At one time corn sugar moved from Corpus Christi, Tex., to Tampa, Fla., by barge. A rail reduction was made in 1953 and the business was lost to the water carriers. There was an annual movement of about 15,000 tons of steel plate from Houston to Baton Rouge, La. The rail rate was reduced in 1955 and the barge lines lost all of this business. There was a substantial movement of manganese ore by water from Brownsville, Tex., to Marietta, Ohio, and Alloy, W. Va. The common carrier barge lines lost the business to a contract water carrier and later when the rail rate was reduced down to a very depressed level this contract carrier went bankrupt and the rail lines got the business. Up until recently there was a nice movement of tinplate from East St. Louis to Kansas City. A reduction in the rail rate from 42 cents per 100 pounds down to 33 cents made in December of last year caused all of this business to be diverted from the water carriers.

A few years ago, coke moved in volume from points in the Chicago area to Keokuk, Iowa. This business was completely dried up as a result of reductions made in the rail rates in the summer of 1954. In like manner, the movement of bituminous coal from Liverpool, Ill., to Keokuk dried up when the rail rate was reduced. Reduced rail rates likewise diverted from the barge lines their iron and steel traffic from New Orleans to Knoxville, Tenn., as well as the iron and steel that formerly moved from Newport, Ky., to Memphis. Reduction in rail rates caused a drying up of the cryolite movement by water from Natrona, Pa., to the gulf, the coiled rods movement from Portsmouth and New Boston, Ohio, to Kansas City, and the tinplate movement from the Pittsburgh area to a number of destinations, including Tampa, Fla., and Mankato, Minn. The reduction made in the rates on sulfuric acid from Nitro, W. Va., last October effectively stopped that water movement. Other business lost by the barge lines because of point-to point rail rate reductions include aluminum from gulf origins to Davenport, Iowa, steel slabs from Fairfield, Ala., to Pittsburgh, iron ingots from Ashland, Ky., to Butler, Pa., and iron or steel billets from Chicago to Sylacauga, Ala.

Much of the aluminum business, moving to the General Services Administration at various points in Illinois, Indiana, and Ohio has been lost by the barge lines through the quotation of what is known as section 22 rates by the rail carriers who by this means have been able to circumvent the prohibitions of the fourth section. During the last several years a half dozen reductions have been made in these rates by both the rail carriers and the barge lines, as a result of which the charges have gravitated down to a ridiculously low level. This is indicative of what might be expected should the bills before you be enacted into law.

In addition to actual diversions of traffic caused by reductions in rail rates, the publication of such rates in many instances has made it impossible for the water carriers to compete for new business. One example of this was the reduction made in the rates on alumina from Mobile, Ala., to Point Comfort, Tex. A very radical reduction made in the rail rates prior to the time when the traffic was ready to move wholly precluded participation by the water carriers. The tonnage involved amounts to several hundred thousand tons annually. In like

manner, a reduction made in the rates on sulfur from Port Sulphur, La., to Fox, Ala., precluded the movement of a substantial tonnage by barge. I have already mentioned how reductions to subnormal levels has made it practically impossible to obtain any of the line pipe business moving both out of Houston and Orange, Tex.

I think you will agree from what I have said that there is plenty of dynamic competition under the present act. I think that what I have said indicates there has been plenty of dynamic competition under the present act.

We also hear the words "pervasive competition" throughout the hearings on this bill and I will say insofar as competition that the barge lines in the country have from the railroads, it certainly is pervasive, but the competition the railroads encounter from the barge lines is by no means pervasive.

It is claimed by the railroads that the present act circumscribes them in the exercise of their "managerial discretion." It used to be that one in transportation work would recognize that for the movement of freight from one point to another there properly would be a reasonable minimum rate, a reasonable maximum rate and the railroads, in the exercise of their "managerial discretion," were free to publish any rate they wished in the relatively narrow zone in between the two extremes. Twenty years ago or more the Commission observed that rates yielding as little as 6 mills per ton-mile approached the zone of minimum reasonableness. Yet, today, in spite of materially increased operating costs, rates yielding 5 and 6 mills per ton-mile are not uncommon where water competition is encountered. On the other hand, where there is no such competition, they claim that rates yielding as much as 40 mills per ton-mile or more do not exceed a reasonable maximum basis. How much more "managerial discretion" do the railoads needs?

At this point I should like to point out how the philosophy of the rail carriers in establishing reduced rates to meet barge competition has been changing. For a great many years the railroads established their rates on the basis of 125 percent of the prevailing charges for the movement by water. This was the formula adopted by the Commission in measuring the relationship of rail carload rates versus barge carload rates. Then a few years ago they started making their rates by taking 125 percent of the water factor only and adding the accessorial charges at origin and destination. About a year ago, the Commission in several cases, including Sugar, Atlantic and Gulf Ports to Ohio River Crossings (296 I. C. C. 127), found that rail rates approximately 110 percent of the overall costs of handling by water would be proper. Encouraged by such action on the part of the Commission, the railroads in recent months, have established reduced rates to meet barge competition that approximate an exact parity with the aggregate costs of handling by water. The Southwestern pipe case. heretofore alluded to, is an example. Others that might be mentioned are the Molasses cases embraced under Interstate Commerce Commission docket No. 31930, I. and S. docket Nos. 6391 and 6402-Phosphate Rock, Florida to Shreveport, Nacogdoches and Texaskana; I. and S. docket No. 6531, Ingot Molds-Neville Island to Atlanta; I. and S. docket No. 6446, Iron and Steel Billets-Steelton, Ky., to New Bed

ford, Mass.; and I. and S. docket No. 6388, Pig and Iron from Rockwood, Tenn., to Chicago.

In several of the cases which have been decided in recent months, the Commission has approved rates made on this basis. It is obvious that if this philosophy of ratemaking is to be approved by the Commission in the future, much of the traffic now enjoyed by the barge lines will be lost to them as it is absolutely impossible for a water carrier to compete with a rail carrier on a parity of rate.

Mr. Jervis Langdon, speaking for the railroad industry, has told you in effect that all the railroads want is a provision which would apply to them just as the last sentence in section 305 (c) applies to water carriers. That sentence 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.

If you accede to that request you spell the end of water transportation. The sentence in question was put in the 1940 act as a specific means of protecting water transportation. When Senator Norris raised the question during debates on the 1940 act, whether anything had been done to protect water transportation from the reduction of rail rates as a means of killing it off, Senator Wheeler assured him that several safeguards had been included in the act to forestall such action. Among them, he specifically referred to the sentence above quoted. On behalf of the water carrier industry, Mr. Ames repeated the entire colloquy between Senators Norris and Wheeler at pages 601 and 602 of his testimony (his testimony of May 4, 1956).

Since the earliest attempts to regulate water transportation Congress has recognized that in order for a water carrier to participate in traffic in competition with railroads there must be a differential in its favor under which a potential shipper may effect a substantial saving in freight charges. Without the opportunity to effect such savings water transportation has no attraction for the shipper.

In one of the earliest cases involving rail and water transportation as a joint venture (U. S. War Department v. A. & S. Ry. Co., 92 I. C. C. 528, decided in 1942) the Commission's report, written by the late Commissioner Eastman, sets forth:

a water carrier like the barge line must be able to secure the traffic to and from interior points if it is to prosper, and in the case of the barge line, with its slow and inferior service, such traffic cannot be secured without resort to differential rates.

When Congress passed the Denison Act in 1928, it commanded the Commission to prescribe through routes and joint rates between rail carriers and water carriers. And in connection with such rates it ordered the Commission to prescribe minimum differentials under rail rates.

The rail carriers challenged the right of Congress to compel them to enter into through routes with water carriers on the basis of rates lower than those for all-rail routes. In a most thoroughly litigated case entitled Rail and Barge Joint Rates (270 I. C. C. 229; 274 I. C. C. 229; 284 I. C. C. 785), the Commission prescribed differential rates

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even though it concluded that from the evidence it could not say that such lower rates were justified by differences in cost. The Commission's decision was affirmed in full by the Supreme Court of the United States in Alabama G. S. R. Co. v. United States (340 U. S. 216). In the course of its opinion the Supreme Court 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 sentence I refer to here is absolutely essential to protect the truism that rates for carriage by water must be lower than those by rail if the water carrier is to participate in competitive traffic. If you declare by law, as Mr. Langdon would have you do, that a rail rate equal to or lower than a water rate can not be declared unlawful under any provision of the act, you kill the differential pattern of ratemaking. The two could not live together. And when you kill the differential scheme you put an end to water transportation. In short, you would do exactly what the opponents of water-carrier regulation in 1940 feared would happen.

The incorporation of a provision of this nature in part I of the act, such as suggested by Mr. Langdon, would take away from the water carriers any and all protection that they now enjoy from destructive competitive practices of the rail lines. It would be not only a license but an invitation to the rail carriers to establish their rates and charges on an exact equality with those of the water carriers and experience has proven, beyond the peradventure of a doubt, that when this happens, the water carriers simply could not live.

The question might be asked as to why this is true. The water carriage is definitely the inferior service for a number of reasons. It is much slower, the frequency is far less and shipments are required in volumes that are from 10 to 20 times those required under railroad carload minimum weights. Where the shipper or receiver is not located directly on the water, and this is oftentimes the case, he must make his own arrangements for getting the freight to and from the dock as well as for reloading and unloading it into and out of barges, generally with independent stevedore service, with greater attendant risk of loss or damage. Additionally, the water service frequently is less valuable than service by rail for the reason that such privileges as reconsignment and transit are accorded shipments made by rail but not granted on shipments moving by water, except possibly to a very limited degree. These and similar disabilities have been recognized by the Commission and the courts in any number of cases where the question of the relationship of rail rates to water rates has been involved.

Mr. HARRIS. Mr. Wildman, may I interrupt you at this point?
Mr. WILDMAN. Yes, sir.

Mr. HARRIS. It is 11 o'clock, and if you could permit an adjournment at this time and come back this afternoon.

Mr. WILDMAN. That is entirely satisfactory, Mr. Chairman. Mr. HARRIS. As it is known by everyone, Mr. Granahan of this committee passed away last Friday. His funeral is being held in Philadelphia, beginning at 11 o'clock, and it is thought by the members of this committee that out of respect to him and the warm personal feeling we have had for him, we should adjourn the committee during the time of the funeral.

The committee will adjourn until 2 o'clock.

Will it be convenient for you to come back at that time?

Mr. WILDMAN. Yes, sir; it will, Mr. Chairman.

Mr. HARRIS. And, you can resume your testimony and we will endeavor to permit you to go back to Chicago, if you would, this afternoon.

Mr. WILDMAN. Thank you very much.

Mr. HARRIS. The committee will stand in recess until 2 o'clock. (Whereupon, at 11 a. m., a recess was taken until 2 p. m.,

day.)

AFTERNOON SESSION

Mr. HARRIS. The committee will come to order.

this same

I do not wish to detain you any further, so we will proceed, Mr. Wildman, with your direct testimony.

STATEMENT OF W. Y. WILDMAN, COMMERCE ATTORNEY AND TRANSPORTATION CONSULTANT, WATERWAYS FREIGHT BUREAU, CHICAGO, ILL.-Resumed

Mr. WILDMAN. Thank you, sir.

I believe at the adjournment this noon I was speaking of the disabilities of water transportation and had reached the top of page 15 of my prepared statement, and I will continue from that point.

By reason of such disabilities of water transportation, the establishment of a rail rate between any two points on a level that equals or even approximates the aggregate costs of handling the traffic between the same points by barge is not a meeting but a beating of the competition.

Under such rate relationships, the movement by water simply cannot survive. For this reason, our objections to the incorporation of a proviso in section 15 (a) of the act such as suggested by Mr. Langdon may be readily understood. It would spell ruination for the barging industry.

In most of the protests which I have filed for the water carriers in recent years against what were considered to be unwarranted reductions in rail rates made to meet barge competition, there generally have been included allegations that (1) the rates protested constituted unfair and destructive competition; (2) they did not give recognition to the inherent advantages of low-cost water transportation or the disabilities of such transportation; (3) they were unreasonably low; (4) their establishment resulted in a needless dissipation of the rail lines' revenues; and (5) a "special case" had not been made out warranting the granting of fourth section relief.

Under the bills now before you, the prohibition against the unfair and destructive competition has been eliminated as has the admonition