An equitable apportionment of the cost of ownership among car users does not in any way imply support of penalty charges designed solely to punish railroads and other car users by collecting rentals or other charges over and above the cost of ownership and repair. The objectives of a penalty per diem system can better be met through the Commission's ample authority to move cars under car service orders. A system for the equitable apportionment of car costs is similar to the wellaccepted principles of utility pricing which assesses premium and peak users differentially higher rates than other users on the ground of the greater cost of providing service. H.R. 425 and H.R. 7165 make possible such differential charges for railroad car use. Because of the need to provide a more equitable apportionment of railroad car costs, and because the railroad industry requires the assistance of the regulatory authorities in developing such a system of charges, the Department favors the enactment of the provisions of these bills as a means of accomplishing these objectives. We have been advised by the Bureau of the Budget that there would be no objection to the submission of our report from the standpoint of the administration's program. Sincerely, ROBERT E. GILES. DEPARTMENT OF AGRICULTURE, Washington, D.C., September 30, 1965. Hon. OREN HARRIS, Chairman, Committee on Interstate and Foreign Commerce, DEAR MR. CHAIRMAN: This will reply to your letter of April 9, 1965, inviting comments on H.R. 7165, a bill "To amend section 1(14) (a) of the Interstate Commerce Act to insure the adequacy of the national railroad freight car supply, and for other purposes." This bill would add a new sentence to the above section, as follows: "In fixing the compensation to be paid for the use of freight cars, the Commission shall give consideration to the level of freight car ownership and to other factors affecting the adequacy of the national freight car supply and shall, on the basis of such consideration, determine whether compensation should be computed on the basis of elements of ownership expense involved in owning and maintaining freight cars, including a fair return on value (which return shall be fixed at such level as in the Commission's judgment will encourage the acquisition and maintenance of an adequate freight car fleet), or should be computed on the basis of elements reflecting the value of use of freight cars, or upon such other basis or combination of bases as in the Commission's judgment will provide just and reasonable compensation to freight car owners, contribute to sound car service practices, and encourage the acquisition and maintenance of a car supply adequate to meet the needs of commerce and the national defense." The Department recommends passage of this bill. The supply of serviceable freight cars has hit a new low. This inadequate car supply has placed a burden not only on domestic commerce but on our exports of agricultural commodities. We believe that the cause of the recurring car supply problem is inadequate ownership of rail cars. Failure to utilize efficiently the existing equipment is also a contributing factor as is reflected by the increase from 13 days in 1947 to 19 days in 1961 in the average car turn-around time. Until the variable per diem schedule was adopted in 1964, the method of car compensation provided little incentive for some railroads to own cars. Rather, it provided incentive to use other railroads' cars. Even under the variable per diem schedule the rates for the vast majority of the ears are lower than the former rate of $2.88. That variable rates alone will do the job is seriously to be questioned. There is a more severe car shortage this year than last, and the number of cars owned has not materially improved. The bill, if enacted, would not provide a complete solution to the car shortage problem. We do believe, however, that this bill is a step in the right direction. It would give the Interstate Commerce Commission the authority to establish per diem charges to encourage increases in ownership of cars. Specifically, the bill would authorize the Commission to prescribe per diem charges which would (1) produce a profit for the carrier-owner, (2) provide incentive for car ownership, (3) contribute to sound car service practices, (4) recognize the value of freight car use, and (5) encourage acquisition and maintenance of a car supply adequate to the needs of commerce and national defense. The Department and the agricultural community have a vital interest in improving the car supply situation. The efficiencies of our marketing system should not be nullified by the lack of rail cars or by inability of the railroads to make their cars available where they are needed, or when they are needed. The Bureau of the Budget advises that there is no objection to the presentation of this report from the standpoint of the administration's program. Sincerely yours, ORVILLE L. FREEMAN, Secretary. Hon. OREN HARRIS, EXECUTIVE OFFICE OF THE PRESIDENT, Chairman, Committee on Interstate and Foreign Commerce, DEAR MR. CHAIRMAN: This is in reply to your request for a report on H.R. 7165, 89th Congress, a bill to amend section 1(14)(a) of the Interstate Commerce Act to insure the adequacy of the national railroad freight car supply, and for other purposes. Past periods of car shortages and surpluses have shown that the national freight car inventory reflects changes in the level of tariff, rather than changes in the amount charged for freight car hire. However, we are in favor of measures which would encourage railroads to construct rather than rent boxcars and believe that this bill might assist in attaining that objective. While it is not certain that this bill will contribute substantially to strengthening the mobilization base, we favor the proposed authorization of the Interstate Commerce Commission to consider freight car supply as a factor in its determination of rental rates. From the standpoint of the administration's program, the Bureau of the Budget advises that it has no objection to the submission of this report. Sincerely, BUFORD ELLINGTON, Director. The CHAIRMAN. We are very glad to welcome to this committee this morning our colleague, the distinguished U.S. Senator, chairman of the Commerce Committee of the U.S. Senate, a former colleague in the House, whom we have known and I personally have had the honor of serving and working with for many years. He did, whether it was a wise choice or not, decide to leave the House of Representatives, in order to go across the way. We will not get into the argument of whether it was a mistake. Nevertheless, in this case, I would be the first to admit that it was a wise move, because not only was he successful in his endeavor, but with the wisdom, and the experience he has had, he has become chairman of one of the great committees of the U.S. Senate. Senator, Mr. Chairman, we welcome you. We are glad that you did come over here, not only for the purpose of advising us of your interest in and your knowledge of this proposal, but simply because you are chairman of our counterpart in the other body, and so you might see these new facilities that we have. [Laughter.] We would be glad to hear from you first. STATEMENT OF HON. WARREN G. MAGNUSON, U.S. SENATOR FROM THE STATE OF WASHINGTON Senator MAGNUSON. Thank you, Mr. Chairman. I appreciate what you had to say. I am not so sure, after having my first view of this magnificant committee room, that I didn't make a mistake. It is a beautiful room, and it is a fitting tribute to a former chairman, distinguished Speaker, Sam Rayburn, in his own building. I have a very brief statement, and I don't intend to take up the time of the committee at any length, because you have some very expert witnesses on this problem that want to appear. As you pointed out, this is a problem that has plagued us in the West, in particular, in Congress for many many sessions. I don't know how many times I have introduced bills in the Senate, and in the House, I believe, when I was here, and other Members of the Senate have. You do have, as you pointed out, 19 bills over here now, and we hope by this bill to make a start in solving this problem which seems to be getting worse. I do have a short statement, in which I want to point out some facts to the committee which I am sure they will hear from other witnesses in ample supply anyway, but I will reiterate them; and of course, I am pleased at the invitation to be here. This legislation, in my opinion, is urgently needed to prevent serious losses to grain, lumber, mining, and other industries vital to the Nation's economy through the inability of farmers, lumber interests, and mining enterprises to move their products. Our national economy is now lagging 60 days behind because buyers cannot obtain the goods they have ordered for that length of time because of freight car shortages. Unless this slowdown in the movement of our Nation's goods is speedily corrected, the national rebuilding program President Johnson has advocated will take 50 years, instead of the planned 35 years. The chronic perennial freight car shortages plaguing our Nation occur because in the last 20 years railroads have retired over 300,000 more freight cars than they have built. These 300,000 lost freight cars would make a solid train which placed end to end would stretch from the west coast to Washington, D.C. My script says that it will stretch from Seattle to Washington, D.C., but in deference to Mr. Younger, I will call it the west coast. S. 1098 passed the Senate without a dissenting vote on June 30 of this year. S. 1098 was reported unanimously by the Senate Committee on Commerce, and I must say after we had long hearings and much discussion regarding a particular amendment which they thought might make it equitable to certain New England railroad areas. S. 1098 is strongly supported by the Interstate Commerce Commission. You have many prominent members here of the Commission, which has recommended legislation like this designed to improve the freight car supply in its annual reports since 1955. Enactment of S. 1098 is favored by the Department of Commerce, the Department of Agriculture, the Department of Defense, the General Services Administration, the Comptroller General, and the Office of Emergency Planning. S. 1098 is supported by the National Association of Railroad and Utilities Commissioners. It also has the support, I believe, of the industry and the public. The American Farm Bureau Federation, the American Plywood Association, the National Council of Farmers Cooperatives, a substantial segment of the railroad industry, shippers and shipping organizations, particularly in the grain, milling, and lumber trades, and many States, cities, and ports strongly support the enactment of this measure. I have received and I suppose you have, over here telegrams and letters from shippers in nearly every State, urging its speedy enactment. Severe car shortages are no longer confined to a few regions of this country, and to particular types of equipment. They occur every year with increasing severity, and in about every producing area in the country. Foremost is the shortage of boxcars which this year is running about 4,400 boxcars per day short, with, of course, a severe impact on shippers of grain, lumber, milling trades, and other bulk commodities. Shortages of coal hopper cars yearly affect coal mine operators in such States as Indiana, Kentucky, Missouri, Oklahoma, West Virginia, and Pennsylvania. Shortages of gondolas, and heavy duty flatcars affect shippers of steel products and other commodities. If our Nation's railroads owned a sufficient number of freight cars, there would be no shortages. Overall, the average daily shortage of all kinds of cars last week was 7,500 per day. Since January 1, 1965, this Nation's supply of plain boxcars has dropped from over 508,000 to less than 487,000 in these few short months. In 9 months, this Nation has lost over 22,000 plain boxcars, an average decrease per month of 2,770. Ten years ago, this Nation had over 1,700,000 freight cars owned by its class I railroads. Today, we have less than 1,500,000 freight carsan average drop of 20,000 cars per year. But not even this minimal supply of freight cars is available to shippers. The number of bad-order cars awaiting repairs on eastern roads is 6.9 percent, far above the Nation's average, and nearly double that of the central western railroads. The foregoing figures amply demonstrate that the national freight car fleet, presently plagued by daily car shortages of nearly 7,500 cars, is continuing to decrease. To meet the needs of commerce, of a growing economy, and of our national defense, this Nation must have more freight cars in operation each year, not fewer and fewer cars. As long as it remains cheaper to rent another railroad's cars rather than to own them, our car supply will dwindle. Some railroads still refuse to pay more than $2 per day for the rental of a new boxcar that costs its owner $15,000 to build. 54-899-65- 2 As the Interstate Commerce Commission has pointed out: This policy in practice discourages construction of new freight cars and in effect, places a premium upon inadequate car ownership and will continue to do so as long as it is cheaper to rent a car than it is to own one. S. 1098 and H.R. 7165 and the other 19 bills you mentioned, all having the same objective, would insure an adequate national fleet of freight cars, we hope, by providing incentives for increased car ownership through operation of economic laws and the profit motive. In practical effect, these bills state a series of objectives in the public interest, including the acquisition and maintenance of a car supply adequate to meet the needs of commerce and the national defense; recognize the important influence exerted by daily rental or per diem charges on the adequacy of the national car supply; and direct the ICC, after hearing, and I quote, and emphasize "after hearing," to fix per diem charges upon any basis which in its judgment will tend to accomplish these objectives. These bills would direct the ICC, as an arm of Congress, to use its best efforts to reverse this trend by the establishment of per diem charges which in its judgment will provide an incentive for increased freight car ownership, and insure the adequacy of a national freight car supply. Again this year, the Nation is facing a severe car shortage, greater, I think, than any other year, except during the war years, when the cars were designated for certain purposes. And year after year, conditions have become progressively worse. So I urge and I hope that you will take action this year to start these procedures in action. Now it is true that it may not have the immediate effect this year, legislatively, that we would expect, but it certainly would have a psychological effect, and a practical effect upon the railroads themselves, to enter into agreements, voluntary or otherwise, pending the ICC investigation of freight car shortage and their determinations, to make some plans for building cars that will meet the needs of this growing economy of these United States. Thank you again very much. The CHAIRMAN. Mr. Chairman, thank you very much for your statement, and again, for your personal appearance here. We appreciate the very candid statement that you made on the subject. We realize your interest in this subject matter over a period of time, and we realize that this has been, traditionally, a fight, primarily, between the eastern and the western railroads. We might as well face the facts. Unfortunately, the eastern roads have not kept up with the production of cars. We held hearings on this subject, about 3 years ago, had very extensive hearings on it, and there is no question in anyone's mind but what we are losing ground. We are losing more cars every month than we are bringing into the fleet. We are observing some almost revolutionary changes in our transportation facilities, particularly in view of the big jumbo cars that are now hauling grain from the Midwest. These cars do not lend themselves to any other kind of haul for a backhaul. It creates problems, too. I understand the new techniques in coal cars, now, that are being produced, which present similar problems, and the tremendous, I guess we would call it backhaul, or return, |