Congress must have intended this result when, in 1920, it gave the Commission full authority to fix the level of car hire charges. But this conclusion has been questioned in some quarters, because of a Federal court decision in 1947, Palmer v. U.S., 75 F. Supp. 63. The question of adequate car rental charges was not even an issue in that case. Instead, it involved a temporary increase in per diem charges of almost 100 percent ($1.15 to $2) to be assessed, as an emergency measure, for the stated purpose of obtaining better distribution and quicker return of freight cars to their owners. It involved a penalty, characterized as "prohibitory," as distinguished from a long-range attack upon the inadequacy of the national car supply.

S. 1063 adopts a wholly different approach. In effect, it simply tells the Commission that in the exercise of its continuing nonemergency powers over car-hire charges it should give effect to the national car supply and the public interest in rental charges which will provide incentives for car ownership. In short, it involves compensation in a wholly remunerative sense, including factors such as earning power, value of use, risks of ownership, increment to attract capital, profit, and other factors which necessarily must be considered if car ownership is to become an attractive investment.

I repeat my opinion that the Palmer case, properly construed, is not inconsistent with the objectives of S. 1063, but it has been misconstrued by those who do business on the car investments of others. For this reason, and others, Congress should clarify its intent that car rentals charge should be fixed on a level which will "encourage the acquisition and maintenance of a car supply adequate to meet the needs of commerce and the national defense."

I have just quoted the concluding phrases of S. 1063. The railroads for which I speak endorse this bill as sound and constructive legislation. In effect, it would simply authorize the Commission, as a part of its continuing regulatory power, to prescribe compensation for the use of freight cars on a basis which will put some profit into car ownership and, by that process, tend to assure an adequate national supply of freight cars.

Per diem charges established in conformity with these principles would

(1) Provide an incentive to all railroads to procure and maintain an adequate car supply;

(2) Encourage more expeditious movement of all such equipment; and (3) Provide partial reimbursement to car owners for losses suffered when their equipment is appropriated by other railroads.

The first of these objectives has been discussed. It can and should be at tained by a method so obvious, simple, and effective that it should have been adopted long ago.

The second objective is more complicated, and more difficult of attainment. It is generally conceded that higher daily rentals would expedite car movements during periods of light or normal business. It can be argued that higher per diem charges during a car shortage will not expedite the movement of freight cars, or hasten their return home, because the user can still make money by using them at a rental twice of three times the normal charge.

This argument has some substance-but it is nevertheless clear that a higher per diem charge would, in some degree, operate to expedite the movement of freight cars, because that would be the only way to reduce the incidence of the charge. In fact, the court decision mentioned above recognized the soundness of the principle that "any charge upon a time basis furnishes an incentive for prompt return of the property" (Palmer v. United States, 75 F. Supp. 63, 68). Be this as it may, simple justice suggests that the improvident railroad should not profit from its own wrong, when it takes from the provident car owner-not only the car itself-but also the profits resulting from its use. This gross inequity could be partially corrected by the Commission under the provisions of S. 1063. This is the third objective of the bill.

A railroad which owns an adequate supply of cars will not suffer from the imposition of higher per diem charges, because its payments for the use of foreign cars will be offset, substantially, by receipts from the use of its cars by foreign lines. On the other hand, the improvident railroad, which owns few, if any, cars and is doing business on the car investments of others. will have a debit balance in its per diem account, until such time as it acquires more cars. This is as it should be.

It may be argued by the "improvident" lines which do business on the car investments of others, or by certain railroads which find themselves, fortuitously, in possession of cars unloaded on their lines, that higher per diem charges would place upon them a severe fincancial burden, in the form of increased car rentals.

In the first place, this burden would not generally arise because a railroad which finds itself in possession of a freight car, during a serious car shortage, can earn from its use from 3 to 10 times the amount of the current car rental charges; and in times of slack business the incidence of the charge would be necessarily lighter.

In the second place, even if some slight additional burden were thus placed upon a few railroads, that fact would not justify confiscation of the car owner's property.

"Confiscation may result from a taking of the use of property without compensation quite as well as from the taking of the title," Chicago, M. & St. P. Ry. Co. v. Minnesota, 134 U.S. 418, 458; Chicago, R.I. & P. Ry. Co. v. United States, 284 U.S. 80, 96-97.

Third, machinery is available in the Car Service Division of the Association of American Railroads, and, indeed, in the Interstate Commerce Commission, to correct any true inequity which may result from application of these sound principles. So-called per diem reclaims, which permit readjustment of car-hire charges under special circumstances, are frequently adopted for this purpose.

In connection with the alleged burden upon the so-called debit railroads, which do not own enough cars to take care of their requirements, it is important to bear in mind that payments for the use of cars are deductible as operating expense for Federal income tax purposes, whereas the rentals thus received by a car owner are taxable income. Of course, this compounds the injustice to the car owner. Still another element of this injustice is the fact that the improvident railroads, which own few, if any cars, thus avoid the risks inherent in capital investment, as well as payment of interest charges during times of light business. Even if we indulge the unjustified assumption that current per diem charges ($2.88 per car-day) cover barebones ownership costs, such charges clearly do not include any "profit" or any "increment to attract capital to the venture" (see El Paso Natural Gas Company v. Federal Power Commission, 281 F. 2d 567, 572).

Perhaps a brief word should be said about the contention that during a period of car surplus, a terminating railroad cannot earn per diem on freight cars which it may own because the car service rules contemplate the loading of foreign cars for homeward movement in preference to the loading of a home car for off-line movement.

This contention has little substance in fact, notwithstanding its theoretical plausibility. In the first place, car service rule 1-the rule thus invoked-is somewhat ambiguous, and subject to interpretation, because the originating carrier is privileged to decide what constitutes a "suitable" car for off-line loading. More important, perhaps, is the fact that, according to recognized records, those railroads which invoke this argument somehow find a way to maintain a relatively low percentage of home-owned cars on their lines.

In other words, the burdens of a car surplus are pretty well spread over all the railroads of the country, whereas the burdens of a car shortage which we have experienced more or less continuously for several years-are borne primarily by the originating railroads, including those which I represent.

The arguments of those who would perpetuate the present injustice completely overlook the fact that if each railroad in the United States owned the cars which it ought to own to take care of its requirements, no serious national car shortage could occur, and, the level of car-hire charges would become a factor of little importance.

Each railroad ought to own the number of cars which it would need if the lading were transferred at the junction, or interchange point. The Interstate Commerce Commission has said that this is the joint legal obligation of the railroads (Huerfano Coal Co. v. C. & S.E.R.R. Co., 28 I.C.C. 502, 506).

If each and every railroad would fulfill this obligation, serious car shortages would become far less frequent and no railroad would be burdened by car-hire charges, because each carrier would earn-when one of its cars was used by another railroad-exactly the amount which it paid for the use of a foreign car. In other words, per diem debits and per diem credits would tend to offset each other. This is just another way of saying that any railroad which complains that car-hire charges are too high, automatically convicts itself of inadequate car ownership, unwillingness to bear its share of the joint obligation above referred to, and a desire to continue the unjust practice of doing business on the investments of others.

We believe that legislation like S. 1063-if implemented by proper action of the I.C.C.-would discourage these unjust practices; encourage the construction

and maintenance of an adequate national car supply; and promote the expeditious distribution, interchange, movement, and return of freight cars to their owners. Accordingly, and without reservation, we recommend its enactment. Most, if not all, of the limited opposition to this bill is based upon an assumption that if Congress tells the Commission to make car ownership attractive, the Commission automatically will take action which would be distasteful to the car user, or car renter, as distinguished from the car owner. Maybe so. Maybe not. The bill itself would not produce that result. If this occurs, it will come about only after a hearing and investigation by the ICC, and a finding that the prescribed charges will tend to further the sound objectives stated in the bill. Under these conditions, is it not obvious that anyone who opposes a congressional statement of sound objectives, such as appears in S. 1063, seeks thus to preserve a selfish advantage, and is afraid his position cannot stand investigation by an impartial tribunal.

You know and I know that we have had recurrent freight car shortages for generations, and that your constituents have appealed to you, year after year, for help in solving this problem. You know also, I think, that such appeals or complaints are exceedingly rare with respect to semitrailers which, in the trucking industry, are the counterpart of the railroad freight car.

Why is this?

The first reason is that although truckers may and do frequently interchange equipment, they are not required by law to do so, whereas the railroads must permit their freight cars to move beyond their lines, on other railroads, regardless of their wishes, their need for the equipment, or the rental which they receive for use of their cars by other railroads.

In times of heavy business a trucker can maintain complete control over all of his equipment, refuse to part with its possession, and thus preserve to himself and his patrons the use of equipment which is far more valuable, under such conditions, than any "reasonable" rental. The railroads cannot do this. We can put a new freight car into service today, and never see it again for months. Meanwhile, it will earn for "user" railroads from 4 to 10 times the amount of rental which they pay to the owner.

More important, perhaps, is the fact that a new modern freight car costs today approximately $12,000, and, once it leaves the lines of its owner, can be "taken” by other railroads for a pittance of $2.88 per day.

On the other hand, a new "dry van" semitrailer can be bought for about $6,000 and, if the owner chooses to let it go beyond his lines, he receives as rental (generally) about $8 per day.

In other words, for a trailer which is worth half as much as a freight car, the owner-trucker receives in daily rental almost three times as much as the ownerrailroad and-if he chooses to do so he can keep his equipment for his own use at all times.

You can make similar comparisons based upon your own experience with daily rental of automobiles, tractors, or other expensive equipment.

Here, in a few words, is a reason why we have a continuing adequate national supply of highway trailers, and a continuing inadequate supply of railroad freight cars.

Here, also, is one of the most powerful arguments which can be advanced in support of S. 1063. which would authorize the Commission to give effect to such facts in fixing the level of railroad per diem charges.

In conclusion, I want to mention a few further developments which have occurred since your earlier consideration of an identical bill.

Of course, the intervening change of transcendent importance is the continuing precipitous downward trend in the number of freight cars available for movement of the Nation's traffic.

Each year, each month, and each day produces a "new low," and the end is not yet. As indicated by figures given earlier in this statement, we have "lost" since January 1, 1945, more than 300,000 servicable freight cars (300,377), including 133,738 boxcars.

Despite the cushioning effect of larger cars. and somewhat higher train speeds, this continuing downward trend is a most serious threat to the national economy, and particularly to shippers of heavy bulk commodities dependent. upon railroal service. This downward trend must be arrested.

But other recent developments cry aloud for early enactment of S. 1063, and support the sound economic principles for which it stands.

Litigation now pending before the Interstate Commerce Commission (dockets 31358 and 33145) involves the level of freight car rentals and, in fixing such charges for the future-as it must-the Commission should have no misconceptions of congressional intent. Congress should tell the Commission clearly that in fixing car rentals it should give consideration to "the adequacy of the national freight car supply" and prescribe such charges as will "encourage the acquisition and maintenance" of an adequate car fleet. This is the essence of S. 1063.

It should be noted, also, that within recent months the railroads themselves have taken a step toward the attainment of these objectives.

A majority of the car ownership has voted to make effective January 1, 1964, a system of variable per diem charges related to the value of particular

cars.

Under this system, daily rentals-instead of being $2.88 for all cars-would fall into six brackets ranging from $2.16 to $7.74 per day ($2.16, $2.79, $3.58, $4.50, $6.15, and $7.74).

This is a step in the right direction because it would provide some incentive for acquisition of expensive new equipment, consistent with the objectives of S. 1063, but this action simply emphasizes the importance of such legislation. The variable charges are based upon accounting theories which do not give adequate recognition to profit, and risks of ownership; they are still too low, in the middle and higher brackets, to make new car ownership a truly attractive investment; several railroads have indicated unwillingness to accept the new system; and, in any event, the Commission must review this proposal, and others, in the pending litigation now before that tribunal.

It should approach this task with a clear understanding of the congressional intent that such charges be fixed upon a basis which will make car ownership attractive, and thus encourage the acquisition and maintenance of an adequate car fleet. S. 1063 would provide this clarification.

Incidentally, the lack of incentive for construction or purchase of new cars, and for costly repairs to "bad order" equipment, has had a tragic effect upon employment in the shop crafts of the railroad industry.

During 1945, an average of 387,373 railroad employees were working in group IV, maintenance of equipment, etc., as classified by the ICC in its midmonth count Statement M-300. This includes men in railroad-car shops engaged in new car construction.

In the report for October 1962-the latest available this figure was down to 156,536 employees-only 40.4 percent of the 1945 employment in this category. We think enactment of S. 1063 would put many of these men back to work.

Finally, I am sure you will be interested in the character and degree of active support for this legislation. The bill, S. 1063, is sponsored by 35 Senators, including the chairman of this committee. It is supported unequivocally by the Interstate Commerce Commission and the National Association of Railroad & Utility (State) Commissioners. It has the approval of all directly interested Government departments, including the Departments of Defense, Commerce, and Agriculture; the General Services Administration; and the Comptroller General.

A poll of important industrial traffic managers conducted by Railway Age, and reported in its April 1963 issue, disclosed a substantial majority (31 of 53) important railroads which I represent-which serve all sections of the United States, and own approximately one-third of the national freight-car fleetvigorously support the bill.

This does not mean that two-thirds of the car ownership is opposed to such legislation. A large neutral group exists, composed of railroads which have relatively little financial interest in the level of car rental charges.

In fact, the only opposition comes from a few railroads which have not maintained their share of the car fleet; which can do business, fortuitously, on the car investments of other roads-by using their cars at a rental of $2.88 per day; and which have a vested selfish interest in preservation of the status quo-which has been so unfortunate from a national viewpoint.

The railroads which I represent urge this committee promptly to submit a favorable report on S. 1063 and thus make it crystal clear that freight car rentals should be established upon a level which will make car ownership an attractive investment, and-in the words of the bill itself "encourage the acquisition and maintenance of a car supply adequate to meet the needs of commerce and the national defense."

25.

Senator PROUTY. The subcommittee will stand in recess until June

(Whereupon, at 4:46 p.m., the subcommittee was recessed, to reconvene on Tuesday, June 25, 1963.)