ways as the Mississippi, and, to the extent that it is observed, it only makes for less efficiency and higher costs.

As for June 1, 1939, test date, this has largely been ignored in practice. There is not a single decision of the Interstate Commerce Commission which has denied the exemption of a bulky commodity on the ground that the commodity was not carried in bulk "in accordance with the existing custom of the trade *** as of July 1, 1939."

If this test were strictly enforced, it could be the cause of many difficulties and hardships. In the first place, the meaning of the words referring to 1939 is far from clear. Do they require that the bulk transportation of a particular commodity in 1939 should have been by water or is it sufficient that the commodity was then transported in bulk by other means, such as rail or truck? Do they require that, in order to secure the exemption today on a certain waterway, a showing must be made that the same commodity was being carried in bulk on the same waterway in 1939? And what about new commodities, commodities which were either not manufactured in 1939 or which were not of commercial importance at that time? Many of such commodities are similar in character to commodities that were being shipped in 1939 and some are replacements for commodities then shipped in bulk. The importance of this problem was highlighted by a proceeding brought in 1958 before the Interstate Commerce Commission. A number of the larger regulated water carriers sought to have the Commission deny the availability of the exemption to a long list of commodities on the alleged ground that they were either not moving in water carriage on June 1, 1939, or were not transported in bulk on that date. This list included the following important dry bulk commodities: Ammonium nitrate; ammonium sulfate; cement; zinc concentrates; feldspar; fluorspar; ferroalloys; ferromanganese; flue dust; fly ash; dead burned magnesite; manure salt; milo maize; drilling mud; ores, viz: barytes, chrome, illmenite, iron, manganese, zinc; dicalcium phosphate; phosphate rock; salt; sludge; soya beans; superphosphate; triple superphosphate, etc.

Fortunately, the Commission refused to rule on the petition, saying that the availability of the exemption should be decided on a case-bycase basis. However, the threat remains that these commodities may be denied the advantages of the exemption available to other similar, and in some cases competing, commodities. If the position of the petitioners in the Commission proceeding were upheld, the effect would be to freeze the situation as of 1939. In the course of time, as new commodities take the place of old, the effect would be to narrow the availability of the exemption.

Aside from the illogicality and unfairness of thus confining the availability of the exemption, the test is becoming more and more impractical to apply. With the passage of time, it becomes increasingly difficult to ascertain just what the custom of the trade was on June 1, 1939. This is so simply because, as the years pass, witnesses are dying off, memories are becoming dim, and records are disappearing. Companies which may have shipped and carriers which may have transported particular commodities in 1939 may have gone out of business. Moreover, since water transportation was not, as such, subject to regulation in 1939, there are few official records of the Commission to help establish whether particular commodities were transported in bulk by water at that time.

From the point of view of fairness and practicability, the test as to whether a commodity should now be entitled to the exemption should depend on whether it is handled in bulk today rather than whether it was handled in bulk in 1939. This result is accomplished by section 2 of H.R. 11583.

As the mixing rule stands today, the exemption is open on exactly even terms to both regulated and unregulated carriers. To gain the exemption, neither type may include nonbulk commodities. If a change in this rule is to be made, we believe that section 2 of H.R. 11583 is much fairer to the unregulated carriers than is H.R. 9046, a bill which has been under consideration by your Subcommittee on Transportation and Aeronautics. That bill would have suspended the mixing rule only for the regulated carriers.

Our organization appeared before your subcommittee to oppose that one-sided proposal. Our very strong objections to the earlier bill were set forth in detail by Mr. Gale Chapman, of Minneapolis, in a statement presented in the hearings on April 10, 1962, to which I should like to refer. To summarize those objections very briefly :

(1) That bill was submitted as an emergency measure. We pointed out that there was no emergency; the essential ruling it sought to reverse had been on the books for years.

(2) The regulated carriers, who alone would have benefited from the proposal, would acquire a great competitive advantage over the unregulated carriers. They could, by mixing bulk and nonbulk commodities in the same tows, subsidize the rates on bulk traffic, in which there is keen competition between the two classes of water carriers, out of the high rates they charge on the nonbulk traffic, in which they have little or no competition. The unregulated carriers could not, under the terms of H.R. 9046, combine bulk and nonbulk commodities in their tows and thus would have been at a great competitive disadvantage.

(3) The destruction of competition that would tend to follow the enactment of such a provision would in turn injure the interests of shippers and the general public.

(4) The proposal was limited to the Mississippi system. We objected to this discriminatory approach. If the mixing rule, which it sought to suspend, was sound for other waterways of the country, the Columbia, Chesapeake Bay, or the Hudson, it should not be suspended on the Mississippi. We urge that your subcommittee and committee reject the proposal.

The change which H.R. 11583 would make in the mixing rule, on the other hand, would benefit unregulated carriers too. It would allow them to combine bulk and nonbulk commodities in their tows, so long as, in handling the nonbulk commodities, they were performing incidental towing services for unregulated carriers within the meaning of section 303 (f) (2) of the act.

Indeed, the combination of changes in the dry-bulk exemption contained in section 2 of H.R. 11583 represents a proposal on which a committee of the entire water carrier industry agreed last year as reasonably fair to both regulated and unregulated water carriers. It is, indeed, almost identical to the compromise then worked out by the regulated and unregulated carriers as an industry-backed proposal. If this combination of changes can be enacted, the result will facilitate the use and confirm the availability of the bulk commodity exemp

tion for both the regulated and unregulated water carriers. Both regulated and unregulated carriers would benefit from these changes, but, above all, the general public, including shippers and consumers, would benefit from the increased availability of low-cost water transportation.

Although the council supports section 2, we are, on the other hand, strongly opposed to section 1, which would relieve the railroads from minimum rate regulation with respect to the transportation of bulk commodities. This position has not been taken without careful consideration of the interests of all members of the council. As I have said, the membership includes, not only water carriers, but also shippers, and public bodies as well. In view of this fact, a poll of the membership of the council as to its position on section 1 was taken. This poll has now been completed and a strong majority of both shippers and carriers have voted to oppose railroad deregulation.

The reasons for our opposition are those which have been voiced by witnesses for American Waterways Operators, Inc. We endorse and join in their statements and I will not repeat the arguments which they have made.

For a number of years now the railroad industry has been sounding the alarm and demanding legislative changes to make possible a cure for the financial woes of that industry. In this hearing the principal spokesman for the railroads began his testimony with the basic premise that the railroads are in financial difficulty and showed us a picture of progressive decline in their earnings and in their share of total traffic from the booming base year of 1929 to the present. Both sets of figures are nationwide averages and are presented so as to support the slogan that "something has to be done for the railroads."

Although I do not have figures presently available to demonstrate the point, I am certain that the share of total intercity freight which was carried by the seagoing ships 20, 30, and 40 years ago was far greater than it is today. This intercity freight traffic, which we estimate to be some 20 percent of the total, is entirely ignored in Mr. Loomis' table.

If the share of the total traffic is to be the measuring stick for determining who should benefit from legislation so as to restore their former position, then by all means we should turn back the clock not 30 years, but a hundred. We should recognize the huge share of total traffic which moved by water before the railroads discovered how easy it was to kill off their water competitors in the absence of restraints against their rate cutting.

No, share of total traffic must not be the measuring stick for Congress to use in determining its policies. The logical pursuit of this criterion would find us taking steps to restore the horse and wagon.

Turning again to the ton-mileage figures presented by the railroad spokesman, it is most significant that in the period from 1939 to 1961 the railroads' traffic grew from 339 to 570 billion ton-miles, an increase of 230 billion. The increase in rail traffic over the period is double the total traffic carried in the most recent year on the Great Lakes and rivers and canals combined. The increase in rail traffic since 1939 is about equal to what we estimate to be the total of the coastwise and intercoastal steamship traffic equated approximately to overland mileage. The increase in rail traffic since 1939 is about equal to the total

ton-mileage of all the oil moved in all of the pipelines throughout the Nation. Of all of the modes sharing the total only the traffic of our trucking industry shows substantially more ton-mileage in 1961 than the increase in rail traffic since 1939. Certainly, as far as volume of traffic is concerned, the railroads have demonstrated a vigorous growth during the period.

The evident hope of the railroads is that, with freedom to cut rates on water-competitive routes, they will take more, if not all, of the bulk traffic away from the water carriers. But there have been many ICC cases which reveal that rail rates proposed to meet water competition would recover less than rail out-of-pocket costs. Those cases are indicative of the relative levels in rail and water transportation costs. As Mr. Childe and Mr. Hershey have pointed out, it seems clear that the capture of water traffic by the railroads would seriously injure their financial position; that of the railroads, that is. As an example, the rate per ton-mile for rail carriage of coal from the West Virginia coalfields to Hampton Roads, a route on which the railroads have no water or other competition, is approximately 11 mills. By contrast, the rate per ton-mile for water carriage of coal on the Ohio River is between 3 and 4 mills. Only, therefore, if the railroads managed permanently to destroy all water competition could they possibly charge rates high enough for carrying coal on routes paralleling the waterways to produce any net income.

The basic difficulties of the railroads are not to be found in water competition. It is true that water transportation is far cheaper than rail, which is an inherent natural advantage within the meaning of the national transportation policy. But this competition does not explain the railroads' plight. But the fact is that in the areas where water transportation has been growing most rapidly the railroads have also been prospering to a higher degree than the average of the rest of the Nation. This point has been demonstrated in Mr. Carr's statement for the American Waterways Operators.

The most highly significant fact, one which is recognized widely by railroad security analysts and other statistical experts, is that the railroads' troubles are most acute among the roads serving megalopolis, the thickly settled and industrially mature region stretching from Richmond to north of Boston, and including much of New York and Pennsylvania. In this region I believe it can be demonstrated that the rate of industrial growth, as distinct from economic growth, is lower than anywhere else in the country. The fact that it contains the financial and political headquarters of the Nation has no relationship to the transportation problem except as it affects passenger traffic. In proportion to total traffic, there is less bulk traffic in this area than anywhere else in the Nation.

Not only are the railroads' problems accentuated here, but in this same area inland water traffic has been suffering a long and progressive decline.

I have heard it said that the New York Central's troubles are primarly east of Buffalo and that if the Pennsylvania could chop off its services east of Harrisburg the rest of it would be highly profitable.

The rail statistics of the ICC are not grouped in such a way as to make it readily possible to compare this particular area with the rest of the Nation. The so-called eastern district includes not only New

England, but the Great Lakes region and the gerrymandered central eastern region covering the triangle between New York, Washington, and Pittsburgh, and a huge region north of the Ohio and east of the Illinois Rivers, where many railroads are prosperous.

Nevertheless, a simple analysis of ICC reports on net railway operating income as compared with net railway investment will prove my point.

In the year 1960, for example, the percentage of return on net investment of railroads in the eastern district amounted to less than one-quarter of the percentage of return on investment of the railroads of the rest of the country.

If

In this eastern area, water carriers, too, have been losing ground as compared with their own records of earlier years, and there is, as I have said, proportionately less bulk traffic than in other areas. deregulation of bulk traffic by rail will help them take tonnage away from water carriers they will have much less to gain here, where both modes are having difficulty, than in other parts of the country, where the railroads are generally more prosperous.

Nationwide averages for the railroads are heavily influenced by the unhappy results of the roads serving the thickly populated East.

In short, insofar as rail and water transportation are concerned, the eastern area of densest population is a distressed area. The new plants of heavy industry have almost all been located elsewhere in recent decades, while, in the area in question, the growth has been in other directions-banking and insurance, industrial and scientific research and development, education, recreation, headquarters of all kinds, residential development, the technical and electronics industries and similar enterprises which employ our highly skilled labor, but involve no heavy tonnage of freight.

But none of these requires the transportation of the bulk materials of industry and agriculture whose growth in other parts of the country has brought prosperity to railroads and water carriers alike.

Congress has been asked to do something for the railroads. What a tragedy it would be if, because of the serious financial distress of the railroads in one region of the country, strong legislative medicine were applied to upset the delicate balance of competitive forces in transportation in the rest of the country, where the healthy competition among all modes of transportation has produced a steady growth of traffic of benefit to the carriers as well as to the public.

In all humility, I recommend that Congress look upon the problem of transportation in the Northeast as only a symptom of an industrial change of far wider incidence than the transportation field alone, with broad repercussions in the unemployment problem and other aspects of the regional economy. Let Congress determine whether the rapid industrial development of other areas of the Nation has not now been so successful as to leave the Northeast in a condition of relative decline. If industrial growth in the Northeast needs to be stimulated, let some means be found to do that.

If, however, it is in the public interest for heavy industry in the Northeast to continue its decline while other areas of the country grow in this respect, then special measures should be taken in the Northeast to adjust for the change. Let the commuter problems and other rail passenger service be separated from the freight service.