TRANSPORTATION ACTS AMENDMENTS-1962

THURSDAY, JULY 12, 1962

HOUSE OF REPRESENTATIVES,

COMMITTEE ON INTERSTATE AND FOREIGN COMMERCE,

Washington, D.C.

The committee met, pursuant to recess, at 10:10 a.m., in room 1334, New House Office Building, Hon. Oren Harris (chairman of the committee) presiding.

The CHAIRMAN. The committee will come to order.

In the continuation of hearings on transportation, the first witness today will be Mr. Daniel P. Loomis, president, Association of American Railroads.

Mr. Loomis.

STATEMENT OF DANIEL P. LOOMIS, PRESIDENT, ASSOCIATION OF AMERICAN RAILROADS

Mr. LOOMIS. Mr. Chairman, my name is Daniel P. Loomis. I am president of the Association of American Railroads, with headquarters at Washington, D.C. The Association of American Railroads is a voluntary nonprofit organization. Its membership comprises railroads that operate 94 percent of the total mileage of all railroads in the United States and have operating revenues approximating 96 percent of the total operating revenues of all railroads in the United States. My appearance here today is for the purpose of expressing the support of the association and of its members for H.R. 11583 and H.R. 11584, the two bills introduced by the chairman of this committee on May 3, 1962, to afford implementation to certain of the recommendations contained in the President's transportation message of April 5,

1962.

In his message relative to the transportation system of our Nation, President Kennedy dealt both comprehensively and forthrightly with many aspects of what has come to be known as the transportation problem. In view of what has been said by those who have preceded me, especially by the Secretary of Commerce and the Under Secretary of Commerce for Transportation, a summary of the President's message or the recommendations contained therein would be unnecessary duplication. There are certain features of the message, however, that it would be helpful to bear in mind in connection with my statement. The message recognizes at the very outset that transportation is "an industry which serves, and is affected with, the national interest," and that "an efficient and dynamic transportation system is vital to our domestic economic growth, productivity, and progress" as well as to our ability to compete abroad and to our defense preparedness. It

calls attention to the incontrovertible fact that the common carrier, "developed by the intention of Congress and the requirements of the public as the core of our transport system," is declining in status and stature as private and exempt carriage grow.

The message recounts a number of the more important reasons for the decline of the common carrier industry, but concludes thatWhatever the cause, the common carrier * * * performs an essential function that should not be extinguished.

The President referred to common carriage as "the core of our transport system." It is almost universally conceded that the railroad common carrier is the mainstay, or backbone, of our transportation system. It is appropriate, therefore, especially in my case, that I should focus primarily upon the railroads' interest in the proposed legislation. I shall approach the pending bills, then, from the standpoint of what they mean to the railroads and why the railroad industry gives them its wholehearted and keen support.

Mr. Chairman, in the interest of brevity I will do some skipping and briefing in certain parts of my statement, but I would like to ask that the entire statement be included in the record.

The CHAIRMAN. Very well, it will be included.

Mr. LOOMIS. If you will turn to page 3, you will find a statement of the net railway operating income, rate of return and net income, railroads of class 1 in the United States, for the years 1929-61.

From a rate of return of 4.22 percent in 1955, which was already one-fifth less than in 1929, there has been a constant downward trend to only 1.97 percent in 1961. This shows that the condition is chronic and not merely the occasional result of recessionary periods.

The net income, after payment of interest and other fixed charges, has dwindled from $927 million in 1955 to $382 million in 1961. And, this decline in net earnings has occurred notwithstanding necessary retrenchments of maintenance and other expenses.

Also, the weakened financial position of the railroads is reflected by recent diminutions of working capital. Net working capital is the margin of current assets, excluding materials and supplies, over current liabilities and it has fallen from $934 million on December 31, 1955, to $513 million on December 31, 1961. Furthermore, net working capital in excess of debt maturing within 1 year dropped from $545 million at the end of 1955 to $119 million at the end of 1961.

Because of financial stringencies and limited access to investment funds, railroad expenditures for improvement in plant and equipment have declined. You will find on page 4 a table showing the gross capital expenditures for the 7 years 1955-61. Note that in 1961 they fell to $646,452,000.

There are many and varied reasons for the precarious position in which the railroads find themselves, but foremost among those reasons are the severe handicaps to which they are subjected in their competition with other forms of transportation. And one of the principal intermode competitive handicaps with which the railroads are confronted is the grossly discriminatory and inequitable scheme of Federal regulation found under present law.

I shall later show the volume of traffic moving by each of the several types of transportation over a period of years. From the showing it will appear that a large and increasing part of the total traf

fic of the country is moving by highway and inland waterway while the railroads' share is steadily declining, and it will appear also that far the greater part of highway and inland waterway traffic is entirely free of rate regulation by the Interstate Commerce Commission while all interstate railroad traffic-except for certain Government traffic-is subject to comprehensive, rigid, and cumbersome ICC regulation.

The President's message recognizes that "some parts of the transportation industry are restrained unnecessarily," and that the management of regulated transport "is subjected to excessive, cumbersome, and time-consuming regulatory supervision that shackles and distorts managerial initiative." It attributes the decline of the common carrier, in large degree, "to the fact that the burdens of regulation are handicapping the certificated common carrier in his efforts to meet his unregulated competition." It points out that—

Some carriers are required to charge rates which are high in relation to cost in order to shelter competing carriers. Some carriers are prevented from making full use of their capacity by restrictions on freedom to solicit business or adjust rates. * ** Some carriers are subject to rate regulation on the transportation of particular commodities while other carriers, competing for the same traffic, are exempt.

The exempt traffic referred to in the transportation message, and sought to be dealt with in one of the bills (H.R. 11583) being considered by this committee, is that falling within the coverage of the so-called agricultural commodities exemption provided by law for motor carriers and the bulk commodity exemptions similarly provided for water carriers. These exemptions together with the rapid growth of private carriage, account in very large part for the alarming diversion of traffic from the rails to the highways and waterways.

It will be of interest, I think, if I present to you at this stage of my testimony concrete figures showing the amount of freight traffic handled by each of the several modes of transportation during recent years and show the trend of the distribution of traffic among the different modes. These figures are set forth in two tables identified as "table I" and "table II."

If you will turn to page 7 of the statement, you will find a table showing the intercity freight traffic in the United States in millions of ton-miles distributed between the various modes of transportation for the years 1931 to 1961. The sources are shown at the bottom of the page.

Table II, which appears at page 8, shows the percentage distribution of intercity freight traffic in the United States for the same

years.

During the postwar period, the railroad share of the total traffic showed a decrease in every year, falling from 66.6 percent in 1946 to 43.2 percent in 1961. During the same period the motor truck share of the total traffic showed an increase in virtually every year, rising from 9.1 percent in 1946 to 22.6 percent in 1961. Likewise, the share of water carriers on rivers and canals showed an increase in every year of the period, moving from 3.1 percent in 1946 to 9.5 percent in 1961, as practically tripling.

In summary, it may be said that during the postwar period the railroad percentage of total traffic has been reduced by about one

third while the truck percentage has more than doubled and the percentage of water carriers on rivers and canals has tripled.

A glance at table I will show that not only has the railroads' relative share of the total intercity freight traffic decreased in recent years, but that the actual ton-miles have fallen off. In the case of highway and inland waterway carriers not only have their relative shares of the total traffic increased as noted, but in terms of absolutes there have been even more striking increases. Between 1946 and 1961 the railroads' ton-miles declined from 602 to 570 billion. In the same period the motor carriers' ton-miles grew from 82 to 298 billion, and the inland water carriers' surged from 28 to 125 billion.

As I have already indicated, the distribution of traffic among the several modes of transportation does not, standing alone, tell the whole story. One must look further. Substantially all interstate transportation by railroad is subject to rate regulation by the Interstate Commerce Commission and, therefore, to competitive restraint. But this is not true of transportation by highway or inland waterway, a very large part of which is unregulated either because it is private carriage or because it is for-hire transportation of the kind expressly exempted from regulation by the Interstate Commerce Act. Under the agricultural exemption, then, numerous agricultural, horticultural, and seafood commodities, aggregating vast tonnages, are exempt from rate regulation when they move by truck, but are not so exempt when they move by rail. Railroads are similarly prejudiced in competing with water carriers for the movement of coal and coke, ore, grain, sand, gravel, sulfur, fertilizer, cement, petroleum, chemicals, and other commodities that move in bulk free of regulation when waterborne, but subject to full regulation on the rails.

These exemptions from regulation that apply when the traffic described is transported by other modes of transportation, but do not apply when such traffic is moved by railroad, create gross discrimination against the railroads and pose severe competitive difficulties for them.

Railroads cannot change their published rates except upon 30 days' notice to the public unless upon application to the Interstate Commerce Commission, and for good cause shown, they should be authorized to publish a change on shorter notice. Their rates must meet standards of reasonableness-they must not be unreasonably high or unreasonably low-and they must not discriminate unjustly against any person, locality, port, or region. Their rates are subject to suspension.

The railroads' exempt competitors by highway or waterway, as the case may be, operate under no such requirements and have no such standards to observe. Where railroad rates are open, theirs are secret. With the railroads' rates before them and not readily subject to change, the exempt carriers are privileged to make whatever secret rates they choose at any time, without any notice to anyone, on whatever basis is necessary to get the business.

If you will look at tables III, IV, and V on pages 13, 14, and 15 of the statement, you will see there the distribution of intercity freight. between regulated and unregulated carriers. Table III shows in terms of ton-miles the distribution of highway intercity freight traffic in the post-World War II years, between that regulated by the Inter

state Commerce Commission and that not regulated by the Commission. It will be seen that unregulated motor carriage has steadily advanced from 64.4 billion ton-miles in 1947 to 187.1 billion ton-miles in 1959-the latest year for which figures of this kind are available— an increase of 190 percent.

Table IV shows the distribution of freight tonnage (ton-mile figures are not available) on the Mississippi River and tributaries, from 1947 to 1960, between that regulated by the Commission and that not so regulated. Here, again, it will be seen that the unregulated traffic has progressively increased, from 86.5 million tons in 1947 to 167.6 million tons in 1960 for an increase of 94 percent.

Please observe that over these same spans of years, rail freight traffic fell more than 12 percent from 664.5 billion ton-miles in 1947 to 582.5 in 1959 and 579.1 billion in 1960. (See table I.)

Table V illustrates, in terms of percentages, the extent of regulation of intercity freight traffic on the highways and certain domestic waterways. From this table it appears that in 1959 (the most recent year for which both highway and waterway figures are available) the highway traffic regulated by the Interstate Commerce Commission was only 35.1 percent of the total highway traffic, and only 10.6 percent of the waterway traffic on the Mississippi River and related waterways was subject to the Commission's regulation.

In all fairness it should be pointed out (in the event it has not already been made clear) that in the tables and statistics I have just supplied, the figures for unregulated transportation include private carriage by highway and waterway along with exempt for-hire transportation by these modes. We have not been able to obtain current figures showing a division between private carriage and exempt forhire carriage.

Surely it is obvious that an indefensible situation results when the railroads are subject to the restraints in competitive ratemaking that are placed upon them by existing regulation, while much of their competition from other forms of transport is entirely free of such restraints. To whatever extent the railroads may have lost traffic to other transport modes because of the superior economic capability of those modes as to particular kinds of transportation services, they have no just cause for complaint; but they do have just grounds for complaint as to traffic that has been and is being diverted from them because of undue restraints under existing regulation that prevent them from reflecting their full cost advantage and inherent capabilities in competitive rates, especially as to traffic that may be transported by their competitors entirely free of regulatory restraints. And we are speaking of an immense volume of freight.

Because of the diversion to motor carriers of a large part of the high-rated merchandise traffic once carried by rail, the railroads have become increasingly dependent upon bulk (and, to a lesser extent, agricultural) traffic. In the handling of bulk freight, in particular, there is strenuous competition between water carriers and railroads. I have attached to my prepared statement as appendix A a table showing, for the year 1960, the extent to which the freight transported by class I railroads consisted of bulk commodities and agricultural commodities that may be transported by waterway and highway respectively, free of rate regulation under the bulk and agricultural