Mr. SEAL. I don't know whether you can dispose of it or not. As I say, they are all entitled to a fair share of the competitive traffic. Congress is opposed to destructive competition. I think most of the rest of us are. The railroads' low rate return is in part due of course to the $700 million a year loss on passenger operations that you referred to a while ago, Senator. Senator LAUSCHE. Is the coastal and intercoastal transportation system subsidized at all now? Mr. SEAL. Not to my knowledge, no. Senator LAUSCHE. The railroads, of course, also argued that we subsidized the airlines, the trucklines, the inland water carriers. I don't know whether they argued that we subsidized the pipelines. And that because of that they were placed at a great disadvantage. Mr. SEAL. Whether those are subsidies or not is a debatable question. Of course, the Government provides highways-the State governments and the Federal Government. But they charge substantial fuel taxes for the use of them. On the inland waterways, a great many projects that improve navigation are multiple-purpose projects, like flood control. Flood control on the Mississippi River helps navigation, I would say. But it also helps, say, the Illinois Central Railroad from having its tracks flooded and stopping its operation, maybe. As far as airports are concerned, I know of no way that the individual private airline could provide airports. They benefit the Gov. ernment, I suppose, as well as travelers and airlines. Senator LAUSCHE. In their presentation they further argued that our advantage in the railroad industry, of being able to provide lowcost transportation, is completely destroyed under the requirement that though we distribute our costs fully, and though we made adequate profit, we are not allowed to fix that rate if it has unreasonable damage upon the existing competition in these several methods of transportation. Is that correct? Mr. BARTON. That is substantially correct, Senator. Mr. SEAL. As far as water transportation is concerned, of course, the water carriers, all of their traffic, is competitive with land transportation. That is far from true of, let us say, the rail carriers traffic. The greatest share of their traffic is not competitive with water. I am not saying that is true of trucks because trucks operate all over the United States, and there are many types of traffic trucks do not engage in that the railroads handle exclusively, such as coal, iron ore, and so forth. Senator LAUSCHE. So that the record will not be unchallenged, in the hearings a year ago there was much proof given about improvements in the inland waters being made at Government expense that had no other service except providing facilities for the inland water carriers. With respect to the trucks, it is the little passenger car operator who is paying substantially the cost of building the highways, and that is what I had in mind in speaking on that. Mr. SEAL. I didn't hear that testimony. Senator LAUSCHE. I understand that. Mr. SEAL. May I add this: Several organizations who are members of the American Association of the Port Authority asked me to record them on the record as supporting the association's position here. They are the Northwestern Marine Terminal Association, with headquarters in Salem, Wash.; the Portland Freight Traffic Association, of Portland, Oreg.; the California Association of Port Authorities, with headquarters in San Francisco; and the Alabama State Docks, at Mobile, Ala. Mr. Cunningham of Alabama State Docks sent a statement in and asked that I offer it for the record. Senator BARTLETT. Accepted. Senator LAUSCHE. Mr. Seal, what would you recommend that we do to correct this difficulty which you have described? How would you go about correcting it? Mr. SEAL. Do you mean the competitive difficulty? Senator LAUSCHE. Yes, the one which has arisen under 15 (a) (3). Mr. SEAL. I may say this, of course: One of the difficulties of domestic water transportation as in the past has been the break-bulk type of ship operation. I think that is outmoded. Now they are beginning to develop the operation I referred to, the van or lift-on, lift-off type. And I think that probably could survive and come back. Under the policy I referred to, where rates generally were not permitted to be reduced below a level necessary to meet the competition sought to be met. There is confusion as to whether that policy was contemplated in section 15 (a) (3) that was enacted in 1958. Senator BARTLETT. I believe, Mr. Seal-and this was before you came that Mr. Weller, president of Seatrain Lines, testified that the combined return of the coastal and intercoastal carriers last year, was minus 11 and some fraction. Senator LAUSCHE. Deficit? Senator BARTLETT. Yes. Mr. SEAL. I didn't hear that statement. Senator BARTLETT. Thank you, Mr. Seal. (The statement referred to is as follows:) STATEMENT OF M. C. CUNNINGHAM, ALABAMA STATE DOCKS, MOBILE, ALA. Prior to World War II, there were 10 water carriers affording regular service between gulf ports and north Atlantic ports. These lines were Southern Pacific (Morgan); Lykes Coastwise Line; Mormac Gulf Steamship Line; Newtex Steamship Line; Aguilines, Inc. (Clyde Mallory Line); Bull Steamship Line; Pan-Atlantic Steamship Corp.; Seatrain Lines, Inc.; Munson Line; and Refrigerated Steamship Line. In addition to the above, at least three lines operated regularly between gulf ports and Pacific coast ports, viz, Luckenbach Gulf Line, Isthmian Line, and Gulf Pacific Line. In addition to these long-haul domestic carriers, short-haul domestic carriers operated between gulf ports such as Tarpon Line. The port of Mobile prewar had three regular intercoastal services and three regular coastwise services, and in 1939 the domestic waterborne general cargo handled through the port of Mobile amounted to 47 percent of its total general cargo. Today there are no coastwise steamship lines serving Mobile, and only one infrequent limited intercoastal service. The gulf area and particularly the area tributary to Mobile, to a substantial degree has received its economic prosperity in the past, because coastwise and intercoastal water service has been available. To the extent that these services are no longer available, the future economic prosperity will be hindered. Prewar, approximately 75 percent of the U.S. merchant fleet was in the domestic service. It is important to our national defense that we have domestic tonnage readily available in an emergency. The fact cannot be overlooked in discussing the importance of this segment of the merchant marine in terms of national policy. The tremendous decline in domestic waterborne freight is due primarily to three causes: 1. The high cost of replacing prewar vessels. 2. The postwar increased cost of labor and operations. 3. Lack of adequate rates resulting from the depression of rail rates. At the time water carriers were brought under ICC regulations, in the Transportation Act of 1940, the water carriers were assured that their position in the national transportation field would be protected, and the national transportation policy as expressed by Congress in the 1940 act clearly provides for fair and impartial regulation to the end of developing, coordinating, and preserving a national transportation system by water, as well as other means. Although the rail carriers have been in a precarious financial position for many years, by administrative authority they have been permitted to reduce their rates on water competitive traffic to the point where the domestic waterlines have been eliminated. The recent amendment to the "ratemaking rule" seems to have ushered in a new era of concerted action to further retard domestic water transportation. The national transportation policy is not being administered effectively for the protection of our domestic waterlines. The position of the Alabama State docks today is that a continuing need for domestic water transportation, both inland, coastwise, and intercoastal exists. Historically, our great trade centers have been developed and fostered by the availability of water services and this continues to be the hallmark of industrial expansion and development. We therefore urge that such legislation as is required to insure the continuation and reestablishment of domestic water services be enacted. It is our feeling that such support of our domestic water services will not adversely affect other forms of transportation since the availability of domestic water services and the industrial growth which they foster, engenders a need for rail and motor transportation not theretofore existing. Senator BARTLETT. Mr. Gilman? Mr. SEAL. Mr. Gilman couldn't remain and left a statement with me and asked if I would offer it for the record. Senator BARTLETT. We will be glad to accept it for the record. (The statement referred to is as follows:) STATEMENT OF ROGER H. GILMAN, DIRECTOR OF PORT DEVELOPMENT, THE PORT OF NEW YORK AUTHORITY My name is Roger H. Gilman, and I am appearing here today in my capacity as director of port development of the Port of New York Authority. The Port of New York Authority is a bistate public agency created by the States of New York and New Jersey under a port treaty in 1921 and approved by the Congress of the United States. The port authority's responsibilities include the promotion and protection of trade and commerce through the bistate port of New York and the development and operation of transportation facilities in the port district. Anticipating these hearings before your honorable committee, the commissioners of the port authority authorized the presentation of testimony to stress the vital need for a healthy domestic merchant marine and for the continued operation of coastwise and intercoastal steamship services to and from the port of New York. Prior to World War II the coastwise and intercoastal steamship services were of tremendous importance to the port of New York. In 1939 these ships accounted for about one-third of the total steamship arrivals and departures at the port, and also occupied about one-third of the deepwater steamship berths in the harbor. With this important proportion of the total shipping movements at the port of New York, the coastwise and intercoastal steamship lines thus provided vital support to the many service industries of the port, including ship repair, towing, provisioning, stevedoring, and many other services. In 1939, there were 11 coastwise lines operating between the port of New York and North Atlantic, South Atlantic and gulf ports. These carriers served 33 ports in the United States, reaching as far north as Portland, Maine, and including ports on the Atlantic coast, on the east and west coasts of Florida, and on the gulf as far west as Brownsville, Tex. Aggregate sailings approximated 150 a month. The 11 lines handled about 5 million tons a year in and out of the port of New York, and were, of course, important users of the New YorkNew Jersey port facilities. Four of these lines docked on the New Jersey side of the harbor and the others berthed on the North River waterfront on Manhattan Island. It is estimated that the revenues to truckmen, lightermen, long per 42 cargo of coastwise lines approximated $20 million.__] These carriers also spent about $7 million annually at the port of New York for ship repairs, food, and other supplies and services. In total it is estimated that these coastwise services represented revenues prior to the war of approximately $30 million a year to business and labor in the port of New York. At today's prices and costs, similar services for this prewar volume of cargo and shipping would contribute at least twice that much to the economy of our port. The domestic steamship lines in the intercoastal trade were also important to the port prior to World War II. At that time, there were nine common carriers certificated to operate between the port of New York and the Pacific coast. They had 25 sailings a month and handled about 2 million tons of cargo a year. In addition to the common water carriers, contract and exempt carriers provided intercoastal service principally in the transportation of bulk products, such as petroleum and sulfur. With the entrance of the United States into World War II, the Government immediately took over the ships which had been operating in the coastwise and intercoastal trades, some of which were retained by our own Government and others made available to our allies. During the course of the war, many of these ships were sunk or otherwise disposed of so that with the end of hostilities in 1945, the domestic steamship lines no longer had available to them a fleet of ships for resumption of their prewar activities. At the conclusion of the war, the Federal Government was dilatory in consummating settlements with the steamship lines to compensate them adequately for the lost vessels or for reconverting those vessels which had been modified for military purpose in the war effort. As a consequence, the steamship lines did not have sufficient funds to permit them to obtain new vessels for the resumption of their prewar trade. While there was, of course, a vast fleet of Liberty and Victory ships available at the conclusion of the war, these vessels did not have the speed or other characteristics which would lend themselves to effective usage in the coastwise and intercoastal operations. Then, too, the rising costs of shipping operations combined with the depressed freight rate level by competing forms of transportation made it virtually impossible for the domestic merchant marine to be restored to the healthy condition that existed before World War II. As a result of these various factors, the domestic merchant marine during the 15 years since the end of the war has had a very sketchy and unsatisfactory experience. As of today, there are only two services operating in the coastwise trade, both of which make use of the container principle, namely, the Pan Atlantic Steamship Corp. and Seatrain Lines, Inc. In intercoastal trade at the present time, there is only one company, the Luckenbach Steamship Co., which operates services eastbound and westbound with some regularity for general cargo transportation. The eastbound intercoastal services are supplemented by the American President Line and Isbrandtsen, although their cargoes are limited to the residue space in the vessel following discharge of cargoes at the west coast ports. These carriers do not hold themselves out to operate westbound from the port of New York. There are also in eastbound operation, a few carriers that specialize in the handling of cargoes of lumber, such as Weyerhaeuser, Calmar Steamship Co., States Marine, and Pope & Talbot, although none of them provide westbound service from the port of New York. The present intercoastal freight rate situation is such that the transcontinental railroad rates serve in effect as a ceiling above which the steamship lines cannot publish rates if they are to remain competitive; as a matter of fact, it is well recognized that lower rates by water are necessary because of the handicaps of infrequency of service and longer transit time when compared with the service advantages of other forms of transportation. The Port of New York Authority therefore believes that the regulatory policies of the United States insofar as carriers are concerned should take into account the desirability of having an alternate water service available for shippers, and that the level of rates of inland carriers should be watched carefully in order to forestall unfair ratecutting practices which would endanger the domestic mer 3 chant marine. By legislation, a system of regulation should be established in connection with domestic water services and other forms of transportation which will permit the maintenance of rates for transportation by water and by joint water-land transport services differentially lower than land transportation rates wherever such ratemaking is necessary or desirable to the continuance of water service. Certain comodities are the lifeblood of domestic carriers. For instance, canned foods to the intercoastal operator and paper and pulpwood products to the coastwise operator. Certainly the regulatory agencies should look carefully at reductions in overland railroad rates on certain selected commodities such as these, if the result of such reductions would be to unfairly deprive the water carriers of a large part of their most important tonnage. This would also have the effect of depriving shippers of an important service for other commodities requiring coastwise and intercoastal movement. The importance of the domestic merchant marine from the broad national interest, must be fully recognized. This was demonstrated by the experience during World War II when the availability of this shipping was of immense benefit to the war effort. It is significant that, in a report to the Maritime Research Advisory Committee released within the past few weeks, a Panel on Wartime Use of the U.S. Merchant Marine, under the chairmanship of Adm. Arthur W. Radford, U.S. Navy (retired), stated that the reestablishment and preservation of coastwise and intercoastal trades "could prove a vital national asset." In the light of the significance of the domestic merchant marine to the economy and the national interests of the United States, it is vital that the necessary steps be taken to assure the continuation of coastwise and intercoastal shipping services. Extract from "The Role of the U.S. Merchant Marine in National Security" (Project Walrus report), by the Panel on Wartime Use of the U.S. Merchant Marine, of the Maritime Research Advisory Committee, Adm. Arthur W. Radford, U.S. Navy (retired), chairman: "J. COASTWISE AND INTERCOASTAL TRADES "The Government took over all vessels in the coastwise-intercoastal trade during World War II and inland carriers, principally railroads, absorbed their traffic. After the war domestic operations were gradually restored with warbuilt ships. In the bulk trades, especially petroleum, these ships have generally proven competitive. On the other hand, rising labor costs have prevented drycargo ships from recovering the prewar coastwise trade. Since 1939 the deadweight tonnage in the domestic dry-cargo ship fleet has declined nearly 60 percent, while tanker tonnage has increased by 35 percent. The prewar passenger ship has practically vanished from the coastwise and intercoastal trades although two remain in service to Hawaii. "Traffic figures indicate that the decline in dry-cargo tonnage has occurred primarily in break-bulk trades, where rising costs, particularly in cargo handling, have largely eliminated economic advantages of ocean transport. More than half of every dollar of freight revenue received must be spent for loading and unloading ships. "An important exception is to be found in ships designed for loaded freight cars, loaded trailer vans, or packaged lumber. These have effectively met the problem of cargo handling costs. The efficiency of the big-package carriers suggests that technological improvement may provide solution of the problem of cargo costs in handling break-bulk dry cargo. "The other primary difficulty in this trade is freight rates. The complaint of the coastwise ship operators is that inland carriers, principally railroads, are permitted to engage in discriminatory rate cutting in competition with water carriers, absorbing the rate reductions by higher rates where there is no water competition. "The reestablishment and preservation of this segment of the U.S. merchant marine could prove a vital national asset by increasing the national shipping capability, and by contributing to the economic growth of the United States and a balanced transportation system." Senator BARTLETT. Mr. Orfanello? Mr. SULLIVAN. Mr. Orfanello was unable to attend the hearings today. My name is Eugene F. Sullivan, attorney for the Massa |