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Such a guaranty would be made by the Secretary of Commerce on terms and conditions prescribed by him with the approval of the Secretary of the Treasury, but only after the Secretary of Commerce has satisfied himself: (a) Upon consulation with the Interstate Commerce Commission, that the proposed capital additions and improvements are feasible and should result in the required savings; (b) that the railroad has actively sought to obtain the needed funds from private sources and has been unable to obtain them on reasonable terms otherwise than with the requested Government guaranty; and (c) that there is reasonable assurance of repayment of the loan. 2. In order to assist in increasing the available supply of freight cars, the Government should be authorized to guarantee equipment obligations of individual railroads or groups of railroads issued for the purpose of financing the acquisition of freight cars. Each guaranty should be limited to not more than 10 percent of the purchase price and the aggregate amount of all guaranties Should not exceed $200 million. These guaranties should, to the extent possible, be confined to purchasers who will specify improved performance capabilities when placing their orders. Such a guaranty would be made by the Secretary of Commerce on terms and conditions prescribed by him with the approval of the Secretary of the Treasury, but only after the Secretary of Commerce has satisfied himself: (a) upon consultation with the Interstate Commerce Commission, as to the improved performance capabilities of the freight cars to be purchased; (b) that the railroad or group of railroads would not be able to make the purchase, or obtain the funds therefor, on reasonable terms otherwise than with the requested Government guaranty; and (c) that there is reasonable assurance of payment of the equipment obligations to be guaranteed. The authority of the Secretary of Commerce under both 1 and 2 above should terminate on June 30, 1961. The administration recommends, therefore, that legislation be enacted authorizing the Secretary of Commerce to guarantee loans and equipment obligations as outlined above. The Secretary of Commerce should render semiannual reports of his operation under these authorities to the President and the Congress. In conclusion, I should like to comment on some other suggested solutions of the railroad problem. One such solution relates to mergers and consolidations. The law as it now stands permits mergers and consolidations of common carriers where the Interstate Commerce Commission finds such mergers and consolidations to be consistent with the public interest. Where the Commission has made such a finding, the antitrust laws do not apply. The administration concludes, therefore, that existing law does not unduly interfere with the opportunity to merge and consolidate, and that, while merger or consolidation would doubtless be of substantial benefit to some segments of the railroad industry and should where appropriate be encouraged, no legislative change is necessary. Another suggested solution is the imposition of charges on competitors of the railroads and others who use transportation facilities supported by the Federal Government. The administration recently transmitted proposed legislation to the Congress for a program of charges on the users of the Federal airway system. The Department of Commerce has underway a study of the question of imposition of charges on the users of federally improved inland waterway facilities. Charges are now collected by the Federal Government from the users of Federal-aid highways and the Department of Commerce at the request of Congress is currently engaged in a study of the equitable distribution of highway costs among the several classes of highway users. The administration, therefore, is not recommending anything further in this area at this time. In this connection, it should be made clear that highway user charges, proposed airway user charges and possible additional user charges, although they might conceivably have a beneficial effect on railroads, are not and should not be fixed or collected by the Federal Government to achieve any such effect. Instead, they are to provide and only to provide appropriate payment for such Government improvements by those who benefit from them.

The administration is confident that the measures recommended by it here will be of material assistance in solving the special problems of the railroads and in strengthening the transportation industry as a whole. Sincerely yours,

SINCLAIR WEEKS,

Secretary of Commerce. Senator LAUSCHE. Thank you. Senator POTTER. I would like to ask a question. Senator SMATHERS. Senator Potter.

Senator POTTER. There has been comment about the fruit rate from, say, Florida to New York where rail rates would be lower on a day the ship would sail and then higher on days when the ships weren't sailing. Do you have any comment on that type of situation?

Mr. LANGDON. Yes, sir. That reduction was made under the socalled fourth section of the act, where we were allowed to publish lower rates to these destination markets, New York being the principal one, I think Philadelphia and Baltimore also were included, without regard to the higher rates which remained in effect at the intermediate points. That, of course, is a special authority that we have under section 4 of the act, and one unaffected by this legislation.

And in connection with fourth section rates in the future, assuming this were in the law today, as recommended, we still, in applying for fourth section relief, would have to show that our rate was not lower than necessary to meet the competition. So that the fourth section is not affected by this proposed legislation, as I see it, sir.

Senator SMATHERS. Let me ask a question on this. Did I understand Senator Potter to say that on certain days when the ship was loading up, and it is only in port at odd times, but when it is in port ready to load and carry the citrus fruit up today, that on that day

you run a low rate, say, on Tuesdays, and then on Saturdays, and then on Mondays, Wednesdays, and Fridays you raise your rate because there is no ship competition?

Mr. LANGDON. Sir, this went on before the war. I don't think there has been any such rate adjustment of that kind since the war.

Senator SMATHERS. You can understand why that kind of a practice doesn't make the railroads very popular, certainly with the citrus people; couldn't you?

Mr. LANGDON. I am not sure, I think it was asked by the shippers.

Senator SMATHERS. It was asked that you railroads reduce the rate on the day that the ship was in port, but I guess they also asked you to hold it up on Tuesday, Wednesday, Thursday, and Friday. Mr. LANGDON. No, no; I don't think so.

I don't think this is anything the shippers opposed. I think they came in to support us.

Senator SMATHERS. As a practical matter, we have the problem up here always of whether or not if we get into something that has the net effect of eliminating some competition, then will it in fact result that the railroads without any competition will eventually raise all their rates, and that the general public will suffer thereby?

Now, when we hear about instances like this, if this is true then it adds evidence, and it adds weight to that kind of argument. And I am sure that certainly—and I don't think a member of this committee would want to see a monopoly situation once again be created for the railroads,

Senator POTTER. Why was that done in the first place?

Mr. LANGDON. You are asking about something I have an indirect knowledge about. I don't have a direct knowledge about it, but if I remember it rightly it was a rate that became effective 3 days a week. It wasn't the day the ship was there. It was a Monday, Wednesday, and Friday, or a Tuesday, Thursday, and Saturday rate. And it was worked out with the shippers in order to put the railroads in a competitive position with the water carriers which were taking all the business.

And I think that under that rate we were able to maintain about 40 percent, if I remember, or come back to—I think our participation in the Florida traffic, had gone down to practically zero, and I think with that rate adjustment, I think we were able to come back to 30 or 40 percent, if I remember rightly.

Senator POTTER. Is that practice going on today?

Mr. LANGDON. No; as I say I don't think it has been in effect since the war. I think it was something that was done during the depression. I think that the Florida traffic was just about being—was drying up, and there wasn't any, practically, any rail business, and I think this was worked out with the shippers as a competitive rate, and it was done with the authority-we had a lot of litigation over it; I am sure it was done with the authority of the Interstate Commerce Commission under section 4. And they approved it, but it hasn'tthere hasn't been anything like that since the war, I am quite sure about that.

Senator POTTER. The language in this amendment, or this portion of the bill, section 3 or section 5—would that give you any more leeway to impose 1-day-a-week or 2-day-a-week rates in order to meet other modes of transportation competition?

Mr. LANGDON. No, sir; I don't think so, because that was done under section 4, as I say, and section 4 would not be changed by this legislation.

Senator POTTER. I think it would be well, Mr. Chairman, if the staff would look into this and kind of give us a report on this type of operation.

Senator SMATHERS. Yes. You can understand, I am sure, Mr. Langdon, that the people who live in Florida-and if this is true at other places around the country, and I presume it is under your section 4 that if you can make a rate on Tuesday, Thursday, and Saturdays, such a rate that is still compensatory to you, then why is it that in exercising your inherent advantage, and you get that low rate on Monday, Wednesday, and Friday, because of an inherent advantage, why is it you cannot give the public, because it is still compensatory, that same rate on Tuesdays, Thursdays, and Saturdays!

Mr. LANGDON. I think, sir, there probably was an ability to concentrate the traffic on those three days, and there was a volume movement, and resulting lower costs. I think that it was very carefully worked out from that point of view, and I don't think there was any complaint from Florida.

Senator SMATHERS. Well, of course, most people don't probably know too much about it, it is the kind of thing that they feel they don't know what is happening to them. But from just the simple explanation of it, is one of the reasons that the railroads today find

themselves in the pretty sad shape which they find themselves in, because in Some instances they have been overgreedy. I think the evidence would support that. It makes you people about as popular as, as I said before, as a red ant's nest at a lawn party when you do this kind of thing. Now, we are here trying to help. We thing it is important that we keep the railroads as an industry going. But in trying to gain some support for that, it knocks a lot of that support out when we hear about, particularly, little petty greedy acts when you don’t have competition, and it worries us... I see a lot of railroad presidents out here today, and I say that for their benefit, too. Do you have any more questions? Senator POTTER. No. Senator SMATHERs. Thank you very much, Mr. Langdon. (Mr. Langdon's statement is as follows:)

STATEMENT OF JERVIS LANGDON, JR.

Mr. LANGDON. My name is Jervis Langdon, Jr., and I am general counsel of the Baltimore & Ohio Railroad Co., with headquarters at Baltimore, Md. I appear here today, however, for the Association of American Railroads. That asSociation is a voluntary, unincorporated organization including in its membership railroad companies Operating more than 95 percent of the total railroad mileage in this country and having Operating revenues which are more than 95 percent of the total railroad operating revenues. The railroads for which I speak support the suggested amendment to section 15a of the Interstate Commerce Act (he ratemaking rule) as proposed in the report of the Subcommittee on Surface Transportation, pages 12–13, and set forth in section 5 of S. 3778, as follows: Section 5. Section 15a of the Interstate Commerce Act, as amended, is amended by inserting after paragraph (2) thereof a new paragraph (3) 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 purpose of this statement will be to show that the enactment of this amendment would not merely carry out the intent of the Congress when it passed the Transportation Act of 1940 (as well as the Motor Carrier Act of 1935) but is required to put the Interstate Commerce Commission back on the track that was intended at that time. In 1945 the ICC recognized that intention when it announced the principle of the Automobile case, infra, reading as follows: As Congress enacted separately stated ratemaking rules for each transport agency, it obviously intended that the rates of each such agency should be determined by us in each case according to the facts and circumstances attending the movement of the traffic by that agency. In other words, there appears no warrant for believing that rail rates, for example, should be held up to a particular level to preserve a motor-rate structure, or vice versa. Since 1945, however, there have been “deviations” from this principle, and the amendment is thus made necessary.

HISTORICAL BACKGROUND FOR THE PRINCIPLE OF THE AUTOMOBILE CASE

The principle of the decision of the Interstate Commerce Commission in the Automobile case (259 ICC 475, 538 (1945)) finds its roots in the Motor Carrier Act of 1935 and the Transportation Act of 1940. No other principle can be squared with the action taken by the Congress in enacting this legislation.

When the regulation of motor carriers was being seriously considered in the early 1930's, the opposition concentrated on the argument that the railroads were the chief parties in interest and that, with a “railroad-minded ICC,” they would seek to have motor carriers regulated for the benefit of the railroads, not the motor carriers. To guard against any such possibilities, the Congress, in enacting the Motor Carrier Act of 1935 (now pt. II of the Interstate Commerce Act) provided the motor carriers with their own “declaration of policy and delegation of jurisdiction to the Interstate Commerce Commission” which made clear the “policy of Congress to regulate transportation by motor carriers in such manner as to recognize and preserve the inherent advantages of, and foster sound economic conditions in, such transportation—develop and preserve a highway transportation system properly adapted to the needs of the commerce of the United States and of the national defense—” section 202 (a), Motor Carrier Act of 1935. The Congress went further and, in formulating a ratemaking rule for motor carriers, instructed the Commission in the exercise of its power to fix just and reasonable rates, to “give due consideration, among other factors, to the inherent advantages of transportation by such carriers, to the effect of rates upon the movement of traffic by such carriers.” Section 216 (i), Motor Carrier Act of 1935. Emphasis ours. At that time, the ratemaking rule which governed the railroads (sec. 15a) provided that in the exercise of the Commission’s power to prescribe just and reasonable rates it “shall give due consideration, among other factors, to the effect of rates on the movement of traffic.” The addition of the phrase “by the carrier or carriers for which the rates are prescribed” came later with the Transportation Act of 1940. And finally the Congress added the following proviso to the antipreference section in the Motor Carrier Act. “Provided, however, That this paragraph shall not be construed to apply to discriminations, prejudice, or disadvantage to the traffic of any other carrier of whatever description” (sec. 216 (d), Motor Carrier Act of 1935). A similar proviso was added to section 3 (i) which is the antipreference governing the railroads in the Transportation Act of 1940. Five years later came the Transportation Act of 1940. The bill that ultimately became the Transportation Act of 1940 was S. 2009 which was first passed in differing versions by both Houses in 1939, but not passed in its final form until 1940—and the opponents of water carrier regulation employed the same argument. They were convinced that, with railroad support, the ICC would be inclined to overlook the inherent advantages of water transportation and regulate the water carriers in the interest of the railroads. The following appears as footnote 7 to the dissenting opinion of Mr. Justice Black in Interstate COmmerce Commission v. Inland Waterways Corp. (319 U. S. 671 (1943)) at page 698: “Legislation similar in purpose to the 1940 act was considered by congressional committees in the 74th and subsequent Congresses. Opposition to legislation giving the Commission authority over water transportation came from representatives of the water shippers. A typical protest was made by Cleveland A. Newton, general counsel, Mississippi Valley Association, in the hearings before the Committee on Merchant Marine and Fisheries, House of Representatives, 74th Congress, 2d session, on H. R. 5379: ‘This bill if enacted into law will place water carriers along the coast and upon our inland rivers under the absolute domination and control of the Interstate Commerce Commission. That Commission was created to regulate, conserve, and control railways. It is a railway-regulating agency. It naturally has the railway viewpoint, and past experience convinces us that the Commission, as now constituted, is railway minded and that it would not be in the public interest to place water services under its domination and control—we have observed the performance of the Commission in the past, under a comprehensive declaration of policy enacted by Congress, and that experience, we regret to say, has not inspired confidence.’” There was some sympathy for this point of view in the Congress. See, for example, the “Minority Views” of two members of the House Committee on Interstate and Foreign Commerce as accompanying the Majority Report No. 1217, Transportation Act of 1939, 76th Congress, 1st session, at pages 29–31. What these Members of Congress insisted upon was assurance that rates of water carriers would not be controlled—under the guise “of developing, coordinating, and preserving a national transportation system” in accordance with the national transportation policy—in the interest of the railroads, and they demanded specific provisions which would require the Commission to forget about other forms of transportation when passing on rates for water carriage and to guard the inherent advantages of that form of transportation. But not only did the Members of Congress demand such assurances, they received them in the form of specific statutory provisions. “Mr. LUCAS. Under the bill, as I understand it, the Interstate Commerce Commission would have the power, and it would be its duty, to fix rates on the Illinois

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