Senator PURTELL. On a joint rate case ?

Mr. WELLER. Well, Senator, the joint rail and water rate is competitive. It has to be competitive with the all-rail rate. It is the kind of a circumstance I described here. Let us suppose the $1.50 I mentioned there, somebody is going to cut that through rate to $1.50. If I cannot come into the Commission and point out that that rate undercuts the differential in the rail-water rate, where do I stand? This amendment would say that I cannot.

Senator PURTELL. In the case from rail point to rail point, that is what you are talking about?

Mr. WELLER. Well, if the railroad filed an all-rail rate that cuts the present rate, I would read this amendment to say that I cannot point out to the Commission that that undercuts the differential rate already set up.

Senator PURTELL. That is not the intention of the committee. Senator BIBLE. May I ask Mr. Barton whether it does have that effect?

Senator PURTELL. No, it does not. At least it was not the intention. Mr. BARTON. Senator Bible, under the Mechling case, the things that Senator Purtell has mentioned are true. Water carriers must have lower rates than the railroad carriers. As I understand it, section 305 (c) of the Interstate Commerce Act guarantees them that right. What is proposed in section 5 of S. 3778 is this: Where the railroads have a natural advantage in cost, they can propose rates accordingly, of course, subject to what Senator Smathers said about unfair, destructive competitive practices contained in the national transportation policy. The entire act is interpreted in the light of that policy. Senator BIBLE. If it is apparent that there is an unfair competitive destructive practice, does Seatrain have the right to be heard? Mr. BARTON. Yes.

Mr. WELLER. How would I be heard under this amendment? Senator SMATHERS. You admit you are not a lawyer, don't you? Mr. WELLER. Yes.

Senator BIBLE. My understanding is that they would have the right to be heard.

Mr. BARTON. That is right, on an unfair, destructive practice. Senator BIBLE. Yes.

Senator YARBOROUGH. You mean if this law were enacted a destructive practice could be considered under section 5 in fixing the rate of the railroad, if it were destructive to a competing mode of transportation?

Mr. BARTON. Yes, I see nothing to stop a carrier from showing unfair destructive competitive practices.

Senator POTTER. What is a destructive competitive practice? Mr. BARTON. Anything that is less than a compensatory rate as well as these other matters that Mr. Arpaia has mentioned.

Senator BIBLE. I don't know if this is the proper place for me to pose this question. I think it is more properly directed to the staff expert, Mr. Barton. But it was prompted by the question here of the witness. I think it is something that we can discuss later. I realize you have a whole room full of witnesses.

Senator SMATHERS. It is like certain constitutional guaranties, you have always got those, no matter what the Congress passes. There are certain basic rights in the national transportation policy and all

this is in the light of the transportation policy set out at the very beginning of the act.

Senator BIBLE. I understand the chairman's position. But I am also rather impressed with the position that Mr. Weller makes that by the adoption of this amendment you may be preventing him from coming in and making some showing of an unfair or a destructive competitive practice. That was all I wanted to clear up.

Mr. LEIGHTON. May I say one sentence at this point?

Senator SMATHERS. Yes.

Mr. LEIGHTON. I am a lawyer, and I am concerned. This is a later statute, and it might be interpreted to be a repeal, and even with a statement of policy.

Now, would the committee have any objection, out of an excess of caution, to say: Consistent with the national transportation policy and with those sections which protect the water carriers

Senator SMATHERS. As a lawyer you said you only have the one concern. You are not of the opinion that Mr. Weller is? That it would automatically do that which he fears?

Mr. LEIGHTON. Not necessarily.

Senator SMATHERS. All right. First, we want to get established that his opinion is not backed up by the lawyer who accompanies him. Mr. WELLER. He is not my lawyer.

Senator SMATHERS. The second thing is that we are making legislative history here, and this same thing will be argued and spelled out on the floor. We are not intending in any way to cut anybody off from a claim that there is a destructive, unfair rate practice. That is supposed to be in the law.

Mr. LEIGHTON. I will cover that more fully when I speak later. Senator SMATHERS. You don't read into this that we are trying to give somebody unjust, unfair, discriminatory powers?

Mr. LEIGHTON. I have in mind when the amendment was made to section 15 (4) it said except as provided in section 3 (1), thus and so shall happen and something here similar may be desirable.

Senator SMATHERS. When we get into the consideration of this we will discuss it. We are not wedded to this particular language. It may be that we will change it in several respects and your suggestions will be helpful in our consideration.

(Following is a letter subsequently received by the committee:)

Senator GEORGE A. SMATHERS,

SEATRAIN LINES, INC., New York, N. Y., May 22, 1958.

Chairman, Subcommittee on Surface Transportation of the Committee on Interstate and Foreign Commerce, United States Senate, Washington, D. C.

MY DEAR SENATOR SMATHERS: I had an opportunity to speak to you and to Senator Lausche yesterday during a brief recess of your committee's hearing, with respect to the correction of an impression that was gained during Senator Lausche's questioning of of Mr. Hoyt Haddock of the National Maritime Union. You will recall that during Senator Lausche's questioning, Mr. Haddock agreed that deepwater steamship companies were subsidized, both with respect to construction cost as well as operating cost, and I am sure that you will find that a reading of the record will leave the impression that this is generally true of the deep-sea water lines.

What Mr. Haddock failed to point out, of course, is the fact that such subsidy applies by law only to United States flag steamship lines operating in the foreign commerce of the United States, where there is no competition with any form of United States surface transportation. None of the domestic carriers

operating either on the inland waterways, or by the deep-sea coastal and intercoastal routes, receives any such direct subsidy and the deep-sea lines (including our own company, as well as our direct competitor Pan-Atlantic Steamship Co.) receive no indirect subsidy in any form. We are completely independent and privately owned and operated.

I am sure that you will wish to have the record corrected in this important respect, and respectfully request that you permit this letter to be entered into the record for this purpose.

Since it is my recollection that Senators Lausche and Potter were the only other members of the committee present at the time this matter went into the record, I am taking the liberty of sending each of them copies of this letter in order to correct any thought they might have gained therefrom.

May I take this opportunity to express our appreciation for the courteous attention which was given by you and the members of your committee in listening to our points of view, and your sincere efforts to try to find a solution to the serious problem which confronts many segments of the industry.

Yours very truly,

DONALD W. SMITH.

Mr. LEIGHTON. I will come back later. Thank you. Senator SMATHERS. Our next witness is Mr. Ralph Dewey, president of the Pacific American Steamship Association.

If everybody has their statement, Mr. Dewey, we are delighted to have you back for your second turn at bat, during the course of these hearings.

You may proceed.

STATEMENT OF RALPH B. DEWEY, PRESIDENT, PACIFIC
AMERICAN STEAMSHIP ASSOCIATION

Mr. DEWEY. Mr. Chairman, you are very kind to let me come back a second time at bat. In consideration for your patience, I am going to file the basic part of my statement and summarize it for the record because the great burden of my testimony was covered by Mr. Weller, who, while speaking primarily for the coastwise trade on the Atlantic coast, covered many points that are common to both the coastwise trade on the Pacific coast and the intercoastal trade, which are the prime focus of my attention, since those in that group are companies, members of my association, with headquarters in San Francisco.

Senator SMATHERS. I meant to ask this question, and I think you can answer it well: What effect do you think the improvement of inland waterways and barge facilities around the coast of the United States, has had on coastwise deep port shipping?

Mr. DEWEY. Are you thinking, sir, in the intercoastal waterway and some of these external-around the fringe of the coast line?

Senator SMATHERS. Right, and some of the inland, too. I just wonder as we appropriate money to develop these canals and these inland waterways how much are we in effect hurting deep water shipping, coastal shipping and how much are we taking away what had been legitimately their business?

Mr. DEWEY. I would say no barge operation has taken away business that by reason of their cost structure they are not entitled to; as a matter of fact, it cuts both ways, Mr. Chairman. The dredging of certain waterways farther into the hinterland permits barge connections with deep water ships, both in the foreign and intercoastal trade.

Senator SMATHERS. You think it is

Mr. DEWEY. What we lose in competition we gain in having a connecting service that brings cargo to our ships in lighters. Senator SMATHERS. All right, sir. You go ahead.

Mr. DEWEY. The focus of our attention is on section 5, Mr. Chairman. We think the paragraph in-the second paragraph of my statement sums it up. We state categorically that we firmly believe that section 5 is a radical departure from our national transportation policy in that it grants to one form of common carrier transport a competitive advantage in rate making which threatens the livelihood of other forms of transport, most particularly coastwise and intercoastal trade.

Again, I would reaffirm what Mr. Weller said, that we are objecting here to a further flexibility than is already granted by ICC under existing law. In my previous testimony I used the phraseology, Mr. Chairman, that we think the railroads should quit while they are ahead. This is a bit slangy way of saying that already under existing law the flexibility is so lenient and so legion that it is only a handful of times when the railroads are not permitted the flexibility they seek through this statute.

I would like to simply add a couple of examples. Mr. Weller cited some in his trade. I would like to cite some on the Pacific coastwise trade. I would like to cite some other Pacific coastwise trade which are evidences of what happens when rail flexibility, downward flexibility, is granted under existing law, and which we feel will be further encouraged by the passage of section 5.

I cite the example of lumber rates from the Pacific Northwest to California, which will go into effect tomorrow, a 30 percent drop in rail rates between ports in the Pacific Northwest and ports in California. Lumber is the bread and butter of what is remaining in the coastwise trade on the Pacific coast. When they drop a rate 30 percent, when ICC denies suspension, when the injured carrier seeks suspension, then we think they have gone too far.

Senator SMATHERS. Let me ask you this: Who benefits by that lowered rate? Does the home builder benefit by it; does the average citizen become better off by virtue of that lowered rate?

Mr. DEWEY. Well, I haven't talked to the average home builder about it, but I have talked to some lumber shippers who are engaged with the shipowner in protesting the rate. They have tremendous investments in shore side lumber handling facilities which are part of the water transport system. There has been and always has been a rate in the water carriage lower than rail because rail has a certain inherent advantage which permits it to quote a higher rate. It has speed advantage, it has a door-to-door delivery advantage.

Senator POTTER. Would this reduction of 30 percent still be compensatory?

Mr. DEWEY. In our view, according to the very cursory figures that were available when they filed this petition, no. And we know that-after all, while we are not in the rail business, we know generally what rail costs are. And together with what we know, with what is put in the petition, we do not feel it is compensatory. And this is the basis of our objection, or, rather, our

Senator SMATHERS. Did you get to argue this before the Commission?

Mr. DEWEY. We never got a chance.

Senator SMATHERS. You never got a chance?

Mr. DEWEY. Never got a chance.

Mr. BARTON. You will if you file a formal complaint.

Mr. DEWEY. The company involved filed a petition for suspension, and I have a copy of the wire received from the ICC which denies that suspension.

Senator SMATHERS. You don't argue a suspension?

Mr. DEWEY. No, it is just done. This is the flexibility that we criticize now and wonder how much more they want.

Senator PURTELL. May we have the telegram put into the record? I would like to hear how that was worded.

Senator SMATHERS. Yes, we will put it in the record. But, I think this, that we ought to have an explanation from the counsel as to how this matter works. It is hard for me to believe that we have a situation where people cannot object where there is some wrong doing or we will say some alleged crime of great injury or something of that

nature.

Mr. BARTON. In passing on requests for suspension, Mr. Chairman, the Commission does not prejudice future complaints against that rate. The Commission only says the rate is probably lawful or unlawful. In this case, the Commission said the rates were probably lawful. Mr. Dewey's group, of course, can file a formal complaint with the Commission with the burden of proof on them, and can argue before the Commission as can all other litigants.

Senator POTTER. But the rate goes into effect.

Mr. BARTON. Yes, in the meantime the rate goes into effect. The fact that they have refused to suspend does not pass on the legality of the rate in any way, whatsoever.

Senator PURTELL. May we have that telegram read?

Senator SMATHERS. Yes.

Mr. DEWEY. This telegram is addressed from the Traffic Service Corp. to Mr. John Pettibone, the traffic manager of Oliver J. Olsen Co. Perhaps the counsel can properly describe the function of the Traffic Service Corp.

Mr. BARTON. The Traffic Service Corp. must be a private group. [Laughter.]

Mr. BARTON. The Traffic Service Corp. must be a private group. [Laughter.] I didn't know they were connected with the Commission. Mr. DEWEY. Well, this is an organization, obviously, which was advised on behalf of Olsen of the Division of the ICC.

Senator SMATHERS. Let's get that straight. You did not, then, get a wire from the Commission?

Mr. DEWEY. I stand corrected.

Senator SMATHERS. This is a wire that you got from some organization?

Mr. DEWEY. Yes.

Senator SMATHERS. I don't think that ought to go into the record. Mr. DEWEY. Under the circumstances I will be glad to withdraw the wire, Mr. Chairman. The contents of it are the same. My point is made. Whether the wire goes in or not is unimportant to me.

Senator SMATHERS. Let's leave that out, because that is like getting a wire from some representative.