Mr. HODGKIN. That summarizes it, but it is also the fact that before we can apply for the relief, somebody else has spent a whole lot of money in order to get in a position to take the business away

from us.

Mr. PETTENGILL. That is right, and then, if the relief is granted to the railroads, it is unfair to the man who has made a capital investment relying upon the law. You see what I mean?

Mr. HODGKIN. I see what you mean; yes, sir. It is unquestionable that there is something very unfair about it

Mr. PETTENGILL. In other words, people wanting to put their money into water-carrier equipment, ought to know what their future is, ought they not?

Mr. HODGKIN. Yes, sir.

Mr. PETTENGILL. And be able to predict their future with some degree of certainty.

Mr. HODGKIN. Of course, Mr. Chairman, I look at this very largely from the standpoint of the railroad lines, and as the situation stands now the water lines know very well where they stand. They know that they can reduce their rates, and we can rarely afford to follow them in what they can do.

Mr. O'BRIEN. They can do anything they please.

Mr. HODGKIN. Yes.

Mr. MARTIN. If competition is potential, it is too soon, and, when it is actual, it is too late; is that it?

Mr. HODGKIN. That is it exactly.

This led to a corresponding reduction of 12 cents from California. Since the transcontinental lines have no fourth-section relief, they were, of course, forced to reduce their rates to the intermediate central freight and trunk-line territories. Thereupon the Florida lines, in order to keep their shippers on a basis competitive with California shippers, found it necessary to reduce their rates to the same interior territory. It is estimated that this reduction has occasioned a further loss of $725,000 on Florida citrus fruit during the 1934–35

season.

As a result of various decisions and orders of the Commission, class rates to, from, and within southern territory have been revised in compliance with fourth-section requirements, with the general elimination of fourth-section departures, except those justified by circuity, and our rates on commodities have generally been revised with definite percentage relation to the class rates or otherwise brought into compliance with fourth-section requirements.

Avoiding unnecessary repetition of other witnesses' testimony, I wish to point out some of the hardships which the South Atlantic port lines and the Florida lines have encountered as a result of the administration of the fourth section. Without specific relief, we are not free to meet water competition from Jacksonville, Fla., to New York, for example, unless we observe the competitive rates as maxima from and to intermediate points, at many of which there is no water competition.

In recent years the fourth section has been administered by the Commission in such a manner that it has been practically impossible for us to obtain relief necessary to effectively meet water competition, and such limited relief as has been granted has, as a rule, been obtained after many months of delay and in some instances after

the competitors of the railroads have become so entrenched in the business that, even after the rail rates were reduced, the railroads have had little success in regaining any substantial amount of the traffic. I have in mind, for example, the movement of grain and grain products from St. Louis, Mo., Cairo, Ill., and Memphis, Tenn., to Jacksonville, Tampa, and Miami, Fla. The rail lines found that they were not only losing to the barge and steamer routes the bulk of this movement to the Florida ports, but that they were also losing a substantial part of the movement to the interior points to transportation via barge and steamer lines to the Florida ports and delivery by the steamer lines there to the trucks which were handling business from the ports to the interior. The rail carriers on May 19, 1933, filed a petition with the Commission for authority to reduce the all-rail rates from St. Louis, Cairo, and Memphis to the Florida ports and to apply higher rates at intermediate destinations.

An extended hearing was held, beginning June 30, 1933. The report and order granting relief, subject to certain designated limitations, were dated November 1934. In other words, after the rail carriers had definitely decided what rates they wished to publish in order to meet the situation, 6 months elapsed before the Commission's decision was rendered and 3 months were then required in which to publish the rates, subject to the limitations which were attached to the relief granted. Furthermore, since the rates which we were permitted to establish under authority of the order in question are considerably higher than were proposed by the rail carriers, experience has proved that they were not low enough to enable us to effectively meet the competition of the water lines.

An even more disappointing experience has been met in connection with the rail carriers' efforts to obtain fourth section relief necessary to establish commodity rates from central western territory to the South Atlantic and Florida ports in order to meet competition with rail-and-water routes operating through the North Atlantic ports and to maintain higher rates at intermediate destinations not affected by that competition.

Prior to developments of recent years, such traffic moved as a rule by all-rail routes, but since competition of water carriers has become so intense, far the greater part of the business has been diverted from the southern rail lines. A petition was filed on September 12, 1929, and after extensive hearing, fourth section order no. 11027 was entered August 24, 1932, nearly 3 years after the petition was filed. Mr. PETTENGILL. Why did it take that long for the Commission to come to a final decision in a matter of this sort? Is that because the Commission does not have sufficient appropriation to take care of its work?

Mr. HODGKIN. So far as this particular matter is concerned, Mr. Chairman, I do not know why the Commission took so long. My own belief in the case is there was a great deal of doubt in the Commission's mind as to the policy involved. That opinion may be wrong, but that is my belief.

Mr. REECE. The examiners or some agents of the Commission make the investigation and collect the data and make the report upon which a decision is made, do they not? The Commission does not have to have a hearing itself on this particular application?

Mr. HODGKIN. In almost every instance that is the case, Mr. Reece. In this instance there was no commissioner who directly took part in the hearing. The examiner took the evidence and made his report to the Commission, and, as I have stated, nearly 3 years elapsed before we knew what the Commission did about it. There was nothing happened, so far as we were concerned, to keep the Commission from arriving at a decision.

Mr. REECE. Does the Commission usually follow the report of the examiner?

Mr. HODGKIN. More often than not, I think, that is the case, yes; particularly under fourth-section matters.

Mr. PETTENGILL. It takes the Commission longer than it does the United States Supreme Court to dispose of a case. A case may be initiated in a United States district court, an important case, and be disposed of by the United States Supreme Court inside of a year. Very well, you may go ahead.

Mr. HODGKIN. The rail routes were not granted relief permitting the publication of rates on the basis proposed by them, but they were authorized to establish higher rates, subject to certain limitations which the carriers considered it impracticable to work out. On January 13, 1933, a further petition was filed requesting that the order be modified by the elimination of certain of these restrictions. The proceedings were assigned for further hearing on April 19, 1933, and supplemental order was entered November 13, 1933, denying the petition insofar as it asked for the elimination of the objectionable limitations. Thereupon a committee of carrier representatives was convened and remained in session many months to work out the rates. After repeated conferences with members of the Commission's staff and representatives of the steamship lines, the rates were finally made effective December 15, 1934.

The complications which had to be overcome in the effort to make these rates effective furnish an extreme illustration of the extraordinary situations which have been arising as a result of the requirements of the Commission in its fourth-section orders. Because of the elaborate and complicated limitations of the fourth-section order finally promulgated by the Commission in these proceedings the compilation of the tariff containing the rates which would not otherwise have called for more, in my judgment, than some 2 or 3 weeks' work on the part of a couple of rate clerks, actually consumed the aggregate of about a year's labor of a considerable force of men. In order to comply with terms of the order we have found it necessary to make separate provision for specific routing instructions in connection with the rate on each commodity from each producing point in the origin territory to each of the South Atlantic and Florida ports. As the tariff stands today the index, rules, and regulations and rate tables take up 24 pages, the routing instructions 158 pages. However, in an effort to cut down on the size of the tariff and thus economize in the cost of compilation and printing we have run counter to the Commission's tariff rules, and it develops that in order to put the tariff in shape which the Commission will recognize as reasonably satisfactory we will be obliged either to eliminate the majority of routes now provided, or if those routes are retained to change the form of the tariff, with the result of putting in about 200 additional pages of routing instructions.

A little over 5 years passed between the time of the filing of the petition and the effectiveness of the rates, during which time the rail carriers reaching the South Atlantic and Florida ports were denied the privilege of meeting the competition of the rail and water routes operating via the North Atlantic ports and have been put to a large expense in their effort to place their rates on a competitive basis. Yet the degree of fourth-section relief finally granted by the Commission is such as to make it questionable whether the all-rail carriers will be successful in regaining any substantial amount of this traffic from the rail and water routes. Our experience so far indicates that they are quite inadequate for that purpose.

Another objectionable feature of the operation of the fourth section arises out of the fact that the State railroad or public utilities commission disagree in numerous instances with the Interstate Commerce Commission as to what constitutes a reasonable, maximum level of rates on the commodities which our company and other southern lines handle. As a consequence the level of rates forced on us by the State commissions for application on intrastate traffic is frequently lower than the level of interstate rates prescribed by the Interstate Commission.

The lines of the Atlantic Coast Line Railroad and its affiliated lines are so situated that we handle traffic from Norfolk to Richmond and Petersburg, Va., through the State of North Carolina; we handle business from Wilmington, N. C., to Wadesboro, Rockingham, N. C., and various other North Carolina points through South Carolina; we handle business from Savannah, Ga., to Atlanta, Athens, and numerous other Georgia points through the State of South Carolina; we handle business from Jacksonville, Fla., to River Junction, Pensacola, and certain other points in north Florida through the State of Georgia.

In each such instance, when the State commission of Virginia, North Carolina, Georgia, or Florida, as the case may be, requires the maintenance of rates lower than the interstate level, the Atlantic Coast Line Railroad is deprived of opportunity to compete for this traffic. Our experience is that when we got to the Interstate Commerce Commission for such fourth-section relief as is necessary to meet the situation, we cannot, as a rule, obtain it, except subject to the provisions of the equidistant-point rule, compliance with which, of course, has the effect of reducing reasonable rates at intermediate points on the interstate routes. The fact that the State commissions have jurisdicion over the level of intrastate rates while interstate commission has jurisdiction over the level of interstate rates should not, in common fairness, bar an interstate route from competing on terms of equality with a route lying wholly within one of the States. The elimination of the long-and-short-haul rule from the fourth section would enable us to meet this situation without creating any discriminations which have not already been brought about by the action of the several State authorities.

It is the position of our lines that the southern carriers should be permitted to make rates necessary to meet competition without being required to observe them as maximum rates from and to intermediate points if the same character and degree of competition do not exist at such intermediates. Railroads should not be obliged to wait indefinitely before they are permitted to meet competition

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with other transportation agencies, but should have opportunity to meet it immediately. Railroads should not be hampered by complicated and impractical limitations such as are customarily imposed by the Commission's fourth-section orders. Instead of it being required by law that the Commission determine whether or not the rail carriers can afford to meet competition where they find it, the railroads should be left free to decide for themselves whether or not it will pay them to compete.

Summing up what I have said, all that we desire is opportunity to do business in a businesslike way, meeting competition where it exists and maintaining, subject to the Commission's approval, reasonable charges at other points where such competition does not exist. Mr. PETTENGILL. Thank you, Mr. Hodgkin.

Mr. HODGKIN. Thank you.

Mr. PETTENGILL. Mr. Hastings, from the Santa Fe.

STATEMENT OF PAUL P. HASTINGS, GENERAL FREIGHT AGENT, THE ATCHISON, TOPEKA & SANTA FE RAILWAY CO., SAN FRANCISCO, CALIF.

Mr. HASTINGS. My name is Paul P. Hastings. I am general freight agent of the Atchison, Topeka & Santa Fe Railway Co., San Francisco, Calif. I lived in Árizona from 1895 to 1912, where I was employed by both railroad and mining companies. Since 1912 my home has been with the Santa Fe in San Francisco, except for a few years during and immediately after the war, when I was with the Railroad Administration on committee work in Washington and Chicago. For more than 25 years, my principal business has been in the making of rates and supervision of transcontinental traffic for the Santa Fe.

Competition between water and rail lines for the business of the Pacific coast goes back to the time of the construction of the first transcontinental railroad, Union Pacific-Central Pacific, completed in May 1869 and to the days of the routes via Cape Horn, the Isthmus of Panama, the Straits of Magellan, the Isthmus of Tehuantepec, and finally the Panama Canal, which was opened in August

1914.

Prior to 1900, water service was confined to sailing vessels via Cape Horn and to the Panama Railroad with its steamship connections on the Atlantic and Pacific Oceans.

In October 1900 the American-Hawaiian Steamship Line inaugurated its service between New York and Pacific ports, via the Straits of Magellan, with four steamships, and continued to operate via that route until January 1907 when it made a line with the Tehuantepec Railroad, thereafter operating steamships, nine in number, on the Atlantic and Pacific sides and forming what was known as the "Tehuantepec route."

The time of the sailing vessels via Cape Horn was about 4 months, which was reduced by steamship service through the Straits of Magellan to from 50 to 60 days; and when the change was made to the Tehuantepec route, the time was further reduced to about 30 days and weekly sailings were substituted for monthly.

When the Panama Canal was opened on August 13, 1914, the American-Hawaiian fleet had been enlarged to 26 steamships, which