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changes, particularly affecting transportation are distressing to a large number of industries. We all, particularly at the moment, realize the need of helpful consideration, sympathizing with general business, and no law should be unnecessarily enacted to disturb and distress it.
The duty of determining, prescribing, and ordering enforced minimum rates, places a very heavy burden on the United States Maritime Commission, as well as the water carriers and the shippers. Water rates never have been and cannot be determined by any sicentific method. Consideration is necessary of some 40 or 50 factors, on each and every commodity separately. The commission would be obliged to either hold lengthy hearings at which the carriers and the shippers must appear on some 4,000 commodity rates or else must set minimum rates at such a low level, that they would have no effect or value on either the lines or the shippers. They would in fact enjoy the same position as that occupied by the maximum rates which were on file before the Intercoastal Shipping Act became a law and which were fixed so high that they meant nothing.
The proposed extension of minimum rate power is not in the public interest.
This proposal has been regularly stricken out of every bill put before Congress in the past two or three sessions because of voluminous testimony by the shipping public, a repetition of which space does not permit herein. Review if you will the testimony of shippers before deputy administrators on the proposed code of fair competition for the shipping industry, pursuant to the National Industrial Recovery Act. Review also testimony in the United States Shipping Board, intercoastal investigation, Docket 126-also review testimony before the Merchant Marine and Fisheries Committee of the House and the Committee on Commerce of the Senate on this subject.
Suffice it to say that I have here with me a list of 175 shippers who have appeared and given testimony at these hearings, setting forth their wishes on this subject. They represent nationally well-known concerns as well as a great number of small shippers. I shall be glad to give that list for these records, if it is desired. Many of those testifying at these hearings were associations representing thousands of concerns shipping cargo in the intercoastal trade. All have expressed their views and all are opposed to the delegation of further regulatory powers in the intercoastal trade at the present time.
There is no necessity now for this proposal. It is true that minimum rate power has been delegated to the Interstate Commerce Commission over the railroads and the need for same is clearly demonstrated in the controversy over the Pettengill bill still before Congress over the fourth section, long-and-short-haul clause. It is common knowledge that to eliminate this minimum rate control over rail rates as in the past would in the future enable railroads to eliminate water carriers. No such condition prevails in water transportation. The principle of allowing common carriers by water to set rates as economically as they feel possible for the benefit of the public does not force out of business any other carriers. The rate structure as existing at present is not destructive to the water carriers themselves as evidenced by the fact that the Intercoastal Steamship Freight Association (the present Conference Lines) are at present publicly stating to the Interstate Commerce Commission not only that they need increased rates but that they can and will increase their rates provided the Interstate Commerce Commission allows the railroads, which form a ceiling over water rates, to increase rail rates.
In conclusion permit me to state for the record that we feel the proposed amendment is fraught with danger and will result in the elimination of small water lines, including our company, because of the persistence and continual pressure of the larger and powerful water lines.
My_company has never defaulted on a single payment to the Shipping Board or the Maritime Commission. They have always discounted all bills and expect to continue their service to the public and to meet their obligations unless they are forced to charge rates which are not commensurate with their service. As long as their service is desired by the shipping public no law should be put on the statute books which will enable any governmental commission to deprive the public of that service.
In the nature of things, the authority, to be set up under this proposed amendment of section 3 of the Intercoastal Shipping Act, will have to rely for information and suggestions upon the industry itself. The powerful lines have been in position in the past, and will be in a position in the future to spend the time and effort necessary for a continuous and persistent presentation of their point of view and their special interests. The smaller carriers and the often unorganized shipping public are not in a position to do so. In the light of past experience there is just cause for concern, that if not accompanied by further safeguards, the new rate fixing power will be exercised to the exclusive advantage of the powerful lines maintaining superior services, causing the elimination of their most modest competitors to the detriment of the public interests.
The United States Shipping Board went so far in its decisions in dockets 139, 144, and 148 as to take on themselves without delegation of power from Congress the authority to declare rates unlawful because they considered them unreasonably low. How much more evident it is that in the event that Congress delegate minimum rate power similar results will occur. This can only be avoided if minimum rate power is to be delegated by enacting an express proviso.
For the above reasons we urge your committee, first, that the minimum rate power be deleted. Secondly, failing that action we ask the committee that in the event the power is to be delegated that the act be further amended by adding the following:
Provided, That in prescribing such maximum and minimum rates, fares, and charges differentials shall be established based upon differences in service rendered, to the end that small water carriers operating in the domestic commerce of the United States shall be adequately protected.
The above amendment is the same amendment suggested in April 1935 when the Seventy-fourth Congress, first session, was considering this same extension of minimum rate power in connection with S. 2582, which bill was eventually abandoned and replaced by the present Maritime Act of 1936 with the minimum rate provision deleted.
We filed a very short brief at that time on this subject, copy of which I have here with me and which holds as true and applicable today as it did then and I desire to request that this former brief, which I herewith tender, be made a part of this record, in order that the committee may again have called to their attention:
1. The necessity in the public interest for rate differential based upon differences in service rendered.
2. That the powerful "A" Lines operating in the intercoastal trade are determined to bring about a parity of rates irrespective of type and cost of service.
3. The opinion of shippers on the matter of rate differentials. The CHAIRMAN. We are much obliged to you Mr. Shepard. We will have printed in the hearings at this point the brief you suggested should be placed in the record.
The brief submitted by Shepard Steamship Co. is here printed in the record, as follows:
(Before the Committee on Commerce of the United States Senate, 74th Cong., 1st Sess.)
REGULATORY PROVISIONS OF THE SHIP SUBSIDY BILL (S. 2582)
MEMORANDUM IN SUPPORT OF AN AMENDMENT PROVIDING THAT, IN FIXING
MINIMUM RATES FOR INTERSTATE AND_INTERCOASTAL WATER CARRIERS, DIFFERENTIALS SHALL BE ESTABLISHED BASED UPON DIFFERENCES IN THE SERVICE RENDERED
(Submitted by SHEPARD STEAMSHIP CO., HAROLD S. DEMING, Laszlo
KORMENDI, Counsel] The purpose of this brief is to urge upon the Committee the necessity of adding the following proviso to Section 701 (1) of the Bill (which amends Section 18 of the Shipping Act, 1916) on page 32, line 11 thereof: 1
“Provided, that in prescribing such maximum and minimum rates, fares and charges, differentials shall be established based upon differences in the service rendered, to the end that small water carriers operating in the domestic commerce of the United States shall be adequately protected.
The same proviso should also be added to Section 701 (3) of the Bill (which amends Section 3 of the Intercoastal Shipping Act, 1933) on page 33, line 20.1
The sections of the Bill referred to would effect a change in the law by conferring upon the new Federal Maritime Authority the power to prescribe minimum rates for water carriers operating in interstate and intercoastal trade. The effect of the additional language offered herein would be to insure (1) that this new power would be exercised in such a way as to allow each class or type of water transportation to serve the need to which it is economically best adapted and (2) that it will not be used so as to create a shipping monopoly and to deprive the shippers and consumers of this country of the economic advantage of paying less for a type of service which it costs less to provide. I. THE NECESSITY, IN THE PUBLIC INTEREST, for RATE DIFFERENTIALS BASED UPON DIFFERENCES IN THE SERVICE RENDERED, IS UNIVERSALLY RECOGNIZED
From the earliest beginnings of transportation for hire, the necessity has been recognized for differentials in rates, based upon differences in tye type of service rendered. It is obvious that a varied machinery of transportation could not exist if the same rate were charged for simpler and less costly modes of transportation as for the most expensive one.
(1) Differentials exist on every all-rail route.-Express shipments by rail (fast, frequent) always pay a premium over freight shipments over the same distance, and this choice of service is of very great importance to shippers.
(2) Differentials are permitted (a) on all-water routes against all-rail, (b) on: rail and water routes against all rail, and (c) on rail-and-water, where the water trip is long, against rail-and-water, where the water trip is short.—Here again the right of the public to varying services at varying costs has moved the Government to protect services, which, at a parity of rates, could not possibly exist.
(3) Differentials are well recognized on many all-water routes.—The Pacific coastwise trade have differentials on a large number of items, classifying their lines into A, B, and C. The River Plate, Brazil, Southbound Conference have had a differential varying between 5% and 10% (now about 7%). The Havana Confer
1 The page and line numbers refer to Committee Print No. 2, dated April 24, 1935,
ence has a differential of from 5% to 742%. There is a Differential Conference to Italy.
(4) Differentials are permitted and fostered in a great variety of other forms of transportation.-Street car fares are less than bus fares; bus fares than taxicab fares; goods or mail moved by airplane pay more than by train; by train more than by bus; by bus than by canal boat, etc., etc., the world over.
Indeed, it is so obvious as to preclude all discussion that a parity of rates for all types of transportation service, irrespective of cost, would be against the public interest. Such a parity would be sheer economic waste. It would cripple the free flow of commodities. It would drive the more modest but economically valuable means of transport out of business. It would deprive shippers and consumers of a varied and well balanced system of transportation, and compel them to pay for a uniformly high geared one which they neither need nor want. II. THE A LINES OPERATING IN THE INTERCOASTAL TRADE ARE DETERMINED
TO BRING ABOUT A PARITY OF Rates IRRESPECTIVE OF TYPE AND Cost of SERVICE
THE SITUATION IN THE INTERCOASTAL TRADE The so-called intercoastal trade is the trade by water (limited of course to United States vessels) between ports on the Atlantic Coast of the United States and ports on the Pacific Coast of the United States by way of the Panama Canal. In this trade there have been operating the following steamship lines, known as A lines, operating fast vessels and frequent sailings, viz: American-Hawaiian Steamship Company, Dollar Steamship Lines, Inc., Ltd., (Grace Line) Panama Mail Steamship Company, Luckenbach Steamship Company, Inc., (Panama Pacific Line) American Line S. S. Corporation.
There are also the following lines known as B lines, maintaining slower or less frequent service, viz: Arrow Line (Sudden & Christenson-Los Angeles Steamship Company), Calmar Steamship Corporation, Isthmian Steamship Company, McCormack Steamship Company, Pacific-Atlantic Steamship Company (Quaker Line), Williams Steamship Corporation; and finally there are the following lines known as C lines, maintaining a distinctly inferior and less frequent service: Nelson Steamship Company, (Pacific Coast Direct Line, Inc.) Weyerhaeuser Steamship Company, Shepard Steamship Company, Union Sulphur Company, Argonaut Steamship Company.
THE POSITION TAKEN BY THE "A" LINES In all proceedings before the Shipping Board Bureau (as well as in their dealings with their competitors) the "A" Lines have insisted that in the intercoastal trade there must be a single rate structure or an absolute parity of rates without regard to the type of service and to the cost of running it. That position was stated as follows in a joint brief filed by three of the “A” lines (Grace Line, Panama-Pacific Line and Dollar Steamship Lines) in the intercoastal investigation recently conducted by the United States Shipping Board Bureau:
“The development of the American Merchant Marine as required by Congressional mandate can be served best by the Bureau prescribing a single set of rates for all services in order to make the competition between carriers one in service only" (page 9).
Ďuring the same investigation, Mr. Luckenbach, President of the Luckenbach Steamship Company, operating one of the “A” services in the intercoastal trade, testified as follows:
"Q. I wish you would advise the Examiner as to what you think should be the method of making rates on steamships operating between the Atlantic and the Pacific?-A. I think we should work on a one-rate basis, service to count.
Q. One rate basis, service to count?-A. Yes.
Q. I understand you to mean by that, that there should be one rate: To illustrate, on one commodity, between New York and San Francisco?-A. Yes.
Q. By all lines?-A. By all lines.
A. I think we all ought to be on the same basis. They had the same opportunity. I mean they, or anybody, could have bought the ships that I bought; but they did not see fit to do it.
Q. (By Examiner de Quevedo). Mr. Luckenbach, why is it that you advocate one single rate in this intercoastal operation?-A. Well, from my experience. I am competing with fast ships, and I am perfectly willing to do that, and I think everybody else should be in the same boat.
Q. For what particular reasons? Will that be helpful to the trade?-A. That would build up more ships and faster ships.
Q. What would become of the slower vessels?-A. It would be just too bad for them unless they got together wnd had a service which could compete with us.
Q. Then it would cost you more to operate a 13-day vessel than it would to operate a 32-day vessel? Is that correct?-A. Yes, sir.
Q. Still you believe that the 32-day vessel should have the same rate as the 13-day vessel?--A. Yes, sir.
Q. In other words, there should be no relationship to the cost of the service as shown in the rates—A. No, sir. The 32-day vessel a man can go out and build just the same as I can. I do not believe in putting a premium on inferior service" (Record of Intercoastal Investigation, pp. 521, 522, 523, 528, 529 and 533). [Italics ours.)
At the same time Mr. Luckenbach insisted that his ships must be allowed to charge a differential under the transcontinental railroad rates, because:
I would not get any business if I did not." He stated that he must charge a lower rate "in order to live” (Record of Intercoastal Investigation, p. 532).
The Shipping Board Bureau has not as yet issued a report or made any ruling on the subject of differentials in the intercoastal trade. It is certain, however, that the organized and persistent pressure of the “A” lines in favor of the singlerate structure will continue to be exerted upon the Shipping Board Bureau and, if this Bill should be enacted without adequate safeguards, increasingly upon the new Maritime Authority.
III. THE OPINION OF SHIPPERS ON THE QUESTION OF RATE DIFFERENTIALS
IN INTERCOASTAL TRADE The intercoastal investigation referred to above was conducted from February to October of last year. It was widely advertised. An unusual number of shippers appeared and testified at the hearings. Every one of the shippers was of the opinion that the maintenance of rate differentials for varying types of services is absolutely necessary.
Their composite opinion may fairly be summarized as follows:
(1) Under one rate structure, all cargo that moved at all would move by the fastest, most frequent service available. This would mean that the slower, less frequent lines would starve to death and go out of business and the remaining A lines would have a monopoly.
(2) Some commodities require frequent shipments and swift transport.' These can afford to and do pay a premium. These travel by railroad or by A lines for the most part. Others, less valuable, or less perishable, or more bulky, or easier to store, can more economically move by the slower, less frequent lines. The shippers of such commodities should not be deprived of these slower services.
(3) Slower lines do not, in any fair sense, “divert” traffic from A lines. They carry traffic which, on a basis of sound business, properly belongs to them. They create traffic which otherwise could not afford to move. Shippers need the cheaper differential services in order to afford to move low grade, heavy volume, high weight density products at all.
(4) The faster, more frequent lines, because of the necessity of maintaining punctual departures and fixed schedules, naturally give their preference to the needs of a few predominant ports, such as New York, San Francisco, Philadelphia. They tend to ignore the needs of lesser ports to the injury of millions of citizens.
(5) Shippers wish no injury to the A lines. They now divide their patronage among the A, B, and C, lines in accordance with the varying business factors in each case.
(6) Differentials exist the world over. They rest on economic necessity. Shippers can see no reason why the intercoastal trade should be treated differently from other trades.
The effect which a single-rate structure would have upon the intercoastal trade was aptly stated during the investigation by Mr. Warley of the Calmar Steamship Corporation, as follows:
"Can you state the grounds on which you think the one class set-up is illogical?A. There has been a great deal of testimony to substantiate my own belief that a one-rate set-up would simply mean that the slower lines would be forced out of the entire business, or only sufficient left in the business to take what the ‘A’lines