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volved in this open competition between themselves? Do you think that they would favor that, from what you know, from your experience with them as a member of the Commission?

Commissioner FREAS. I don't see why they should have any objection to competition between themselves or among other classes, so long as that competition is not permitted to go to a destructive level. I should think they would welcome competition on a reasonable level.

Senator SMATHERS. Do you think that the railroads would, from your experience as a member of the Commission, do you think that the railroads would like and be favorable toward this opening up of competition as between them with respect to rates ?

Commissioner FREAS. Based on my experience, I would have to say, but I don't understand why not. [Laughter.]

They do compete but I mean they are not, as I understand it, they are not in favor of having those provisions apply intramode.

Senator SMATHERS. Is it because many of the railroads run parallel to each other, unfortunately, over part of our history many of them have been built on one side of the river and one side of the other and when they get to competing with each other, why, it usually occurs that one of them will eventually take the other one out. Is that why you think that they would object to opening this unrestricted competition between each other?

Commissioner FREAS. As long as that competition is maintained on a reasonable level, it shouldn't have that effect. But I think I would rather have the railroads answer as to their reason. I have read some statements, but I have never been clear as to just what their reason is.

Senator SMATHERS. One of the things that bothers me most about any new type of language is that somebody will come in and ask to have some more hearings. [Laughter.]

This is our 12th week on this thing, and we have got to try to wind it up sometime, even if we are wrong, but we want to try to wind

Commissioner Freas. Again, I want to emphasize that we are not urging

Senator SMATHERS. How would the Commission feel if we wrote in a provision involving competition between modes of transportation; what would be the Commission's reaction to that amendment?

Commissioner FREAS. Well, that would bring about that condition of inequality, which would be contrary to the experience of the Commission in this proceeding, and elsewhere. We see no reason why there should be a rule as between modes and not as between carriers within that mode.

Senator SMATHERS. I don't, either, but I want to say this, the fact of the matter is that you do not have competition within a mode of transportation to a great extent today, do you?

Commissioner FREAS. Well, that is a relative matter. I would say it is quite great in certain instances.

Senator SMATHERS. What I am trying to say, that words involving competition between carriers, does not that open up a new facet of competition>true, but does that not open up a new facet of competition that at the moment is not opened up?

Commissioner FREAS. Well, we have a number of cases in which the competitive situation as between carriers in the same mode has been

it up.

very intensive. I am thinking particularly now of iron ore, several of those, extremely large cases, coal cases. We had a pulpwood case that is now concluded; in fact, it was withdrawn. But there have been a number of those where competition intramode, among the railroads, has been a very important factor.

Senator SMATHERS. What I am seeking, to be very frank, and this is probably not the place to be, certainly, confidential, although I can be frank, but rather than to get us into a hornet's nest of criticism and further complaints and pressure on the various Senators and letters back home and advertisements in the newspapers, and all that business, which we get accustomed to, nevertheless I was just thinking that we might be able, by changing those two words, to eliminate some of that, and nevertheless accomplish a good deal of what the subcommittee sought to accomplish by just changing those few words right there.

In that event, we could then move forward with this legislation, but would not you agree that this, then, would still accomplish, even with that suggested change which I have made, it would still accomplish everything that we were seeking to accomplish under this proposal that we have?

Commissioner FREAS. May we take a moment, please?

Senator SMATHERS. Sure. As they say on What's My Line, “20 seconds for a conference.” [Laughter.]

Commissioner FREAS. The Legislative Committee, at the moment, at least, feels that the change you have suggested, Mr. Chairman, would carry out, of course, the purpose of the subcommittee in that regard, and while it is not what we would suggest in the first instance the language here represents that nevertheless, we have no strong objection to it, particularly since we are not advocating the rule, as such. We are just proposing it as an alternative.

Senator SMATHERS. Right. But it would still accomplish that which the subcommittee started out to accomplish?

Commissioner FREAS. That is right.

Senator POTTER. And the rest of your proposal here would also carry out the objective that the subcommittee recommended. I can't see any difference in it, and it would eliminate what might be a contradiction between the national transportation policy and this otherwithout considering other modes of transportation.

Commissioner FREAS. I think it would.

Senator SMATHERS. All right. Does anybody else have any questions?

Senator Schoeppel, do you have any?

Senator SCHOEPPEL. No. I would like to take a good, cold, better look at it. [Laughter.]

Senator SMATHERS. Senator Lausche, do you have any more questions?

Senator LAUSCHE. I would like to ask a few questions.

Mr. Freas, based upon your knowledge, which of the railroads are now in actual financial difficulties?

Commissioner FREAS. Well, again, speaking offhand now, and I would want to make some check of it, the carriers that occur to me as being good candidates for the head of that list would be the Pennsylvania, New York Central, D. L. & W., possibly the Lehigh Valley,

Central of New Jersey, the New Haven, the B. & M.-I think those are possibly some of the ones that are in that situation. As I say, those, I believe, are the carriers that come closest to the group that you indicated. The extent to which they are in difficulty, I couldn't say.

Senator LAUSCHE. Well, there was testimony here, and probably you heard it, that they had on hand available cash for 1 week's operation, 10 days, 1 or 2 of them. Do you understand that to be the fact?

Commissioner FREAS. I have heard statements to that effect.

Senator LAUSCHE. I would like to get your interpretation of why there is this disparity in the average returns between the among the truck carriers, the water carriers, and the railroads, as set forth in that paper which I read this morning.

Senator SMATHERS. I can tell you what it was. It was 4.6 percent for the railroads; it was 10 point something for the motor carriers, and 11 point something for the water carriers.

Commissioner FREAS. Important in that is the passenger deficit. Senator POTTER. What was that?

Commissioner Freas. The passenger deficit. There are, no doubt, a large number of factors, but I don't know that I could specifically identify them right now.

Senator LAUSCHE. Well, the abandonment of passenger service would improve their return?

Commissioner FREAS. It certainly should.

Senator LAUSCHE. Now, then, would the abandonment of the passenger service, in your opinion, bring their returns up to either the truck carriers or the water carriers'?

Commissioner Freas. Well, if the passenger deficits could be wiped out completely, I don't doubt that, in many instances, it might bring them up close to that level. But, again, that would require a study to determine whether in its overall effect or in specific instances that would be true. Senator LAUSCHE. You did testify here, directly, when you last

AD: peared, that the problem of the railroads was accentuated by the subsidies that are provided directly and indirectly for competing modes of transportation; is that correct?

Commissioner FREAS. Yes.
Senator LAUSCHE. You are still of that opinion?
Commissioner FREAS. Yes.
Senator LAUSCHE. I think that is all I have.

Commissioner FREAS. I might just add to your previous question, Senator, that the Pocohontas Lines, which by and large, do not do a very large passenger business, also have a substantially higher return than the others. That would indicate the passenger deficit has quite an effect on them.

Senator LAUSCHE. And I think the Chesapeake & Ohio gave testimony to that effect.

Senator SMATHERS. All right. Are there any other questions? (No response.)

Senator SMATHERS. All right, Mr. Chairman and Commissioners Arpaia, Minor, Walrath, and Goff, we are grateful that you helped us; we thank you. We appreciate that very much.

Senator SCHOEPPEL. We may be asking you for some answers to some other questions. [Laughter.]

Commissioner FREAS. We will be as your pleasure.

Senator LAUSCHE. Mr. Chairman, undoubtedly, we will be getting expressions from the different modes of transportation concerning this suggested language. And I want to indicate now that, if this Congress is going to do anything, this committee has to get a bill to the floor of the Senate.

Senator SMATHERS. Right.

Senator LAUSCHE. And I would suggest that whatever further arguments are submitted, be submitted in writing, otherwise, this proceeding will become interminable.

Senator SMATHERS. Right. And I think, if the committee agrees to it—this is the full committee now—that if the motor carriers will submit to us in writing their opinion on this particular language, and if the Railroads Association would do the same thing, and the water carriers, and then, in addition to submitting it for the record—we will make that a part of the record—but drop a copy of that around to each one of our offices so that we might have it right away, it would be very helpful because we now have a date to vote on this on Monday.

Commissioner ARPAIA. And drop a copy to the Commission, too. Senator SMATHERS. And drop a copy to the Commission, too; yes.

(Following is correspondence which was subsequently received by the committee :)


Washington, D. C., May 23, 1958. Hon. WARREN G. MAGNUSON, Chairman, Committee on Interstate and Foreign Commerce,

United States Senate, Washington, D.C. DEAR MR. CHAIRMAN: At the conclusion of the May 21, 1958, hearing before your committee on the problems of the railroads, Senator Smathers requested our views on the proposed addition to section 15 (a) of the Interstate Commerce Act which was offered by the chairman of the Interstate Commerce Commission as an alternative to the language presently under consideration, which is to be found in section 5 of S. 3778. The record indicates that the Commission took the position that no change in the present ratemaking provisions of the act is necessary and made it clear that it was not advocating its suggested language but that, to quote the Chairman of the Commission, "If the Congress does want to make some change, we believe this language would be better."

As the Commission and the trucking industry have both made clear, we believe that changes in the ratemaking provisions of the act are neither necessary nor desirable. However, we can state that the substitute recommendation of the Commission (as amended in the particulars indicated below by adding new language in italic and deleting words in brackets) would be an improvement over the language in section 5 of S. 3778.

“(3) In a proceeding involving competition with another mode of transportation, the Commission, in determining whether a [proposed] rate is lower than a reasonable minimum rate, shall consider the facts and circumstances attending the movement of the traffic. Rates of a carrier shall not be held up to a particular level solely to protect the traffic of [a less economic] any other mode of transportation, giving due consideration to the inherent cost and service advantages of the respective carriers and the objectives of the National Transportation Policy."

The original proposal of the Commission contemplated the application of the new section to intramode competition, but we understand that the present version deals only with intermode competition, which is the subject that has been under discussion in the hearings.

As noted above, we suggest certain amendments to the Commission proposal.

First, in the second line you will note we strike the word "proposed.” This is done so that it will be clear that rates in effect, as well as proposed rates, may be examined under the provision.

Second, we recommend that the word "solely" (italicized in line 5) be added so that it will be clear that the Commission's power to control rates for other reasons will not be disturbed.

Third, we substitute in line 5 the words "any other mode" for the words "a less economic mode which the Commission's phraseology (as amended at the hearing) would have placed there. This is done to avoid confusion unending. There is no such thing as a "less economic mode" of transportation. For some specific types of movements, one mode may be the low-cost mode, but for other movements the other will be the low cost mode. Presumably, the Commission meant by the phrase “less economic” to convey the idea of “low cost considering all factors" but we believe it might be construed to mean a great deal more and its employment in a statute would lead to interminable argument in every proceeding. The cost idea already is injected into the following part of the same sentence.

Finally, the addition of the words "and the objectives of the national transportation policy" are recommended to make it clear, as the subcommittee did in its report, that there is no intention to repeal or modify any part of the national transportation policy. Respectfully submitted.


General Counsel.


Washington, D. O., May 23, 1958. Hon. GEORGE A. SMATHERS,

Chairman, Surface Transportation Subcommittee, Committee on Inter

state and Foreign Commerce, United States Senate, Washington, D. 0. DEAR SENATOR SMATHERS : During the course of his appearance before the Committee on Interstate and Foreign Commerce on May 21, 1958, Commissioner Howard Freas, Chairman of the Interstate Commerce Commission, suggested substitute language for the proposed new section 15a (3) of the Interstate Commerce Act found in section 5 of S. 3778.

At the conclusion of Commissioner Freas' testimony, it was requested that the views of the motor carriers, the water carriers, and the railroads with respect to the substitute language suggested by the Interstate Commerce Commission be submitted for the record of the hearings and that copies of those views be furnished, also, to each member of the committee.

I enclose for the record in this regard a memorandum styled "Railroad Comments on the Interstate Commerce Commission's Suggested Substitute for the Proposed Section 15a (3) in section 5 of S. 3778," dated May 23, 1958. Copies of this letter and the enclosed memorandum are being transmitted to each member of the Committee on Interstate and Foreign Commerce. Copies are also being sent to the Interstate Commerce Commission, American Trucking Associations, Inc., and the American Waterways Operators, Inc. Respectfully yours,




SUBSTITUTE FOR THE PROPOSED SECTION 15A (3) IN SECTION 5 OF S. 3778 The Interstate Commerce Commission, while believing no change is required, suggests the following amendment to section 15a as a "compromise" rule to govern competitive ratemaking under the Interstate Commerce Act:

(3) In a proceeding involving competition between carriers, the Commission, in determining whether a proposed rate is lower than a reasonable minimum rate, shall consider the facts and circumstances attending the movement of the traffic. Rates of a carrier shall not be held up to a particular level to protect the traffic of a less economic carrier, giving due consideration to the inherent cost and service advantages of the respective carriers."

The proposal is altogether unacceptable to the railroads.

Competition in transportation, like competition in any other business, turns on price and service. These elements are inseparable in the sense that the user of transportation weighs one in the light of the other, and his choice will depend upon the specifications of the particular job to be done. Service may be the controlling factor in certain circumstances, with price largely immaterial. Price alone may control in different circumstances. Every transportation job, by whatever mode of transportation, reflects the decision of some shipper as to the relative importance to him of these two ingredients of competition.

The different modes of transportation have not only different cost characteristics but, also, different service capabilities, and the problem is to allow them

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