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to find those areas and perform those services where they are the most efficient. Only in that way will there gradually emerge a national transportation system, with each mode taking the part it does best. There are at least two ways by which progress may presumably be made in the direction of this transportation millennium. One, the way chosen by the Senate subcommittee, is to allow each mode to compete on the basis of rates that are reasonably compensatory and nondiscriminatory among shippers and, thus, as a consequence of regulated competition, find its proper place. The other, the way recommended by the ICC, is to allow that body, through its control of competitive rates, indirectly to apportion traffic among the modes according to its notions of “the inherent cost and service advantages of the respective carriers.” It is this ICC practice in the past—the “deviations” from the manifest intent of Congress when it enacted the Transportation Act of 1940—which has made necessary the proposed section 5 in S. 3778, reading 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.” To indicate the specious character of the ICC proposal, it is only necessary to cite examples of situations which it would tolerate and even encourage. In doing this it will, of course, be appreciated that, in the interplay of price and service for the shipper's traffic, only price, in the form of transportation rates, is subject to regulation while the nature of the service itself is subject to no public restraint. In other words, of the two competitive weapons, price and Service, only price is subject to regulation. Here are three of the consequences of the ICC proposal. (a) The proposal would be at odds with the congressional intent in the Transportation Act of 1940. If it contributes anything at all, the first sentence of the ICC proposal (which requires the consideration in a minimum-rate case of “the facts and circumstances attending the movement of the traffic”) is an attempt to nullify the present provision in section 15a, which limits the ICC, in considering the same evidence, to the “traffic by the carrier or carriers for which the rates are prescribed.” It was this identical limitation which, in 1940, the Congress insisted upon for the purpose of insuring that the rates of each mode would be based on the inherent advantages of that mode and which provided the cornerstone of the New Automobiles case cited at page 12 of the report of the Senate subcommittee. Now, by its present proposal, the ICC would remove that cornerstone and legalize the very same “deviations” from the intent of Congress that are the subject of the present Controversy. (b) The proposal would prevent the establishment of reduced rates that are both reasonably compensatory and nondiscriminatory among shippers. By the second sentence of the proposal, the ICC would not require a carrier “to protect the traffic of a less economic carrier,” and, in accomplishing this, “due consideration” would be given “to the inherent cost and service advantages of the respective carriers.” For a clue as to how the ICC would apply this proposal, reference is made to the following testimony of Chairman Freas before this subcommittee (transcript, 1547, 1548) : “The most economical form of transportation is that form which, if rates reflected costs, would tend to be favored by shippers. For the purpose of ascertaining the most economical form of carriage, full costs should be the test.
“In order to permit a reasonable play of competition, carriers whose full costs are higher than those of the most economical form should, within reasonable limits, be permitted to meet the rates of the low-cost carrier. They should not be permitted to go below those of the latter.”
Overlooking the ICC's indefensible use of “full” costs in this connection, the underlying purpose of its proposal thus becomes clear. It is to support the ICC's present practice of setting aside as unlawful compensatory rates that promise to upset what it thinks is the equal competitive standing of different modes of transportation.
Take an example:
The truck because of superior service commands the business at a rate which approximates its full cost, and in the opinion of the ICC, this would continue to be true even if the railroad rate reflected its lower full cost. Thus under the ICC definition the higher cost truck (higher in terms of dollars and cents) becomes “the most economical form of carriage” and thus the preferred “ratemaker” which other carriers can only follow. What are the consequences? - A competing carrier could not initiate a rate which would be profitable to it, and the shipper could have no opportunity to decide whether such rate would be useful and beneficial to it. The ICC would be placed in the position of fixing the rates of competing carriers on the basis of how it believes shippers generally would react. This would not permit competition; it would stifle it. The ICC could prevent a reduction in the rail rate to a profitable level despite the railroad's lower cost. (c) The proposal would operate unevenly among the modes of transportation subject to ICC regulation. In advancing its proposal, the ICC suggests no change in the “special” provisions of section 305 (c) which protect water carriers from rail competition. Apparently the ICC, responsible for providing “fair and impartial regulation of all modes of transportation subject to the provisions” of the Interstate Commerce Act, is willing to continue with one rule for the railroads and a better rule for the water carriers. Take another example: The barge has a rate of $6 per ton but its costs are only $3. The railroad with a rate of $8 (and costs of $5) is moving the business because of superior service, and would continue to do so even if the rates reflected the respective costs of the competitors. In these circumstances, under the ICC's definition, the barge, despite its lower costs, is “the less economic carrier” and the railroad is under no obligation to protect it. But suppose the barge did not believe the ICC and wanted to see for itself whether a lower rate would attract the business. Would the ICC have the same power to prevent a reduction in the barge rate as it had to prevent a reduction in the rail rate given above? The ICC would have no such power. Section 305 (c) would tie the ICC’s hands. Under identical circumstances the ICC proposal would disallow the rail reduction but allow the barge reduction. A final comment about the ICC proposal: The ICC, as distinguished from the proposal of the subcommittee, would extend its amendment to competition among carriers of the same mode. This introduces a new element which has not been considered in these hearings. The ICC says that it can see no distinction in principle, but there is such a distinction and it is important. The proposal of the subcommittee is limited to the competition of different forms of transportation with their different cost and service characteristics, and the purpose is to further a national transportation system with each form performing the particular part it does best. If the ICC is unable to see any difference between this objective and its continued control of intramode competition (with each carrier having the same cost and service characteristics), it might consider the situation from the point of view of basic fairness. In its control of competition among railroads, the ICC is in a position to impose the same rules with the same effect on each. But that is not true when the ICC undertakes to control competition among modes with their differing cost and service characteristics. Further, only the railroads are 100 percent under ICC dominance. Two-thirds of the trucks and about 80 percent of the barges are completely free, and even as to the remaining 20 percent of the barges, there is complete freedom so far as competition with railroads is concerned, and the ICC recommends no change in this concededly “special” exemption. Accordingly, the ICC is not in a position to control intermode competition with even-handed justice and the same rules applying to each, and if the ICC proposal be followed presumably it never will be.
SEATRAIN LINES, INC., New York, N.Y., May 22, 1958. Hon. GEORGE A. SMATHERS, Chairman, Subcommittee on Surface Transportation of the Interstate and - Foreign Commerce Committee, United States Senate, Washington, D. C.
DEAR SENATOR SMATHERS: At the close of yesterday's hearings you asked that the carriers which had made appearances give to your committee comments on the suggested substitute language for paragraph (3) of section 5 of S. 3778 as proposed by Chairman Freas of the Interstate Commerce Commission.
Because of the short time available, the comments given in this letter are those of Seatrain alone; I have transmitted your request to Pan-Atlantic Steamship Corp. and they will give their views separately.
I shall proceed to address myself directly to the language proposed by Chairman Freas, as follows:
"(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.”
Seatrain's views, after study of this matter, and of the Commission's statement, are very much similar to those of the Commission. We believe the Congress might be well advised to make no change in the ratemaking provisions of the Interstate Commerce Act at this time, pending study of the many suggestions you have received. However, if your committee believes that some change at this time is essential, Seatrain would not object to the language proposed by the Commission.
On the basis of this brief consideration, we believe we could accept this language either as given by Chairman Freas, or if amended, as you suggested, to restrict its application to competition between modes of transportation, rather than between carriers.
It seems to me that the testimony in your committee's hearings leads to the conclusion that, if any change in the rulemaking provisions of the Interstate Commerce Act is required, it should be a change designed to prevent the destructive, and self-destructive ratecutting to which the railroad industry is naturally inclined, and from which many of that industry's present difficulties result. Such a change might provide that “no carrier shall publish, maintain, or participate in any competitive rate which is more than 20 percent below any rate which it maintains or participates in for comparable services.” Such a provision in the law would protect the vital railroad industry against the selfdestructive practices which were described to your committee; would protect the public against the maintenance of widely disparate levels of rates; and would protect competitors from unreasonable competitive practices. It would also, to a considerable extent, relieve the general level of rates from the constant round of general increases which has been characteristic of the past dozen years, to make up for the losses incurred by the carriers on noncompensatory traffic.
I realize that this suggestion was not made during your hearings, and 'is not directly responsive to the request you made at the close of those hearings, so that, of course, it is one which your committee may not have the time at present to entertain.
I wish to thank you again for the opportunity you gave us to appear and express our views to your committee. Sincerely yours.
JOHN L. WELLEN.
INLAND WATERWAYS COMMON CARRIERS ASSOCIATION,
Chicago, Ill., May 23, 1958. Hon. 'WARREN G. MAGNUSON, Chairman, Interstate and Foreign Commerce Committee,
United States Senate, Washington, D. C. DEAR SENATOR MAGNUSON: Following the testimony of Commissioner Howard Freas, Chairman of the Interstate Commerce Commission, before your cominittee, Wednesday afternoon, May 21, Senator George Smathers, who was presiding at the hearing in your absence, requested comments on Commissioner Hreas' proposal from the various interested groups who had appeared before the committee in its 2-day hearings on section 5 of S. 3778.
As was brought out in the testimony of Mr. G. C. Taylor, representing the Inland Waterways Common Carriers Association, we do not feel that any change in section 15, the ratemaking section, of the Interstate Commerce Act is indicated at the present time.
However, if the committee feels otherwise, Commissioner Freas' proposal as we understand it and with the changes indicated below might well contribute to the clarification of the competitive ratemaking problem. (New language shown in italic; delete matter in brackets :)
“(3) In a proceeding involving competition between carriers of different modes, 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, Igiving due consideration to the] as determined by the relative inherent cost and service advantages of the respective carriers.” We have inserted the first change, the addition of the words “of different Inodes,” with the thought that it is intermode competition that has been the subject of all the hearings. The word “proposed” is stricken in order that the section would be applicable to existing and pending rates. The substitution “as determined by the relative” for the language “giving due consideration to the" is for the purpose of giving definition to the term “economic carrier,” as to which we have not had time to discover any legislative or regulatory history. We believe that the above changes are entirely consistent with Commissioner Freas' intentions. We appreciate very much the opportunity to appear before your committee on this point and to comment on Commissioner Freas' proposal. Very truly yours, A. M. THOMPson, President.
THE AMERICAN WATERWAYS OPERATORs, INC., Washington, D. C., May 23, 1958. Hon. WARREN G. MAGNUsoN, Chairman, Senate Interstate and Foreign Commerce Committee, Washington, D. C.
DEAR SENATOR MAGNUSON : This is to acknowledge on behalf of the American Waterways Operators, Inc., the request of Senator Smathers for comment on the suggestions by Chairman Howard Freas, of the Interstate Commerce Commission, in his statement of May 21, 1958, proposing language to be substituted for Section 5 of S. 3778. We endorse generally the views expressed by Commissioner Freas in this statement in opposition to the language in section 5 as introduced. We approve of his stated views as to how competitive ratemaking should be regulated. We also approve, as I stated before your committee on May 21, of the subcommittee's comments on competitive ratemaking as follows: “It is the policy of this subcommittee, and it is believed to be the policy of the Congress, that each form of transportation should have opportunity to make rates reflecting the different inherent advantages each has to offer SO that in every case the public may exercise its choice, cost, and service both considered, in the light of the particular transportation task to be performed. The subcommittee believes and the national transportation policy is clear, however, that such ratemaking should be regulated by the Commission to prevent unfair destructive practices on the part of any carrier or group of carriers.” We believe that these comments are consistent with Commissioner Freas' interpretation of the national transportation policy. While we fear that the language now contained in section 5 of the bill would result in destructive rate wars in the transportation industry, we approve generally of the concept expressed in Commissioner Freas' suggested revision. Without critical intent but in the hope of giving constructive assistance to the committee's deliberations, three possible improvements to Commissioner Freas' language are offered: Since the testimony in these hearings has been almost entirely confined to intermode competition, we suggest that the words “of different modes” should be inserted after the word “carriers” in the first sentence. Considering that this proposed paragraph should apply to rates already in effect as well as to proposed rates, we suggest the deletion of the word “prosed.” "...any, while we fully endorse the ratemaking principles set forth by Commissioner Freas in his statement of May 21, as well as in his statement of March 28, which features the preservation of inherent advantages by favoring the most economical form of carriage, and which defines “the most economical form of transportation as that form which, if rates reflected costs, would tend to be favored by shippers,” we believe that an initial introduction of this concept into the statutes warrants a more careful definition. Accordingly, it is suggested that the definition of “less economic carrier” be reworded to read: “as determined by the relative inherent cost and service advantages of the respective carriers.”
With these changes the language would read as follows: “(3) In a proceeding involving competition between carriers of different modes, the Commission, in determining whether a 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, as determined by the relative inherent cost and service advantages of the respective carriers.” In this form this paragraph might be a useful standard in the regulation of competitive ratemaking. Respectfully, A. C. INGERSOLL, Jr., Chairman of the Board.
UNITED STATES SENATE, COMMITTEE ON INTERIOR AND IN SULAR AFFAIRs, May 26, 1958. Senator GEORGE A. SMATHERS, Chairman, Subcommittee on Surface Transportation, Senate Interstate and Foreign Commerce Committee, Senate Office Building, Washingtom, D. C.
DEAR SENATOR SMATHERS: I am enclosing a statement by Mr. H. Robert HanSen, Jr., president of the Hansen Pacific Corp. of Fortuna, Calif., with the request that it be included in the record of hearings made by your subcommittee on May 20 and 21, 1958, on section 5 of S. 3778.
Mr. Hansen did have the Opportunity to appear in person before the House Subcommittee on Transportation and Communications and offered the same testimony as is set forth in the attached written statement. It is requested that in your deliberations of section 5 of S. 3778 you give consideration to the comments of my constituent, Mr. Hansen.
STATEMENT OF H. ROBERT HANSEN, JR., PRESIDENT of HANSEN PACIFIC CoRP., FORTUNA, CALIF., IN OPPOSITION TO SECTION 5 OF H. R. 12488
Mr. Chairman and members of the subcommittee, my name is H. Robert HanSen, Jr. I am from Fortuna, Calif., and I am president of Hansen Pacific Corp.– a lumber manufacturing company. We ship our products to market via rail, truck, and steamship. As a shipper rather than a carrier I feel that your subcommittee will be particularly interested in my views toward your proposed legislation on transportation. I feel that my place in the picture is important since, after all, as shipper I am one of those who pays the transportation bill. I heard of these hearings Only by accident as I was in Washington on another matter. I think that relatively few businessmen—other than the carriers—know about these hearings. I think that the subcommittee should make a special effort to get the views of others who, like myself, are not aware that a matter of such importance is being considered by the Congress. The matter for which I have come to Washington is one which relates directly to the subject being discussed here. I have come to Washington on a freight-rate matter which I think will be a good example for the subcommittee to examine. I have been here assisting our attorneys in preparing a petition to the Interstate Commerce Commission requesting reconsideration by a division of the Commission of the failure of the Suspension Board to suspend some proposed changes in rail lumber rates which, if they had gone into effect at midnight on Tuesday, May 20, as proposed, would have wrecked the entire economy of the northern part of California—and which would have seriously affected the economy of the entire State. The proposed rate changes were reductions which ranged up to 33 percent reductions on rail lumber rates from Oregon to California. These reductions for the Oregon mills on shipments of lumber into the California markets would have upset the economies of the industry by making it necessary for California mills to cut their prices at the mill in order to compete—to such an extent that a majority of the California mills would have been forced to close—almost immediately. In addition, the lumber truckers and the coastal steamers would have been knocked out completely—and virtually overnight.