Cincinnati District, who contended that it was unfair to require them to pay for river coal the same amount per ton as the f. o. b. destination prices prescribed for all-rail coal when lower f. a. s. prices had been authorized in the case of certain large consumers of steam coal. These investigations were never decided, but their pendency in 1943 when the Coal Division when out of existence demonstrates my point. (2) Iron and Steel.-Relatively large tonnages of iron and steel articles in various stages of manufacture move on inland waterways, especially the Mississippi River System, but only the manufacturers secure any tangible benefits therefrom. All articles of iron and steel manufacture are now sold under a pricing system worked out by the American Iron and Steel Institute, which is commonly known as "the basing price system." Practically all of the centers of the manufacture of iron and steel articles have been designated basing points, and the sales arrangement requires that the f. o. b. destination price on any article be made up of the price at the governing basing point which is usually that nearest the destination plus the railroad rate from the base point to the destination. The price so computed fixes the delivered cost of the article for all producers wherever situated so that a producer at a nonbase point whose delivered price at any destination is higher than that on shipments from the base point must absorb in the f. o. b. mill price the difference between the delivered prices, and if perchance there is a producer with a lower f. o. b. destination price than that of the base point, the difference is added to the f. o. b. mill price. Thus, the entire scheme is predicated upon railroad rates, and anyone buying articles of iron and steel manufacture pays a rail-transportation charge, although not necessarily the one the railroad publishes from the actual origin to the destination. When, however, it is possible to utilize river transportation at lower than the all-rail rates, the railroad collects nothing, but there is included in the delivered price the rail rate from the governing base point. Several of the major iron and steel producers at points on the Mississippi River System own and operate their own boats and barges and are thus able to, and do, transport the products of their plants on inland waterways, but their customers nevertheless pay exactly the same delivered price for the articles as they would pay if the shipment had moved all-rail. Obviously, therefore, under the iron and steel price system, the manufacturer pockets all of the savings derived from water transportation and the consignee or consumer secures no benefits whatever. (3) Automobiles.-In February of this year, the Interstate Commerce Commission released a decision in an investigation of “New Automobiles in Interstate Commerce," 259 I. C. C. 475, and the following quotation from page 480 of the Commission's opinion is a good illustration of the point I am here making: "At retail, automobiles are rather generally sold on the basis of the mainfactory base price, plus an amount equal to, or approximating the railroad freight charges from the main factory to destination, plus another amount to represent the dealers' costs of unloading, selling, and servicing the automobiles for delivery to customers. This is ordinarily true, regardless of the mode of transportation actually employed and regardless of whether the automobile is produced at the main factory or at an assembling plant at or close to, destination. Where sales are so made, the shipper that uses a lower-priced form of transportation than rail, or who ships from an assembling plant profits to the extent of the difference between the rail charges and those actually paid." Some of the profits so realized by automobile manufacturers are derived from water transportation, especially on the Great Lakes. This brief treatment of the important subject under discussion is sufficient to show that merely because the government might make cheap transportation possible it does not follow that the public generally will be benefited thereby, but that it is more often the case that it will benefit special interests which could not possibly prove that Federal aid was necessary to their existences. While it is fundamentally wrong for the government to subsidize any industry or special interest, it is doubly so when the subsidy benefits those who can get along very well without it. Coal operators in the Big Sandy fields are among the latter, because as I have previously shown, they have been able to maintain production and growth equal to or better than other sections of the coal industry, even those provided with toll-free water transportation. X. So long as railroads are essential to the national economy the division of traffic to subsidized waterways must ultimately result in higher rail rates on unaffected traffic and the Interstate Commerce Act, actually so contemplates. The rate-making rule of the Interstate Commerce Act, as amended by the Transportation Act of 1940, is contained in Section 15a, Paragraph 2, and reads: "(2) In the exercise of its power to prescribe just and reasonable rates the Commission shall give due consideration, among other factors, to the effect of rates on the movement of traffic by the carrier or carriers for which the rates are prescribed; to the need, in the public interest, of adequate and efficient railway transportation service at the lowest cost consistent with the furnishing of such service; and to the need of revenues sufficient to enable the carriers, under honest, economical, and efficient management to provide such service." Congress' admonition that the Commission should prescribe rates which will produce revenues sufficient to enable the railroads, under honest, economic and efficient management to provide adequate railway transportation services required in the public interest means that as the unit cost of railroad transportation rises, whether it be occasioned by changes in the national economy or by the diversion of traffic to subsidized waterways, the railroad rates should and must go up. In other words, the constant and planned erosion of railroad traffic resulting from government aids to other forms of transport, especially waterways, necessarily and inevitably increases the unit costs of rail transportation, and since the railroads have no other way of securing funds wherewith to operate, their survival is dependent upon higher rates on traffic remaining. It therefore must follow that the development by the Federal Government of toll-free waterways which cannot completely replace the railroads is in itself justification of, and under the present law must lead to, higher railroad rate levels. XI. CONCLUSION In closing this statement I would like to repeat for the purpose of emphasis two fundamental and controlling conclusions based upon indusputable facts, either one of which condemns the proposed Big Sandy waterway as economically unsound, unjustifiable and unnecessary. First, and of the greater importance, is that with respect to prospective commerce. Under the formula used by the District Engineer in appraising the worth of the waterway, i. e., the ratio of annual costs to annual benefits, the volume of the predicted commerce is an essential factor, and this so-called economic ratio is no more reliable than are the estimates of prospective tonnage. In the Big Sandy report the estimated saving per ton of coal traffic is only 6¢, and at this rate it requires about 12,000,000 tons of coal to produce alleged annual savings equal to the annual cost. In other words, under the formula, unless the movement on the Big Sandy approaches 12,000,000 tons the public, by which is meant only the few possible users of the waterway, will not receive a theoretical dollar for each real dollar of taxpayers' money spent. It is thus plain that the predicted 15,000,000 tons of coal traffic on the Big Sandy is just about the minimum that would produce an economic ratio, which from the viewpoint of the engineers, justifies the necessary expenditure, viz, over $65,000,000 of public funds. The economic justification of the project, therefore, stands or falls on the estimate of 15.000,000 tons of prospective commerce which in this case is just about the weakest, flimsiest foundation that could be devised. In Section IV of this statement, I have presented the most complete analysis of the estimated prospective coal tonnage and the data underlying it that was possible from the information and the means at my command. It shows, and by reference to the erroneously termed "consumer estimates" demonstrates, that there have been included in the prospective Big Sandy traffic vast amounts of coal for which there is no existing market and more that cannot reasonably be expected to move from the Big Sandy Basin or if it did would produce no so-called public transportation savings whatever. Likewise, it proves that a large part of the estimated traffic would constitute direct diversions from the Kanawha, Ohio, Mississippi and Illinois Rivers, which now moves at transportation charges much less than the unjustifiably low computed costs via the Big Sandy. Despite all these and many other improprieties and sheer impossibilities, the "U.S.E.D." estimate of high volitile coal as derived from the inflated misnamed "consumers' returns", totaled only 9,360,000 tons or 5,240,000 tons less than the 15,000,000 tons required to produce the economic ratio of 1 to 1.27. Thus, more than 1% of the prospective traffic was included without even a semblance of proof, but merely upon the mistaken notion that there exists a sufficient market for high volatile coal along the Ohio, Mississippi, and Illinois Rivers to warrant the assumption that the Big Sandy would develop a tonnage approximating its carrying capacity. While the exaggerated characteristics of the estimates of prospective tonnage are plainly evident on the face of the Division Engineer's report, the clinching proof of their excessiveness is to be found in the figures of the movement of similar high-volatile coals from the mines in the valley of the navigable Great Kanawha River. According to the findings of the War Department Engineers, including this Board, the Great Kanawha flows thru a territory as richly endowed with reserves of high-quality-special and general-purpose coals as is the area claimed to be tributary to the Big Sandy. However, in the year 1944, when the all-time record of coal production in the U. S. was broken, only 4,011,945 tons of coal were loaded on the Kanawha River, and of that 1,789,940 tons moved to local markets on the Kanawha, but 2,208,000 tons to ports on the Ohio River, and a mere 14,000 tons to Mississippi River points. The Big Sandy of course has no local market for coal such as that in the Kanawha River Valley. It, therefore, follows that the Big Sandy's prospective coal traffic estimate of 15,000,000 tons presupposes that for more than 50 years the Kanawha Valley coal producers with billions of tons of high-grade, economically mineable coal reserves, and a wide, navigable, canalized river at their very doorsteps, have completely and blindly overlooked a market for some 12,800,000 tons along inland waterways which the coal producers in the Big Sandy area, when equipped with a narrow, winding, tortuous, multiple-lock stream, will in some inexplicable manner locate and monopolize for years unnumbered. Merely to state the ambitious-perhaps fabulous is a better adjective estimate or dream of prospective Big Sandy commerce in this strictly accurate manner is to prove that it is impossible, illogical, and utterly without factual support. I am certain that the Board, after its study of the prospective Big Sandy commerce in the light of the facts and comments I have offered, will find that it is not remotely possible reasonably to forecast annual tonnage which even approaches the volume of traffic necessary to produce enough so-called public savings to justify the proposed waterway, or, in fact, any public savings at all. The second and concluding point which I desire to stress is the fallacy of the formula used by the District Engineer in computing public savings or benefit. It, briefly stated, is that the difference between applicable railroad rates and assumed or calculated barge costs represents public savings or benefit. In Section V of this statement, I have shown in considerable detail why it is improper, unreal, and economically unsound to presume, as the formula necessarily does, that the revenues derived by railroads for transportation services are, or should be considered as, economic loss or social waste. To again illustrate this important point, I call attention to the fact that in 1944 more than 88% of the gross revenues of U. S. railroads were required to pay wages, taxes, and to purchase materials and supplies which confer a definite, substantial, continuing benefit upon the public and the government. By way of comparison, I have shown in Section V and Exhibit A that, using the break-down of the costs of operating coal barges on the Big Sandy as stated in the report, a diversion of coal traffic from rail to barge would actually deprive the public and the government of 10.5¢ on each of the 15,000,000 tons of estimated Big Sandy commerce which will produce an annual economic loss or social waste of $1,575,000. Viewed in this accurate and economically sound manner, the formula for computing public savings is shown to be without merit and should be rejected. Respectfully submitted. ROY S. KERN, Chairman, Coal, Coke and Iron Ore Committee, CFA Territory, Pittsburgh M. & S. Valleys District Committee, Ohio Bureau of Coal Statistics, Agent, Ohio Coal Tariff Bureau. 836 Wabash Building, Pittsburgh 22, Pa., November 1945. |