Now when you come to gondolas and hoppers, the sufferers have only a slight edge on the beneficiaries. When you come to boxcars, the heavy line at the right of these three lines, you find that the debtors, the payers-out of the money on per diem, own 183,800 boxcars, and they have to pay this money out of pocket, with all of this boxcar ownership, and who gets it? The six roads that own a total of 56,405 boxcars. The beneficiaries own 8.47 percent of the boxcar fleet of the country. The nine sufferers that pay the money out on net per diem debit own 27.61 percent of the boxcars of this country.

Now if you can tell me, gentlemen, if any of the committee members can tell me how it will increase the boxcar supply to take money out of the pockets of the railroads that own over three times as many boxcars how in the world is that going to improve the boxcar supply? It simply means that the nine roads that own over three times as many boxcars as the six beneficiary roads are going to have less money, by every increase in per diem you put through, no matter for what

reason.

I show you in my principal statement that if 50 cents were added to the per diem rate, which I believe Mr. Martin suggested might well be done, that would mean that the Pennsylvania and New York Central would have $4,700,000 less cash by the 1961 figures than they otherwise would have.

Why? Because they are per diem debtor roads. Now the New York Central and the Pennsylvania happen to be the two biggest owners of freight cars in the United States, and also the two biggest owners of boxcars in the United States, even with all of the special equipment. in addition to that. Now you are going to take, if you add 50 cents to the per diem rate, for whatever reason you add it, you are going to take $4,700,000 more out of the pocket of the two biggest owners of freight and boxcars in the country and give it to what? Give it to the principal beneficiaries which don't have many boxcars. Why? Because they are coal loaders, steel loaders, the Pittsburgh & Lake Erie that Mr. Perlman talked about, the Norfolk & Western, the greatest bituminous coal carrier there is, that has, I believe 85 percent of its ownership in gondolas and hoppers, open tops, not suitable for grain.

I would like to add another set of figures that are not in my

statement.

Senator THURMOND. I notice you have three categories here, freight cars, gondolas, and boxcars. What is the main distinction between a freight car and a boxcar?

Mr. NEWTON. Well, the freight cars is the total, all types. This solid line at the left means all types of cars, freight cars. So the sufferers, in this illustration here, own almost 427,000 freight cars of all types, and the six roads that I have indicated here which receive the benefit of over 60 percent of any per diem increase own 272,000. That is all types. Now these other two lines, the broken line is the gondolas and hoppers, and the other line on the right is boxcars, a breakdown below the main line.

Does that answer your question, sir?

Senator THURMOND. Thank you.

Mr. NEWTON. I would like to give you some figures that are not in my statement, Senator, that I think are most illuminating.

Bear in mind no previous Interstate Commerce Commission has ever come to grips with these facts. Where does the money go and where does it come from?

Now on page 12 of my statement, my formal statement, I listed the 10 biggest sufferers, the railroads, that any increase in per diem will take the money out of their pockets, more money out of their pocket. They are listed on page 12 of my formal statement. They are: New York Central, Pennsylvania, B. & O., Erie-Lackawanna, New York, New Haven & Hartford, Chicago & Northwestern, Boston & Maine, Central RR. of New Jersey, Chicago, Milwaukee, St. Paul & Pacific, and the Reading.

Now those roads own a total of 30.95 percent of the freight cars in the country, 31.19 percent of the boxcars.

Now they paid out in 1961, $67 million, over 64 percent of the total, net per diem debit.

Now if you gentlemen will turn to page 14 you will see who got the money. Ten roads, the 10 biggest per diem creditors. These 10 roads, the N. & W., Pittsburgh & Lake Erie, C. & O., L. & N., Southern Pacific, Bessemer & Lake Erie, the Burlington, Western Maryland, Great Northern, Cincinnati, New Orleans & Texas Pacific, they received a total of $75 million, about 78 percent of the total net per diem credit in 1961.

Those 10 roads.

And their ownership, both in freight cars and boxcars, was substantially less than the ownership of the 10 biggest per diem debitors.

I will give the figures. Total freight cars: 27.96 percent; as contrasted to the debtor roads, 30.95 percent. The figures are, the creditors owned 436,693 total freight cars; the debtors that paid out the money owned 486,707 total freight cars.

Now when you come to boxcars, the contrast is even more illuminating for you gentlemen who are concerned with boxcar shortages. The 10 biggest recipients of per diem owned-the ones that received 78 percent of the total money that changed hands on per diem, owned 22.18 percent of the boxcars of this country. The actual car ownership for this year was 147,630 boxcars.

Now the 10 biggest payers-out of money on per diem that I have mentioned owned 31.19 percent of the boxcars of this country; almost 9 percent more-just about 9 percent more boxcars than the recipients of the money.

The figures on boxcars: The debtors owned 207,637 boxcars. Now here is 78 percent of the benefit of any per diem increase. You are robbing Peter to pay Paul. You are robbing a lot of Peters to pay a relatively few Pauls. And if you look at the Peters that you are taking the money out of the pockets of, you find they own more boxcars and more freight cars than the recipients of the money. Now I say that is wholly inequitable, and for the reasons Mr. Pearlman and Mr. Greenough have indicated; and I won't cover the reasons. I can give you an answer to another question, Senator.

You asked Mr. Pearlman a question: Why is it that these western roads, for whom Mr. Martin speaks, urge this?

Well, in the first place they are not all western roads. There are two eastern ones, as he himself pointed out. What are they? The Western Maryland and the Chesapeake & Ohio. Both fine roads,

magnificent roads; big coal loaders, big ownerships of gondolas and hoppers, open tops-not suitable for grain. Of course that is what their shippers want. That is what they supply them with; and boy! they supply them.

Now the other roads, his own road, the Chicago, Burlington & Quincy, it is mentioned on page 14 of my statement they had a net per diem credit in 1961 of $5,003,180 in pocket.

Now add 50 cents to a $2.88 rate and you will see that is about 17.3 percent. Add 17.3 percent to $5,003,180 and you will see how much extra money the Burlington would get if you had a so-called incentive element of 50 cents added to the rate. They would get a lot more money-about $865,550 per year.

I don't blame the Burlington.

You asked another question: Why is it the Santa Fe, for example, doesn't have an adequate ownership of boxcars to meet its peak loading?

I can tell you the answer to that, sir. And I don't blame them. If they were a department store and they took on a lot of extra help for the Christmas rush season, which all department stores do, naturally they don't want to keep that help on for the balance of the year when they don't need it. And that is exactly the position of the Santa Fe. If the Santa Fe owned-had an adequate car ownership to meet its peak loading period, it wouldn't be the profitable railroad it is today. Because in a couple of months maybe they can make a couple of round trips on a car and then it stands idle on the tracks the rest of the

year.

Sure, they would like to pass the buck, as Mr. Perlman said, to the eastern roads that can't use it until the ICC gives them a special car service order and makes them ship them out there, and then let the eastern roads sweat with the extra help that the Santa Fe can get just at its peakload, and not have to carry the burden the rest of the time.

That is the reason.

Now Mr. Orner will give you more facts about the Santa Fe as a typical grain road that doesn't own enough boxcars to take care of its shippers' needs in peak loading season.

I would like to say this: Neither the Boston & Maine nor New Haven has ever refused any request, either of the AAR or the ICC, to own more cars-never once. Some years ago the AAR-other railroads, not the AAR-suggested that the New Haven acquire big boxcar ownership. And they did; a heavy boxcar ownership. They found that the congestion in the yards was such there was such an enormous backhauling, parallel backhauling of empties, against an inflow of loaded cars, that the AAR itself asked the New Haven to reduce its boxcar ownership more consistently in line with the needs of their own shippers and the handling of their own local traffic.

As of the year 1954, when all of this was put in the record—and it is right in the record of the proceeding, 31358, now before the Commission. But the Commission wasn't aware of it when they reviewed it at that time. About 1,200 cars would fully protect the New Haven's local traffic, and yet they had something like over 8,000 cars in their ownership, which was more than enough for any possibility of even getting off line.

The New Haven has always done its duty.

And the Boston & Maine for one, I am sure Mr. Glacy would tell you, would welcome a direction or a suggestion-it doesn't have to be directed by the Commission based on a study of car service.

And my roads have never, either one of them, refused any suggestion, either of the AAR or of the Commission, that they own cars; having relation, of course, to the traffic needs and the effective distribution.

I agree with Mr. Perlman 100 percent. The problem is essentially a problem of distribution. But you are never going to improve the car supply by just making the terminal roads pay a higher per diem; you just make them poorer.

Now actually these roads that are beneficiaries of the per diem happen to be the very roads that are making very substantial income on their overall investments. And it is fully set forth in my statement. I won't burden you with it.

If you take the district's of course, this is not an entirely local problem. The eastern district's return on investment was none for 1961. There was a deficit of $96 million for all of the eastern roads. Every other section of the country had a big return on investment.

Take the bituminous coal, Pocahontas region, 5.75 percent return on their investment; the southern region had 3.19 percent return on investment; and western district 2.58 percent return on investment; total United States, 1.97 percent return on investment. Eastern roads' deficit, $96 million.

Gentlemen, I don't want you to think that this is solely an eastern problem. Right down in the Carolinas is the Southern Railroad. Now if this enactment is made, this act is put into effect, and the Commission operates under it, and takes action under it, what is it going to do to the Southern?

It happens the Southern is a debtor road on per diem-not a creditor a debtor. For 1961 the Southern received about $18.5 million in per diem, and paid out $20,400,000. So it was a net debtor to the tune of $1,883,797.

Now suppose we added 50 cents to that.

Senator THURMOND. Do you have the figures there for the Atlantic Coast Line, too?

Mr. NEWTON. Yes, sir. But let me give the Southern first.

On the Southern, on 1961 figures, if you add 17.3 percent, which would be a 50-percent increase

Senator THURMOND. Let me ask you this: Do you have all of the figures there for all of the railroads?

Mr. NEWTON. I have only made the calculations for a couple of roads.

Senator THURMOND. If you want to put it in the record, we will put it all in the record.

Mr. NEWTON. I don't thing they would be very intelligible. I will be glad to supply them. I just wanted to pick out a couple of roads. The Southern, for example, 50 cents added to per diem would mean the Southern-and this is 1961 figures-would pay out $326,000 more per year as a result of its so-called incentive per diem rate of 50 cents. Now, if you can, tell me how, if this 50-cent incentive were added, and its costs the Southern $326,000 more out of pocket-not more in pocket, but out of pocket, because it is a debtor road--how is that

going to help the Southern buy more cars?-assuming it would buy cars with it anyway, because I think the Southern would buy cars, as every road does, to meet the needs of the shippers? It just makes it that much tougher for the Southern.

The Atlantic Coast Line had a net per diem debit balance in 1961 of $39,181. Obviously the Atlantic Coast Line has a more balanced traffic, because they paid out over $10 million and they received over $10 million in per diem. So what they are left with is the net, which is the only money that changed hands, $39,181.

That would simply mean an extra 50 cents on per diem rate would mean an additional $6,778 out of pocket for Atlantic Coast Line, which is not as heavily hit as the big per diem debtor roads, such as The New York Central or Pennsylvania, which would be out of pocket an extra four million and some dollars.

Now Senator Magnuson comes from Washington, so I made the calculation on the Spokane, Portland & Seattle system, which is also a debtor, because that happens to be a terminating road in the Northwest.

Now the figures on the Spokane, Portland & Seattle Railroad, they were a net debtor to the tune of $990,229—a small road. Fifty cents extra on per diem would cost them, out of pocket, an additional $171,309 a year.

How is that going to help that little road out in Washington to buy more cars? The answer is, of course, it won't. It just makes it tougher on them.

In fact, as my statement shows, gentlemen, the incentive element has been in this per diem rate for 10 years; over $4 billion of incentive; $4 billion.

In 1953 they substituted, the industry did, reproduction value, new, for ledger cost, and that added $4,170 million to the depreciation base, and, since that is depreciated over 30 years approximately, to scrap value that added about $131 million per year additional to the per diem rate of a car based on the same basis that tariffs are regulated by the Commission.

In other words, the debtor roads get their income regulated on one basis, but since 1953 they have had to pay out on another basis, which I think is discriminatory. But that will be determined ultimately.

In all events that meant that after you wash out all of the credits and debits, it meant there was $17,500,000 additional paid by the debtor roads to the creditor roads, $17.5 million over and above costs of ownership, actual cost of ownership.

And, as the expert of the AAR admitted, that was a return, using his words, a return on something more than the investment that was actually made in the property.

What did that do to the car supply? I will show you what it did. Mr. Martin showed you on his chart. This is my chart.

The top line, the dotted line, is the same as Mr. Martin's. The car supply declined. It declined heavily, despite the so-called incentive. Now the real reason for the decline is shown by the heavy line on this chart-this is the last chart in my statement-the decline in freight carloadings. It went down at a greater rate than the decline in freight-car ownership. Mr. Martin didn't point that factor out.