roads are unable, because of the restrictions of the existing fourth section of the act, to make such competitive rates, if the interior is to get the full benefit of the lower rate made by the barge lines to the river ports, plus the short line haul rate from the river point to the interior, the commodity must move by water to the port, be transferred from there to cars, and then move perhaps on a back haul to the interior point, or, in any event, if a continued forward movement, it is subject to the transfer. If the Pettengill bill is approved, and which provides for the application of the aggregate of intermediates as a maximum, the railroads would combine their water competitive rate to the port with the rate from the port to the interior point and make the maximum rate from the origin to the interior. They would transport it on the most direct route to the interior point, and without transfer of lading.

From this brief statement, touching only the high points but illustrated by representative situations, it is clear that it is in the general public interest, and in the interest of the water as well as the rail operations, that there should be a normal, healthful competitive situation between the different types and forms of transportation under conditions of fair equality, and that the removal of the rigid requirements of the fourth section as they exist today is highly desirable.

What I have stated, I believe, will be borne out by an impartial investigation of the Mississippi Valley situation predicated on what has happened to communities, commodities, and transportation companies, both rail and water, since the rate structure was revised from the water-competitive basis that was formerly in effect to the "dryland" basis that is now in effect. This experience demonstrates clearly, I think, that the Pettengill bill is in the interest of the public as well as railroads.

Now, in closing, having in mind that I must hurry, based on some inquiries and discussions that developed yesterday, I would like to point out two facts to you gentlemen, that in the Mississippi Valley, for a long period of years, we had an actual experience with fourthsection relief. I mean with the sort of a situation which in effect would obtain if the Pettengill bill is passed. As I said in the beginning, I have had almost 37 years of experience with the Illinois Central. It was in 1919 that the Mississippi Valley rate structure was changed from this competitive basis to the frozen or rigid basis. the fourth-section basis. So that you see, in my own experience, for over 20 years, we had relief there. We were able to make rates at the ports in competition with the other forms of transportation, and in ever 20 years' experience I do not know of any time when the rates at the interior were increased to offset the lower rates at the ports. Any change in rates that may have changed, a slight increase at the interior, as compared with the ports, was due to normal rate adjustment, and it was just as frequently in those cases that the difference was narrow as that it was wide.

I do not think anyone ever thought of the transfer of any of the expense of operating in the competitive areas to the interior areas. Now, in answer to or following up Mr. Reece's inquiry yesterday as to the fact that the lower rates obtained at the more distant competitive points, the tendency would be rather to lower the interior rate than raise it. There are some elements that work directly to

that end. In the first place, of course, if this modification of the fourth section proposed in this bill is made, as I said, the aggregate of the intermediates would still apply, and as the rate would go down to the ports, the short rate back into the interior would be added to it to provide the maximum.

Now, that would have a tendency to bring down the rate at the interior points; and then the other point which Mr. Reece brought out would certainly have its effect, and that is that with the lower rate at the competitive points, the inclination would be at the interior to point that out and show that while perhaps they might not have the rate as low as the competitive rate, still their rate ought to be lower.

Now, that might not always result, but certainly the tendency would be there to at least hold the rates where they are, and then, beyond all that, in these days, all of these rates have been passed upon by the Commission, practically all of them. They have been prescribed as reasonable maximum rates.

Now, the rates that exist today at the interior are held in place and in position largely by law, and on top of that, if there should be any tendency on the part of the railroads to do it, the public is very amply protected under the other provisions of the act relating to reasonableness of the rates, nondiscriminatory rates.

There is just one other point I want to make: I referred to the fact that, since the revision in the Mississippi Valley rate structure, there has been a tremendous development of river operations and coastwise operations.

Now, it might be said by some that before that they could not develop because you could make rates that would prevent it. That is not the fact. The fact is that within that period since our rate structure was frozen there have been tremendous developments in equipment, mechanical operations, and in the character of the waterways, that would just naturally develop the water operations.

The railroads know there will be water operations. We expect it, and we fully anticipated it, but we have the right, we thinkwe know we have the right-to share in that traffic.

You have heard already and you will hear a great deal more about the effect and the result of efforts to obtain relief under the provisions of the act as they now stand, and when it is all simmered down and boiled down, the fact remains that the railroads are in a strait-jacket. Our hands are tied; our feet are tied. We can do nothing effective in meeting this competition.

We have been good citizens and good neighbors in our territory, wherever we operate. We have a right to share in that business. We have a right to equal opportunity, and we cannot have it under the present provisions of the law.

Mr. MARTIN. What do you think would be the result if you had the same freedom of action that the water carriers have on the waterways no regulation whatever?

Mr. Law. Well, I would not like to see that, Mr. Martin. I think that within reason there should be regulation of transportation. I think there should be the regulations to insure fair rates to all, nondiscriminatory rates.

I think if all transportation were turned loose it would be bad for all transportation.

Mr. PETTENGILL. Go back to rebates, and the building up of one city at the expense of another city?

Mr. Law. It might; yes, it might. Humanity has not changed so very much through the years.

Mr. PETTENGILL. Well, the fact is that the railroads are forbidden to own water carriers, and that is designed to encourage competition between the two services.

Mr. Law. Yes.

Mr. PETTENGILL. But at the same time we do that, we prevent the railroads from competing with the water carriers.

Mr. Law. That is right.

Mr. PETTENGILL. I was on the so-called "Shannon committee " in 1932.

Mr. LAW. Well, you recognize the quotations, then, and the place from whence they were taken.

Mr. PETTENGILL (continuing). On Government competition with private enterprise.

During that summer and fall we held hearings all over the Mississippi Valley, and I came to the very definite conclusion then that the Government's barge line was operating at a loss, and that those operations at a loss were causing the railroads, competing, to operate at a loss, which required the Government to finance the railroads from R. F. C. loans to keep them out of the bankruptcy courts with the result that the Government is using its deficit in barge operations to finance the railroads' losses.

That is all, Mr. Law.

Mr. Law. Yes, sir; Mr. Chairman. Thank you.

STATEMENT OF R. G. HODGKIN, ASSISTANT FREIGHT TRAFFIC MANAGER, ATLANTIC COAST LINE RAILROAD, WILMINGTON, N. C.

Mr. PETTENGILL. We will hear Mr. Hodgkin.

Mr. IIODGKIN. My name is R. G. Hodgkin, assistant freight traffic manager, Atlantic Coast Line Railroad. My home is in Wilmington, N. C.

It is my purpose to supplement the general statements which have been made on behalf of rail carriers by some additional facts with regard to the situation of the railroads which serve the territory immediately contiguous to the South Atlantic coast and the State of Florida.

The Atlantic Coast Line Railroad, with which I am connected, is typical of such carriers. Our rails extend from Norfolk and Richmond, Va., on the north, to Tampa and other points in Florida, on the south, with lines extending to Augusta, Ga., and Montgomery, Ala., on the west. Our lines and those of several subsidiary or affiliated smaller carriers are outlined in red on this map which I would like to show you. Our rails parallel the Atlantic coast for over 650 miles. We serve the Atlantic ports of Norfolk, Va.; Wilmington, N. C.; Charleston, S. C.; Savannah and Brunswick, Ga.; Jacksonville, Fla.; and on the Gulf of Mexico, Tampa and St. Petersburg, Fla. We operate over 2,000 miles of road in Florida, which is a peninsula State entirely surrounded, except to the north, by the At

lantic Ocean and the Gulf of Mexico. The Atlantic Coast Line crosses or parallels many navigable streams. From one end of its line to the other it encounters water competition.

On all of the important traffic between the North and the East, on the one hand, and southern territory served by the Atlantic Coast Line and other railroads similarly situated, on the other hand, there is keen competition with water carriers on the Atlantic Ocean or the inland waterways. In like manner, on the important traffic between the Middle Western States and points in the territory which we serve, particularly the Florida ports and South Atlantic ports, we encounter severe competition with the Federal Barge Line and other barge lines operating on the Ohio, Mississippi, and Warrior Rivers in connection with steamship lines operating from the Gulf ports, such as New Orleans, La., to Tampa, Miama, Jacksonville, Fla., and so forth. There are also steamship lines operating between the Florida ports and western territory in connection with rail lines from or to Gulf ports. In addition, competition of constantly increasing severity has developed with steamship lines which handle traffic to the South Atlantic ports from Louisiana, Texas, and through the Panama Canal to the Pacific coast ports. In conjunction with motor trucks, the operation of which has greatly increased in recent years, these water carriers have made further invasions of the territory served by our lines with the result of ruinous losses in the rail carriers' earnings.

The Florida lines have recently made a thorough investigation as to the movement of freight to, from, and through the Florida ports handled by barge lines on the Mississippi River to or from New Orleans in connection with steamship service between New Orleans and the Florida ports. During the year ending December 31, 1934, such traffic handled by barge and steamer routes to and from Tampa, Fla., including also traffic so handled in connection with trucks to and from interior Florida, amounted to 53,814,000 pounds. During the same period similar traffic handled to and from Jacksonville, Fla., amounted to approximately 15,055,000 pounds. It is to be understood, of course, that these figures cover only western traffic handled by barge and steamer routes through the Gulf ports to and from the Florida ports, and do not include any of the large volume of business handled to and from these and other southern ports originating in or destined to central western territory and handled via rail and water routes through the North Atlantic ports. We know that a very great amount of freight is being so handled. It is an unquestioned fact that since the all-rail rates have been revised in compliance with fourth-section requirements there has been a constantly increasing diversion of western business to water routes. So far as traffic to and from the East may be concerned, the present differences between the all-rail rates and the all-water or the railand-water rates are so great that the rail carriers obtain practically none of this business except such as is on account of its nature inacceptable for transportation by the steamship lines.

A survey was made on the Atlantic Coast Line for the 12-month period ending June 30, 1933, to determine its loss of tonnage in competition with water carriers and trucks. It was estimated that our total loss of revenue for that 12-month period was approximately $10,500,000, of which $1,500,000 was lost to water carriers,

and $9,000,000 to truck service and to truck and water service combined.

The gross freight earnings of our company for the 3 consecutive years of 1932, 1933, and 1934 were in each instance less than onehalf of its gross earnings for 1925 or 1926. While a considerable part of this reduction has doubtless been due to the general business depression, these figures suggest that the estimate of $10,500,000 loss for 12 months as result of competition with other transportation agencies is very conservative indeed.

On citrus fruit alone from Florida the losses of the three initial lines, the Atlantic Coast Line, the Seaboard Air Line, and the Florida East Coast, have been tremendous. During the 1928-29 shipping season, when approximately 22,400,000 boxes of citrus fruit were shipped, 21,740,000 boxes, or 97 percent, moved by rail, 190,000 boxes, or 0.8 of 1 percent, by water, and 500,000 boxes, or 2.2 percent, by truck. That was during the 1928-29 season.

During the 1933-34 season also approximately 22,400,000 boxes were shipped, of which about 11,600,000 boxes, or 51.8 percent, moved by rail, 7,600,000 boxes, or 33.7 percent, by water, and 3,200,000 boxes, or 14.5 percent, by truck.

Summarizing that, during the 1928-29 season, you will notice that the rail lines handled practically all of the business.

During the 1933-34 season, they handled about half of it.

We estimate that from the 1930-31 season through the 1934-35 season the losses of Florida rail lines to boats and trucks amounted, on citrus fruit alone, to about $30,000,000. During the past 2 years, this loss has grown to about $9,000,000 per year.

These facts are mentioned to show the great inroads which have been made in the revenues of the Atlantic Coast Line and other southern lines similarly situated, as a result of water, truck, or truck-andwater competition. As a practical matter, the difficulties encountered by us in an effort to meet such conditions have been immensely enhanced by the long-and-short-haul rule of the fourth section. When the threat of the inauguration of water service for the transportation of Florida citrus fruit first arose, if we could have immediately proceeded with the establishment of competitive rates to the North Atlantic ports without regard to the rates to other destinations, it might have been possible that such water service would never have been furnished. We could not, however, have departed from the terms of the fourth section without authority from the Interstate Commerce Commission, and the Commission could not, under the law, have granted the relief because of potential competition. In other words, if we had asked for it, the Commission could not have granted relief before the steamship lines provided facilities for the transportation of this business and were actually handling it.

In an effort to meet the water competition to some extent the Florida railroads have reduced their rates on citrus fruit to the eastern port cities 12 cents per 100 pounds.

Mr. PETTENGILL. The result of that potential is that the railroads cannot even apply for relief until a vested interest has been created to resist the application?

Mr. HODGKIN. That is correct.

Mr. PETTENGILL. That summarizes it, does it not?