lines, for reasons which are at least partly beyond their control, and at the same time unjustly enrich the more prosperous railroads the so-called credit per diem roads." And again at page 74, Mr. Perlman said: "But whether the (per diem) rates are too high or too low is not relevant to the question of car ownership. The New York Central will acquire cars to meet its obligations to its shippers. It will not be forced into meeting the carowning obligations of another railroad by the imposition of a spurious incentive. It could not economically do so. "In summary, S. 1063 should not be passed because it won't do the job for which it is allegedly designed. It won't cause deficit roads to build more cars. It will unfairly penalize roads who are already meeting their car ownership obligations, in strict observation of the guiding principle of car ownership." Now why is it that an "incentive" increase in the per diem rate works to reduce the car supply-not to increase it? I have here a chart, in two parts, which shows the major answer to that question, and I would like to put it into this record. It is entitled "How Reproduction Cost New in the Per Diem Rate Defeats Its Theoretical Objective and Impedes Replacement of the Car Fleet.” This chart is based on authoritative figures for the year 1960. The sources of the figures are shown in the footnotes at the bottom of the two parts of the chart. This chart incontrovertibly demonstrates that the heavy so-called incentive increase of the per diem rate in 1953 has worked in reverse; it has simply further depleted the resources of the railroads who contribute principally to the country's boxcar supply, and has made them (in Mr. Perlman's words) "less able to buy equipment to meet the transportation needs of their shippers." Part I of this chart shows that of the $780,677,830 which was the total per diem billed by class I roads in 1960, 86.6 percent was canceled out by offsets of debits against credits to the extent that the traffic of the individual roads was in balance between traffic terminating and traffic originating. So only 13.4 percent of the total per diem billed actually changed hands. Of the $780,677,830 total per diem billed, only $104,481,514 actually changed hands. That is the amount which was actually paid out by net per diem creditor roads. 22.4 percent of this per diem bill represented the increase in the rate due to the inflation of the depreciation and interest charges injected by substituting the element of reproduction cost new for original cost as an attempted "incentive." The net result is that actually only 3 percent of the entire total per diem bill actually changed hands as reflecting this "incentive" increase. This was $23.43,859. Now where did this increase go and what was the impact of it on the freight car fleet and notably on the boxcar fleet of the country? This is shown in part II of this chart. Of the 13.4 percent of total 1960 per diem charges that were not canceled out due to balanced traffic, 76.75 percent, more than three-quarters, was paid to the nine largest net per diem creditor roads. As I have indicated before, these nine beneficiaries of the great bulk of this per diem rate increase included the very profitable Burlington and Santa Fe. But six of these nine were the large coal and iron ore producing roads as shown on my first chart-who get about twothirds of the total benefit, and whose major interest so far as cars is concerned, is not in the type of cars that will do the western farmer any good whatever. An approximately equal amount, $80 million, was paid out in net per diem debit balances by the 19 largest net per diem debtor roads. The so-called incentive element amounted to aggregate cash payments of about $18 million. This $18 million went to nine roads who as a group owned 155,934 boxcars, 22.51 percent of the country's total. But the 19 largest per diem debtor roads that paid out this money contributed a very much larger percentage of the country's boxcar fleet; 275,679 boxcars, 39.80 percent of the country's total. Now I submit to you distinguished gentlemen that it will require more than plausible theoretical arguments by Mr. Eldon Martin or anyone else to show how it can increase or renew the country's boxcar fleet, to take $18 million a year away from a group of roads that contribute more than 275,000 boxcars to the country's boxcar fleet and make them pay that money over to just nine roads who as a group contribute only 56 percent as many boxcars to the country's boxcar fleet as is contributed by the roads which must deplete their resources to give this profit windfall to the favored nine. These statistics and these car ownership figures are authoritative and uncontrovertible. They show that any increase in the per diem rate for "incentive" purposes simply further depletes the resources of the roads least able to pay for new cars, and to swell the profits of the nine roads best able to pay for them. The 1960 rate of return on average net investment of the 19 roads which are on the paying end was 0.68 percent. The nine roads who received this "incentive" money enjoyed a return on average net investment of 3.88 percent. And, incidentally, not a nickle of this windfall profit is earmarked for renewal or acquisition of cars. It is all available to increase the dividends to their stockholders. But the 19 roads whose resources were thus depleted to the tune of many millions of dollars a year by the "incentive" per diem increase contribute a very much larger percentage of the country's boxcar fleet than the 9 roads for whose financial benefit and profit H.R. 7165, or similar bills, if enacted, will operate. These facts demonstrate that these bills not only threaten further grave injury to the national system of rail transportation, a considerable number of whose vital components are already facing a desperate struggle for economic survival, but also, if enacted into law and put into effect will hurt the farmer constituents of the members of this committee by further reducing the country's supply of boxcars. In their present form these bills are particularly vicious because they require blanket applications by the Commission of increased car rental charges upon all railroads alike. These bills require that the medicine which may be an appropriate prescription for these railroads who have failed to meet their car-supply obligations, will be shoved down the throats-to their financial ruin-of those roads who have fully met their obligations to furnish their fair share (or more than their fair share) of cars, but the terminal nature of whose traffic makes them inescapably net car rental payers. Under these bills, unamended, the Commission is not required to translate these factors into protective action. The Senate recognized that these factors should be considered by the Commission; it incorporated an amendment which added to S. 1098 the 11 concluding lines of that bill as it was finally passed. But that amendment was merely permissive; it did not require protection for those roads which are found to own their fair share of cars but which, because they serve the vast populations of consumers (of wheat, plywood, and other bulk freight) are preponderantly traffic-terminating roads. The Bureau of Census puts the urban population of this country presently at about 70 percent. Without low-cost transportation of bulk commodities to the markets where they are consumed, the cost of virtually everything the consumer buys from bread to building materials—will go up inordinately. These bills if passed without amendment will assure that result. To give real protection for the interests of this country's consumers, by protecting the roads which serve them, the Congress should direct the Commission to give effect to these factors. The predominantly traffic-terminating roads that serve these areas of con sumers must not be further penalized financially, simply because some roads of the country are found to be remiss in their contribution to the national car supply. This legislation, if passed, should at least be amended to require the Commission to consider the factors specified in the last 11 lines of S. 1098, and to require the Commission to be selective in the application of its remedy, and not apply it where the medicine is not needed. To this end, the following amendment should be added: "In the consideration of any element included in determinations pursuant to this paragraph as an incentive to car acquisition and maintenance the Commission shall make such element inapplicable; (1) to carriers determined by the Commission as owning an adequate number of freight cars to meet their responsibilities to the needs of commerce and the national defense; (2) to carriers which terminate a substantially higher percentage of interline traffic than they originate; (3) to types of freight cars the supply of which the Commission finds to be adequate; and the Commission may make such element inapplicable (4) to such other cases or circumstances as the Commission finds to be in the public interest." Without such amendment, the end result of the passage of this legislation will be disastrous to the preponderantly traffic-terminating roads which serve the bulk consumers of this country (whose interests are at least of equal national importance to those of the roads who serve the bulk producers), and to the national rail transportation system. (The charts attached to the prepared statement of Mr. Newton are as follows:) ANY INCREASE OF PER DIEM RATE 63% GOES TO 7 LARGE COAL LOADING ROADS BENEFICIARIES IREN GRE & STEEL SUFFERERS THEY WILL RECEIVE MORE MONEY THEY WILL PAY OUT MORE MONEY $60,626,122 (63% $60,223,498 IN NET OF THE TOTAL NET PER DIEM CREDITS NET PER DIEM CREDITOR ROADS ALL HEAVY ORIGINATORS of COAL TRAFFIC: NORFOLK & WESTERN WHOSE CAR OWNERSHIP WAS: 425000 400 000 PER DIEM DEBITS WAS PAID OUT 8 NET PER DIEM DEBTOR ROADS: 375,000 350 000 325000 300 000 276000 250 000 225000 200 000 175,000 150,000 125000 100000 75 080 50000 25000 Sources Per Glen Bet Credit and Debit Figures from A. &.. Bire of Freight care, Slope i Peliroads in the Daited States, 1261. DEFEATS ITS THEORETICAL OBJECTIVE AND IMPEDES REPLACEMENT of the CAR FLEET 800 000 000 752 000 000 100,000,000 650-000 000 600,000,000 $70,000,000 500 000 000 450 000, 000 *780,677,830 WAS THE TOTAL PER DIEM BILLED BY CLASS I ROADS IN 1960. THEDY OF THIS, 174,871,833 (22.4%) WAS LAGSE STO INTEREST AND DEPRECIATION CHARGES BASED ON THE EXCESS OF REPRODUCTION COST NEW OVER LEDGER VALUE (COST) OF CARS, etc. (65¢ of the #2.88 AAR PER DIEM RATE). 400 000, 0001 150,000,000 100 002,000 250 000 000 200 000, 000 150 000 000 100,000,000 Excess of reproduction rest new interest nd depreciation charges over interest and depreciation -CONTINUED ON FOLLOWING CHART (PART 2) |