Our letter to you dated April 24 set forth briefly our opposition to both the Pettengill bill, H. R. 3263, and the Rayburn bill, H. R. 5362, and it might be well at this time to outline more fully the reasons for our opposition to these bills. Since 1918 the transcontinental rail rates from and to practically all of California communities have been on an equal basis while for years prior to that time, the transcontinental lines maintained a lower level of rates at Pacific coast terminal ports than existed from and to the intermediate territory.

There can be no question that if the fourth section of the Interstate Commerce Act is repealed or amended as proposed, the rail lines would immediately reestablish the old system of transcontinental rail rates lower to the Pacific coast terminals than to the intermediate territory which, in our estimation, would seriously hamper and discourage the location of industry and commerce throughout all of the intermediate area.

The city of Stockton, Federal Government, State of California, have invested more than $8,000,000 in harbor and port facilities for the accommodation of deep water vessels at Stockton and this investment was inspired largely to create lower shipping costs for the entire Central Valley area of California.

While the city of Stockton is now an established port of call to and from which intercoastal steamship terminal rates apply, and while this would probably have full recognition by the transcontinental carriers in the event of repeal or modification of the fourth section, we cannot overlook the fact that our main interest lies in the continued development of industry and commerce throughout the intermediate area contiguous to the port of Stockton.

Under the present fourth section, the railroads can establish rates lower for the longer than for the shorter hauls provided they can show the Interstate Commerce Commission that the rates proposed are in themselves "reasonably compensatory." They desire repeal or modification obviously in order to be free to establish rate levels to and from the port cities that would be so low as to drive water competition from the field or at least to place it in such an unhealthy financial position that it would be substantially curtailed.

We sincerely hope that there will be no detrimental changes made in the fourth section of the Interstate Commerce Act.

Yours very truly,

J. C. SOMMERS, Traffic Manager.

(Thereupon, at 5:30 p. m., an adjournment was taken until 10 a. m. of the following day, Tuesday, June 18, 1935.)

AMEND FOURTH SECTION INTERSTATE COMMERCE ACT

TUESDAY, JUNE 18, 1935

HOUSE OF REPRESENTATIVES,
SUBCOMMITTEE OF THE COMMITTEE ON

INTERSTATE AND FOREIGN COMMERCE,
Washington, D. C.

The subcommittee met, pursuant to adjournment, in room 115, House Office Building, at 10 a. m., Hon. John A. Martin, presiding. Mr. MARTIN. The committee will come to order, please.

I might observe, before Mr. Lyon resumes, that the House convenes. today at 11 o'clock for the last hour of general debate on the amendments to the Agricultural Adjustment Act.

Now, I feel we can put in that hour of general debate here and run to noon. When we recess at noon, I want to consider what we will do about the afternoon session. I really feel that I ought to be in the House on the floor when that farm legislation comes up under the 5-minute rule, and it will, and the House will probably be in session until maybe 6 or 7 o'clock passing it, and I suppose we can have enough here to continue the hearings; but I have been pretty diligent on these hearings but I just feel I can hardly afford to be absent from the House when that bill is up under the 5-minute rule.

Mr. Lyon will resume.

STATEMENT OF FRANK LYON, WASHINGTON, D. C.-Resumed

Mr. LYON. Mr. Chairman, I have a letter here from the Luckenbach people of New York, calling my attention to the fact, to the statement made by Mr. H. W. Byers, vice president of the Chicago & Northwestern Railway, as reported in the Chicago papers, concerning the losing of business at interior points, and the business going to the industries located at or near the Atlantic coast, and stating that that is not borne out in connection with the Northwestern Barb Wire Co., which was referred to, at Sterling, Ill.; that there are rates in effect on steel and iron from the Chicago district, joint rates, rail and water, or barge and water, to the Pacific coast, which are as low or lower than those from the Pittsburgh district on steel, and that is the point from which rates are generally quoted on iron and steel.

He has called my attention to the tariff, and the tariff is on file with the Commission and will show whether it is correct or not. I have the detail here.

Now, before getting on to my main remarks, there are several matters which occurred yesterday which I want to refer to.

First, there is nothing in the law that prevents the railroads from making export rates lower than domestic rates.

Some witness was asked by the Congressman from Illinois (Mr. O'Brien), as I remember, about export business.

If the railroads desire to have lower export rates, it is a matter for them to publish them, and they will be filed accordingly. I understand that there are only two export rates, one on soda ash, which is 75 percent of the local rate, and on steel, which is 80 percent of the local rate.

Reference has been made several times to the export and import rate case, which was involved in the Southeastern cases, on traffic designed to and from northern points. That has been put forward as one of the cases with which there was very great delay. I am advised that the longer that case was delayed, the better it was for the railroads; that the status which had been maintained remained in effect, and that the contest was between cities or ports, and was not a question in which the shippers were primarily interested.

Traffic moves from the Chicago district, either by New York, by what we call "northeastern ports", or it can move by the Gulf and the southeastern ports.

Whether justified or not, the Commission has always provided higher rates in the Southeast than in the Northeast, and therefore the rates from Chicago to New York, locally, are less than the rates from Chicago to New Orleans, locally, although the distance is substantially the same.

And, of course, in order that the traffic may move through the southeastern and Gulf ports, there had to be lower export and import rates than via New York. That was the issue in that case, and the fight and contest and delay, if any, was largely due to the contest between the two territories. The northern carriers intervened in the Southeastern case and protested against what the southeastern carriers were asking; but, as I understand, the old status remained in effect until it was settled by the Commission.

Reference has often been made to the question of whether granting fourth-section relief will or will not affect interior rates. Now, while the interests I represent here have no legitimate concern as to what the rates are at the interior, I think it but fair to call to the attention of the committee the action of the railroads ever since what I think they call general order no. 25, in 1918, when there was a general increase of 25 percent in the railroad rates, and then, after the war, there was a 40-percent increase, I think, in ex parte 70 or 74; then a 10-percent decrease, and then there have been two attempts to increase the rates during the last 4 or 5 years, both of which were partially successful.

What I want to call to your attention is, in all those cases of application by the railroads for increased revenue, they make the proviso so that the increase is not asked at competitive points, and the reason for it must be patent. If there is real competition, of course the railroads cannot increase their rates at competitive points; otherwise the business will go to their competititors.

So, the effect of all these increases in rates has been, and it necessarily must be, to increase the rates at the noncompetitive points that the interior pay. There is no other place at which, no other source from which, the railroads may dervie additional revenue, because, if, for instance, the Luckenbach Steamship Co. is at the port, ready to take the traffic at a dollar, and the railroad rate is, say, $1.25 from

the same point, it would be against the interest of the carrier to increase the $1.25 rate to $1.50, because the business would then go, to a greater extent than ever, to the steamship company.

I thought the committee would like to have that information before it in considering this question of whether meeting competitive rates does not lead inevitably to an increase of rates at the interior.

Why the carriers have needed additional revenue; I am not here to discuss. But I do say that when they get additional revenue by general increase, it inevitably forces them to take it from the interior and not from the competitive points.

Also the statement has been made that if rates are once reduced because of competition of water or other means of transportation that they remain in effect and have a tendency-an inevitable tendency to pull down interior rates. I have heard that argument made here.

As a matter of fact, if the rates are made to meet water competition, and that water competition were thereby to cease, or be materially reduced, the rates, both at the competitive points and related points back from the ports will necessarily have to be raised, or they will be in violation of section 3 of the act, and so, even if they succeeded in driving out the water transportation, there is no reasonable assurance that the rates will remain reduced. The Commission, I think, would hold it to be a violation of section 3 to maintain lower rates from one point to another if there was no excuse for it.

I think Congressman Martin asked me some questions about our small investment and small revenue as compared to the railroads' investment which may be the result of his being misled by a statement I made at the opening, that the nine intercoastal carriers I represent hauled or transported about 70 percent of the Pacific coast tonnage. What I meant by that, Mr. Martin, was that there are, I think, 13 regular intercoastal carriers. I represent nine on this record. I estimate that those nine transport 70 percent of the Pacific tonnage passing through the Canal, not the Pacific coast tonnage that is carried by the railroads. We have no information on that. I do not know how vast that tonnage is. If any of you are interested in that question, there is no way we have of telling what they call transcontinental traffic as distinguished from intermediate traffic. Mr. MARTIN. I understood your statement to refer to the Canal traffic.

Mr. LYON. Well, some of my associates thought from your questions, you might have thought I was speaking of 70 percent of all of it. Mr. MARTIN. No; I did not have that in mind.

Mr. LYON. It can be roughly estimated how much traffic there is in connection with the Pacific coast, in connection with population. We have a certain population in this country and a certain number of tons of traffic, and if you will divide the population into the tons, you will find, I think, that the railroads of this country handle about 10 tons of freight per capita; and there are about 10,000,000 people on the Pacific coast, and you can in that way get about the amount of traffic that is moved by the railroads for the population in that section. Of course, that is only rough and a round figure, but it is, I think, instructive in a general way. There must be about 100,000,000 tons of freight business being handled for the Pacific coast people, one way or