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the powerful influence of low-cost barge transportation on the economy of the midcontinent half of the Nation. The central issue raised by this new proposal is whether the Interstate Commerce Act shall continue to operate as a safeguard for the public as well as for ourselves against the misuse of economic power. I think you should know that the recession has become a serious matter for the barge lines as well as for other forms of transportation and for industry generally. At the end of April, 24 percent of our towboats were tied up. Senator SCHOEPPEL. I would like to ask Mr. Taylor, if you don't object, Mr. Chairman, so I might get this thing in my proper perspective—which is limited, I will tell you that very frankly. The thing that you fear—and I take it some of these other gentlemen who have testified here fear—that by that wording it would mean we could only consider the railroad as one mode there, or in other words, you figure that that would have to be construed tightly all the way down the line by the Commission and would shackle the Commission in its approach to any matters coming before it? Mr. TAYLOR. That is the way I understand it; yes, sir. Senator SCHOEPPEL. In other words, that is the burden of your approach to this thing? Mr. TAYLOR. Correct. Senator SCHOEPPEL. All right. Proceed. Mr. TAYLOR. It had been necessary to reduce our towboat perSonnel by 26 percent. I should say in that statement I am speaking for the members of the IWCCA, as a group. And again, for that group, in the first quarter of the year, the members of the IWCCA experienced a decline of 15.3 percent in gross freight revenues compared with the same period in 1957. Those freight revenues declining from $19,196,000 in 1957 to $16,248,000 between the 2 periods. As you are aware, the act, as it now stands, is the only safeguard available to the surface transportation industry against unfair and destructive competitive practices. The Reed-Bulwinkle Act of 1948 specifically exempts the transportation industry from the antitrust statutes and permits regulated carriers of the same type to meet together to agree upon industrywide rates. The Robinson-Patman Fair Trade Practices Act specifically exempts the regulated transportation industry on the theory that the objectives of that act will be achieved through ICC control over competitive practices. If the Interstate Commerce Commission is to be restrained from considering the effect of reduced rail rates on other modes of transportation, there can only be one result: the way will be opened for a rate war of extermination against smaller and weaker carriers without any means of control by any impartial agency over practices which would be condemned either under the Unfair Trade Practices Act or the acts desiged to prevent monopolies. The seriousness of the issue before us is emphasized by the testimony of the Chairman of the Interstate Commerce Commission, Mr. Howard Freas, before the Senate subcommittee, some little time ago. He said: I believe that if transportation history teaches any one thing, it is that while
competitive forces generally are effective in reducing prices and improving standards of service, these same competitive forces in the transportation field, if un
checked, will result in eliminating competition as between competing shippers, geographical areas and territories. In 1955, the Secretary of Commerce issued a report recommending legislation known as the “three shall nots” which, if enacted, would have had the same effect as the present proposal. It is most significant that further careful study of this recommendation has now led the Commerce Department completely to reverse its stand. In a letter to Senator Smathers, Sinclair Weeks, Secretary of Commerce, said on April 22, 1958: A “three shall nots” rule, if made applicable outside the transportation field would seem to conflict with provisions of the antitrust laws applicable to the rest of the industry, which require consideration of the effect of unreasonably low prices on competition. * * * Instead of the “three shall nots” rule, it is urged that the Congress enact legislation which would permit the Interstate Commerce Commission, in determining what is less than a reasonable minimum charge, to take into consideration the effect of a rate on competition or on a competitor only where its effect might be substantially to lessen competition or tend to create a monopoly in the transportation industry or where the rate was established for the purpose of eliminating or injuring a competitor. In other words, it is basic to our free enterprise system that destructive and unfair competitive practices must be restrained if competition is to flourish. Thus, it is clear that the barge lines are not alone in their fears of rate wars. You will recall, as we do, that the railroads have once before put the water carriers out of business. There is wide recognition of the fact that they could and would do so again if given the opportunity. The passage of time has changed the type of equipment used and the operating personnel, but the character and keenness of the competition is the same. I will not take up your time with extensive quotations from the Senate debate which led to the enactment of the safeguards which we believe would be repealed by the Smathers proposal. Suffice it to say that the water carriers, with the single exception of my own company, vigorously opposed the extension of regulation to the river. The principal fear at that time was the prospect of the manipulation of railroad rates in such a manner that water differentials reflecting the inherent advantages of low-cost water transportation would be eliminated. Senators Reed, Truman, Wheeler, and Connally took pains on the Senate floor to bring out that the intent of the legislation was to insure continuance of water transportation under fair and impartial regulation. In the discussion of this subject, the national transportation policy, which specifically says, among other things, that the act is to be administered so as to recognize and preserve the inherent advantages of various modes of transportation, was repeatedly referred to. In addition, the proponents also referred to section 305 (c) and section 15 (a) as providing protection for the water carriers from destructive competition. The following colloquy took place between Senator Norris of Nebraska and Senator Wheeler of Montana during the debate:
Mr. NORRIs. Disastrous rates can be brought about by reducing them just as well as by increasing them, as a matter of fact.
Mr. WHEELER. Exactly. Mr. Norris. And the water carrier ought to be protected on the freight that ought to be carried by water rather than on the railroads. Mr. WHEELER. It would be absolutely protected under this measure. Mr. NORRIS. That is what I want to see done. Mr. WHEELER. There is not any question about it. Under the rate-making provision and under the other provisions I have read, there is not any question about it. Senator SMATHERs. You were satisfied with what Senator Wheeler said then, weren't you? That has been the case, has it not? Mr. TAYLOR. Yes. The provisions Senator SMATHERs. You go ahead, I will get to that later. Mr. TAYLOR. The “provisions” to which Senator Wheeler referred were, of course, the transportation policy and the concluding sentence of section 305 (c) which reads: Differences in the classifications, rates, fares, charges, rules, regulations, and practices of a water carrier in respect of water transportation from those in effect by a rail carrier with respect to rail transportation shall not be deemed to constitute unjust discrimination, prejudice, or disadvantage, or an unfair or destructive competitive practice, within the meaning of any provision of this act. The competitive problem here involved is made urgent by a relatively simple fact. In letting down the bars against allout cutthroat competition between modes of transportation, we must remember that we are dealing with entities of dramatically unequal size. Competition between barge lines and railroads is not a battle between equals. If section 5, as here proposed, is to be enacted and the railroads are to be freed of the necessity of considering the effect of reduced rates on other modes of transportation, there is wide agreement that the barge companies will soon be fighting a rate war for their own lives. In such a war, how would the two opponents stack up' 1. Last year railroad gross revenues were over $10 billion. The revenues of the common carrier barge lines were $100 million. This is a hundred to one ratio. 2. The railroads serve literally thousands of destinations in all 48 States. 13arge lines are confined to points and places along the rivers, plus a limited penetration into the interior. The railroads need only reduce their rates to a relatively few points in order to eliminate the barge line differentials and capture barge traffic. There would remain thousands of destinations where they could maintain normal rates or even put in higher rates to offset the losses they would incur in the rate war. 3. Over 80 percent of the barge revenues come from six commodity groups as defined by the ICC. The railroads haul literally thousands of commodities which are not adapted to water transportation. They could easily concentrate their efforts on the relatively few commodities essential to the barge lines and make up any losses they incur by increasing rates on the thousands of commodities for which the barges do not and cannot compete. 4. The common carrier barge lines are particularly vulnerable to this selective rate cutting since their annual reports are publicly filed and compete information on their limited types of tonnages are a matter of record. With assurance of fair dealing in the interplay of carrier competitition, low-cost barge transportation performs a most useful function in keeping down the cost of living for a large part of the Nation. Farmers get more for their grain when they ship by river. Indust and the consumer enjoy lower light bills because of river-borne coal. Low-cost transportation on the rivers has played a critical role in the industrial development and expansion in the river valleys. In the past few years this circumstance has brought billions in new investment and hundreds of thousands of new jobs to the Mississippi, Illinois, and Ohio River Valleys as well as to the gulf coast. Low-cost river transportation is based on the fundamental inherent advantages of the floated ton. On questions of labor productivity, fuel consumption, cost of equipment and, of course, rates, the barge lines have far lower operating costs than rail lines. The average rates for barge-line service are about 4 mills per ton-mile as compared with 14 mills by rail. If rail rates bore a reasonable or anything like a uniform relationship to the overall cost of performing the service, the question of rate regulation would be much less complicated. The fact is, however, that the railroads operate under a system of apportioning costs which completely distorts this picture. The burden of transportation is distributed arbitrarily over millions of different articles from sand and slate to typewriters and explosives. Theoretically each commodity is assigned a rate compatible with its ability to pay or what the traffic will bear. In actual fact the distribution of the burden is a matter of management convenience and judgment which can be manipulated within very broad limits to meet competitive situations, real or imaginary. A commodity receiving a low rate for a haul along the rivers may be charged a third or a half more in noncompetitive areas. Hence, a financial war chest can be and is built up with which to operate a rate war against the river carriers to the detriment of the shipping public. The railroads are now restrained by the Interstate Commerce Commission from carrying this procedure through to its logical conclusion, and putting the barge lines out of business. Under existing law, the barge lines have succeeded, in most cases, in preserving their differential rates. There is no need to labor the point that a rail rate equal to the overall expense to the shipper by barge would mean the elimination of barge traffic. The barge service is slower; with few exceptions, it entails only a movement of the loaded barge from dock to dock. This means that the shipper and consignee usually assume the burden and expense of loading and unloading the barge. We have never hauled a pound of freight, as far as I know, on a parity of charge with the railroads and our tariffs contain no provision for such haulage. In a decision written by the late Commissioner Eastman in U. S. War Department v. A. & S. Ry. Co. (92 I. C. C. 528), he said:
A water carrier like the barge lines must be able to secure some traffic to and from interior points if it is to prosper, and in the case of the barge, with its slow and inferior service, such traffic cannot be secured without resort to different rates.
In Alabama Great Southern R. R. Co. v. United States (340 U. S. 216), decided in 1951, the Supreme Court completely reaffirmed the differential principle. It said:
Admittedly, barge service is worth less than rail service. It is slower, requires more handling and entails more risk. A shipper will pay only what the
service is worth to him. The shippers' evidence, the Commission found, indicated a fairly unanimous view that the principal worth to them of shipping by barge was the saving in transportation expense which it offered. The Commission is not bound to require a rate as high for the inferior as for the superior service. To do so would certainly destroy the principal worth of the inferior service and send all freight to the railroads; practically, there would be no competition between the different modes of transportation.
The two cases referred to had to do with carload units of traffic in joint barge and rail service. If a differential in favor of the barge line is necessary in that situation, it is much more so in the case of traffic moving in bargeloads.
Permitting the railroads to set rates without regard to differentials for water carriers and to consider rail rates in a vacuum, would obviously spell ruin for the barge industry and eventually higher rates for the shipping public.
The moment the new provision should become law, the railroads 'would accelerate their campaign to cut rates to exact parity with the charges by barge, or lower. I say "accelerate” because they have already published such rates on superphosphate, iron and steel pipe, and sugar, which together account for a very substantial portion of the river tonnage.
It has been suggested that if the railroads reduce their rates to a parity, we should
use our advantage as the low-cost operator to reduce our rates and recreate the differentials. This is agreed, but that would only mean a rate war, and the Commission for years has gone on the theory that the best time to stop a rate war is before it got started. There is no question that the barge lines would fight as long as they could before giving up, but the railroads, as I have indicated above, would overpower us in the end.
In Petroleum Between Washington, Oregon, Idaho and Montana (234 I. C. C. 609, at 637), the Commission, in dealing with the interplay of competition between railroads, on the one hand, and motor carriers and water carriers, on the other hand, had this to say:
We were given power to fix minimum rates primarily for the purpose of preventing destructive competition in rates and promoting the financial stability of the transportation agencies. Our duty in the exercise of that power is not done, therefore, if we allow competitive rates to gravitate to the lowest possible level. Minimum rates should be fixed, if it can be done, at levels which are consistent with some degree of carrier prosperity; and in so fixing them we ought to be able to count on the cooperation of the shippers, because reasonable prosperity for the carriers is in the final analysis to the advantage of those whom tey serve.
A test case was made of that decision and it was upheld by the courts Scandrett v. United States (32 Fed. Supp. 995; Scandrett v. United States, 312 U. S. 661).
At this point I would like to depart from the prepared testimony to this extent. When I testified previously, I was asked a question by Senator Lausche. That question:
If a rail carrier is in a position to reduce its rates on a given commodity and still earn a profit over its fully distributed costs of operation, should it be allowed to make such a reduction, or should it be prevented from so doing because it might have a harmful effect upon competing modes of transportation?
My answer at that time was that that was an extremely complicated question and had to be considered in relation to other rates. Subsequently, Mr. Ames wrote Senator Lausche a letter in considerable