regulation-largely in consequence of the agricultural and bulk commodity exemptions. A measure of the railroads' handicap in this regard finds expression, as I have pointed out, in the fact that some 70 percent of railroad tonnage consists of these self-same agricultural and bulk commodities, and some 45 percent of the railroads' gross freight revenues is derived from them. Volume traffic is essential to low-cost transportation. As cost is a key factor in obtaining volume, the railroads seek to translate improved efficiency through technological progress into lower costs and rates. Unless the regulatory drags under which the railroads are required to operate are removed, new-found efficiencies cannot produce their potential benefits for the national economy. It is proposed, in H.R. 11583, to take a step in the direction of equality of competitive opportunity to participate in the transportation of this traffic, and to do so by way of diminished regulation. Regulatory control of the levels of minimum rates for the rail transportation of agricultural and bulk commodities would be eliminated. This step would constitute only partial equality, for it is not proposed to grant to the railroads the complete regulatory exemptions available to highway and waterway operators. Except for the elimination of minimum rate controls the Interstate Commerce Commission's authority and power over rates for the rail movement of agricultural and bulk traffic would be preserved and remain undiminished. The Commission's control over maximum rail rate levels, for example, would be left intact, as would its control over discriminatory rail rate practices. But decontrol of minimum rates would remove the most formidable obstacle faced by the railroads in their competition for agricultural and bulk traffic. Further, it would do so without rendering the railroads' competitors helpless, as is sometimes contended. Reduced rail rates on this traffic would still have to be published and observed, without change except upon statutory notice; and applicable provisions of the antitrust laws would be interposed as protection against the threat of predatory practices. In summary, enactment of the minimum rate legislation would af ford greater equality of opportunity among carriers through the removal of artificial and inequitable regulatory restraints, encourage vigorous but fair-competition for traffic, and thus benefit users and the public through lower rates for transportation services more nearly reflecting the true economic capabilities of the carriers. The transportation system which a strong America must have can be provided if Congress will act favorably on the recommendations contained in the President's transportation message. We urge such action at this session of Congress in order to help bring about the sound and healthy transportation system so essential to the economy and defense. The CHAIRMAN. That concludes your statement, does it? The CHAIRMAN. You referred to the appendixes attached to your statement. They shall be included in the record with your statement for the information of the committee and the Congress. Mr. LOOMIS. Thank you, sir. (The complete prepared statement of Mr. Loomis and attachments follow :) STATEMENT OF DANIEL P. LOOMIS, PRESIDENT, ASSOCIATION OF AMERICAN RAILROADS 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 that "Whatever 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. It is largely a matter of economics. Let us see, without laboring the point, what today's economic conditions are in the railroad industry. ECONOMIC CONDITIONS IN THE RAILROAD INDUSTRY The railroads are in financial difficulty. The low state of railroad earnings may be summarized by referring to the trend in net earnings and the rate of return on investment in transportation facilities. Net railway operating income, rate of return and net income, railroads of class I in the United States 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. For the class I railroads, capital expenditures in 1961 amounted to only $646 million, less by nearly one-third of those of 1960, and were at the lowest level in 15 years. It has been estimated that the railroads should spend $2 billion a year for modernization of facilities and overcoming obsolescence. Gross capital expenditures for the past 7 years have been as follows: This committee knows of the financial straits of the railroad industry, and I do not believe I need spend additional time discussing it. 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 traffic 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 subject 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. TRAFFIC HANDLED BY THE SEVERAL MODES OF TRANSPORT 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 showing 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." I ask that these tables be incorporated in the record of my testimony at this point. TABLE I.-Intercity freight traffic in the United States,' 1939-61 Includes intercity freight traffic of private as well as contract and common carriers. Excludes coastwise and intercoastal traffic. Includes mail and express, and includes electric railways. Includes movements between cities and between rural areas and urban areas. Rural-to-rural movements, city deliveries and city movements to or from contiguous suburbs are omitted. Includes Canadian and oversea traffic on the Great Lakes. New coverage accounted for increases over the preceding year of 2,600,000,000 ton-miles in 1948; 4,300,000,000 in 1951; 6,400,000,000 in 1953; and 6,700,000,000 in 1954. Thus, the table indicates a greater increase than has actually occurred. Estimated. Source: Interstate Commerce Commission, Corps of Engineers, and AAR. TABLE II.-Distribution of intercity freight traffic in the United States,' 1939-61 (by percent) 1961 $ 43.2 22.6 6.8 9.5 17.8 .1 100.0 1 Includes intercity freight traffic of private as well as contract and common carriers. Excludes coast wise and intercoastal traffic. 2 Includes mail and express, and includes electric railways. Includes movements between cities and between rural areas and urban areas. ments, city deliveries and city movements to or from contiguous suburbs are omitted. 4 Includes Canadian and oversea traffic on the Great Lakes. Estia ated. Source: Interstate Commerce Commission, Corps of Engineers, and AAR. Rural-to-rural move Table I shows in terms of ton-miles the estimated distribution of total intercity traffic in this country for each of the years 1939-61. The sources of the figures are, for the most part, publications of the Interstate Commerce Commission and the Corps of Engineers, Department of the Army. Table II is derived from table I. It shows the percentage of total traffic carried by each form of transport for each year. From this table it clearly appears that the railroad share of the total traffic is steadily declining whereas the shares of highway carriers and of water carriers on rivers and canals are increasing. The only break in this trend was during World War II and immediately thereafter when the railroad share showed a temporary upturn due to disabilities of the motor carriers and inland water carriers under war conditions. 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 motortruck 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. 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 |