Mr. MARTIN. Do you mean that the carriers, by reason of the denial of the lower Gulf rates, and the loss of that traffic had to, in order to get revenue, increase their interior rates to such a level as to shut those localities out of the market?

Mr. LINCOLN. By no means, Mr. Chairman. The carriers maintained the lower rates at the Gulf ports for the purpose of meeting in some measure, at least, the competition by water to the Gulf ports. Now those rates, had they been observed as maximum to intermediate territory, would have been lower than the general rates through the southwest territory, to such an extent that the revenue of the railroads would have been very adversely affected. Now in addition, the necessity for the lower Gulf rates to apply to intermediate points did not exist because the competition was with the water rates. It was not necessary, for example, from Chicago to Dallas like it was from Chicago to the Gulf ports in order to meet such competition. Have I made my point clear?

Mr. MARTIN. Yes.

Mr. LINCOLN. In other words the competition was from the Atlantic seaboard to the Gulf ports.

The modification of the fourth section, as proposed in this bill, would permit these carriers to again participate in this traffic and obtain much needed revenue therefrom and give to the manufacturers and producers in the interior an opportunity to compete for this traffic and give to the users of these commodities at the Gulf ports a larger choice of competitive markets in which to purchase, all, of course, subject to the disapproval of the Commission if, in any respect, the rates thus proposed by the rail carriers were found to be in disregard of other provisions of the act.

Under present conditions the competition from the Atlantic seaboard territory, through the Gulf ports, with interior producing points diminishes as the distance from the Gulf ports increases so that in northern Texas and points in Arkansas and Oklahoma, the rail carriers meeting the competitive situations at the ports do so at unnecessary sacrifice of much revenue at interior points and are required to apply rates below the standard of reasonableness fixed by the judgment of the Commission.

That is the point I was discussing with you in response to your question.

Mr. MARTIN. Yes.

Mr. LINCOLN. The southwestern carriers desire to impress upon the Congress their inability to fully utilize facilities they have provided, because the losses in revenue from rates at interior points reduced below the level of reasonableness which the Commission has prescribed, is greater than the profit to be obtained in the handling of the traffic to or from the port cities; likewise, that manufacturing enterprises, farmers and those engaged in the assembling and shipping of agricultural products are deprived of the opportunity to sell such products in Southwestern States, to the advantage of others engaged in similar enterprises who are located at or near the port cities, where water transportation is available.

Commodities produced and manufactured within the Southwest must find markets in distant territories of consumption in competition with products of other parts of the country. The carriers serving the southwestern territory have in the past found it difficult, and in

some cases impossible, due to the requirements of the fourth section to establish the necessary rates to permit of a free distribution of southwestern products. Manifestly, the observance of the present fourth section requirements in connection with all traffic which has to find a destination outside of southwestern territory would result in very serious losses in revenue to the carriers.

Some of the important items of tonnage originating in the Southwest which must find markets outside of southwestern territory are forest products, petroleum and its products, sulphur, sugar, perishable products, especially citrus fruit which is produced extensively in the Rio Grande Valley, and furniture.

A striking example of the effect of the fourth section provisions on the ability of the carriers to handle desirable revenue-producing tonnage in competition with water carriers is sulphur. Practically 100 percent of the sulphur produced in the United States is in southern Louisiana and southern Texas. This commodity is used principally along the Atlantic seaboard and in the territory adjacent to the Great Lakes. Sulphur is very desirable tonnage to the railroad carriers as it loads heavily and does not require expedited service and claims are few. It is also desirable tonnage for water carriers, and a very large part of the production is moved by water, there being only a short haul by rail to the ports. The yearly movement of sulphur by water is between 700,000 and 800,000 tons.

There is a considerable movement to interior points located in Minnesota, Wisconsin, and Michigan, as well as to points east thereof. Naturally, when business is handled by water through the eastern seaboard ports, the lowest rates are to points in the eastern territory and these gradually increase into the more westerly territory; I mean by that, water and rail back.

However, if the rail lines attempt to meet this situation, they are immediately blocked by the provisions of the fourth section, because they cannot charge higher rates at the intermediate points than at the more easterly points, where the lowest water-compelled rates are in effect. For that reason, they are obliged to forego nearly all of this valuable tonnage when destined to the territory just described. That does not affect the industries out in Colorado as nearly all of the movements is by rail. The effect of the water competition is to substantially throw all of the business in the eastern classification territory to the water lines.

Another major situation from the standpoint of the fourth section affecting the southwestern lines is created by the Mississippi River. Here two conditions are met; one, the competition between the rail lines east of the Mississippi River and those west of the Mississippi River, and the other the competition with water carriers using the Mississippi.

It is necessary to explain that the Interstate Commerce Commission has fixed different general levels of rates in the different sections of the country on account of different operating and commercial conditions. The section east of the Mississippi River is not only governed by a different classification than that west of the Mississippi River, but also there is a lower general level of rates in the East as compared with west of the river. These rate levels, in fact the rates themselves, have been in practically all cases prescribed by the Interstate Commerce Commission as fair and reasonable rates.

Without relief from the provisions of the fourth section, west-side lines may not compete for this Mississippi Valley traffic without reducing rates to a considerable intermediate territory, and thus creating a general demoralization and lowering of the rates which the Commission itself has found to be just and reasonable. And here let me explain that I am now talking about competition as between the railroads for the traffic in the Mississippi Valley and not that of barges.

As an example, the Missouri Pacific Railroad has a line from St. Louis, Mo., to New Orleans, La., entirely located on the west side of the Mississippi River. The Illinois Central operates a line entirely on the east side of the Mississippi River. Now the distance from St. Louis to New Orleans over the two railroads is very little different. I do not recall the exact distance, but I do not think there is fifty miles difference in the distance between the two cities over the two railroads.

Mr. MARTIN. You are talking about the lines operating east and west across the Mississippi River or about lines running north and south on the River?

Mr. LINCOLN. In this discussion, Mr. Chairman, I am talking about the railroad lines operating north and south on the Mississippi. Mr. MARTIN. Yes.

Mr. LINCOLN. I am talking for the southwest lines, those lines running in the Mississippi Valley west of the Mississippi, the southwest territory, and I am discussing the relationship between the rates in the Mississippi Valley territory west of the Mississippi, lying in the southwest territory, in the Mississippi Valley, and the rails east of the Mississippi River.

There is a very extensive movement of traffic to and through these two points. Yet, the Missouri Pacific and other west-side lines cannot engage in this traffic without relief from the fourth section, because to do so would simultaneously lower the rates at intermediate points. What is said of New Orleans obtains in like manner at Memphis, Tenn., Helena, Ark., Vicksburg, Miss., and Baton Rouge, La. I want that point very clearly understood, that I am talking about railroad rates on rail lines competing as between rail lines. I want to make it clear that the railroad rates on both sides of the river for the most part, not all, but for the most part have been fixed by the Interstate Commerce Commission in various proceedings. The rates which were prescribed from St. Louis, Mo., to Memphis, Tenn., were predicated on the rate level which obtained east of the river. The rates which were prescribed by the Interstate Commerce Commission from St. Louis to West Memphis on the Mississippi, which is right across the river from Memphis, are higher than the rates that are prescribed from St. Louis to Memphis. Now, the reason for that higher level was justified by conditions which the Commission has developed in various investigations. Now, with the rates from St. Louis to West Memphis higher than from St. Louis to Memphis, the Missouri Pacific Railroad, unless it can get fourth section relief, cannot participate in movements from St. Louis to Memphis.

Now, I said that the Commission has granted relief as to some of these rates, but that relief is not continuing. It really applies to the rates as in effect at the time the relief was granted and if the rates are subsequently changed the relief is not good unless you go through the whole procedure again.

Mr. MARTIN. Does the Missouri Pacific cross the river at Memphis coming into Memphis?

Mr. LINCOLN. Yes.

Mr. MARTIN. And in doing that you run afoul of the long and short haul section?

Mr. LINCOLN. Run afoul before we get to the bridge.

Another difficulty in this territory is the competition of the Federal Barge Line as well as privately owned and operated river craft.

These water carriers make their own rates without necessarily having regard for rates as charged by the rail carriers. They may and do select traffic which they desire to handle, and usually exert their efforts to secure commodities moving the greatest volume and which are most attractive to the rail carriers.

The rail carriers cannot hope to compete with this situation if rates so made are required to be observed as maxima at intermediate points points where such competition does not exist. However, if this bill were enacted, the rail carriers would be enabled to make rates to and from river crossings on a comparable basis-not the same ratesand fairly compete for this class of traffic without disturbing normal adjustments at intermediate points.

The interior of southwestern territory, by which is meant those portions of the States of Texas, Louisiana, Arkansas, Oklahoma, and southern Missouri which are removed from the direct influence of competition with water-borne traffic on the Gulf of Mexico and the Mississippi River, is honeycombed with situations which adversely affect the rail carriers, producers, both on raw materials and manufactured products, the consumers and communities under the operation of the existing fourth section of the act.

In fact, southwestern rail carriers have every kind of fourth-section difficulty that obtains in any other section of the United States.

Throughout this vast territory we are confronted with water competition, both actual and potential, of inland waterways; truck competition; competition as between rail carriers, longer lines or routes as compared with shorter lines or routes; also, as will be shown, shorter lines or routes as compared with longer lines or routes.

The following examples will, I believe, be sufficient to demonstrate in a convincing manner the disadvantages not only as to rail carriers but also as to the shipping public of the operation of the fourth section as it now reads and is administered, and the alleviating effect which might be expected were such fourth section of the act to be changed as contemplated by the bill which we are considering.

Mr. HOLMES. Do you want to go on, Mr. Chairman, or do you think we had better adjourn?

Mr. MARTIN. It is lunch time now. How much longer will it take you?

Mr. LINCOLN. Well, perhaps 15 minutes.

Mr. MARTIN. I will leave it to you gentlemen.

Mr. REECE. Without objection, I think we should recess; the House is convening.

Mr. MARTIN. The House has convened, and probably we should be over there now.

Mr. LINCOLN. I am here at your pleasure.

Mr. MARTIN. We will recess until 2 o'clock this afternoon.

(Thereupon, at 11:55 a. m., a recess was taken until 2 p. m. of the same day.)

AFTERNOON SESSION

(The committee reassembled, pursuant to the taking of the recess, at 2 p. m., Hon. John A. Martin presiding.)

Mr. MARTIN. The committee will come to order. You may proceed, Mr. Lincoln.

STATEMENT OF D. R. LINCOLN, FREIGHT TRAFFIC MANAGER, MISSOURI PACIFIC LINES Resumed

Mr. LINCOLN. Mr. Chairman, I believe I was in Texas when we recessed for lunch.

For the purpose of demonstrating more clearly the points which I am now desirous of making, I have prepared a set of maps setting forth certain information which I shall undertake to explain as Ï proceed.

There were recently constructed and placed in operation in the Southwest two large and important chemical plants representing an investment of some millions of dollars. One of these plants is located at Lake Charles, La., the other at Corpus Christi, Tex.

It is, or course, anticipated that these plants will produce an extensive tonnage for distribution throughout the Southwest, and also to the extent that favorable rate adjustments may be made to territory beyond the confines of the southwestern region in competition with chemicals manufactured and shipped from the East.

For the purpose of assisting these new industries in marketing their products, and also for the purpose of developing new tonnage for the rail carriers, reduced rates were recently published and made effective on liquid caustic soda in tank cars and on soda ash in bulk from these chemical plants to St. Louis and Kansas City, Mo.

Now, I might add here that the competition which it is intended to meet with these rates to St. Louis and Kansas City is principally with the chemical plants located at Detroit, Wyandotte, Mich.; Niagara Falls, N. Y., and Paynesville, Ohio, although there are other chemical plants in the official territory, but those were the principal competi

tors.

It must be understood that these rates were considered necessary to permit the Lake Charles and Corpus Christi chemical plants to enter the St. Louis and Kansas City markets upon a comparable basis in competition with manufacturers of the same products located in eastern territory.

It should also be understood that to the extensive territory in Kansas, Oklahoma, and so forth, west and southwest of St. Louis and Kansas City, which is intermediate with Lake Charles and Corpus Christi, the rates from such competitive eastern origins are somewhat higher than to St. Louis and Kansas City; and therefore the same market competition as at St. Louis and Kansas City does not exist. Hence, there is no commercial necessity for regarding the rates above mentioned as maxima from Lake Charles and Corpus Christi to such intermediate territory.

In order, therefore, to obviate the necessity for needlessly breaking down the rate adjustment from Lake Charles and Corpus Christi to the aforementioned intermediate territory, the rail carriers in publishing these rates confined their application to the following routes