rate committee and said, "Unless you reduce our coal right to Dubuque we are going to go down to the Kanawha River to get coal and not use the railroads at all." We didn't think he was telling a very clean-cut story and we didn't reduce the rate, and he moved two barges of coal up there, and he had pictures of those barges taken and sent the pictures to me and said, "Here is the way we are going to kick the railroads out." But those are the last two barges he got. Now he says he can't buy coal on the Kanawha River. When he came before us there was an abundance of it. The situation is that there isn't any transportation economy in long-haul coal traffic of that kind. In closing, gentlemen, I want to give you a few figures on just what coal transportation is costing the American public. This is in my statement, and I invite your attention to it. (The following papers were submitted by Mr. Kern :) Mr. Chairman and members of the Rivers and Harbors Committee, my appearance is in behalf of a group of 35 railroad companies which are opposed to the proposed canalization of the Big Sandy River and its tributaries, Tug and Levisa, on the fundamental grounds that the project is not necessary to meet transportation demands in the Big Sandy Basin, cannot be economically justified, and would do serious and irreparable damage to existing transportation facilities, especially railroads upon whose existence the Big Sandy Valley and the country at large must depend for essential transportation requirements, whether or not the proposed waterway be constructed and operated. At the hearing before the United States War Department Board of Engineers for Rivers and Harbors on November 13 and 14, I introduced in written form the results of a careful and detailed analysis of certain traffic and economic aspects of the reports made to that Board previously by the district engineer at Huntington, W. Va., and by the division engineer at Columbus, Ohio. Because of present limitations upon my time, I should like, with the consent of the committee, to offer for the committee's consideration the statement I then submitted to the Board of Engineers, and if it be acceptable I shall confine my present remarks to a discussion of the engineers' estimates of Big Sandy waterway prospective commerce. The names of the 35 railroads for which I speak are listed on pages 2 and 3 of the statement. The committee well knows that the primary requirement in any effort to justify a waterway is prospective commerce. Unless it is reasonably certain that a proposed waterway will attract traffic in quantities sufficient to produce enough so-called public savings to warrant the required expenditure of public funds there can be no excuse for the subsidy. While I do not agree with the formula by which the engineers have undertaken to estimate so-called public savings, I shall not now attempt to argue the point beyond referring to sections V and VI beginning on page 61 of the statement I have just distributed. The transcending importance of accurate and reliable estimates of prospective tonnage would lead one to suppose that the engineers would have exercised the most meticulous care in the study of potential traffic demands for the Big Sandy waterway before arriving at definite estimates of prospective commerce because if, as too frequently occurs, the project is completed and the estimates prove too high the Government has wasted and misused public funds. In the case of the Big Sandy, the engineers' estimates of prospective commerce were not arrived at in a way that could possibly produce reasonably accurate results. They may in fact aptly be characterized as arbitrary and little better than figures picked out of the air, and I shall demonstrate why this is so. The district engineer at Huntington undertook to make a survey of prospective Big Sandy commerce through the medium of questionnaires and in his records there are what purport to be, but in reality are not, returns made to the questionnaires by many coal consumers and dealers. I should state here that these returns are considered by the engineers as secret papers and during the course of my study of the district and division engineers' reports I endeavored to obtain access to them, but was successful only to the extent that certain of the consumers authorized the engineers to permit me to inspect their so-called returns. In this manner I was enabled to examine 66 of the 161 returns upon which the district engineer estimated prospective commerce of 15,000,000 tons was ostensibly, but not actually, based. It seems to me that information of this character, when assembled by public officers for use in the determination of the advisability of the construction of a waterway with Government money, ought to be available especially to those to be adversely affected by the project and not held as secret information in the files of the Army engineers. With the aid of the returns to which I had access, I was able to develop beyond any doubt that the so-called questionnaire returns were in many, if not in all, instances nothing of the sort. They were actually prepared by field examiners attached to the office of the district engineers who were charged with the duty of interviewing consumers of coal all along the Ohio, Mississippi, and Illinois Rivers, and even at points far removed from these rivers. These field examiners were supposed to ascertain the extent to which coal consumers and dealers would utilize the Big Sandy waterway. In order to learn how the field examiners worked, I conferred with or otherwise contacted certain of the consumers whose coal requirements were allocated to the Big Sandy waterway, and in every case they were greatly surprised that their coal was being claimed as prospective Big Sandy tonnage. Instances, the consumers recalled their conversations with the field examiners several years before, and one had no recollection whatever of such a conference. I learned in this way that the field examiners' procedure was to develop the kind and quantities of coal they consumed, present sources of supply, whether coals of the Big Sandy Basin would satisfy their requirements and then the examiners asked if, on the assumption that the Big Sandy would reduce their total transportation costs, the waterway would be utilized by them. Of course the consumers, being prudent businessmen, said that if the waterway would reduce their transportation bill they might be expected to use it. Not one of them which I contacted, however, made any study of the matter to satisfy himself that the representations of the field examiners as to savings were correct nor has any of them otherwise indicated any interest in the waterway. I respectfully submit that this procedure did not develop and could not have developed reliable figures of estimated commerce. It did not even stimulate enough interest among bona fide coal users, to cause a single one of them to appear at the Board's hearing, nor so far as I could determine have any of them otherwise advised the Board that they saw any possibility of utilizing the waterway to advantage. Of the 66 questionnaires which I was permitted to examine, 48 of them bore the name of one C. J. Neekamp and these 48 were the basis of about 2,500,000 tons of the estimated prospective high-volatile coal traffic. I have known Mr. C. J. Neekamp for more than 20 years, during all of which he has been engaged in activities 'directly or closely associated with the promotion of the bituminous coal industry in the Big Sandy Basin. He has been secretary of the Coal Operators Association of Northeast Kentucky; secretary-manager of the Ashland (Ky.) Chamber of Commerce; secretary of the Joint Transportation Committee of Southern Coal Fields, which included the Big Sandy Basin; managing director of the Northeast Kentucky Coal Bureau and an associate in the Northeast Kentucky Tipple. Co., organized to construct and operate a rail-barge transfer facility for handling Big Sandy coals at Catlettsburg, Ky. He has appeared before the Interstate Commerce Commission in behalf of Big Sandy coal producers on many occasions, and in his capacity as managing director of the Northeast Kentucky Coal Bureau, he signed and verified the complaint filed with the ICC by that Bureau against the Chesapeake & Ohio Railway in Docket 26080, the decisions in which are reported in 201 ICC 165, decided May 22, 1934, and 206 ICC 445, decided February 7, 1935. This is the proceeding which resulted in the establishment of a rail transshipping rate on coal from eastern Kentucky mines to Catlettsburg when for movement beyond by barge. This rate is today 55 cents per ton and is the one which when plussed by an estimated car to barge dumping cost of 7 cents net ton was used by the engineers to ascertain so-called direct public savings. During all of my long acquaintance with Mr. Neekamp, he was, and it was his job to be, an ardent booster for Big Sandy coals. In his association work he had a direct interest in the promotion of mining operations and the distribution of coal produced in that area. He was principal witness for the complaining Northeast Kentucky Coal Bureau in Docket 26080 and testified under oath that he and certain undisclosed associates had organized the Northeast Kentucky Tipple Co., which upon establishment by the Chesapeake & Ohio Railway of the transshipping rate sought in the complaint would construct a facility at Catlettsburg capable of transferring from railroad cars to river barges 1,000 tons of coal per hour or 8,000 tons per 8-hour day. He further testified that as a result of studies made by himself and associates, a transshipping rate from the Big Sandy Basin to the Ohio River would attract large tonnages of coal which would be transported by barges to such far-off markets as Memphis, Tenn.; Helena, Ark.; and New Orleans, La. Upon the strength of his estimates the ICC stated that if the rate "sought were established and transshipment facilities built, its [the complainant's] members could sell considerable coal at river cities beyond Catlettsburg and at inland points reached via river landings in connection with railroads beyond, especially at points in Central Territory," the latter meaning principally interior points in Ohio and Indiana. Mr. Neekamp's bureau prevailed in that complaint and the ICC required the Chesapeake & Ohio Railway to establish the same transshipping rate from the Big Sandy Basin to Catlettsburg as concurrently in effect from the Kanawha district to Huntington, W. Va. The rate so made has been in effect continously since 1935, but notwithstanding the ambitious plans of Mr. Neekamp's Tipple Co. and the estimated traffic about which Mr. Neekmap testified in behalf of the complaining Coal Operators' Bureau, the river tipple has not been constructed and there have been no movements of coal from the Big Sandy Basin via rail-river routes. In other words, time has proved that the traffic estimates prepared by Mr. Neekamp and submitted to the ICC in 1934 were entirely wrong and that the rate he testified would be of such great value and advantage to the Big Sandy Valley coal operators has in fact been absolutely worthless. Now we find the same gentleman in the employ of the Army engineers, making the same kind of a study that he offered to the ICC, and again claiming that the valleys of the Ohio, Mississippi, Illinois Rivers, and numerous interior points constitute a tremendous potential market for Big Sandy coals, but this time he must have a subsidized waterway to enable the operators to capture those markets. Fortunately Mr. Neekamp's original mistake didn't cost any more than the expenses of the futile litigation and the printing of the tariff, but if the Congress accepts his estimates now, it is gambling at great odds with a minimum of $82,300.000 of the public money and a continuing annual expense of not less than $4,190,000. In my statement to the Board of Engineers for Rivers and Harbors, which I have filed, numerous of the so-called questionnaire returns forming the basis for the estimated prospective tonnages are carefully analyzed, but since time does not now permit me to reiterate what is there set forth, I invite the committee's attention to section IV, extending from page 17 through page 60 of the printed statement. There I have shown by reference to specific questionnaire returns that the methods pursued in making the so-called consumer survey have resulted in errors of fact or judgment and improper assumptions which fall into the following categories: First. They include tonnage which are the results of ambitious schemes of individuals not now in the coal business in a substantial way but who, upon completion of the Big Sandy, are accredited with an ability to develop a business of many thousands or hundreds of thousands of tons per year. These parties are not coal consumers and do not hope to be. They merely expect or surmise that with the aid of the proposed Big Sandy waterway to develop a business of distributing in retail or commercial markets tonnages entirely out of proportion to the sizes and nature of their present establishments and the communities in which they are situated. As typical of the cases of this kind, refer to the comments with respect to returns 25, 31, 37, 43 on pages 25, 26, 28, 29, 30, 31, 32 of my written statement. Other specific instances of similar nature are also dealt with in the statement. Second. There are a great many cases included in the estimates where the consumers expect to use Big Sandy coal in place of the coal thev are now receiving from much nearer fields in Illinois, Indiana, and west Kentucky, frequently at transportation costs considerably less than even the estimated costs of barged coal from the Big Sandy. As evidence of these it will suffice to call attention to returns Nos. 10, 18, 37, 64 on pages 23, 24, 30, 31, 33, 34, 36, 37 of my statement. In most all of these instances and in many more the coal is proposed to be diverted from midwestern fields to the Big Sandy fields, the transportation costs increased and the report then indicates that the public will save, that is reduce its transportation costs. This, indeed, is a new brand of transportation economics. Third. There are a very large number of items included in the estimates which the returns themselves show represent substantial, direct diversions of coal traffic from the Kanawha, Ohio, Illinois, and Mississippi Rivers and the Great Lakes to the Big Sandy. For details with respect to some of these, I point to my comments on returns 18, 74, 102, 103, 115 at pages 23, 24, 37, 38, 40, 41, 42, 43 of my statement. Despite this direct proof of diversions from the Kanawha, the report is premised upon an assumption that the estimated Big Sandy commerce will be entirely new waterway coal traffic. Fourth. There are included in the estimates instances where water transportation from coal-loading facilities on the Big Sandy could not possibly provide lower total transportation costs than those now available for the movement of the traffic. Examples of these are to be found in the remarks on returns 95, 100, 128 at pages 37, 38, 39, 44, 45 to 49 of my statement. If what I have said does not satisfy the committee that the district and division engineers' estimate of 15,000,000 tons and the Board's estimate of 8,300,000 tons of prospective Big Sandy commerce are unconscionably high and without any real foundation in fact, I ask the committee to consider the experience of the Kanawha River, which is dealt with on pages 52 to 56 of my printed statement. This briefly is: The Kanawha River, extending through a coal-producing area, in all respects the equal of and in some respects superior to, the coal areas of the Big Sandy Basin, was in 1937 transformed into a most efficient waterway, much wider and straighter than that proposed for the Big Sandy and its forks and having a minimum depth of 9 feet and only three locks and dams. From the standpoint of navigation there can be no question but what the Kanawha is vastly superior to the proposed Big Sandy and the coal deposits tributary to it are unsurpassed in the Big Sandy Basin or anywhere else. The reports of Army engineers cited in my printed statement show this to be true. If, therefore, there is an available market for river-borne coal of 15,000,000 tons as estimated by the district and division engineers or of 8,300,000 tons as estimated by the Board, why then has not the Kanawha Valley with its improved waterway, its great coal resources and productivity supp ied it? This question the engineers have not tried to answer because the market for the additional river coal just doesn't exist and the Kanawha's experience shows just that. In 1944 when the country's coal production reached an alltime high, the total movement on the Kanawha River was 4,011,945 tons, of which 1,789,940 tons terminated at Kanawha River points, leaving but 2,222,005 tons barged to the markets which the engineers say will absorb an additional 8,300,000 tons or 15,000,000 tons. And it should be emphasized that the engineers claim this vast tonnage of Big Sandy coal will not displace a single ton of the Kanawha River coal or even of that transshipped from rail to barge at Huntington, W. Va., amounting to about 4,000,000 tons annually. Obviously, if and to the extent such displacements would occur, the estimated public savings are worthless. Aside from the unreliable so-called consumer survey with its many faults, errors, and irrational assumptions, there is not a single fact in the entire record made by the Army engineers nor is there a statement by any actual coal consumers that there is a deficiency in the available supplies of river coal throughout the whole Mississippi River system, and as a matter of fact, in normal times those markets are and even on occasions during the war period they were actually glutted with coal. I desire now to cite a few figures that will show the committee what coal which may move on Big Sandy waterway, if constructed and used to the extent predicted by its proponents, will cost the American taxpayers. The Board of Investigation and Research, created by the Transportation Act of 1940, in 1944 rendered a report to the Congress on "Public Aids to Transportation" and it computed the public subsidy per ton-mile based upon all traffic handled on the Mississippi River system and its various segments for the year 1940. Using those official figures and the distances coal would actually move from the mouth of the Big Sandy at Kenova, W. Va., I determined that the subsidy on traffic destined to Chicago amounts to $4.62 per ton and to Minneapolis $8.33 per ton. The subsidy on the Big Sandy, based upon the Board of Engineers' report, may be computed by dividing its estimated tonnage of 8,300,000 into the estimated annual charges of $4,190,000 or 50.5 cents per ton. Adding this to the subsidy on the Ohio, Mississippi, and Illinois Rivers produces a total subsidy per ton of $5.12 to Chicago and $8.83 per ton to Minneapolis. Now, the all-rail rate from Big Sandy mines to Chicago is only $3.19 and to Minneapolis $5.55 per ton, which indicates that the cost to the Government alone will exceed the cost of shipping the coal all-rail to Chicago by $1.93 and to Minneapolis by $2.28 per ton. Coal also moves to these destinations via rail to lower lake ports thence vessel to Chicago and thence vessel and rail to Minneapolis, at transportation costs of about $2.55 to Chicago and $3.75 per ton to Minneapolis. Using this less costly present mode of transportation, it will be seen that the Government's subsidy exceeds the existing 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 OF 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 |