applicable total transportation charges by $2.57 to Chicago and $5.08 per ton to Minneapolis. These figures are truly amazing and could be expanded indefinitely by the selection of additional destinations, but they are sufficient to show the tremendous cost which subsidized water transportation places upon taxpayers for the benefit of a relatively few coal receivers, most of which are large corporations whose need for Federal aid is at least debatable. In conclusion, I would like to express the considered opinion that the real underlying motive of the advocates of this waterway is to secure, by the installation of water competition, lower railroad rates than may otherwise be lawful under the provisions of the Interstate Commerce Act. Schemes of this nature are not unusual, and the late Joseph B. Eastman said in the report he rendered in 1940 as Federal Coordinator of Transportation on Public Aids to Transportation: "It cannot be other than a social waste to supply facilities without charge to the users for the purpose of driving down the charges of competing agencies of transportation capable of rendering service the public needs." The position I am here taking is stated, perhaps accidentally, more accurately and succinctly on page 6 of the transcript of record of the hearing held by the Board of Engineers for Rivers and Harbors on November 13 and 14, 1945, when the position of one Henry Porter, of Allen, Ky., who favors the waterway, is quoted as, "My reasons are improvements of the valley and seduced freight rates, etc." This, I think, hits the nail squarely on the head. STATEMENT OF ROY S. KERN TO THE UNITED STATES WAR DEPARTMENT, BOARD 01 ENGINEERS FOR RIVERS AND HARBORS, IN OPPOSITION TO PROPOSED CANALIZATION OF BIG SANDY RIVER AND TUG AND LEVISA FORKS I appear as the traffic spokesman for the many railroad companies which would be adversely affected and irreparably injured if the report of the District Engi neer at Huntington, W. Va., and the Division Engineer at Columbus, Ohio, contemplating canalization of the Big Sandy River and large portions of its Tug and Levisa Forks is approved, the waterway constructed and successfully operated The railroads which would be most directly affected and subjected to the greatest injury are, of course, The Chesapeake and Ohio Railway Company and the Norfolk and Western Railway Company, which together parallel the entire project. Because, however, of the estimated enormous tonnage of coal to be originated on the waterway and the predicted wide distribution of it in the many coal-consuming markets on the Ohio and Mississippi River systems and to many interior destinations, the injurious results in the form of traffic and revenue losses will extend to practically all of the important railroads in the Eastern, Southern, Midwestern, and Northwestern sections of the country. For this reason the following thirty-five railroad companies have expressed concern with the matter and have specifically authorized, and concur in, this statement: Alton Railroad Company (Henry A. Gardner, Trustee), The Baltimore and Ohio Railroad Company, The Chicago, Indianapolis and Louisville Railway Company (L. F. Deramus and Chicago, Milwaukee, St. Paul and Pacific Railroad Company (Henry A. Scandrett, Walter J. Cummings and George I. Haight, Trustees) Chicago, Rock Island and Pacific Railway Company (Joseph B. Fleming and Aaron Colnon, Trustees), The Clinchfield Railroad Company Detroit, Toledo and Ironton Railroad Company Erie Railroad Company Grand Trunk Western Railroad Company Illinois Central Railroad Company Interstate Railroad Company Louisville and Nashville Railroad Company Minneapolis & St. Louis Railway Company, The Missouri Pacific Railroad Company (Guy A. Thompson, Trustee) New York, Chicago and St. Louis Railroad Company, The Pere Marquette Railway Company Pittsburg & Shawmut Railroad Company, The Pittsburgh and Lake Erie Railroad Company, The Pittsburgh & West Virginia Railway Company, The Pittsburgh, Shawmut & Northern Railroad Company (John D. Dickson, Receiver), The Southern Railway Company Virginian Railway Company, The Wabash Railroad Company Western Maryland Railway Company Wheeling and Lake Erie Railway Company, The It should be observed in passing that the thirty-five railroad companies named collectively own and operate most of the railroad mileage in the Eastern, Southern, Midwestern, and Northwestern sections of the country, and they transport the great bulk of this nation's freight traffic including particularly bituminous coal. The facts and arguments I shall present are the result of special studies of the reports of the district and division engineers which have been conducted by the railroads for which I speak thru a committee of traffic officers, of which I am chairman. They, therefore, reflect the combined work, judgment, and experience of railroad traffic officials and myself. That the record may show that I am, by training and experience, qualified to testify as to the matters and things hereinafter discussed, I wish to state that I have been continuously engaged in coal and other traffic, rate, and commerce work since 1918 and have frequently appeared as a traffic witness and as counsel in proceedings before the Interstate Commerce Commission, numerous State regulatory agencies, Federal Power Commission, the Board for Rivers and Harbors, and various congressional committees. I am now chairman of the following organizations, all of which are maintained by Eastern railroads : Coal, Coke & Iron Ore Committee--CFA Territory Pittsburgh-M & S Valleys District Committee Ohio Bureau of Coal Statistics Ohio Coal Tariff Bureau In what is to follow I shall show that- 1. A waterway such as the proposed Big Sandy project necessarily and inevitably creates discriminations and preferences of the kind declared to be unlaful in railroad, common carrier water, and motor-truck rates. 2. The area adjacent to the Big Sandy is now adequately served by existing railroad and highway facilities and the waterway would, therefore, constitute an unnecessary duplication of transportation facilities not required or even desirable in the public interest. 3. Construction of the Big Sandy project would be wholly inconsistent with and do violence to the national transportation policy as adopted by Congress in the Transportation Act of 1940. 4. The estimated tonnage of coal to be transported on the Big Sandy project is unconscionably high and cannot possibly be developed. 5. The predicted so-called "public savings" from the Big Sandy project are excessive, due to inflated estimated tonnages and to improper assumptions and methods of calculation. 6. The theory of so-called "feeder value" of the Big Sandy improvement is without merit and should not be considered. 7. The Big Sandy project would be of no real military value but might by weakening essential modes of transportation actually impair national defense in times of war emergency. 8. Coals produced in or near the valleys of the Big Sandy, Tug and Levisa now find ready markets in all the areas to which movements via water are predicted as well as elsewhere, and do not need subsidized transportation. 9. Any transportation savings that might be made possible by the Big Sandy improvement would inure to special interests and not to the public or to any large segment of it. 10. The movement of 15,000,000 tons on the Big Sandy would seriously reduce revenues of many railroads; would injure coal operators within fields not favored by subsidized transportation; and would demoralize coal markets and unbalance production and distribution of coal. 11. So long as railroads are essential to the national economy, the diversion of traffic to subsidized waterways must ultimately result in higher rail rates on unaffected traffic and the Interstate Commerce Act actually contemplates rate increases under such circumstances. I shall now deal with these eleven important points in substantially the order in which they are stated above. I. THE PROPOSED BIG SANDY WATERWAY WOULD CREATE DISCRIMINATIONS, PREFERENCES AND PREJUDICES DECLARED UNLAWFUL AND AGAINST PUBLIC POLICY BY THE INTERSTATE COMMERCE ACT IN REGARD TO RAILROAD AND COMMON CARRIER MOTORTRUCK AND WATER RATES Sections 2 and 3 of Part I of the Interstate Commerce Act, as amended, prohibit all manner of discriminations, prejudices, and preferences in railroad freight rates, rules and regulations. These sections and the reasons for their enactment have many times been declared by the Supreme Court of the United States to be the most important and fundamental of any in the entire legislative plan to regulate railroads in the public interest. A few examples of the strong language which the Supreme Court has used in this regard follow :' "The great purpose of the act was to secure equality of rates as to all and to destroy favoritism." New York, N. H. & H. R. R. Co. v. Interstate Commerce Commission, 200 U. S. 361. "To provide an effective means for redressing the wrongs resulting from unjust discrimination and undue preference was among the principal purposes of the act." Texas & P. Ry. Co. v. Abiline Cotton Oil Co., 204 U. S. 426; Interstate Commerce Commission v. Chicago, R. I. & P. Ry. Co., 218 U. S. 88. "The purpose of Congress was to cut up by the roots every form of discrimination, favoritism, and inequality." Louisville & N. R. Co., v. Mottley, 219 U. S. 467. There are similar provisions in Part II of the Interstate Commerce Act governing motor vehicles, and in Part III governing water carriers. Part III of the Act, however, does not apply on bulk freight such as coal, except when handled in tows with other traffic, nor does it apply to private water carriers. Practically all of the coal now moving on inland waterways is therefore not subject to ICC regulations as to rates and none of that proposed to be moved on the Big Sandy would be. In stressing the provisions of Sections 2 and 3 of Part I of the Act, and the corresponding provisions of Parts II and III, it is my purpose to demonstrate that the construction of a waterway such as the Big Sandy project will, in fact is intended to, create the very kinds of discriminations, prejudices, preferences, and favoritism that the Congress and the Courts consider so grossly injurious when indulged in by common carriers by rail and motor truck. An examination of the decisions of the ICC, of State Commissions and of the Courts, both Federal and State, will show that if there are any sections of the Interstate Commerce Act or of State regulatory statutes, which have been rigidly enforced in both letter and spirit, they are those sections prohibiting discrimination, prejudice, and preference. Because of this strict regulation, as well as the consistent policies of railroads designed to promote the free flow of traffic, rates on many commodities, including coal, are published on a group-togroup as distinguished from a point-to-point basis. Thus it is that all of the mines on both the C. & O. Ry. and N. & W. Ry. in the coal fields of Eastern Kentucky and West Virginia through which the Big Sandy, Tug, and Levisa flow are accorded common rates to all markets to which it is predicted that coal will move via the Big Sandy and connecting waterways. This means that every coal mine, whether served by the main line or any of the numerous branches and subbranches of those railroads, is accorded the opportunity to compete with every other mine in the groups at any and all of the markets on equal railroad freight rates. In this connection it should be realized that a railroad, unlike a waterway, can be extended to the mine tipple and that it has ever been the policy of the railroads to construct such extensions if, as and when the occasion requires and the Interstate Commerce Commission permits. Even at this time both the C. & O. Ry. and N. & W. Ry. have under consideration or construction important branch lines in the coal-mining areas adjacent to the Big Sandy and its forks. What has been said of the uniformity of railroad rates from coal originating districts is likewise true at destinations. Large consuming areas are, as the result of competitive influences and to avoid unlawful discriminations and preferences, accorded common, i. e. group, rates. Reciprocal switching and absorption arrangements are also in effect almost universally under which published line haul rates are made applicable to all deliveries within city limits or more extensive switching districts so that all users of rail transportation in any city or industrial district are charged identical rates without regard to their locations within the city or industrial district, or to the railroad serving their plants. On the other hand subsidized, toll-free waterways such as the proposed Big Sandy-used for the most part by private corporations not subject to Federal regulation designed to protect public interest-inevitably cause inequalities in transportation costs which, if they were to be found in railroad rate adjustments, would be considered grossly discriminatory and preferential and soon would be eliminated by cease and desist orders of the Interstate Commerce Commission requiring, perhaps, the payment of damages to those who may have suffered from the injustices. The discriminatory inequalities that the Big Sandy would create, I emphasize, are reflected both in the transportation costs as between users of the waterway and as between users on the one hand and on the other hand all those who are so situated that they cannot take advantage of the government subsidy. That this statement is true may be readily demonstrated from the Engineers' report itself. Table D of Appendix C of the report, for example, shows that a shipper of coal from Naugatuck on Tug Fork may be enabled to move coal to the mouth of the Big Sandy at a cost of 27.64¢ per ton, whereas the cost to the shipper from Kewanee on Levisa Fork would be 46.61¢, a difference in favor of the Naugatuck shipper of 18.97¢ per ton, which is much more than enough to control sales on competitive markets. When shipping by railroad, both movements would be charged the same rate. This, however, is only one of the variables affecting barge shipping costs at points of origination. Another is the expense of getting coal from points of production to the waterway. It is of course impossible for mines directly on the waterway to produce and ship by barge the estimated 15,000,000 tons annually or anything like that great tonnage. This fact is admitted by the District and Division Engineers who declare all coal in the ground within 10 miles of the waterway to be susceptible of barge shipment, but no real consideration seems to have been given to the cost of getting coal so situated to river tipples, nor to the fact that such costs will vary greatly according to the location of the mine, the volume of the movement, and the method of transporting the coal to the waterway. Since no coal is now transported by any means to the Big Sandy or its Forks for barge movement beyond, the actual costs of such services are not determinable, but for my present purposes I shall assume, as does the report, that the coal from mines within 10 miles of the Big Sandy project will be moved to barge loading tipples by motor truck and that the costs thereof will approximate the costs incurred in trucking of coal for like distances from landlocked mines to other waterways. Movements of this character are not numerous because they are seldom economical, but my investigation has uncovered the following examples which I believe are indicative of what the trucking costs to the Big Sandy waterway will be(1) A coal company trucks coal for a distance of three miles from one of its mines to a river tipple at Granville, W. Va., on the Monongahela River at a cost of 40¢ per ton. From another mine of the same company the cost to that tipple is 22¢ net ton for 2.6 miles, and from a third mine the cost is 45¢ for 4.5 miles truck haul. (2) Another coal company trucks coal from a mine to its river tipple at Granville, W. Va., % of a mile or 528 feet for about 5¢ per ton. Incidentally, this movement was formerly handled by a contract trucker at about 5¢ per ton, but he gave up the contract when he found he could not make any money. (3) A coal company trucks coal from two mines to a river tipple at Maidsville, W. Va., on the Monogahela for distances of three and four miles at a cost of 40¢ per ton. (4) Not long ago a producer of coal at Rayland, Ohio, contracted to supply 150.000 tons of coal per year to a power plant at Dille, Ohio, on the Ohio River and secured bids from truckers for a movement of 12 miles over hard-surfaced highways to a facility for loading barges in which the coal was to have been transported to the consignee. The bids received ranged from 50¢ to 55¢ per ton and the coal producer estimated that with his own equipment the coal could be trucked for from 30¢ to 40¢ per ton. (5) There has in the past been a substantial movement of coal from a mine to a facility on the Youghiogheny River in or near McKeesport, Pa., for loading barges, a distance of about two miles over a good hard-surfaced highway, and the cost was estimated at 18¢ per ton. These few examples of actual costs of trucking coal to navigable waterways should, I believe, serve to show that there will be no uniformity in the costs of getting coal from nearby mines to the Big Sandy waterway and point to the fact that the absence of a careful survey of such costs by the District and Division Ergineers is a very serious defect in the report which renders unsound and untenable the tonnage estimates and so-called public savings insofar as they may be predicated upon movements by truck to barge loading facilities. Not all of the mines within ten miles of the Big Sandy waterway would have improved hard-surfaced highways available for the transportation of their coal, and consequently it may well be expected that their costs would be even more variable and substantial than the instances I have cited. This feature will, however, be dealt with in greater detail by another witness. Substantial differences in the costs to users of a waterway are also occasioned by the locations of consumers in relation to the waterway. Not all such are so situated as to receive coal at their plants direct from barges. An exhaustive treatment of this highly involved phase of the question would require more time and space than are available to me and for present purposes it will suffice to point out some of the variations reflected in Table E of Appendix C.of the report, which so far as I have been able to learn relate for the most part to prospective Big Sandy coal receivers favorably situated from the standpoint of water transportation. Altho this obviously tends toward uniformity of transportation costs, the differences are still substantial. The reports of 14 prospective consumers of high volatile coal at Chicago are tabulated in Table E and the estimated costs via barge routes range from $2.28 to $2.53 per ton, a difference of 25¢. At the Twin Cities the spread in water costs is 40g; at Winona 13¢; at Dubuque 15¢; at Louisville 14¢, and at Cincinnati 20¢. These variations, while substantial, are much less than those which Big Sandy shippers would actually experience because the estimates in Table E are apparently based upon average transportation costs from river tipples, and they do not take into account the expenses that would be incurred in getting the coal to the waterway. In addition to water-transportation costs which are dependent upon locations of mines and of consumers in relation to the waterway, it should also be borne in mind that substantial differences in costs arise by reason of the quantities of coal shipped by any mine or to any given consignee. For example, very large users of coal frequently own their own mines, river equipment and transfer facilities, with the result that they can obtain their coal at minimum transportation costs. Smaller users, however, must rely upon contract barge lines, whose charges are necessarily higher than the costs of the large private operator, but they nevertheless will vary, depending upon the quantity moved to a consignee and upon transportation factors. The still smaller consumer of coal and the retail dealer serving household users seldom find it possible to utilize water transportation because they cannot accept and dispose of bargeload quantities. These are the important reasons why the great bulk of the coal transported by barge on the Ohio River System is what we call captive coal, by which is meant coal produced, transported and consumed or marketed by the same company or interest, and why nearly all the rest of the river tonnage is coal moved to very large industrial consumers by contract water carriers. It should here be stated parenthetically that the facts I have just recited point out rather strikingly a most anomalous and, I believe, dangerous situation While the Congress is striving to devise legislation for the purpose of aiding and increasing the number of small businesses, the Government is engaged in the operation of an extensive system of subsidized waterways of which the Big Sandy would become a part, that are utilized, at least as far as the transportation of coal is concerned, almost exclusively by big business. This obviously makes it increasingly more difficult for small industries to exist under the stress of competition with large corporations which are in position to and do receive that are in effect enormous subsidies thru the free use of waterways provided and maintained at public expense. It also tends to render futile or to neutralize anything Congress has done or may do in the way of assistance to small business enterprises. |