proper types of cars and the proper service and pricing, so that it is possible, that they certainly should buy cars. The CHAIRMAN. Mr. Perlman, to one who is so uninformed about this matter as I am, particularly the technicalities of it, and all, it is just common knowledge. And I know this much, that the heavier population of the United States is east of the Mississippi, except on the west coast itself. And east of the Mississippi is the area where the greatest complaints come from, the areas where the cars get out and get involved in all of this other congestion, use, and need, and it takes them a long time to make their way back. That is to me academic. Mr. PERLMAN. To me that is just propaganda. If you will read Trains magazine you will see that we have the fastest freight schedule, the New York Central, ever known in the history of the world. These western roads can give you all that propaganda. But I worked 31 years of my 42 years on the western railroads. And I am not talking as an easterner. That is pure bunk and propaganda. I will get you Trains magazine and show you that the New York Central has the greatest-and this thing about standing around on the eastern railroads The CHAIRMAN. I am not talking about them standing around, I am talking about the use of them in a congested way where the demand for them is greater 24 hours a day that it would be in an area not congested where the demand is not so great. We know that you have got to serve more tonnage in a congested area than you have in an area that is not so congested. Mr. PERLMAN. That is why we are buying Flexi-Vans instead of these 40-foot boxcars you are talking about, because we can't handle them in the congested area. And the 40-foot boxcars are as obsolete as a dodo. We wouldn't buy them if you tripled the per diem. The CHAIRMAN. All right. To do that, then, why would you object to some trial on the boxcar charges to see if it wouldn't work, since it won't bother you? Mr. PERLMAN. I don't care; if you want to do it it is all right with me. We will get a bigger profit. But I don't think this will solve the boxcar shortage. And I really came here in the hope that there would be some understanding of what had to be done about the boxcar shortage. And I think The CHAIRMAN. What should be done about it? Mr. PERLMAN. I think just like you that there should be a little statesmanship in the railroad industry itself. I think there should be some kind of a way of sitting down and not talking about east or west or north or south and trying to set up a formula for ownership, what cars a railroad ought to own. The CHAIRMAN. That brings me to this point, because of the interest. And I want to say, I started to say a while ago, that I think I can assure you, without any fear of contradiction whatsoever, that these Members of Congress who have testified and who have introduced the bills and many others who have talked to me about it and expressed their grave concern-have no particular interest in whether or not a particular railroad gets a per diem of $20 or $10 or $2. Mr. PERLMAN. I know that. The CHAIRMAN. And I think I can say this out of an abundance of experience that I have had in this field, what my colleagues want is to keep the industry off their backs, and to see that the service is provided. Now, these people, in all of these months that have passed have been talking to me about this-and I have heard this issue over and over, and I knew what the quarrel was, and I understood it. In view of the most recent demands, I felt that I was constrained to do something some time ago, to show that we were trying to keep up with it, I wrote a letter to the president of your national association, the Association of American Railroads. And I called attention to this problem, and the prior consideration given to it, and what steps the carriers were taking to remedy the situation. Well, I have a rather lengthy reply. And I certainly am one of those practical enough to understand the position these people with the Association of American Railroads are in. They have got their own industry, people on both sides, concerned with this. And they are probably like this minister of a certain church who, when he was asked by a friend how many members he had, said 50, 25 for him and 25 against him. And I imagine they feel that way sometimes. This is a rather lengthy letter, but I am going to take the privilege of putting it in the record at this time so that everyone can have the benefit of it. This is my letter to Mr. Loomis dated June 8, and his reply dated June 18. I think these should go in the record to show that we have been trying to keep up with this problem. And this is merely an effort to raise the question and maybe emphasize the challenge of the industry. (The letters referred to follow :) Mr. DAN LOOMIS, HOUSE OF REPRESENTATIVES, COMMITTEE ON INTERSTATE AND FOREIGN COMMERCE, President, Association of American Railroads, DEAR MR. LOOMIS: I am certain that you have been aware of the concern which is being expressed generally throughout the country, and specifically in the Far West, as indicated in such articles as appeared in the Wall Street Journal of June 1 concerning the railroad car shortage, specifically that having to do with boxcars. While I am aware that hearings have been held in the Senate on pending legislation and there are bills before this committee also having to do with proposals which their sponsors urge on the ground that in the long run they may lead to an increase in the freight car fleet, I am wondering whether there is something that you suggest might be done immediately to give relief, or that you might indicate to me the railroads now are doing in an effort to meet some of the complaints of the lumber and plywood industry, the grain industry, and some of the others even those including shippers who require open top equipment. You will appreciate, I am sure, that in view of the consideration which this committee has given over the past 4 or 5 years to legislative proposals culminating in a bill reported last year, and which would to some degree meet the railroad argument that with less minimum rate regulation, they might be the better enabled to meet competition from other forms of transportation and retain and regain some of the traffic they have lost to these other modes, it is somewhat anomalous to find that the railroads seemingly are not in a position even today to meet the demands for equipment which are placed upon them. I have thought that perhaps you could outline what steps the carriers are taking and what further remedies you might have to suggest. Sincerely yours, OREN HARRIS, Member of Congress, Chairman. Hon. OREN HARRIS, ASSOCIATION OF AMERICAN RAILROADS, Chairman, Committee on Interstate and Foreign Commerce, House of Representatives, Rayburn House Office Building, Washington, D.C. DEAR CHAIRMAN HARRIS: You are entirely correct, as stated in your letter of June 8. that we have been aware of the concern being expressed throughout the country regarding reported rail car shortages. You also inquire as to what the railroads now are doing in an effort to meet some of the complaints and give immediate relief. In this regard, I assure you that all practicable steps are being taken and will continue to be taken to distribute the available car supply efficiently and equitably and to maximize its utilization. By these efforts many of the pressing day-to-day demands of shippers for more cars are being met with only brief delays. Also, new and rebuilt cars are coming on line as rapidly as the builders can supply them, although there obviously are limited possibilities of augmenting the total supply in this way over a short period. In this connection it is significant to note that the railroads have stepped up their capital expenditures for equipment (cars and locomotives) from $427 million in 1961 to an alltime record of $1,140 million in 1964, and it seems certain that this latter figure will be surpassed in 1965. The present car supply problem is complicated by the fact that the pickup in the general economy and demand for railroad service in recent years followed an extended period of depressed demand for most types of railroad cars and coincided to a significant degree with the expiration of the useful life of a large number of old cars which had been acquired in much earlier periods of high demand. Also, changes in manufacturing and distribution practices along with greater railroad efficiency have called for new types of high-capacity and expensive cars. The effect has been to replace older and smaller cars with larger cars. In addition to the purchase of more and larger cars, transportation efficiencies have been improved to produce more transportation per car than was previously possible. While 68,043 new railroad-owned cars were installed last year and 90.556 were retired, the number of serviceable cars in the fleet remained almost exactly the same because of an increase in the number of cars repaired and upgraded. There was a significant increase in the number of privately owned cars placed in service. In the first 5 months of 1965, with only a slight increase in the number of cars available for use, carloadings are running 2.4 percent and revenue ton-miles 4.4 percent ahead of last year. Freight car installations thus far this year have virtually balanced retirements, but the cars installed have an average capacity of 77.82 tons, as compared to those retired which average only 45.44 tons. At the current rate of carbuilding, the production capacity of carbuilders will continue to be fully utilized and this year's installations are expected to amount to 75,000 railroad-owned cars, or approximately 7,000 more than in 1964. Some increase in the number of privately owned freight cars also is indicated. The lumber and plywood industry is a large user of 50-foot and wide door 40-foot boxcars, as well as flatcars in increasing numbers. Despite the fact that total boxcar loadings have declined approximately 30 percent and the total boxcar ownership has dropped about 17 percent in the past 10 years, the number of 50-foot boxcars has been increased by more than 100,000 cars, and, in addition, we have 10,000 more wide door 40-foot boxcars in service than we had in 1954. Thus the reduction in the total boxcar fleet has been principally in the smaller capacity narrow-door cars. Many commodities, including grain traffic, formerly handled only in boxcars, are now also moving in covered hopper cars and other classes of equipment. The fleet of railroad-owned covered hopper cars has more than doubled in the last 10 years, growing from 34,505 in 1954 to 85,773 today. In addition, there are nearly 15,000 privately owned covered hoppers in service. As you know, there has been a marked increase in the use of TOFC, and a remarkable growth in the movement of automobiles in multilevel cars. Since 1954, the railroadowned flatcar fleet involved in these movements, as well as other flatcar uses, has increased from 46,603 to 59,445. There are 25,000 additional privately owned flatcars, installed in recent years and used principally for piggyback and automobile traffic. Fol Between 1960 and the fall of 1963, the demand for gondolas dropped very sharply. Consequently, the industry had to question whether a part of the fleet, much of which required heavy repairs, would have any further use. lowing this, however, with heavier steel production and greater demands from other industries for this type of equipment, there has been maintained a vigorous program to upgrade these cars and to add new cars designed for specific traffic requirements. As a result, today we have approximately the same number of serviceable gondola cars available as we had last year, and there were 3,867 on order as of May 1. At the same time that the railroad industry has been acquiring cars designed to produce more transportation per unit, thereby reducing costs and making transportation available at lower rates, it has also been improving the utilization of the cars so that the present car fleet actually carries more freight. The large capital spending program providing modern switching facilities, improved signaling, better communications, and advanced data processing systems has enabled the industry to secure better car utilization and more efficient transportation. Advanced operating and maintenance methods, such as better journal lubricating devices and hotbox detection equipment, are reducing the amount of time cars are out of service for repairs. The new multilevel per diem rates established by the railroad industry, the more realistic regulations governing depreciation for Federal income tax purposes, and the investment tax credit, made effective by the Treasury in 1962, have been important factors in the recent upsurge of railroad capital spending for modern freight cars and other railroad facilities. These long needed reforms have provided significant incentives to the growth of railroad capital expenditures from $646 million in 1961 to $1,417 million in 1964, and an estimated $1,630 million in 1965. It should also be borne in mind that, because of uncertainties regarding national transportation policy and corrective legislation, mounting governmental investment in facilities available to competing forms of transportation, and the very limited earnings and financial resources of many railroads, funds could only be made avaliable for those types of equipment for which definite demands were indicated. The increased ability of some railroads to purchase and build new equipment and improve their facilities and services has been encouraging. To assure its continuance in order to meet the growing volume of freight traffic, the competitive climate must be improved. As President Johnson and many others have recognized, this calls for equal treatment of all modes of transportation with respect to pricing freedom, taxation, and the levy of adequate user charges on competing transport modes which conduct their business with facilities provided by the Government. Correction of Government policies which long have handicapped the railroads, both competitively and financially, would go far toward removing railroad financial stringency, which is a root cause of recurring freight car shortages. A basic need of the railroad industry generally is sufficient financial reserves to sustain more stable car acquisition programs in the leaner as well as the better years. Car acquisition programs which must await high traffic volumes and more adequate levels of earnings come too late to avert car shortagesas the present situation so well demonstrates. Another major problem of our industry is the wide seasonal fluctuation in carloadings through the year. Efforts are being made by the industry itself to reduce these fluctuations. Because of the heavy demands for cars for loading the new crops in harvest seasons, there is also an urgent need to handle the relocation of old grain during offpeak periods. As we have pointed out before, this situation can be improved materially if the Government will schedule its relocation orders so as to avoid peak traffic periods as much as possible. Sincerely, DANIEL P. LOOMIS. The CHAIRMAN. I am thinking a little along the line of clearing up the present authority in the act itself and maybe giving the Commission specific authority after certain procedures that they should be required to take, to make a determination as to what should be done as they have requested. And maybe if they are given this authority the railroad industry will come up and meet the challenge and make it unnecessary for them to have to do it. I would say to the gentleman from Michigan, I do not think you should labor under any cloudy ideas about this matter. If this bill is passed, what the Commission has said is, they are going to do something about it if the railroad industry doesn't do something about it. I have talked with them, and as a matter of fact, I would encourage them to do it. Because one thing we are trying to do is to encourage the railroad industry to continue its research and technological studies in all fields of the industry. In the last few years, I would say since 1958, there has been a decided improvement. I am one of those who wanted to give you greater leeway for more improvement. I would like to do that now. But maybe under the circumstances if we would give the Commission a little emphasis here and a little nudge, and clear up the law where they would not labor under a cloud, maybe we can get something settled and not let it go on this way. Think about it some. Mr. PERLMAN. I hope you could. I asked them to give us some guidelines when we first started this whole merger effort in the East, and I got nowhere. I get just as frustrated by them as I do by trying to get something through the American Association of Railroads because of their diverse opinions and all. And I realize the shortcomings of the AAR. And I am a member of the board, and I take full responsibility. But you have got 20 people that think differently and live in different parts of the country, and have their own interests. And it is very difficult at times to get a consensus. And I think that when you finally do get a consensus, the gang ought to stay with it, that 30 percent shouldn't try to break off, get sore and go home and say, "We will go to father." That is the way all this regulation gets compounded in this industry. I think we ought to be big enough to say the majority will rule, right or wrong. And probably the majority is wrong part of the time. But when I hear that there are good guys and bad guys, and if you live east of the Mississippi you are a bad guy, and the interests, and all the words I heard this morning, I don't wonder. The CHAIRMAN. I just want you to know that we are not concerned about that, and we are not particularly interested in it, and we don't particularly care about having to sit here and listen to it. But I can assure you that we are interested in doing something about what you say and what the other side says exists. Now, let's do something about it. Mr. PERLMAN. All right. Well, I would go along with anything you want, because I must say this, that in my 42 years in the railroad industry there hasn't been a man that has gone along with more constructive legislation for our industry, or tried to be more helpful-now that you are leaving I can say it, because it doesn't make any difference any more-but I think that we owe you a deep debt of gratitude, and I would just as soon |