haul freight on a transit balance. The transit arrangement in effect by the railroads is used as a means of controlling the traffic once they get hold of it. As being reasonably explanatory of transit arrangements let it be first assumed that: 1. Wheat originates in Omaha. 2. Is milled into flour in St. Louis. 3. The flour is then shipped to Cincinnati. 4. The carload rate on the wheat from Omaha to St. Louis is 26 cents per hundred pounds. 5. The carload rate on flour from Omaha to Cincinnati is 32 cents per hundred pounds. When the mill at St. Louis receives the wheat it pays the rate of 26 cents per hundred pounds. When it mills the wheat into flour and ships to Cincinnati it will pay the difference between the rate of 26 cents per hundred pounds on the wheat and the rate of 32 cents per hundred pounds on flour from Omaha to Cincinnati or 6 cents per hundred pounds plus the milling-in-transit charge stated in the grain and products tariff. This is the transit balance. By the use of transit rates railroads indulge in many circuitous routes and the Interstate Commerce Commission is constantly collecting the circuities, shortenthe routes from origin of the grain via the milling points to ultimate destination of the milled products. The delivering railroad receives for its service not the transit balance, but its full share of the through rate. While water carriers are not permitted to participate in transit arrangements, it would seem from recent observations of regulatory measures and the constant controversies between water and rail lines that eventually the Interstate Commerce Commission must require or permit water-carrier participation in such rates, otherwise the general public will not be permitted to take full advantage of improved waterways. (Tables 2 and 3 follow:) TABLE 2.-Red River survey-Relationship of prospective tonnages and savings as between interstate and intrastate traffic TABLE 2.-Red River survey-Relationship of prospective tonnages and savings as between interstate and intrastate traffic-Continued 1 Denotes percent that each separate commodity tonnage is of total tonnages. 2 Denotes percent that each separate commodity saving is of total savings. Source: Compiled from data submitted by railroads to Board of Investigation and Research (Transportation Act 1940). TABLE 3.-Red River survey-Relationship of prospective tonnages that were accorded transit privileges and savings thereon, together with percentages that tonnages and savings are of total tonnages and total savings on the respective commodities 1 These tonnages and savings are included in the totals and grand total shown in table 2. Colonel FERINGA. Waybill sampling process by Board of Investigation and Research: The waybill study conducted by the Board of Investigation and Research is based on a 12-day investigation of the traffic moved by class I railroad carriers in 1939. The sample included waybills for all terminated freight on one day out of each calendar month, so chosen that each weekday was represented twice. Both seasonal and weekly variations were thus taken into consideration. The Board of Investigation and Research compared the total freight disclosed by its sampling process with the total freight moved in 1939 as reported by the rails to the Interstate Commerce Commission and found this total to be 27.7 times its sample. The accuracy of the sample is attested by the fact that the application of this factor to individual commodities was found by statistical tests to result in a probable error of less than one-half of 1 percent. The railroad claim that the multiplier should be 25.5 because 306 waybill issuing days-365 days minus 52 Sundays and minus 7 holidays per year is only 25.5 times the 12 sample days, would be valid only if traffic flowed at a uniform rate throughout the year, which is obviously contrary to the facts. The sample includes 690,000 waybill abstracts and represents a movement of 900,000 carloads of freight. The data were used extensively by the Board of Investigation and Research in the preparation of its comprehensive reports on the traffic flows of coal, petroleum products, cement, hogs and hog products, potatoes, and paperboard products. Members of the staff of the Interstate Commerce Commission are making constant use of the above waybill material in their studies of the pattern of movement of certain commodities and they have accepted the 27.7 factor as giving a correct representation of the years' business. The average savings per ton are attacked in the opponents' brief on a comparison with the unit savings claimed in reports on the Arkansas and Trinity Rivers improvements. This is done on the basis of comparative length in miles of supposed improvements. This basis ignores altogether that the freight savings are figured for the entire length of the water route, origin to destination, via the Red in its existing connections on tonnage that, without the Red River improvement, would not reach the existing water routes at all. This ignores the "feeder value" of each new waterway, such as the Red, to the interconnected inland waterway system. As stated by the Chairman in his address to the Board, the progressive improvement of every tributary branch of the inland waterways adds to the value of the whole system by bringing new sources of raw material and to markets into economic reach of each other. When such improvements bring tonnage to the waterway system that would otherwise remain inaccessible, the savings made on the transportation for the entire distance of the movement is creditable to the improvement in question. The Board is censured for apparently failing to consider pipe-line barge rates on gasoline to Helena. The Board concedes the normal gasoline traffic to the pipe line to Helena, but finds that barges do continue to handle gasoline in large volume because of the inherent inflexibility and other advantages of the service, including barge storage. In my opinion, pipe lines are actually common carriers in name only. As soon as a pipe line starts operations it appears that the owning refiners usually begin to "freeze out" the smaller independent producers by the device of high minimum tender, and so forth, and barge transportation is a welcome alternative. Waterways are found transporting both crude oil and gasoline in large quantities although in competition with pipe lines of long standing, and it is not feared that the single 10-inch line to Helena will monopolize the output of independent producers in the Red River area, especially as a minimum tender of 10,000 barrels, not accumulation, is required. Mr. Roberts claims that gasoline is sold on the basis of railroad rates regardless of whether it is transported in tank cars, pipe line, river barge, or intercoastal tankers. He says that it is a matter of record in a number of cases before the Interstate Commerce Commission. What really controls the rates on gasoline to the consumer and prevents it from selling at from 50 or 60 cents a gallon is the fact that the overwhelming preponderance of petroleum and petroleum products is moved to the centers of distribution by tanker, by inland tank barge, and by pipe line. It is true in general that any particular grade of gasoline at any particular consuming point sells at the same price regardless of whether it traveled by tanker, tank barge, pipe line, railroad, or motortruck. The transportation cost is one of the major costs between crude oil in the ground and gasoline in the filling station pump. The companies that produce, refine, and distribute it use various modes of transportation, but they always seek the lowest cost agency when it is conveniently available. Competition is keen among them and they base their selling prices on the aggregate cost to them of the transportation. Thus in the long run the more petroleum and petroleum products are transported by tank barge the lower the average cost of gasoline becomes to the consumer. In the hearings before the Temporary National Economic Commit.ee, Congress of the United States, Seventy-sixth Congress, second session, on October 2, 3, 4, 5, 6, and 7, 1939, page 8705, in the testimony of Mr. Sidney A. Swensrud, vice president of the Standard Oil Co. of Ohio, Cleveland, Ohio, he said: The meaning of passing lower costs to consumers.-There is properly much general interest in the extent to which lower costs resulting from improved equipment or techniques are passed on to consumers in the form of lower prices. For gasoline, lower costs are obviously of various types-they may result from a decrease in prices for crude oil; from lower transportation, refinery, or marketing costs; and from better realizations on other petroleum products. Lower costs resulting from the use of new equipment which requires a capital investment are much more important in the petroleum industry than cost reductions resulting from the adoption of new methods which require no capital investment. There is apprently in some circles a naive belief that there is something wrong unless prices are automatically lowered by the exact amount of saving achieved. This belief completely disregards the way of business and businessmen actually function. How the "passing on of lower cost" actually occurs can best be described by an illustration.-Assume that there are refineries at point B serving city A. The basis posted price at all refineries is 5 cents a gallon. Assume further that there is no other transportation method but tank car and that the freight from B to A is 2 cents. The price in city A under these circumstances will be quoted either as 5 cents plus 2 cents freight, or as seven cents delivered. Of course, there probably will be some secret price concessions by some sellers in B. Now assume that it becomes impossible to move gasoline to city A from point C by water for one-half cent a gallon in direct operating charges. To make this possible it will be necessary to build a refinery at Ĉ and water terminals at city A. The businessman will calculate whether he can get a price at city A high enough and for a long enough time to write off the investment in the refinery and in the water terminals and show a return. If he has to pass all the saving to consumers at once, he will not make the investment. Assume that he decides to go ahead and builds the refinery and water terminals. He will probably quote the price initially at city A at 7 cents. cents freight. But he runs had city A to themselves. 1 Italics supplied. He may indeed quote it as 5 cents at point B plus 2 head on against the refiners at point B who formerly Unless the refiners at point B have other markets which are expanding to which they can send their supplies at the 5-cent price, secret price concessions in city A by refiners in B will become more numerous. Finally some refiner brings the price cutting into the open and the price is down, say, one-half cent. Ordinarily this price will be quoted as a base price of 42 cents plus 2 cents freight. But in fact one-half cent of the 12-cents saving resulting from lower-cost water transportation has been passed on to the buyer in city Ă. The process continues irregularly, gradually. In reality the results of various factors making for lower costs, e. g., the use of larger tank trucks, consolidation of bulk plants, the more effective utilization of bulk plant personnel, new refining processes, all blends and merge, and these in turn are frequently obscured by the effects of changes in the prices of crude oil, and by improvements in quality of products. It is impossible to say exactly when and how much of each of these particular economies is passed on. But the irrefutable proof that they are passed on is the steady lowering of prices over the years. Source: Hearings before the Temporary National Economic Committee, Congress of the United States, 76th Cong., 2d sess., October 2, 3, 4, 5, 6, and 7, 1939, p. 8718. Testimony of Sidney A. Swensrud, vice president, Standard Oil Co. of Ohio, Cleveland, Ohio. Omission of the public cost of facilities to handle barge-lock tonnage and to serve towns now some distance from the canal is protested in the opposing brief. None of the freight considered as prospective is handled by the rail carriers at the quoted rates, but is loaded and unloaded at the expense of shipper or receiver. Actual loading and unloading operations in the case of barge-lock freight would be on the same basis. In the report, where freight would move in less than bargelots, ample charges have been added to cover its transfer between barge and car and the switching of cars required to duplicate service performed by rail within the tariff rate. Bargelot freight-traffichandling equipment would not be expected to grow up overnight. It is a gradual process, as facilities elsewhere become obsolete or outmoded. In the case of freight moving altogether in barge lots, it has been assumed that industries habitually handling commodities in such volume would follow the trend with respect to established inland |