this order will be in effect. I suggest that what we need here is some permanent, long-range authority. I think that this bill may not be the best. It is complex. It may not work, but as Mr. Martin said this morning no one has yet come up with a better suggestion, and there is enough hope that it will work in spite of the complexities involved, that certainly this committee and this Congress can do no less in my opinion than to face up to the responsibility.

I think we have facing us on the railroad car supply a situation similar to that that faces us with the merchant marine. And I think the Congress is going to have to face up to both of them. We have an opportunity to do a part of the job now, and it seems to me that the doubts that exist are no reason to fail to do anything.

Thank you, Mr. Chairman.

The CHAIRMAN. Thank you very much, Mr. Duncan. We are very glad to have your statement and presentation on this subject, and you may include your entire statement in the record

Mr. DUNCAN. If I may. And Mr. Chairman, I have-I beg your pardon?

The CHAIRMAN (continuing). Along with your presentation that you have just given.

Mr. DUNCAN. Thank you. I have 14 or 15 telegrams and letters in support of this legislation which I have given to the clerk. I would appreciate it if the committee would put them either in the record or in their files. I do not want to add to the printing costs of this committee. And I think if the record shows that these telegrams represent not only individual shippers, but associations of shippers, it would be enough.

The CHAIRMAN. Well, we have innumerable communications. I have probably two dozen here myself. We will include them in the files

Mr. DUNCAN. That would be satisfactory, Mr. Chairman.

The CHAIRMAN (continuing). For the use and benefit of the committee.

Thank you very much.

Mr. DUNCAN. Thank you, sir.

(The statement referred to follows:)

STATEMENT OF HON. ROBERT B. DUNCAN, MEMBER OF CONGRESS FROM THE STATE OF

OREGON

Mr. Chairman and members of the committee, first, my thanks to the chairman and the committee for holding these hearings in what we all hope are the last days of this session. It is a recognition of the importance of the issue with which we are confronted. It is not a new issue but the problem from which it has arisen has gotten progressively worse for years. It is not one that will be solved overnight by the passage of this legislation but further delay will only exacerbate the situation and further prolong the time of eventual solution. I cannot even assure the committee that the solution proposed in the bills will solve the problem. But the bills are a logical approach, a promising avenue of solution-and no one has offered a better solution to what all admit is a problem. The bills have drawn unanimous support from the administrative agencies, from all of the shippers in my district with whom I have had contact and by a significant segment of the railroads themselves.

Statistics on the steady decline in both numbers and capacity of cars are already before you and I shall not duplicate the record. The law is clear that the

rails have the obligation to furnish "safe and adequate car service" (49 U.S.C. 1) and to "furnish transportation upon reasonable request" (49 U.S.C. 1(4)). In my district there have been recurring shortages of cars.

On an initial reading of 49 U.S.C. 1(14) it would seem that the ICC has the authority sought to be given to it in this bill. But in 1947 its authority to prescribe per diem charges for regulatory purposes was challenged in the U.S. district court and the court found against the Commission. I think the decision should have been appealed and had it been we might not have been here today. It was not and a cloud now exists on the Commission's authority which effectively prevents any action.

In a time of a rapidly expanding economy, it makes no sense to tolerate a declining supply of railroad cars. Production without transportation to the markets is meaningless. The losses to the Nation are staggering. The problem is not dissimilar to the one we face in ocean transportation with which we must soon come to grips. I would far prefer to have the rails handle this problem by themselves, without Government interference. But the rules of the Association of American Railroads have not worked and the Government must move to protect the public interest which includes that of the railroads themselves, as well as the shippers and the consumers.

While the rails are not public utilities in the strict sense of the word, as it has been applied to gas and electric companies, there are many similarities. In many sections of the country, including my own district, they do not compete with one another though they do with other forms of transportation. With all of the mergers and consolidations there will be less, not more, competition in the future. The very purpose of the regulatory agencies is to regulate such industries in the public interest. The Congress must give the agency the tools with which to do the job.

I am not satisfied with the efforts of the ICC to date. Eighteen years have expired since the decision in the Palmer case and the gap in authority opened by that decision has not been plugged in the face of clear and convincing evidence of the need. This is no criticism of the present Commissioners because there has been a succession of Commissioners over the years and their duties are manifold and onerous.

The purpose of the bill is to make it profitable for the lines deficient in car ownership to acquire and own their own cars rather than rely on the cars of other lines with which to meet the needs of their shippers.

Some suggest that this is punitive legislation directed against eastern lines. Nothing of the sort. People and companies are motivated by dollars and profits. We have almost universal sustained-growth timber management now in marked contrast to the cut-and-get-out policies of yesterday. No doubt there are altruistic motives involved, but basically we have this improvement because it is necessary to the economic survival of the timber industry. It has become profitable to practice good forest management and to get the maximum utilization of the raw material.

So with the rails. If it becomes more profitable to own rather than rent cars, car ownership will increase. And the failure to encourage such a trend will punish the roads and the shippers in my district and others where the rails have made a commendable effort to increase their ownership and I have in mind Southern Pacific in particular. Continuation of the present pattern of ownership and per diem charges in effect forces car ownership roads and their shippers to subsidize the car deficiency roads and their shippers. The present pattern can't help but prove unprofitable to those roads which are trying to maintain their car ownership with a further decline of cars the inevitable result.

Car supply is not the only factor involved in car shortages. Distribution is another. But the supply is basic. We must have the cars before they can be distributed. Otherwise, all we are doing is distributing the shortage.

I would like to commend the ICC for the two emergency orders which they have put into effect during the past 6 days * ** in an effort to improve the distribution. I think that they should have been issued before this and I think that they should have been of indefinite duration but I'm grateful for what we have and I'm sure that, if they prove useful, they can be renewed.

I'm grateful too, for the personal interest of the President and the Vice President in this problem. Senator Magnuson has furnished leadership in the Senate. With so many anxious for a solution, I don't see how it can elude us much longer. The problem is very complex. I don't pretend to have any but a superficial knowledge of it. The Commission will require time to work out the orders. New

54-899-65--10

cars cannot be constructed and put into service overnight. But we must start and further delay only puts off the day of solution.

I have already said that I want no unnecessary regulation. But continued car shortages will raise a clamor for more drastic governmental action. A number of years ago, I am informed, a railroad suggested Government ownership of rolling stock. In my own State today a voice suggests that Oregon buy its own cars. I do not agree that such suggestions are practicable or desirable but as the problem becomes more critical, the solutions will become more drastic.

I hope that the committee will mark up and report a bill immediately. I hope it reports a bill without the Senate amendments and especially without the ones designated 2 and 4 authorizing the exclusion of the new factors to carriers which terminate a substantially higher percentage of traffic than they originate and to all other cases as the Commission finds to be in the public interest. I don't think the amendments are necessary since the entire bill lodges only discretionary rather than mandatory authority with the Commission, since all of the Commission's orders must be in the public interest, and since 2, especially seems to make any order inapplicable to the very situation which, to me, is at the heart of the whole problem.

I am aware of the political problems, however, and I am reassured by Chairman Webb's testimony that all such factors would be considered anyway and, impliedly, that the bill would be workable even with the Senate amendments. Should the committee be disposed to accept the Senate amendments it will have my final support.

The CHAIRMAN. I think we better get along with the other witnesses if the committee members will permit.

We will be glad now to hear from Mr. Alfred Perlman, president of the New York Central Railroad.

Off the record.

(Discussion off the record.)

STATEMENT OF ALFRED E. PERLMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER, NEW YORK CENTRAL RAILROAD; ACCOMPANIED BY ROBERT D. BROOKS, GENERAL SOLICITOR, NEW YORK CENTRAL RAILROAD; AND E. P. MILLER, CHAIRMAN, CAR SERVICE DIVISION, ASSOCIATION OF AMERICAN RAILROADS

Mr. PERLMAN. My name is Alfred E. Perlman. I am president and chief executive officer of the New York Central, with offices at 230 Park Avenue, New York City.

It might be well, after having listened this morning to the good guys, to explain a little bit that it is rather odd to me that having worked for the Burlington and the Northern Pacific most of my career, that coming east for 11 years makes me a bad guy. That was a rather interesting comment, it seems, and that was not as interesting to me as some of the facts, so-called facts and figures that I heard this morning, because they say something about figures that I would not care to repeat here.

So I am here to register opposition to enactment of H.R. 7165 and similar bills now under consideration by this committee.

Thirty-one of the 42 years of my railroad career have been spent on lines west of Chicago where the grain car shortages bring on almost annually bills of this kind. It is rather interesting that all of those 31 years were spent on the Burlington, Northern Pacific, and Denver & Rio Grande Western.

I do not think such legislation is in any way the solution to this problem. It would only lead to more of the kind of bureaucratic

regulation that is stifling the railroad industry, which President Johnson himself criticized just last week when I was at the White House.

We oppose the enactment of penalty per diem legislation, because such legislation is wrong in principle and would be ineffective in practice.

The CHAIRMAN. Did I misunderstand you? Did I understand you to say that the President criticized this proposal?

Mr. PERLMAN. He criticized the regulation. He thought that there ought to be more competition in transportation. After he signed the bill last week, he had the entire Interstate Commerce Commission, he had the railway labor executives, and he had a number of the railroad executives in the East Room for about an hour talking about this transportation problem.

The CHAIRMAN. I understood that was going to take place, and I thought if he did refer to this proposal specifically, that I was going to raise some other questions.

Mr. PERLMAN. No, sir, it was not to this proposal specifically. He referred to the whole field of transportation regulation.

Worse, enactment of this legislation will have an effect exactly the opposite of that intended.

I make this statement even though the enactment of a penalty per diem bill would actually put additional dollars in the New York Central's treasury. The truth of this is illustrated by the fact that in the first 9 months of 1965 our system car ownership, as shown by official reports in the possession of the Interstate Commerce Commission, was 108,323, while the average number of cars on New York Central tracks each day was 103,237. This shows clearly that the New York Central ownership of freight cars is more than sufficient to protect its customers' loading requirements. And I cannot understand all this talk about the eastern railroads draining off the western railroad's cars.

An even clearer illustration of our commitment to this principle is the car ownership policies of the Pittsburgh & Lake Erie, an important component of the New York Central system. The P. & L.E. owns 24,740 freight cars. There is not sufficient track space on that line to store all of the cars in P. & L.E. ownership at any one time. As a point of interest, the P. & L.E., with only 92 miles of main line trackage, has about the same freight car ownership as the entire Rock Island Railroad, a large western carrier. It owns nearly as many cars as the Soo Line and the Denver & Rio Grande Western Railroads combined. And more than half the number of the whole Burlington system.

The objectives of freight car ownership, as laid down by the Association of American Railroads, are for each railroad to own a sufficient number of freight cars of various types to protect its shippers; that is, to cover the originated loading of freight on its line, taking into account the number of loaded foreign cars received from connections, which may be unloaded and thus made available for reloading to consignees in the direction of the territory of the owning railroad. The P. & L.E., because of that requirement, owns this tremendous fleet and does not find it unprofitable. As a matter of fact, although its operating ratio in some recent years has been above 100 percent; that is, for every dollar it takes in on its operation it spends over a dollar in ex

penses, it is a most profitable railroad, having earned more than $16 per share last year, principally out of the revenues for car hire it received. Increases in penalty per diem, or other increases in per diem would not encourage the P. & L.E. to buy more cars than it now has or needs.

I think that certainly ought to refute a statement that I heard this morning that it is unprofitable to own freigh cars. And certainly the railroads do not buy cars as a leasing company to make a profit from the car. They buy a car to take care of their customers. They are in the railroad business. That is part of their equipment. All I heard this morning is that if they make more profit they will buy more cars. Well, here is the poor New Haven that is a terminating railroad that hasn't any money to buy cars, and all this would do would be to make them poorer.

On the New York Central system as a whole in the decade from 1956 through 1965, we spent $531,421,526 on freight equipment. This exceeded our entire net income and depreciation for the period. The difference was made up through sale of real estate and scrap.

In order to determine the number and kind of cars that the New York Central should purchase, we have embarked upon a program of market research upon which we are spinding over $2 million a year. In this program we are attempting to find the type of service, the kind of equipment, and the modern pricing which will best fit the material handling needs of our customers. This is making obsolete much of the equipment which we formerly used in our operations, but is increasing the efficiency of our transportation to the extent that we are able to reduce charges to the customer and yet increase our own profitability.

I might say, about making obsolete, 10 percent of the cars used in the plywood industry are New York Central boxcars, although we do not have a plywood company on our railroad. We send them out West. And the reason we do that, they are obsolete on the New York Centaral. We have no use for them anymore. We are buying 84foot boxcars for the automobile industry, and I will tell you why in a minute. And those cars are going out to the plywood industry, not on account of any per diem rates. We just do not need them any more. And every once in a while when the Southern Pacific does not need them they send them back to us and they sit around on our tracks. There are over 8,000 of them out there right now. And this is why we do not need them.

The CHAIRMAN. You mean you have 8,000 boxcars sitting on your tracks that are not being used?

Mr. PERLMAN. No, sir. I mean we have 8,000 of those cars in the plywood industry's use. They like those double-door 50-foot boxcars. Those are what they say they are short of, and I say that we have 10percent of the fleet that is in that service, New York Central cars, eastern railroad cars, although we do not have plywood plants on our railroad.

The CHAIRMAN. Well, I got that all right, but I also thought I heard you say that you had 8,000 of these type boxcars that you do not need sitting on your tracks now.

Mr. PERLMAN. No, sir. What I tried to say, and maybe did not say it very plainly, was that in the time those railroads do not need