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.

UNREGULATED TRANSPORTATION BY HIGHWAY AND INLAND WATERWAY

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.

Section 203(b)(6) of the act exempts from the regulation of rates "motor vehicles used in carrying property consisting of ordinary livestock, fish (including shellfish), or agricultural (including horticultural) commodities (not including manufactured products thereof), if such motor vehicles are not used in carrying any other property, or passengers, for compensation; ***.” As to water carriers, section 303 of the act provides for certain exemptions the most important of which is the so-called dry bulk exemption relating to the transportation of commodities in bulk when the cargo space of the vessel is being used for the carrying of not more than three such commodities. This section also includes provisions exempting the water transportation of liquid cargoes in bulk.

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. Specifically, the railroads are required on this traffic, as on all traffic, to publish their rates so that everyone, including competing exempt carriers, may know precisely what they charge; and they are prohibited, under heavy penalties, from charging any rate for a given service differing from that published. They cannot change their published rates except on 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.

For railroads to meet all of the regulatory requirements to which they are subject and at the same time meet competition that is wholly free of those requirements places them in an almost intolerable competitive situation.

To illustrate the growth and extent of unregulated transportation I invite your attention to tables III, IV, and V, and ask that they be incorporated into the record at this point.

TABLE III.-Distribution of intercity freight ton-miles, by types of highway carriers, 1947-591

1 "Intercity" includes movements between cities and between rural areas and urban areas. The urban portions of such movements are included. Rural-to-rural movements, city deliveries and city movements to contiguous suburbs are omitted.

Common and contract intercity motor carriers, classes I, II, and III.

Includes private carriers, for-hire carriers of commodities exempt under the Interstate Commerce Act, carriers for hire in wholly intrastate operations, and the relatively minor intercity and other rural-road operations of "local" carriers. Derived by deducting col. 1 from col. 3.

Preliminary.

Source: Interstate Commerce Commission, Bureau of Transport Economics and Statistics, Statement No. 6103, April 1961, p. 17.

TABLE IV.-Distribution of domestic freight tonnage by types of water carriers,

Source: Col. 1 derived from tonnage of class A and B water carriers as published in "Transport Statistics in the United States," based on percentage of reported traffic found by ICC studies to be subject to its jurisdiction. (70th ICC Annual Report, p. 32.)

Col. 2 derived by subtracting col. 1 from col. 3.

Col. 3 from "Waterborne Commerce of the United States," Corps of Engineers, pt. 5, table 8.

TABLE V.-Extent of regulation of intercity freight traffic on highways and waterways in the United States, year 1959

Source: Highways-Interstate Commerce Commission, Bureau of Transport Economics and Statistics, Statement No. 6103, April 1961, p. 17.

Waterways-Col. 1 from "Waterborne Commerce of the United States." Department of the Army, Corps of Engineers, pt. 5. Col. 2 derived from tonnage of class A and B water carriers as reported in "Transport Statistics in the United States." Interstate Commerce Commission. (Represents 40.3 percent of reported tonnage on Mississippi River system, this being the percentage of tonnage of reporting carriers found by latest ICC study (1955) to be subject to its jurisdiction. 70th Annual Report of Interstate Commerce Commission, p. 32.)

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 Interstate 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 for-hire carriage.

It nevertheless is clear that a large part of the unregulated two-thirds of highway transport and the unregulated nine-tenths of waterway transport is free of regulation by virtue of the specific commodity exemptions to which I have referred.

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

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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.

Please bear in mind that when we speak of traffic that is exempt from regulation under the bulk and agricultural commodity exemptions, we are not speaking of small tonnages. We are speaking of an immense volume of freight. Please bear in mind, too, that when we speak of bulk and agricultural commodities, we are not speaking of a type of traffic that is unimportant, or relatively unimportant, to the railroads. We are speaking of classes of traffic that are very important to the railroads. 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 commodity exemptions. This table provides a measure of the handicap with which the railroads are confronted in their competition with water and motor carriers for the transportation of these commodities.

Reference to appendix A will show that during 1960 bulk commodities of the kind susceptible of unregulated transportation by water carriers under the provisions of the bulk exemptions accounted for 67.4 percent of the total tons of freight originated by class I railroads. Agricultural commodities of the kind that move unregulated by motor vehicle accounted for 9.9 percent of class I railroad tonnage. Allowing for duplications (grain, for example, is both a bulk and an agricultural commodity), these bulk and agricultural commodities aggregated 69.9 percent of the total railroad tonnage.

Turning next to revenues, the same table shows that bulk freight accounted for 38.9 percent of the gross freight revenue of class I railroads in that year; and the gross revenue from agricultural commodities comprised 12.3 percent of the total. Again allowing for duplications, the gross freight revenue derived by the railroads from bulk and agricultural traffic was 44.7 percent of the total.

Thus, for some 70 percent of their tonnage and almost 45 percent of their gross freight revenue the railroads, operating under strict regulatory supervision and restraint, must rely upon the transportation of commodities that may move by water carriers and trucks without any rate regulation or restraint.

RESTRAINT UNDER EXISTING MINIMUM RATE REGULATION

As I have already pointed out, the transportation message finds that under present law, as it is administered, "management of the various modes of transportation is subjected to excessive, cumbersome, and time-consuming regulatory supervision that shackles and distorts managerial initiative.”

Let us examine certain features of this regulatory supervision, and observe just how it is that present law, as administered, restrains railroads in their competitive ratemaking efforts.

When a carrier seeks to better its competitive position through rate adjustment the course usually followed is a proposed reduction in its own rates, although on occasion the course followed is to attack as unreasonably low the rates of its competitors. In either event such control as the Interstate Commerce Commission exercises over competitive rate adjustments nearly always, if not always, involves its power to determine and prescribe just and reasonable minimum rates.

This power is given to the Commission with respect to the minimum rates of each of the several types of carriers over which it has authority to exercise economic regulation, including railroads and regulated carriers by motor vehicle and by water. It is not given to the Commission, of course, as to the rates of those carriers by motor vehicle and water which the Interstate Commerce Act exempts from regulation, as in the case of motor carriage of agricultural commodities and the water carriage of bulk commodities. Nor has the Commission any economic control over private carriage. Exempt and private carriers enjoy complete freedom in the competitive field.

The occasion for exercise of the minimum rate power ordinarily arises in socalled investigation and suspension proceedings. Reductions in the rates of railroads and regulated motor and water carriers may not be made except upon 30 days' notice to the Commission and the public, unless the Commission permits less notice; and during this period of statutory notice the Commission has authority to suspend the proposed rate for as long as 7 months beyond the time when it would otherwise go into effect, pending an investigation and determination as to the "lawfulness" of the rate. It may take this action either upon complaint, including the complaint of a competing carrier, or upon its own initiative without complaint.

Such delays in making reduced rates effective are likely to defeat entirely the purpose of the publishing carrier. This is particularly true where the shipper, not caring to await the outcome of the proceeding, is able to turn to private carriage or to carriers exempt from regulation and thus free to change their rates overnight. If a proposed reduced rate is finally to be and to have been all the while lawful in every respect, the traffic and revenue that would have resulted from it are nevertheless irretrievably lost for the period of delay. Traffic so lost may well continue indefinitely to be lost, especially if the shipper has meanwhile turned to private carriage.

It is obvious that the suspension procedure, under existing law, affords a powerful instrument for the carriers of one mode of transportation to use in delaying or preventing the effectiveness of competitive rates proposed by carriers of another mode.

Because of the imbalance in the rights of competing modes of transportation to seek the suspension of each others' rates, the railroads are more severely handicapped than their competitors. While railroad rates for interstate transportation are subject to regulation by the Interstate Commerce Commission and hence subject to suspension by the Commission if reduced, the minimum rate and suspension provisions of the Interstate Commerce Act have no application to exempt transportation by highway or water or, of course, to private transportation by those means. As I have already shown, only about one-third of intercity truck transportation and only about one-tenth of the transportation on the Mississippi River and related waterways is subject to Interstate Commerce Commission regulation.

Not all protested rates are suspended, of course. The Commission may allow them to become effective despite protest. By the same token, however, suspension is not a prerequisite for exercise of the minimum rate power. The Commission has the power, in an appropriate proceeding, to declare a rate already in effect to be lower than a just and reasonable minimum rate and order its cancellation in favor of a higher rate.

If the Commission, as a result of its investigation concerning the lawfulness of a competitive rate, does not find it to be unjust or unreasonable or otherwise in contravention of the provisions of the act it will, of course, permit the rate to become effective. If, however, it finds such a rate to be unlawful it will condemn it; and the basis for condemnation may be, and frequently is, a determination that the rate is lower than a just and reasonable minimum rate. The Commission may then simply order its cancellation, or the Commission may determine and prescribe what will be the just and reasonable minimum rate. The foregoing description of the competitive ratemaking process is, of necessity, an oversimplification; but I believe it covers the procedural essentials. A very important substantive point does remain to be covered. That is the question of just what standards or criteria are employed by the Commission in determining whether a rate is just and reasonable, or is lower than a just and reasonable rate.

In order to see what these standards or criteria are, in the case of competitive rates, one must examine individual cases decided by the Commission. This committee will recall that the Congress, in the Transportation Act of 1958, took steps designed to make for greater freedom in intermode competitive ratemaking. Written into the Interstate Commerce Act was a new provision (sec. 15a (3) of the act) as follows:

"In a proceeding involving competition between carriers of different modes of transportation subject to this Act, the Commission, in determining whether a rate is lower than a reasonable minimum rate, shall consider the facts and circumstances attending the movement of the traffic by the carrier or carriers to which the rate is applicable. Rates of a carrier shall not be held up to a particular level to protect the traffic of any other mode of transportation, giving