analysis of the bill. It might have, if enacted, the effect of bringing about a more equitable and a better distribution of the available supply, whatever it may be. But that isn't its basic objective. The difficulty is the inadequate national supply. We just don't have enough in the country. To distribute a shortage is always going to present a problem.

I could tell you hair-raising tales about the injustices that we think have been foisted upon some of the originating roads in the bad distribution of the present wholly inadequate national supply. But that is a secondary effect of this legislation. The basic, primary effect of it is to turn that line back up again and get enough freight cars to handle the commerce and defense of this Nation. We believe that bill will do it.

I should say a word about this variable system of charges that has been mentioned. It is adverted to briefly in my written statement. I am glad that Chairman Walrath gave you the chart which shows the proposed levels of the different charges in the variable system on the multilevel system or the sliding scale, call it what you will.

This basis of car rental charges is, I think-and my constituents think-a very important step in the right direction because it recognizes the great importance of providing some incentive for acquisition of newer and better equipment, and it does do that, because the newer, higher valued equipment would get a higher rental than the old, wornout equipment. To that extent this variable system of charges is a recognition of the underlying principles that support S. 1063. But this is only a further reason why S. 1063 should be enacted.

We don't know whether that system will become effective or not. There are some dissenters. There are pending cases before the Interstate Commerce Commission which make it necessary for that tribunal to determine what are proper car rental charges. They will, I am sure, consider the variable system of charges. But some of us think the variable system, while sound in principle, doesn't contain enough plus values in the several brackets, particularly the middle and higher brackets, to make car ownership a truly attractive investment in the sense in which we think of it.

So we say, no matter what is desirable in the national interest to get this bill enacted, that the Commission in the consideration of the present charges, in the consideration of the charges for the future, in considering the proper level of the variable system of charges which a portion of the industry favors, ought to have this freedom throughout to decide what is necessary in order to get adequate national supply of freight cars.

Just a little word about the labor aspects of this thing. Comparing 1945 with the latest available figures which relate 1962, employment in the shop crafts of the railroad industry is only 40 percent of what it was in 1945.

That is the same period that is covered by the car chart. Forty percent only of the 1945 level of shop craft employment is the employment in 1962. If this bill is enacted, and if the ICC follows through to prescribe charges which the bill directs them toward, which will make car ownership an attactive investment, then we think there are a lot more cars going to be built, and we think there is going

to be greater incentive to put back into operating condition the better grades of cars that are still available.

So we believe this is a helpful situation from the standpoint of railroad labor. I will try to bring this to a close because our time is running out, and the written statement has been submitted.

I suppose I need not tell you about the support this bill has. It has, as you have stated, Mr. Chairman, 35 Senators on it as sponsors. It has the active support of the Interstate Commerce Commission. It has, I think, or will have, the support of the National Association of Railroad Utility Commissioners, the State commission group.

It has the support of the Department of Defense, the Department of Commerce, the Department of Agriculture, the General Services Administration, and the Comptroller General, all of the executive departments which have even indirect interest in this problem.

And it has the support of this substantial group of car-owning railroads owning approximately one-third of all the cars in the United States.

In fact, who is it that is afraid of it? Who is it that doesn't like it? A relatively few railroads who, I think, have vested interest in the status quo. And the status quo is what has produced this national shortage that is recurring more frequently and more severely every

year.

You can't hate them for trying to maintain a good thing, but it isn't in the national interest that they should be permitted to do so. I have in the written statement submitted by way of anticipation a few answers to what perhaps some of the opponents of this bill will say. I ask you to consider those.

I have been given to understand that on the 25th I will be given a brief opportunity for rebuttal, so I won't take the time to restate those things that appear in the written statement. We ask you to make an early favorable report on this legislation because we think it represents a much needed attack upon one of the most serious problems that exists today in transportation.

I thank you.

Senator PROUTY. Thank you, Mr. Martin.

I have just one or two questions. Would you care to indicate what you think would be a fair per diem rate on, say, a $12,000 freight car? Mr. MARTIN. No. I must give you almost the same answer Chairman Walrath gave you. I will come a little closer to attempting to answer than he did, although I do think reluctantly and without much confidence in what I am about to say.

The sliding scale charge which we think for that car is still probably a little too low, because it doesn't give adequate consideration to certain factors that we think do deserve consideration-I guess I can find it-the so-called multilevel or variable system, which has the approval of some two-thirds of the car ownership, would provide $4.50 per day for a car in the range of $10,000 and $10,001, to $15,000 of depreciated reproduction value.

My own tentative judgment is that that figure is still too low to make investment in that car the attractive proposition that it ought to be if we are going to get an adequate national fleet. Just how much more, and that is what you were trying to find out, Senator, I don't know.

I know that when I think of what this legislation might do, I am not thinking at all of the type of increases that were involved in the Palmer case, not at all. That case involved this penalty during an emergency and its objective was not to get more cars, which is the objective of S. 1063. The objective in the Palmer case was to force their return home, quicker and faster moving. The per diem involved there was an increase from $1.15 to $2, almost double the then-existing charge.

This is not the sort of thing that I am thinking about, and I don't believe it is the sort of increase that any of those supporting this bill are thinking about. They just want to make sure that the per diem charge for a given type of car contains all of the elements that ought to be considered when you are trying to encourage investment in that type of property.

To me, that means not only your out-of-pocket costs, it means some allowance for the risk involved in your investment when the property may not be used and may not be earning anything; it involves consideration of the earning power of your property, what could you make with it if you had it instead of having it in the position of someone else.

You want some increment to attract capital. That is a phrase that I picked out of a court decision that is quoted in the written statement. These are factors or elements which it is difficult to put a specific value And the calculation of the multilevel scale did some things that we think are improper.

on.

They used the wrong divisor, which had a depressing effect on the ultimate figure. They averaged out original and reproduction cost. We think reproduction cost ought to be the sole test.

There were other elements in this rather involved accounting formula which we think tended to depress the charge. We think we ought to try to get a little more in view of the various items which you always ought to consider when you are trying to decide whether a given item of property is or is not an attractive investment.

I haven't answered your question very well. I have told you that I am sure the Commission would not double the amount of these variable charges that a part of the industry has suggested.

I know they wouldn't. It wouldn't be right. None of us, even the most ardent advocator of this legislation, would suggest that in order to make car ownership an attractive investment you would have to double the level of these six brackets that are known as the multilevel scale.

We think earning power should be considered; we think the increment to attract capital should be considered; we think reproduction cost should be the sole basis; we think the car-days divisor should be such as to give adequate recognition to the idle car's days, which is not given, in our judgment, in the present formula.

If I had to pick a figure out of the air, Senator Prouty, and I don't like to, I would venture to say that the $4.50 might possibly run up to $5 or I might suggest that the difference between that and the others would vary from 40 to 50 to 60 cents.

This is a very rash statement, and I would prefer not to be held to it. I use these figures instead of a doubling to suggest to you that we are not talking about penalties as were involved in the Palmer

case.

We are talking about compensation in a wholly renumerative sense, compensation which will make car ownership attractive and get more freight cars in this country.

Senator PROUTY. Assuming that reasonable and realistic rates, or at least those which seem reasonable and realistic to the people for whom you are speaking today, were established, do you think these lines would take care of the present freight car shortage?

Mr. MARTIN. Do you think the roads I represent, for example, would buy enough cars to reduce the shortage?

Senator PROUTY. Yes.

Mr. MARTIN. I think the chances of their doing so would be greatly enhanced, Senator, and I think there are a great many others in the kind of intermediate group who are now sort of sitting on the sideline wondering where this per diem charge is going to light, and making up their minds whether they should buy more cars or let somebody else buy them.

There is quite an intermediate group of railroads in the United States, Senator. There is this group of about one-third of the car ownership that I represent. There is an opposition group, I don't know how much they represent, maybe approximately the same, although I think now they have fewer than they had in 1961 and 1959.

But there is this intermediate sort of neutral group that I think is watching developments in this area very closely and who would be greatly encouraged to put more money into freight cars if this bill were enacted.

Senator PROUTY. You will agree, I am sure, that the roads for the most part opposing this legislation are facing rather difficult financial problems?

Mr. MARTIN. Yes, sir, and that is a very unfortunate fact.

Senator PROUTY. And the investment tax credit and the accelerated depreciation isn't very helpful to them.

Mr. MARTIN. Again you are right.

Senator PROUTY. In fact, I think as a result of those two programs, profits were increased something like $150 million to class 1 roads in 1962.

Mr. MARTIN. I don't know whether that is right or not but there was a very large increase on the books, yes.

Senator PROUTY. So that the profitably operated roads are benefiting under present type policy programs?

Mr. MARTIN. Yes, sir.

Senator PROUTY. And the roads which are having difficulty are not being helped in that respect at all?

Mr. MARTIN. Right.

Senator PROUTY. Assuming that the so-called featherbedding problem were solved in a manner which the railroads considered fair, that would put you all in a great deal better position, I assume?

Mr. MARTIN. We certainly hope so.

Senator PROUTY. Therefore why wouldn't it be better to postpone legislation of this nature for a while and see what happens in the future? Maybe it won't be necessary. With respect to the eastern roads, which are faced with a real problem, which you agree, and which I am sure any fairminded person would agree likewise, why force this added burden on them when perhaps the industry as a

whole is going to be able to operate far more profitably than has been the case in the past?

Mr. MARTIN. Senator, the question would suggest that the problem here is how are we going to help some roads, and is it necessary to hurt others. That's not the question.

The question is how are we going to get enough freight cars in this country. And the method we have suggested is the one which we think will do it. And it won't make the rich richer and the poor poorer, as perhaps your question implies. I don't think it will. It will get the freight cars, we believe. We must get them. The national economy is going to be in a terrible shape, I think, if this downward trend continues for very much longer. It has got to be reversed.

I have the greatest sympathy for the roads to which you have referred, some of which are in your territory, and a good many other roads in the East which are having a difficult time financially. But this doesn't mean that you cannot affect them if the result is going to be a national tragedy from the standpoint of available freight car equipment.

As the chairman said, there are other ways of trying to take care of the needs of the financially distressed roads. The Commission just got through trying to do some of that in a division's case. The Supreme Court said in one of the cases involving car rental charges, where some of the same suggestions were advanced which Your Honor just advanced, this is beside the point. If financial distress is your problem, cure it by some other means, by an adjustment in the division of through freight charges. But if you are going to try to maintain an adequate freight car ownership, make freight car ownership attractive.

Senator PROUTY. I think Mr. Grinstein has some questions.

Mr. GRINSTEIN. Mr. Martin, according to your testimony here the decision in the Palmer case is not necessarily clear insofar as deciding the question of whether or not the per diem could be increased to some higher level. In other words, there you were faced with practically a double increase in rate.

Mr. MARTIN. Yes, sir. I think it has been widely misconstrued, and not too many people realize exactly what that Palmer case involved and what the court was dealing with. There was a lot of dicta in it that confused the issue, too.

Mr. GRINSTEIN. This was, I take it, since it is cited by Federal supplement, a district court case. It never went to a higher court? Mr. MARTIN. That's correct.

Mr. GRINSTEIN. Why wasn't it taken up?

Mr. MARTIN. I don't know. I wasn't mixed up in this problem at that stage. I think if I had been I would have taken it up.

Mr. GRINSTEIN. Since the decision is not conclusive, and since it was made in a district court and not appealed to the highest tribunal, is it possible that there is enough leeway in the law now for the Commission to take such action as in the bill?

Mr. MARTIN. Mr. Grinstein, it is possible, but it is a long way from being probable, because some of my friends whom you will hear from on the 25th are going to say, "Oh that is the bible, and that forbids the Commission to do any more than include the barebones out-ofpockets of car ownership." And they might frighten the Commission