Among the major areas of inequality of regulation and inequality of competitive opportunity under existing law that discriminate against the railroads, are the so-called agricultural commodities exemption for motor carriers, and the bulk commodities exemption for water carriers. To state it another way, the railroads, in this highly competitive transportation game, are not permitted to play under the same rules as their competitors. H.R. 11583 is intended to provide a partial remedy for these obvious inequalities of existing regulation.

Many of the short line railroads rely to a major degree, and some almost entirely, on traffic of an agricultural or bulk nature. When agricultural commodities move by truck they are exempt from economic regulation. But the same commodities being handled by a railroad, in a competitive situation or otherwise, are under full regulation.

When bulk commodities move by water they are free of regulation but they are under full regulation when moving via rail. When these commodities move by rail, as is the case with all traffic by rail, it must be at published rates which are rigidly adhered to and not changed without proper notice, and which must be just and reasonable and nondiscriminatory. Agricultural and bulk commodities when moved by motor or water carrier, respectively, can be handled at rates set at any time, unannounced to anyone, and not subjected to any test of reasonableness or other standard of regulation.

Under existing regulations railroads have in a variety of cases proposed reduced rates to meet competition but because the rates were disallowed they were excluded from effective competition. Restraint of this competition is not in the interest of the public or the railroads.

H.R. 11583 would remove existing inequalities to a degree by eliminating the requirement for the Interstate Commerce Commission's approval or prescription of minimum rates. It would not place competing forms of transportation on a fully equal regulatory footing as regards these commodities inasmuch as railroads would still be regulated under those provisions of the Interstate Commerce Act governing notice, filing, and publication of rates, maximum rate control, and discrimination.

The small railroads for whom I speak receive small revenues and must work within the limits of small monetary margins. Accordingly, they must have a maximum of flexibility and be permitted to exercise a maximum of managerial discretion to enable them to meet the everincreasing costs of wages, materials, and taxes.

Enactment of this bill would do much to enable these small railroad properties to compete more effectively for transportation of these agricultural and bulk commodities. Their success in being able to do so would strengthen this necessary segment of our Nation's transportation system.

In order that they may continue to render an adequate service to the public, and in the hope of their earning an adequate return, we request that you give favorable consideration to H.R. 11583, amended along the lines suggested by other railroad witnesses.

H.R. 11584, also before you, contains provisions which are intended to achieve a further equality of regulation of competitive modes of transportation as recommended in the President's transportation message. For the reasons stated by Mr. Daniel P. Loomis, our members urge your favorable action on this bill.

I wish to thank the members of the committee for the opportunity to appear and state the views of our member lines.

The CHAIRMAN. Mr. Manion, thank you for your statement.
Mr. Hemphill, any questions?

Mr. HEMPHILL. Thank you, Mr. Chairman.

On page 4 of your statement you say:

Many of the short line railroads rely to a major degree, and some almost en tirely, on traffic of an agricultural or bulk nature.

That is in the third paragraph of the page, in the first sentence.

Do I understand by that that most of your revenue comes from freight and very little of it from passenger service?

Mr. MANION. That is correct. We have some members that have passenger service but most of these short line members of this association are freight haulers exclusively.

Mr. HEMPHILL. You also made another statement on page 2 that short line road-haul carriers usually receive up to about 20 percent of the total revenue of an interline shipment.

What is the variance? How little do you receive? Is that the maximum you receive, about 20 percent on a long haul?

Mr. MANION. That is an average figure. We have short lines that receive smaller, much smaller, proportions than that. I don't believe that there are many that would receive larger than that proportion. There are some, yes. This can also vary with the commodities. I am not a rate man. My experience has not been in rates and I have to speak in very general terms.

Mr. HEMPHILL. I am very sympathetic to your problem because I think it is absolutely true, as you said in your statement, that many communities depend on the short lines for their transportation of anything in bulk at all.

Mr. MANION. That is right.

Mr. HEMPHILL. I have some familiarity with short line railroads personally, or did some years ago before I severed my connections. We had such a problem of getting enough revenue to pay for operating expenses. You still have to pay the engineer and fireman for the day's work and keep the track up just as though it were a long road. Thank you for your statement. Thank you, Mr. Chairman. The CHAIRMAN. Mr. Younger, any questions?

Mr. YOUNGER. Thank you, Mr. Chairman.

On page 1, Mr. Manion, you give the amount of operating revenues and the amount paid out in wages and taxes, but you say nothing about profits. Were there any profits?

Mr. MANION. Yes, sir. This, of course, is an overall figure for the member lines of the association and might or might not be reflective of the situation with any particular road. During the year 1960 the net income of 255 member lines was in excess of $48 million, $48,637,961.

Mr. YOUNGER. Were there any short line members which did not make a profit?

Mr. MANION. Yes, sir; a number of them.

Mr. YOUNGER. One other question. I would judge from your testimony that as between the two bills H.R. 11583 and H.R. 11584, the preference of your organization, if only one were enacted, would be

H.R. 11583, because you lay more stress on that piece of legislation than on H.R. 11584. Is that correct?

Mr. MANION. Our feeling is that H.R. 11583 is of more importance to the member lines of this association; yes, sir.

Mr. YOUNGER. And also you would disagree with the Chairman of the ICC that it would be more to your advantage to do away with the minimum rates than to put all of the modes under regulation? Mr. MANION. It is our feeling that less regulation is needed rather than more regulation.

Mr. YOUNGER. That is all, Mr. Chairman.

The CHAIRMAN. Mr. Glenn?

Mr. GLENN. Mr. Manion, how do you differentiate between short line railroads and large railroads in order to belong to your association?

Mr. MANION. That is a perennial question, sir. Possibly the shortest answer I can give you is one made by my predecessor; that is, that a railroad that will pay dues to this association and use the services of this association, we call a short line.

Actually, there are several different definitions in different places in the industry for a short line. The Interstate Commerce Commission classes carriers as class I and class II. Those having $3 million or more operating revenue per year are class I roads; less than that are class II roads.

Commonly, and in certain instances, a short line railroad is considered to be one of about 100 miles in length or less. We do not have in this association a formal definition of a short line railroad. In fact, we have a number of members that are class I carriers by rail.

Mr. GLENN. Thank you very much. That is all, Mr. Chairman.

The CHAIRMAN. Mr. Manion, in further reference to the question asked by Mr. Hemphill, do I understand you to say with respect to a shipment originating on a short line road which had its destination over the so-called class I line, that about 20 percent of that revenue would come to the short line road?

Mr. MANION. Up to about 20 percent, Mr. Chairman. It might be quite a bit less than that.

The CHAIRMAN. Yes; I can understand that.

Mr. MANION. It frequently is.

The CHAIRMAN. In other words, you may have a short line that does the switching and takes the shipment out, say, a few miles to where it connects with a long line and would go several hundred miles maybe to its destination on the long line. Then what you are trying to say is that the share of the short line in that revenue would be up to 20 percent?

Mr. MANION. Up to 20 percent; yes, sir. That may be an interline shipment where the short line handles it just several miles from its point of origin or termination. Or it may be where the short line has quite a bit of road haul in connection with the origin or termination of the shipment, depending upon the handling.

The CHAIRMAN. To get back to the question that Mr. Glenn asked, if it has quite a bit of line haul, then it becomes a different class railroad, doesn't it?

Mr. MANION. Well, what is "quite a bit"? Twenty miles or eighty miles?

The CHAIRMAN. If you have distance of 500 or 1,000 miles, would that be short? I was thinking of the maximum length of a short line road.

Mr. MANION. The maximum length of any member line in our association is slightly over 2,100 miles.

The CHAIRMAN. 2,100 miles?

Mr. MANION. Yes, sir.

The CHAIRMAN. Do you call that a short line?

Mr. MANION. It is a member of this association. I am not specifically referring to that type of property in this presentation this morning.

The CHAIRMAN. Does that include all the main track of the road, or does that include switching and everything?

Mr. MANION. That is miles of road operated, not miles of track. The CHAIRMAN. What do you mean by this statement?

This proportionate share of the traffic originated and terminated on short lines far exceeds their proportionate share of railroad plant.

Mr. MANION. The short line railroads are major originators and terminators of traffic and for the amount of plant that the average short line has it originates and terminates for more traffic than other railroads.

The CHAIRMAN. I see.

Gentlemen, any further questions?

Mr. Manion, thank you very much. We are glad to have your presentation.

Mr. MANION. Thank you.

The CHAIRMAN. Mr. J. W. Scallan, Railway Progress Institute. Mr. Scallan, you may identify yourself for the record and proceed.

STATEMENT OF J. W. SCALLAN, CHAIRMAN, RAILWAY PROGRESS INSTITUTE, CHICAGO, ILL., ACCOMPANIED BY HOLCOMBE PARKES, PRESIDENT, RAILWAY PROGRESS INSTITUTE

Mr. SCALLAN. My name is John W. Scallan. I am president of Pullman-Standard with headquarters in Chicago. I am appearing here as chairman of the Railway Progress Institute, the national association of the railway equipment and supply industry. I am accompanied by Holcombe Parkes, president of the institute. Together we will endeavor to answer any questions you may care to ask us.

Because I will refer later to the membership of the Railway Progress Institute, I ask your permission now to file for the record its roster and the consist of its governing board, executive committee, and officers as of this date.

The CHAIRMAN. Very well. It may be included in the record. (The roster referred to follows:)

OFFICERS, EXECUTIVE COMMITTEE, AND GOVERNING BOARD OF THE RAILWAY PROGRESS INSTITUTE

OFFICERS

John W. Scallan, chairman

John D. Cannon, vice chairman

Holcombe Parkes, president

T. A. Nooner, Jr., vice president-secretary

EXECUTIVE COMMITTEE

John D. Cannon, vice chairman

G. L. Irvine

W. Lyle Richeson

J. W. Scallan, chairman.

Arthur H. Smith
R. L. Terrell

C. P. Whitehead

GOVERNING BOARD

F. D. Barber, president, Standard Car Truck Co.

A. D. Bruce, president, Vapor Corp.

John D. Cannon, president, Morton Manufacturing Co.

R. A. Carr, chairman of the board, Dearborn Chemical Co.

D. Y. Clem, executive vice president, McConway & Torley Corp.

Henry A. Correa, vice president, marketing, ACF Industries, Inc.

Lester A. Crone, president, Buffalo Brake Beam Co.

Mark S. Downes, general sales manager, the Timken Roller Bearing Co.
R. L. Duchossois, president, Thrall Car Manufacturing Co.

L. M. Forncrook, executive vice president, Edgewater Steel Co.

C. E. Grigsby, president, American Steel Foundries Inc.

Edwin Hodge, Jr., chairman, Greenville Steel Car Co.

G. L. Irvine, regional vice president, General Electric Co.

R. N. Jenkins, chairman, Alexander & Alexander, Inc.

J. G. Lyne, chairman of the board, Simmons-Boardman Publishing Corp. L. A. Marquardt, vice president, sales, W. H. Miner, Inc.

J. B. McWilliams, chairman of the board, Railway Maintenance Corp.

R. Lee Mitchell, general manager, railroad sales, The New York Air Brake Co.

T. B. Monson, vice president and general manager, Pacific Car & Foundry Co.

Spencer D. Mosley, president, General American Transportation Corp.

R. C. O'Kane, president and general manager, the Buckeye Steel Castings Co.

W. L. Richeson, vice president, Westinghouse Air Brake Co.

J. W. Scallan, president, Pullman-Standard.

A. H. Smith, executive vice president, the Kerite Co.

P. W. Smith, president, General Railway Signal Co.

Frank Speno, Jr., president, Frank Speno Railroad Ballast Cleaning Co., Inc. M. W. Stevenson, vice president, National Castings Co.

R. L. Terrell, general manager and vice president, Electro-Motive Division, General Motors Corp.

James F. Traa, manager of sales, Chicago district, United States Steel Corp. E. M. Van Winkle, president, Magnus Metal Corp.

D. R. Watson, president, Modern Railroads.

C. P. Whitehead, president, General Steel Industries, Inc.

R. A. Williams, president, Stanray Corp.

MEMBERS OF THE RAILWAY PROGRESS INSTITUTE AS OF JULY 15, 1962