mode of transportation, we will say the motor carriers in this instance, would ask for a lower rate, do you think that in order to maintain a healthy railroad system that you have got to say to the motor carriers: "No, you can't have that lower rate because if you do, you are going to take some of the railroad's business. We are not going to let you do that because we think the railroads in this instance need that business?"

Commissioner FREAS. I think it depends in each instance on which form of transportation is the low-cost form.

Mr. Langdon, a little while ago, was talking about the improvement in the railroad situation by getting traffic at a certain amount, I believe he said 50 cents a ton, above out-of-pocket costs, as compared with not getting that traffic at all.

Now certainly, from the railroads' standpoint, that is maximizing the net for the railroad, and I see no-I have no quarrel with that view from that standpoint. However, Mr. Langdon's view naturally is a railroad view, whereas, our view is a view from the standpoint of all forms of transportation, and particularly, as I said, from the standpoint of the general public.

Now, if it is a case where the railroad is a low-cost form of transportation, again, there is no objection to be made to that. But if the railroad is a high-cost form of transportation, I do not think that the fact that the railroad would get 50 cents a ton or 22 cents a hundred pounds out of that traffic would override the interest of the general public in being able to have that same traffic hauled by the low-cost form of transportation at possibly a lower rate and at a full profit to the other form of transportation merely-rather than just 212 cents above the out-of-pocket cost.

What I am trying to say is that if the starting point is the low-cost form of transportation, the public is advantaged; it has lower rates, if the low-cost form transports it and gets a greater portion over its out-of-pocket cost, than if the high-cost form transports it merely because it can get a small amount over its out-of-pocket cost.

That works every way. One time one form is a low-cost, and then another, and then a third. But if the traffic can be channeled that way, it will redound to the public, and I am sure it will not put any form of transportation out of the picture. Rather, it will channel it to the form that has inherent advantages.

Senator POTTER. May I ask a question, Mr. Chairman?

Senator SMATHERS. Yes.

Senator POTTER. The cases that the chairman cites where he felt that the Commission decided the cases upon the factor that lowering a rate in the tariff, whatever the amount might be in this case, was done in order to protect one mode of transportation.

Now with those specific cases that he has cited, could you say that is true or not, or were there other considerations that the Commission, other factors that the Commission considered in making their rate decisions?

Commissioner FREAS. I do not have sufficiently in mind all the details to try to fully justify any particular case. I will say, though, that the purpose, again, of the Commission, has been to stabilize transportation to see that it is performed on the most economical basis, in line with the transportation policy, and the cases have been certainly

directed to that end, but with this thing to be remembered, that in a lot of instances these are nearly all suspension proceedings we are talking about-the burden, of necessity, under the act is upon the carriers.

Now, in a lot of those instances, following the hearing or the handling on shortened procedure there was no record on which the Commission could determine which was the most economical form of transportation or which was the ratemaking carrier, and a lot of those cases were turned down not because the Commission said this rate is reasonable, but because they said it has not been justified.

Senator POTTER. In other words, you did not have the facts in order to make any other determination?

Commissioner FREAS. That is right, and I emphasized before, that I think is accountable or explains a large part of the problem, and this is a problem and while we still do not get the information that we hope to get, we think we need, nevertheless there is progress in that regard.

Senator POTTER. Let me ask another question if I may, Mr. Chair

man.

Senator SMATHERS. Yes, sir.

Senator POTTER. Do you feel that under existing law, there is need for this amendment?

Commissioner FREAS. No, we do not. We think if the things I referred to are heeded, that all forms of transportation will be treated fairly under the present law. On the other hand, I see no objection as the chairman has pointed out, to something that will emphasize what the purpose is and the purpose that I believe we are trying to carry out. But I see no need for this law, and we do have some objection to it for reasons that I started out to indicate.

Senator SMATHERS. Mr. Chairman Freas, right there, in the new automobiles-in the Interstate Commerce case, the Commission said, and I quote:

As Congress enacted separately stated ratemaking rules for each transporting agency, it obviously intended that the rates of each such agency to 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.

Now, that was apparently the opinion of the Interstate Commerce Commission in that case in 1945.

Now, is that your view today? That that is what Congress intended?

Commissioner FREAS. I see no basis for taking issue with those words. However, I think we have to bear in mind the context in which they first appeared, in order to be sure that they are not misconstrued.

Senator POTTER. Right.

We have found how easy it is to misconstrue words. [Laughter.] Commissioner FREAS. It says that they should be determined by us in each case according to the facts and circumstances attending the movement of the traffic by that agency. I think that in a competitive situation one of the facts and circumstances is also the competi

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tion which that carrier encounters and that immediately takes it beyond

Senator SMATHERS. Now, whereabouts in the act now, does it say that the Commission is to be worried about the competitive effect on another mode of transportation, except when it is considered to be an unfair and destructive competitive rate practice?

Commissioner FREAS. Well, I do not think we are worried about it until it comes to the destructive point. But we, of course, have to know what competition is before we know whether it gets to the destructive point.

Senator SMATHERS. My point is this, that a moment ago you gave an illustration about the lower cost mode and so on, and you said that we apparently—apparently you are desirous of giving protection to the lower cost mode, even though in some instances the higher cost mode can still come down and haul at that level, that the lower cost mode can, even though it does not return as big a profit to the higher cost mode as it does to the lower cost mode and you say in that instance we want to consider first the lower cost mode, and I presume by that your feeling was that they should be protected.

I am just wondering, what act of the Congress states, or what words has the Congress used to lead the Commission to believe that we wanted to get away from the inherent advantages that one mode of transportation might have over the other?

In other words, what basis did we have for departing from the rule that you set out in the New Automobiles case?

Commissioner FREAS. What I had in mind in that statement I made was that the national transportation policy dealing with efficient service and fostering sound economic conditions in transportation and among the several carriers, and so forth. I was not thinking of it from the standpoint of protection to the carriers. That I think is incidental. My point was that if the more economical form of transportation could haul that same traffic at even a lower rate and make a bigger contribution to its overhead, it was to the public advantage that that form transported it, and the fact that it might be to that form of transportation's advantage, too, is incidental.

Senator SMATHERS. All right. You go ahead. I did not mean to interrupt you, but it was such a propitious point.

Senator POTTER. I would assume that you would consider that to be one of the main factors as to the inherent quality of that type of transportation, the lower cost factor; would it not?

Commissioner FREAS. That is right, and those are the inherent advantages that should redound to the public.

Senator PoTTER. Yes.

Senator SMATHERS. Now let me just say right there: We have several of these cases; maybe I had better read some of the language. Senator POTTER. I think that would be good.

Senator SMATHERS. So that we can see whether or not in fact it actually had worked like that.

I think at times we have feelings about these things but we do not express it just like that.

For example, in the case of petroleum products from Los Angeles to Arizona and so on, the railroads proposed reduced rates on petro

leum products from Los Angeles to points in Arizona, tank-truck common carriers protested, the ICC found and I quote:

The proposed rates which are lower than the rates maintained by tank-truck common carriers by more than 2 cents are lower than necessary to meet the competition and that their establishment would result in an unwarranted sacrifice of revenue and constitute an unfair competitive practice.

This finding was made despite the Commission's statement as to the compensatory character of the rates, that is—

cost studies of records may be accepted as indicating a fair approximation of the out-of-pocket costs for performing the service.

And

Protestants consideration thereof does not lead to a conclusion that the proposed rates are not substantially higher than the out-of-pocket cost for performing the service

and so on.

In other words, they would not let them reduce the rates.
Senator POTTER. And it was compensatory.

Senator SMATHERS. Even though it was compensatory, because they said it was unduly-they made it unduly competitive.

Now, you look at the next case, the Illinois case

Senator POTTER. Would the chairman comment on that case?

Senator SMATHERS. This was 1951. Here is one a little clearer, I think. Railroads proposed reduced rates on gasoline and other petroleum products between certain points in Illinois, competing tanktruck operators protested. There was no suggestion that the proposed rates were not reasonably compensatory. That apparently wasn't even in issue. On the contrary, railroad rates lower than truck rates were supported by the Commission's finding that:

The record warranted the conclusion that except for distance under about 75 miles, the respondents are the low-cost agency of this traffic.

The ICC nevertheless required higher rail rates and gave as its

reason:

Respondents and the protestant truck operators are a vital part of our national transportation system and essential to our national defense. It is of great importance that each be afforded a fair opportunity to compete for this traffic.

His theory was that if you let them get down lower one of them couldn't even compete because he had probably higher costs, I don't know. And so on. The Alcoholic Liquors case, the railroads proposed to establish reduced rates on alcoholic liquors between points in official territory. Various motor-carriers and water-carriers interests

protested.

As to the compensatory character of the rates, the Commission said, Evidence offered by the respondents shows that the proposed rates would return revenues approximating 146 percent of the fully distributed costs. They compare favorably with the rates on numerous other commodities moving in official territory which have weighted-average hauls about the same as that of alcoholic liquors (p. 223).

Yet the ICC found the proposed rates too low, saying:

The record is persuasive that if the respondents are to participate in the movement of this traffic their rates must be on a level which will furnish some inducement to the shippers to use the rail services as compared with the more advantageous motor-carrier services.

So it was the reverse there.

The rates here proposed, however, clearly are lower than necessary to meet the competition. The establishment of rates on such low level would invite further reductions by the motor carriers leading to a possible rate war, with serious adverse effects upon the revenues of both respondents and the motor carriers. Moreover, the proposed rates, in our opinion, do not properly reflect the relatively high value of this traffic, its classification ratings, nor the fact that it embraces articles in the luxury class. Considering these factors, the traffic would not bear its fair share of the transportation burden under the proposed rates, and, therefore, such rates have not been shown to be just and reasonable (p. 299).

Scrap rails-I will just read one more here, from southern ports to Chicago, the railroads proposed to establish reduced rates on scrap iron and steel rails from Gulf of Mexico and South Atlantic ports to Chicago. Barge lines protested.

No question was raised as to the compensatory character of the proposed rates.

But no reduction was allowed. The proposed rail rates were found to exceed by only about 30 cents per ton the lowest cost by barge, and the ICC said:

The record is convincing that such a narrow differential would effectively eliminate water competition (p. 361).

The Commission cited and so on, some cases to support that position. But the question that I am interested in is: Did the Congress intend when they passed the act in 1940, I mean as to the construction of the Commission, when they passed the act in 1940, that you people were to be sort of these allocators of business? In other words, you say: Well, we are going to let you have a little, you have a little, we will not let you have any, we will try to keep everybody alive, we are going to try to husband everything.

Commissioner FREAS. I don't think Congress intended that and I don't think that is the purpose of the Commission.

Senator SMATHERS. These cases-there may be some exceptions. I am not an expert in this

Commissioner FREAS. As I say, it is very difficult to generalize on

them.

Senator SMATHERS. That is right.

Commissioner FREAS. I do want to say we had a case on alcoholic liquors and one on cigarettes and that is considered extremely high grade traffic, and the previous witness has said that practically everything they haul today is competitive. Now if we try to set the rates on all the competitive traffic to just bear out-of-pocket costs, or a shade above, the carriers cannot continue in business because the overhead burden, the revenue other than that which goes to pay out-of-pocket costs, the revenue for those expenses has to come from somewhere.

So when we come to that high class traffic, of which these are instances, the Commission has tried to hold the scale on a somewhat higher level.

Senator SMATHERS. You feel that by doing that, then other commodities are permitted to be carried at lower costs, and it probably all averages out to the benefit of the general public?

Commissioner FREAS. That is right, the general overhead has to come from somewhere.

Senator SMATHERS. As I understand it, you subscribe-and I am not trying to understand it-we are being friendly here. I am not trying to pin you down or anything and I don't want it to appear that