ADDENDUM

HEARINGS

TRANSPORTATION ACT—iv w

H.R. 4700—H.R. 4701

May 10, 17, June 4, 5, 6, 7, 1963

The following stateme nt was inadvertently omitted from the printed 

record and should have appeared on page 953 of part 2:

Sta tem ent of Am er ic a n L if e C o nv en tio n and L if e I n su r a n c e Ass o cia ti o n

of Am eric a

The American Life Convention and the Life Insuranc e Association of America 

are two associations w ith a combined m embership of 311 companies which in the 

aggregate hold 98 percent of the to tal assets of all U.S. legal reserve life insurance 

companies.

The life insurance companies are deeply interested in the hearings now being 

conducted by your committee on II.R. 4700 and H.R . 4701. These companies 

have a direct inte rest in stron g common carriers, many of which the y finance. 

They currently have approximately $3.6 billion invested in railr oad obligations, 

representing abo ut 40 pe rcen t of th e total railroad debt. Thus t hey are directly 

and sub stantially concerned w ith the welfare of the railroad industry. Moreover, 

the overall economy of our country depends on the efficiency and dynamism of our 

common carrier tra nsp ort ation system. The life insurance business has a special 

interest in a h ealthy a nd growing national economy in view of its more than $133 

billion of investm ents funding its ultimate liabilities to more than 122 million 

policyholders. Also, like all oth er citizens, we recognize the pa rtic ular importance 

of the railr oad industry to our national defense. We believe th at a stron g tra nsportation system based prim arily on common carriers of all types, including 

railroads, truc ks, water carriers, pipelines, and airlines, is indispensable and 

essential to the cou ntry’s welfare.

Our stateme nt will n ot deal in detail with H .R. 4701. While we favor a num ber 

of the provisions of th at bill (for example, secs. 2, 3, and 5), the bill deals largely 

with problems which are less closely re lated to the area of specific concern to the 

life insurance business.

We favor the e nactme nt of H.R. 4700. We express no opinion on t he qu estion 

of the extent to which the railroads should be made subject to the provisions of 

the antitrust law's, for we believe th at to be a m atter which should be open to satisfactory adjustm ent. We address ourselves only to the basic question posed by 

H.R. 4700—should the railroads or any oth er common carrier be subject to minimum rate regulation with respect to bulk commodities, or agricultural and fishery 

products, when the ir competitors are not?

We favor H.R. 4700 because: The prese nt system of rate regulation is discriminato ry. The record indicates th at the railroads are experiencing economic hard ­

ship, due in large pa rt to this discrim ination. This discrimination should be 

removed by increasing rather tha n decreasing competition.

The present system of rate regulation is discriminatory

At present all railroad rates are subject to regulation by the In terstate Commerce Commission. In each instance the Commission has the au thority —upo n 

its own initia tive or upon th e com plaint of an intere sted p arty , including a compet22- 910— 63
2 ADDENDUM— TRANSPORTATION ACT

ing trucker or water carrier—to determ ine w hether the rate is unju st or unreasonable, including whether it is too low’. Moreover, each time a rate is changed it 

must be filed with the Commission a nd cann ot be made effective for 30 days. If 

challenged, i t may be suspended for a period of up to 7 months pending Commission 

review.

The inland water carriers, on the other hand, are not subject to this typ e of 

rate regulation in the case of bulk commodities. And the motor carriers are 

free from such regulation in the case of agricultural and fishery products. It 

requires no explan ation to conclude th at this inequality of trea tment—with one 

group subject to rate control and its attend an t inflexibility while competing 

groups have complete freedom of actio n—necessarily operates as a severe competitive handicap to the railroads.

Schedule I attach ed hereto shows beyond doubt th at this unregulated competition is significant. In 1961, for example, the unregulated motor carrier traffic 

amounted to 203.5 billion ton-miles, and the unregulated inland water carrier 

traffic tota led 197.1 billion ton-miles. This compares with the 570 billion tonmiles accounted for by the railroads, all of which is subject to rate regulation.

Moreover, the attach ed schedule dem onstrates th at such unregulated traffic is 

growing rapidly. Unregulated truck traffic showed an increase of 132.7 billion 

ton-miles (187 percent) from the 1947-49 average to 1961. For the same period, 

unregulated waterway traffic showed an increase of 60.3 billion ton-miles (44 

percent). In contrast, regulated railroad traffic showed a decrease of 45.5 billion 

ton-miles ( — 7 percent).

Currently almost two-thirds of all truc k traffic and over 90 percent of all 

inland water traffic is unregulated. Together, this unregulated traffic amounts 

to almost 37 perc ent of the total inte rcity traffic conducted by railroads, motor 

carriers, and inlan d waterways. And this percentage has grown from less than 

24 percent in 1947-49 to almost 37 percent in 1961.

The record indicates that the railroads are experiencing economic hardship, due in

large part to this discrimination

It is, of course, always difficult to trac e conditions to specific causes. In the 

ins tan t situation, how'ever, it is clear th at the railroads are experiencing economic 

hardship. And discrimination in rate regulation has been an imp ortant factor 

in t ha t regard.

Schedule II attached hereto show's the rate of return on investment earned by 

the class I railroads for each of t he last 30 years. The average retu rn for th at 

period was 3.33 perce nt. In 1961 it went as low' as 1.97 p erce nt,1

 the lowest since 

1938. In only 1 year during the entire period has the rat e been as high as 6 

percent, and tha t was t he war year 1942.

In the eastern district, class I railroads reported a net loss of $96 million in 1961, 

and it is estimated th at they wall lose another $23 million in 1962. Nor is it only 

the eastern railroads which are suffering. As shown below, the financial picture 

for class I railroads as a whole is deteriorating.

Class I railroads

[In millions]

To tal

operating

revenues

Net

income

Ne t working 

cap ital 

(12-31)

1947-19 aver age.......................... ............... $8,979 $538 $1.538 1956............... ........ .................. . 10,551 876 1, 418 1957______________________ _______ 10. 491 737 1 267 1958__________________________________ .. 9, 565 602 1,389 1959._ _____________________ . 9,825 578 fi356 1960_____ .. . . ............ 9, 514 445 1,130 1961_____ ____ 9,189 382 1,006 1962___________ . 9340 I 571 1, 121

1

 This figure reflects th e app roxim ately $150,000,000 in tax savings resulting from the 7-percent inve stm ent 

tax credit and the new depreciation guidelines.

Source: Intersta te Commerce Commission repo rts.

i Schedule I I shows a n es tim ated r eturn of 2.67 percent for 1962. This expected imp rovement over 1961 

reflects an estima ted $150 million in Federal tax savings from the 7-percent investm ent tax credit an d the 

new depreciation guidelines. Except for this a nticipated reduction in taxes, the 1962 rate of return would 

have been aroun d 2.1 percent.
ADDENDUM----TRANSPORTATION ACT 3

It has been said that deficits from passenger operations are largely responsible 

for the unfavorable situ atio n of the railroads. The figures below, however, 

demonstrate th at net railway operating income from freight operations has been 

declining sharply in every distric t of th e country.

Net railway operating income— Freight operations

[I n mill io ns ]

C la ss I E ast ern 

d is tr ic t 1

P ocohanta s

re gi on

S o u th ern

re gio n

W est er n

d is tr ic t

1947-49 av era ge___________ __ . $1 ,370 .6 $46 4.6 2

 $111 1 2

 $187 8 $607 1 1956________ Z___ _____ _________ 2,0 01 .1 678.7 143 3 288 1 891 0 1957____________________________ 1,64 5.9 482 .4 173.7 258 2 731 6 1958__________ _____ __________ 1,3 72.8 294 .8 146.0 231 7 700 3 1959___ _____ __________________ 1, 29 1.9 295 .5 144 1 216 1 636 2 1960____ ____ _ . 1,06 9.0 193 .7 138.9 183 4 553 0 1961____ _______________________ 945 .5 109 .3 127.7 188^5 520 io

1 E x clu d in g P ocohanta s re gi on .

2

 P a rti a ll y e sti m ate d .

So ur ce In te rsta te C om m er ce C om m is si on re port s.

This decline in earnin gs has of course curtailed the buying power and impaired 

the cred it of some of the railroads. This, in tur n, has restricted the process of 

moderniz ation of equipm ent and properties, thereby furthe r weakening the rail 

carr iers’ competitive ability and earning power. The railroad industry estim ates 

th at its capital expe nditures for moderniz ation should approximate $2 billion 

annually . As shown below, however, its capital expenditures for each of the 

years 1956-62 have fallen far below th at mark.

Capital expenditures

1947-49 average

1956 __________

1957 __________

1958 __________

1959 __________

1960 __________

1961 __________

1962 __________

$1, 150, 000, 000 

1, 228, 000, 000 

1, 395, 000, 000 

738, 000, 000 

818, 000, 000 

919, 000, 000 

646, 000, 000 

823, 000, 000

Sou rc e: A A R .

The discrimination should be removed by increasing rather than decreasing competition

We recognize th at the discrimination in question can be eliminated by expand ­

ing the rate regulation of motor carriers and inla nd water carriers, as well as by 

reducing the rate regulation of the railroads. It would appear, however, th at 

the latte r procedure is preferable. Our history and our traditions generally 

favor more competition rather than less. Com petition results in b ett er methods, 

improved service, greater efficiency, and lower costs. Moreover, competition 

should permit each mode of tra nsp ort ation to prosper in the area in which it is 

best suited to serve the public, thereby reducing t he overall cost of tran spo rtation.

We do not mean to suggest th at discrimination in rate regulation is the only 

problem facing the railroads. There are und oubtedly other areas where corrective measures are necessary. As in all such matters, however, total solutions 

cann ot be accomplished in one step. We believe th:U;'QrprB&S4£ the bill before 

you constitu tes an important step in the right dire^tl&n. r o / ^ ^ e reasons, we 

respectfully urge its favorable consideration.
4 ADDENDUM--- TRANSPORTATION ACT

Sc h e d u l e I.— Total railroads, motor carriers, and inland waterways intercity

ton-miles, regulated versus unregulated

[B illion s]

1947-49 a v e ra g e .. .................

1950..........................................

1961...........................................

1952 ...........................................

1953 .........................................

1954 ......... .................................

1955 ...........................................

1956 ...........................................

1957 ...........................................

1958 ...........................................

1959 .................... .....................

1960 ...........................................

1961 .................................... .

1962 (p re li m in ary )...............

In cr ea se o r de cr ea se (—)

1947-49 ve rs us—

1961:

A m o u n t__________

P er ce nta ge ch an ge .

1962:

A m o u n t__________

P er ce nta ge ch an ge .

R ail ­

ro ad s

(all

re gula te d)

M o to r ca rrie rs In la n d

w at erw ays

T o ta l, r ai lr oad s, 

m oto r ca rrie rs , 

an d i nla nd 

w at erw ay s

U nre gula te d 

pe rc en t 

of to ta l 

tra ffi c 

R eg u­ (3 mo de s)

la te d

U nre gula te d

R eg ula te d

U nre gula te d

R eg ula te d

U nre gula te d

615.5 44. 1 70.8 8.7 136 .8 668 .3 207 .6 23.7

596.9 65.6 107.3 9.8 153.5 672 .3 260.8 27.9 655.4 72.3 115.7 10.9 171.3 738.6 287.0 28.0 623.4 70.8 123.8 10.1 158.3 704.3 282.1 28.6 614.2 76.5 140.7 12.1 190.3 702.8 331.0 32.0 556.6 72.5 140.7 10.4 163.3 639.5 304.0 32.2

631.4 82.6 140.7 13.0 203.5 727 .0 344.2 32.1

655.9 82.1 166.7 13.2 206 .8 751.2 373 .5 33.2 626.2 83.9 170.3 13.9 217.9 724 .0 388.2 34.9

558.7 84.3 171.2 11.3 177.7 654.3 348 .9 34.8 682.5 98.1 190.4 11.8 184.8 692.4 375 .2 35.1 579.1 104.2 193.5 13.2 207.1 696 .5 400 .6 36.6

570.0 109.6 203 .5 12.6 197.1 692 .2 400 .6 36.7 600.2 116 .2 215 .7 13.2 206 .8 729 .6 422 .5 36.7

-4 6 .5 65.5 132.7 3. 9 60 .3 23.9 193 .0

- 7 149 187 45 44 4 93

- 1 5 .3 72.1 144.9 4. 5 70.0 61.3 214 .9

- 2 163 205 52 51 9 104

So urce : 1947-58 “ T h e D oy le R ep o rt ,” Jan . 3, 1961 (p re par ed for Sen at e C o m m it te e on In te rsta te an d 

Fo re ign C om m er ce ), w it h m in or re vi sion s b y th e T ra n sp o rt ati o n A ss oc ia tion of A m er ic a; 1959-62 I n te r ­

sta te C om m er ce C om m is si on re port s (b re akdow n b et w een reg ula te d a n d u n re g u la te d for 1959-62 e sti m a te d 

b y t h e T ra n sp o rt ati o n A ss oc ia tion of A m eri ca).

Sc h e d u l e II .— Class I railroads rate of return over last 80 years

N et

p ro p ert y

in v est m en t

N e t ra il w ay 

o pera ti ng 

in co m e

R ate o f 

re tu rn

1949 ..........................

1950 ........... .............

1951 _____________

1952 ____________

195 3.. . . ..................

1954 ____________

1955 ____________

1956 .........................

1957 ____________

1958 .........................

1959 ............. ...........

1960 .......... ...............

1961 ____________

196 2.. . . ..................

A ver ag e, 1933-62.

Th ou sa nd s

$23 ,406 ,964 

23,2 07,4 77 

23,1 36,4 79 

23,1 74, 693 

23,0 93,457 

23,0 04,270 

23,0 16, 835 

23,1 68,22 8 

23,300 ,631 

23,4 04,194 

23,6 54,53 0 

23,396 ,922 

23,606,514 

22,548,967 

22,8 91,188 

23,6 24.387

24,028,409 

24,591 ,862 

25, 518,512 

26,262 ,750 

26,670,457 

26,6 70,422 

26,8 51,343 

27,233 ,898 

27,6 88,0 47 

27,537 ,567 

27,4 30,8 19 

27,474 ,089 

27,1 80,5 57

> 27,1 75,0 00 

24,7 65,0 00

Th ou sa nd s

$474,296 

462, 652 

499,819 

667,347 

590,204 

372,874 

588,829 

682,133 

998,256 

1,48 4,51 9 

1,359,768 

1,10 6,32 7 

852,147 

620,120 

780,694 

1,00 2,01 1 

686,487 

1,039,706 

942,542 

1,078,22 0 

1,109,39 9 

874,018 

1,127,997 

1,068, 246

922,334 

762,296 

747,677 

584,016 

537,771 

725,646 

825,000

Pe rcent

2.01 

1.99 

2.1 6 

2.8 8

2.55 

1.62

2.5 6

2.9 5

4.3 0

6.3 6 

5. 78

4.7 0

3.70

2. 75 

3.4 4

4.31 

2.8 8

4.2 8

3. 76 

4.16 

4.19

3.2 8 

4.2 2

3.9 5

3.3 6 

2.76 

2.72 

2.13 

1.97 

2.67 

3.33

1962 p a l l y e st im at ed , Sou rc e: “ R ail ro ad T ra n sp o rta ti o n ,” A A R , 1921-61.

o