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ment by rail where they are now moving by water, even before those rates become effective, Mr. Haines will be before the officials of the water lines and point with pride to the fact that he has succeeded in having the rates published by the railroads that will divert traffic from the Canal line, and that the only remedy for the Canal line is to make a still further reduction in rates.

Under these conditions the industrial traffic manager is indeed happy if he has restored to the former status of playing one means of transportation against the other in order to further the interest of his employer. While I am not here to comment upon the ethical question of whether the public interest is being conserved under such conditions, I do say that any public agency that will indulge such a practice and any congress that will further such unsound rate-making, is only furthering a transportation situation that will lead ultimately to the destruction of the water lines and make useless the hundreds of millions of dollars expended by the Government in the development of the interior waterways as well as the development of transportation upon the high seas.

The kind of flexibility demanded by Mr. Haines is nothing but a demand that the railroads shall absorb the inefficiencies of the manufacturer, whether that inefficiency be due to the location of his plant with relation to the consumer, or to the general administration of the plant. It is not so many years ago that railroads made lower rates from coal mines that were expensive to operate than from mines that were inexpensive to operate. Those mines were known as the thick and thin vein mines. Coal generally may be mined more cheaply where the vein is thick than where the vein is thin. To offset this deficiency in plant the railroads granted the thin vein mine a lower rate. This is the flexibility now demanded.

That is forbidden by the Interstate Commerce Commission now. Mr. MARTIN. It really strikes me that that was a laudable practice. Mr. LYON. It may be. I think that is in direct line with the policy that the lame, halt, and blind must be taken care of.

Mr. MARTIN. It strikes me as equalizing the situation throughout the country in which we must all live.

Mr. LYON. That is good socialism, I think.

Mr. MARTIN. Well, if it is socialism, you can put me down as a Socialist to that extent.

Mr. LYON. I am not opposing socialism here but saying that this is in line with the administration's policy that the lame, halt, and blind must be taken care of, and certainly it is doing it.

Congress should not countenance any law that authorizes the transportation agency to offset the inefficiency of the industry. That is not a public duty. Well, it may be a public duty, but I mean in my opinion it is not a public duty. He who is efficiently located should not be called upon to contribute to make good the inefficiency of his competitor.

Reference is made to the fact that the railroads had a monopoly in transportation prior to 1920. This was true and it was true because there was no reasonably compensatory clause in the fourth section. If there had been such a clause, and if it had been given reasonable construction by the Commission as it has since 1920, water lines would have been developed on the inland waterways of the country as well as in the costwise service. The fact that the railroads could defeat

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and destroy not only actual but potential competition by means of water, prevented the development of water transportation and gave the railroads an absolute monopoly. It is to that monopoly that the Pettengill bill directly leads, and its purpose is to lead to that end, and if passed, that purpose will be accomplished.

Shippers have appeared here favorable to the Pettengill bill and implying that they were damaged in some way because of the tendency of fourth-section applications. The shipper has nothing to do with a fourth-section application. It is a matter between the railroad and the interior point and indirectly the competing water line.

The fundamental of the fourth-section application is that there is some other means of transportation other than that of the applicant, that is at that moment moving the freight at the lower basis of rates. He has no legitimate interest in whether the railroad cuts that or not. Whenever you see a shipper appearing before the Interstate Commerc Commission advocating that the railroads should be allowed to meet the water rates, you may rest assured that that shipper hopes at least, and generally believed that he will get something which the water rate is unable to offer because if he did not he would not waste his time before the Interstate Commerce Commission urging the railroads to give that relief. You can just always mark it down that when a shipper is advocating something for the railroads that he expects to get something for himself.

Now, if the shipper wants to have his freight moved, it may move by the existing cheap means of transportation. The exception to this is the man in the interior who has no actual water service but who insists that because his competitor a thousand miles away at the port has this advantage of water transportation that therefore he is entitled to the same rate where there is no water transportation. This is the man that joins with the railroads in seeking fourth-section relief. He has no legitimate standing in the proceedings but the Commission listens to anyone before it.

Mr. Haines, representing the Chicago territory, has no doubt been instrumental in having the United States appropriate hundreds of millions of dollars to improve the Ohio River which bounds Illinois on the south, to improve the Mississippi River, which bounds it on the west, and to improve the Great Lakes which bound it on the north and to build it a special canal splitting the State from north to south, built at enormous expense, and yet he appears here furthering the passage of a bill which will have the effect of either entirely eliminating that water transportation or at least largely limiting its use. It is another play of the industrial traffic manager. It is the public that is to be sacrificed in the interest of the employer who seeks, and seeks only, the lowest possible rate, for the transportation of his commodity, regardless of its effect upon the transportation agency.

When it is realized that from 60 to 70 million of the 120 million people of the United States reside in States that have ports on either the Atlantic or the Pacific, it should not astound anyone that transportation via the Panama Canal has developed since the reasonably compensatory clause was made a part of the act.

The insignificance of the intercoastal traffic that these railroads are seeking to destroy is strikingly illustrated by the statement of the fact that the intercoastal traffic amounts to about 50 pounds of freight per year per capita in the United States and 100 pounds per capita of

those States having ports upon the ocean, while at the same time the railroads move 20,000 pounds per capita. If the entire intercoastal business were transferred to the all-rail routes instead of handling 20,000 pounds per capita they would handle 20,050 pounds, an increase of one-quarter of 1 percent. I think that is too high. It is such a trifling addition to the railroads' growth that it would not improve their condition, while it would eliminate the intercoastal lines entirely. The coming of the railroad labor unions before this committee to urge the repeal of the fourth section upon the assumption that it will increase the number of men employed must have been due to a lack of study of the situation.

The railroads have never claimed they intended to close the Panama Canal by taking all the business of the intercoastal lines, but assuming they did take the 3 million tons of east and west bound freight, exclusive of oil and lumber, what effect would it have upon labor? Four million tons divided by 30, the average carload, shows 133,000 carloads moved via the Canal during a year. Dividing this by 365 days shows 364 cars per day moving both ways. There are 13 transcontinental railroads. This makes 28 cars for each railroad. In addition to these 13 transcontinental railroads, there are almost innumerable other railroads that would participate in the movement. However, limiting it to 14, this shows 28 cars per railroad per day in both directions. If there are 14 trains each way, each day, it means 1 car will be added to each train. If there are 6 trains each way, 2 cars will be added to each train. When it is remembered that the railroads do not claim the intention to divert the entire 4,000,000 tons, but intimate they will be satisfied with half, it is apparent how far-fetched is the claim that the closing of the Panama Canal by the transcontinental railroads will lead to any extensive reemployment of labor on the railroads.

A large portion of the business developed by the intercoastal lines since 1921, has been of commodities which never did move by railroad. Lumber is a striking illustration.

While, of course, lumber has always moved by railroad to the Chicago territory and surrounding territories, my information is that the lumber business is on the Atlantic coast because of the development of the Panama Canal and that it did not affect substan-, tially the lumber business by the trans-continental lines on the eastern seaboard, but that it displaced the southern lumber in the northeast That has been testified to many times before the Commission and I think it is indisputable, and all that business the railroads never had and business which, if the fact was known, they had could not move under existing conditions although they are now struggling to get some reduction in rates in effect to the eastern seaboard.

The western lumber business on the Atlantic coast is and entirely new water development since the war.

Formerly the East was supplied by the South with most of its lumber. Now a large proportion of western lumber is brought in through the Panama Canal.

Mr. Haines calls attention to the fact that freight can move at Commission-made rates from St. Paul to the North Atlantic ports, and thence by the Panama Canal to San Francisco at rates and charges far below the all-rail rate direct from St. Paul to San Francisco. This only illustrates the efficiency of the Canal route. He did not

explain why, because the efficient route via the Canal makes lower charges than the inefficient all-rail route, that that situation should call for a law that will allow the inefficient all-rail route to destroy the business of the efficient Canal route.

Mr. MARTIN. What do you mean by efficient and inefficient?

Mr. LYON. The efficient is the one that provides the service at the lowest cost, at a reasonable rate, one who does not have to cut the rate in order to get the business.

Mr. MARTIN. Well, is that based on the capital investment, or the inherent difference in the cost of the two methods of transportation? Mr. LYON. Methods of transportation.

Mr. MARTIN. You do not mean that the railroads are inefficient in that they cannot properly move the traffic, but that they are inefficient in the sense that they cannot compete with such cheaper forms of transportation as the water route?

Mr. LYON, Yes.

Mr. MARTIN. Which are furnished with a free terminal system and a free highway?

Mr. LYON. I think that plays

Mr. MARTIN (continuing). Free harbors and free waterways, all of that goes into the question of efficiency does it not and plays its part in the efficiency you refer to?

Mr. LYON. Well, I think there is evidence of incompetency and inefficiency when the railroads in a hundred years have not paid any of their debts. I think that is what the railroads are suffering from now; you never heard of a railroad retiring any bonds or doing anything but adding to its financial burden, which is now around 25 billions.

Mr. MARTIN. I have heard of paying $5,000 a pound for mail to the ships, subsidizing steamship companies that had not been able to make a go of it.

Mr. LYON. I wish my clients had gotten some of it.

Although the Panama Canal was built by the Government the tolls paid by the intercoastal ships constitute about 50 percent of all and the tolls pay not only all operating expenses but a large return on the cost of the Canal. For Congress to vote funds from public taxes to improve waterways and then repeal the fourth section in order that the use of the waterways may be discontinued is like a man nursing the growth of a tree and then supply an ax with which to cut it down.

Illustrative of that: I am a free-trade Democrat, if that means anything now; I do not believe in the Republican doctrine of tariff, but that tariff wall has been built up in this country for 75 years. It seems to be for Congress to provide a tariff of $1 on coal entering the United States and then pay every foreigner a dollar to bring in a ton of coal, is on all fours with subsidizing water transportation and then allowing the railroads take the business from the water lines by charging less than reasonable rates. The Government appropriated millions of dollars to build the waterways and now the Pettengill bill is for the purpose of doing away with the use of those waterways. Mr. MARTIN. Mr. Lyon, we thank you for your very thorough discussion of this question. You have very ably represented your interests. Thank you,

Mr. LYON. Even though you cannot agree with me. Mr. Chairman.

Mr. MARTIN. I think we will have to go to the House at about 12 o'clock.

We have two witnesses here who want to leave town today, Mr. Byars, who has requested time, and says he must leave, and Mr. Root, chief of transportation of the Public Utilities Commission from the State of Idaho. I am willing to leave it to these two gentlemen as to which one of them appears first.

Mr. BYARS. I had a notice that I would be called at 10 o'clock. Mr. MARTIN. You may go ahead, Mr. Byars.

STATEMENT OF ED P. BYARS, FORT WORTH, TEX., APPEARING FOR THE FORT WORTH FREIGHT BUREAU, CHAMBER OF COMMERCE, AND THE SOUTHWESTERN INDUSTRIAL TRAFFIC LEAGUE

Mr. BYARS. Mr. Chairman, and members of the committee, my name is Ed P. Byars. I live at Fort Worth, Tex. I am traffic manager for the Fort Worth Freight Bureau and the Fort Worth Chamber of Commerce. I am president of the Southwestern Industrial Traffic League and a director in the Texas Industrial Traffic League. I am one of those industrial traffic individuals you have been hearing about from Mr. Lyon, although my interests are in the interior and not at the ports.

I have had some 25 years' experience as a traffic man, traffic manager, and traffic director, for the railroads and shippers in the Southwest.

It will only take me a little time, Mr. Chairman, to present my initial statement. After I have completed it I will be glad to comment on it a little further with your permission.

Mr. MARTIN. You may proceed.

Mr. BYARS. If the fourth section were repealed the carriers would make interior points carry the transportation burden, particularly, the intermediate points.

The elimination of the long-and-short-haul clause of section 4 of the Interstate Commerce Act would be a severe blow to interior cities and communities because it would mean that upon their shoulders would be placed the transportation burden of the Nation. If the railroads are permitted to transport freight to the ports or coast cities at rates which merely cover the cost of service, and frequently not even that, it is apparent that the rates to the interior cities must be maintained at a higher level than would otherwise obtain, in order to enable the carriers to operate. There cannot be any justification from a transportation standpoint for maintaining a higher rate from St. Louis to Fort Worth, for example, than from St. Louis directly through Fort Worth to Houston and Galveston, approximately 300 miles more distant. If a rate of 42 cents is a reasonable rate on iron and steel pipe from St. Louis to Houston and Galveston, the rate on the same commodity from St. Louis to Fort Worth, a directly intermediate point and involving some 300 miles less transportation service, certainly should not exceed that figure. Keen competition exists between merchants, manufacturers, jobbers, and distributors located at Fort Worth and other interior cities and those located at the ports. Interior cities cannot expect to compete with those at the ports if they are to be burdened with discriminatory freight rates.

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