APPENDIX

JOSEPH G. KERR, ASSISTANT TO VICE PRESIDENT, TRAFFIC ASSOCIATION OF AMERICAN RAILROADS

In reply to certain statements made by Messrs. L. W. Childress and Cleveland A. Newton, at hearing before the House Committee on Merchant Marine and Fisheries, Mar. 4, 1936, on H. R. 5379)

This brief is filed in accordance with the permission granted by the chairman at the hearing held March 4, 1936.

No attempt will be made to answer each and every statement made by Messrs. Childress and Newton but the fact that some points are not covered should not be construed as an acceptance as correct of the statements made. Nor should anything that is said herein be construed as any reflection upon the honesty and integrity of Messrs. Childress and Newton whom the author of this brief has long and favorably known as men of outstanding worth and character. There are, however, honest and fundamental differences of opinion regarding some of the matters discussed by these gentlemen at the March 4, 1936 hearing, and certain of the statements made cannot fairly be permitted to go unchallenged.

This brief will undertake to deal only with—

1. The alleged "cheapness" of inland water transportation including references to the same reports of the Federal Coordinator and Mississippi Valley Committee of the Public Works Administration as cited by Mr. Newton;

2. Rates via rail and via water carriers on sugar, canned goods, rice, etc.;

3. Location of industry in the interior;

4. The position of the railways.

WATER VERSUS RAIL COSTS

Mr. Cleveland F. Newton makes much of an alleged water cargo carrier "cost" of 14 mills per net ton-mile (rail distance) as contrasted with 8.3 mills or other higher figures for rail carriers, and gives as his authority the Freight Traffic Report of the Federal Coordinator, released in May 1935. It should be borne in mind that Mr. Newton represents the Mississippi Valley Association interested chiefly in water transportation on the Missouri, Mississippi, Illinois, and Ohio Rivers. Let us examine the reports of the Federal Coordinator, the United States Mississippi Valley Committee and other records, and determine what Mr. Newton failed to tell the committee about these alleged water costs.

First it should be understood that the rail cost is a complete cost in that it covers the cost of capital invested in the rail highways used, their maintenance, taxes amounting to approximately 8 cents per dollar of revenue, and all operating expenses.

Mr. Newton referred only to the cargo carrier cost as reported by the Federal Coordinator. If he had examined volume III of the report he would have found that such alleged cargo cost, so far as concerns inland waterways, was for but five contract (cargo) carriers, with an aggregate freight investment of only about $1,482,000 and aggregate freight revenue of about $1,010,000.

He would have found that the reporting common (carlot) water carriers on the inland waterways were eight in number, as follows:

Certain of these lines engage in contract cargo transportation, chiefly the American Barge Line. The Federal Barge Line also engages in the transportation of commodities, chiefly grain, in full barge lots.

As to these eight common water carriers the Federal Coordinator found that the operative cost was 6 mills (not 114 mills as stated by Mr. Newton) per net ton-mile (rail distance). (P. 79, vol. I). The Federal Coordinator also said as to these "costs":

These costs do not include interest or expenditures made by others than the carriers (or operators) of the facilities. The difference between the railway and common carrier waterway cost, 2.3 mills, rests entirely in maintenance cost, the transportation and overhead costs being practically identical * * * (p. 79, vol. 1). (Italics ours.)

We will shortly examine other governmental reports for evidence of what these maintenance costs, borne by the general taxpayers, amount to, but we now quote again from the Federal Coordinator's Report as indicative of the "costs" that are not included in the water costs referred to by Mr. Newton. The Report says:

Railways * * * provide and maintain a private way over which to conduct their operations. Water and highway carriers use public ways and any cost of maintaining the way is provided in the first instance out of the Public Treasury. Any carrier expenditures in reimbursing the Government for this cost are in the form of tolls, licenses, or taxes, which are often mixed with a general tax obligation. The extent to which these carrier are subsidizedthat is, the extent to which such payments fall short of completely reimbursing the Government * * * was not considered herein, the costs shown being confined to those directly borne by the carriers (p. 79-82, vol. I). (Italics ours.)

Of course, inland waterway carriers pay no tolls for the use of the improved channels, locks, dams, lighting of channels, etc. Governmental revenue from licenses amounts to very little. Any revenue received by the Government (including States and other taxing authorities) comes from their taxes, if any. Few inland waterway carriers pay any taxes anywhere on floating equipment-generally only on a limited amount of land property and small amounts in

the shape of income taxes. Of course, the largest operator, the Federal Barge Lines, is almost wholly exempt from taxes anywhere. Here is what the Federal Coordinator said about railway and water carrier taxes.

* *

The taxes laid upon railways are relatively much heavier than upon any other form of transport, constituting about 8 percent of their cost. * With water carriers of all types it averages less than 1 percent. * * * The costs per ton handled are rail carriers 30 cents, water carriers 5 cents *** (p. 94, vol. I).

For their taxes representing about 8 cents per dollar of revenue (of which about 46 percent is for schools, 14 percent for public highways, and 40 percent for other governmental purposes) the railroads get the same sort of governmental protection as any ordinary individual and nothing more. But, the waterway carriers paying little or nothing in the way of taxes or tolls, get the use of publicly improved and maintained highways over which to conduct a transportation business in competition with the taxpaying railways. Rail rates must be high enough to include these heavy taxes. Water rates can be made lower for particular users because the tax burden of supporting governmental functions and supplying highway facilities is shifted to the railways, their users, and the taxpaying public.

The Federal Coordinator's Report also states:

Examination reveals that the line costs of the carlot (common carrier) water operations in a number of cases, including the Federal Barge Line operations, are as high as the rail line costs. On the other hand, the line costs of the carge operators in practically every case are considerably below either the present rail-line costs or those potential in cargo-train operation (p. 112, vol. I). (Italics ours.)

It should be kept in mind that such water carrier costs do not include the taxpayers' subsidies, while the rail costs cover all costsnone are hidden in the taxpayer's bills.

Mr. Newton quoted from the report of the Mississippi Valley Committee of the Public Works Administration, dated October 1, 1934, as support for certain of his contentions, so we now turn to that report to ascertain what was said regarding the practicability of some of these inland-waterway projects, their costs for construction and maintenance, dealing particularly with those waterways in which Mr. Newton is especially interested.

This report states that down to the end of 1932 the United States had spent a little less than 2 billion dollars on river and harbor improvements, of which 94 percent was expended after 1882, 74 percent after 1906, and 46 percent after 1920, and of this amount about one billion and a half dollars was chargeable to navigation alone, and about $440,000,000 to navigation on the Mississippi River and its tributaries. It may be added that about $117,000,000 additional was expended in 1933. Millions have since been spent or appropriated. As to navigation in general the report says:

These legally navigable channels are in some cases no more than that. We need new estimating, accounting, and cost-finding technique not only to weigh the advantages and disadvantages of river transportation, but to determine the proper place of inland waterways in a coordinated national transportation system. It may be desirable to introduce a new element by imposing charges where they are justified by special service and special facilities and where the traffic can bear them.

THE LOWER MISSISSIPPI RIVER

As to the lower Mississippi River, it is stated that the total cost of improvements for navigation may be conservatively estimated at $190,000,000, including $110,000,000 spent, or to be spent, under the adopted plan; that if the volume of annual traffic continues unchanged (the traffic had declined slightly since 1926):

The total Government subsidy provided shippers by water would be, at the time of completion of the work now under construction, about 6 mills per tonmile. Allowing for the meandering course of the river, involving distances by water that are some 50 percent more than those by rail, the actual public expenditures, when reduced to a basis comparable to expenditures for rail haulage, would be approximately 9 mills per ton-mile * * *. Its value as a unit in the national transportation system is generally thought to be great, but the matter seems to merit more thorough and comprehensive consideration than it previously has received * *. A detailed study should be made of the costs

of, and the savings, if any, accruing from the improvement of the lower Mississippi River for purposes of navigation with a view of determining whether or not the savings to shippers warrant the payment by them of any charge for use of the waterways.

It may be well to examine more closely this taxpayers' subsidy on the lower Mississippi, equal to 9 mills per rail-ton-mile, in the light of the average ton-mile revenues paid by shippers to the principal railroads competing with the boats and barges on said river. The two railroads that most closely paralled this river are the Illinois Central and Missouri Pacific railroads who earned from their freight traffic average ton-mile revenues of less than 10 mills per ton-mile.

But, unlike the water carriers operating on the lower Mississippi, these railroads out of these gross earnings had to pay interest on investment in their highways, the maintenance of such highways, and taxes, the latter alone amounting with one line to as high as $965 per mile of road.

Ignoring entirely the transportation charges made by the water carriers, how can there be such a thing as "cheap water transportation" as stated by Mr. Newton as contrasted with the railroads' charges when the taxpayers' contributions in the way of subsidies are equal to the total charge made by the railroads?

How can Mr. Childress consistently contend that both the rail and water rates should be made strictly on a "cost" basis? Of course, Messrs. Newton and Childress want to consider only those costs directly borne by the water carriers and to entirely ignore those borne by the taxpayers. Even with the enormous subsidies received, Mr. Childress' barge line has never made a dollar of net revenue. If there were added to his rates the costs borne by the taxpayers, the result would be charges far in excess of the railway rates, and the same is true as to the rates of the Federal Barge Line and most of the other operators on the inland waterways.

THE FARMERS' INTEREST

The heaviest traffic-carrying part of the lower Mississippi River is between Vicksburg and New Orleans, a stretch of 371 miles, where there was transported in 1932, a total of only about 613,000 tons of farm products, including animals and products, but exclusive of foreign coffee and sisal, and canned goods. The total tonnage transported was 8,482,561 tons, of which 6,568,418 tons was petroleum and

its products, 453,438 tons of sugar, and 93,626 tons of iron and steel and ores. On the 227-mile stretch between Cairo and Memphis a total of 2,905,262 tons of all kinds of freight were transported in 1932, but of this only 375,000 tons were direct products of the American farm.

The Illinois Central and Missouri Pacific railroads serve great and wide-flung agricultural sections of the South and Southwest, and the farmers thereof are vitally dependent upon these and other roads for daily fast and efficient train service in order to market their products in the great consuming centers of the country. Of what value to those farmers is the alleged cheap water transportation (cheap only because of heavy subsidies at the expense of the public) in the movement of strawberries, watermelons, peaches, tomatoes, cabbage, potatoes, and other fresh or green fruits and vegetables? How long are these competing railroads going to be able to survive and to provide these agricultural communities with low cost and efficient transportation for their products if by reason of subsidies granted water carriers and benefiting only a few users, chiefly a few large industries,. the traffic of the railroads is to be unfairly diverted from them with a resultant increase in the average costs per ton of the railroads?

The following table shows as to 1933 the tons of agricultural products, including animals and products, originating on and handled by each of these railroads competing with boats on the lower Mississippi:

A very considerable portion of this tonnage consisted of the more perishable agricultural products not readily susceptible of water transportation.

THE OHIO RIVER

The Ohio River situation is interesting. It is 980 miles from Pittsburgh to Cairo, and on this stretch we find 49 locks and dams, or an average of one for every 20 miles. These locks and dams were constructed, and are maintained and operated by the Federal Government at enormous expense. Certainly this is not a "natural" waterway. Who uses this river? The report of the United States Mississippi Valley Committee says:

Private carriers-largely coal and steel companies-now transport more than 95 percent of the total commerce on the Ohio River.

To these might well be added the large petroleum companies. The same report goes on to say:

The Ohio itself carries more river traffic than does the Mississippi. Practically all this traffic is handled by private carriers who pay no tolls * * The committee believes that this policy should be modified.