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Senator SMATHERS. We don't have any objection. Let's put it this way: Of course, that is for the committee to decide, Ralph. Are you asking us or are you asking him?

Senator YARBOROUGH. No, that is a committee question there.

Mr. WHEELER. I am not here to testify on that.

Senator YARBOROUGH. Senator Potter asked some questions about that and this is really in line with that question, the colloquy between the chairman and Senator Potter.

Senator POTTER. I would like to have the definition of the ICC.

Senator SMATHERS. They are going to come to testify. If you like, we can hear from Mr. Arpaia right at this moment, if he cares to

comment.

Commissioner ARPAIA. I think it is necessary to have a concept of what a just and reasonable rate is, first. A just and reasonable rate takes into consideration all the facts and circumstances, starting with the cost of the service. Second, the value of the service, which means the nature of the commodity. Next, after that, you consider the regularity of movement, the volume of movement, the transportation characteristics, such as susceptibility to damage, weight density, ease of loading and unloading, and matters of that kind, like terminal costs, the whole situation. That is a just and reasonable rate. And, obviously, a reasonable minimum means the low point in the scale of just and reasonable rate.

Senator SMATHERS. That is what you people consider now when reference is made to you as a reasonable minimum rate, you consider all those facts?

Commissioner ARPAIA. Yes.

Senator POTTER. How does that differ from compensatory?

Commissioner ARPAIA. A compensatory rate, in certain commodities a rate can bear out-of-pocket costs and still be a reasonable minimum, depending on the circumstances. A compensatory rate means any rate, if you say "full compensatory" it means it meets fully distributed costs. If it meets out-of-pocket costs, then, of course, it is compensatory in that sense, but it doesn't meet fully distributed costs.

Mr. WHEELER. Didn't they-I am probably wrong about it--but in the automobile case didn't they speak of the compensatory rate as one that brought in a profit also?

Commissioner ARPAIA. Normally you say if it is compensatory it meets fully distributed costs, which includes a profit.

Mr. WHEELER. That is right. That was my understanding.
Commissioner ARPAIA. A return on investment.

Mr. WHEELER. Exactly. That is what I understood they said in the automobile case.

Senator YARBOROUGH. Then the "reasonable" wouldn't mean a return on the investment, too, would it, under your definition?

Commissioner ARPAIA. A reasonable minimum would depend, as I said, on the facts and circumstances surrounding a particular movement, the purpose for which that rate is established. Now, obviously, if you are carrying sand and gravel and you have a lot of traffic moving and a regular schedule, a reasonable minimum would be quite different than if you were carrying, let's say, gold bars once a year.

Senator YARBOROUGH. Back to my question: Am I correct in getting this impression to obtain from your answer in defining "reasonable," that a reasonable rate would not necessarily be a compensatory rate?

Commissioner ARPAIA. It would have to be.
Senator YARBOROUGH. Pardon?

Commissioner ARPAIA. It would have to be a compensatory rate. Senator YARBOROUGH. It would have to be a compensatory rate? Commissioner ARPAIA. You start in with the cost of service, that is the first element you consider in determining the reasonableness of

a rate.

Senator YARBOROUGH. I understood you to say in this reasonable rate you would not necessarily include fully distributed costs, which would include, as I understand it, all overhead?

Commissioner ARPAIA. That is right. Now, when we say conpensatory rate, we don't necessarily mean that it covers the fully distributed costs. It depends on the facts and circumstances of that particular commodity and the movement. It could be slightly over out-of-pocket costs, and not meet a return on investment, or contribute, rather, to return on investment. Certain commodities cannot bear the transportation burden that other commodities can.

Senator YARBOROUGH. Bringing this down to specific cases: Under this language as written, that it is proposed that we enact, would it be possible for a railroad, say, to haul cattle from Amarillo to Fort Worth for less than the cost of hauling, and still be within the language adopted here?

Commissioner ARPAIA. No.

Senator YARBOROUGH. Could they haul anything at a loss between any two points?

Commissioner ARPAIA. No, not under this language, they couldn't do that.

Mr. WHEELER. I guess you are through with me?

Senator SCHOEPPEL. Let me ask one question here, not of the Senator, at this moment.

Senator SMATHERS. You sit there while this goes on, because you are probably the best-looking fellow we will have up here today.

Senator SCHOEPPEL. I would like to ask Mr. Arpaia this question: Which is the broadest-I don't think I want to use that word-which is the broadest, by way of interpretation or approach to this question, a reasonable minimum rate or a compensatory rate?

Commissioner ARPAIA. Reasonable minimum is the better term, the broader term.

Senator SCHOEPPEL. That is my question.

Senator SMATHERS. Are there any other questions?

(No response.)

Senator SMATHERS. Thank you very much, Senator Wheeler, you certainly have been very helpful to the committee.

Mr. WHEELER. Thank you very much.

Senator SMATHERS. Our next witness is Mr. John L. Weller, president of Seatrain, of New York City.

Mr. Weller, you go right ahead, sir.

Mr. WELLER. Thank

you, Senator.

STATEMENT OF JOHN L. WELLER, PRESIDENT, SEATRAIN LINES, INC., ALSO ON BEHALF OF PAN-ATLANTIC STEAMSHIP CORP.

Mr. WELLER. My name is John L. Weller. I am president of Seatrain Lines, Inc., 711 Third Avenue, New York, N. Y. I am

appearing on behalf of my own company and also on behalf of PanAtlantic Steamship Corp., 61 St. Joseph Street, Mobile, Ala.

Senator SCHOEPPEL. I might say, so many are in this room, if you could speak a little louder, I think it would be helpful to some of these folks in here, Mr. Weller.

Mr. WELLER. I will try, Senator.

I thank the Committee for giving me this chance to appear. We are two small unsubsidized coastal shipping lines. We have not previously made any appearances before your committee. We are not members of any of the trade associations which have appeared before your committee, and we do want this opportunity to speak briefly our piece.

As I said, I am representing both my own company and Pan-Atlantic Steamship Co. Mr. Parish, of that company, is here in the room, if there are any questions. I have also with me Mr. Leon Leighton, who is vice president of the New York, Susquehanna and Western Railroad, which is our connection at Edgewater, N. J., because his railroad is vitally interested in the things we have to say. Seatrain Lines is a common carrier by water, certificated by the Interstate Commerce Commission for transportation of commodities generally between the ports of New York, Savannah, New Orleans, and Texas City. Pan-Atlantic Steamship Corp. is a common carrier by water, holding certificates authorizing service between Atlantic and Gulf ports, and also intercoastally.

We are going to confine our testimony today to the rate matters that you have before you. We have not interest in the other matters in the bill, and I want to explain that there are very few things on which Seatrain and Pan-Atlantic can agree, but on this matter we are thoroughly in agreement.

From the very beginnings of our country until World War II, there was a thriving coastal shipping industry conducted in deepwater vessels. Just before the outbreak of that war, there were 19 deep-water shipping lines engaged in the coastal trades, operating approximately 139 vessels. Ten of these companies were engaged in the Atlantic-Gulf trade.

I might say, I understand that about 70 percent of the merchant fleet was engaged in coastal trades before the war.

As of now, Seatrain Lines, Inc., and Pan-Atlantic Steamship Corp., are the only two left in business. We operate between us a total of 10 ships.

In 1937, the Atlantic-Gulf operators carried more than 5,600,000 tons of traffic, regulated traffic. By 1957, the traffic of our two surviving companies had declined to less than 1,200,000 tons, a decrease of 79 percent. During the same period, railroad tonnage increased 42 percent. I understand that your committee's hearings are primarily directed toward the problems of the railroads, for which I have the greatest sympathy. I was born into a railroad family and spent the first 20 years of my business life in the railroad business.

The railroads are concerned that despite the increase in their tonnage, their share of the Nation's transportation is declining. Coastal water carriers have suffered not only a reduction in their share of the total, but an absolute and drastic reduction in the tonnage that they transport. I am sure your committee would not wish to take

any action which, though ostensibly in relief of the railroads, would further injure or destroy the vital coastal shipping industry.

The causes of the decline in deep-water coastal shipping are many, but I shall confine myself today to those related to the matters under discussion by your committee. On the entrance of the United States into World War II, the industry was completely shut down, its vessels having been conscripted for the conduct of the war. The coastwise traffic which these ships had carried either disappeared, or was taken over by the railroads.

When the war ended many of the ships had been lost or damaged in action. In line with an accelerated rise in the general cost of doing business shipbuilding and conversion costs had increased enormously, as did the cost of operating terminals and wharves. The railroads obtained a series of general rate increases; however, they applied "hold downs" to rates between the areas previously served by the water carriers, so that most of those engaged in coastal water transportation before the war found it impossible to re-enter the business. Only three-Seatrain, Pan-Atlantic, and Newtex Steamship Co., were able to operate in the Atlantic-Gulf trades for any time after the war. Newtex has since ceased operations, so that now there remain only two. The War Shipping Administration also conducted a coastal service for a short period after the war, but because of this rate situation lost money and had to discontinue operations.

Seatrain and Pan-Atlantic have been able to survive only by reason of having invested what are, for us, great sums, in technological developments which revolutionized the former concept of coastal water operations. Until a few years ago, freight was brought to the coastal harbors in trucks or railroad cars, unloaded on the piers, and then reloaded into the vessel. On termination of a voyage, the freight was once more put on the pier, and reloaded into trucks or railroad cars for delivery to the consignee. Notwithstanding the low cost of the water transportation itself, the costs of this freight-transfer created an increasing burden.

More than 25 years ago, Seatrain pioneered what is now popularly called the "fishy-back" type of operation. Its specially-built ships, with the aid of expensive shoreside facilities, are able to accommodate 100 freight cars each, which are moved from the railroad tracks into the ship, or vice versa, without transfer of the lading.

About 3 years ago McLean Industries, Inc., acquired ownership of Pan-Atlantic Steamship Corp., and converted its break-bulk operation into one utilizing containers which are transferred between its vessels and highway trailers, thus also eliminating the transfer of lading. McLean Industries, Inc., has invested approximately $44 million in vessels, containers, and highway equipment for the coastwise trade. Seatrain Lines has also been engaged in a 2-year engineering program for the development of a truck container operation to be conducted in the same vessels and in conjunction with our present freight car service. We call this the "Seamobile" system, and we are about to place it in operation.

The main contribution of the deep-water coastal carriers to our transportation system is low cost of operation, and the ready availability of the vessels, in a national emergency, for the military.

In 1952, for example, the Interstate Commerce Commission found, in the Fourth Supplemental Report in Docket 28300, that Seatrain's

cost for transporting a ton of freight between New York and its Texas port was approximately one-third of the all-rail cost for moving a ton between the same points; and that the average costs of all the coastal water lines, including the higher cost break-bulk operations, was approximately 62 percent of the all-rail cost between New York and Houston.

Now, the Interstate Commerce Act recognizes, and the decisions of the Commission and the courts have held, that the public is entitled to the benefits of the lower costs accruing from water transportation, and that coastal water transportation could not survive unless its low costs are translated into differentials under the rates of the all-rail routes. If these differentials did not exist, the slower and less frequent water services could not get any traffic. Railroad and shipper witnesses testified to this fact in a case before the Commission as recently as last month.

Since the railroads have many sources of traffic besides the areas contiguous to ports served by the water lines, their historic tendency has been to depress the rates where water competition is encountered, until the competition is destroyed. The complete success of that monopolistic tendency has been frustrated, in part, by the enactment of law, by your declaration of transportation policy, and the decisions of the Commission and the courts. You, in your wisdom, recognized that if there is to be water carriage, there must be regulation and administration of transportation in such a way as to preserve the inherent advantage of each form. Recognition of the need for differential water carrier rates appears variously in the Water Carrier Act and in the decisions. Reaffirmation of the need for water differentials expressed in clear and unequivocal language must be an essential part of any new rate-making legislation. The Senate Subcommittee recommends—

that the Commission consistently follow the principle of allowing each mode of transportation to assert its inherent advantages, whether they be of service or of cost.

The proposed new rule of rate-making would prevent fulfillment of that very desirable objective.

In the past few months, the railroads have embarked on a campaign apparently designed, as a matter of conscious policy, to conduct an all-out rate war and destroy the coastal water carriers once and for all. They have filed numerous rates to undercut the rates of the rail-water and the motor-water routes regardless of the earnings yielded by this traffic to the railroads, and despite simultaneous increases in the general level of rates.

Seatrain and Pan-Atlantic have petitioned the Interstate Commerce Commission for suspension of these destructive rates; in some cases the suspensions have been granted but in others they have not. As the Senate Subcommittee said in its report:

"It nevertheless appears that the Interstate Commerce Commission has not been consistent in the past in allowing one or another of the several modes of transportation to assert their inherent advantages in the making of rates."

Presently the Commission has before it a series of cases involving these rate-cutting practices.

If the railroads were allowed to achieve their obvious aim there soon would be no coastal water carriers left at all. This is of concern

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