Mr. KENNEY. Mr. Chairman, what control, if any, does a nonowning railroad have with respect to the number of off-line cars on its tracks?

It must accept all the cars consigned to consignees on its tracks, must it not?

Mr. WALRATH. I think that is beyond question. In addition to that, however, they can get and keep foreign cars-foreign is a trade expression-looking toward their own prospective needs for shipments. Mr. KENNEY. Only in violation of your rules?

Mr. WALRATH. In violation of the present order, yes; Service Order No. 933.

Mr. KENNEY. And in general, in violation of their own car service rules?

Mr. WALRATH. I think that is correct. Of course, the ordinary car service agreements presuppose a willingness to abide by them, with no sanctions, no penalties.

Mr. KENNEY. Under circumstances where the railroad has relatively little control over the number of cars it receives, assuming good faith on the part of returning them, how would the higher per diem give them a greater incentive to buy more cars?

Mr. WALRATH. An easy way to illustrate it would be this: Take a hundred as the amount of cars which a railroad should own proportionate to its own needs, and assume it owns only 50, and another railroad has more than its proportional share for its own needs. Since we were concerned with just these two railroads, the debit balance would soon be sufficient to encourage the deficit road to buy cars of its own so that it would get back as much per diem as it paid out. Mr. KENNEY. On page 9 of your statement you indicate that if the legislation is enacted, the Commission's first step would be to determine the extent to which railroads are deficient in car ownership.

Mr. WALRATH. Yes, sir.

Mr. KENNEY. The Commission would have that power now, would it not?

Mr. WALRATH. Yes.

Mr. KENNEY. Without this legislation?

Mr. WALRATH. That is correct. We could do that now.

Mr. KENNY. I take it from your statement, the last time this was done was in 1950?

Mr. WALRATH. In 1950

Mr. KENNY. On page 2 you mention a 1950 study.

Mr. WALRATH. The total requirements were studied then, what it woud take to meet operating needs in 1956. I intended to imply that the figure in 1950, if projected to 1956, probably should be reduced downward to take care of increased efficiencies and higher loading capacities and so forth.

Mr. KENNEY. And the wider use of flatcars, for example?

Mr. WALRATH. Yes. That is why the picture is changing so constantly. That is why I would hate to see too rigid guidelines written here.

Mr. KENNEY. Could not the Commission undertake such a study now without the passage of S. 1063?

Mr. WALRATH. Oh, yes.

Mr. KENNEY. Would such a study be helpful in pointing to solutions of the car shortage?

Mr. WALRATH. The only way I know it could be helpful would be to point out, to pinpoint those deficit roads and the degree to which they were deficit.

Assuming that we haven't the power to follow up with incentive rates, it would be an academic exercise. It would be interesting to know. I think we know in generalities right now which ones they are. I personally didn't have the knowledge to answer the chairman when he asked that question.

But I am sure that our car service people know. Not to the number of cars exactly, but relatively.

Mr. KENNEY. Would you care to give a guess on the basis of the present per diem rate of $2.88 in general use, what would it be under S. 1063 on the same basis?

Mr. WALRATH. It would be only a guess, Mr. Kenney.

Mr. KENNEY, I appreciate that.

Mr. WALRATH. I wouldn't want to guess at it. I think it ought to be somewhat above $2.88, assuming that was a reasonable sum some years ago.

That would be a median rate on a sliding scale which we determined to be fair. The precise median rate, however, would depend on a number of factors, including the number and value of new and high cost cars we are dealing with.

Mr. KENNEY. Thank you. I think that is all, Mr. Chairman.
Senator PROUTY. Thank you, Mr. Walrath, very much.

Mr. WALRATH. Thank you, Mr. Chairman.

Senator PROUTY. The next witness is Mr. Eldon Martin.

STATEMENT OF ELDON MARTIN, VICE PRESIDENT AND GENERAL COUNSEL, BURLINGTON LINES, CHICAGO, ILL.

Mr. MARTIN. Mr. Chairman, I have submitted to the subcommittee copies of a written statement that I would like to have incorporated in the record following my extemporaneous remarks, which I would like to make by way of an effort to shorten the proceedings.

Senator PROUTY. Without objection, that will be done.

Mr. MARTIN. My name is Eldon Martin. I'm a lawyer from Chicago. I represent the Burlington system lines. In my appearance here, I speak not only for those Burlington lines but for a group of quite important railroads, we think, who actively support enactment

of S. 1063.

These roads are identified in the written statement which will follow this oral statement. They include important railroads serving all parts of the United States. There is not any east-west, northsouth division. Our supporters, those for whom I speak, include eastern roads like the Chesapeake & Ohio, and Western Maryland. They include southern roads like the Illinois Central, G.M. & O. They include western roads like the Great Northern, Northern Pacific, Burlington, Santa Fe; and far western roads like the Western Pacific. It is a cross-section of American railroads.

These railroads for whom I speak operate about or a little more than a fourth of all the railroad mileage in the country, and perhaps more significantly, they own about one-third of all the freight cars in the United States.

We support this bill because we think that it will tend to provide some cure for one of the most serious national problems that confronts the transportation industry, and that is this decline in the total number of available freight cars in the United States.

On the chart which appears on the easel, and a copy of which has been submitted for the record and which I would like to have follow the written statement, you can see what has happened over the years since 1945, which is the first line on the chart. You will notice particularly what has happened in the past 5 years, from January 1958 down to the current date, April 1, 1963. The decline has been so precipitous since 1958 that the lines of the chart have dropped off the bottom on the lower right.

We have fewer freight cars in the United States, and fewer boxcars in the United States, than we have had at any time in the current century. Notwithstanding the offsetting factors that were mentioned by the Chairman of the Commission, this is a very serious and tragic situation. This is a problem which is recognized nationally by all concerned. It is a problem, and the seriousness and degree of it is recognized even by those who don't like this bill, Mr. Chairman. There is no doubt about the existence of the problem.

Car shortages, which have been with us for generations, which in prior years were largely confined to the fall harvest seasons, have now become almost continuous. Shortages are not only more frequent, but they are more severe and they are more damaging to the railroads, to the shippers who rely upon railroads for their service.

So I think I need not spend any more time on the fact that there is a very serious problem.

Now what are its causes and what can we do about it? In essence, this bill, S. 1063, simply tells the Interstate Commerce Commission that if and when its authority to fix these car rental charges is invoked, that it should consider the level of the national freight car supply and prescribe such charges as in its judgment will encourage the ownership and maintenance of a national car supply adequate to meet the needs of commerce and the national defense. When you strip the bill of all its intermediate verbiage, that is its effect, and we think it is an act that would be a tremendous help in trying to stop this precipitous downward trend of national car ownership which has become so serious and which is almost continuous today.

What are the causes? Why have we lost 300,000 cars or more, contrasted with 5 years ago?

To understand it I think a little background is needed. You perhaps ought to start with the fact to which Chairman Walrath referred, that for many years railroad freight cars have roamed all over the United States on all railroads, regardless of ownership. This, of course, is sound economics. This is a practical necessity if we are going to do the job as we should. That is the start of the difficulty which in my view is displayed on the chart, the fact that an owner of a freight car doesn't have continuous control of it. He must let it go beyond his own railroad and roam at will over all the railroads in the United States.

I'm not, of course, suggesting that this continuous free flow is improper. It is not at all. It is the only way to do railroad business. But, remember that this fact than an owning railroad doesn't keep its property under its control all the time and cannot, as a practical matter, is one of the facts which underlies this difficulty.

Another fact which underlies it is the strategic location of certain railroads. Some railroads originate a large volume of traffic; other railroads terminate a large volume of traffic. The terminating railroad has a windfall in a sense, because a certain number of cars are consigned to points on its railroad and they are automatically made empty, and they fall into its hands, so to speak. This is another fact that underlies the current problem.

Finally, we come to the basic fact, and that is the level of these per diem, or car rental, charges which we think are responsible for this tremendous decline in national car ownership. We say that, combined with the two earlier factors that I mentioned, you have in that situation the operation of one of the oldest, most elementary and most simple economic laws; namely, that a man who has a need for some equipment, or some piece of property-personal property-will own it, or he will rent it, depending on what makes the best deal for him. That is an economic fact that applies whether you're talking about an automobile or television set or a book at a rental library or a freight car. If you can get control and use of any item of personal property on a rental basis, which in the long run costs you less than if you owned that article, you're going to rent it and you're not going to own it; you're not going to be interested in building one or buying one. This is particularly true if this article, whatever it may be, comes into your possession fortuitously-drops into your lap, so to speak-and you can use it at lesser cost to yourself than if you own or bought or built one. This is, we think, the reason why we have this horrendous decline in the national freight car ownership, and it is accentuated, and the injustice is compounded today, because today a good, modern boxcar costs about $12,000. Other cars of special types run up to $20,000, and higher. But a good, modern, roller-bearing boxcar today costs about $12,000.

Who wants to put his money into a $12,000 boxcar, which he can't control more than a part of the time, and get from his neighbor, who fortuitously finds it in his possession, at only $2.88 a day? This is ridiculous on its face.

I was talking to a farmer the other day, asking him about costs of rental in connection with farm equipment. He said:

Well, you can sometimes rent a tractor that might cost $5,000 or thereabouts— a good, heavy job-but if you want to rent that $5,000 tractor they would charge you $2.50 or $2.75 per hour.

Two dollars and seventy-five cents per hour for a $5,000 tractor; $2.88 per day for a $12,000 freight car. This makes no sense. I suggest to you that the economic facts, which are related to those I have just stated, explain largely why everybody is trying to avoid acquisition of freight cars; why your investment is down, down, down; why more are being retired than replaced day after day.

The cure, it seems to me, coming back to simple economics, if you want to stimulate ownership or acquisition of a piece of property, is to make ownership worthwhile; make it an attractive investment. This

is the essence of simple economics. This is what occurred during rent control in the war period. You all know how little residential housing was built during the days of rent control. Of course, the tenant was sitting in a $200 apartment and paying $100 a month rent. You couldn't expect anyone to put his money into apartments or rental housing under those conditions, and it simply wasn't done. But, once rent controls were lifted, once the free market began to operate, you got the greatest surge of residential housing the country has ever seen, and now we have adequate housing. This is because such housing had become a worthwhile investment. This is the stimulous under the American system, for ownership of property; make it worthwhile. In other words, instead of discouraging ownership of freight cars, which has been in my view the policy and practice for 20 years or more, reverse the process; make the car ownership an attractive investment and you will get the cars.

Senator PROUTY. Mr. Martin, could I interrupt you?

Mr. MARTIN. Please do, Senator Prouty.

Senator PROUTY. Do you feel that, if this bill were enacted into law, that the eastern roads would build many more cars? Do you think they are in a financial position to do so?

Mr. MARTIN. That is a two-part question, Senator. I will answer both parts. I think many of the eastern roads would build more cars if this bill were enacted, and if the Interstate Commerce Commission then did its duty under the admonition of Congress and fixed these charges on the basis to make car ownership attractive. That is the first answer. I don't say everyone would. But many of your eastern roads, in my opinion, would buy or build more cars, if there was more incentive in the per diem charge, more attraction in car ownership and investment.

With respect to the suggestion that they have limited funds, would they or would they not devote them to this type of investment, of course as I said earlier, no railroad likes to put its money into this type of investment when the return is so penurious. But if it came to the point where a particular railroad figured that it could not simply find the money; first, it could find the money, most of them. The equipment trust method of financing railroad freight equipment is the cheapest from the standpoint of charges of any investment the railroads make. The bankers and the lenders of money are glad to provide funds for the purchase and acquisition of freight cars, particularly the new modern car that is in so much demand. So even a road with relatively poor credit can borrow money to buy freight cars. I think under the incentives of this legislation it would frequently do so in order to get a return out of the investment and avoid the payment of the higher charges if they were prescribed, so long as he didn't own the cars.

Beyond that, even if your financially distressed railroad couldn't find the money-and I say many of them could-then the somewhat more prosperous roads which can provide the funds by borrowing or otherwise, could do so, and you would have an incentive for the investment.

The objective here is to get more freight cars. There are suggestions in some of the questions directed to Chairman Walrath that the question was the better distribution of those we have. This is not my