Mr. Martin seems to infer that it is in some way wrong when it is a case of small railroads resisting making such unjust payments to the large railroads. In any event, the reasonableness of the per diem rate is in litigation even now before the Commission following years of prior litigation before the Commission and the courts. In fact, the present litigation before the Commission is the result of a remand by the U.S. district court. There the court directed the Commission, in determining reasonable per diem rates, to consider all factors including the age of cars, their time in use, and the mileage operated. As a matter of fact, it is now apparent from studies conducted by the costfinding section of the Interstate Commerce Commission that the industry-fixed per diem rate has long been far higher than actual ownership cost. Thus the Commission's cost-finding section, even using a similar basis for determining per diem as did the industry, found that the average car owner expended $2.08 per car per day in the year 1960. The industry-fixed rate of per diem in 1960 was $2.88.

Although the railroad industry refused to conform their rate to the realities of actual ownership cost, the industry did recognize that per diem rates are now too high by instituting a multilevel rate to take effect January 1, 1964, under which the average rate will be $2.73 per car per day, a 15-cent reduction from the present rate of $2.88.

The Boston & Maine has never objected to the fixing of reasonable per diem rates by the ICC provided all the facts, such as the age of cars, their time in use and mileage operated are considered. This is what the Supreme Court recommended the Commission do.

In the second sentence which I have quoted from Attorney Martin's letter, he attributed opposition to this bill to selfish motives. I suppose it is fair to say that my concern for the ability of the Boston & Maine to stay in business is a selfish motive. But, frankly, I am also concerned that this committee understand the full import of what it is being asked to do here by this piece of legislation and I also feel it important to express to this committee the facts which I believe demonstrate that this bill, if enacted, cannot achieve its express purpose of encouraging car ownership, but can serve only to enrich the credit per diem railroads.

In conclusion, I would like to repeat that we are in favor of the fixing of reasonable per diem rates by the Interstate Commerce Commission. We likewise favor the Commission determining the extent to which individual railroads are deficient in car ownership, provided that in doing so consideration is given to roads with an unbalanced traffic situation and to the inequities contained in the car service rules.

It is our view that no need exists for the legislation proposed by S. 1063, nor would any useful purpose be served by its enactment.

Mr. Chairman and members of the subcommittee, may I express my appreciation for the privilege of being present here to express my views on this bill. I will be pleased to answer any questions you may propose.

Mr. GLACY. My name is George Clacy, and I am the vice president of the Boston & Maine Railroad.

My purpose at this meeting today is to testify on behalf of the Boston & Maine Railroad, in opposition to bill S. 1063, the so-called penalty per diem bill. We feel that this bill, which would require the Interstate Commerce Commission to give weight to factors other than the elements of cost of ownership of freight cars in determination of the elements of the cost of ownership would be beyond the justification of rental charges.

The argument in support of this bill is that its enactment would eliminate the shortages of railroad equipment. Now, we believe, in opposing this bill, that this would not be accomplished, and that the objective intended would not be served for the simple reason that the aim of S. 1063 to accomplish is contrary to the basic conditions prevailing in the railroad industry today.

Senator PROUTY. Mr. Glacy, may I interrupt you at that point. Do you think there is a definite shortage, looking at the overall picture, or do shortages occur only at certain times in certain areas?

Mr. GLACY. Well, Senator, I believe that from time to time there will be what we would call in the railroad industry a shortage of the proper type of equipment. There would not be a shortage of freight cars, there would be a shortage of the type of car that was required at that particular time. And I think it could well be said that the shortage does exist at certain times when the wheat harvest is being brought in for storage. But I do not believe that the purpose of this bill will in any way ameliorate such a shortage.

Senator PROUTY. Thank you.

Mr. GLACY. The Boston & Maine Railroad has no objections to the Interstate Commerce Commission's designating a per diem rate to be charged by the users and paid to the owners of equipment. Since 1949 we have been endeavoring to get the Commission to accomplish this very fact. We do not object, on the Boston & Maine Railroad, to the Interstate Commerce Commission's making a study and setting up a schedule of car ownerships for each railroad in the United States.

We do feel, however, that there are certain operating differences prevailing today in the railroad industry that make it impossible, as an integrated railroad system, to all meet the same rules and regulations.

Under the Transportation Act it has been provided that through transportation must be the law of the land. And we therefore say in order to accomplish the integration of one railroad system there must be certain rules and regulations promulgated so that each railroad would perform its portion and its proper proportion of such an integrated service. To that we agree, that we want to meet our obligations and we want to work for the benefit of the railroad industry. We do feel, however, that certain things have been presented to this honorable committee that are not in line with the facts.

For instance, I think there is a misunderstanding on the car service rules, which were promulgated by the Association of American Railroads, and in my opinion approved by the Interstate Commerce Commission. That makes it very difficult for a terminating railroad like the Boston & Maine Railroad to own sufficient cars and not in any way violate these rules and still have the cars which they own earn per diem rates.

At the session this morning there was some question as to whether the Interstate Commerce Commission had approved of the car service rules, which were referred to as rule 1, which says that no railroad can use its own cars in priority to a foreign car, if a foreign car is on their line. And there seemed to be some misunderstanding as to whether the Interstate Commerce Commission had approved of those rules.

Now I would like to say to this committee that the Interstate Commerce Commission has approved of those rules and that if a railroad does not observe the rules, the Interstate Commerce Commission has all of the authority it needs to issue car service orders, and request that the cars be handled in a manner which they think proper, by reason of the shortage at the time.

Now, on the Boston & Maine Railroad we receive three cars, because we are in a consumer area, for every car of freight that we originate, and therefore we always have more cars of a foreign origin

than we need for the loadings. And to conform with the orders of car service rule 1, we use the foreign car in preference to our own car, which remains static on our line.

Now, we find no fault with that at all. What we do find fault with is that the railroads of the country, under the Transportation Act, being obligated to operate as an integrated system, should take into consideration all of the operating conditions that prevail on each and every type of carrier and not just think of themselves.

It has been represented here that the carriers for which Mr. Martin appeals and represents collectively operate more than one-fourth of all of the railroad mileage in the country and that they own about one-third of all of the railroad freight cars now available for service.

Now, it seems to me that that is not an untrue statement, but it is an evasive statement, because as a matter of fact what we are talking about here is a shortage of boxcars, and if we were to take the railroads that are named by Mr. Martin, that he represents, we would find a situation that is entirely different from the general impression that one would get.

For example, the Chesapeake & Ohio Railroad owns 96,157 cars, but of those cars 69,292 represent open-top cars, which are used in the coal industry. And only 23,000 represent boxcars which could be used for the movement of wheat.

Now we get to the Louisville & Nashville. They own 58,974 cars, of which 40,031 are coal cars and only 15,032 are boxcars.

And the Chicago, Burlington & Quincy, they own 43,764 cars, but 12,757 of them are coal cars and 22,601 are boxcars.

And I can go down the list and give you the same information. Furthermore, I get down to some of these railroads that are mentioned, that Mr. Martin says he represents, that own no cars at all. And why they should be in here complaining about appropriation of cars, when they own no cars, I just can't understand.

My only interest in appearing here today is to say the Boston & Maine Railroad owns more than sufficient cars to take care of their local business. They have cars that are standing on their line, and in 1957 we bought 300 coal cars, roller bearing, the best cars that are perhaps in the industry today, and I am looking around for somebody who wants to buy 125 of them, because we have no use for them, and they are just standing idle on our property.

So I believe that the representation here today should be, Where is the shortage in moving wheat, if that is the question and who is responsible for it?

Now I can say to you gentlemen that the Boston & Maine, being a terminating road, only takes 512 days from the day the car is received to the day we return it to the next connection. The average for the country as a whole is about 19 days. So we are doing nothing to in any way create a shortage of cars and on the other hand any penalty per diem would just make the situation of earnings on the Boston & Maine that much more serious.

We pay in car rentals at the present time an amount of about $5 million and the total interest on our fixed charges only amounts to $4 million. So the question of per diem is a most serious question to the Boston & Maine solvency.

Thank you.

Senator PROUTY. Thank you, Mr. Glacy.

I notice that in your statement you suggest that the passage of S. 1063 would probably result in an increase of freight rates to the patrons of the B & M. I don't think you mentioned that in your oral presentation, but that is on page 4 of your prepared statement. Mr. GLACY. Well, it would be necessary, Senator, for us to recapture that additional rate that we would have to pay for the use of the cars in one form or another. And it would seem to me that where we are a captive railroad, so far as owning more cars and earning per diem on them, that we would have to appeal to the Commission for an increase in rates. And obviously if we did that, we would put the New England manufacturers in a very bad position from a competition standpoint.

Senator PROUTY. Isn't it, in your judgment, essential that not only the B & M but the eastern roads be kept in business in the interest of national security?

Mr. GLACY. Well, I think that is very true, yes, sir.

Senator PROUTY. So we don't take care of the situation through this measure, or if we do, then it necessitates, in all probability, some more drastic action to keep the eastern roads on a going basis?

Mr. GLACY. Well, I believe that is absolutely true, Senator. I am embarrassed to say that the industry itself, because of the fact that under the Transportation Act we are supposed to operate as an integrated railroad system, we are made up of 105 separate corporate entities, and the fact continually crops out that the head of each one of those separate corporate entities may have some ideas of his own. as to how this or that should be handled.

I believe that the industry itself will never be able to settle the question of per diem because, without any intention of speaking disparagingly of my brothers in the railroad business, they cannot under the conditions that prevail on eastern roads, and therefore we will have to have some outside interest. And to me I think it belongs to the Interstate Commerce Commission to say how many cars a railroad should own, and for the Interstate Commerce Commission to say what the rate for the use of a freight car should be.

Now, under existing rules and regulations the Commission can do that very thing. And I can see no reason for this particular type of legislation which will say that on top of a rate which is contested by a number of railroads the Commission should add something.

I say the Commission should establish the basic rate, and if they want to add something to that rate, then add something to that rate. But do not take a rate that somebody else has prepared. Because since 1949 the railroads in the East have been fighting the per diem rate.

The courts, the three courts in Massachusetts have supported their contention. The case for the determination of a per diem rate has been, since 1949, remanded back to the Interstate Commerce Commission and after a 22-year study by the cost section of the Interstate Commerce Commission, certain rates under a formula which I believe is the best formula that could be prepared by anybody have been established by the Interstate Commerce Commission. And the hearings are still in abeyance and on July 30 they are to be resumed. But the formula adopted, the formula promulgated, the formula pre

pared after 22 years extensive study by the Interstate Commerce Commission, has come up with a rate of $2.08, versus $2.88.

Now, I say that if the railroads would all agree to let the Interstate Commerce Commission fix the rate, let the Interstate Commerce Commission say how many cars each railroad should own, that the problem we are talking about today would disappear.

But I can tell you right now that the railroads that are advocating the adoption of this bill are the strongest opponents of the ICC fixing the per diem rate. And the evidence on July 30 will demonstrate

that.

So, as far as the Boston & Maine is concerned, we are in favor of the Interstate Commerce Commission fixing the rate and saying how many cars our railroads should own.

Mr. LEVIN. One question, Mr. Glacy. Did the B & M end up in the red or in the black last year?

Mr. GLACY. Last year was the fifth year in which the Boston & Maine Railroad operated in a deficit of $3,200,000.

Mr. LEVIN. In figuring this deficit, did you figure in the amount of per diem charges which you did not pay? In other words, those that are contested before the Commission and in the courts at this time.

Mr. GLACY. Since 1953 we have been contesting the per diem rate and the difference between what we have paid and received from other railroads amount to about $8 million, which is subject to dispute one way or another.

Mr. LEVIN. Have you put into reserve funds the $8 million?

Mr. GLACY. No, we have no cash in reserve for it. In our operations we have been using the established rate of $2.88. But we have not established any reserve fund to meet this $8 million, if it is decided that we owe it. But we are sure it will never be decided that way.

Mr. LEVIN. That is all.

Senator PROUTY. Thank you, Mr. Glacy, very much for your testi

mony.

Senator PROUTY. The next witness is Mr. Donald L. Manion, president of the American Short Line Railroad Association.

STATEMENT OF DONALD L. MANION, PRESIDENT OF THE AMERICAN SHORT LINE RAILROAD ASSOCIATION

Senator PROUTY. Mr. Manion, do you wish to summarize your statement with the understanding that it will be included in the record, or do you prefer to read it?

Mr. MANION. Thank you, Mr. Chairman. My statement is rather short, and I think I can probably go through it about as quickly by reading it.

Senator PROUTY. That is quite all right.

Mr. MANION. My name is D. L. Manion. I am president of the American Short Line Railroad Association with offices at 2000 Massachusetts Avenue NW., Washington, D.C. I have been an officer of this association since May 16, 1960, and president since August 16, 1961. Prior to coming with this association, I served in various operating-maintenance supervisory capacities for 13 years with a common carrier railroad.