are adjusted
to listen to you.
STATEMENT OF HOYT S. HADDOCK, EXECUTIVE SECRETARY,
AFL-CIO MARITIME COMMITTEE
Mr. HADDOCK. Thank you, Mr. Chairman and members of the committee. I appreciate your courtesy in permitting me to appear here and my statement is going to be brief. As a matter of fact, I was going to ad lib it all, but sitting here listening, I wrote some of it out to see if I couldn't shorten it up.
On the question of discriminatory rate question that was raised here by the Florida fruit rate, you may be interested to know that this is quite a common practice. It goes on all the time. It doesn't exist any longer in the Florida fruit case because the railroads were able to destroy that competition by that method.
But it does exist today, and every year, in other areas of the country. For example, when the Great Lakes are closed down because of the winter conditions, the freight rates on railroads go up accordingly. The same thing exists on the inland waterways, the Ohio River is closed down, when it is, the railroad rates go up. So there is a very common thing and in my opinion, goes right to the heart of this question.
Senator SMATHERS. Why is no protest made? Why doesn't somebody in the interest of the public protest these very obviously flexible rates when they are all talking about—we want the railroads to have the advantage—to exercise their inherent advantage and then when they get a little bit too much advantage, they raise their rates.
Shouldn't somebody protest it, are they not protested?
Mr. HADDOCK. I think they are protested from time to time, but basically it has been felt that the ICC has been pretty much antiwater carrier and prorailroad carrier. Now whether or not this is true, I am not competent to say because I am not a student of this particular field of the situation.
Senator SMATHERS. I must say that on that particular point we are getting the evidence, and most of the weight of the opinion seems to be to the contrary.
Mr. HADDOCK. Well, let me point out
Senator SMATHERS. We don't know. We just say that we are getting more of it that are more fearful about the Commission now being more prowater carrier and promotor carrier than prorailroad.
Mr. HADDOCK. Of course, there is a condition that should not exist. Senator SMATHERS. Right.
Mr. HADDOCK. But in 1940 when this act was being considered, the entire water transportation industry was fearful that this was going to mean that the railroads would be given better opportunities than water carriers and would put them out of business.
And certainly insofar as coastwise and intercoastal shipping is concerned that is exactly what has happened. The movement of cargo in the coastwise and intercoastal trade has decreased from approximately 51/2 million tons in 1939, to about slightly over 1 million tons today. And those companies were put out of business by discriminatory rail rates which existed.
Senator SMATHERS. Whom do you represent?
Mr. HADDOCK. I am representing the AFL-CIO maritime committee.
Senator SMATHERS. Maritime, all right. Yesterday we had some witnesses as you know, who represented certain deepwater carriers, coastwise shipping. They made that same charge. Yet I look here at the statistics, the charts supplied by the Interstate Commerce Commission and I find that while that may be true—we don't have any evidence of it other than your statement—but during that time the railroads, themselves, were dropping down where, for example, in 1929 they had 75 percent of the business—this is the commercial intercity freight traffic, and so on-it dropped down in 1956 where they had 48 percent and now we know that 1957 they have even less than that, so if they are taking your business, somebody in turn, is taking theirs.
Mr. HADDOCK. That is for sure.
Senator SMATHERS. We have got to find out where it is going. I think you know and I know it is into this private unregulated business.
Mr. HADDOCK. Incidentally, we have some pretty good figures on this whole question which we will be glad to furnish to the staff if they are interested in them at a later date.
Senator SMATHERS. Right.
Mr. HADDOCK. Throughout the legislative history of the Transportation Act of 1940, two salient principles were stressed. These principles were emphasized in the bills under consideration. The hearings on the bills, reports of both Houses on the legislation, and in statements of members of both Houses in debate on the legislation.
This legislative history made it crystal clear that under the act(1) legitimate regulation must look to the protection of the economic advantage of each type of carrier against destructive competition of the other, and (2) there is no purpose to so adjust rates as to deprive any type of carrier of the inherent advantage of his cheaper cost of carriage.
In effect, the two principles can be simply stated by saying that the rates on competing forms of transportation (1) shall not be so low as to threaten the extinction of legitimate competition from other modes of transportation, and (2) shall be no lower than necessary to meet the existing competition.
We believe these principles are still basic. The problems which exist are not in the act. The real problem arises out of the fact that no basic cost data exists on which the ICC can fairly or intelligently determine what the rates should be.
For example, there still exists in practice rates which clearly follow the old Florida-New York fruit rate case which existed until the railroads destroyed effective water competition on that commodity. We recommend that this proposed change in ratemaking not be made. Instead, there should be a comprehensive cost analysis of costs which go into rates. This is where the problem exists.
Unilateral rate advantage by one mode of transportation over another will automatically be eliminated by the weight of fact. The pie in the sky method of establishing rates to the detriment of the public or to another mode of transportation will go by the board. True, the rate experts who establish rates on the basis of an educated guess, long years of experience, or the best judgment of an expert in the field, will be required to become acquainted with cost-pricing. Ratemaking without cost-pricing we believe, will permit the act to do the job that it should do. No substitute exists for cost-pricing in the ratemaking field. Statements by informed experts to the contrary notwithstanding. Now, aside, Mr. Chairman, from this whole question of discriminatory rates, you mentioned what I think is one of the most serious problems, and that is the regulated versus the unregulated. We feel very strongly that these people should be put on an equal footing. Either we should have regulation for all or regulation for none, it is just that simple.
That concludes my testimony.
Senator POTTER. Have we had other testimony about the dataabout our ratemaking, the costs that go into establishing a rate!
Senator SMATHERS. Yes; we have had a good deal of it off and on through those 11 weeks. I might say to Mr. Haddock, as he knows, we have considered just like you, that that is a big problem. The Congress is approaching the whole question of regulation, whether we should not regulate everything or else deregulate everything one way or the other.
And in our committee we are setting up a study, that is the No. 1 thing we are asking them to look at. Any questions that you would like to ask Mr. Haddock? Senator Lausche? Senator LAUSCHE. You are associated with whom?
Mr. HADDOCK. AFL-CIO maritime committee.
Mr. HADDOCK. On both.
Senator LAUSCHE. Now the man who testified yesterday, the economist, Weiss, was it?
Senator SMATHERS. Yes; he was with the Teamsters.
Senator LAUSCHE. Getting to the subject of subsidies, the merchant marine on the high seas has a subsidy from the Government; hasn't it?
Mr. HADDOCK. Yes, sir.
Senator LAUSCHE. And that subsidy is equal to the difference in the hiring of American labor, as what the cost would be if you hired foreign labor, is that correct?
Mr. HADDOCK. Simply stated, that is it. However, it covers other costs.
Senator LAUSCHE. Yes, and you are also subsidized in the building of ships in an amount equaling the difference of the costs for domestic labor as compared with foreign labor?
Mr. HADDOCK. Yes, sir.
Senator LAUSCHE. Do you feel that that is an aid in exercising the inherent advantage that might be unjustly prejudicial to the ability of the railroads to compete?
Mr. HADDOCK. Well, the railroads cannot compete with water transportation where this subsidy is being paid. They simply can't run rails over the water.
Senator LAUSCHE. Yes. Did you hear the testimony yesterday that the fixed charges of railroads run 20 to 30 percent of their gross expenditures?
Mr. HADDOCK. No, sir; I didn't hear that, but I don't know whether it is a correct statement or not.
Senator LAUSCHE. That is all.
Senator SMATHERS. Our last witness, or group of witnesses, I should say, will be Chairman Freas and members of his Legislative Committee. If they would come forward.
Mr. Walrath, if you would care to come up here and sit, we would be delighted to have you.
Do we have any other Commissioners out there?
Senator SMATHERS. Commissioner Goff, if you care to, you can come up here and sit where you can watch your fellow members perform. [Laughter.]
Commissioner FREAS. Mr. Chairman.
Senator SMATHERS. Mr. Chairman, we are again happy to have you back. We have been keeping you busy, we know, racing back and forth on these matters, but, as you know, they are of great importance, and we need your advice and recommendations,
Commissioner FREAS. We appreciate the opportunity to come back here.
STATEMENT OF HOWARD G. FREAS, CHAIRMAN; ACCOMPANIED BY
COMMISSIONERS ANTHONY F. ARPAIA AND ROBERT W. MINOR,
Commissioner FREAS. Mr. Chairman and members of the committee, for the record, my name is Howard Freas. I am Chairman of the Interstate Commerce Commission, and have been a member of that Commission for the last 442 years.
I am also a member of the Legislative Committee and am accompanied here by the other two members of the Legislative Committee, Commissioner Arpaia and Commissioner Minor.
I have a short prepared statement, which, if it meets with your approval, Mr. Chairman, I would like to submit for the record, and then merely comment on some of the salient points.
Senator SMATHERS. All right.
We will make your prepared statement a part of the record, in full, Mr. Chairman.
(The statement of Chairman Freas follows:) Nr. Chairman and members of the Interstate and Foreign Commerce Committee, my name is Howard Freas. I have been a member of the Interstate Commerce Commission for the past 412 years. Since the first of this year, I have served as its Chairman.
The Commission appreciates the opportunity to express its views concerning section 5 of S. 3778, which would amend section 15 (a) of the Interstate Commerce Act by adding to that section a new paragraph (3), reading as follows:
(3) In a proceeding 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.
The proposed amendment to section 15 (a) would apply only where reduced rates are proposed for rail carriers; it does not purport to apply where, for example, reduced rates are proposed for motor carriers.
The Commission is strongly of the view that all forms of transportation should be regulated impartially, and that, specifically, the same principles of ratemaking should be applied to all carriers. While it may be contended that nothing affirmatively prevents application of the proposed amendment to rates proposed by other types of carriers, there would remain the problem that the amendment is limited by its terms to rail rates.
Paragraph (2) of the present section 15a provides that, the Commission shall give due consideration, among other factors, to the effect of rates on the movement of traffic by the carrier or carriers for which the rates are prescribed; * * *
This requirement appears to be substantially equivalent to the proposed amendment, leaving aside the last six words of the amendment, i.e., "and not by such other mode.”
As you know, the Congress has provided in the national transportation policy that all of the provisions of the Interstate Commerce Act "shall be administered and enforced with a view to carrying out the above declaration of policy.” It is the declarednational transportation policy of the Congress * * * to * * * foster sound economic conditions in transportation and among the several carriers; to encourage the establishment and maintenance of reasonable charges for transportation services, without * * * unfair or destructive competitive practices; * * *
Thus, for example, the Commission has considered the effect of a rate war upon all of the carriers involved, in exercising its rate powers.
In addition, however, we are uncertain as to the effect of this proposed amendment. In discussing it, the report of the Subcommittee on Surface Transportation (p. 12) contains the following statement:
It is the policy of this subcommittee, and it is believed to be the policy of the Congress, that each form of transportation should have 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,