Intercoastal Steamship Freight Association's posthearing announcement that rate and tonnage minimums would be out on March 10 was the inevitable outcome of the ICC's blithe indifference to the problems of coast-to-coast steamship operators. The move is brave but futile. The traffic that the revised rate schedule woos away from the rails can scarcely be considered a revenue-booster. Intercoastal carriers, hardpressed to come out in the black under their old tariffs, will have to go a long way before they can offset the reduced charges with cheaper operating methods. During the interim period, ship operators may be forced to resort to desperate financial moves in order to sustain themselves. Under such conditions, the abandonment of the intercoastal water route becomes largely a matter of time. Only immediate ameliorative measures can redress the balance.

We cannot urge too strongly that the Senate Commerce Committee take a long look at the "competition clause" of the Transportation Act of 1958. Also long overdue for some intensive scrutiny are the homebase operations of the ICC's Suspension Board and the plight of the agency's silent and understaffed Bureau of Water Carriers.

Whether the findings that come out of this week's sessions can close the profit-loss gap before it is too late is anyone's guess.

The railroads are about to crush an industry that was once close to the heart of national commerce. Is this the way in which the ICC was meant to safeguard the interests of the domestic operators under its jurisdiction?

The panel of experts now preparing a transportation survey for the Senate Commerce Committee has come up with a solution that is both timely and thought-provoking. The research team has made a plea for an integrated approach, one that considers the U.S. transportation system as an economic unit with a single objective—“the interests of the entire country at the lowest cost in national resources." One of the key demands is "equity of treatment" for all domestic carriers.

This kind of thinking, woefully missing from the transport scene over the past decade or so, could well lay the foundation for a conceptual realinement that will reshape our transportation system into the nationally oriented entity it was originally intended to be.

The CHAIRMAN. Off the record. (Discussion off the record.)

The CHAIRMAN. On the record.

Mr. SINCLAIR. Mr. Brown, chairman of the Intercoastal Steamship Association, will be unable to be present. Mr. Callanan, his assistant, will be here.

For continuity I request that he be permitted to present for the record at this time a statement prepared by Mr. Brown.

The CHAIRMAN. Thank you, Mr. Sinclair.

STATEMENT OF HARRY S. BROWN, CHAIRMAN OF THE INTERCOASTAL STEAMSHIP FREIGHT ASSOCIATION, PRESENTED BY THOMAS J. CALLANAN, ASSISTANT CHAIRMAN

Mr. CALLANAN. My name is Thomas J. Callanan. I am assistant chairman of the Intercoastal Steamship Freight Association, 80 Broad Street, New York, N.Y.

I would like to submit this statement of Harry S. Brown, our chairman. I don't believe that it is necessary to read it into the record. The CHAIRMAN. Thank you, Mr. Callanan. (Statement follows.)

STATEMENT BY HARRY S. BROWN, ON BEHALF OF THE INTERCOASTAL STEAMSHIP FREIGHT ASSOCIATION

My name is Harry S. Brown. I am chairman of the Intercoastal Steamship Freight Association, whose members are common carriers by water operating between U.S. ports on the Atlantic coast and U.S. ports on the Pacific coast

that is, in what is referred to commonly as the "intercoastal trade." I have held my present position over 23 years. All intercoastal carriers for hire, both common and contract, with the exception of tankers, are under the regulatory control of the Interstate Commerce Commission, since the bulk commodity exemption in section 303 (b) of the Interstate Commerce Act does not apply to intercoastal carriers. Although this tanker exemption is not one of the two major causes for the present deplorable condition of the common carriers in the intercoastal trade, it is a contributing factor. Unregulated tankers for hire have taken away from the regulated intercoastal carriers a substantial amount of such cargo as lubricating oil, and other liquids which formerly was transported by intercoastal common carriers in volume.

The decline of the intercostal trade is strikingly illustrated by the fact that in 1939, the last full year of intercoastal regulation by the Maritime Commission, the total volume of cargo moved in the intercoastal trade, as shown by Report 317 of the Maritime Commission, was 8,370,151 short tons, while for 1958, the last year for which intercoastal tonnage figures are available, the volume was only 3,428,528 tons, as shown by the Interstate Commerce Commission's Bureau of Transport Economics and Statistics Statement No. Q-650 (QWS).

One of the main causes of this drastic shrinkage is the relentless and ruthless competition by the transcontinental railroads.

Among the most important commodities on which the transcontinental railroads have cut their rates with consequent great loss of tonnage to the intercoastal carriers are the following:

Canned goods, malt liquors, drugs and toilet preparations, cotton piece goods, pulpboard, dessert preparations, dried fruit, brandy, wine, cellulose film, photographic supplies, cigarettes, candy, chewing gum, insecticides, stone, rubber heels, silica gel, synthetic resins, carbon electrodes, synthetic fiber, cough medicine, glue, gelatine, peanuts, tinplate, electric meters, woodpulp, matches, fire extinguishers, borax, seeds, alcoholic liquors, soap and cleaning compounds, linoleum, and rice. With respect to some of these articles, the rails have cut their rates more than once.

We

We have found it largely futile to request the Interstate Commerce Commission to suspend such railroad rate reductions. Of the rate reductions on the commodities just listed, we requested suspension of reductions on canned goods, malt liquors, drugs and toilet preparations, candy, stone, silica gel, cotton piece goods, pulpboard, chewing gum, carbon electrodes, dried fruit, synthetic fiber and electric meters; and our requests for suspension were denied in each case. were successful in obtaining suspension of reductions in rates on synthetic resins, tinplate and cough medicine, but even in these cases in the final analysis we were unsuccessful, because the Commission eventually permitted reduced rates proposed by our railroad competitors to go into effect despite their obvious and intended effect upon the intercoastal carriers.

We believe that these and various other rate reductions by the transcontinental railroads since the postwar resumption of intercoastal common carrier services, and the Commission's attitude toward them, flout the national transportation policy declared by Congress, which, among other things, declares that its objectives are "to *** foster sound economic conditions in transportation and among the several carriers; to *** (prevent) unfair or destructive competitive practices; (and to preserve) a national transportation system by water * and rail * ** adequate to meet the needs of the commerce of the United States * * * and of the national defense."

What is badly needed is a new philosophy of regulation, both within the Commission and elsewhere. The transportation policy does not call for three separate systems of transportation, one by rail, one by water, and one by truck-with all three in bloody warfare with each other. It calls for a "system" that utilizes all three media.

The water carrier is the low cost carrier with respect to many important aggregates of freight, if full costs of both rail carriers and water carriers are considered. In considering the reasonableness of rail rate reductions, however, the Commission has used as its standard the out-of-pocket costs of the railroads. Were the out-of-pocket costs the standard of reasonableness for the entire railroad rate structure of the country, every railroad in the United States would be bankrupt. Using recent cost studies by the Commission, full costs of the railroads on transcontinental traffic frequently run 40, 50, and 60 percent higher than out-of-pocket costs. It is significant that the eastern railroads and the western railroads, as two separate groups, are now before the Commission in

docket 31503, Akron Canton and Youngstown v. Atchison Topeka and Santa Fe, each of the two groups claiming that its divisions of transcontinental rail rates are inadequate. They are not seeking any increases in their rates. Oh, no! They are merely asking the Commission to adjudicate the dispute as to how the rate revenue should be shared. Meanwhile, they go on cutting rates. And meanwhile, in cases involving rates the Commission refuses to give any consideration whatsoever to the divisions thereof which will accrue to any individual participating carrier, no matter how low any such division is in relation to costs. It is apparently the position of the Commission, as it is the expressed position of the railroads, that the matter of divisions between the eastern and western railroads and the earnings accruing under such divisions are of concern only to the railroads.

Forty years ago, when the intercoastal carriers were not regulated by the Commission, the Commission, nevertheless, as then constituted, did consider the matter of divisions when the transcontinental railroads sought by means of rate reductions to eliminate the intercoastal trade. The then vice president of a leading transcontinental railroad once declared: "We'll make a millpond out of the Panama Canal!" The Commission refused to permit the proposed rail reductions to go into effect.

The public interest in this matter of divisions of rates is far greater today than ever before. The Transportation Act of 1958 authorized the Interstate Commerce Commission to guarantee any public or private financing institution against loss of principal or interest on any loan, discount, or advance, or on any commitment in connection therewith, made for the purpose of aiding any common carrier by railroad. This guarantee provision was enacted because of the showing before Congress, particularly by eastern railroads, that their net earnings were insufficient to permit such financing without a Government guarantee. The Commission is forbidden to guarantee any such loan unless it finds "that the prospective earning power of the applicant carrier * ** furnish (es) reasonable assurance of the applicant's ability to repay the loan within the time fixed therefor and reasonable protection to the United States." It is respectfully submitted that if divisions of through rates fail to equal the costs to any railroad seeking such a guarantee from the Commission, the railroad is not entitled to such a guarantee.

Several eastern railroads have already requested the Commission to make such guarantees. In fact, the Commission has already guaranteed a $40 million loan under the 1958 act in response to such an application by the New York Central. One of the New York Central's connecting roads, the Boston & Maine Railroad also petitioned the Commission for a guarantee of a $6 million loan. The Commission, however, agreed to underwrite only up to half of this figure. It is understood that this railroad in the calendar year 1958 suffered a final net loss of $3,242,000, and is now asking the Commission for permission to postpone payment of some of its first mortgage bonds maturing in 1960 and 1961. These railroads participate in transcontinental hauls. The cut rates on such traffic are unquestionably an important factor in the present deplorable financial situation of many of the eastern railroads. The Association of American Railreads Bureau of Railway Economics in a publication dated July 5, 1959, entitled "Revenues, Expenses, and Freight Traffic" shows operating expenses for the "Eastern District, 1958" of 13.2 mills per ton-mile and 44.13 cents per car-mile. The divisions accruing to the eastern railroads under many transcontinental rates yield far less.

It is not only the eastern railroads who are suffering financially from low transcontinental rates. A document sworn to by a vice president of the Western Pacific on January 8, 1957, states: "Transcontinental traffic has not contributed its share of additional revenue," and added that the rate level on such traffic is "depressed."

All these matters have been brought to the Commission's attention, but to no avail.

The CHAIRMAN. Now we will hear from Mr. Browning.
We will be glad to hear from you.

STATEMENT OF L. D. BROWNING, EXECUTIVE VICE PRESIDENT, DETROIT ATLANTIC NAVIGATION CORP.

Mr. BROWNING. Mr. Chairman, my name is L. D. Browning. I am executive vice president of Detriot Atlantic Navigation Corp., a New York corporation. Detriot Atlantic Navigation Corp. is certificated by the Interstate Commerce Commission to operate as a common carrier between various ports on the Great Lakes and between various ports on the Great Lakes and the Atlantic coast as far south as Savannah.

The CHAIRMAN. Mr. Browning, as a matter of interest, what type of ships do you operate?

Mr. BROWNING. Right now we are bulk operators on the Great Lakes, and we have put into effect this past year a container, or, let's say, piggyback container.

The CHAIRMAN. On the bulk containers?

Mr. BROWNING. On the top decks.

We have been advised that this hearing has been called to review the cause of the decline of the domestic shipping industry. Clearly the domestic shipping industry encompasses operations on the Great Lakes. In 1939, there were 26 vessels employed in the package-freight service on the Great Lakes. This was the situation prior to the Transportation Act of 1940 which placed such carriers under the Interstate Commerce Commission. Today, Detriot Atlantic is the only company on the lakes offering a common-carrier package-freight

service.

The CHAIRMAN. You operate from various ports in the Great Lakes?

Mr. BROWNING. Yes. At this point we are operating only between three ports in the package freight service because the service was just instituted. As a matter of fact in September.

The CHAIRMAN. Are those regular calls?

Mr. BROWNING. No, sir. It is not regularly scheduled calls.
The CHAIRMAN. As cargo is available?

Mr. BROWNING. Yes, sir. Actually we have to go primarily where the ore goes because we are carrying ore below decks.

The CHAIRMAN. All right.

Mr. BROWNING. It is the feeling of Detroit Atlantic Navigation Corp. that the principal cause of the decline of the package-freight service on the Great Lakes has been the attitude of the Interstate Commerce Commission. We can only give examples of this attitude as it has applied to our own company. In July 1959, Detroit Atlantic Navigation Corp. filed an initial tariff with the Interstate Commerce Commission in an effort to reinstitute the package-freight service on the Great Lakes. This was after considerable study. To our knowledge we are the only carrier that has made a serious effort to reinstitute this particular service. Like any other deepwater operators, the Great Lakes package-freight ships were requisitioned at the outbreak of World War II, and the freight which had been handled by water carriers was taken over by the rails.

The filing of the initial tariff was protected by the Central Territory Railroads and the Middlewest Motor Freight Bureau; and much to our complete surprise, the board of suspension voted to suspend the

initial tariff. This was practically an unprecedented action by the Interstate Commerce Commission in voting to suspend an initial filing by a carrier. We were well aware of the past activities of the board of suspension with regard to their attitude toward water carriers, but we were also aware that the suspension of an initial tariff was virtually unheard of. The net effect of this would have meant that the hundreds of thousands of dollars that had been expended in the study and the conversion of the ships would have been lost pending a hearing on the rates in our tariff. A hearing, incidentally, would certainly have lasted until after the Lakes had frozen to transportation.

The CHAIRMAN. In other words in any event you lost a year regardless of what would happen?

Mr. BROWNING. Yes; except actually the suspension

The CHAIRMAN. I mean you lost the season.

Mr. BROWING. That is correct.

We immediately filed an appeal with division 2, and because of the preponderance of public support for the institution of our service, division 2 reversed the board of suspension.

We are presently engaged in litigating the justification for our level of rates. However, our service was instituted, and we do now have a going operation. Nevertheless, we wish to point out that in polling the voting members of the board of suspension, we were advised by one member who voted in favor of suspension that he was under the impression that Great Lakes water carriers were exempt from the jurisdiction of the Interstate Commerce Commission. This is a statement by a member of the Commission devoted to the impartial regulation of all modes of transportation. It is incomprehensible that such a situation should exist; but such is the fact.

After a further review of our program, the company came to the conclusion that it was necessary to institute a year-round service on Lake Erie. We entered into negotiations to buy a vessel with suitable icebreaking equipment which would allow us to enter into this trade. On December 14, 1959, we filed an application to amend our certificate, which is limited to the months of March through December, so that the certificate would cover January and February as well. To date we have not received this simple approval nor any indication as to when the Commission will pass on our request. In approximately 10 days we will have authority to operate in any event. Thus the dilatory tactics of the Commission have delayed us from operating for a 2-month period which could have been extremely profitable. The extension of our authority is a routine matter. No protests have been filed to the extension; and thus the Commission, as in the past, could grant the authority by simple administrative procedures. The time for protests has long since elapsed; and thus we can only assume that the delay is because of bureaucratic redtape.

The delay itself is serious. But, additionally, we have been in a process of refinancing and as part of the consideration for refinancing is the extension of the operating rights for a full 12-month period. Because of the delay involved, it is not impossible we will lose the financing that has ben arranged. Further, the delay could well cause us to lose our option on the purchase of the ice-breaking vessel required.