Mr. LUCKENBACH. No.

The CHAIRMAN. We are much obliged to you, Mr. Luckenbach. Mr. Shepard, we will hear you next.

STATEMENT OF OTIS N. SHEPARD, SHEPARD STEAMSHIP CO., 205 EAST FORTY-SECOND STREET, NEW YORK CITY

Mr. SHEPARD. My name is Otis N. Shepard. The Shepard Steamship Co. is a common carrier engaged in transportation of cargo and a limited number of passengers in the intercoastal trade.

They own and operate five freight steamers of from 8,500 to 9,500 dead weight tons each, between Boston, New York, and Philadelphia, on the Atlantic coast, and Los Angeles, San Francisco, Portland, and Seattle on the Pacific coast of the United States.

They also serve many other ports, such as Albany, N. Y.; New London, Conn.; New Bradford, Mass.; Tacoma, Wash.; Olympia, Wash.; Sacramento, Calif.; and many other small places on Puget Sound, Columbia River, and on the Atlantic seaboard.

The company is a corporation, incorporated under the laws of the State of Maine. They purchased their ships from the United States Shipping Board for operation in the intercoastal trade. They carry east-bound about 60 percent lumber and 40 percent miscellaneous general cargo, and west-bound entirely miscellaneous general cargo. Except during strike periods, they have maintained continuous and regular service to date.

They have served during the past 9 years several thousands of shippers in both directions.

Mr. Chairman, and ladies and gentlemen of the committee: The Shepard Steamship Co. has appeared before your committee previously, so I understand that you are familiar with the fact that they are small common carriers in the intercoastal trade. Later, if the committee wishes further information about our company, I shall be glad to give it.

The CHAIRMAN. I think we are reasonably familiar with it.

Mr. SHEPARD. I am appearing on their behalf to protest against section 43 of S. 3078, which proposes to amend the Intercoastal Shipping Act of 1933.

The proposal which we object to particularly, is that in which it is proposed to increase the regulatory powers of the United States Maritime Commission, so that they will be empowered in future to determine, to prescribe, and order enforced minimum rates, fares, and charges in addition to their present power to determine and enforce maximum rates, fares, and charges for the protection of the shipping public.

Although we believe it is also a highly controversial matter, we are not today objecting to the other amendment, which proposes to extend regulations to interstate as well as intercoastal carriers per se.

The increase of the regulatory power which has been and still is a highly controversial subject, should not be included in this bill covering the matter of subsidies, which is represented as "emergency legislation" important to be acted upon immediately for the protection and preservation of the American Merchant Marine.

We are therefore requesting that section 43 be deleted from this bill and made the subject of separate legislation, to the end that the

general public may have ample notice to appear and make their wishes fully known.

We believe that this extension of minimum-rate authority is not necessary, not desirable nor in the public interest at the present time. In the light of past history, the power to enforce minimum rates is a subject giving cause for due concern and inasmuch as there appears to be no necessity for same at the present time on the intercoastal trade, should be a subject of further consideration before enactment. There is no need for an increase of regulatory powers at the present time in the intercoastal trade.

During the decade and a half of water transportation in the intercoastal trade via the Panama Canal, and up to June 1933, there were frequent and violent fluctuations in the cargo rates. There existed. many discriminatory and preferential practices between shippers, places, and kinds of commodities, all of which caused great hardships to the shipping public. Numerous rate wars between carriers occurred. Many conference agreements were created after each period of open rates. Each conference only lasted for from 6 months to a year and a half to then disband for a succeeding period of vicious rate cutting. Distress to both the competing carriers and the shipping public made it wise and proper for Congress to act. As a result the Intercoastal Shipping Act of 1933 was passed by Congress.

No such situation is prevalent in the intercoastal trade today. Since the passage of the Intercoastal Shipping Act of 1933 there has been no rate war, no cutting of rates, nor any sudden and violent changes of rates, fares, charges, rules, regulations, or practices. One conference has existed continuously for over 4%1⁄2 years. Its operations are continuing tranquilly and reasonably satisfactory to both steamship lines and the shipping public. There is not the slightest indication but that it will continue indefinitely. It is presently cooperating with its principle competitors the transcontinental rail lines and is at the moment appearing before the Interstate Commerce Commission. It is asking that Commission to allow increases of the all rail and the rail and water rates in order that the Intercoastal Steamship Freight Association (the present Conference Lines) may increase their water rates. The associates lines openly state that they desire and need increased freight rates, that they can not increase their rates unless the rail rates which form a ceiling or dead line for the water rates, are increases.

Since 1933 the water rates and charges have been stable and without sudden or violent fluctuations. In fact there have been but two important changes:

1. An increase in rates of approximately 10 percent was made in October 1936 and approved by the then existing United States Shipping Board.

2. A similar increase, because of increased operating costs was made in June or July of this year, 1937, and was approved by the United States Maritime Commission. Shippers and competitors have 30 days notice before any material changes are made in either rates, rules or practices.

The proposed increased in rate regulation is undesirable.

Where there is an evil or wrong to the public to be righted, new legislation is justified, but when there is no wrong prevalent, Congress should refrain from enacting unnecessary legislation. The new conditions and changed requirements must be met by industry. Such

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changes, particularly affecting transportation are distressing to a large number of industries. We all, particularly at the moment, realize the need of helpful consideration, sympathizing with general business, and no law should be unnecessarily enacted to disturb and distress it.

The duty of determining, prescribing, and ordering enforced minimum rates, places a very heavy burden on the United States Maritime Commission, as well as the water carriers and the shippers. Water rates never have been and cannot be determined by any sicentific method. Consideration is necessary of some 40 or 50 factors, on each and every commodity separately. The commission would be obliged to either hold lengthy hearings at which the carriers and the shippers must appear on some 4,000 commodity rates or else must set minimum rates at such a low level, that they would have no effect or value on either the lines or the shippers. They would in fact enjoy the same position as that occupied by the maximum rates which were on file before the Intercoastal Shipping Act became a law and which were fixed so high that they meant nothing.

The proposed extension of minimum rate power is not in the public interest.

This proposal has been regularly stricken out of every bill put before Congress in the past two or three sessions because of voluminous testimony by the shipping public, a repetition of which space does not permit herein. Review if you will the testimony of shippers before deputy administrators on the proposed code of fair competition for the shipping industry, pursuant to the National Industrial Recovery Act. Review also testimony in the United States Shipping Board, intercoastal investigation, Docket 126-also review testimony before the Merchant Marine and Fisheries Committee of the House and the Committee on Commerce of the Senate on this subject.

Suffice it to say that I have here with me a list of 175 shippers who have appeared and given testimony at these hearings, setting forth their wishes on this subject. They represent nationally well-known concerns as well as a great number of small shippers. I shall be glad to give that list for these records, if it is desired. Many of those testifying at these hearings were associations representing thousands of concerns shipping cargo in the intercoastal trade. All have expressed their views and all are opposed to the delegation of further regulatory powers in the intercoastal trade at the present time.

There is no necessity now for this proposal. It is true that minimum rate power has been delegated to the Interstate Commerce Commission over the railroads and the need for same is clearly demonstrated in the controversy over the Pettengill bill still before Congress over the fourth section, long-and-short-haul clause. It is common knowledge that to eliminate this minimum rate control over rail rates as in the past would in the future enable railroads to eliminate water carriers. No such condition prevails in water transportation. The principle of allowing common carriers by water to set rates as economically as they feel possible for the benefit of the public does not force out of business any other carriers. The rate structure as existing at present is not destructive to the water carriers themselves as evidenced by the fact that the Intercoastal Steamship Freight Association (the present Conference Lines) are at present publicly stating to the Interstate Commerce Commission not only that they need increased rates but that they can and will increase their rates provided

the Interstate Commerce Commission allows the railroads, which form a ceiling over water rates, to increase rail rates.

In conclusion permit me to state for the record that we feel the proposed amendment is fraught with danger and will result in the elimination of small water lines, including our company, because of the persistence and continual pressure of the larger and powerful water lines.

My company has never defaulted on a single payment to the Shipping Board or the Maritime Commission. They have always discounted all bills and expect to continue their service to the public and to meet their obligations unless they are forced to charge rates which are not commensurate with their service. As long as their service is desired by the shipping public no law should be put on the statute books which will enable any governmental commission to deprive the public of that service.

In the nature of things, the authority, to be set up under this proposed amendment of section 3 of the Intercoastal Shipping Act, will have to rely for information and suggestions upon the industry itself. The powerful lines have been in position in the past, and will be in a position in the future to spend the time and effort necessary for a continuous and persistent presentation of their point of view and their special interests. The smaller carriers and the often unorganized shipping public are not in a position to do so. In the light of past experience there is just cause for concern, that if not accompanied by further safeguards, the new rate fixing power will be exercised to the exclusive advantage of the powerful lines maintaining superior services, causing the elimination of their most modest competitors to the detriment of the public interests.

The United States Shipping Board went so far in its decisions in dockets 139, 144, and 148 as to take on themselves without delegation of power from Congress the authority to declare rates unlawful because they considered them unreasonably low. How much more evident it is that in the event that Congress delegate minimum rate power similar results will occur. This can only be avoided if minimum rate power is to be delegated by enacting an express proviso.

For the above reasons we urge your committee, first, that the minimum rate power be deleted. Secondly, failing that action we ask the committee that in the event the power is to be delegated that the act be further amended by adding the following:

Provided, That in prescribing such maximum and minimum rates, fares, and charges differentials shall be established based upon differences in service rendered, to the end that small water carriers operating in the domestic commerce of the United States shall be adequately protected.

The above amendment is the same amendment suggested in April 1935 when the Seventy-fourth Congress, first session, was considering this same extension of minimum rate power in connection with S. 2582, which bill was eventually abandoned and replaced by the present Maritime Act of 1936 with the minimum rate provision deleted.

We filed a very short brief at that time on this subject, copy of which I have here with me and which holds as true and applicable today as it did then and I desire to request that this former brief, which I herewith tender, be made a part of this record, in order that the committee may again have called to their attention:

1. The necessity in the public interest for rate differential based upon differences in service rendered.

2. That the powerful "A" Lines operating in the intercoastal trade are determined to bring about a parity of rates irrespective of type and cost of service.

3. The opinion of shippers on the matter of rate differentials.

The CHAIRMAN. We are much obliged to you Mr. Shepard. We will have printed in the hearings at this point the brief you suggested should be placed in the record.

The brief submitted by Shepard Steamship Co. is here printed in the record, as follows:

(Before the Committee on Commerce of the United States Senate, 74th Cong., 1st Sess.) REGULATORY PROVISIONS OF THE SHIP SUBSIDY BILL (S. 2582) MEMORANDUM IN SUPPORT OF AN AMENDMENT PROVIDING THAT, IN FIXING MINIMUM RATES FOR INTERSTATE AND INTERCOASTAL WATER CARRIERS, DIFFERENTIALS SHALL BE ESTABLISHED BASED UPON DIFFERENCES IN THE SERVICE RENDERED

[Submitted by SHEPARD STEAMSHIP CO., HAROLD S. DEMING, Laszlo KORMENDI, Counsel]

The purpose of this brief is to urge upon the Committee the necessity of adding the following proviso to Section 701 (1) of the Bill (which amends Section 18 of the Shipping Act, 1916) on page 32, line 11 thereof: ì

"Provided, that in prescribing such maximum and minimum rates, fares and charges, differentials shall be established based upon differences in the service rendered, to the end that small water carriers operating in the domestic commerce of the United States shall be adequately protected."

The same proviso should also be added to Section 701 (3) of the Bill (which amends Section 3 of the Intercoastal Shipping Act, 1933) on page 33, line 20.1

The sections of the Bill referred to would effect a change in the law by conferring upon the new Federal Maritime Authority the power to prescribe minimum rates for water carriers operating in interstate and intercoastal trade. The effect of the additional language offered herein would be to insure (1) that this new power would be exercised in such a way as to allow each class or type of water transportation to serve the need to which it is economically best adapted and (2) that it will not be used so as to create a shipping monopoly and to deprive the shippers and consumers of this country of the economic advantage of paying less for a type of service which it costs less to provide.

I. THE NECESSITY, IN THE PUBLIC INTEREST, for RATE DIFFERENTIALS BASED UPON DIFFERENCES IN THE SERVICE RENDERED, IS UNIVERSALLY RECOGNIZED

From the earliest beginnings of transportation for hire, the necessity has been recognized for differentials in rates, based upon differences in tye type of service rendered. It is obvious that a varied machinery of transportation could not exist if the same rate were charged for simpler and less costly modes of transportation as for the most expensive one.

(1) Differentials exist on every all-rail route.-Express shipments by rail (fast, frequent) always pay a premium over freight shipments over the same distance, and this choice of service is of very great importance to shippers.

(2) Differentials are permitted (a) on all-water routes against all-rail, (b) on rail and water routes against all rail, and (c) on rail-and-water, where the water trip is long, against rail-and-water, where the water trip is short.-Here again the right of the public to varying services at varying costs has moved the Government to protect services, which, at a parity of rates, could not possibly exist.

(3) Differentials are well recognized on many all-water routes.-The Pacific coastwise trade have differentials on a large number of items, classifying their lines into A, B, and C. The River Plate, Brazil, Southbound Conference have had a differential varying between 5% and 10% (now about 7%). The Havana Confer1 The page and line numbers refer to Committee Print No. 2, dated April 24, 1935.