will be noted from the accompanying digest of several decisions prior to May 1932, the Interstate Commerce Commission unquestionably conceived it to be their duty to carry out the expressed will of Congress. Beginning, however, in 1932, in several cases involving rail and water rates, decisions of the Interstate Commerce Commission are at variance with the decisions rendered prior to that time. In 1918 the Federal Government organized and began the operation of transportation service on the Mississippi and Warrior Rivers. Prior to and at the time this service was inaugurated, rail rates to Mississippi River points were much lower than to contiguous inland points. In a decision rendered December 2, 1919, the Interstate Commerce Commission ordered the rail rates to Mississippi River points to be on a dry-land basis, thus wiping out the discriminations between rates to river points and contiguous inland points. This decision, along with those enumerated in the accompanying memorandum, indicate that up to May 1932 the Commission's decisions were in harmony with the policy of Congress in respect to the development of inland waterways. Since that date (May 1932) decisions enumerated are at variance not only with the policy of Congress but with their own previous interpretations of the law. What the river carriers are seeking is the enactment of legislation which will more clearly define what is meant by the terms "encourage and promote water transportation", "just and reasonable rates". and "reasonably compensatory rates."

The following are a few typical illustrations of existing disparities which I believe will show the need for legislation along the lines suggested:

In my testimony I tried to make it clear that at normal rail rates, that is, rates that bore the approval of the Interstate Commerce Commission as "just and reasonable" and "reasonably compensatory", prior to 1932, common carriers on the rivers can operate successfully and reflect substantial economies to the public but it is not possible for river carriers to offer substantial differentials below rail rates that are purposely depressed to water competitive points. If this system of rate making is legalized, the unequivocal answer to Judge Mansfield's question is that the expenditures for river improvements should be immediately stopped.

Thanking you and the members of your committee for the opportunity to express my views, I am,

Cordially yours,

L. W. CHILDRESS.

CITATION OF DECISIONS RENDERED BY THE INTERSTATE COMMERCE COMMISSION INVOLVING RAIL AND WATER RATES

Following the enactment of section 500 of the Transportation Act, the Interstate Commerce Commission interpreted this action by Congress as a mandate to them to restrain improper rate making by the rail carriers for the purpose of defeating water competition. During the succeeding 10 years, the decisions of the Commission in cases where rail and water rates were in conflict, observed this mandate. In line with this view, the southern and southwestern rail carriers were deprived of the long existing fourth-section relief, under which for many years they had maintained rates between river points so far below the normal levels that no business man would think of investing in a river transportation enterprise. The withdrawal of the fourth-section relief and the revision of the rates to a "dry-land basis", such as was done in the Memphis-Southwestern Investigation (55 I. C. C. 515), is characterized by Coordinator Eastman as a “land mark.” I quote from his remarks concerning this decision in his fourth report:

At that time not a boat was operating between St. Louis and New Orleans, except the small fleet of Government barges, nor between Memphis and New Orleans. This decision was followed by others of like effect, and gradually the railroad rates in the South were in way of being revised to what was called. a "dry-land" basis. That, together with the provision of better channels and other facilities, gave navigation on the Mississippi River and its tributaries its chance to redevelop.

However, since 1932, as I have repeatedly asserted, the Commission has set out to reestablish the very situation which section 500 was designed to correct and which the Commission did correct following its enactment. Since 1932 the rail carriers have had little difficulty in securing fourth-section relief between the points where it formerly existed. Here are some of the cases:

Petroleum Products from New Orleans to Memphis, 194 (I. C. C. 31) Under date of May 8, 1933, the Commission granted the rail carriers fourth-section relief to reduce the rate on gasoline from 30 cents per hundred pounds to 15 cents.

Cottonseed Oil from Memphis (208 I. C. C. 311): Under date of March 20, 1935, the Commission granted the rail carriers fourthsection relief to reduce the rate on cottonseed oil from Memphis to

Cincinnati from 37 cents to 25 cents and to Louisville from 34 cents to 25 cents per hundred pounds.

Barrel Heads and Sheet Steel to New Orleans (206 I. C. C. 281): Under date of January 29, 1935, the Commission granted the rail carriers fourth-section relief to reduce the rate on barrel heads and sheet steel from St. Louis to New Orleans from 4812 cents on sheet steel and 76 cents on barrel heads to 372 cents.

Numerous other cases in which fourth-section relief has been granted since 1932 could also be cited but these three will suffice to illustrate the point that since 1932, numerous decisions of the Commission are at variance with those prior to that time.

Following the 1920 amendment, the Commission also established the principle that where the rail carriers sought by reducing rates to deprive the water carriers of business which the latter had succeeded in securing, careful consideration should be given to the effect it would have on the water carriers if the rail carriers were permitted through rate reductions to make substantial inroads on. the tonnage of the water carriers. This principle is clearly set forth in Commodity Rates to Pacific Coast Terminals (107 I. Č. C. 421), decided March 1, 1926. I quote from pages 438 and 439 of this decision as follows:

Sec

There is another phase of this matter which must not be overlooked. tion 500 of the Transportation Act, 1920, declares the policy of Congress to be "to promote, encourage, and develop water transportation, service, and facilities in connection with the commerce of the United States, and to foster and preserve in full vigor both rail and water transportation." The field of operations of the water lines is restricted to a comparatively narrow area along the Atlantic seaboard and to a much narrower area along the Pacific coast. Since but little traffic originates at the ports, the water lines must reach out for it into the interior. The inherent disadvantages of shipping by water prohibit them from competing with the rail lines at points where the combined rail and water charges equal the all-rail charges, and consequently the territory from which they may draw traffic is confined to an area from which the rail rates plus the water charges are substantially lower than the all-rail rates. Their destination territory is confined almost exclusively to the Pacific Coast cities. Unlike the rail carriers, they have no intermediate territory from which to draw or to which to deliver traffic. It is strongly urged, therefore, that to permit the western carriers to publish the proposed rates from Chicago for the avowed purpose of depriving the water lines of a substantial portion of such traffic as they are now able to obtain would be to disregard wholly the policy of Congress to promote, encourage, and develop water transportation. To be of material benefit to the rail carriers a substantial portion of this tonnage must be diverted to their lines. The declared policy of Congress is to foster and preserve in full vigor both rail and water transportation.

If the hopes of the applicants should be realized the benefits which they as a whole might obtain from the granting of the application would be greatly disproportionate to the loss which the water lines would suffer. The record shows that the total tonnage, both east-bound and west-bound, of all the water lines is but a very small fraction of that of the transcontinental carriers operating west of Chicago. It is evident, therefore, that the diversion of any substantial tonnage from the water lines would have but an inappreciable effect on the net revenues of the rail carriers. On the other hand, it might very seriously impair the ability of the water lines to maintain their present standard of service.

In contract with the principle there enunciated, I call attention to the Sugar Cases of 1933 (195 I. C. C. 127). In the Sugar cases the rail carriers were permitted to reduce rates to a vast destination area. Examples of the reductions authorized by the Commission are New Orleans to St. Louis, reduced from 50 cents to 32 cents per hundred

pounds, and New Orleans to Chicago from 54 cents to 34 cents. In the proceedings before the Commission, it was clearly shown that this sugar traffic was the backbone of both our lines' tonnage and also that of the Federal Barge Lines. That one commodity represented over 30 percent of our total tonnage and less than 2 percent of the rail carriers' total tonnage. The reduction authorized was to a level substantially lower than charged by either the Federal Barge Lines or our line. It took effect on August 1, 1933, and while on that date our line had accumulated a $55,000 net profit for the year, the reduction forced on us resulted in our showing a net deficit of $15,000 on December 31.

Following the enactment of section 500 in 1920, the Commission also established the principle that it would be improper for the rail carriers to establish rates from noncompetitive origins to common water competitive markets, to defeat water competition. This principle is set forth in Consolidated Southwestern Cases (123 I. Ĉ. C. 203), decided April 5, 1927. I quote from page 341 as follows:

The traffic naturally tributary to the ocean lines is, of course, the traffic between trunk-line territory and the Texas ports and points contiguous thereto. To permit the rail lines from St. Louis, Chicago, Pittsburgh, Cleveland, and other points to maintain rates so low as to deprive such water carriers of the traffic naturally theirs is not in accord with the spirit of section 500.

As a clear cut illustration of the reversal of principles laid down following 1920, I desire to call attention to Iron and Steel between South and Southwest (192 I. C. C. 257). By the terms of this decision rates on iron and steel were reduced from St. Louis and other producing points in central territory to Texas ports for the stated purpose of depriving the water carriers of traffic which they enjoyed. The reduced rates became effective on July 28, 1933. By the terms of this decision the rate from St. Louis to Houston, for example, was reduced from 74 cents to 4212 cents.

Following the enactment of section 500 the Commission also established the principle that the rail carriers should not be permitted to reduce rates to meet water competition if such action results in little or no profit to themselves. This principle is most clearly set forth in the decision in Tin Plate to Sacramento (140 I. C. C. 643), decided April 9, 1928. In that case the rail carriers sought authority to reduce an existing all-rail rate of 18.5 cents to 9 cents per hundred pounds to meet water competition. The proposed 9 cents was found to be so low as to create little or no profit for the rail carriers. The principle established by the Commission is set forth in one paragraph of the decision reading as follows:

Respondents are undoubtedly within their rights in endeavoring to secure additional tonnage, and this is not offset by the fact that at present the additional tonnage is hauled by a water line. But it clearly would defeat the intent of Congress to foster transportation by water as well as rail in full vigor if in any case rail carriers were permitted, at little or no profit to themselves, to operate so as to deprive water carriers of traffic which they now enjoy, and upon which their continued existence depends to some extent. Moreover tonnage obtained under such circumstances throws upon the balance of the traffic the burden of providing the bulk of the net return contemplated in section 15 (a) of the act.

By way of contrast, in 1932 the rail carriers filed tariffs reducing rates on coffee from New Orleans to St. Louis, Chicago, and other central points. The rate to St. Louis, for example, was thus reduced

from 50 cents to 32 cents per hundred pounds. Protest and request for suspension was filed by the water lines with the Commission in which it was shown that from New Orleans the lowest water rate to St. Louis was 40 cents per hundred pounds. The Commission refused to grant suspension and the rates became effective. Statistics compiled by the rail carriers themselves, show that in the year before the reduction they handled from New Orleans to the affected destination territory 30,179 tons on which they received $317,412 gross revenue. In the year following the reduction, they handled 40,578 tons at a gross revenue of $300,457. This result was predicted and the prediction was supported in the request for suspension but the Commission did not see fit to declare an investigation.

The same is true of the rates on sugar authorized by the Commission in 195 I. C. C. 127, Sugar Cases of 1933. As compared with the normal rates in effect in 1931, the 1934 revenue yield to the rail carriers after reductions, shows a gross revenue reduction on the tonnage handled of in excess of $6,000,000.

So far I have dealt with abandonment or reversal of policies established prior to 1930. We have also been faced with changing ideas as to interpretations of the Interstate Commerce Act itself. Thus in transcontinental fourth-section application 14080 on sugar, as late as August 1932 the Commission found that a rate of 62 cents would not be compensatory for the haul from San Francisco to St. Louis and Chicago. In October 1935 under another trial of the same procedure with practically the same cost figures before them, they found that 50 cents would be compensatory. In the case of transcontinental eastbound canned goods, Pacific coast to central territory, they refused to authorize a reduction rail rates from $1.05 to 90 cents prior to 1932. However, repeated attempts on the part of the rail carriers following the initial case, resulted in two more I. & S. cases. In the first of these a reduction to 98 cents was authorized but rates were never published. In the second the 90-cent rate was authorized. Then, effective December 25, 1933, the rail carriers reduced to 80 cents and the Commission refused to even suspend the tariffs, although they had had three separate I. & S. cases in the process of getting the rate down from $1.05 to 90 cents.

J. SINCLAIR, CHAIRMAN, TRANS-ATLANTIC ASSOCIATED
FREIGHT CONFERENCES, NEW YORK

(Letter of Mar. 2, 1936)

I appreciate your having advised me under date of February 27 that hearing will be held on March 3 on H. R. 5379, regarding which I did not have an opportunity to testify at the last hearing, but previous appointments out of town prevent my attending any day this week. I will, therefore, take this means of making a few comments. Section 302 (c) provides that no change is made in part I of the act with respect to the relationship of water carriers and rail carriers. In this respect, I have in mind section 6 (13) (d) and section 25 (4). I will refer to this under section 323.

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