The Inland Steel Co. began operation at Chicago Heights, Ill., in 1893 and at Indiana Harbor, Ind., in 1902. This company produces practically a complete line of rolled iron and steel articles except wire nails and pipe, and the plant and facilities of this company represent an investment in excess of $100,000,000.

The products of the Inland Steel Co. are sold in competition with other iron and steel manufacturers located throughout the United States, but on account of transportation costs, the markets are restricted generally to distances not exceeding 500 miles. Both plants being located in the same rate territory, it is not possible for the Inland Steel Co. to allocate orders to different plants to take advantage of varied transportation services and lower costs in serving a particular market, as can be done by many of the steel manufacturers with which this company competes.

In several proceedings before the Interstate Commerce Commission testimony was introduced in behalf of the Inland Steel Co. to the effect that the plants of this company being located 500 miles or more nearer the Pacific coast than its principal eastern competitors, the carriers should be permitted to adjust all-rail rates on iron and steel, so as to participate in such traffic and afford central western steel producers an opportunity to compete in the Pacific coast markets. For a number of years prior to the opening of the Panama Canal, when manufacturers were dependent upon rail transportation in serving the Pacific coast, the Inland Steel Co. shipped a large percentage of its output to that territory. This was made possible by differentially lower rates from Chicago under a normal all-rail freight-rate adjustment, than applied from its principal competitors located in the eastern part of the United States.

With the opening of the Panama Canal and the establishment of low-water rates and frequent services from the Atlantic seaboard, steel mills located in the East were able to sell their products in the Pacific coast markets to a better advantage than a midwestern producer who had to absorb the all-rail transportation costs in making delivery.

This high absorption was so great that no margin of profit was left for this company and naturally the Pacific coast territory markets were lost to competing mills.

We withdrew our Pacific coast representatives after a denial of fourth-section relief in the last transcontinental proceedings, and we have sold no steel on the coast except an occasional car of selected articles, which we might receive a premium for because of our ability to make a hurried delivery.

Realizing the handicap of a rigid fourth-section law and shipping via all-rail routes and at higher rates compared to eastern competitors, this company has on numerous occasions approached different carrier representatives suggesting relief from the long-and-short-haul provision of the fourth section, in order that some of the tonnage lost might be regained for our mill. Invariably the answers were they could not secure the consent of the Interstate Commerce Commission to the establishment of such rates under the present law.

A historical account of various rate adjustments and the efforts made from time to time to secure fourth-section relief has been presented to you by others and those features will not be referred to,

although I desire to point out the existing rate situation and give reference to a recent decision of the Interstate Commerce Commission in which we are vitally interested.

Sheet steel is one of the iron and steel products used in large quantities on the Pacific coast. Iron and steel can move to the Pacific coast today from the Chicago district only by water routes, either via the Gulf or via Atlantic ports. The present rail-barge rate on sheet steel from the Chicago district to San Francisco by barge to New Orleans and thence via Panama Canal is 67 cents per 100 pounds minimum 40,000 pounds per car, to which must be added a combined State toll and handling charge of 22 cents for delivery on cars at the California wharf. The all-rail rate on iron and steel articles from this same district to the Pacific coast is $1 per 100 pounds, minimum 80,000 pounds per car. Shipments of iron and steel can move from the Chicago district to Atlantic seaboard for 43 cents per 100 pounds, and adding thereto the ocean rate of approximately 35 cents per 100 pounds, delivery can be made on the Pacific coast, including handling charges, for slightly over 80 cents per 100 pounds. Under such an adjustment of rates naturally the Chicago district must ship via other than all-rail routes or forego any business on the Pacific coast. Eastern competitors who have a short rail haul or are located on water have an additional advantage from their location, although many miles more distant from the Pacific coast.

Fourth section application 15151, reported in volume 206 I. C. C. 249, sought authority to establish and maintain rates on iron and steel articles in carloads, from producing points in central and western trunk-line territories and Minnequa, Colo., to Texas Gulf ports, without observing the long-and-short-haul provisions of section 4 of the Interstate Commerce Act, submitted on July 22, 1933, and decided January 29, 1935.

Because of the large amount of imported steel moving to and through the Gulf ports as well as the volume that moved via water from eastern producing territory, the interests located in the territories mentioned sought reduced rates to the ports in order to, in part, meet the competition of these competitors. The rate desired was based on a combination over New Orleans, the total being 50 cents per 100 pounds from Chicago, or $200 per car minimum revenue. The decision of the Commission in the instant case denied fourth-section relief and under this order the carriers must either increase the rate, thereby placing the proponent in the position of paying a higher rate to the destination territory or else reduce the rate to all of the intermediate territory where the rates are higher, the principal point being New Orleans, La., at which point the present rate from Chicago on iron and steel articles is 55 cents per 100 pounds.

It is my opinion that with the passage of the Pettengill bill a substantial volume of traffic will be attracted to the rail carriers, from which they will derive revenue considerably in excess of the out-ofpocket cost of handling, and that the central western steel producers will be permitted to more equitably compete with eastern steel producers who have the advantage of low water transportation. I therefore urge the approval by your committee of this bill and the passage of the bill by the Congress.

Mr. REECE. Do you see any economic reason why a western steel producer should be deprived of a market which is much nearer him than to an eastern steel producer?

Mr. HAMMOND. None whatever, in my opinion.

Mr. REECE. When the western steel producer could be given a rate which would enable him to compete in the market.

Mr. HAMMOND. I think that is perfectly obvious, that we ought to be permitted to compete in a market that originally, before the opening of the Panama Canal, geopraphically permitted us to enter that market, and the sales of our company before the opening of the Panama Canal gave us that opportunity. But afterward we withdrew our sales representative there, in about 1923, 1924, and since then have made no effort whatever to sell on the Pacific coast.

Mr. REECE. I can understand why the business man located nearer a market has an economic advantage of which he ought not to be deprived. But that does not obtain in a case such as the one you are discussing. That is all.

Mr. MARTIN. I wonder if I may ask the witness this question, whether big producers, situated more advantageously with respect to water transportation, entered into the situation with a view to enforcing their advantage against inland producers, such as you were, in these rate matters.

Mr. HAMMOND. Very naturally, if a large producer with mills located at different places throughout the country-he will allocate orders, one to this plant and one to the other, and take advantage of the cheapest mode of transportation. We have not that opportunity, having a mill located in one locality, so that our entire output is produced there, and naturally we have to suffer by reason of our location as compared with some of our larger competitors.

Mr. MARTIN. What I had in mind was this: You would be up against some other influence besides the long-and-short-haul clause or the Interstate Commerce Commission or the water carriers if you had a more powerful competitor who had the advantage of the situation with respect to water transportation and he threw his weight gainst you, which would make quite a combination.

Mr. HAMMOND. Well, we are taking our chances with the carriers working out their problems satisfactorily, if they can get fourthsection relief. I think we will be able to find a rate which will enable us to compete in the Pacific coast territory.

Mr. MARTIN. If there are no further questions, thank you very much, Mr. Hammond.

The next witness is Mr. Shafer, of the Illinois Commerce Commission.

STATEMENT OF G. H. SHAFER, TRANSPORTATION RATE EXPERT, ILLINOIS COMMERCE COMMISSION

Mr. SHAFER. Mr. Chairman and members of the committee, my name is G. H. Shafer. I am transportation rate expert for the Illinois Commerce Commission, which is the lawfully constituted. regulatory body for the State of Illinois.

I have been in transportation work for the past 18 years, both in railroad work, industrial traffic work, and in regulatory work.

I appear here to speak for the commission, and I think it may well be said in doing so that I speak for both the carriers and the shippers. Mr. MARTIN. Is this an official State body?

Mr. SHAFER. Yes; it is. The legislative history of the long-andshort-haul provision of the Interstate Commerce Act has been given by other witnesses, and the time of the committee will not be taken. up at this time with repetition.

When considering the long-and-short-haul clause it is a common practice to think in terms of reduced rates from interior points to the Pacific coast for the purpose of meeting water competition, while at the same time maintaining substantially right rates to the intermountain territory. While this is an excellent example of a rate situation wherein relief from the provisions of the act are necessary, it is by no means the sole reason for demanding its repeal or modification. Even this situation is now of much more importance than it was a few years ago because of the increase in competition from water carriers, thereby placing the industries of Illinois at a serious disadvantage in competing with industries on the Atlantic seaboard for business on the Pacific coast. In nearly every adjustment of rates we find the provisions of the fourth section involved in some form, relief from which is necessary before the rates can be placed in effect. The group method of rate making may be cited as typical of the rate situations requiring relief from the fourth section. Group adjustments are generally considered to be in the interest of the shippers and the railroads, but nearly every such adjustment requires relief from the long-and-short-haul clause, oftentimes resulting in long-drawn-out proceedings before the Commission before such relief can be secured. The rapid development of mileage rate scales for long-haul traffic during the past few years has also increased the need for fourth section relief for inland cities and States, such as Illinois, which depend largely upon the rail carriers for transportation.

Cases requiring relief from the fourth section are not confined to attempts to meet the competition of water carriers at the ports, but frequently involve adjustments of rates between points within the interior. Recent developments in connection with short-haul traffic disclose many instances where it is desirable for the carrier to meet particular situations at a given destination by the reduction of its rates without reducing the rates at intermediate points. This may be illustrated by the rapid development in the past few years of "wayside" or "roadside" sand and gravel pits and "wagon" coal mines in the immediate vicinity of important consuming points. In such instances the carriers, if they desire to meet the competition and permit the established rail shippers to participate in the business, must either publish reduced rates at all intermediate points or apply to the Commission for authority to depart from the long-and-shorthaul provision. Generally time is an important element in these situations and, under the present act and method of procedure, oftentimes the movement for which the carriers desire to reduce their rates has taken place before the authority to establish such rates has been granted.

After careful analysis it will be seen that to permit a lower charge at a more distant point will not create discrimination against inter

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mediate points where higher rates are maintained. Rates under which the bulk of the country's freight moves have been fixed by the Interstate Commerce Commission as reasonable." The intermediate points, therefore, have no ground for complaint if the rates charged to such points are just and reasonable. Whatever agency provides the means of transportation between the two terminal points fixes the rates at which the traffic must be moved, and other lines must establish similar rates or withdraw from the business. If the rail carriers, for instance, desire to meet the rates established by water lines between ports, they create no discrimination at intermediate points if higher rates are maintained at such points, as the lower rates between the two ports are already available, and the only effect. is to permit the rail lines to participate in the traffic.

Not only does it appear that no injury can result to intermediate points where higher rates are maintained, but it would seem that an actual benefit will accrue to such points by permitting the carriers to participate in the tonnage to destinations beyond, even at reduced rates. The shippers at interior or noncompetitive points have a real interest in seeing that railroads have a fair opportunity to transport all the traffic they can secure. If the rail carriers are permitted to meet the competition of other carriers at the more distant points and derive something more than the actual cost of transportation, it will to that extent relieve the burden at the intermediate point. Much of the expense of operating a railroad is fixed. Whenever a railroad is compelled to forego traffic which it could haul at a rate yielding something more than the out-of-pocket cost, a burden is thrown on other traffic which must move by rail. To prohibit railroads by law from competing for traffic which would make some contribution toward the burden of overhead, which otherwise would be lost entirely, and to prevent producers and manufacturers of certain localities from competing with producers and manufacturers located elsewhere would appear to be contrary to the public interest as well as to those sections of the country which must depend upon the railroads for their major transportation needs.

In granting blanket relief from the long-and-short-haul provision of the Illinois law, the Railroad and Warehouse Commission of the State of Illinois on June 26, 1913, recognized the propriety of permitting the circuitous line or route to meet the competition of the short line, thus providing the shippers with optional routes, and said:

it would seem to be clear that this Commission would be warranted in allowing the circuitous line or route to meet competition of the short line, otherwise the longer line would have to go out of business between such competitive points which would result in no benefit to the communities, but rather a detriment. The short line between two competitive points universally fixes the rate, its rate is established, and that rate being a reasonable rate, would naturally be continued. If the same rate is made over the longer line or route from the originating point to the competitive point, it is difficult to understand how any places or persons intermediate will be injured, provided the intermedate rates are reasonable rates

Federal Coordinator Eastman recommends the fourth section of the Interstate Act be amended by eliminating the provisions added thereto in 1920. It appears that the elimination of the provisions recommended by Coordinator Eastman and the Interstate Commerce