policeman to regulate the rates of these transportation companies. There is no public demand of any consequence for that kind of regulation of water carriers. It is rather amusing to me to hear the representatives of the railroads appear and plead so earnestly that the public is suffering discriminations of rates of these water carriers, because they are not published and subject to regulation. The public is not aware of being injured in that respect. We ask you to consider the source of those representations. Further, I wish to point out that in the Eastman water bill, the system of regulation which is proposed to be imposed on inland waterway commerce is so ill adapted to water carriers and water transportation that it would create more confusion and discriminations than it could possibly cure. In view of those facts, we believe that it will be convincing to this committee that such legislation is not in the public interest. Regulation, at the best, is a burden upon commerce. We have found it to be burdensome, in that it is cumbersome and slow and unwielding; that it is to a large extent ineffective in removing the abuses of unjust discrimination. Regulation tends to preserve things as they are, resist changes which are vital to the health of transportation, as well as to all other forms of human activity. The history of the regulation of the railroads by the Interstate Commerce Commission has been a demonstration of those facts and I think a very good measure of the value and the effect of the proposed regulation upon water commerce. The Interstate Commerce Commission, I wish to say, has been and is a thoroughly conscientious and high-minded and hard-working body of men. It has unquestionably tried to administer the Interstate Commerce Act to the best of its ability. But it is also unquestionable that it has, to a large extent, to accomplish the purposes of the Interstate Commerce Commission in the regulation of the railroads, served their interests. I think that this committee is aware of the fact that the principal abuse which the Interstate Commerce Commission was designed to cure was that of inequality of transportation charges and unjust discriminations. The policy of railroad rate making was to charge what the traffic would bear. I have been much interested in reading, recently, the reports of the so-called "Cullom committee of 1886", which led to the enactment of the Interstate Commerce Commission Act in 1887, wherein the committee points out the reasons for recommending that legislation. Those reasons, as set forth in that report, were summed up in the committee's statement, at pages 180 and 182 of the report of the Senate Interstate Commerce Committee, Fortyninth Congress, first session, in the following sentence: The most important, and in fact, nearly all the foregoing complaints are based on the practice of discriminations. The committee goes on to say: The underlying purpose and aim of the measure is the prevention of these discriminations. Notwithstanding that express purpose of Congress, in trying to get away from the practice in the railroad rate structure of charging what the traffic would bear, the whole railroad rate structure of today, after 50 years, almost, of Interstate Commerce Commission regulation, is still founded upon that theory. The cost of transportation by railroad is, if considered at all, considered in the most minor and sketchy way, in the consideration and establishment of rates by railroad. The old Cullom Committee report said that, among the main evils of that day, which it was hoped would be corrected, were those of: Differences in classification in various parts of the country. Local rates high compared to through rates. Local and through rates are unreasonably high at noncompeting points. Unjustifiable discrimination is constantly made between (a) individuals, (b) businesses and commodities, (c) localities. Today we still have differences in classifications in various parts of the country. We have three classifications: One in the East, one in the South, one in the West, all different, with classification ratings varying from 50 percent to 400 percent on the same commodity in one territory as compared with the other. We have, in addition to those varying classifications, independent sets of exceptions to the classification in each territory, and differing rate levels in each territory, which have no relationship whatsoever to the relative cost of transportation in each territory. For example, the Interstate Commerce Commission has established rate levels of class rates during the past 12 years in each of the three railroad rate territories, the Eastern, the Southern, and the Western. The level of the class rates established in the South vary from 135 to 140 percent of those in the East; those established in the West vary from 120 to 150 percent in the East, for the same classes. The Chief of the Bureau of Statistics of the Interstate Commerce Commission has issued reports showing that the relative cost of railroad transportation service in the South is no higher, in cents per hundred pounds, than it is in the East; and in the West is approximately 5 percent higher than it is in the East. Thus you will note that the rate levels in these territories which the Interstate Commerce Commission fixes are not with relation to the cost but with relation to what it thinks the traffic will bear. Here is a brief quotation from Commissioner Eastman in one of these reports, 100 I. C. C. 513: The railroad rate structure of the country is not the result of the application of so-called "scientific principles." It is the product of the efforts of freighttraffic managers seeking maximum revenue for their respective railroads, modified to some extent by public regulation. Where competition has made it necessary, the traffic managers have always been ready to handle freight at very low rates rather than not to handle it at all. It has been indeed the presence of competition at certain points and its absence at others which have cause most of the confusion in the rate structure. Rate wars are less common than they once were, but the present rate structure is full of low rates made for competitive reasons and still defended on the ground of competition. That report was issued in 1925, but the railroad rate structure of which Commissioner Eastman there speaks is still in effect, and it is typical of the railroad rate structure throughout the country; and that confusion still remains, due to that failure to relate railroad rates to cost of transportation. And so we find a situation in the interior of the country and throughout the country where short haul rates are still relatively higher, as 141408-35—PT 1—15 compared with long hauls; that competition results in much lower freight rates than where it is absent; and, since water competition is now and always has been the principal competition the railroad has to meet, water competition is meeting railroad rates and is cutting railroad rates today, throughout the country, wherever it exists; and the absence of water competition results in the charging of relatively excessive rates, on the theory of what the traffic will bear. By the beginning of the present century water competition had been largely wiped out by the railroad. It still existed to some extent along our seacoast and in our Great Lakes; but the railroad rates, which had been cut to extremely low levels, to wipe out water transportation, still remained, until after 1910, pretty much as they were in the old days of water competition; that is to say, that the ports where water transportation had existed were still given much lower railroad rates than the points which were not located on water. In 1910 the Interstate Commerce Act was amended. The fourth section of the act, which prohibited the railroads, without special permission, making lower rates for long hauls between competitive points and charging higher rates in the intermediate noncompetitive territory, was amended. Following the enactment of that legislation, it was necessary for the railroads and for the Interstate Commerce Commission to give consideration to a revision of all the rates which had been depressed in violation of this rule of the fourth section of the act. This process of consideration occupied a very large part of the time from 1910 to the present time. In fact, it is still going on. In the South, where the whole rate structure was honeycombed with these fourth section violations, it was not until 1927 that the class rates were revised to remove these violations. In the East the revision took until 1930 to become effective. In the meantime, of course, the railroad rates of the country had largely been frozen; that is to say, it had been very hard to obtain any changes or revision pending the outcome of these investigations. Before the revisions had time to take effect, there took place a revival of water transportation. As Your Honors know, the tremendous increase in rail-transportation costs resulting from the World War and the construction and operation of the Panama Canal were two of the factors which stimulated a revival of water commerce. Water transportation has had the beginning of a new and revived existence in the Mississippi Valley only in the last few years. The channels of the Mississippi Valley are still under construction. The Mississippi River, from its mouth to St. Louis, has theoretically had a 9-foot channel during all this period. But actually, a 9-foot channel has been achieved in this stretch from Cairo to St. Louis only during the last 2 years. The Ohio River has had a 9-foot channel completed, also, since the year 1930. The Illinois River, with its 9-foot channel from the Great Lakes to the Mississippi River, has also been opened during the past 2 years. The Missouri River channel, which is at the present time limited to a minimum depth of 6 feet, will be opened for navigation as far as Kansas City effective in June of this year. Thus you will see that our inland river transportation is just getting a start. The revival of this water commerce, to the extent that it has occurred, together with the falling off of the railroad business on account of the depression, has alarmed our railroad friends into their present strenuous efforts to destroy inland waterway transportation, of which this bill is a part. The Interstate Commerce Commission has been aiding the railroads in this fight, by allowing, during the past 4 years, general and drastic cuts in railroad rates on all commodities which are competitive with inland waterway transportation. The result of that renewal of rate wars as between the railroads and the water carriers, with the Interstate Commerce Commission consenting to railroad rate reductions, has been the carriage of this competitive freight by the railroads in the Mississippi Valley territory at rates below cost and has resulted also in distress and loss of profits, threatening the extinction of common carriers water lines on the Mississippi River. You have heard General Ashburn on that subject. You may hear other common carrier water lines on the inland waterways here, as they testified before the Senate committee. But their difficulty, as their testimony makes clear, is that the railroads have cut the rates on the traffic that they haul so drastically that they are unable to operate at a profit. The competition is not that between water lines but it is the competition making rates on the theory of what the traffic will bear, lower than even the cost of water transportation, to say nothing of railroad transportation. Federal Coordinator Eastman states that regulation will cure all that, on the theory that the Interstate Commerce Commission, which is not now friendly to the water transportation, the inland waterway transportation, would be more friendly if it had control of the inland water carriers' rates. As a matter of fact, the Interstate Commerce Commission has had jurisdiction over the joint rates on rail and inland water carriers since 1920, and has been fixing those rates. In no case has it made those rates with any relation to the cost of transportation by the water route as compared with the all-rail route; but on arbitrary percentage relationships to the railroad rates. In some cases they have gone as low as 20 percent reduction of the rail rates between the ports; in others, they have gone 10 percent; in others, less; but in no case have they inquired into the cost of the transportation and made the rate in relation to the cost of the water service as compared with the rail service. As a matter of fact, it would be impossible for the Interstate Commerce Commission, with its present information, to make rates over water lines in any relation to cost and at the same time in any relation to the railroad rates, because there is not any way of relating the two. We believe that the policies of the Commission, as already carried out, with reference to the fixing of railroad rates and the fixing of water rates are convincing evidence that if it had control over the port-to-port Crates of the water carriers the result would be not the establishment of water rates in relation to water costs, but the establishment of arbitrary rates over the water lines, in some relationship to the arbitrary rate of the railroad lines. There is a fundamental conflict in principle as between the theory of rate making which the Interstate Commerce Commission follows and which the railroads have always followed, namely, what the traffic will bear, and the method of rate making which prevails and always must prevail for water transport. Water transportation necessarily must be The CHAIRMAN (interposing). Is there any making of rates for water carriers? Mr. CHILDE. There is no making of rates between the ports by the Interstate Commerce Commission; but the water carriers make their own rates with close relation to what it costs them to operate their boats; and that must necessarily be true, because, if a water line tries to charge materially more than that, some other boat will step in and get the business. There is too much competition in the water traffic to follow out any arbitrary or artificial theory of rate making. Consequently, unless there is some governmental interference, water rates will always be made with reference to cost; and, therefore, will always be made without any relation to rail rates. If cost is going to continue to govern transportation by water, as we think it should, there is not any need for governmental regulation of water rates. It certainly is not the intention of the Eastman transportation bill that the water rates shall be made on the basis of cost. This, I think, is more evident than ever since the so-called "committee print", which I have just seen since arriving here, has seen the light of day. May I call your attention to the note which appears as an explanation at the top of page 28, of the committee print, with reference to section 307 (e). There it states Mr. WELCH (interposing). Page 28? The CHAIRMAN. Of the committee print. Have you the committee print? Mr. CHILDE. There it states: The paragraph as changed goes as far toward requiring that rates be based on the costs and characteristics of water-carrier service as it would be practicable or desirable to go. And, if you will read the revision of paragraph 307 (e), you will note that all that the Interstate Commerce Commission is directed to do is to give due consideration, among other factors, to the circumstances and conditions peculiar to inherent advantages of transportation by interstate water carriers and to the circumstances and conditions affecting the operations of wharfingers; to the effect of rates upon the movement of traffic by water carriers; to the need, in the public interest, of adequate and efficient interstate water transportation and wharfinger service, at the lowest cost consistent with the furnishing of such service; and so forth. There is no direction to the Commission that it must base rates on cost. Quite the contrary. It is merely a mild admonition to give consideration to cost among other factors. That section, together with the policy of the act, as declared in section 302, puts the discretion in the hands of the Commission of making rates as high or as low, as far off from the cost of transportation, as it thinks may be proper, in the public interest. In other words, it puts it in the power of the Commission to disregard costs just as completely in fixing the rates of water carriers as it has disregarded costs and now disregards costs in fixing the rates of rail carriers. One other highly significant feature of the Eastman bill, which shows, beyond question, that its intention is to increase rates rather than to base them on cost, is contained in section 307 (g) relating to |