STATEMENT OF W. GAVIN WHITSETT, VICE PRESIDENT, TRAFFIC, LOUISVILLE & NASHVILLE RAILROAD CO., LOUISVILLE, KY. Mr. WHITSETT. Mr. Chairman and members of the committee, my name is W. Gavin Whitsett. I am vice president-traffic of the Louisville & Nashville Railroad Co., which has its headquarters in Louisville, Ky. I am appearing today to testify in opposition to S. 3044. My company has a vital interest in S. 3044. The L. & N. is today one of the major coal-carrying railroads in the country. That coal is important to the L. & N. can be seen from the fact that in 1961 the L. & N. hauled 30,945,958 tons of coal, which accounted for 42.1 percent of the tons of all freight handled. It has never accounted for a lesser percentage of tons handled, and over the past 25 years has averaged approximately 51.5 percent of tons handled. Although S. 3044 is cast in a context of a measure to give new vitality to a natural resource of the country, it is, in fact, a bill dealing with the subject of transportation, and it must be viewed in the light of that fact. President Kennedy recently sent to the Congress a message relative to "the transportation system of our Nation." It is an important message. It goes to the heart of several of the difficulties which the transportation system of the Nation faces today. In the message, President Kennedy said, in part: A chaotic patchwork of inconsistent and often obsolete legislation and regulation has evolved from a history of specific actions addressed to specific problems of specific industries at specific times. President Kennedy went on to call for "a consistent and comprehensive framework" of competitive opportunity in transportation. These statements of the President are very pertinent to S. 3044, and the bill should most properly be considered as a part of Congress' deliberations on the President's transportation message. The question with which S. 3044 attempts to deal is basically an economic one: How can coal be marketed at the least cost and in the most efficient way? The answer must be economic, not legislative. So far as the transportation aspects of the question are concerned, this means that all forms of transportation must be permitted to compete on equal terms. This will not be possible, so far as coal is concerned, until (1) the "bulk_commodities" provisions of the Interstate Commerce Act are extended to railroads or are repealed, and (2) the "commodities clause" of the Interstate Commerce Act is repealed. Under such circumstances, economic forces would come into play, and the coal industry would be able to look to the true low-cost carrier. These two actions are among the proposals which President Kennedy made in his message to Congress. Truly, in such a case, there would be "possibilities of renewed vigor and hope for increased economic strength for the coal industry," to quote from the President's message with respect to S. 3044. This leads me naturally into the next subject. That is that to the extent that Congress gives any governmental body a voice in whether or in what way a coal pipeline shall operate, that authority should be in the Interstate Commerce Commission, which already has some jurisdiction in the matter. 84356-62-11 Again, I refer to the "chaotic patchwork" mentioned by the President. A rational and complete transportation policy for the Nation demands that there be, insofar as possible, a single authority regulating and overseeing transportation. Congress should not make the situation even more contrived than it is by bringing into the arena still another authority, namely, the Department of the Interior. The responsibility for seeing that the national transportation policy is carried out in a rational way is in the Interstate Commerce Commission, and it is in that body that any jurisdiction over coal pipelines should be placed. The approach of S. 3044 is far too piecemeal to be satisfactory. The bill deals only with the subject of eminent domain. A grant of that power should follow a study of all aspects of the whole matter of transportation of coal by pipeline and a satisfactory integration of such transportation into the entire transportation system, and the Interstate Commerce Commission is the logical body for those purposes. Only when it is studied as a part of the entire system can there be a satisfactory reconciliation of the coal pipeline with the rest of the system. For instance, the nature of this carrier is more nearly private than public or common. But if Congress permits the Secretary of the Interior, a member of the executive department, to clothe the operation of such a pipeline with the cloak of public convenience and public use, an essentially private carrier will have been given a sovereign power, that of eminent domain, and this without regard to the carrier's place in the entire transportation system. I have earlier mentioned the so-called "commodities clause" which appears as section 1(8) of the Interstate Commerce Act. This provision forbids a railroad to transport in interstate commerce any commodity, other than timber and its manufactured products, manufactured, mined or produced by the railroad, or which it may own, or in which it may have any interest, except those necessary and intended for its use in the conduct of its business. One of the industries which has been most interested in divorcing the transportation of a product from the producer of it is the coal industry. To railroads' suggestion in recent years that this section of the act be repealed, the National Coal Association-representing numerous coal producers has given much opposition. In the magazine Traffic World of November 18, 1961, the National Coal Association is quoted as saying: The opinion of the industries which the commodities clause was originally enacted to protect, particularly the bituminous coal industry, that its repeal could and probably would result in discriminations of the type existing prior to the enactment of the commodities clause and that its repeal could virtually eliminate certain commercial industries, is entitled to substantial weight by members of the league. (The league referred to is the National Industrial Traffic League, the support of which the National Coal Association was seeking). The opportunities for discrimination certainly exist in a very substantial way in this field of coal pipelines because of the limited availability of the line to producers. Nonetheless, the National Coal Association supports the construction and operation of coal pipelines even though the lines are to be owned by the producers of the coal. The railroad industry seeks the repeal of the "commodities" clause but until it is repealed, its philosophy should not be disregarded with respect to coal pipelines. If Congress should decide to enact the principle of S. 3044, doing so prior to repeal of present section 1(8) of the Interstate Commerce Act, it should not enact it without at the same time imposing a "commodity clause" on any pipeline operators. Railroads are also discriminated against by the existing "bulkcommodities" exemption provisions of the Interstate Commerce Act. A coal pipeline, under existing laws, is not. Again, in order for there to be a rational national transportation system, one in which economic forces work to the benefit of the general public, there should be equality of competition for all modes of transportation with respect to bulk-commodity movement. Efficient and economical transportation of coal can best be accomplished by establishing such competition, and until it is established, I urge that Congress not give to pipelines the advantage over railroads that they would have. There is still another area for careful exploration. That is, the effect upon the many small producers of coal if the large markets are removed from effective competition. The tremendous expense involved in building a pipeline minimizes the possibility that the small coal operators may join in construction. So far, only Consolidation Coal Co. has shown any intention of building a pipeline. Probably only such a large coal producing corporation could contemplate a pipeline. Long-term contracts for coal delivery are required in order to justify the construction cost. If pipelines are built, the small coal producers will find themselves able to bid only for small and perhaps widely separated markets. The result may well be the elimination of certain of those producers. The coal industry is composed of many small producers and a few large ones. To illustrate this, I have had prepared exhibit I which is attached to my statement. This exhibit shows that by far the most shippers on L. & N. lines in eastern Kentucky-one of the major fields served by the L. & N.-load less than 150,000 tons of coal per year. A pipeline requires millions of tons per year-preferably from as few different mines as possible. What place will there be for the loader of 50,000 tons per year? I think such a producer will not have any place at all. In further illustration of the importance of small producers, I have had compiled figures showing classification of coal producers on L. & N. lines in the eastern Kentucky field according to the daily number of railroad cars for which they may call. This classification is: This shows clearly that the small operation-those requiring only a few cars daily-predominate. The 1960 annual report of the Kentucky Department of Mines and Minerals shows that during that year the depressed area of eastern Kentucky produced 36,664,164 tons of coal; that this tonnage was produced by 123 so-called rail-connected mines, and 2,619 so-called truck mines; that the rail mines employed 9,610 men and the truck mines 18,801. This is another way of illustrating the great number of small producers and the employment dependent upon them. Nearly all of these operations sold coal to large consumers. The loss of one or several of those consumers as a present or potential market could be ruinous to them. The problem is magnified by the difference in nature of producers and consumers. Whereas, small-volume concerns dominate the production field-from the standpoint of numbers-large consumers are the rule. If the small producer is blocked from the large consumers because of his smallness, he will have lost access to a major market, one which it is economical to serve. The producers which remain in operation will find their troubles not only in respect of locating markets but also with respect to transporting their coal. If the coal railroads lose the transportation of the tremendous amounts of coal which may be moved by pipeline, and thus lose a firm foundation of operating revenues, the cost of operating those railroads will necessarily have to be made off the remaining traffic. With a limited market and with possibly increased unit transportation costs, the small coal producer will find himself in a tight spot indeed. Even the large producers in a given field may suffer, because a pipeline would most probably be constructed from the field nearest the consumer. Resulting market dislocation could adversely affect entire fields, including large and small producers. Chairman Rupert Murphy of the Interstate Commerce Commission has also discussed the question of railroad rates if a large part of the present rail-coal movement is lost to pipelines. He mentions the problem of origin-rate relationships and the impact upon all of them of a change in any part of them. I will not discuss his comments in detail but will simply say that the construction of a pipeline from one coalfield will affect many other coalfields in ways which cannot now be foreseen. Let me use the L. & N.'s eastern Kentucky division of the eastern Kentucky coalfield as an example. In 1960, production in that field was about 10 million tons. The loss of a market for even a million tons to a pipeline-and this would not be a single loss, but would continue over a long term-would cause a substantial dent in a field already depressed from its former days. Loss of the transportation of such coal will have an adverse effect on railroad employment which will not be counterbalanced by increased employment in the coal mines, where operations are already highly mechanized. The loss may make some of our lines so uneconomic that it will be necessary to discontinue operation of them, for many of our coalfield lines carry almost no traffic other than coal. The railroads of the country have not been lax in dealing with the problems of the coal industry. The L. & N., along with other railroads, has participated in numerous reductions in freight rates on coal. A number of these rates are subject to annual volume minima, designed to give both the coal mines and the railroads stability of tonnage, permit better and more efficient planning in the purchase of mining and transportation equipment, and in actual mining operations as well as transportation. The rates are designed to move large volumes of coal, but, differently from the pipeline method of transportation, these low transportation costs may be shared in by any producer able to sell his coal to the particular consumer, whether that producer sells 1 car of coal a year or 1,000. Such low rates encourage continued production by all operators, and this form of transportation in no way discourages or penalizes a given class of operators as would pipeline movement. Railroads are also experimenting with new coal cars cars which are self-clearing, which will participate in a fast turnaround, and in fast loading and unloading. At the instance of the L. & N., three prototype cars of such kind have been constructed and are now in use on L. & N. lines. Final selection of the most desirable car, and construction of it in quantity, will benefit the coal industry. In addition, a number of railroad, including the L. & N. have joined to make a study of the feasibility of a so-called integral train which, when put into use, will produce a greater efficiency and speed and economy for the movement of bulk commodities, including coal. A train working on this principle will soon be put into actual use on the L. & N., and it is expected that even this first train will move substantial quantities of coal in a highly efficient and economical manner. The foregoing substantiates my statement that the railroads have worked actively to meet the problems of the coal industry, and they have done so despite the competitive inequalities which have existed. The railroads look with dismay upon a proposal which, in its present form, will only increase these inequalities and make it more difficult to meet today's transportation requirements. To summarize: S. 3044 is a piecemeal approach to a transportation problem, and should properly be placed in a national transportation policy context. It contains much in the way of possible adverse effects upon coal producers and forms of transportation other than pipelines. Because of its deficiencies, S. 3044 should not be enacted. Mr. CHAIRMAN, I appreciate the opportunity to testify here. If there are any questions, I shall be glad to answer them as I can. (The statement referred to follows:) EXHIBIT I Statement showing the number of shipping points on the L. & N. RR. in eastern Kentucky which loaded and shipped coal in the year 1961 in the quantities shown in col. A |