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saying "* * *
the Commission won't let the trucks even lower their rates. So that is what this thing is all about, this whole ratemaking section: What did the Congress intend? Did the Congress intend that the ICC should be the giant handicapper, like a horse racer at the Preakness,
you got 2 pounds, you got 3 pounds, and you all come out even in the end'? Or did it intend, as it said in the national transportation policy, that the inherent advantage of each motor transportation should be protected so that the general public could benefit from lower rates!
Now, that is the problem that we are faced with, whether or not the Commission should or should not protect them.
Now, these cases which I am going to read to my good friend, Jim Pinkney, in a minute, will establish that the Commission does hold an umbrella, in my judgment, over certain of these operations.
Senator MONRONEY. Would the Senator yield for a question? Senator POTTER. Yes. Senator MONRONEY. What puzzles me, however, though, is on this "shall consider the facts and circumstances attending the movement of traffic by railroad and not by any such mode." A railroad is a national institution. The Pennsylvania covers about 30 or 40 States. They slap a 100-percent increase in nearly a dozen across-the-board raises, and they can cut these individual rates then because they have made it up in places like Oklahoma, where they have kept up under a penalty for the entire life of our State. And the only good rates we get are the rates that the railroads have been forced to meet by trucklines that have come in there. But the trucklines have had no general nationwide increase in their rates, have they?
Mr. PinkNEY. No; the motor carrier rates have been going up in recent years, Senator, but I quite agree with you that the problem is not the problem of umbrella ratemaking. Your problem is making sure that you don't bring about discrimination between localities, between sections, between commodities. And if you make this on a purely compensatory cost basis, all your rates are going to gravitate down to the same level, let's say per pound, any way you look at it. Then those communities depending upon the services--commodities and communities depending on the services of rails are going to be out of luck, because they are going to have to bear the burden of the reductions on these high-priced commodities that take place elsewhere.
I think you will find in those alcoholic beverage cases and other cases you refer to there, the decision was not for the purpose of holding an umbrella over anybody's rates. The reason for those was to protect a rate structure.
Senator SMATHERS. Let me say this for the Senator from Oklahoma, first, and I don't think we ought to debate it here amongst ourselves, we will do that down on the floor: I don't think the facts that we have had over eleven weeks support your conclusion, very frankly, at all.
Senator MONRONEY. I unfortunately couldn't sit in on the hearings. I tried to make as many as I could.
Senator SMATHERS. I will say this: that if this committee, by virtue of what we are attempting to do, creates a monopoly of the railroads again as they once used to be, then we would be rendering a great disservice to our country, certainly in every respect not only the
consumer but to the national defense. We want to keep a good, strong system.
But the question is, at the same time, do we also let, by virtue of competition, rates be reduced, and can we give to the benefit of the consumers the lowest compensatory rate?
If one mode of transportation has an inherent advantage over others, and they do, they are not all the same: truckers obviously have advantage on short-haul matters, and flexibility that railroads could never get. That is all to the public's advantage. But then to say that the railroads and the truckers should have the same rate or the same opportunity for business, which is what the Commission says, then that eliminates the inherent advantage that one mode of transportation has over another, and thereby the general public is hurt rather than helped.
That is our problem.
Senator MONRONEY. The thing I can't understand is the railroads apparently have come in frequently, according to the testimony here, and in 98 percent of the cases have been able to effectuate all of the rate reductions that they chose to make, and at the same time, the general traffic has had to bear a 107.7 percent increase since June 30, 1946, in general freight rates.
Now in these nationwide systems, what is compensatory? I mean, if you can hold an umbrella over railroad freight rates in 11 States and raise the rate, while you can reduce it in another State, where they have a competitive condition, and then claim that the railroads enjoy an inherent low cost of operation, I just don't understand it.
Senator SMATHERS. Well, let's go ahead.
Who has any further questions of Mr. Pinkney? Does anybody have any questions?
You inferred that this language was the language of the railroads. As a matter of fact, Mr. Pinkney, you have some pretty good idea where this language came from, don't you?
Mr. PINKNEY. Oh, yes, certainly.
Senator SMATHERS. "And it was not actually railroad language, was it? Is not this language-the best all of us could arrive at the language from the New Automobiles case decided by the Commission?
Mr. PINKNEY. This language is based on one statement in the New Automobiles case, with something added, of course.
Senator SMATHERS. Right.
But it was not a language originally recommended, as I remember it, by the railroads.
Mr. PINKNEY. That is correct. Well, they raised it in their pleadings, if I may call them that, in their rebuttal statement filed after the hearings concluded. They cited that particular automobile case. That was the first time I think it was injected into the proceedings, was by them. I refer to it broadly as å railroad proposal because it gets to the end they seek to achieve.
Senator SMATHERS. That is right. They seek apparently for flexibility, and this of course would permit that.
Mr. PINKNEY. That is correct, sir.
Senator COTTON. Before you leave that, could I ask one question?
I have listened to the statements from the railroad lawyers and from members of the Interstate Commerce Commission, and I would like to ask you practically the same question Senator Potter asked, pinpointing it:
If possible, would one of you gentlemen tell me what distinction, what are the distinctions that you draw between phrases "reasonable minimum” and “compensatory minimum”?
Mr. PINKNEY. Do you want to try that, Edgar?
Senator COTTON. If that doesn't necessitate your going into a long story, and if you will phrase it so a high-school sophomore could understand it?
Mr. WATKINS I will try.
That is a question that lawyers have disagreed on for years, Senator, and it is hard to phrase it in simple language.
But probably the best way I can do it is to refer to the automobile case, which has been referred to so frequently here, and which, preceding the statement which the railroads have tried to include in the act in this section 5, they made this statement about a reasonable minimum rate
Mr. BARTON. What page is that?
What constitutes a minimum reasonable rate is a matter to be determined in the light of the facts of record in each individual case, avoiding arbitrary actio and keeping within statutory and constitutional limitations, just as in the case of maximum reasonable rates. Whether a rate is below a reasonable minimum depends on whether it yields a proper return.
By "proper return," I don't necessarily mean the same return on all traffic.
Senator COTTON. That is your interpolation now?
Whether the carrier would be better off from a net revenue standpoint with it than without itand that is a serious considerationwhether it represents competition that is unduly destructive to a reasonable rate structure and the carriers, and whether it otherwise conforms to the national transportation policy and the rules of ratemaking declared in the act of 1940.
Now, that is as comprehensive a definition of a "reasonable minimum rate” as I think you can find, and that is, as I say, it takes into consideration the changes that were made in the act in 1940.
Senator COTTON. So that the term “compensatory, as you are indicating, is simply one factor that is considered in determining a reasonable minimum.
Mr. WATKINS. Yes.
Mr. WATKINS. And, of course, there is much discussion about what the word "compensatory" means. But using compensatory as being limited to a cost factor only, the Senator is right, that there are other factors that must be considered to determine a reasonable minimum rate.
Senator COTTON. Thank you,
Senator SMATHERS. Right on that point, I might say that was the reason that in this language we have a reasonable minimum rate. Yesterday the question was raised a number of times to the effect that if you put these so-called blinders on the Commission, which has been suggested by the motor carriers here this morning, that then the Commission cannot consider what is a destructive rate practice.
If you will remember, yesterday I endeavored to say that according to the interpretation of the words "reasonable minimum rate," the Commission would consider just what Mr. Watkins has read here: "Would they be better off," and so forth, and so forth, “unduly destructive," and so on. They would have to consider all these factors in considering the reasonable minimum rate.
Now, we will go further than that—however, I think this committee may want to go a little further than that and write in some additional protective language to be certain that they would always consider it.
Senator COTTON. By "unduly destructive," does the Commission mean unduly destructive to the form of transportation or the carrier that is involved, or unduly destructive to other forms of transportation?
Senator SMATHERS. A destructive rate practice has to do primarily, as I understand it, not only with the mode itself, but with other competing modes. That is where the competition comes in.
Mr. PINKNEY. It is broader than that, sir, if I may suggest. Senator SMATHERS. That makes it better. Mr. PINKNEY. It primarily wants to prevent destructive competition which will have an adverse effect upon the communities, upon shippers, to prevent industrial-type monopoly that can arise very quickly where a big shipper can get very low rates on his commodities and the small shippers are left at the mercy of the old rates, then you have really got trouble. That was the cause of the act in the first place.
Senator SMATHERS. So he is saying, then, that in considering destructive rate practices, that the Commission will consider situations such as that you are talking about?
Mr. PINKNEY. Oh, yes.
Senator Cotron. Does the language of the recommendation of the subcommittee envision that kind of consideration ?
Senator SMATHERS. Yes, yes.
Senator COTTON. Then it would seem to me that these gentlemen should indicate why, then, those are blinders.
Senator SMATHERS. That is what we do not quite understand. And it may be that we have not stated it in this language just as clearly as we would like. But that has been our intention, and that is what we are still
arguing about. That is what the argument is all about. Senator COTTON. Yes. I realize I was oversimplifying it.
Mr. PINKNEY. Senator Cotton, on page 10 of my statement, toward the bottom, I submit some things that we think that this particular language that is presently in the committee report would do. And I refer just to the sanguage, I don't refer to the language of the report in toto.
Senator COTTON. I will read those carefully. It is unfair to come in late and hold up on this particular question. I will read that later.
Senator SMATHERS. All right.
Are there any other questions? (No response.)
Senator SMATHERS. Mr. Pinkney, as always, you have been very helpful. It may be we will want to be in touch with you again before too much longer.
(Following is a list of cases to which the chairman previously referred :) SOME DECISIONS OF THE INTERSTATE COMMERCE COMMISSION IN WHICH THE POLICY
OF THE NEW AUTOMOBILES CASE HAS NOT BEEN FOLLOWED Petroleum products from Los Angeles to Arizona and New Mexico (280 I. C. C. 509 (1951 ; Div. 3)):
Railroads proposed reduced rates on petroleum products from Los Angeles to points in Arizona and New Mexico. Tank-truck common carriers protested.
The ICC found that “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” (p. 516).
This finding was made despite the Commission's statements, as to the compensatory character of the rates, that "* * * cost studies of record * * * may be accepted as indicating a fair approximation of the out-of-pocket costs for performing the service” (p. 516); and "* * * protestants' consideration thereof does not lead to a conclusion that the proposed rates are not substantially higher than the out-of-pocket costs for performing the service” (p. 514).
Petroleum products in Illinois territory (280 1. C. C. 681 (1951; entire Commission)):
Railroads proposed reduced rates on gasoline and other petroleum products between certain points in Illinois territory and the northern States in western trunkline territory. Competing tank-truck operators protested.
There was no suggestion that the proposed rates were not reasonably compensatory. On the contrary, railroad rates lower than truck rates were supported by the Commission's finding that:
“The record warrants the conclusion that, except for distances under about 75 miles, the respondents are the low-cost agency on this traffic" (p. 690).
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. Some reduction in rail rates which would be otherwise reasonable is necessary to give the respondents a fair opportunity to compete with the tank-truck operators, but the proposed rates * * * would reverse the present situation and deprive the tank-truck operators of a fair opportunity to compete with the respondents. Being lower than necessary to meet the competition, they would result in an undue burden upon the respondents' other traffic. These eventualities would not be conducive to the establishment of reasonable rates, the avoidance of destructive competitive practices, and the preservation of a transportation system adequate to meet the needs of commerce and the national defense, within the meaning of the national transportation policy. The problem in these proceedings is to arrive at an adjustment which will square with that policy and the other provisions of the act, and be fair to both forms of transportation” (p. 691).
Alcoholic liquors in official territory (283 I. C. C. 219 (1951; Div. 2)):
Railroads proposed to establish reduced rates on alcoholic liquors between points in official territory. Various motor-carriers and water-carrier 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:
1 The New Automobiles case was New Automobiles in Interstate Commerce (259 I. C. C. 475 (1945)).