Senator BARTLETT. The committee is about to stand in recess, subject to call of the Chair. The member of the committee who has been acting as chairman this morning is about to say that the complexity of these problems is such, and the difficulty of solution is so great, that he would be willing to recommend that we go back to snowshoes. The committee will be in recess, subject to the call of the Chair. (Thereupon, at 12:10 p.m., the subcommittee was adjourned, to reconvene at the call of the Chair.) DECLINE OF COASTWISE AND INTERCOASTAL SHIPPING INDUSTRY MONDAY, MARCH 28, 1960 U.S. SENATE, COMMITTEE ON INTERSTATE AND FOREIGN COMMERCE, The subcommittee was called to order at 10 a.m., in room 5110, New Senate Office Building, Hon. E. L. Bartlett presiding. Senator BARTLETT. The committee will be in order. This is a continuation of the hearings on the decline of the coast wise and intercoastal shipping industry. At the open hearings representatives of the coastwise and intercoastal carriers were heard. Today representatives of the inland water carriers, port authorities, and other witnesses will appear. These will be followed by witnesses for the trucking industry. Our first witness today is Mr. G. C. Taylor. Mr. Taylor, we are glad to have you here, sir. STATEMENT OF G. C. TAYLOR, PRESIDENT, MISSISSIPPI VALLEY BARGE LINE CO., FOR THE INLAND WATERWAYS COMMON CARRIERS ASSOCIATION Mr. TAYLOR. Thank you, sir. My name is G. C. Taylor and I am president of the Mississippi Valley Barge Line Co., with headquarters in St. Louis. The statement I am about to make is presented on behalf of the Inland Waterways Common Carriers Association, of which my company is a member. The Inland Waterways Common Carriers Association is composed of the major common carrier bargelines operating on the Mississippi system and the Gulf Intracoastal Canal. Its members are: American Commercial Barge Line Co., of Jeffersonville, Ind., and Houston; Arrow Transportation Co., of Sheffield, Ala.; Coyle Lines, Inc., of New Orleans; Dixie Carriers, Inc., of Houston; Federal Barge Lines, of St. Louis; John I. Hay Co., of Chicago; Mississippi Valley Barge Line, of St. Louis; Ohio River Co., of Cincinnati; and Union Barge Line Corp., of Pittsburgh. We appreciate the opportunity to appear before you to testify on the problems of the regulated water carriers. Of the presentation I have here I would like to read only my own testimony. It includes two appendixes which I will not read but which I would request be included in the formal record. Senator BARTLETT. Very well, Mr. Taylor. Mr. TAYLOR. We take the position that all the regulated water carriers-whether inland, coastal, intercoastal, or Great Lakes operators—will stand or fall together on the issues involved in the selective rate reductions of the railroads. The importance of the water carriers to the consumer, to the shipper, to industry, and to the farmer, is twofold. First, there are the direct and obvious benefits of low-cost water transportation. Second, there are the indirect benefits of assuring reasonable freight rates in areas we serve through the natural forces of competition. Reading the testimony on railroad selective rate cutting of the coastal and intercoastal carriers, who appeared here before you in February, our association felt that we might have a useful contribution to make to the solution of the problems before you. Since we are dealing basically with the problems of regulation, the first question you might like to ask of the inland water industry is one of simple fact: how much traffic is handled by the regulated carriers? It has been customary for some time to accept without question the estimate of the Department of Commerce that 90 percent of the traffic on the inland waterways is exempt from regulation. We have long known this estimate to be inaccurate. The Inland Waterways Common Carriers Association has developed an independent study which shows that approximately 40 percent of the traffic on the Mississippi, its tributaries and the gulf intracoastal canal is handled by certificated carriers subject to the Interstate Commerce Act. Exhibit I, showing how we arrived at this figure, is attached to my testimony. This is one of the exhibits I referred to. Senator BARTLETT. Yes. (The study above referred to is as follows:) EXHIBIT I.-PROPORTION OF TRAFFIC ON THE MISSISSIPPI RIVER AND TRIBUTARIES AND THE GULF INTRACOASTAL CANAL HANDLED BY CERTIFICATED CARRIERS, YEAR 1958 Sources: 1. Annual reports of 34 certificated carriers to ICC. 2. U.S. Engineers, waterborne commerce of the United States; pt. 5, national summaries, year 1958; pt. 2, Gulf coast. Mississippi River system, 1958. 3. Individual reports of carriers to I.W.C.C.A. Detailed explanation of computations from U.S. Engineers reports Mississippi River system, including Ohio River and tributaries (inland-internal-local-intraport, p. 205, pt. 2). Port of Chicago, Ill. (inland-internal-local-intraport, table 7, pt. 5) Tampa Harbor (35.6-mile average haul X 1,794,113 tons of Gulf coast waterway, including Black Warrior and Tombigbee_ Grand total cargo ton-miles, Mississippi River system and Cargo ton-miles 53, 442, 610, 000 582, 939, 000 78, 704, 000 12, 652, 621, 000 3, 129, 361, 000 9, 523, 260, 000 66,756, 874, 000 EXHIBIT II.-A REPORT URGING THE LIMITATION OF GEOGRAPHIC DISCRIMINATION IN THE COMPETITIVE PRICING OF TRANSPORTATION The plain economic fact is that the floated ton requires less effort to move from place to place than a ton transported in any other way. This is the foundation for the contribution to the economy of the inland waterway bargelines. Taking as a measure fuel cost, investment in equipment, labor effort required or any of the usual yardsticks of efficiency, it is conceded that water transportation, for those commodities adapted to water movement, has the advantage. Recognition of this economic fact has caused a great movement of industry to locate along the waterways. It has made possible lower prices in broad areas of the Nation, it has increased the marketing areas of industries by hundreds if not thousands of miles, and it has brought growth, prosperity, and new opportunities for employment to many areas of the country, but particularly to the South. It is a mode of transportation that has been resurrected by popular demand, after a lengthy period when destructive practices by railroads had swept the rivers clean of traffic. By a slow and painful process, the inland barge traffic has grown to its present proportions. Only since World War II have the common carriers on the rivers, the lines which are the public's safeguard against discriminatory rates, assumed any important proportions. Clearly, with this showing of economic advantage, water transportation cannot be destroyed unless some distortion of normal competition is permitted. It is this distortion and its remedy that this memorandum discusses. It is customary to stress the growth of the river traffic. And yet the proportion of intercity freight moved by all water modes has actually declined in the past 20 years. In 1940, the inland waterways, including the Great Lakes, accounted for 18.13 percent of the total. In 1957, the percentage was 17.14.1 Thus, growth on some of the rivers has been accompanied by changes in other areas. A dramatic story of the problems of water transportation in the modern era is to be found in the experience of the intercoastal carriers. Only two such carriers are now left out of scores operating before the war, despite great tech-nological changes to meet rising costs. The economics of bulk water transportation are such that about 10 commodities make up 90 percent of the revenues of the regulated carriers. Two or three will account for over half of the total business. Loss of one of these commodities in a rate dispute could well cripple the entire water industry. Thus, the barge industry believes it is time to review once more the competitive practices of their rival, the railroads. 1 "Statistical Abstract of the United States, 1958," p. 563, "Annual Report ICC, 1958," p. 10. One of the keys to the problem appears to be, once again, geographic discrimination. It has been almost 20 years since the Congress last refined and strengthened its prohibition against the evils of geographic discrimination in the pricing of transportation. At that time, in the Transportation Act of 1940, it added the words "region," "district," and "territory" to the section of the act prohibiting discriminatory rates. The effect was to make certain that the Interstate Commerce Commission had the power to remove rate discriminations against a region. This change in the law encouraged a major rate investigation of differences in freight rates of railroads serving industries in the South and the West as compared with those serving the Northeast. The investigations established differences that could not be considered just and reasonable and, in May 1945, the ICC declared regional differentials unlawful. The decision was widely hailed as liberating industries in the South and West from the burden of arbitrarily high rates on manufactured products. Although other factors have made their contribution, the flourishing condition of industry today not only in the South and the West, but also in the Northeast may well be taken as evidence that the whole economy benefits when attention is given to the removal of geographic price discrimination in transportation. Since the central problem of freight-rate regulation is the control of the misuse of economic power, the issue of discriminatory rates is never settled for long. In recent years, geographic discrimination based solely on intermodal competition has become an increasingly common practice of the railroads. In the battle for traffic, certain geographic areas and certain traffic are singled out for rate reductions. Other areas which are similarly situated, except that there is no intermodal competition, continue to pay high freight charges. Widespread local economic discrimination has resulted. Producers competing in the same markets find trade barriers erected in the form of preferential freight rates for their competitors. The campaign is aimed primarily at the extermination of the low-cost water carriers on the inland waterways, the Great Lakes, and in the intercoastal trade. The damage is particularly serious for small communities and shippers who do not command either an economical alternative to rail transportation or the volume and the power that goes with volume to qualify for their own local intermodal rate war. In selectively cutting rates to capture certain traffic, the railroads have relied heavily on rates which do not meet the full cost of providing the service. As a result, shippers operating outside the battle areas not only have to contend with the handicap of lower transportation costs for their competitors, but, as if this were not bad enough, they are often taxed through unnecessarily high rates to help finance the rate war. The railroads say in reply that the shipper should be happy to pay the overcharge: "If there is a complaint, the shipper in question is always free to present it. The fact that there are so few of these complaints may well indicate that the 'landlocked' shippers realize the advantage to them of having the railroad increase its contributions to net revenues from the handling of competitive traffic. Otherwise the 'landlocked' shipper might have to assume the entire burden of rail transportation and his rates would have to be higher than they are now."* But the landlocked shipper is not benefited by the maintenance of water competitive rates designed not to meet competition but to drive it out of business. To the extent that the landlocked shipper is compelled to bear more of the transportation overburden by the publication and maintenance of barge-competitive reductions beyond what is necessary to meet competition, he becomes an unwilling sponsor of the railroads, war against the bargelines. Such "fighting rates" neither meet competition nor maximize a railroad's earnings, but merely reflect the price (in the form of reduced contribution to fixed costs) that a railroad is willing to pay for the destruction of a competitor. The railroads are capable of indulging in this practice, as long as they do it selectively, because the burden of fixed costs can be shifted to noncompetitive traffic. Their purpose is to achieve the longrun advantage of eliminating water competition. The evil of unrestricted price discrimination is not confined to its impact upon landlocked shippers. It has its principal impact upon competitive modes of 2 "A Railroad View of Section 15a (3), Interstate Commerce Act," by Jervis Langdon, Jr., ICC Practitioners Journal, May 1959, p. 899. |