that have come to the water on account of the water itself and cheap transportation.

We sincerely hope that our views in this matter will be favorably considered by the Senate Commerce Committee and the House Interstate and Foreign Commerce Committee in opposition to the bills in the House and in the Senate. Respectfully submitted.

GEORGE H. SHAVER, Chairman. The CHAIRMAN. Mr. Arthur Sullivan, president of the Gartland Steamship Co., for the Great Lakes Ship Owners Association, Chicago, Ill.

Mr. Sullivan, you may proceed.

STATEMENT OF ARTHUR SULLIVAN, JR., PRESIDENT, GARTLAND STEAMSHIP CO.

Mr. SULLIVAN. My name is A. C. Sullivan, Jr. I am vice president of the Great Lakes Ship Owners Association. Our association represents substantially all of the regulated common carriers on the Great Lakes and St. Lawrence River. All of this group have been engaged in water transportation for 50 years or more, and all hold themselves out to the public as "for hire" common carriers.

We appreciate very much the opportunity to appear before this committee and to respectfully make known to you our feelings and position concerning H.R. 11583 with particular emphasis on certain parts of this proposed legislation.

The vast majority of traffic moving on the Great Lakes is in bulk commodities. The members of our association operate vessels ranging in size from 5,000 to 25,000 tons capacity and capable of negotiating a round trip between Duluth, Minn., and Buffalo, N.Y.-a distance of 1,000 miles in 5 days, including time for loading and discharging. The annual capacity of such a vessel is close to 1,250,000 tons and over shorter routes, much greater. All of our vessels have been built with private capital and are neither shipper owned or controlled.

The Great Lakes communities served by these ships were not originally located by their founders through happenstance. These farseeing people settled on water, realizing the need to exploit a geographic position. The growth of these communities has been phenomenal. Chicago, as a steelmaking center, receives over 90 percent of its iron ore by water. Vast quantities of utility coal and grain move outbound each year. This city lies also on the connecting waterway between the Great Lakes and the Mississippi River system. The all-water movement of cargo between New Orleans and Lake Erie ports is an accomplished fact. Cleveland as a steel center, Milwaukee and Detroit as manufacturing centers, Buffalo as a steel and flour milling center, are all closely tied by a highly efficient water transportation system.

We feel this system would be hampered in growth, if not seriously injured, should competing rail carriage be freed from regulation on bulk commodities under existing law. Furthermore, the repercussions will be reflected directly and indirectly on regulated commodities which remain under regulation. Every one of our shippers moving a regulated commodity will want the same reduction as the railroads voluntarily make on unregulated commodities. And, finally, the interior landlock points will necessarily have to make up the railroad

deficit. Much of our traffic originates on the rails, moving relatively short distances to lake terminals. Much traffic also terminates on the rails, again moving relatively short distances from the lake terminals to destination. The railroads have a time tested and highly successful method of dealing with such water movements. They maintain or increase their short rates to and from the water terminals and lower their all-rail rates from origin to destination.

The effect here is to discriminate against the water carrier, and by so doing, deny to the user the benefits of low-cost water transportation. The ultimate effect sought is to drive the water carrier out of business after which the rail rates can be raised. Present regulation by the ICC goes a long way toward preventing such practice. Yet even today the water carriers are forced into the courts to seek relief from this type of discrimination. Without exception the Federal courts have upheld the water carriers. This process of appeal to the Federal judiciary is so expensive and time consuming-taking 3 to 5 years that the smaller and less financially able water carriers cannot hope to survive during the time it takes to see a case through the

courts.

It has been stated here before your committee that with the removal of rail traffic from regulation by the commission, competing common carriers and shippers would have the protection of the antitrust laws against discrimination and rate wars. We submit that even the most casual observer of the workings of our Federal judiciary is fully aware of the heavy burden under which it now labors. To place the added burden of regulating and settling disputes in the entire transportation industry would seem impossible. From experience, it is evident to us that reliance upon the antitrust laws for enforcement of the transportation statutes will result in many shippers and carriers alike being denied "due process" through the effect of the time element alone.

The common carriers on the lakes have sought many avenues of escape from our problem. One such experiment has had successful progress. This is the joint rate with railroad concept. At present, our members are moving bulk commodities on joint rates with several eastern and one midwestern railroad. These rates have generated traffic for both types of carrier. This wedding of service was not easily accomplished and was accompanied by long litigation and much recrimination-not so much between rail and water carriers, as among rail carriers themselves. These single factor joint-through rates represented substantial savings to the hard pressed coal industry, yet even today a substantial railroad group are still fighting the joint rail-water concept. These people do not want to join with us even though we can show them increased tonnage and revenues; and the shippers better service. It appears to us that these people do not mean what they say. They seek to fight modern concepts of transport and deny the volume rate theories expounded here-particularly when they are on a joint basis with the water common carriers. One is led to believe that there is substantial disagreement among the railroads themselves as to what is best for the common carriers. Whether they want more rate regulation to include their unregulated competitors or less regulation to give them a hunting license against their common carrier competitors.

It is our understanding that this legislation has been hopefully designed to improve the profit margins of the railroad industry by removing certain types of railroad traffic from minimum rate regulation. It is here assumed that this is the single largest problem in surface transportation today and once it is removed, railroad profits will increase and the public will ultimately receive a benefit. If this reasoning is correct, the fact must be that the railroads are financially able to reduce rates on bulk commodities-that there is a large volume of bulk traffic that would be attracted from other modes of transport by these reduced rates-and further that this increased volume would overcome rate reductions to reflect increased profits. On this we have serious doubts.

It seems to us that the burden should rest on the railroads to prove without question that they are the low-cost carriers. We have all heard repeatedly of late that old saw that "nothing is more efficient than a steel wheel rolling on a steel rail." We say that a propeller behind a modern 9,000-horsepower turbine pushing 25,000 tons of cargo is far more efficient; to which is added the fact that many of the lake vessels can discharge their own bulk cargo direct into the shippers' plant at rates of 2,000 to 4,000 tons per hour. It is our feeling that these efficient low-cost carriers should receive the protection of the law rather than the higher cost competition.

It seems to us that there is a high degree of freedom to be had under carefully conceived and well administered Government regulation. We feel it is an error to suppose that regulation holds rates up and removal from regulation brings rates down. The present plight of all common carrier transportation is not due to regulation of the transportation industry, but to lack of regulation. Perhaps what we need is a wider scope of regulation with better administration to protect the common carrier from raids on his traffic by his unregulated competitor.

When the railroads come before Congress, they come as a groupthe rich and the poor, the well-managed and the inferior, the profitable and the unprofitable and ask that there be adopted the "least common denominator" theory of administering to their needs. Thus, the ills of the few control the welfare of the majority.

We agree that there is need for equality of regulatory treatment between the various forms of transportation. A year ago our group, in response to a request by the Secretary of Commerce, urgently recommended that the administration seek legislation to alleviate the serious financial trouble facing the common carriers in all modes of transportation. Specifically we recommended, as common carriers, that action be taken to end the increasingly ruinous rate wars besetting the transportation industry. We urged that the Congress face up to the problem of exempt for-hire transportation, remove the special treatment provisions on Government traffic, and take steps to insure the coordination of rail and water service under joint rates and through routes.

The regulated common carriers on the Great Lakes make a major contribution to the economy of that region through providing modern low-cost bulk transportation. The movement of wheat from Duluth to Buffalo is an example. Buffalo is the largest flour milling center in the world. Grain elevators at that port are completely oriented to water transportation. The same principle holds for the all-water

movement of Southwestern wheat from Kansas City to Buffalo via the Missouri, Mississippi, and Illinois Rivers to Chicago and lake vessel beyond. These are large movements of a bulk commodity which have been in the hands of the water carriers since the turn of the century for two reasons-efficiency and cost. The railroads do not compete for this traffic because they are unable to meet the common water carrier cost. The movement of utility coal to the electric generating stations on the lakes is another example.

No one wants regulations just for regulations' sake-all we ask is a competitive opportunity with the ground rules laid for us as they are for other American industries operating in the public domain. The CHAIRMAN. Mr. Sullivan, thank you for your statement. Are there any questions?

Mr. Younger?

Mr. YOUNGER. No, Mr. Chairman.

The CHAIRMAN. Does any other member of the committee have any questions?

Thank you very much. We are glad to have had your statement. I want to specifically refer to the recommendations you make, three very important recommendations to which the committee will obviously give consideration.

Mr. Sam Moerman.

STATEMENT OF S. H. MOERMAN, ATTORNEY, WASHINGTON, D.C.

Mr. MOERMAN. Mr. Chairman and members of the committee, my name is S. H. Moerman. I am a partner in the Washington law firm of La Roe, Winn' & Moerman with offices in the Investment Building. I have for approximately 30 years been an active practitioner before the Interstate Commerce Commission and the Federal maritime agencies. In those years I have represented railroads, bargelines, deep sea domestic carriers, trucking lines, and pipelines.

I appear here today to present the views of regulated water carriers on H.R. 11583, introduced May 3, 1962, by the Honorable Oren Harris. Specifically, I am appearing on behalf of Common Carrier Conference of Domestic Water Carriers and Inland Waterways Common Carrier Association.

The stated purpose of H.R. 11583 is to exempt certain carriers from minimum-rate regulation in the transportation of bulk commodities, agricultural and fishery products, and passengers. As this would remove approximately 70 percent of railroad tonnage from minimumrate controls, as I am advised, this is of serious concern to domestic regulated water carriers.

The assumption underlying H.R. 11583 is that transportation and the public interest would be better served through a greater degree of competition and a lesser reliance on Government regulation. The key issue for the water carrier industry is: Will the antitrust standards of Witness Brosnan as presented on July 13, 1962, before your committee be the safeguard for water carriers or will, on the other hand, the philosophy of the Association of American Railroads, Mr. Heineman of the Chicago and North Western, and Mr. Langdon of the Baltimore and Ohio, be substituted so as to make easy the early elimination of barge traffic on our inland rivers and coastal waterways? Mr. Brosnan is president of the Southern Railway System. He stated,

* * *

"It is high time that the main reliance be placed on competition subject to *** the usual antitrust controls" and that "all modes of common carriage must have the right to compete fairly and equally

***""

President Brosnan wants transportation placed in the same category as any other type of business concern. He is quite clear on this point:

Other carriers and other businesses are free to charge for their services or goods whatever the management chooses to charge. If such charges violate the antitrust laws, the proponent of the charge must suffer the consequences. On Southern we are prepared to take our chances on this.

Unfortunately, however, the Southern Railway system is alone among railroads in taking this position. H.R. 11583, in removing minimum-rate control over 70 percent of rail tonnage, does not make the antitrust laws applicable to railroads. Because, as I will explain more fully below, anticompetitive practices are to be continued under H.R. 11583, we oppose this legislation. As presently written, this bill will enable railroads to eliminate inland water commerce as happened before World War I. We are unalterably opposed therefore to H.R. 11583.

A lesson from the past may be constructive and assist the committee in its deliberations. In 1943 the Department of Justice brought an antitrust suit in the district court at Lincoln, Neb., charging a vast conspiracy between and among all railroads in the western district in combination with banking interests. The complaint specifically named Kuhn, Loeb, and J. P. Morgan & Co. as defendants. It appeared that for 11 years a committee of directors met at No. 40 Wall Street in the offices of the Bank of Manhattan's board room whose stated purpose was to discuss

any questions adversely affecting net revenues arising among any of the railroads in the western district upon which it has not been possible to secure unanimity of action by the interested railroads. (U.S.D.C.-Nebr., Lincoln Division, CA No. 246, Counts 25-30 U.S. v. Association of American Railroads, 4 FRD 510). This was the so-called western commissioner plan for private financial control over the ratemaking of western railroads. A brief description of its operation is contained in the statement of W. A. Harriman to the Senate Committee on Interstate and Foreign Commerce, 79th Congress, 2d session, in hearings on H.R. 2536 at page 1398.

In 1944 the State of Georgia filed an original action in the U.S. Supreme Court alleging conspiracy by defendant railroads to fix noncompetitive rates to and from the State of Georgia (Georgia v. Pennsylvania Railroad Company, et al., 324 U.S. 439 (1945)).

These two antitrust suits stirred up much controversy. Arne C. Wiprud, who was in charge of the Lincoln suit for the Department of Justice, wrote about this transportation problem in "Justice in Transportation" (Ziff-Davis, 1945) as did John G. Shott in "The Railroad Monopoly" (Public Affairs Institute, 1950). A rebuttal book was written by Charles D. Drayton, entitled "Transportation Under Two Masters" (National Law Book, 1946).

Now, I have these books in the hearing room if the committee is interested in looking at them now or having them furnished to the staff.

The fundamental thesis of Drayton, and later that of the Congress in passing the Reed-Bulwinkle legislation, was that there is an inherent inconsistency between regulation by the Interstate Commerce