STATEMENT OF JOHN L. WELLER, PRESIDENT, SEATRAIN LINES, INC., IN BEHALF OF THE COMMON CARRIER CONFERENCE OF DOMESTIC WATER CARRIERS, EDGEWATER, N.J.

Mr. WILLIAMS. Mr. Weller is president of the Seatrain Lines, Inc., and is speaking in behalf of the Common Carrier Conference of Domestic Water Carriers.

Mr. WELLER. Thank you, Mr. Chairman, and members of the committee.

My name is John L. Weller. I am president of Seatrain Lines, Inc., 595 River Road, Edgewater, N.J., and I appear today in behalf of the Common Carrier Conference of Domestic Water Carriers in connection with H.R. 11583 and H.R. 11584.

The Common Carrier Conference is an association of companies engaged primarily in common carriage of goods by water under certificates issued by the Interstate Commerce Commission. A list of the 30 companies comprising this association is attached; it includes operators of deep water vessels, coastwise and intercoastal; operators on the Great Lakes, and operators of barges and tow boats on the inland rivers all over the United States.

Although I represent the views of all these water carriers in connection with the proposed legislation, my own company is engaged in the coastwise trade, and I shall illustrate my comments primarily with examples from that experience.

I might say at this point, Mr. Chairman, that I have been in the transportation business for some 37 years which has included quite a number of years in the railroad industry, also in the airline industry, and now in the water carrier industry.

So that I feel that I have had some experience in this field.

The President's message on transportation of April 4, 1962, pointed out that, as a matter of equity, either the present agricultural and bulk commodities exemptions should be repealed, or exemption from minimum rate control of these commodities should be extended to all common carriers. The Common Carrier Conference agrees that the present inequity should be eliminated, but the simple and proper way to do this is to repeal or at least reduce the present exemptions.

Mr. Jervis Langdon of the Baltimore & Ohio Railroad, in his testimony to you, emphasized that H.R. 11583 would not eliminate the present inequity because:

When handling bulk commodities, water carriers would continue to be subject to no regulation at all; they could make secret rates, contract or otherwise; rebate at will; and discriminate without restraint. No publication of their rates is required, and no notice to the public. Motor carriers, when moving agricultural and fishery products, would continue to have the same freedom.

I agree with Mr. Langdon on this. Unfortunately, I do not agree with Mr. Langdon about many things, but I do agree with him on this. And, in addition, I wish to point out that in certain important aspects H.R. 11583 goes far beyond the scope of the bulk exemption presently contained in section 303 (b) of the Interstate Commerce Act. That exemption applies only to the transportation of not more than three exempt commodities in the same vessel or tow, and it is further limited to commodities carried in bulk in accordance with the existing custom of the trade as of June 1, 1939.

When Congress passed the 1940 act it took that specific step to see that the practices approved then did not spread.

H.R. 11583 contains no limitation as to the number of commodities which might be carried together, and it is not limited to the practices of the trade as of any date.

The bill does not say who would have the duty or the right to determine what is a bulk commodity within the meaning of this language, and it seems to me that at a very minimum there would be years of litigation and uncertainty before this is determined.

I understand, for instance, that there are still cases in the Commission with respect to the scope of the exemptions granted in 1940. If you open this door wide now, just think how many years it is going to be before you will find out what this thing means.

A little later in my testimony, I wish to demonstrate that the proposal in H.R. 11583 would foster an expansion of proprietary or private carriage, to the detriment of common carriage.

Certain witnesses before this committee have urged that, while elimination of the exemption would be a logical course, it might generate political opposition in certain quarters, and therefore they recommend the opposite course proposed in H.R. 11583. I must admit to considerable surprise that anyone would have the temerity to appear before this committee of dedicated Congressmen and suggest that they take action not in the best public interest because the correct action might generate some political opposition.

The members of the Common Carrier Conference of Domestic Water Carriers believe that in its regulation of interstate commerce, Congress will continue, as it has in the past, to be guided by the public interest. We believe the public interest clearly indicates the reduction or elimination of present exemptions, and we urge that Congress take that action.

When the water bulk exemptions were established in the Transportation Act of 1940, this was done on the stated premise that the transportation under these exemptions would be noncompetitive with regulated carriers, and it was also stated in the Congressional Record that at such time as this exempt transportation was proved to be competitive with regulated transportation, the exemptions would be repealed. It is generally agreed that that time has long passed, and the simple and straightforward course for Congress is to repeal the exemptions. We oppose strongly the approach in H.R. 11583, which greatly extends the scope of these exemptions both by enlarging their definition and by extending them to rail, highway, and water carriers including ourselves, to which they presently do not apply.

This legislation appears to be based on the premise that the primary problem in transportation today is one of excessive freight rates and of undue profits to the carriers. I respectfully submit that that is not the problem in transportation today. The primary problem is the precarious financial position of major segments of transportation. Despite numerous increases in the maximum allowable level of freight rates, the actual rates for the movement of major commodities have been generally declining for the last several years under the impetus of a cutthroat rate war. This in turn has seriously affected the financial stability of major eastern railroads, of some highway carriers, and—what is most important to me--it has practically eliminated the coast wise and intercoastal shipping industry.

As this committee knows, the coastwise and intercoastal shipping industry has almost disappeared, with serious consequences to our national defense. My own company is one of the last two common carrier coastwise companies remaining in business; we have suffered severe operating losses in each of the past 5 years, during which time the average level of freight rates applicable to our service has declined more than 20 percent. This decrease in freight rates has been forced by selective rate manipulations of the railroads.

I realize, of course, that the shippers would like freight rates as low as possible, and that low transportation costs as well as low production, distribution, and merchandising costs, contribute to the health of

our economy.

But in recent years there has been a tendency for major shippers to make up for increases in their production and merchandising costs by forcing down freight rates, although the costs of the carriers have not been reduced. Generally speaking, they have increased.

The inevitable end result of constantly declining freight rates without reduced transportation costs will be bankruptcy of the carriers, with ultimate harmful effect on the economy as a whole.

Now, if the committee will pardon me I would like to show you a cartoon which I think is somewhat to this point.

This cartoon appeared in the Scripps-Howard newspapers about 2 months ago, and since I am in the transportation business, it caught

my eye.

You will note the two witches who are agreeing that they have to economize, but they wind up riding on one broomstick, and one suggests that there must be some better way to save money.

I think that enactment of this bill, for instance, is going to wind us up, all of us, riding on a broomstick, and I think we ought to think about it.

Mr. HEMPHILL. Would it make everybody witches?

Mr. WELLER. Well, I think this is a witches' brew, Congressman. I believe, after careful study, that enactment of H.R. 11583 would mean the end of the coastwise and intercoastal shipping industry, as well as serious financial distress to other forms of transportation. I shall proceed to develop my reasons for this as briefly as possible.

All of the common water carriers are small companies, relatively small. The largest member of the Common Carrier Conference of Domestic Water Carriers had gross revenues last year of $20 millions. In 1960, the last year for which figures are available, the combined gross revenues of all the coastwise and intercoastal common water carriers, which are my particular concern, were $57 millions-and I might point out that that is about two-thirds of the net income after taxes of a single railroad, the Santa Fe—and their net income was a red figure of $6 millions. This compares with railroad gross revenues of nearly $10 billions.

The water carriers typically are able to serve only limited areas adjacent to ports, and are dependent for their sustenance on a limited number of basic commodities. For example, in my own company's service from the gulf to New York, 10 commodities account for 87 percent of the freight revenues. Further, my company is dependent upon railroads for the rates which move traffic to and from the ports it serves.

It is a simple matter for the railroads, by joint action in their rate bureaus, to select these specific major movements of traffic, reduce the all-rail rates even below cost if necessary, while holding up to high levels the rates for movement to and from the ports, and thus drive the water carrier out of business. The railroads have many other sources of revenues and a 1,700-to-1 ratio of financial resources, so that if unhindered in this activity, they can survive while the small water carrier expires.

I know it has been said to you by certain railroad witnesses that the railroads never do this, that they never discriminate, but the fact is that they do Mr. Childe's testimony yesterday was full of examples of this and the record is replete with examples of their attempts to do it.

The only present recourse of the water carriers for protection against these discriminatory actions is an appeal to the Interstate Commerce Commission. My company presently has pending in the Interstate Commerce Commission 18 separate and distinct cases in which actions of this type by the railroads are involved, and the outcome of these cases affects practically every pound of our traffic.

Our counsel advised me that enactment of H.R. 11583 would seriously impair the ability of the Commission to deal with these cases, or others like them.

It has been testified to you that the effect of H.R. 11583 would be to leave with the Interstate Commerce Commission the regulation of maximum rates and of discriminatory rates, but to turn over to the Justice Department and the courts responsibility for preventing monopolistic and predatory trade practices in transportation.

The water carriers do not believe that the powers remaining with the Interstate Commerce Commission upon passage of this legislation would permit it to deal adequately with discrimination, and they also do not believe that the provisions against monopolistic and predatory trade practices are adequate, but the point I wish to make at this time is that turning two elements of regulation over to different agencies can lead only to confusion, uncertainty, and endless litigation.

Mr. Jervis Langdon testified to you that his objection to regulation by the Interstate Commerce Commission did not arise from any "special ICC inability or incapacity.

"That must be comforting to the Commission.

"It is simply too tough a job for any regulatory body to do."

In my view, it is naive to believe that, if regulation is imperfect under one agency, it will be improved by dividing the responsibility between two agencies.

For many years, the favorite aim of railroad propaganda was the necessity for a "single regulatory agency" to regulate all transportation. Now they have completely switched objectives and ask for regulation of themselves-and us-by two agencies. If I am confused by this, I think that the passage of H.R. 11583 would leave the courts. the regulatory agency, and the carriers in confusion for a number of years as to the rules under which they are supposed to operate.

I sometimes think, gentlemen, that the current dance craze, the twist, arises out of the efforts of the younger generation to keep up with the gyrations of railroad propaganda.

The President's message of April 4 properly pointed out that—

the common carrier is declining in status and stature with the consequent growth of the private and exempt carrier. * * * Whatever the cause, the common carrier with his obligations to serve all shippers, large or small, on certain routes at known tariffs and without any discrimination, performs an essential function that should not be extinguished.

There are many reasons for the growth of private carriage both by highway and by water in recent years; sometimes, and I think relatively rarely, there is a genuine need for service which no common carrier is available to provide; sometimes it results from uneconomic empire building in corporations-the Government is not the only place where you have bureaucracy-sometimes it involves the desire of very large shippers to disguise transportation costs. But in a very large number of cases it stems from an ability of the shipper to combine limited movements of his own high-rated traffic in one direction with backhauls of some other shipper's exempt traffic.

To enlarge the exemptions, as H.R. 11583 proposes, is certain to enlarge the possibilities for private-exempt combinations, and thus to further deplete the revenue sources of the common carriers upon which the general public must depend.

Allow me to cite a specific example. One of the major commodities produced in the gulf area, and to which we have to look, is synthetic plastics, the production and use of which has grown rapidly in recent years. About 2 years ago, a major chemical company, which was the largest single producer of plastics, decided to purchase and convert two tankers to combination chemical tankers and plastic container ships. It invested large sums in these vessels and in bulk plastic containers, highway containers, and proceeded to engage in private carriage. We in Seatrain, and the other common carriers in the trade, asserted to no avail that the proposed private operation would be uneconomic; no published rate we could quote appeared to be persuasive. They were not interested in any published rates.

A few weeks ago, representatives of this company advised us that the private traffic available to these vessels-they now have them— was insufficient; therefore, they planned to apply to the Interstate Commerce Commission for a special exemption to permit them to carry liquid commodities of other chemical producers for hire. They desired us to assent to such an exemption, and we very regretfully declined.

The point is that under present law, such special permission would be required, because plastics (even in bulk in containers) do not come within the present exemptions in the act. Were H.R. 11583 to become law, this big company would need no permission to combine with the other plastics producers, none of which presently feels able to afford the luxury of private vessels, and divert from common carriage the remainder of the plastics traffic. And the result of this would be disaster for the two common carrier shipping companies remaining in the Atlantic-gulf trade, with resultant hardships for the many smaller shippers of other commodities who are dependent on these shipping lines. Even, I believe, it would in the long run disadvantage the big chemical company which started the process, but it would happen all the same.

Although H.R. 11583 states that "notwithstanding any other provisions" of the Interstate Commerce Act, in the case of rates, fares, or