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The truckers and the steamship people, like the lumber industry, had submitted petitions to the Suspension Board of the Interstate Commerce Commission begging for suspension in order that the new rates be held up pending complete investigation and public hearings. The Suspension Board turned us down.
However, pursuant to our petition for reconsideration a division of the Commission reviewed the matter and did suspend the rates—at the last minute. Needless to say, thousands of people in northern California breathed a sigh of relief on receiving word of the suspension. We now have the opportunity to prove by presentation of evidence in hearings what the result of these drastic rate cuts would be. Over 65,000 people work in the California lumber manufacturing industry. The annual payroll is $350 million. The major part of the economies of 18 counties in California depend on lumber. More than $200 million has been invested in plants and equipment-most of it in recent years. This new California lumber industry--particularly for the manufacture of Douglas-fir and ponderosa pine has been built primarily to serve the new, rapidly growing California markets. Most of us have built our plants—relying on the rate structure that has been in existence for the last several years.
I'd like to point out to the subcommittee that—had the rate reductions not been suspended—the new lower rates would have taken place at midnight Tuesday, May 20, and as of right now the price of Dougals-fir lumber delivered into Los Angeles from Oregon mills would be selling at $7.50 to $8 per thousand board-feet lower than the price of 2 days before. The California mills—including our ownwould not be able to cut their prices to meet this competition due to many technical differences in cost of operation as compared to the costs in Oregon. Our timber has been purchased and our capital investment has been made relying entirely on a net mill return based on a freight rate differential which exists in favor of the California mills—by being closer to the market.
After 2 years of very bad lumber business housing slump, etc., we have suffered economic hardship already in the lumber areas. We have had high unemployment and have been considered as unusually depressed areas. It can be readily seen, therefore, that a shock like the one which I have just described would be the death blow. Even though my plant is efficient and competitive, my company would be facing financial ruin if these rates had gone into effect and we would be preparing right now to close our plant which is worth $1,500,000 and which maintains 250 jobs, and which provides more than half the payroll for our little town of Fortuna. This same situation would face most of the lumber and plywood mills in northern California.
As a member of the executive committee of our California Forest Products Shippers Association, I can also speak for over 150 other lumber companies who manufacture in total the major part of the lumber produced in our State. I've come to Washington on our rate suspension problem representing them as well as my own company.
When we first heard of the proposed rate tariffs, a committee of lumbermen met with officials of the Southern Pacific Co. in an attempt to dissuade them from filing. Our committee was turned down despite the fact that we emphasized disastrous effects which could be expected. In this meeting the lumbermen were told by the railroad officials that a commitment had been made to the Oregon mills regarding a new lower freight rate which would give them better access to the large California markets. I submit herewith as an exhibit and as part of my testimony a photostat of a newspaper story which appeared on the front page of the Eureka, Calif., Humboldt Times on April 20, 1958. I can state that this newspaper story accurately describes this meeting and the things which were said-I was present myself.
In addition to the ghastly aspect of financial ruin from the effect of the price juggling of delivered lumber which these lowered rail rates would cause, we California lumbermen desperately fear the effect of eliminating the trucks and steamships from the lumber hauling picture. We know that the proposed rates would wipe them out, almost immediately. We are scared to death at the prospect of being served by only one form of transportation. We feel certain that the railroad after having eliminated its competition with these unrealistic rates would come forward later and show accounting figures to support a need for raising the rate back up. It seems more than incredible that the railroad could prove that the proposed lower rates would be adequately compensatory. Since April 4, 1951, our rail freight rates have been increased 30 percent in 8 successive increases. These increases were approved by the Interstate Commerce Commission on the basis of railroad claims that its increased costs of cperation made it absolutely necessary to raise these rates. Many shippers,
like ourselves, are plenty bitter over having to pay these successive increases which we feel were made necessary by a spineless attitude on the part of the railroads with regard to meeting unreasonable and unrealistic demands of the railway unions. We feel that the railroads were complacent in their knowledge that we shippers were paying the bill anyway. The unfortunate effect on the lumber industry has been the loss of a good many of our markets to other materials. A good example of this is the virtual disappearance of wood screen doors and window screen frames in the large middle western and eastern population centers. Most people in these areas now buy aluminum screen doors and frames. We were priced out of this market-principally by increased rail freight rates. In the face of this, you can understand how we find it hard to swallow the story that the railroads can now make drastic rate cuts—and make money at it.
Let's now talk specifically about the ratemaking section of the proposed legislation, and let's see what effect it would have on our own problem.
First of all, it was necessary for us to appeal to the Commission. A suspension was granted.
I have no way of knowing how the present rate case, in which my company is involved, will come out. The proposed rate reductions may ultimately go into effect, be permanently suspenäed, or some changes may be made. What is important to me, in appearing before this subcommittee, is to point out that, at least under the present ratemaking sections of the law, all of the facts can, or should, come before the Commission. There are no restrictions against the Commission giving proper consideration to all pertinent data. As a shipper with a pronounced interest in the direct and indirect effects of changes in transportation rates, I would be deeply concerned with any changes in the present rules of ratemaking which could serve in any way to deny information to the Commission or which could result in my being made completely dependent on one form of transportation.
With the widespread hardship that would result, it would seem likely that this is surely not in accord with what the Congress seeks to accomplish with this new law. I speak not only for my own company but for more than 150 other California lumber manufacturers. This same situation could easily be duplicated in other parts of the country if the railroads, using their fantastically complicated and confusing accounting figures as support, should set out to destroy competing forms of transportation or to juggle the economy of one area or another to suit its own purposes. I'd like to remind the committee that this is exactly why the Interstate Commerce Act was passed in the first place—to control just this sort of thing.
I'm sure that all businessmen like myself will appreciate what Congress is trying to do with regard to improving the health of the Nation's transportation system, but, as a shipper, and primarily as a businessman, it is difficult for me to see how the railroads, if they are in financial difficulty, can possibly help themselves by dissipating what revenues they do have in competitive-rate wars. I have just heard testimony given before the Senate Committee on Interstate and Foreign Commerce by the National Industrial Traffic League, a shipper organization supporting the new ratemaking provisions as proposed. I can forcefully advise you that there are many shippers like our lumbermen in California who would take violent issue with their views and, therefore, as a final remark, I would like to recommend to the committee that the ratemaking section of the present law be left untampered with. I respectfully recommend, also, that you get more views from other shippers—particularly small ones—and from the public, who may be seriously hurt by any changes in the rules of ratemaking which would weaken the present powers of the Commission.
Thank you for this opportunity to give you my story.
AMERICAN ASSOCIATION OF SMALL BUSINESS,
New Orleans, La., May 23, 1958. Senator WARREN G. MAGNUSON,
Senate Office Building, Washington, D. C. DEAR SENATOR MAGNUSON: Senate Committee on Interstate and Foreign Commerce is now considering S. 3778, sponsored by Senator Smathers. Many of our members engaged in the barge and towing industry object to the passage of S. 3778 for a number of reasons.
Having spent 8 years of my life in the railroad business, I am somewhat conversant with the many problems confronting the industry. My memory serves
me well, and I can recall that the railroads have been suffering from the same pangs of Government regulations and organization pains down through the years. There has never been any profit in passenger transportation; the dining-car service is still operated at a loss, and the general overhead is too high. If anything goes wrong on the division, everyone will be reprimanded down the line and, at the end, the waterboy will be fired.
The most important objections consist of the proposal to amend the Interstate Commerce Act to provide the railroads with the unfair advantage of being able to get preferential rate without consideration of other modes of traffic.
Small businesses have been trying for years to be given the privilege for all businesses to build up a reserve out of profits before taxes for the purpose of expansion and to tide them over in the event of a period of recession. The American Association of Small Business, Inc., has suggested the proposal that such funds be invested in Government bonds and only be taxed when used as income for expenditures like the recommendations in S. 3778, without success. Now, because the greatest lobby group (the railroads) in the Nation are in distress, the Senate seems willing to give the special privilege of building up great taxexempt reserves to the railroads. Why not give the same privilege to all businesses? As the tax laws now stand, any taxpaying corporation is not permitted to build up a great reserve over a period of many years. Should the reserve become too large, according to the judgment of the collector of internal revenue, he will rule that the funds must be plowed back into the business and taxes have to be paid. This practice is often perpetrated at a time when small businesses can least afford to pay heavy taxes and stand in danger of being forced into bankruptcy. Why single out the railroads as the favored industry for special tax-exemption privileges ?
Another unfair proposal presented in S. 3778 is that of giving financial aid to railroads at the expense of their competitors. There is too much “Government in business” policy in effect now. Of course, the Government could take over the railroads and go all out for socialism.
The American Association of Small Business, Inc., is opposed to socialism and communism in every form, and this is another attempt to cause a large segment of our economy to become subsidized by the Federal Government.
Other forms of transportation have been able to keep their business affairs in such order that it has not generally asked for socialistic Government aid. Why cannot the railroads do likewise?
Some of the reasons why the railroads are in financial straits is because of the redtape regulations under which they must operate.
For instance, during the life of the Interstate Commerce Commission, the railroads have made application for over 1 million changes in rates. It is interesting to note that only 12 of the applications were turned down. Of course, the delay in having to go through the Interstate Commerce Commission may have cost the railroads some business, but here, again, the same practice is required of other forms of transportation subject to the regulations of the Interstate Commerce Commission.
In a survey conducted by a specialist recently, it was developed that the railroads have received permission to increase their rate on agricultural products as much as 75 percent since 1948. The cost of labor for marketing agricultural products has increased over 273 percent since 1940.
If the railroads and all other transportation industries could be given some relief from political favors, political spending for local projects, competition from Government-subsidized transportation, special rates on Government freight, excessive appraisal by tax collectors after building expansion and improvement projects are completed, and labor featherbedding, in all probability there would be no need for the enactment into law of S. 3778.
These proposals are unconstitutional unless the same privileges are granted to all industries. They can be considered class legislation, for they are being considered for the exclusive benefit of the railroads of the Nation, regardless of the competitive situation with respect to other means of transportation.
There are more objections to S. 3778 which may be presented by others, but, for the sake of brevity, I have just covered a few points. They can be gone into by the members of the staff of your committee and able consideration given them.
The members of the American Association of Small Business, Inc., will be grateful to you for a response to this communication.
I send you all good wishes, and, when I am again in Washington, I will call in your office, where I will receive the usual cordial hospitality from the members of your staff. I look forward to seeing you then. Yours for keeping small business in business and, Very sincerely,
J. D. HENDERSON, National Managing Director.
MAY 29, 1958. Hon. ALLEN J. ELLENDER, United States Senate,
Washington, D. C. DEAR SENATOR ELLENDER: In accordance with your letter of May 28 to the clerk of the committee, I shall be glad to have inserted in the committee hearings on S. 3778 the letters from Mr. J. D. Henderson, national managing director of the American Association of Small Business at New Orleans, and Mr. C. W. Coleman, secretary of the Louisiana Public Service Commission. With best wishes, I am, Sincerely yours,
WARREN G. MAGNUSON, Chairman.
UNITED STATES SENATE,
May 28, 1958.
Washington, D. C. DEAR MR. JARRETT: Pursuant to the conversation between a member of my staff and one of the clerks of the committee, I am enclosing two pieces of correspondence which I have received from Louisiana, and I would appreciate your having these letters inserted into the record of the hearings on S. 3778, the Transportation Act of 1958. One of the letters is from Mr. J. D. Henderson, national managing director of the American Association of Small Business at New Orelans, and the other is from Mr. C. W. Coleman, secretary of the Louisiana Public Service Commission, Thank you in advance. I am, Sincerely yours,
ALLEN J. ELLENDER,
STATE OF LOUISIANA,
Baton Rouge, May 22, 1958. Hon. ALLEN J. ELLENDER,
Senate Office Building, Washington, D. C. DEAR SENATOR ELLENDER : I am directed by this commission to bring to your attention certain proposals, developed by Senator Smathers' Subcommittee on Surface Transportation, which have for their purpose several amendments to the Interstate Commerce Act.
The commission has noted that one of these proposals is to strengthen and make more effective the so-called Shreveport powers of the Interstate Commerce Commission under section 13 of part I of the act. Under this provision, the Interstate Commerce Commission, if it finds that an intrastate rate prescribed by State authority causes an alleged discrimination against interstate commerce, inay supersede State authority and fix the intrastate rate. In this commission's opinion, this power, as it already exists, has been abused and has resulted in unwarranted invasions of State authority.
Another proposal of the subcommittee is to vest the Interstate Commerce Commission with authority to authorize the discontinuance, curtailment, or consolidations of railroad services and facilities, even where such services are strictly intrastate in nature.
The commission directs me to solicit your assistance in opposing passage of these two proposals, which would result in a further and unconstitutional encroachment of the Federal power on State authority. Very respectfully yours,
C. W. COLEMAN, Secretary.
UNITED STATES SENATE,
May 19, 1958.
United States Senate, Washington, D. C. DEAR SENATOR MAGNUSON: Enclosed is a letter from the Dravo Corp. of Pittsburgh, Pa., with regard to section 5 of S. 3778.
I would appreciate your including this letter in the record of the hearings on this section. Sincerely,
JOSEPH S. CLARK.
Pittsburgh, Pa., May 16, 1958. Hon. JOSEPH S. CLARK,
Senate Office Building, Washington, D.C. DEAR SENATOR CLARK: Senate bill S. 3778 (Transportation Act of 1958) introduced by Senator Smathers on Thursday, May 8, is designated as an amendment to the Interstate Commerce Act so as to strengthen and improve the national transportation system, and for other purposes.
Dravo Corp. is the parent company of Union Barge Line Corp., a common carrier on the inland waterways of the Mississippi River system. Dravo is also a manufacturer and supplier of towboats and barges for use on that same system. Barge lines are a very real part of our national transportation system but we submit that should the Congress adopt section 5 of the subject bill, the barge lines of this country might very shortly be destroyed.
Section 5 would tend to allow unfair and destructive competitive practices by giving greater flexibility in railroad ratemaking without making the same competitive to other competitive low-cost transportation.
With the railroads now immune from antimonopoly prosecution in ratemaking this would complete the cycle and permit actual destruction of a competitor without recourse, in this case river transportation.
We do not imply we are not sympathetic to the plight of the railroads. We do endorse their need for a revision of certain restrictive practices in Government regulation, both at the national and local level ; consequently we approve the enactment of the other portions of the subject bill. Very truly yours,
WILLIAM K. FITCH,
Chairman. CARL B. JANSEN,
LOS ANGELES, CALIF., May 15, 1958. Hon. G. A. SMATHERS,
United States Senate Building, Washington, D. C.: I respectfully urge you to exert your efforts in opposition to S. 3778 which I understand will come before the Senate Commerce Committee on Tuesday, May 20th. This measure if passed will have a seriously harmful effect on west coast maritime shipping. I am advised that the rails now have sufficient sanction from ICC to adjust rates.