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ARTICLE

The Right To Compete: Cornerstone of Modern Transportation Regulation

APRIL 01, 1956 by WILLIAM T. FARICY

President, Association of American Railroads

 

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Greater reliance on competition in rates among the different types of carriers, subject always to essential safeguards of ICC regulation, would make for more efficient use of our transportation plant, and more economical service for all of us. This key recommendation in the report of a special Cabinet-level Advisory Committee named by the President is here discussed by Mr. Faricy.

Three outstanding facts about transportation in the United States today are:

1.       that “within the short span of one generation this country has witnessed a transportation revolution”;

2.       that “during this same period, government has failed to keep pace with this change”; and

3.       that “in many respects, government policy at present prevents, or severely limits, the realization of the most economical use of our transportation plant.”

These statements are not mine. They are from a report made by a special committee of Cabinet officers and other high ranking government officials established by President Eisenhower in July, 1954. The report made public by the White House in April, 1955, was unanimous, being concurred in by all seven of the Cabinet-level officers who composed the Committee.1


1.   Revision of Federal Transportation Policy: A Report to the President, April, 1955. U.S. Government Printing Office, Washington, pp. iv. 20. Members of the Committee are Sinclair Weeks, Secretary of Commerce, Chairman; Charles E. Wilson, Secretary of Defense; and Arthur S. Flemming, Director, Office of Defense Mobilization, and, as Ad Hoc Participating Members, George M. Humphrey, Secretary of the Treasury; Arthur E. Summerfield, Postmaster General; Ezra Taft Benson, Secretary of Agriculture; and Rowland E. Hughes, Director, Bureau of the Budget. The report and recommendations of the Committee are unanimous.


The key recommendation of the Cabinet Committee is that in today’s competitive transportation world, where the user has his choice of many means of carriage, greater reliance should be placed on competition in pricing as among the various modes of transport. This is what the Committee regards as the “cornerstone” of a modern system of regulation designed to bring about a more effective use of our transportation resources.

 

Regulation, Yes, But Not Allocation

As matters now stand, one of the principal tests applied by the Interstate Commerce Commission in its control over rate competition among the different types of carriers is the concept that the government’s power to regulate rates should be used to see that each form of transportation gets what the Commission deems to be its “fair share” of the available traffic.

Thus, when the railroads proposed to reduce rates upon tank-car movements of petroleum products in California and Oregon as a means of regaining some of the traffic which had been lost to barges and trucks, the Interstate Commerce Commission found that the proposed rates, while yielding revenues which would “contribute substantially to the overhead burden and profits,” should nevertheless be rejected because they were lower than the cast to the shipper of using the competing barge-truck routes and thus “lower than is necessary fairly to meet the competition.” Moreover, from the Oregon points, the ICC ordered the rates cancelled because they would “affect adversely the maintenance of competitive mo-tor-carrier transportation.”2


2.   284 ICC, pp. 287, 296, 304, 306.

For like reasons, the Commission has refused to allow railroads to make competitive reductions which they have proposed in rates on sugar from ocean ports to Cincinnati and Louisville, on tinplate from Alabama to New Orleans, on petroleum products from Whiting, Indiana, to Illinois points, on coffee from Los Angeles and San Francisco Ray points to Northern Utah and Idaho, on magazines from Philadelphia and Darby, Pennsylvania, to Texas, on sulphur from Texas to Wisconsin, on scrap rail from Gulf ports to Chicago and on aluminum articles from Texas to Illinois and Iowa—to name a few other instances.

Such a policy of attempting to allocate business among the different types of carriers requires, in effect, that one form of transportation hold an “umbrella” over the rates and traffic of its competitors by another form of carriage. But if one form of transportation, because of its inherent nature, is able to move a given commodity between given points at a lower rate than competing forms, to do so at a profit, and to do so without discriminating against other shippers, then why should not the low-cost carrier have the business and why should not the public have the saving?

That, in essence, is what the Cabinet Committee’s report proposes namely, that the law should make it clear that through its power of rate regulation neither the Interstate Commerce Commission, nor any other governmental body, should undertake to allocate and divide business among the different types of carriers. The position of the Cabinet Committee is that “the market” competitive pricing along with competitive service—can do this job better than it can be done by any sort of government allocation.

 

Essential Rate-Making Standards Maintained

In taking this position, the Presidential Committee did not recommend, and no one contemplates, doing away with the power of the Interstate Commerce Commission to regulate rates. Rates would still have to be published in tariffs filed by the carriers with the Interstate Commerce Commission, as they now are, and still would have to be adhered to as published. Rates still would not go into effect ordinarily until 30 days after filing, and there still would be opportunity for shippers or other carriers to protest or for the Commission to act on its own motion.

The Commission would still have responsibility and power to see that rates are neither unreasonably high nor unreasonably low—a principal test being that they shall be compensatory to the carrier proposing them and that they do not unjustly prefer or discriminate against any person, any community, or any region. But within these limitations, the recommendations of the Presidential Committee contemplate that competitive pricing, as well as competition in service, should prevail.

Such a result could be accomplished by a simple change in the statutory standards to be applied in determining whether a proposed rate is lower than a reasonable minimum, without affecting the other standards presently applied by the Interstate Commerce Commission. The essential standards would continue as they now are except that in determining whether a proposed rate would be less than a reasonable minimum the Commission shall not consider its effect upon the traffic of any other mode of transportation, nor its relation to the charges of any other mode, nor whether it is lower than necessary to meet the competition of any other mode of transportation. Such a proviso would make it perfectly clear that the Interstate Commerce Commission is not expected to undertake an artificial and arbitrary apportionment or distribution of traffic among the several forms of transport.

With traffic distributed in accordance with the natural capabilities and advantages of each kind of carrier, a better balanced development of our national transportation plant would follow. In such a development, each mode of surface transport—rail, highway and water—would take its proper place and part, performing those services which it can do better and more economically than the other modes, with both rates and service always taken into consideration. And the public, the users of transportation, would get the benefit. This sound idea, so thoroughly in accord with the customs, the traditions and the thinking of the American people, has been met with bitter objection from spokesmen for some of the trucks—principally the heavy highway freight haulers—and some of the inland waterway barge carriers.

They have objected to the composition and the procedures of the Cabinet Committee and the working group, or staff, by whom it was assisted. Attempts have been made to create an impression that the working group gave consideration to the views of the railroad industry alone, but the fact is that other groups also submitted their views and that representatives of the trucking industry submitted written recommendations and also discussed them with the chairman of the group. The insinuation that the seven high government officials who concurred in its unanimous recommendations, and also the group of highly qualified and disinterested private citizens who did the preliminary staff work, listened only to railroad representations is simply not true.

 

The “Monopoly” Bugaboo

According to assertions of trucking spokesmen, this recommendation for greater freedom of competition between different modes of transportation would turn transportation back to a state of “cut-throat competition” said to have existed before 1887, when the original Act to Regulate Commerce was passed.

There isn’t a chance of a return to the conditions of 1887, either in the physical facts of transportation or the legal terms under which the business is conducted.

In 1887, the only effective competition was that among railroads. Since then, billions of dollars have been spent on building and improving waterways, and the waterways are here and will remain. Many more billions have been spent on improved highways, and the highways are here and will remain. These waterways and highways are used by tens of thousands of common and contract carriers by water and by motor vehicle. They are also open to the use of anyone who wishes to move his own goods in his own vehicle and vast tonnages are so moved. Indeed, nearly two-thirds of all intercity freight traffic on the highways and more than nine-tenths of inland waterway traffic is either of this character or is otherwise exempt from interstate regulation as to rates. The mere physical facts as to the extent of transportation facilities in this country, and the variety of their ownership and use, make any chance of general monopoly in transportation too remote to deserve consideration.

From the standpoint of the laws, there has been an equally striking change. Prior to 1887 rates could be made in secret. Now rates are required to be published, with due public notice, and must be adhered to as published. Prior to 1887, there was no statutory prohibition against discriminations or preferences in rates. Now, rates of regulated carriers cannot discriminate against one shipper, or commodity, or community, or region, and cannot prefer another.

There is no recommendation in the Cabinet Committee’s report which would depart from these requirements. Adoption of the Committee’s report would not authorize the making of secret rates. It would not do away with the requirements of public notice and of adherence to the published rate. It would not permit the making of rates which are either discriminatory or preferential. And the Interstate Commerce Commission would have power to enforce these principles, as well as to prohibit rates which are either unreasonably low or unreasonably high.

No, with competition what it is and the laws what they are—and what they will remain if greater freedom of competition in pricing as among the different modes of transportation is adopted—there is no possibility that a transportation monopoly could be created or sustained.

 

No Below-Cost Rates

But motor and water carriers assert that to permit greater freedom in the making of competitive rates would enable the railroads to destroy highway and waterway competition. It must always be remembered, however, that under the Cabinet Committee’s recommendation, as well as under present law, railroads could not make below-cost rates. If it be true, as claimed by spokesmen for trucks and barges, that they could not continue to exist in the face of competitive rates which are compensatory and non-discriminatory, then it would follow that trucks and barges often would have no proper place in the transportation system and would exist only because the railroads are restrained from meeting their competition.

Such an assertion is, of course, absurd. In transporting many kinds of freight, trucks and barges have advantages in service or cost or both. The report contemplates that trucks and barges should have complete opportunity to give full force and effect to their competitive advantages whenever they exist—the same opportunity, in fact, as is proposed for the railroads.

Another assertion of opponents of the recommendation, equally baseless, is that greater freedom in competitive rate-making would burden shippers of so-called non-competitive or “railbound” traffic. The assertion has repeatedly been made that if rail rates on competitive traffic are reduced it would be necessary for noncompetitive traffic to pay higher rates to offset the revenue losses.

 

Rates × Volume = Revenue

Such assertions rest on a completely erroneous premise, namely, that lower competitive rail rates would reduce rail revenues. Railroad revenues are the product of two factors, rates and volume. The only motive or purpose the railroads would have in publishing reduced competitive rates would be to attract enough increased volume to more than offset the reduction in rates, and thus to produce greater net revenue.

Such competitive rates, it should be borne in mind, would be required to be compensatory as well as nondiscriminatory so that instead of hurting non-competitive traffic, they would benefit it by reducing the share of the necessary fixed overhead expense the non-competitive traffic is called upon to bear. What the shippers of non-competitive traffic have real reason to fear is that competitive traffic will continue to be drained from the railroads, thus increasing the burden of overhead and fixed expense which will have to be borne by the traffic remaining on the rails.

How this works in practice was well stated by the Interstate Commerce Commission as follows:

“It is a well-established and generally recognized rule that if additional business can be taken on at rates which will contribute at least a little in addition to the actual out-of-pocket expense, the carrier will be advantaged to that extent and all its patrons will be benefited, to the extent to which such traffic contributes to the net revenue.”

 

The Competitive Principle

The competitive spirit has been the driving force of progress in America; the competitive principle is the very foundation of our national economy. That greater reliance should be placed on this principle in the determination of rates as among the several kinds of carriers—always subject to the continuing limitations of essential ICC regulation is the heart of the Cabinet Committee’s recommendations.

While spokesmen for trucking and barge interests object to the principle, it has received the endorsement of such major organizations of users of transportation as the American Farm Bureau Federation, the National Grange, the Chamber of Commerce of the United States, and the National Industrial Traffic League, which is the major nation-wide organization of men who, as shippers, deal daily with the practical problems of rate making and regulation.

What this experienced body of transportation experts, who use the services of every kind of carrier and are concerned only with maximum transportation efficiency, has to say on the subject is particularly in point. On November 23, 1955, the League approved amendment of Section 15a(2) of the Interstate Commerce Act by adding the following proviso to the considerations to be taken into account by the Interstate Commerce Commission in “the exercise of its power to prescribe just and reasonable rates”:

“Provided, however, that in determining a minimum rate the commission shall not consider the effect of such rate on the traffic of any other mode of transportation, the relation 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 of transportation.”

Without going into any of the technical details involved, President Eisenhower, in his message on the state of the Union submitted to the Congress on January 5, 1956, had this to say:

”In my message last year, I referred to the appointment of an advisory committee to appraise and report to me on the deficiencies as well as the effectiveness of existing Federal transportation policies. I have commended the fundamental purposes and objectives of the committee’s report. I earnestly recommend that the Congress give prompt attention to the committee’s proposals.”

Fundamental among these proposals is that to allow greater freedom in pricing among the different types of transportation. Under such conditions, with each user of transportation free to choose the type of carriage which best meets his needs for any particular task, the transportation needs of the nation as a whole would be met with maximum efficiency and at minimum cost—and the producer, the shipper, the consuming public and the national defense all would benefit.


1.   Revision of Federal Transportation Policy: A Report to the President, April, 1955. U.S. Government Printing Office, Washington, pp. iv. 20. Members of the Committee are Sinclair Weeks, Secretary of Commerce, Chairman; Charles E. Wilson, Secretary of Defense; and Arthur S. Flemming, Director, Office of Defense Mobilization, and, as Ad Hoc Participating Members, George M. Humphrey, Secretary of the Treasury; Arthur E. Summerfield, Postmaster General; Ezra Taft Benson, Secretary of Agriculture; and Rowland E. Hughes, Director, Bureau of the Budget. The report and recommendations of the Committee are unanimous.

 

2.   284 ICC, pp. 287, 296, 304, 306.
For like reasons, the Commission has refused to allow railroads to make competitive reductions which they have proposed in rates on sugar from ocean ports to Cincinnati and Louisville, on tinplate from Alabama to New Orleans, on petroleum products from Whiting, Indiana, to Illinois points, on coffee from Los Angeles and San Francisco Ray points to Northern Utah and Idaho, on magazines from Philadelphia and Darby, Pennsylvania, to Texas, on sulphur from Texas to Wisconsin, on scrap rail from Gulf ports to Chicago and on aluminum articles from Texas to Illinois and Iowa—to name a few other instances. Such a policy of attempting to allocate business among the different types of carriers requires, in effect, that one form of transportation hold an “umbrella” over the rates and traffic of its competitors by another form of carriage. But if one form of transportation, because of its inherent nature, is able to move a given commodity between given points at a lower rate than competing forms, to do so at a profit, and to do so without discriminating against other shippers, then why should not the low-cost carrier have the business and why should not the public have the saving? That, in essence, is what the Cabinet Committee’s report proposes namely, that the law should make it clear that through its power of rate regulation neither the Interstate Commerce Commission, nor any other governmental body, should undertake to allocate and divide business among the different types of carriers. The position of the Cabinet Committee is that “the market” competitive pricing along with competitive service—can do this job better than it can be done by any sort of government allocation. In taking this position, the Presidential Committee did not recommend, and no one contemplates, doing away with the power of the Interstate Commerce Commission to regulate rates. Rates would still have to be published in tariffs filed by the carriers with the Interstate Commerce Commission, as they now are, and still would have to be adhered to as published. Rates still would not go into effect ordinarily until 30 days after filing, and there still would be opportunity for shippers or other carriers to protest or for the Commission to act on its own motion. The Commission would still have responsibility and power to see that rates are neither unreasonably high nor unreasonably low—a principal test being that they shall be compensatory to the carrier proposing them and that they do not unjustly prefer or discriminate against any person, any community, or any region. But within these limitations, the recommendations of the Presidential Committee contemplate that competitive pricing, as well as competition in service, should prevail. Such a result could be accomplished by a simple change in the statutory standards to be applied in determining whether a proposed rate is lower than a reasonable minimum, without affecting the other standards presently applied by the Interstate Commerce Commission. The essential standards would continue as they now are that in determining whether a proposed rate would be less than a reasonable minimum the Commission shall not consider its effect upon the traffic of any other mode of transportation, nor its relation to the charges of any other mode, nor whether it is lower than necessary to meet the competition of any other mode of transportation. Such a proviso would make it perfectly clear that the Interstate Commerce Commission is not expected to undertake an artificial and arbitrary apportionment or distribution of traffic among the several forms of transport. With traffic distributed in accordance with the natural capabilities and advantages of each kind of carrier, a better balanced development of our national transportation plant would follow. In such a development, each mode of surface transport—rail, highway and water—would take its proper place and part, performing those services which it can do better and more economically than the other modes, with both rates and service always taken into consideration. And the public, the users of transportation, would get the benefit. This sound idea, so thoroughly in accord with the customs, the traditions and the thinking of the American people, has been met with bitter objection from spokesmen for some of the trucks—principally the heavy highway freight haulers—and some of the inland waterway barge carriers. They have objected to the composition and the procedures of the Cabinet Committee and the working group, or staff, by whom it was assisted. Attempts have been made to create an impression that the working group gave consideration to the views of the railroad industry alone, but the fact is that other groups also submitted their views and that representatives of the trucking industry submitted written recommendations and also discussed them with the chairman of the group. The insinuation that the seven high government officials who concurred in its unanimous recommendations, and also the group of highly qualified and disinterested private citizens who did the preliminary staff work, listened only to railroad representations is simply not true. According to assertions of trucking spokesmen, this recommendation for greater freedom of competition between different modes of transportation would turn transportation back to a state of “cut-throat competition” said to have existed before 1887, when the original Act to Regulate Commerce was passed. There isn’t a chance of a return to the conditions of 1887, either in the physical facts of transportation or the legal terms under which the business is conducted. In 1887, the only effective competition was that among railroads. Since then, billions of dollars have been spent on building and improving waterways, and the waterways are here and will remain. Many more billions have been spent on improved highways, and the highways are here and will remain. These waterways and highways are used by tens of thousands of common and contract carriers by water and by motor vehicle. They are also open to the use of anyone who wishes to move his own goods in his own vehicle and vast tonnages are so moved. Indeed, nearly two-thirds of all intercity freight traffic on the highways and more than nine-tenths of inland waterway traffic is either of this character or is otherwise exempt from interstate regulation as to rates. The mere physical facts as to the extent of transportation facilities in this country, and the variety of their ownership and use, make any chance of general monopoly in transportation too remote to deserve consideration. From the standpoint of the laws, there has been an equally striking change. Prior to 1887 rates could be made in secret. Now rates are required to be published, with due public notice, and must be adhered to as published. Prior to 1887, there was no statutory prohibition against discriminations or preferences in rates. Now, rates of regulated carriers cannot discriminate against one shipper, or commodity, or community, or region, and cannot prefer another. There is no recommendation in the Cabinet Committee’s report which would depart from these requirements. Adoption of the Committee’s report would not authorize the making of secret rates. It would not do away with the requirements of public notice and of adherence to the published rate. It would not permit the making of rates which are either discriminatory or preferential. And the Interstate Commerce Commission would have power to enforce these principles, as well as to prohibit rates which are either unreasonably low or unreasonably high. No, with competition what it is and the laws what they are—and what they will remain if greater freedom of competition in pricing as among the different modes of transportation is adopted—there is no possibility that a transportation monopoly could be created or sustained. But motor and water carriers assert that to permit greater freedom in the making of competitive rates would enable the railroads to destroy highwa
y and waterway competition. It must always be remembered, however, that under the Cabinet Committee’s recommendation, as well as under present law, railroads could not make below-cost rates. If it be true, as claimed by spokesmen for trucks and barges, that they could not continue to exist in the face of competitive rates which are compensatory and non-discriminatory, then it would follow that trucks and barges often would have no proper place in the transportation system and would exist only because the railroads are restrained from meeting their competition. Such an assertion is, of course, absurd. In transporting many kinds of freight, trucks and barges have advantages in service or cost or both. The report contemplates that trucks and barges should have complete opportunity to give full force and effect to their competitive advantages whenever they exist—the same opportunity, in fact, as is proposed for the railroads. Another assertion of opponents of the recommendation, equally baseless, is that greater freedom in competitive rate-making would burden shippers of so-called non-competitive or “railbound” traffic. The assertion has repeatedly been made that if rail rates on competitive traffic are reduced it would be necessary for noncompetitive traffic to pay higher rates to offset the revenue losses. Such assertions rest on a completely erroneous premise, namely, that lower competitive rail rates would reduce rail revenues. Railroad revenues are the product of two factors, rates and volume. The only motive or purpose the railroads would have in publishing reduced competitive rates would be to attract enough increased volume to more than offset the reduction in rates, and thus to produce greater net revenue. Such competitive rates, it should be borne in mind, would be required to be compensatory as well as nondiscriminatory so that instead of hurting non-competitive traffic, they would benefit it by reducing the share of the necessary fixed overhead expense the non-competitive traffic is called upon to bear. What the shippers of non-competitive traffic have real reason to fear is that competitive traffic will continue to be drained from the railroads, thus increasing the burden of overhead and fixed expense which will have to be borne by the traffic remaining on the rails. How this works in practice was well stated by the Interstate Commerce Commission as follows: The competitive spirit has been the driving force of progress in America; the competitive principle is the very foundation of our national economy. That greater reliance should be placed on this principle in the determination of rates as among the several kinds of carriers—always subject to the continuing limitations of essential ICC regulation is the heart of the Cabinet Committee’s recommendations. While spokesmen for trucking and barge interests object to the principle, it has received the endorsement of such major organizations of users of transportation as the American Farm Bureau Federation, the National Grange, the Chamber of Commerce of the United States, and the National Industrial Traffic League, which is the major nation-wide organization of men who, as shippers, deal daily with the practical problems of rate making and regulation. What this experienced body of transportation experts, who use the services of every kind of carrier and are concerned only with maximum transportation efficiency, has to say on the subject is particularly in point. On November 23, 1955, the League approved amendment of Section 15a(2) of the Interstate Commerce Act by adding the following proviso to the considerations to be taken into account by the Interstate Commerce Commission in “the exercise of its power to prescribe just and reasonable rates”: Without going into any of the technical details involved, President Eisenhower, in his message on the state of the Union submitted to the Congress on January 5, 1956, had this to say: Fundamental among these proposals is that to allow greater freedom in pricing among the different types of transportation. Under such conditions, with each user of transportation free to choose the type of carriage which best meets his needs for any particular task, the transportation needs of the nation as a whole would be met with maximum efficiency and at minimum cost—and the producer, the shipper, the consuming public and the national defense all would benefit. 1.   Revision of Federal Transportation Policy: A Report to the President, April, 1955. U.S. Government Printing Office, Washington, pp. iv. 20. Members of the Committee are Sinclair Weeks, Secretary of Commerce, Chairman; Charles E. Wilson, Secretary of Defense; and Arthur S. Flemming, Director, Office of Defense Mobilization, and, as Ad Hoc Participating Members, George M. Humphrey, Secretary of the Treasury; Arthur E. Summerfield, Postmaster General; Ezra Taft Benson, Secretary of Agriculture; and Rowland E. Hughes, Director, Bureau of the Budget. The report and recommendations of the Committee are unanimous. 2.   284 ICC, pp. 287, 296, 304, 306. The key recommendation of the Cabinet Committee is that in today’s competitive transportation world, where the user has his choice of many means of carriage, greater reliance should be placed on competition in pricing as among the various modes of transport. This is what the Committee regards as the “cornerstone” of a modern system of regulation designed to bring about a more effective use of our transportation resources. As matters now stand, one of the principal tests applied by the Interstate Commerce Commission in its control over rate competition among the different types of carriers is the concept that the government’s power to regulate rates should be used to see that each form of transportation gets what the Commission deems to be its “fair share” of the available traffic. Thus, when the railroads proposed to reduce rates upon tank-car movements of petroleum products in California and Oregon as a means of regaining some of the traffic which had been lost to barges and trucks, the Interstate Commerce Commission found that the proposed rates, while yielding revenues which would “contribute substantially to the overhead burden and profits,” should nevertheless be rejected because they were lower than the cast to the shipper of using the competing barge-truck routes and thus “lower than is necessary fairly to meet the competition.” Moreover, from the Oregon points, the ICC ordered the rates cancelled because they would “affect adversely the maintenance of competitive mo-tor-carrier transportation.” For like reasons, the Commission has refused to allow railroads to make competitive reductions which they have proposed in rates on sugar from ocean ports to Cincinnati and Louisville, on tinplate from Alabama to New Orleans, on petroleum products from Whiting, Indiana, to Illinois points, on coffee from Los Angeles and San Francisco Ray points to Northern Utah and Idaho, on magazines from Philadelphia and Darby, Pennsylvania, to Texas, on sulphur from Texas to Wisconsin, on scrap rail from Gulf ports to Chicago and on aluminum articles from Texas to Illinois and Iowa—to name a few other instances. Such a policy of attempting to allocate business among the different types of carriers requires, in effect, that one form of transportation hold an “umbrella” over the rates and traffic of its competitors by another form of carriage. But if one form of transportation, because of its inherent nature, is able to move a given commodity between given points at a lower rate than competing forms, to do so at a profit, and to do so without discriminating against other shippers, then why should not the low-cost carrier have the business and why should not the public have the saving? That, in essence, is what the Cabinet Committee’s report proposes namely, that the law should make it clear that through its power of rate regulation neither the Interstate Commerce Commission, nor any other governmen
tal body, should undertake to allocate and divide business among the different types of carriers. The position of the Cabinet Committee is that “the market” competitive pricing along with competitive service—can do this job better than it can be done by any sort of government allocation. In taking this position, the Presidential Committee did not recommend, and no one contemplates, doing away with the power of the Interstate Commerce Commission to regulate rates. Rates would still have to be published in tariffs filed by the carriers with the Interstate Commerce Commission, as they now are, and still would have to be adhered to as published. Rates still would not go into effect ordinarily until 30 days after filing, and there still would be opportunity for shippers or other carriers to protest or for the Commission to act on its own motion. The Commission would still have responsibility and power to see that rates are neither unreasonably high nor unreasonably low—a principal test being that they shall be compensatory to the carrier proposing them and that they do not unjustly prefer or discriminate against any person, any community, or any region. But within these limitations, the recommendations of the Presidential Committee contemplate that competitive pricing, as well as competition in service, should prevail. Such a result could be accomplished by a simple change in the statutory standards to be applied in determining whether a proposed rate is lower than a reasonable minimum, without affecting the other standards presently applied by the Interstate Commerce Commission. The essential standards would continue as they now are that in determining whether a proposed rate would be less than a reasonable minimum the Commission shall not consider its effect upon the traffic of any other mode of transportation, nor its relation to the charges of any other mode, nor whether it is lower than necessary to meet the competition of any other mode of transportation. Such a proviso would make it perfectly clear that the Interstate Commerce Commission is not expected to undertake an artificial and arbitrary apportionment or distribution of traffic among the several forms of transport. With traffic distributed in accordance with the natural capabilities and advantages of each kind of carrier, a better balanced development of our national transportation plant would follow. In such a development, each mode of surface transport—rail, highway and water—would take its proper place and part, performing those services which it can do better and more economically than the other modes, with both rates and service always taken into consideration. And the public, the users of transportation, would get the benefit. This sound idea, so thoroughly in accord with the customs, the traditions and the thinking of the American people, has been met with bitter objection from spokesmen for some of the trucks—principally the heavy highway freight haulers—and some of the inland waterway barge carriers. They have objected to the composition and the procedures of the Cabinet Committee and the working group, or staff, by whom it was assisted. Attempts have been made to create an impression that the working group gave consideration to the views of the railroad industry alone, but the fact is that other groups also submitted their views and that representatives of the trucking industry submitted written recommendations and also discussed them with the chairman of the group. The insinuation that the seven high government officials who concurred in its unanimous recommendations, and also the group of highly qualified and disinterested private citizens who did the preliminary staff work, listened only to railroad representations is simply not true. According to assertions of trucking spokesmen, this recommendation for greater freedom of competition between different modes of transportation would turn transportation back to a state of “cut-throat competition” said to have existed before 1887, when the original Act to Regulate Commerce was passed. There isn’t a chance of a return to the conditions of 1887, either in the physical facts of transportation or the legal terms under which the business is conducted. In 1887, the only effective competition was that among railroads. Since then, billions of dollars have been spent on building and improving waterways, and the waterways are here and will remain. Many more billions have been spent on improved highways, and the highways are here and will remain. These waterways and highways are used by tens of thousands of common and contract carriers by water and by motor vehicle. They are also open to the use of anyone who wishes to move his own goods in his own vehicle and vast tonnages are so moved. Indeed, nearly two-thirds of all intercity freight traffic on the highways and more than nine-tenths of inland waterway traffic is either of this character or is otherwise exempt from interstate regulation as to rates. The mere physical facts as to the extent of transportation facilities in this country, and the variety of their ownership and use, make any chance of general monopoly in transportation too remote to deserve consideration. From the standpoint of the laws, there has been an equally striking change. Prior to 1887 rates could be made in secret. Now rates are required to be published, with due public notice, and must be adhered to as published. Prior to 1887, there was no statutory prohibition against discriminations or preferences in rates. Now, rates of regulated carriers cannot discriminate against one shipper, or commodity, or community, or region, and cannot prefer another. There is no recommendation in the Cabinet Committee’s report which would depart from these requirements. Adoption of the Committee’s report would not authorize the making of secret rates. It would not do away with the requirements of public notice and of adherence to the published rate. It would not permit the making of rates which are either discriminatory or preferential. And the Interstate Commerce Commission would have power to enforce these principles, as well as to prohibit rates which are either unreasonably low or unreasonably high. No, with competition what it is and the laws what they are—and what they will remain if greater freedom of competition in pricing as among the different modes of transportation is adopted—there is no possibility that a transportation monopoly could be created or sustained. But motor and water carriers assert that to permit greater freedom in the making of competitive rates would enable the railroads to destroy highway and waterway competition. It must always be remembered, however, that under the Cabinet Committee’s recommendation, as well as under present law, railroads could not make below-cost rates. If it be true, as claimed by spokesmen for trucks and barges, that they could not continue to exist in the face of competitive rates which are compensatory and non-discriminatory, then it would follow that trucks and barges often would have no proper place in the transportation system and would exist only because the railroads are restrained from meeting their competition. Such an assertion is, of course, absurd. In transporting many kinds of freight, trucks and barges have advantages in service or cost or both. The report contemplates that trucks and barges should have complete opportunity to give full force and effect to their competitive advantages whenever they exist—the same opportunity, in fact, as is proposed for the railroads. Another assertion of opponents of the recommendation, equally baseless, is that greater freedom in competitive rate-making would burden shippers of so-called non-competitive or “railbound” traffic. The assertion has repeatedly been made that if rail rates on competitive traffic are reduced it would be necessary for noncompetitive traffic to pay higher rates to offset the revenue losses. Such assertions rest on a completely erroneous premise, namely, that lower competitive rail rates would reduce rail revenues. Railroad revenues are the product of two factors, rates and volume. The only motive or purpose the railroads would have in publishing reduced competitive rates would be to attract enough increased volume to more than offset the reduction in rates, and thus to produce greater net revenue. Such competitive rates, it should be borne in mind, would be required to be compensatory as well as nondiscriminatory so that instead of hurting non-competitive traffic, they would benefit it by reducing the share of the necessary fixed overhead expense the non-competitive traffic is called upon to bear. What the shippers of non-competitive traffic have real reason to fear is that competitive traffic will continue to be drained from the railroads, thus increasing the burden of overhead and fixed expense which will have to be borne by the traffic remaining on the rails. How this works in practice was well stated by the Interstate Commerce Commission as follows: The competitive spirit has been the driving force of progress in America; the competitive principle is the very foundation of our national economy. That greater reliance should be placed on this principle in the determination of rates as among the several kinds of carriers—always subject to the continuing limitations of essential ICC regulation is the heart of the Cabinet Committee’s recommendations. While spokesmen for trucking and barge interests object to the principle, it has received the endorsement of such major organizations of users of transportation as the American Farm Bureau Federation, the National Grange, the Chamber of Commerce of the United States, and the National Industrial Traffic League, which is the major nation-wide organization of men who, as shippers, deal daily with the practical problems of rate making and regulation. What this experienced body of transportation experts, who use the services of every kind of carrier and are concerned only with maximum transportation efficiency, has to say on the subject is particularly in point. On November 23, 1955, the League approved amendment of Section 15a(2) of the Interstate Commerce Act by adding the following proviso to the considerations to be taken into account by the Interstate Commerce Commission in “the exercise of its power to prescribe just and reasonable rates”: Without going into any of the technical details involved, President Eisenhower, in his message on the state of the Union submitted to the Congress on January 5, 1956, had this to say: Fundamental among these proposals is that to allow greater freedom in pricing among the different types of transportation. Under such conditions, with each user of transportation free to choose the type of carriage which best meets his needs for any particular task, the transportation needs of the nation as a whole would be met with maximum efficiency and at minimum cost—and the producer, the shipper, the consuming public and the national defense all would benefit. 1.   Revision of Federal Transportation Policy: A Report to the President, April, 1955. U.S. Government Printing Office, Washington, pp. iv. 20. Members of the Committee are Sinclair Weeks, Secretary of Commerce, Chairman; Charles E. Wilson, Secretary of Defense; and Arthur S. Flemming, Director, Office of Defense Mobilization, and, as Ad Hoc Participating Members, George M. Humphrey, Secretary of the Treasury; Arthur E. Summerfield, Postmaster General; Ezra Taft Benson, Secretary of Agriculture; and Rowland E. Hughes, Director, Bureau of the Budget. The report and recommendations of the Committee are unanimous. 2.   284 ICC, pp. 287, 296, 304, 306.

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April 1956

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