Mr. DEWEY. I was handed the wire saying this is the ICC wire. Senator LAUSCHE. May I put a question?

Senator SMATHERS. Yes.

Senator LAUSCHE. You do not mean to impress upon the members of this committee that while with legal rights possessed by your company were being violated, you found yourself without any remedy at law or otherwise to correct that wrong?

Mr. DEWEY. No, I am afraid I could not say that, Mr. Chairman, except you give me an opportunity to point out, which was my second example of this kind of ratemaking without any hearing

Senator LAUSCHE. The fact is that there are available to you all of the remedies provided by law as they are now set forth in the statutes.

Mr. DEWEY. This company upon receiving notice of rejection of suspension could very well have taken this matter to court, that is correct, sir.

Senator LAUSCHE. Yes. That is prima facie. The Commission found that the reduction in rate was justified and refused to suspend the rate, impliedly advising you to pursue your remedies as they are outlined by law, isn't that correct?

Mr. DEWEY. Í think that is correct, Mr. Chairman.

Senator LAUSCHE. It is not always possible, however, for a small company to take every little problem into court. And it just seems completely inequitous to us that we should be denied a hearing under these circumstances.

You

Senator SMATHERS. You can go to the Commission. You don't mean to say that your only remedy is to appeal to the court. can then file a formal complaint and then argue it before the Commission, is that not correct?

Mr. DEWEY. That may be.

Senator POTTER. How much time elapses, normally, from the time you start your proceedings until you can expect some decision?

Mr. DEWEY. I don't work with these particular rate cases, Mr. Potter.

Senator POTTER. Does the counsel know, has there been testimony to that effect, how much time elapses normally for an average case?

Mr. BARTON. I don't wish to be facetious, but often too long. The Commission is not too speedy sometimes with these cases. It varies depending on the complexity of the case, the amount of evidence, and the number of postponements asked for by the litigants. Sometimes it is several months, sometimes it is years.

Senator SMATHERS. It is unfortunately not very fast, that is true. That is called the regulatory lag and frequently people get hurt by it. That is bad.

Senator POTTER. That is one of the problems, it seems to me, where you have recourse, you can go out of business fighting your case before a decision is made.

Mr. DEWEY. That is right.

Senator SMATHERS. That is a possibility if we are going to have regulated traffic. Sometimes you wonder, since you have human action on this Commission, and they are as busy as the first witness said. Senator LAUSCHE. Mr. Chairman, may I say to Senator Potter that during the hearings before the subcommittee the railroads submitted a tabulation of cases in which they asked for increased rates which were

held in abeyance because of the inability of the Commission to get to the matters.

Senator POTTER. As I say, it works both ways.

Senator LAUSCHE. It works both ways, yes.

Senator SMATHERS. And which if they had been granted, it would have brought in something in the neighborhood of $12 billion, and they would have all been in clover today. Maybe that is the answer. Senator LAUSCHE. That is what the tabulation showed.

Senator SMATHERS. All right, Mr. Dewey. It is always a pleasure to hear from you.

Mr. DEWEY. I just want to cite the second example. Newsprint from the northwest to California-where a company which was faced with a rail reduction had to withdraw its service-this company was operating to Alaska. The newsprint business homeward from Alaska was what made that service to Alaska possible. It is not a profitable business going into Alaska, but you can do it if you have a hard core of return cargo. So that here was a whole service to a people in Alaska who are entitled to something more than one steamship service who praised this company for coming in and giving them a second steamship service and who lost that service because the ICC denied suspension in the case of newsprint from the Pacific Northwest to California, which was the bread and butter of that operation and made the Alaska service possible. So there are many ramifications that we think could come to light if the merits of a case were heard and where the denial of suspension simply shuts the door. This is the kind of liberality that they already have, Mr. Chairman, and we suggest that any more is just gilding the lilly.

Senator SMATHERS. As I recollect, you made that same illustration in your previous appearance?

Mr. DEWEY. Yes; that is true.

Senator SMATHERS. Not that it isn't a good one. I just wanted to

note it as a matter of record.

Mr. DEWEY. We also would like to emphasize that the financial sections of your bill, section 6 which provide loan funds, if there were to be submitted-we didn't have to develop them-submitted the public financial records of the intercoastal and the coastwise carriers, you would find, sir, that the reading is just, percentagewise, about twice as much in the domestic water carriers business as is true in the railroads. And for that reason we earnestly suggest that the loan provisions of section 6 (b) extended to all carriers under part III of the act. And in the House testimony I did request, sir, that the ICC be asked to bring in figures that would show the red and black ink over a reasonable span of years in the operation of the intercoastal and coastwise vessels because my figures, which only go through 1955 are quite convincing. I have them here. And if there were time I would read them into the record.

Senator SMATHERS. Are there any further questions of Mr. Dewey? Senator LAUSCHE. May I put a question?

Senator SMATHERS. Yes.

Senator LAUSCHE. If this suggestion of yours is carried into effectdo you have sufficient knowledge of the hearings to state what, if any, part of the subcommittee's recommendation would then only be applicable to the railroads? I am talking about the repeal of the excise taxes, restrictions of private carriers' rates, restrictions of agri

cultural commodities, the establishment of a construction reserve, the guaranteeing of loans. What part of what we recommended, especially if this ratemaking provision is eliminated, would only be applicable to the railroads and not applicable to barge lines and truck lines,

Mr. DEWEY. My recollection from the recommendations, sir, is that this would be the one, other than section 5 of the act.

Senator LAUSCHE. My recollection is that then all that we will have done is made everything applicable to all of the modes of transportation, except the right of appeal to the Interstate Commerce Commission to discontinue passenger service.

Senator SMATHERS. That is right.

Senator LAUSCHE. If that statement is incorrect, I would like to have it corrected at this time.

Senator SMATHERS. That is why we finally changed the name to the Transportation Act of 1958 because it is now applicable to most every mode of transportation. Most every section that we have talked about now covers them all.

Senator LAUSCHE. Everything will inure to the benefit of all modes of transportation except the right to appeal to the Interstate Commerce Commission for authority to discontinue passenger service.

Senator SMATHERS. Right. Mr. Dewey, thank you, sir. As a former member of the staff we are always proud that you are out now and have a big job.

Mr. DEWEY. Thank you, sir.

(The prepared statement of Mr. Dewey follows:)

STATEMENT OF RALPH B. DEWEY, PRESIDENT, PACIFIC AMERICAN STEAMSHIP ASSOCIATION

My name is Ralph B. Dewey, president of Pacific American Steamship Association, whose headquarters are in San Francisco, Calif. Our membership consists of the principal American-flag carriers operating to and from Pacific coast ports, and includes 3 companies engaged in intercoastal trade and 2 companies engaged in coastwise trade. I deeply appreciate the opportunity afforded me to report the viewpoints of west coast ship operators as regards to the subject legislation, with particular emphasis upon section 5.

At the outset, Mr. Chairman, may we state categorically that we firmly believe that section 5 is a radical departure from our national transportation policy, in that it grants to one form of common carrier transport a competitive advantage in ratemaking, which threatens the livelihood of other forms of transport, most particularly coastwise and intercoastal trade.

Section 5 reads:

"SEC. 5. Section 15a of the Interstate Commerce Act, as amended, is amended by inserting after paragraph (2) thereof a new paragraph (3) as follows:

66 6

(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.'"

Before highlighting our objections to this radical proposal, it is important to review the present status of the intercoastal and coastwise trade as compared with the prewar situation.

As the committee is well aware, the intercoastal and coastwise ships were taken over immediately at the outbreak of hostilities in 1942 and it has often been said that some of the early Allied campaigns in Europe and Africa would have been impossible without the intercoastal trade vessels. While these vessels were engaged in war duties, the railroads took over the carriage of intercoastal commodities amounting to approximately 7 million tons per year. As a result of wartime sinkings and as a result of the loss of customers to the railroads, vessels serving intercoastal trade have in the postwar period averaged only 50 ships, compared with 139 prewar.

Similarly, coastwise trade now only includes 7 vessels, as compared with 127 vessels in the prewar period.

When one ponders the tremendous increase in industrial production generally, and in particular on the west coast, and when we consider the population surge on the Pacific coast, it is obvious that there are deep-seated economic conditions which have brought this about.

This deep-seated economic change is precisely what we are talking about here today. Since the resumption of domestic water, common-carrier operations after the war, the railroads have engaged almost continually in a vigorous campaign calculated to not only prevent the restoration of water service at its previous level but to limit the number of commodities previously carried. In this campaign against the waterline, the railroads have established subnormal rates between port areas on commodities which are susceptible to water competition. At the same time, the same railroads have seen fit to seek increasingly higher rates between noncompetitive points. They have robbed Peter to pay Paul. We strenuously and vociferously object to the railroads' plea for increased rates generally, when they have selectively held down rates on those commodities susceptible to water competition. There is little doubt that if the railroads were to be forced to use fully distributed costs in these watersusceptible commodities' rates, they would not be incurring the loss which forces them to seek increases elsewhere.

We have been amazed to notice the absence of consideration in these hearings for the welfare of inland communities where no deepwater or barge competition exists, and where rates are continually raised to take up the slack caused by the railroads inadequate rates and earnings in areas competitive with water transport.

To now address ourselves to section 5, our views are very simple. The Interstate Commerce Commission has now, and has for a number of years, granted the railroads all of the flexibility, all of the competitive rates that they need to subdue competing forms of transport. The Interstate Commerce Commission has done this despite the fact that the transportation policy in 1940 stares them in the face every time they have permitted this downward flexibility. We cannot understand what more the railroads want unless it is the last ounce of flesh. Our industry stands before you today as exhibit A of the kind of decimation that has taken place under present interpretation of the law and forces us to draw the conclusion that if Congress were to pass section 5 that they no longer considered domestic water transportation between the coasts and along our coastlines to be important to the economy.

In my efforts to be candid with this committee, I took the opportunity of discussing the future of coastwise and intercoastal trade with five of the larger users of this service domiciled on the Pacific Coast. Without exception these shippers stand in awe of and greatly fear the consequences of section 5. Their reasoning is that if the railroads are given more latitude to continue rate warfare, that water carriers will soon be out of the picture. When this happens, they reason, railroads will no longer have the incentive to quote low rates and west coast shippers will be at the mercy of a rate structure which very easily can put them out of competition with east coast shippers. In short, they see the demise of water transportation as the beginning of a complete upheaval in the economics of their own enterprises.

And while an untutored layman might think the repeated reductions in rail rates on water competition traffic would be an advantage to the shippers able to use such reduced rates, all indications are that the opposite is the case. Indeed, the records of the ICC in those cases where rail reductions are so obviously designed to cripple water transport shows that shippers have come in with full force to oppose such rail reductions, even though it might give them some temporary short-run cost advantage. Shippers who have been in business 100 years are quick to see such flimsy short-run schemes, and they know that in the long-run rail warfare against water lines is against their own interest, and against the interest of their customers.

Permit me to briefly summarize two classic examples of the kind of rate making the ICC has permitted in the coastwise trade, with the results that services have been curtailed and heavy losses incurred by water lines.

1. LUMBER RATES FROM PACIFIC NORTHWEST TO CALIFORNIA

As we sit in this room today, we are 24 hours away from a devastating rail cut on lumber rates between Pacific Noarthwest and California, which is the bread and butter of the remaining seven vessels engaged in coastwise transport on the

Pacific Coast. Despite protests by both shippers and ship operators, the ICC has rejected petition for suspension of a 30 percent rail cut effective tomorrow. This

cut will bring the railroads rate down $15.35. The water rate is now $18.85, which includes $13.75 for ocean carrier, $2.60 for dock charges and $2.50 for truck haul. This new rail rate is not compensatory to the railroads and if the water lines attempt to meet this date, it will not be compensatory to them. Thus, only one conclusion can be drawn from the ICC rejection to the suspension of this rate that is they are satisfied to watch the railroad move in with a noncompensatory rate and lose money in the process; and they are satisfied to let the water lines either carry this lumber at a loss or go into oblivion-all in the interest of the National Transportation Policy. We wonder just what the words on the page mean in the 1940 act policy statement if it permits ICC to ignore the inherent advantages of each form of transport.

2. Newsprint rates from Pacific Northwest to California

In 1952, in answer to pleas of citizens in Alaska for new carriers to come into that service and give the existing monopoly more competition, the Coastwise Line in San Francisco inaugurated service between California and Alaska. This company had previously only operated vessels between the Pacific Northwest and California. What made this Alaska service possible was the carriage of newsprint on the homeward leg from the Pacific Northwest to California. Anyone familiar with the Alaska trade knows that it is a seasonal business and does not afford sufficient tonnage to guarantee the people of Alaska regular consistent service. Therefore the newsprint was the balance wheel that made it possible for Coastwise Line to supply this new service.

In May of last year the ICC turned a deaf ear to protest by this company against rail-rate reduction on newsprint which was calculated to take away from the water carriers this newsprint tonnage. This rail reduction came on the heels of a new innovation of designs in one of the Coastwise Line vessels which permitted rapid loading and unloading of newsprint with minimal damage claims. Obviously, the railroads' choice here was either to create innovations of their own, or to use the rate weapon to cut this new form of competition down to size. Typically they chose the latter and the ICC went along with it. Today Coastwise Line has abandoned its Alaska service on the grounds that revenue on newsprint is inadequate to make up the loss incurred as a result of inadequate tonnages to and from Alaska. Not only has Alaska lost this service, but the fortunes of Coastwise Line have been so decimated and their losses are so heavy that their chances of survival are poor. Some say its only a matter of time.

In addition to open warfare on rates by the railroads, they have also protested every petition by coastwise water carriers to increase their ports of call, to increase their commodity participation in the trade, and to increase the value of their service to their customers.

When one looks into the restrictions placed on our coastwise water carriers, and when one considers the way in which railroads protest every attempt to retain business they have had for 100 years, the only conclusion possible is that coastwise water carriers and intercoastal, as well, operate under a regulatory system that is far more restrictive than that which the rails object to. If this committee were to look into the matter, which indeed they have not done in these hearings, they would find that the freedom of operation of other forms of transport are often more seriously curtailed than has been true in the rails. Nevertheless, it has all the merits of the railroad case and suffice it to stay that only one-half the story has been told. The passage of section 5 will, in our view, be based upon only 50 percent of the evidence that is actually available in the matter of freedom of competition in domestic transport.

While we keenly appreciate that this committee desires to confine its hearings to section 5, we are constrained to use this occasion to urge that any financial aid to the railroad, as envisioned in section 6 of this legislation, should be likewise applicable to all carriers subject to part 3 of the Interstate Commerce Act. Intercoastal and coastwise lines are in dire need of loan funds for working capital and equipment replacement. To leave them out of this is to favor one form of domestic transport over another. We strongly urge that the language in section 6 confining its terms to railroads be stricken and that clarifying language, permitting the use of section 6 by all carriers subject to part 3 of the Interstate Commerce Act, be substituted.

Senator SMATHERS. Mr. Abraham Weiss.