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To bring this clearly before you, I will summarize only the main points in our statements:
(1) The engineer reports are predicated upon unwarranted assumptions as to costs, in that they depend upon an engineer study made in 1939. Then, the initial Federal costs for a 10-foot channel and for one of 12 feet were estimated at $289,448 and $619,774, respectively, the difference being $330,326. In the 1939 report, incidentally, the engineers found no need for a channel deeper than 10 feet but asserted that there would be sufficient benefits to justify expenditure of the smaller of the sums I have named.
(2) The present reports find that additional work, to make the channel 12 instead of 10 feet deep, would cost the Federal Government $463,000. That is slightly in excess of 140 percent of the corresponding difference between the two costs as of 1939. If the difference is 40 percent greater now than it was in 1939, the underlying operations to create a deeper channel must have advanced correspondingly. An advance of 40 percent in cost is probably a conservative estimate, judging by general conditions with which you are, of course, familiar.
(3) But the present reports ignore that advance in cost, revealed by the engineers' own figures, with respect to the cost of deepening the present 8-foot channel to the authorized minimum of 10 feet. It may be argued that this part of the cost need not be considered because the Congress has already approved deepening to 10 feet. But we have shown that this argument is without merit.
(4) The advocates of the project, upon whose contentions as to traffic, its needs, et cetera, the reports rest for justification, clearly reveal that those who say they would use the channel have repudiated the 10-foot project. They say a 10-foot channel would be inadequate, that there would be no “competition” on the river unless the depth is at least 12 feet.
(5) In addition, every operator or would-be operator of ships or barges has said, in the record, that their costs have risen so greatly, and will continue to be so great in the postwar period, that their only hope of competing with other forms of transportation lies in the use of larger vessels, whose lower unit costs would enable them to continue or to resume their operations.
(6) Here, indeed, is the crux of the matter. The present 8-foot and the authorized 10-foot channel are openly disavowed, from which it follows that all hope of savings heretofore attributed to channels of the lesser depth have vanished if indeed they were ever justified. Furthermore, and this clinches our case, the argument for the 12-foot project is only that it would permit the river operators to stay in business, to compete with other forms of transportation.
(7) Now, gentlemen, this can only mean one thing, that the 12-foot project, on basis of the claims of its own advocates, will be of no monetary benefit to the public for it will only permit the river operators to compete: i. e., to handle some of the business of the territory at prevailing transportation cost levels. The river operators and their patrons ask for a Federal subsidy so that river transportation can be made available at no reduction in cost levels. For example, the cost of transporting oil up the river to Sanford will necessarily remain the
same as it is now, because the operators who transport it by river have said that the deeper channel is necessary for them to stay in business. They do not say stay in business and reduce rates but just stay in business. Oil is the principal item on which the present recommendations are based. The same line of reasoning, however, applies to other items, for the testimony was along the same line for all.
(8) But the engineers seem to have felt under no obligation to report to you that the 10-foot project which you have already authorized has been disavowed. They have ignored the disappearance of the transportation savings noted in their prior reports. Instead, they assume that the 10-foot project is already authorized and that they had only to find additional savings in an amount sufficient to offset the cost of the extra 2 feet in depth.
Thus they discount the rise in cost for deepening to 10 feet, and the fact that the only traffic which will move is, according to advocates of the project, the very traffic which the engineers have used to justify the extra 2 feet in depth. Without that 2 feet there will be no traffic-advocates of the project have all said so. It follows that this traffic must produce savings sufficient to justify the entire project, not merely the extra 2 feet.
(9) Now let us return to our initial figures. The engineers have shown that costs of improving the river have risen 40 percent since 1939. In that year they estimated a 12-foot channel would cost the Federal Government $619,774. It surely follows that today it would cost 40 percent more, or $867,684. The same process must be applied to their figures for maintenance and annual Federal carrying charges. Coming to the point, we find from the engineers' own figures that the annual Federal cost can be no less than $48,000, and may indeed be far more, for we cannot probe into the basis for the annual costs as fully as we can into the initial cost.
(10) Instead, therefore, of addressing themselves to the task of finding additional savings sufficient to cover a small additional annual cost—that is the $17,992 just mentioned by the colonel—the engineers should have resurveyed the traffic possibilities from first to last to see how much traffic would move at all and whether it would produce savings enough to offset a Federal annual cost of $48,000 or more. They have not done this.
(11) Their figures on possible additional traffic benefits amount to $128,300 annually on 641,500 tons of freight, but if you will examine their reports closely you will see that the only traffic on which they place any reliability is that of petroleum products. Here, their figures on additional savings to be expected of a 12-foot channel are 200,000 tons of traffic and $40,000 in savings.
(12) I need not remind you that we have already shown that no savings to anyone can be expected as to petroleum products. I need not remind you that if there were a savings on petroleum products, it is highly doubtful that 1 cent of it would reach the public. I need not tell you that the other commodities, on which the figures advanced by them have been discounted by the engineers themselves, have been shown in our statements to be utterly incapable of producing the savings half-heartedly attributed to them. Quite simply, we can consider the petroleum traffic alone, and accept the engineers' estimate of a saving of $40,000 a year—accept it only for the sake of argument, however—and we find that no project whatever is justified. If the Federal Government will have to expend $48,000 a year, and the only reliable savings mentioned by the engineers will return no more than $40,000 then the project is condemned. We have gone farther with our showing, but for that I refer you to our statements.
I cannot forego the opportunity to refer to one of the other weaknesses of the reports. I refer to amounts of savings attributed to the possible establishment of refrigerated barge service for the handling of citrus fruit, in the hope of which there is, as far as we can determine, absolutely no ground for belief. No one has ever established such service and no one has pledged himself to do so here. Yet much space is devoted to this item in the reports, where a possible annual saving of $22,400 thereon is half-heartedly estimated.
I am aware of a general impression that the presentation of views on such projects on the part of the railroads springs from selfish motives. Indeed, it does, quite the same as do the views of any other party. To offset that impression, I urge that you consider that the railroads, through their numerous stockholders, security holders, including countless insurance policy owners and other investors, and their employees, stand as a large segment of the public whose interests you represent. In addition, I urge the following principles:
(1) A waterway such as that now under consideration must bring about one of two results: Either it must fail to divert any substantial volume of traffic from other modes of transportation, in which case it will have proven to be an economic failure, or it must divert traffic which, in normal times, the railroads desperately need to bring in revenue sufficient to pay operating expenses, fixed charges, taxes, and some return on investment.
(2) Only a part of the transportation cost on such diverted traffic can represent savings to anyone. But whatever the transportation costs via the waterway, that total amount, plus any savings, is revenue which would otherwise accrue to other modes of transportation, of which the railroads, of course, are foremost.
(3) Such an amount, whatever it is, large or small, must be recouped approximately, if the railroads are to continue to operate. I speak now of normal conditions, not of those under the recent war emergency. No amount, large or small, can be diverted from railroad revenues, without diminishing their ability to render the service to which they have been dedicated.
At that point I will ask you to recall the service that the railroads performed in the last 3 or 4 years and the necessity for that service,
Experience has proven, again and again, that when railroad revenues are diminished, for example through rate reductions made because of competition of other forms of transportation, general rate increases ensue. Thus, gradually but surely, the transportation burden, as to rail costs, is shifted from traffic susceptible to such competition to traffic which is not. In the end, the general public, which you represent, pays just about the same total annual bill for rail transportation as it would had not the competition occurred. This means that savings attributed to waterway projects are illusory.
I do not want you to misunderstand me; I do not condemn every water project ever thought of. The types of project to which I refer are such as this one here which cannot hope to produce any benefits
except by diverting traffic from railroads, highway carriers, pipe lines, and other forms of competition.
(4) In the matter of waterway projects, the public assumes costs which the railroads meet in their business when they build and maintain a line of railroad. In addition to a free right-of-way, those who use the waterway escape, as well, taxes thereon which are paid by the railroads on every bit of their property. I think our company paid in income taxes last year $10,000,000. It is folly indeed thus to handicap the railroads when the only possible result is to shift the burden to some other class of traffic, for which the public also pays.
This is our case. We verily believe that there will be no public savings if the channel is deepened as proposed, that further expenditures of public funds would be unwise, that even those already authorized for the 10-foot channel should be revoked, because the local interests involved have said such a channel would be inadequate, and, finally, we verily believe that even if the 12-foot channel were created and public savings did result directly therefrom, the public would ultimately pay just about as much for transportation, in the aggregate, as if the channel had not been deepened.
The CHAIRMAN. You say the principal traffic is oil. I suppose you mean gasoline?
Mr. THEOBALD. And fuel oil, sir.
The CHAIRMAN. That comes from the pipe lines at Jacksonville, I judge ?
Mr. THEOBALD. No, sir. It normally comes into Jacksonville by tanker. During the war emergency there was a pipe line used across north Florida.
The CHAIRMAN. I produced the bill to authorize that pipe line. Mr. T HEOBALD. I believe it has been discontinued.
The CHAIRMAN. I do not know what its status is now. During the war, it conveyed an average of 26,000 barrels of gasoline per day, and that gasoline was transported from out about where you live in North Carolina down to Miami along the coast line. I was just wondering if it still produced that, or do the tankers carry it now?
Mr. THEOBALD. At Wilmington where I live it is brought in by tanker, and I understood it was all up and down the coast.
The CHAIRMAN. No other type of transportation can compete with the tanker so far as oil is concerned ?
Mr. THEOBALD. That is correct. I would like to add something there, since you bring up petroleum. The tonnage mentioned by the colonel's report is not assumed to be total tonnage, as I understand it, but tonnage on which additional savings can be expected is 200,000 tons annually. From the colonel's own figures, I want to remind you that the greatest number of tons transported on the river was 237,000 tons in prewar years. Thus you will see that the engineers believe there will be almost as much petroleum transported up the river in postwar days as there was of all traffic before the war.
I do not mean to say they do not know their business, but I am confident that the 200,000 tons is overstated. We have covered that in our reports. I will go one step further and I will say that, for example, the consumption of petroleum in Hillsboro County, Fla., is included in their figures. That is the county in which Tampa.is located. And petroleum and its products moving to Hillsboro would not move all the way around the Atlantic coast to Jacksonville by tanker, up to the St. Johns River by barge, and then by truck or rail back down to Hillsboro County. They come directly across the Gulf to Tampa.
The CHAIRMAN. I wonder if-of course, the railroad movement of petroleum is the highest of any except trucks over the highways, according to all of the authorities, and the railroads do not have oil cars. The oil companies themselves furnish the cars.
Mr. THEOBALD. That is correct. That goes back to a condition that started many years ago when the railroads had the opportunity to go into the business of using their own oil cars and did not choose to follow it.
I will say this, though: you say that the railroads are next to the tankers, haul more oil than any other means of transportation. I just want to remind you that before the war, right down into the beginning of the war emergency, as late as 1941, we were with our backs to the wall trying to get a little petroleum traffic. We were steadily losing it. The trucks took most of it.
The CHAIRMAN. The trucks did not go into competition on rates because their rates are higher. It is the convenience of it.
Mr. THEOBALD. They are now, sir. Before the war we could not put our finger on truck costs very well. Common carrier truck lines file their rates with the Interstate Commerce Commission, but so-called contract truckers do not. And some of the oil companies themselves handle their own oil and no one can say what those costs are, but we do know this; we filed reduced rates from Wilmington, N. C., down into South Carolina, to the points in the interior of the Carolinas in an effort to meet that, and the motortruck associations and others went to the Interstate Commerce Commission and had our reduced rates suspended and were successful in prevailing on the Interstate Commerce Commission to throw them out, because they said they were too low, that we should not operate such low rates.
Mr. DONDERO. And as I understand the position of the railroads in this case, it is this; that to justify this project, you must divert enough traffic from the railroads to water, and that the rate on water is that much lower or cheaper than the railroad rate as to be sufficient to pay the cost of the improvement and amortize it. Am I correct in that?
Mr. THEOBALD. With one exception that I would like to note, sir. There is quite a prevailing tendency on the part of Army engineers to take as their measure in that case, the railroad rate, but quite often that is not the lowest rate that the public has to pay, even now at the present time.
Quite often highway trucks are transporting the products in question cheaper than the railroads can. And then the difference in the character of the transportation has a bearing on that, too..
For example, railroads haul citrus fruits from the interior of Florida to New York and Philadelphia and Baltimore, et cetera. Here the Engineers' report speaks of movements of citrus fruit on the river only as far as Jacksonville. It is folly to take the rail rate and subtract the water cost. It does not prove anything. You have to know what else it costs the public to get the citrus fruit to its given destination by the two means, and then make the comparison.