than-carload basis. Rates were made to and from the ports and
river cities, lower than to intermediate points, and the rates were
made on the basing point system. Under this system the basing
points became the distribution points, where carloads moved in-
bound and less than carloads moved outbound. The volume of
movement to the basing points or distributing points was so much.
greater than to intermediate small points that the commodity rates
were made lower to the basing points than to intermediate points.
throughout the Southeast, and up until the year 1927, the rates grew
up under this water-competitive system of "any quantity rates
and from ports and distributing points or basing points. The south-
ern railroads flourished under this system and killed off water com-
petition which was practically dried up under this competitive situa-
tion, and the rail carriers had most of this transportation.
At about the time of the southern rate classification-

Mr. MARTIN (interposing). Let me ask a question there.
Mr. HILLYER. Yes.

to

Mr. MARTIN. Was the war situation involved in that drying up of the water transportation that you just referred to? It has been testified to repeatedly, of course, that the war demands partially absorbed the water transportation. Was it about that time that the rail carriers virtually absorbed or monopolized the transportation system?

Mr. HILLYER. That had very little effect on the South Atlantic coastal transportation between the South Atlantic and the North Atlantic, and between the South Atlantic and the Gulf ports. It was due largely to the superior service over water competition established by the railroads.

Mr. MARTIN. Did the interior points suffer by reason of that?
Mr. HILLYER. No.

The dry-land system in the Southeast has ruined many southern carriers. When the southern rates were put on a "dry-land " mileage basis in 1928, so as to comply with strict mileage, when an attempt was being made to cure all outstanding long-and-short-haul departures, the Jacksonville Chamber of Commerce prophesied to the Commission that this strict scheme of rate-making would be the ruination of the southern carriers. This prophecy has been fulfilled, particularly in the Southeast, where the Seaboard Air Line, the Florida East Coast, and the Central of Georgia, all of which had been properous roads in the past, went into receivership after about 3 or 4 years' experience with the strict long-and-short-haul mileage

rates.

In the meantime, the strict mileage basis had changed centers of distribution and wrought hardships on industry as well as upon the carriers; and the new form of transportation-trucks-has become the dominant transportation factor in the Southeast.

In addition, the water lines on ocean and rivers have come back into existence and have made great inroads upon the tonnage of the rail lines. The combination of the two-water and trucks-has brought about a great upheaval in the dry-land mileage rates, and at return to the competitive system of rate-making. But the railroads, in making these changes, have been retarded and impeded by the long-and-short-haul provisions.

Unless this statutory requirement is repealed immediately, we can confidently predict that more railroads will be in distress, and calling upon the Government for financial assistance.

Monopoly of rails no longer exists. The return of potent water competition and the development of many trucking lines have changed the situation from one of monopoly for the railroads to one of intense competition.

Unless there is a free rein in the hands of the railroad officials in meeting these new disturbing situations they will be so hampered and restricted that they will be unable to retain any traffic which the water and truck lines care to take from them.

The repeal of the long-and-short-haul provisions will not alone effect a cure of this situation. The water lines and truck lines should be regulated also, but there must be relaxation in railroad regulation. It would be unsound and unwise to project these fourth section complexities upon water rates and truck rates. Having found that the fourth section causes enormous useless expense to the railroads, now is the time to free them from that useless regulation so that the same strait-jacket may not be imposed upon water and truck lines when they come under the regulatory power of the Commission, as proposed by the President.

The Florida railroads have been particularly hard hit by the rigors of the long-and-short-haul provision. The railroads serving the peninsula of Florida have been harder hit, perhaps, than almost any set of carriers in the country, by the requirements of the long-andshort-haul provisions of section 4.

Illustrations: The Florida East Coast runs close to the Atlantic Ocean from Jacksonville to Key West, and operates a car ferry between Key West and Habana. The earning power of this line is dependent upon the overhead traffic between the North and Habana, via Key West.

In competing for this Cuban traffic, the Florida East Coast must make its rates in line with the rates of the coastwise steamship lines from North Atlantic ports, and with Gulf lines from New Orleans.

The rates from Cleveland, for example, to New York, plus the coastwise ocean rates of the steamship lines to Habana, have been lower than the normal rates from Cincinnati via New York.

In the all-rail routes, Cleveland rates are normally higher than Cincinnati southbound via Jacksonville and the Florida East Coast to Havana. To meet this competition, it is necessary that the Florida East Coast and its rail connections maintain rates from Cleveland to Havana which are lower than Cincinnati, an intermediate point. Unless it is permitted to do so, it cannot haul any of the traffic from points such as Cleveland.

The effect of the denial of fourth section relief, on the ground of minimum ton-mile earnings or minimum car-mile earnings, even where no circuity is involved, keeps the Florida East Coast and its connecting rail carriers out of this traffic. This is an illustration of the ill effects of the "reasonably compensatory provision ", where there is no circuity in the short rail route. The longer rail-ocean routes are getting the business.

What has been said as to Havana is applicable to Miami and West Palm Beach, and is applicable to northbound Cuban traffic, such as pineapples, going to northern and Canadian cities.

In connection with this same situation, the circuity provision presents an almost hopeless task in working out the various combinations of carriers who may participate in traffic between the Ohio River and Florida points, say. A recent large agency tariff of rates between the Ohio River and southeastern points contained about 7 pages of rates and about 150 pages of routings, and routing restrictions, which were made necessary by the rigorous requirements of the long and short haul in connection with the circuity provision. Unless the carriers can break away from these requirements, they must confine the traffic to a very few routes, or must break down their whole body of rates at intermediate points, which are not subject to the competition which the rail carriers must meet with barges operating down the Ohio and Mississippi Rivers and the Gulf to southern ports and interior river points, such as points on the Warrior River.

Another illustration of the need of relief from the long-and-short haul, because of water competition, is the Florida East Coast situation between Jacksonville and Miami and West Palm Beach and Fort Pierce. The Clyde and Merchants & Miners operate fast and luxurious passenger and freight ships on frequent schedules between Jacksonville and south Florida ports. The direct line of the Florida East Coast Railway is thus directly paralleled by the ocean liners. In addition there is the East Coast Canal and the paved highways. With this combination of circumstances, where the truck lines meet the rates of the ocean lines, the Florida East Coast must meet that competition or go out of business.

In the same situation the Seaboard Airline reaches Miami and West Palm Beach by a more circuitous route, through the ridge and lake sections of middle Florida. It must meet the rates of the truck lines, ocean lines, and the Florida East Coast. Unless it can do so, it must lose its investment in that line.

Both the Florida East Coast and the Seaboard should have wide latitude in meeting rates between coastwise ports, without having to break down their entire body of rates at intermediate small stations where the density of traffic, local traffic, is too negligible to keep the railroads in operation.

Northbound the Florida railroads have lost 9,000,000 boxes of citrus fruit, which went by truck to Jacksonville and by ocean steamer to North Atlantic ports. The rail lines should have the ability to meet that competition without reducing their entire rate structure at intermediate points where no water competition is felt. At the intermediate points in North Carolina and South Carolina, for example, the trucks by land from Florida have taken away most of this business in fruits and vegetables and quite a large part of the fish traffic. The rigors of the fourth section are going to cause the loss of all of this citrus and vegetable traffic, unless there is some change in the statute.

Grain: Another illustration of the effect of the combined operation of the long-and-short-haul clause, the circuity provision, and the reasonably compensatory provision may be shown by the grain rates. The rates on grain and grain products from St. Louis to Jacksonville are higher than the rates to Tampa, although some of the traffic moves almost but not quite through Jacksonville, a purely technical compliance with the long-and-short-haul provision.

But the rates to Jacksonville and Tampa are the result, not of the wishes of the carriers, but of the formulas of the Commission, using 125 percent as the relation between barge-ocean rates and all-rail rates, in addition to the minimum ton-mile and car-mile earnings. This effect of the fourth section under the Interstate Commerce Commission decision has seriously injured the grain dealers at Jacksonville and has taken business away from the railroads and thrown it to the barge-Gulf water lines. Points intermediate to Jacksonville would not be hurt by reductions in the rates to Jacksonville, but this is what the Interstate Commerce Commission prohibited under the fourth section.

Mr. O'BRIEN. If the Pettengill bill is passed, do you think the railroads can compete with the truck lines in carrying that fruit! Mr. HILLYER. If the Pettengill bill is passed, they can establish rates to the Atlantic seaboard without breaking down the entire rate-structure at the intermediate points.

Mr. O'BRIEN. You think they can do that?

Mr. HILLYER. Yes. They cannot do anything with the fourth section, and they will be absolutely precluded from making any rate that will enable them to get any of that business, without making application to the Commission, and it might be 4 years before the rate could be fixed, and in the meantime they will have lost the business.

Now, in conclusion, Mr. Chairman, the parties for whom I have appeared, urge this committee to report the Pettengill bill favorably, and that every effort be made to secure the early passage of this much-needed legislation.

The long-and-short-haul provisions cause enormous expense to the Government, to the railroads, and to the general public.

Administration of the fourth section results in exasperating complexities and delays, and causes loss of tonnage to the railroads.

No shipper, no railroad, was ever helped in any way by the longand-short-haul provision.

Mr. MARTIN. We thank you very much, Mr. Hillyer, for your excellent statement.

Mr. REECE. I was going to say that if they had men with as clear an insight of the questions of fourth-section administration in the Commission as Mr. Hillyer has, that there might not be so much difficulty about it.

Mr. HILLYER. Let me just say this: That when you get into the administration of fourth section the farther you go the worse it gets. I do not claim to be an expert, and I am glad I am not an expert. I always go to the fourth-section board when I come here and want to know anything about the fourth section. I think it is impossible to work it out by a slide rule, triangulation, or any other mathematical formula. The rate structure of this country and our transportation system cannot be run by a rule of thumb.

Mr. MARTIN. I want to say, Mr. Hillyer, that if you are not an expert, it would take an Einstein to be one.

Let me also add that because we are not asking questions is no reason that we do not appreciate your statement, but we have two or three other witnesses who want to be heard before we recess for the lunch hour.

Mr. HILLYER. I appreciate that.

Mr. MARTIN. We will now hear from Mr. Donnell.

STATEMENT OF J. H. DONNELL, TRAFFIC DIRECTOR, TAMPA CHAMBER OF COMMERCE AND TAMPA TRAFFIC ASSOCIATION, TAMPA, FLA.

Mr. DONNELL. Mr. Hillyer has testified on behalf of the Tampa Chamber of Commerce, and his testimony and the testimony of Mr. Haynes yesterday are replete with tangible evidence and illustrations of the evils of the operation of the fourth section as it now exists, and I shall not endeavor, therefore, to furnish you any additional factual data in that connection.

I would like to state, however, that our views and my observations have been, during a period of 27 years, during which time I have been employed by the Southern Railways, starting out with the Interstate Commerce Commission, and with the land-grant rate department of the land-grant railroads, and at the present time having to do with traffic matters and rate matters for civic associations.

What I have to say in support of that has been said by Mr. Haynes yesterday, and Mr. Hillyer today. I have observed the operation of the long-and-short-haul clause in the Interstate Commerce Act since 1907, since the Ashburton case, which was the first case presented before the Interstate Commerce Commission under the fourth section. I am firmly of the opinion that for a good many years following its enactment it was good legislation. I think it served a useful purpose. However, conditions are so radically changed that I think it has outlived its usefulness, and that legislation today covering competitive relations between rail lines and other forms of transportation should be enacted to reflect the present-day needs.

Since the enactment of the fourth section, we all know there has been tremendous development in intercoastal transportation because of the Panama Canal, and likewise similar development of coastwise water transportation, up and down the Atlantic coast, in the Gulf of Mexico, and on the Pacific Ocean, as well as on the Great Lakes, because a great deal of traffic is now transported in connection with the Great Lakes and the New York Barge Canal.

I think, however, the most important of all has been the extraordinary development in highway transportation. That is really a very vital problem to other forms of transportation. I do not believe that any reasonable man will state that the railroads are not going to survive, because they have got to survive.

We have other forms of transportation, it is true, but we have no form of transportation developed as yet to take the place of the railroads. The trucks cannot do it; they can only haul a limited amount, although they can haul many commodities. But, if the railroads were to go out of business and the heavier traffic were thrown on the trucks, you would have so many trucks on the highways that they could not possibly furnish the service; the trucks could not handle it. And that would be true for many years to come. There would not be enough highways for them.

Assuming that it is true that the railroads have to survive, and we know they can survive, yet it is essential for their survival that they must be free to enter into competition with other forms of transportation, in order to make a return on the operation.

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