And certainly when I say that I am gratified that this committee is looking into it, it is for this simple reason: You are interested in small business, which I think we all are, and small business and the small shipper just could not exist without a heathy common carrier system. I urge that nothing be done to weaken the common carrier system but that some of the things that we have recommended be done to strengthen it.

Thank you very much, sir.

Senator DUFF. Mr. Secretary, before luncheon Angus McDonald, assistant legislative secretary of the National Farm Union, read a statement in the course of which on page 4 he criticized the report, and I wondered if you would like to look at what he had to say and put on the record any rejoinder to what he did say?

Secretary WEEKS. May I make answer to it later for the record? Senator DUFF. Whichever way you choose.

Secretary WEEKS. May I look at it for just a second?

Senator DUFF. Yes, sir.

If you would prefer to file an addendum in answer to that later, that would be entirely agreeable if you prefer to do it that way.

Secretary WEEKS. Well, Mr. Chairman, I should like to prepare a statement for the record which will answer some of the points he has raised. I have just read one page. I don't know how long it goes on.

Senator DUFF. I would suggest that perhaps you would prefer to have some time to examine this in detail and file your answer to what he said.

Secretary WEEKS. I would like very much to do that. At the moment I will say I completely disagree with his conclusions. We have nothing in mind or in contemplation that, in my judgment, would authorize or permit any cutthroat rate wars.

Senator DUFF. In view of the fact that that is all a part of the record so far, it is very right to give you an opportunity to know that it has been said so you have an opportunity to make a rejoinder to it. Secretary WEEKS. I appreciate that very much. I think we can make the rejoinder and make it convincingly.

(Material subsequently supplied by Secretary Weeks follows.)

EXHIBIT 6

COMMENTS BY HON. SINCLAIR WEEKS ON TESTIMONY OF MR. ANGUS MCDONALD BEFORE THE SENATE SELECT COMMITTEE ON SMALL BUSINESS, DECEMBER 2, 1955, IN WHICH HE CRITICIZES THE REPORT OF THE PRESIDENTIAL ADVISORY COMMITTEE ON TRANSPORT POLICY AND ORGANIZATION

On December 2, 1955, Mr. Angus McDonald, assistant legislative secretary, National Farmers Union, testified before the Senate Select Committee on Small Business which was holding hearings on the administration of the Motor Carrier Act by the Interstate Commerce Commission. During his testimony and appearing at page 4 of his prepared statement, dated November 30, 1955, Mr. McDonald stated that because the report of the Presidential Advisory Committee on Transport Policy and Organization embodied the recommendations of certain Cabinet officers, it was "entitled to careful consideration." While frankly admitting that his examination of the report was cursory, he expressed amazement that "responsible public officials would make such recommendations."

Mr. McDonald states at page 4 of his prepared statement, "If the recommendations of this committee are acted on by the Congress, more than half a century of experience in legislation will be discarded ***"

If taken literally, this allegation is partially true, for the Advisory Committee in its report and the implementing legislation would discard certain obsolete provisions of the Interstate Commerce Act which the committee is convinced unduly

interfere with the realization of maximum effectiveness in our transportation system. However, this allegation implies that the Advisory Committee recommends completely overthrowing all existing concepts of regulation for the transportation industry. This is not the case at all.

The Advisory Committee's reappraisal of transportation policy led to two fundamental findings:

1. That adjustment of regulatory policies to the intensive and widespread competition which characterizes the domestic surface transportation industry today is long overdue; and,

2. That restoration and maintenance of a progressive and financially strong common-carrier industry is of paramount importance to the Nation's commercial and defense needs.

Rather

The committee, however, did not find it necessary to overthrow existing regulatory patterns to meet the objectives inherent in these findings. the correlative revisions in Federal transportation policy constitute a modest and well-balanced program within the framework of the present organization and jurisdiction of the Interstate Commerce Commission.

The change in the declaration of national transportation policy proposed by the Committee emphasizes that greater reliance shall be placed on competitive forces and that economic regulation shall be reduced to a minimum consistent with the public interest. Competition, which is often called the mainspring of the Nation's economy, is not a novel concept newly discovered for application to the economics of the transportation industry. It has in fact been fostered and promoted by the Government over the years. But the Committee observed that to an excessive degree the present policy declaration has interfered with the processes of full and fair competition and has substantially reduced the opportunities for carriers to reflect their true economic and service characteristics in their rates. In other words, the judgment of the regulatory body too often has been substituted for that of carrier management. For example, the prohibition in the present policy declaration against destructive competition can and has been interpreted to mean that competition which is fair but injurious to a competing form of transportation violates the policy of the law. Again, the policyand rate-making standards of section 15a of the Interstate Commerce Act frequently have been taken to mean that competitors shall have an opportunity to obtain a share of the traffic available regardless of the inherent cost and service advantages that one carrier may have over another in a given instance. Thus, the Committee feels that it is essential to reword the declaration of policy to stress a philosophy of full and fair competition in order to help assure that the public might fully realize the inherent cost and service advantages of each mode of transportation. However, the Committee would not discard, but retain with full vigor, those parts of the policy declaration which provide for the encouragement and development of a low cost, efficient and financially sound transportation system by all transportation means, and which provide that this system shall be privately owned and operated and adequate for commercial and defense needs. It also would continue those provisions which provide that the Interstate Commerce Commission must pay due regard to "the public interest," to the "national defense, postal service and commerce," to the "highest standards of service," to the encouragement of "fair wages and equitable working conditions" and, finally, to "fair and impartial" regulation.

That the Advisory Committee does not advocate the abandonment of prevailing concepts of regulation is clearly evident in its proposals respecting the Commission's power to regulate rates. Basically the proposed changes would limit the Commission's authority to prescription of maximum or minimum rates and remove only the authority to prescribe precise rates. No change whatever is proposed in its authority to correct unjustly discriminatory pricing or practices. The Committee's proposals would provide all common carriers with greater freedom, subject to adequate statutory standards and Commission control, to adjust their rates and bid for competitive traffic in accordance with their best business judgment.

There is attached to this memorandum a paper entitled, “Memorandum on Changes in Minimum-Maximum Rate Controls Proposed by the Presidential Advisory Committee on Transport Policy and Organization," together with appendixes A, B. C, and D, which supplement the testimony of the Secretary of Commerce before the subcommittee of the House Committee on Interstate and Foreign Commerce, September 19, 1955. This detailed explanation of the proposed changes fully substantiates that the committee's proposals would modernize not abandon-the regulatory processes. The committee is firmly con

vinced that maximum effectiveness of our transport system cannot be realized until rate regulation is modernized to recognize and place greater reliance in ratemaking on the current extent of competition for traffic among carriers and modes of transportation.

Finally, the committee's specific proposals to strengthen the common carrier industry are designed primarily to clarify existing provisions of the act or to extend the Commission's authority over matters that have mitigated against the maintenance of a healthy common carrier system.

Continuing on page 4, Mr. McDonald states, “* * * our great transportation system will return to the law of the jungle. We think there is a fallacy running through the report. This fallacy is that cutthroat competition between the different types of transportation will strengthen our better transportation system."

He then presents briefly his analysis of "what cutthroat competition will mean." The substance of his analysis is that because the railroads are the "strongest" segment of the transportation industry it could drive trucks out of business by cutting rates on truck competitive traffic and make up their losses on noncompetitive traffic by charging unreasonably high rates. This, he implies, would result in discriminatory rebates and other practices and deprive the public of uniformity in rate treatment.

The Advisory Committee has no intention of instituting a system of “cutthroat" or ruinous competition in the transportation industry. As indicated above, it recommends rather that greater reliance shall be placed on competitive forces of transportation in ratemaking so as to stimulate carrier initiative toward developing and making their inherent advantages more readily available to the public. Low cost to the user of transportation services and the consumer is one of the more important inherent advantages.

All types of carriers, motor, rail, and water, do not require and should not rely on regulatory rate umbrellas to compete in the modern day transport system. Each performs distinct transportation functions which are geared to the needs of various types of traffic and users and which should not require regulatory props from the Government. Within the minimum and maximum rate limits proposed by the Committee, every regulated carrier would have reasonable opportunity to quote rates which will attract traffic that can use its facilities advantageously. To deny this opportunity creates a policy of preference for carriers having service advantages who at equal rates would have a near monopoly of the traffic.

The real objective of placing greater emphasis on competitive factors in ratemaking is more equitable distribution of traffic among competing carriers in accordance with their economic capabilities and the attainment of the lowest cost transportation system consistent with the public's requirements for service. It is contrary to sound public policy to deny shippers the benefits available through both inherent cost and service advantages of every mode of transport. Carriers with cost advantages should be permitted to offer service at competitive rates which do not unjustly discriminate against other patrons of the carrier or fall below the recommended lower limit of reasonableness. Other forms of transportation characterized by distinctive service advantages, such as rapid delivery, door-to-door handling, and low cost on shorter haul or small volume traffic, may capitalize on their superior services which should be expected to command a rate premium. Under the committee's recommendations, carriers could better reflect differences in service quality in their rates, and the public could purchase service at a price more in keeping with the quality it desires. Mr. McDonald inaccurately implies that motor carriers have no noncompetitive traffic. Trucks have great inherent service and cost advantages in short-haul traffic extending sometimes to intermediate distances and the range of such advantages has been lengthening. Truck flexibility is of great value where the shipping or receiving point is located away from rail or water facilities—a situation becoming more common today with improved highways, business decentralization, and service requiring split deliveries. In addition, for certain types of commodities, such as perishables, service considerations far outweigh rate considerations.

The ICC has been policing competitive ratemaking for many years and would continue to do so under the proposed changes. The changes simply provide for greater and, in the committee's opinion, more equitable latitude for all types of common carriers to adjust rates within reasonable limits. Such rate flexibility, under regulatory supervision and within reasonable bounds, should not result in the railroads or any other one form of transportation eliminating all

others. On the contrary, public interest in maximum utility of transportation resources is served better by a policy which encourages the market to determine the appropriate use of each form in accord with shippers' judgments of carrier fitness in terms of both cost and service. Where the emphasis in rate reduction is put upon the development of cost reduction, the spur to efficiency should be considerably enhanced.

Turning now to the question of uniformity in rates, it seems well settled that a main purpose of the Interstate Commerce Act was to remedy the abuses and evils incident to the near monopoly position of the railroads. Supreme Court Justice White stated in New York, New Haven and Hartford Railroad Company v. Interstate Commerce Commission (200 U. S. 361, 391, (1906)):

"It cannot be challenged that the great purpose of the act to regulate commerce, whilst seeking to prevent unjust and unreasonable rates, was to secure equality of rates as to all and to destroy favoritism, these last being accomplished by requiring the publication of tariffs and by prohibiting secret departures from such tariffs, and forbidding rebates, preferences and all other forms of undue discrimination." [Italic supplied.]

Thus, personal discrimination of the kind resorted to by railroads in the preregulation era and which Mr. McDonald seems to fear will again oppress the shipping public has been banned for nearly 70 years. The advisory committee's report recommends no change in these controls; in fact, it actually tightens them by redefining private and contract carriage, by subjecting contract carriers to publication of actual rates, and by removing the dry-bulk commodity exemption for water carriers.

No one would dispute that shippers and travelers are entitled to uniformity in rate treatment. That is the rule for all common carriers under the common law and regulatory statutes. But uniformity in rate treatment does not imply uniform rates for all. What is required when unequal rates are quoted is that dissimilarity in rates cannot exceed dissimilarity in the conditions and circumstances surrounding the movements in question. In other words, discrimination is not unlawful unless it is unjust. In this accepted sense, if a rate does no more than reflect differences, there is no discrimination at all, as there is when it fails adequately to reflect these differences. This concept is fundamental and is found in all rate structures.

Rate uniformity as between competing carriers of different types does not exist today. For example, in some instances, truck rates are established and maintained at a point above rail rates where service considerations slightly overbalance the higher rates. Again, water carrier rates are frequently set below those of land carriers by an amount believed to compensate for service disadvantages. If. however, shippers attach value to superior service, they presumably would be willing to pay for it. Opportunity for carriers to adjust rates more closely to costs will afford shippers this election, and provide a test of the value assigned to the service.

Reasonably, if uniformity of rates were to be compelled by regulation, then uniformity of service should likewise be compelled in fairness to the various types of carriers. Neither, however, is desirable under our modern dynamic transport system.

In many instances service competition cannot exist unless there is also rate competition. Very often, the dissimilarity of operating conditions, economic characteristics, and physical properties makes it impossible for carriers of different modes to compete servicewise, or if possible, only with substantial increases in cost which would likely make the service unprofitable. Carriers offering suitable and efficient though less complete services should not be prevented from adjusting their rates, within reasonable limits, to the extent necessary to meet shippers' requirements for quality and price of service. To operate effectively, a carrier irrespective of mode must reach traffic which can advantageously use its service, even though its service may differ in quality from that offered by another type of carrier. Fair opportunity to do so within lawful limits would provide added incentive for improving efficiency and service.

There is an appropriate place in the transportation system for adequate lower cost services if efficiently performed. All forms of transport, including the railroads, have made and should continue their efforts to improve their services, but not in a way that perverts their inherent characteristics in order to approximate the characteristics of quite different types of carriers.

On page 5 of his statement Mr. McDonald opposes "weakening" or "dispensing with" the ICC minimum rate power stating that under the Committee's proposal,

railroads might be able to stifle truck competition without reducing their rates below out-of-pocket costs.

It should be perfectly clear that the Advisory Committee does not advocate the establishment of rates on any traffic below the directly ascertainable costs of producing the service. It intends that any rates which do not contribute something to overhead would be unlawful. The provisions of the proposed legislation now before the Congress provide that the determination of reasonable minimum rates should be left to the judgment of the Commission and permits it to give such weight to value of the service as it may deem justifiable and employ such cost standards as it considers appropriate. The bill would not, however. permit the Commission to give consideration to the effect of such rate on the traffic of any other mode of transportation, or the relationship of such rate to the rate of any other mode of transportation, or whether such rate is lower than necessary to meet the competition of any other mode. The Commission would be guided instead by the conditions surrounding transportation by the carrier or carriers that propose the rates.

Under the Committee's recommendations, the regulated trucking industry would have the same opportunity as the railroad and water cominon carrier industry to adjust rates in respect to shipper demands for service. Where carriers of any mode are willing and capable of providing an acceptable although less complete service at lower rates, the shipping public should not be denied that service merely because a higher cost or superior service carrier wishes to continue under the protection of earlier established rate umbrellas. This situation is just as much an abuse of the shipping public as were monopoly compelled or discriminatory rates in the earlier days.

Carriers such as railroads and water carriers offering mass transportation can usually handle added traffic at relatively lower unit costs. For this reason, fuller utilization of existing facilities made possible by the added traffic, even at lower rates, will always be profitable if the rates more than cover the added costs of providing the service. Any contribution such traffic makes in excess of these costs will reduce the overhead burden that has to be borne by other traffic. It is reasonable to expect that rather than causing an increase in rates on other traffic, this overhead contribution might make decreases possible if overall profits should exceed a reasonable return. As long as unused carrying capacity is available on the railways, highways, or waterways, maximum efficiency and lowest possible transportation costs will not be achieved.

As already indicated, service considerations should attract many shippers to use motor transportation even though the railroads or other carriers established lower rates. Reference has been made also to the substantial development of off rail industry. For example, in less truckload traffic, motor carriers appear to have an advantage in cost over a considerable range of distances even where the comparison is with rail out-of-pocket cost. In addition, in many cases, such as back-haul traffic, the motor-carrier costs are probably so low that the railroads would have difficulty competing on a cost-of-service basis, even if service considerations were disregarded. It is probable also that considerable short-haul rail traffic would be diverted to motor carriers if certain of the rail rates were brought up to the basis proposed. Where unreasonable rate adjustments are made by regulated carriers, recourse to the Interstate Commerce Commission would always be available. It is also of particular importance that the Committee would retain section 3 of the act unimpaired and extends no license to selective rate cutting.

DECEMBER 14, 1955.

EXHIBIT 6 (A)

SUPPLEMENTAL TESTIMONY OF SECRETARY OF COMMERCE WEEKS ON THE ADVISORY COMMITTEE REPORT ON TRANSPORT POLICY BEFORE THE SUBCOMMITTEE OF HOUSE INTERSTATE AND FOREIGN COMMERCE SEPTEMBER 19, 1955

MEMORANDUM ON CHANGES IN MINIMUM-MAXIMUM RATE CONTROLS PROPOSED BY THE PRESIDENTIAL ADVISORY COMMITTEE ON TRANSPORT POLICY AND ORGANIZATION Until 1920 the only ratemaking powers vested with the Interstate Commerce Commission were the authority to prescribe maximum rates and, in situations where unjust discrimination was shown to exist, to order a carrier to remove the