tinct advantage over the shipper at competing points. Such practices would keep shippers in constant turmoil and confusion. Past experience has shown that this is not only a possibility but that it is very likely to happen.

Confusion and discrimination are eliminated by the present practice and yet the shipper in addition to these advantages retains his right to bring any unlawful situation to the attention of the Interstate Commerce Commission for investigation and final decision.

Uniformity and stability in rates are as important to the shipper as to the carrier. While the rate structure should not be frozen andmust remain flexible to meet the needs of commerce, the greatest possible degree of stability should be maintained and except in cases of emergency, changes should be proposed and presented in an orderly manner so that the shipping public is given ample time to study the effect of such changes and to oppose or support the revision.

In conclusion, we firmly believe that the conference or rate bureau method of rate making is necessary and essential to

(a) An orderly and consistent presentation of proposed changes in rates and charges.

(b) Avoid discrimination between shippers and localities.

(c) Provide shippers with an opportunity to express their views upon proposed adjustments and before rates are published.

(d) Permit the establishment of joint routes and rates between carriers.

(e) Give small shippers the same opportunity to participate in proposed changes as that accorded the larger shipper and larger organizations.

(f) Make effective and of value to the shipping public the suspension power given the Commission under section 15 (7) of part I of the Interstate Commerce Act and similar provisions of parts II, III, and IV.

(g) Prevent indiscriminate rate cutting by action of individual carriers with its injurious effect upon carrier revenue and subsequent ability of carriers to furnish adequate and efficient service.

We respectively urge the committee to favorably recommend passage of the bill.

Mr. HALL. Thank you very much, Mr. Schwietert. We appreciate your statement.

Mr. SCHWIETERT. Thank you.

Mr. HALL. The next witness is Mr. Hood.

STATEMENT OF J. M. HOOD, PRESIDENT OF THE AMERICAN SHORT LINE RAILROAD ASSOCIATION, WASHINGTON, D. C.

Mr. HOOD. My name is J. M. Hood. I am president of the American Short Line Railroad Association with offices at 1120 Tower Building, Washington 5, D. C.

As

The American Short Line Railroad Association is a nonprofit organization of 311 common carriers by rail, all of which have been vitally affected by the taxes imposed under the Railroad Retirement Unemployment Act as amended. Collectively, these lines operate about 16,000 miles of first main track and employ 51,000 persons. of December 31, 1945, the property investment in these carriers was just under a billion dollars. In 1945, they paid more than 32 million dollars in taxes, but incurred a deficit of about 1 million dollars. 1946, the deficit is known to have been considerably more.

I am appearing in favor of the enactment of S. 110 or H. R. 221 by the unanimous direction of the 311 common carriers by rail, members of this Association. This action was taken at the last annual

meeting of the members, which was held at Chicago October 2-3, 1946, and resulted in the adoption of two legislative planks which are quoted below:

The association favors regulation of common carriers subject to the Interstate Commerce Act with respect to procedures for the establishment of rates, fares, and the making of train schedules.

The association opposes the exclusion from the Sherman Antitrust Act of transportation agencies subject to the jurisdiction of the Interstate Commerce Commission, the U. S. Maritime Commission, or the Civil Aeronautics Authority and Civil Aeronautics Board.

Since the sort line railroads participate in joint through hauls of substantially all of their freight and passenger traffic, it is obvious that conferences must be had in order to establish rates and fares, rules for the interchange of equipment, rules for the settlement of claims, traffic balances, car hire, maintenance costs, and through train schedules, if the public served by these short line railroads is to enjoy anything like an orderly procedure, known rates and fares and foreknowledge of methods to be pursued when there is any type of failure or partial failure in transportation performance.

These conferences, usually through formalized and standing committees, have been the practice in the railroad industry for several generations. There is no other known method of reaching the necessary end result. Until the recent attempts to label such conferences as being in restraint of trade by the Department of Justice, no one connected with the shipping or transportation industry considered for a moment that the requirements of the Interstate Commerce Act could be met in any other way or that the meeting of these requirements could possibly be construed as in violation of the Sherman antitrust law.

The short lines find themselves confronted with the necessity of continuing to serve the public interest and now come to the Congress seeking clarification of the legislation with reference to conference rule and rate making as stated herein. The common carriers comprising the membership of this association are against relief of rail carriers from the provisions of the Sherman Antitrust Law, and if they felt that either S. 110 or H. R. 221 would afford such relief, my appearance here today would be in opposition to the enactment of either of the bills rather than in favor of it.

Stated in brief, it is the position of the 311 common carriers by rail, members of the American Short Line Railroad Association, that in the public interest it is absolutely essential that conference rate, rule, and schedule making be continued and that in view of the existing uncertainty, the enactment of S. 110 or H. R. 221 would be in the public interest.

Mr. HALL. Thank you very much, Mr. Hood.

Mr. HOOD. Thank you.

Mr. HALL. Without objection, the following statements will be spread upon the record at this point: Statement of the Idaho Public Útilities Commission, dated June 23, 1947; statement of Carl Giessow, transportation bureau, St. Louis Chamber of Commerce; and statement of Walter R. Scott, executive vice president and transportation commissioner of the Board of Trade of Kansas City, Mo. (The statements are as follows:)

STATEMENT OF WALTER R. SCOTT, EXECUTIVE VICE PRESIDENT AND TRANSPORTATION COMMISSIONER, THE BOARD OF TRADE OF KANSAS CITY, MO.

I am executive vice president and also transportation commissioner of the Board of Trade of Kansas City, Mo., a voluntary, nonprofit association of dealers in grain, flour millers, and other processors of grain, some 60 of whom have places of business located in Kansas City, Mo.-Kans. These firms include both large and small shippers, from the little fellow with $10,000 capital up to the big ones in the millions. The annual freight bill of these shippers aggregates around

$50,000,000.

As transportation commissioner of the board of trade I am in charge of the transportation interests of these people, the most important of which is the matter of freight rates.

My experience with grain rates extends over many years. I have represented the interests of the Kansas City grain market for the last 27 years. Before that I was for 3 years in the rate department of the Public Utilities Commission for the State of Kansas, prior to which time I was employed by three different railroads. In all those years, which now add up to a considerable length of time, I had experience of varying kinds with freight rates, and particularly with grain rates.

I make this statement in support of the pending bill on behalf of the Board of Trade of Kansas City, Mo., and offer it as my own opinion that this proposed legislation is sound and constructive.

My interest in the bill is limited to its effect upon railroad carriers in their determination of rates and charges for the transportation of property and the rules and regulations which affect the total amounts that shippers are required to pay for transportation services. As to these matters the bill would recognize and specifically legalize practices which have prevailed for the last 50 years or more. There apparently is good reason for the belief that the determination of rates and charges by collective action of the carriers; that is, through the so-called rate bureau or conference plan, does not contravene the antitrust acts, but the recent extensive agitation of the question makes it desirable that the question be settled by legislative action.

The pending court action by the Government against the western railroads holds a greater menace to western shippers than to the defendant carriers. If successful in requiring the discontinuance of rate bureau procedures it would leave shippers with no protection against a state of unbridled railroad competition except constant resort to the Interstate Commerce Commission, which would be burdensome alike to the Commission and to shippers. There would be no stability in the rate structure, and friction and litigation would be the result. We urge Congress to prevent the possibility of such a condition by adopting the proposed legislation.

To require the carriers to return to unrestrained competition would be inconsistent with the theory of railroad regulation as it now exists, while the ratebureau procedure is in accord with the general plan. It has been contended that if the rate-bureau plan were discontinued the resulting wide-open competition would benefit the public in two respects; namely, (1) that the general level of the rates would be reduced and (2) that disparities in rates between competing sections would be reduced or eliminated. Both objectives are committed to the control of the Interstate Commerce Commission under the existing scheme of regulation.

It is undoubtedly true that free competition in rates among carriers would tend to reduce the general rate level, but demoralizing results would flow from such a condition. To obtain a general reduction of rates and at the same time maintain established rate relationships between localities a horizontal reduction of the general rate level must be made on a uniform basis at the same time. That, however, implies concert of action, which is repugnant to the idea of free competition. But such competition would operate to reduce rates a few at a time, without order, resulting in disruption of the rate structure, intolerable discriminations, rate wars between carriers, and conflict between communities. The history of the railroads in the three decades following the Civil War contains ample proof of this. It was largely to correct such conditions that the act to Regulate Commerce was passed in 1887. We do not wish to return to the evils of those days.

The general effect upon rates of rate-bureau action under present conditions is downward. This results from the never-ceasing effort to correct rate relationships, which generally is by reduction, but much more nowadays from the effort

to compete with highway and water carriers. The earnings per ton per mile of railroads, under this erosion, actually moves downward from year to year.

Notwithstanding that the railroads of the country, as a group, have never been able to earn a fair return upon the value of their property devoted to commoncarrier service and that the general trend of rate changes is downward, it is contended that we should accelerate the reduction of rate levels by wide-open competition. Unhampered competition would, of course, bring down the rate level, eventually, but the price is too great to pay. Demoralized rate srtuctures, wholesale discriminations, and ruined carriers would be the inevitable results. As stated, this process is inconsistent with our theory of regulation. The policy of the law is not to allow railroad rates to fall to an improperly low level, whether through the acts of irresponsible carriers or otherwise. Section 15 (a), part I of the Interstate Commerce Act, enjoins the Commission to give due consideration, among other things, "to the need, in the public interest, of adequate and efficient railroad transportation service at the lowest costs consistent with the furnishings of such service, and to the need of revenues sufficient to enable the carriers under honest, economical, and efficient management, to provide such service.'

The Commission in the past has required general rate reductions where the facts justified such action and at other times has permitted general increases or has taken other action to assure "revenues sufficient to enable the carriers * * * to provide adequate and efficient transportation service." We urge the continuance of this policy. We point out the absurd inconsistency of creating a state of free competition for the purpose of reducing the general rate level and at the same time authorizing the Commission to suspend the rate reductions because of the carriers' needs of adequate revenues.

As to the argument that rate disparities between competing sections of the country would be reduced or eliminated by wide open competition, we urge that such readjustments are under present law a function of the Interstate Commerce Commission and should remain so. Competition cannot assure the correction of any such disparity for the reason that reductions by one group of carriers, under free competition, could be met immediately by counter reductions of a competing group.

Every argument in favor of discontinuing the rate bureaus runs finally into conflict with existing provisions of our regulating laws and contemplates forcing action by competition against the judgment of the Commission or contrary to the declared policy of Congress.

I now wish to present some considerations in favor of providing specifically for the rate bureau plan of determining rates from the standpoint of the grain and milling industries.

The grain rate structure is highly organized and sensitive, and the conditions involved in determining rates on grain are complex and difficult to appraise.

The leading grain, wheat, is produced from one end of this country to the other. The producers in the different sections of the country are in competition with each other to reach the consuming markets of the country and the several ports for export. Thus the hard spring wheat producers of the Northwest: Minnesota, North Dakota, South Dakota, and Montana, are in competition with the hard winter wheat producers of the Southwest: Texas, Oklahoma, Kansas, Nebraska, and Colorado, for the trade in the populous East. Wheat is not consumed in its natural state; it must be milled into flour. The flour goes into every crossroad of the country. Mills cannot be economically established at the thousands of shipping points nor at the thousands of consuming points; therefore, we find them at intermediate points, where the wheat is milled, the principal product, flour, going thence one way and the byproduct, feed, usually moving in a different direction. Wheat is not sold by farmers exactly as needed by millers, so the surplus must be held in large elevators also located in intermediate points. Finally, wheat is a staple commodity principally sold by grade, and fractions of a cent per bushel will determine the market to which it will move as rate differences cannot be absorbed.

These conditions require that the privilege of stopping in transit be allowed, and it is universal. Under such arrangements the wheat moves in the first instance to a mill or elevator at the local rate to the point where the mill or elevator is located. Afterward, the wheat, or its product, moves on to the destination at the remainder of the through rate.

Under this plan a car of wheat from Kansas may be stopped for milling at Wichita, Kans., at Kansas City, Mo., at St. Louis, Mo., at Indianapolis, Ind., or at a hundred other points on its way to the East, but no matter where stopped

the total freight charge from the Kansas shipping point to the destination is the same. All these mills are thereby placed in competition on equal terms for the farmer's grain to his benefit.

At larger markets, such as Minneapolis, the same result is achieved by breaking the through rate into two components: the local rate from point of origin to Minneapolis and a proportional rate from Minneapolis to destination, which is in fact the remainder of the through rate.

The price paid for wheat in the Minneapolis market necessarily is based on what it can be sold for in the East, and this proportional rate, therefore, is a vital element in the price. In like manner, the proportional rates from Omaha_and Kansas City to the same region enter into the prices paid at those markets. Long and bitter struggles have been waged over the relationships between these rates. They were finally fixed by the Interstate Commerce Commission. A proposal to change one of these rates would immediately set off another battle. Under present conditions that battle would first be waged in a rate bureau before men's eyes. No secret, sudden change can be made. If it could be made a ruinous rate war could easily result.

This is only illustrative of the character of the grain rate structure. It can be multiplied a thousandfold. A change in the rate from Oklahoma shipping points to the Gulf ports sets off a demand for a corresponding change to Memphis, which in turn brings a demand for a change to St. Louis, Chicago, Kansas City, and Minneapolis. Another effect would be that equidistant points in Kansas, observing a reduction from Oklahoma points to Memphis, would demand reduction of their rates. A change from a shipping point on one line brings about a corresponding change from another point across the wheat fields on another railroad. A change from a Nebraska point to Omaha calls for a similar change to Kansas City, which then requires other changes from other origins and to other destinations. Changes in transit practices and giving or withholding certain transit arrangements add to the complexity of the rate structure. The producers of the Northwest are quick to complain of any change in rates from the Southwest to their disadvantage.

In short, the whole grain rate fabric is so closely woven that any change may result in other corrections even in directions not thought of. The Interstate Commerce Commission has likened the grain rate structure to a huge blanket— a pull on one corner may disarrange the whole.

We are now operating under rates prescribed by the Commission in fair relationship to each other in the greatest rate proceeding ever before that body. Only through the rate bureau plan have we any hope of maintaining it. If any railroad is free to tinker with it, demoralization will surely result. Actually, of course, any line may make far-reaching changes but only after the proposal has been subjected to the white heat of general discussion.

The thing that I want to emphasize is that under the rate bureau plan no railroad can make a change in our grain rate structure without first telling the world of its desire, and that is what we, as shippers, want. Once placed in the hopper a rate proposal is considered by every one interested, railroad or shipper, and in the end is either approved and adopted by all the interested carriers or is disapproved, in which event the proposing carrier is free, after notice, to publish the proposed rate and other carriers may meet it at the same time.

I am speaking here as a representative of a fairly important shipping interest, and I should like to point out that those who would have the greatest cause for complaint of any undue impairment of competition among the railroads in the determination of rates are those who employ the railroads and pay their charges; that is, the shippers of the country. The leading organization of shippers interested in rate matters is the National Industrial Traffic League. Out of long experience in such matters that body has worked out a plan of procedure which the railroads have accepted, and which is now followed and observed by the carriers' rate bureaus. The agreed plan has been printed and widely circulated. I can say, through wide acquaintance with shippers' representatives and being familiar with their ideas on the subject, that this plan is quite satisfactory to the shipping public and, shippers, generally, favor its continuance.

There are certain fundamental things that shippers want in connection with the determination of rates by the carriers in order that shippers' interests may be protected:

First. They want competition in rates between the carriers fully preserved. This requirement is adequately satisfied under the rate bureau plan by maintaining the carriers' right of independent action, which is a part of every rate bureau's plan of procedure.

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