can anticipate that they should be and perhaps are 100 percent for a changed condition which would so surely benefit them.

Mr. MARTIN. Do you wish to ask any questions, Mr. Reece?

Mr. REECE. No.

Mr. MARTIN. Thank you, Mr. Lincoln, for your testimony.
Mr. LINCOLN. Thank you.

Mr. MARTIN. The next witness will be Mr. Beyers.

STATEMENT OF HENRY W. BEYERS, VICE PRESIDENT OF THE CHICAGO & NORTHWESTERN RAILWAY, CHICAGO, ILL.

Mr. BEYERS. My name is H. W. Beyers. I am vice president of the Chicago & Northwestern Railway Co. My office is in Chicago, and I have been connected with the railway for a great many years, more than 35.

In this proceeding I am testifying for and in behalf of those carriers located in western trunk-line territory, which briefly comprises all of the carriers operating westwardly from Chicago and the Mississippi River in the States of Illinois, Wisconsin, Minnesota, North and South Dakota, Iowa, Missouri, Kansas, Nebraska, and eastern Colorado.

The western trunk lines connect with the transcontinental railroad and are very greatly interested in the movement of transcontinental freight. We have an unbalanced territory in the respect that our revenue loading is very much heavier eastbound than westbound. This necessitates a large movement of empty box cars and refrigerator equipment westbound. Any of the revenue that can be obtained in connection with the cars that are now going westbound empty is to a large extent net revenue which helps to defray the general cost of transportation of the carriers whom I represent.

I have personally in my railroad experience observed a very considerable change in the movement of commodities to transcontinental territory due to the withdrawal of relief from the provisions of the long-and-short-haul clause and the greater rigidity in the provisions of the fourth section, together with a less liberal administration of the law by the Interstate Commerce Commission.

In the earlier days of my railroad experience there was a very large movement of commodities to the Pacific coast westbound manufactured in the Mississippi Valley territory via all-rail routes, and there was also a heavy tonnage of manufactured commodities from eastern territory to the Pacific coast points all-rail. With the greater rigidity in the law itself and less liberality in its application, I have seen this business from the Central West transferred to competing carriers farther away but having access to water routes. I have seen branches established on or in the vicinity of the Atlantic coast in some instances and in others a transfer of the industry to eastern territory in order to hold business on the Pacific coast. This situation has very seriously affected tonnage and employees of the western trunk lines and their connections and it likewise has tended to retard the development of the Central West. I have also seen industries within this Central Western territory in many instances forced to ship their goods to the Atlantic seaboard and thence by water to the Pacific coast where heretofore that traffic moved all-rail westward from producing points. Likewise, industries in our terri

tory receiving commodities from the Pacific coast, have found it impossible to avoid themselves of all rail routing and much of this tonnage reaches Lake Michigan ports via all-water routes. It should be noted that many times a carload unit by rail at a rate somewhat higher than the all water rate is much preferred.

Movement of automobiles shipped via New York and the Panama Canal to the West coast according to records kept by the Governor of the Panama Canal (in long tons rather than by number of automobiles) show as follows:

1 11⁄2 long tons used to represent average weight of an automobile.

During the first 3 months of 1935, 1,131 carloads of automobiles moved under like conditions and at this writing one company has in prospect 500 carloads for similar movement.

Approximately 125 carloads of liquor have moved since the middle of last December from Peoria to the Pacific coast in connection with water service via the canal.

Mr. MARTIN. What water service is that, the Mississippi River, or the Lakes?

Mr. BEYERS. It might go down the Illinois Waterway, or might go by rail to St. Louis and the Mississippi River to New Orleans.

Manufacturers of fire hydrants in Iowa, and machinery in Wisconsin have lost their Pacific coast accounts and are unable to meet competition of manufacturers, who in many instances can ship entirely by water from their plants to the Pacific coast.

Clemco Desk Manufacturing Co., Chicago, has been practically forced out of California trade by water competition.

Northwestern Barb Wire Co. of Sterling, Ill., have a heavy movement of wire and steel articles to Pacific coast but ship via the canal. Appleton Wood Products Co., Appleton, Wis., is losing contracts regularly for sale of butcher blocks, orders going to manufacturers. who can conveniently ship through the canal.

These are only a few of a great many cases where business is lost to the manufacturer or producer in the Mississippi Valley, or, if the manufacturer or producer is in position to part way meet the situation, then it is invariably by use of rail to the eastern seaboard or to the Gulf and then Canal service beyond.

Now, I might say that movements to the seaboard are many times. a combined movement, water and rail. There are also movements by water routes from Lake Michigan ports to the Atlantic seaboard and in such cases the water routes are really the controlling factor in the making of the rate. They set the pace.

In all such cases what confronts the all-rail routes is this:

1. Their only desire would be to meet a rate which is already in existence.

2. In many instances the shipper would be willing to pay for allrail service a somewhat higher rate than that obtainable via the water

routes, which in turn would mean the all-rail rate adjustment would not be as low as a figure already in existence.

3. At this point progress is halted because when the all-rail carriers are forced to observe the long-and-short-haul clause in order to meet a terminal rate already in existence it means the pulling down of their rate structure to intermediate points and consequently an unnecessary loss of revenue incurred which cannot be recaptured.

4. The final result where fourth-section relief is not obtainable is(a) That the rail carriers must forego the tonnage for terminal points.

(b) The rates in the intermediate territory remain as they are. (c) So far as the industry is concerned, the lower rate at the termini continues via a water route only, with possibly a greater spread between the water rate to the termini and the all-rail rate to the intermediate point than that which would exist were the all-rail carriers permitted to meet the water competition at the termini with an all-rail rate, which many times would be higher than the water rate. In these circumstances, assuming that the industry at an intermediate point had a competitor at the termini, both serving common territory, the industry at the intermediate point would naturally have a better opportunity to meet competition when his competitor at the termini operated under an all-rail rate somewhat greater than the

water rate.

(d) The rail carriers operating through the intermediate territory are deprived of revenues which otherwise would necessarily reflect beneficially to the communities in the intermediate territories.

In order to obviate the impression that the carriers in the western trunk line territory are only interested in the transcontinental adjustment, I want to now deal exclusively with the situation existing in the western trunk line territory, and before taking up such situations I desire to make the positive statement that rescinding in its entirety the long-and-short-haul provisions of the fourth section as is recommended by the Pettengill bill under consideration cannot possibly result in injury to any community or to any individual. Every locality and every shipping individual would be fully protected from either unreasonable rates or from preferential or prejudicial rates by sections 1, 2, and 3 of the Interstate Commerce Act. These sections make it unlawful to charge unreasonable rates as well as rates creating prejudice or preference. The public has the right to attack any rate to an intermediate point that is higher than a rate to a point beyond under these sections. If the Commission found that the evidence submitted did not warrant the carrying of such higher rate at an intermediate point on the same line than to a point beyond, the Commission could not only require a change in this situation, but could protect the public through the medium of its power to grant reparation on business that had moved under such higher rate to the intermediate point. Therefore, the public would be just as fully protected with the long-and-short-haul clause rescinded as it is protected under the law as it now stands. The public is further protected in the respect that other provisions of the act give to the Interstate Commerce Commission the power to set minimum rates, which power, judiciously applied, could absolutely prevent not only at such intermediate point the establishment of a higher rate than the Commission thought proper, but at the competitive point causing the trouble, a rate lower than the Commission may think the conditions warrant.

I desire first to deal with situations where the long line is meeting the short-line rate. Under such a situation if the long line did not participate in the competitive rate it would have no effect whatsoever on the going rate to the competitive point via the short line. failure to participate would only mean that there might not be the same option of selecting service on the part of the shipper as under a situation where the long line could meet the short-line rate without interfering with its rates at intermediate points. The present law contains the equidistant clause which projects the rate via the longer route for the same distance as via the short route, to the competitive point, under the arbitarary assumption that the same conditions and circumstances exist at such equidistant points on the long route as are in effect on the competitive points. This assumption is not borne out by conditions as they actually exist as illustrated by the following: Presume, if you will, a rate made from Chicago to the Twin Cities (St. Paul and Minneapolis) to meet special conditions at the Twin Cities (a water and rail transportation from Chicago or from competing points in eastern territory) a rate is made to meet that situation. There are other lines operating from Chicago through Iowa to the Twin Cities and at the intermediate stations to the Twin Cities, in northern Iowa and southern Minnesota, on the lines operating via such routes there does not exist the same impelling necessities as have required the adjustment at the Twin Cities.

In these circumstances, surely the carriers should be permitted to meet the competition found at the Twin Cities and at the same time hold their rates on a reasonable basis at points where the same competition is not encountered in Northern Iowa and Southern Minnesota. In so doing the Twin Cities have received no different rate adjustment than they would have via the short line, and the intermediate points on the indirect routes are paying no higher rates than the conditions on that route fully justify. If the law is to continue as it is and we are forced to make rates lower than transportation or traffic conditions warrant simply because of the fact that at a point beyond conditions are encountered that are not present on these other routes then the railroads are going to experience great difficulty in securing earnings necessary to meet their requirements and to maintain a proper and adequate service and facilities which are required in the public interest. Another situation that I desire to impress upon you is the fact that rates in many instances are made in the interest of commerce on what is known as a "group basis"; that is, over a reasonable area the rates are the same even though the distance may be different. In the geographical location of the railroads in many instances some lines may have to go through a higher rated group in order to get into a lower rate group.

To permit those lines to participate in the traffic without tearing down the rates in the higher rates group is in the public interest for the reason that it gives additional service than would be obtained if the roads so situated went out of this traffic, and in addition to this permits the local industries on such road to have their rates properly adjusted to the rates which are in effect on other railroads in their immediate vicinity and it brings this about without the necessity of wantonly and unnecessarily reducing reasonable rates, most of which have been prescribed by the Interstate Commerce Commission. The

635-35-15

carriers should, in our opinion, be permitted to handle adjustments of this kind without the delay which is now encountered under the operation of the provisions of the fourth section. As previously stated, if the situation results in either unreasonable or prejudicial rates the interests of the public are fully protected under the act.

Right now we have before us a shippers' application for the reduction of the rates on wood pulp. We have in the States of Wisconsin and Michigan both wood-pulp factories and paper mills. The wood itself is in that northern Wisconsin section and up in the Upper Peninsula of Michigan.

The reason why they are asking for a reduction in these woodpulp rates is because of foreign competition. Scandinavian and other European vessels come right to our Lake ports. My last knowledge of the tonnage for last year was 134,000 tons having reached through the St. Lawrence Waterways and Great Lakes the shores of Lake Michigan, and because of that competition we are asked to make a reduction in the wood-pulp rates.

If under the long and short haul we attempt that reduction and are successful in making it, we will do the industry absolutely no good for the reason that much of this pulp coming from a mill at Quinnesec, Mich., as an illustration, going to the paper mills in central Wisconsin, passes through Green Bay, Wis. If we reduced the rate from Quinnesec to the Fox River Valley, we may be forced to reduce the freight rates from Green Bay, a lake port where foreign vessels offload, then we are making a reduction for the foreigners, and the relationship remains exactly the same.

Now, the question has been asked here a number of times, if you
Mr. MARTIN. The foreigner could unload at Green Bay?
Mr. BEYERS. Oh, yes, his boats come right to Green Bay.

The question has been asked here many times, will relief from the fourth section result in an advance insofar as the intermediate points are concerned. Right here, gentlemen, if there is anything we ought to do, it is to advance the rate from Green Bay and reduce it from Quinnesec, but without relief from the fourth section, whatever we do as to Quinnesec automatically follows at Green Bay, and you have done the home industry no good, because assuming the reduction might be the same in cents per hundred pounds (probably not in all cases), the foreigner would get exactly the same benefits that the domestic producer is asking for today.

Since the fourth section was passed and amended a new form of transportation has actively entered the field through the development of the internal combustion engine. The truck presents possibly the greatest menace to the railroads with which they as a whole have ever been confronted.

The trucks to date have been in a position to choose their traffic, taking the most desirable and profitable between large centers where a well-balanced traffic exists; that is to say, available traffic moving in both directions and absolutely refusing to serve the small intermediate territory whose business is not attractive as compared with the business at the points beyond where full loads are readily available. In order to successfully compete against the highway the railroads should be permitted for the same reasons heretofore given to reduce their rates at the points where the competition actually exists without being punished in so doing by being forced to reduce the rates at intermediate points at which such competition is not encountered.