PIPE-LINE COMPANIES REPORting to the INTERSTATE COMMERCE COMMISSION

IN 1938

A. THOSE CONTROLLED BY OTHER COMPANIES

Now, Mr. Chairman, the tendency of modern legislation, so far as I have been able to gather it in the acts of Congress, decisions of the courts, and decisions of the Interstate Commerce Commission, is to try to bring about, as far as possible, equality in the matter of regulation among various forms of transportation. These pipe lines are competitive with the rails, they are competitive with the motor carriers, and they are competitive with the water carriers. I think it is the dominant thought in the Congress that something should be done to stabilize conditions in the transportation field by providing that all of them should be on an equality, so far as equality can be obtained without injury to the public interest. When one form of transportation is regulated, others should be; and that has been recognized, in the case of pipe lines, by requiring them to be subject to regulation with respect to rates, accounts, valuation, and so forth, but not upon this important question of securing authority before their new lines can be constructed or their existing lines extended.

I really know of no reason why the same principle should not be applied to pipe lines as is applied to the other forms of transportation. I think this will be a step in that direction. We are told by the best students of the question that one of the most important matters before us, before the regulating body, before the Congress, and before the public, is the coordination of all forms of transportation, making it fairly clear that to each form of transportation there should be assigned that particular traffic which it can handle most economically or that will subserve to the greatest extent the public interest.

Now, clearly, that process would be aided by a statute which required the pipe lines to secure the same authority as must be secured by the railroads, the motor carriers, and the water carriers, and also, to an extent at least, by the air carriers, by the gas carriers, and all those other public utilities which function under regulation.

I do not know how you can properly coordinate these forms of transportation and bring about a new order in the field of transportation unless there is some control of supply or, as Justice Brandeis stated in the opinion which I quoted awhile ago, until we can make certain that the competitive impulse or principle is so controlled by the public authority that there shall not be that wasteful competition which in the long run is injurious to the public interest.

That is all I wish to say, Mr. Chairman.

Senator JOHNSON of Colorado. Senator Austin, have you any questions?

Senator AUSTIN. I came in late, but I assumed that Judge Fletcher was speaking in support of S. 3753.

Senator JOHNSON of Colorado. That is correct, sir.

Senator AUSTIN. I have no questions.

Mr. FLETCHER. The next witness in behalf of the Association of American Railroads will be Mr. Kerr.

STATEMENT OF JOSEPH G. KERR, CHAIRMAN, SOUTHERN FREIGHT ASSOCIATION, ATLANTA, GA.

Mr. KERR. Mr. Chairman and gentlemen, my name is Joseph G. Kerr. I am chairman of the Southern Freight Association, Atlanta, Ga., an association of a voluntary character in which all the major lines have membership. I am appearing here in behalf of all the southeastern railroads in support of this bill, and I am also requested

to appear in behalf of the short lines in the Southeast who are members of the American Short Line Railroad Association.

We have a special interest in this bill because of our peculiar situation geographically. As is well known, we are almost completely surrounded by navigable waters, the Atlantic Ocean on the east, the Gulf of Mexico on the south, the Mississippi River on the west, and the Ohio River on the north, with navigable waters such as the Cumberland, Tennessee, Alabama, Warrior, Apalachicola, St. Johns, Savannah, Cape Fear, and James penetrating deeply into the interior. Taking all of these and other navigable waters into consideration, we have about one-half of the navigable waterways of the country. The only oil refineries we have are those located on the borders, but on all of these inland waters the major oil companies operate their own barges, having many distributing stations at inland ports. Bulk plants are operated at practically every ocean and Gulf port city of consequence, petroleum products being moved in by tanker from Baton Rouge, Gulf, and other refineries. The long-haul movement of gasoline by rail has practically ceased, that from the independent refineries west of the Mississippi being practically confined to the western part of the South. The movement today in the South is largely from the ocean and Gulf ports and the inland river ports and a very substantial part of this is by motortruck. Our rail rates on gasoline and fuel oils within the South very largely reflect the competition of tanker, barge, and truck competition.

In 1928 southern region roads transported 12,214,820 tons of gasoline and other refined petroleum oils, fuel, road, and residual oils on which the revenue was $37,278,286, as contrasted with 10,821,928 tons and $25,335,358 in 1939.

This effectively shows the inroads these competitive forces, most of it subsidized private transportation, have made upon our traffic, but in addition it should be borne in mind that the total consumption has shown a heavy increase during this period. For example, the consumption of gasoline in 1938 was 26.7 percent greater than in 1933.

The following table, Mr. Chairman, shows the number of tons and the revenue from refined petroleum products on southern region roads. It should be kept in mind, as was said before, that this is merely rail movement, which has gone down and down, both in tons and revenue, while consumption has very materially increased.

Statement showing the number of tons and revenue of southern region class I railroads on petroleum oils, refined, and all other gasolines (Interstate Commerce Commission commodity group No. 450) and fuel, road, and petroleum residual oils, n. o. s. (Interstate Commerce Commission commodity group No. 451), combined, for the years 1928 through 1939

Furthermore, it should be kept in mind that the general public has not benefited by this enormous diversion to other forms of transportation, largely subsidized, because gasoline to most of the South continues to be sold on basis of Oklahoma group 3 refinery prices plus the all-rail rates from Oklahoma or Shreveport, the so-called savings secured by the use of other forms of transportation simply going into the pockets of the large oil companies.

While the West and East had a total of 6,042 miles of gasoline pipe lines in 1937, the South up to recently has not had this form of transportation.

Early in this year the Gulf Oil Corporation and the Pure Oil Co., under the name of the Southeastern Pipe Line Co.-all of the stock of which they jointly own-started the construction of a gasoline pipe line from Port St. Joe, Fla., on the Gulf, to Atlanta, Ga., and Chattanooga, Tenn., a distance of about 500 miles. Construction has not been completed, largely because of numerous lawsuits now pending, legal questions, including the question of eminent domain, and the unwillingness of many country authorities and others to permit the pipe line to be laid. It is rumored that once this pipe line is completed and in operation to Atlanta, a branch will be built from Atlanta northeasterly into the Carolinas.

We are also advised that it is the purpose of the standard Oil Co. of New Jersey-which controls or owns the Standard of Louisiana, operating a large refinery at Baton Rouge, La.-and the Shell Oil Corporation to construct a gasoline pipe line from New Orleans and Baton Rouge, La., across the States of Mississippi, Tennessee, through a portion of the Carolinas into Virginia, and probably to some deepwater port.

What all of this means to the southern railroads in the way of reduced traffic and revenues may readily be foreseen.

Our total traffic, at best, is light. As already stated, our territory is surrounded and deeply penetrated by navigable water. The whole territory is gridironed with splendid systems of public highways. Agricultural products, upon which we are so largely dependent, are open to the strongest kind of truck competition exempt from practically all regulations, but which manages to haul all kinds of return traffic. There isn't enough traffic today in our territory to adequately support all of the transportation agencies that are available and operating, so much so that a substantial part of the mileage of southern railroads is today operating under receivership or in the hands of the courts.

The railroads represent the indispensable agency of transportation, and we feel that before any new transportation lines, such as these gasoline pipe lines, are constructed, and which if constructed can only mean greater diversion from the railroads with consequent loss of revenues, there should be presented the most convincing evidence of public convenience and necessity therefor.

There must, we think, be something more than convenience and increased profits for a few large oil companies. There should be convincing evidence that the general public will receive the full benefit of any lower costs that actual movement by pipe line produces as compared with rail transportation. Iy is this same general public that is expected to support the depleted railroad plant, to make up the taxes which the railroads can no longer pay, to say nothing of the

railroad workers who will have to find other jobs if such jobs are to be had.

We need only to look to the past to determine that the general public receives practically no benefit in the way of reduced gasoline prices from transportation by the major oil companies by means of pipe lines, ocean tankers, river barges, contract trucks, and so forth, whether operated in their own names or otherwise.

The records in hearings before the Interstate Commerce Commis-sion, congressional committees, and other bodies are replete with evidence that the major oil companies pocket the savings they accomplish by using these other forms of transportation and continue to sell largely on basis of rail rates from southwestern refineries.

A very substantial part of the profits of the major oil companies comes from these savings in transportation. Presumably they credit transportation with the difference between their own cost of transportation and the rail cost on which they base their selling prices.

At pages 387 and 388 of the record of proceedings of the Temporary National Economics Committee, volume 7, October 1939 hearings, appear the rates of return of the Gulf Oil Corporation and subsidiaries and of the Pure Oil Co. and subsidiaries for the years 1936 to 1938, as reported by them, divided as between production, transportation, refining and manufacturing, and marketing.

For the Gulf, transportation represented returns of 18 percent in 1936, and 23 percent in 1937 and 1938.

For the Pure, transportation represented returns of 34.05 percent in 1936, 27.88 percent in 1937, and 21.91 percent in 1938.

Page 297 of the same record shows that the rate of return on investment for gasoline pipe lines of major oil companies reporting to the Interstate Commerce Commission was 20.7 percent including depreciation and 29.7 percent excluding depreciation.

The testimony before the Temporary National Economics Committee shows beyond any shadow of doubt:

First, that the gasoline pipe lines in the West are, in effect, common carriers in name only.

Second, that their charges as common carriers are the same as the rail transportation charges.

Third, that any savings in cost of transportation by such pipe lines accrues to the major cil oompanies owning the pipe lines or having exchange privileges with the pipe-line owning companies.

Fourth, that the gasoline moving through these gasoline pipe lines is sold on basis of the rail rates and no saving is passed on to con

sumers.

When the gasoline pipe lines were first constructed and made available for the transportation of gasoline in the West, their published rates were made the same as the then existing rail rates from and to the same points. This statement is confirmed by the following representative examples, showing the dates the pipe lines entered the destinations named and the rates published by the pipe lines and the rail rates in effect at the same time. The only reason for selecting those two companies is that they are the sole owners of this southeastern pipe line now under construction from Port St. Joe to Atlanta and Chattanooga. The table shows, as you will see, that pipe-line rates and the rail rates are either exactly the same or are within a fraction of a cent of each other.