coal alone, moved in private barges owned and operated by mining and manufacturing companies as a part of their own distribution operation. Of course, now such situation as this can be set up on other parts of the Mississippi-Ohio-Missouri system. The average haul on this river is only 40 miles or one-fourth of the navigable length. This haul is between the coal tipples on or near the river banks to Pittsburgh. On the Ohio River the average haul is 66 miles, with a navigable length of 979 miles. This is really local business, and as local business tonnage figures are rapidly multiplied but do not indicate what the use of the river may really be. Here again over 90 per cent is low-grade traffic, 43.8 per cent being sand, gravel, and stone, 43.7 per cent coal, on the total of slightly less than 21,000,000 tons. What I desire to make clear is (1) The total tonnage figure includes large tonnage on natural waterways and obscure and relatively meager service on the artificial or improved waterways for which the appropriation is particularly sought. (2) The total tonnage figure gives no indication as to the kind of traffic handled or the service performed. (3) The great bulk on inland waterways is short-haul stuff, that looms large in tonnage but low as to mileage, which measures service. Public savings: As to so-called "public savings," when the tonnage is eliminated on operations not contemplated by this bill, even according to the calculations by this witness, public savings dwindle like a punctured balloon. Consideration of this matter comes down, finally, to the Mississippi-Ohio-Missouri system. I am compelled to assume that the basis of calculating savings to the public is here made by the witness on the basis of railroad tariffs as compared with water tariffs where they exist. No water tariffs have been available to us except those of the Government barge line. Even here the tariffs are on through routes with the railroads only, for no port-to-port rates are required to be filed. In the operations of this Government barge line are, of course, included the twentyfive or twenty-six million dollars' worth of equipment given it by the Government free of charge and the elimination of important elements of cost, such as carrying charge and maintenance. If the assumption is correct that a comparison was made between rail tariffs and water tariffs as represented by the Government barge line, my first comment is that no such comparison is valid. The reason is that, while rail tariffs represent the total costs that have to be paid, the water tariffs represent only what is directly and immediately paid by the shipper and do not include those important hidden costs of carrying charges and maintenance which for the waterways are paid out of the general tax fund, that is, are the contribution by the Federal Government. When these two costs are set up on a comparable basis they show as follows: Mississippi River, 11.17 mills per ton mile. Eight parallel railroads, 10.09 mills per ton mile. Seven parallel railroads, 8.83 mills per ton mile. The Missouri River makes a bad showing on this basis. Without including the cost of handling the freight on the river, the capital and maintenance cost were about 35 cents a ton mile in 1928. The inevitable conclusions to be reached from a careful study of total comparable costs as between the Mississippi-Ohio-Missouri system and the railroads are (1) When total costs are considered, rail transportation is actually cheaper than by water, with admittedly superior service by rail. (2) There are no "public savings" at all on water transportation over this system in the sense that all the people benefit. (3) Water tariffs, as measured by the Government barge line tariffs, are lower than by rail with a consequent saving to the individual shipper on the river bank but the general public makes up the difference by paying the hidden costs. (4) These so-called "public savings," therefore, disappear and their place is taken by a gratuity to the favored shipper who makes use of the subsidized line. There are two further items which should be considered in this connection. The first of these is the amounts which may have been paid by State and local units of government. For instance, the State of Illinois has already paid $15,000,000 on Illinois waterway. The Sanitary District of Chicago has spent $53,000,000 in constructing the Sanitary Canal, and the same organization has expended more than $14,000,000 on the Sag Channel for drainage and sewerage purposes. I need not refer to the lavish expenditures by the State of New York on its barge canal. The total of expenditures of this kind is not available but they are a part, and a substantial part, of the cost of these inland waterways. The second point has to do with collateral or contingent costs. By this phrase I mean those costs which are incurred as a result of river and canal improvement. When a stream is deepened and widened and generally when improvements are made on a so-called navigable stream, then corresponding changes are required for bridge crossings over such stream. These collateral or contingent costs are most substantial. No total sum is now available. An illustration, however, will show their importance. I use the Sag Harbor project, which is a proposal to join Sag Harbor with the Illinois waterway, as an example. If and when this project is carried out, it will mean a contingent cost for the railroads crossing this proposed water course, represented by total capital expenditures and capitalization of increased operation and maintenance expense of $132,372,000. I might add in that connection, the figures are made up in this way; the capital costs will be $117,000,000. The annual increase in the operation and maintenance expense resulting from this improvement will equal $798,000 annually for those roads crossing this waterway. These collateral or contingent costs are never included in the figures representing expenditures for proposed projects. They do, however, have to be paid by some one. They are a substantial item in transportation costs. They do not appear among the elements of cost of those who operate on the waterways. These so-called savings as a matter of fact seldom reach the ultimate consumer in any amount at all. This question has frequently been discussed in connection with section 4 of the interstate commerce act, the long-and-short-haul provision, on transcontinental traffic. In these cases jobbers have often posed as representatives of the whole community of consumers, but it has been shown time and again that the effect of lower freight rates of this character rarely reaches the consumer. When a freight rate comes down, somewhere between the producer or shipper and the middleman-jobber, wholesaler and retailer-the slack is taken up and that popular American citizen, Mr. Ultimate Consumer, can not find any part of it left when he finally buys the things over the counter. What actually happens is that the jobber uses any part of the reduction which he realizes as against the shipper to extend his business. He does not turn it over to the consumer. Thus the retail prices in markets affected by subsidized water rates are affected very little or not at all by them. A definite illustration will make this clear. On August 3, 1931, at a public hearing held by Major Edgerton, Corps of Engineers, at Rock Island, Ill., testimony was offered by Mr. Frank Townsend, traffic manager of the Chamber of Commerce, Minneapolis, Minn. It happens also that Mr. Townsend has for years been an ardent waterway advocate. The hearing at which he was testifying was held for the purpose of determining the advisability of improving the Hennepin Canal. Speaking of coal, Mr. Townsend said: From eastern Kentucky and from what we call the Garfield-Newton mines, served by the Chesapeake & Ohio and Norfolk & Western, the all-rail rate to the Twin Cities is $5.40 per ton. Now the rail and lake transportation cost into the Twin Cities is made up first from the mine to Lake Erie points and from there to Duluth and down to the Twin Cities * * The point is ** we approximately pay the mine cost plus $5.40 a ton, although it is handled at cheaper transportation cost through the lakes * * ** * This means that the shipper who carries coal by water to Minneapolis sells it at a price based on the all-rail rate from Kentucky. The difference between the all-rail rate and the rail-lake rate he keeps as additional profit. The buyer of the coal receives no benefit from the use of water transportation. Another illustration: In May, 1929, there was a great volume of wheat stored in this country and it was thought much of it might move before the new crop came on while transportation charges were not so high, and the farmer might get a better price for his product. Counting on the effect of of these reductions in export rates which were put in by the railroads in May, 1929, the superintendent of public works of the State of New York said in his annual for that year: The reduction in the rail rates on export wheat constitutes one of the most interesting and important experiments in rate making ever made in this country. For many years it has been a controversial question whether the farmer or the consumer pays the freight rates on farm products. Almost immediately following the newspaper announcements of the proposed rail rate reduction prices declined both in the Chicago and Liverpool markets by amounts approximately equal to the difference in transportation charges. The fourth point I wish to touch upon has to do with public grants and contributions to the construction of railroads. A witness in this hearing says: The interstate commerce law of 1887 and all of its amendments prior to the World War constituted a body of congressional enactments aimed to hold in control the undesirable tendencies of a great railroad monopoly built up largely through public grants and contributions. I would like to say at the outset that the chief purposes of the interstate commerce law of 1887 and succeeding amendments thereto have been (a) to prevent the charging of excessive rates and the enforcement of unreasonable rules, regulations, and practices; (b) to prevent discrimination by rebating or by charging different rates to different shippers based on the amount of their tonnage; (c) to prevent the unnecessary addition or abandonment of transportation lines by requiring certificates of public convenience and necessity; (d) to assure adequate and efficient transportation service. These provisions were intended to end the policy of the survival of the fittest which had existed in connection with the country's most essential medium of conducting interstate commerce, namely, the rail carriers. That is, to protect them against themselves in cutthroat competition and to protect them against shippers of large tonnage using such tonnage as a club to get special rates. And finally, to prevent discrimination as between shippers and localities. It is not true that the railroads were built up largely through public grants and contributions. Grants of land were not gifts. They were bargains in which there was a quid pro quo and usually a hard bargain with the advantage to the Government. I refer to the conditions attached to legislation on land grants requiring a reduced rate by these railroads which received grants of land on Government mail, Government materials, and Government troops. Originally land grants applied to about 21,500 miles of road, but this figure was reduced by inability to comply with the conditions imposed. This is a small mileage as compared with the 240 miles of Class I roads. Mr. Chairman, I have made a study of that situation-land grants and what the railroads have to contribute to the Government and reduced rates, mail rates, Government materials, and Government troops. The study comprises the years 1924 to 1928, inclusive, and it gives for Class I carriers the total sum in the annual average which is represented in the saving to the public from these reduced rates. I do not care to take the time of this committee, but would it be permissible that I have this quoted in the record? Senator NYE. Quite so. Doctor DUNCAN. This is the brief, and it is a selection from pages 61 to 65 of a pamphlet issued by our association entitled "Rails and Roads." Senator NYE. Very well. (The excerpt from "Rails and Roads" referred to is as follows:) 11. Reduced rates due to land grants apply to mail, to Government materials, and to troops. In 1876 Congressman Holman, of Indiana, caused to be inserted in an appropriation bill a clause declaring that railroad companies which had been given land grants by Congress shall receive only 80 per cent of the compensation otherwise authorized. From that date to this the 80 per cent rule has applied to some 14,410 miles of road. 12. More than 50 years ago a decision of the Supreme Court declared that the clause, which commonly appears in the act granting land for the construction of railroads, should be interpreted as meaning that Government materials and troops should be carried at 50 per cent of the commercial rate. Railroads with grants differently worded have had to transport materials and troops 100 per cent free. Certain contracts between carriers and the Government growing directly or indirectly out of these land grants have also given the Government reduced rates. 13. We have been able to secure figures on the difference between the commercial rate and the 80 per cent Government rate on mail for the 5-year period, 1924 to 1928, inclusive, covering 13,255 miles of road out of the total of 14,410 miles. This difference between the commercial rate and the 80 per cent Government rate on mail aggregated for the entire 5-year period $10,250,000. or an average of $2,050,000 per year. For the year 1928 the difference between the commercial rate and the 80 per cent Government land-grant rate amounted to $2,150,000. 14. Certain carriers representing 4,893 miles of road out of the total of 14,410 miles to which the 80 per cent rate applies, have returned to the Government through reduced mail rates from 1876 to 1928, inclusive, the aggregate sum of $16,682,722.54. This is equal to $3,429.53 per mile of road for mail alone. Information covering the entire period is not available from other carriers. 15. We have also been able to secure figures representing the savings to the Government from land-grant rates on materials and troops for the 5-year period, 1924 to 1928, inclusive, covering 228,830.64 miles of road out of a total of Class I roads amounting to 240,429.41 miles. This means that 11,598.77 miles of road have not reported. These figures represent not only the savings from the mileage to which land grants directly apply but also the savings from land-grant equalization rates. Data have been compiled by the billing road from rate bills used in annual settlements with the Government, and the amounts reported cover all reductions to the Government, whether or not the billing road or some connecting line absorbed the reduction. 16. The figures cover separately the savings to the Government on freight; that is, Government materials, and on troops; that is, passengers. The figures for the 228,830.65 miles of road are as follows: Sum representing difference between commercial rates and Government rates account land grants 17. It will be noted from the above table that the total savings to the Government from land-grant freight rates and fares for troops for the 5-year period were $11,078,940.37, which represents an average per year of $2,215,788.07. For 1928 the figure is $2,200,560.39. 18. When the figures given in the above paragraphs are combined, they show that for this 5-year period the savings to the Government, representing what the Government has been receiving in return for land grants and including mail, Government materials and troops, were $21,328,940.37, or $4,265,788.07 per year. In 1928, the aggregate savings to the Government from these sources were $4,350,560.39. 19. From the best figures obtainable it appears that these land-grant rates represent a reduction to the Government of about 12 per cent on materials and troops from the corresponding commercial rates. 20. It will be recognized, of course, that these figures represent the savings to the Government from substantially less mileage than that to which the rates actually apply, both with respect to Government materials and troops and to mail. It will also be recognized that the period covered includes years of peace and not of war, in which latter time the Government activity is most pronounced. Certainly, if the entire mileage were represented, the annual savings to the Government from land-grant rates, and representing only the direct monetary savings which it receives from these ancient land grants, would be substantially $5,000,000 per year. When it is also remembered that some of these reductions have extended over a period of nearly 75 years, it will be evident that the total savings to the Government during all this period of time when the land-grant rates have been in operation is a most substantial figure. |