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lion. This is another reason for the railroads to look with grave concern at any potential loss of traffic, particularly coal.

(App. D follows:)

APPENDIX D

Net earnings and rate of return of class I eastern district railroads

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Mr. GILL. The Interstate Commerce Commission has on several occasions reviewed the level of freight rates applicable on bituminous coal. Indeed, it may be said that there are no rates in effect today, moving substantial tonnages, which have not been examined by the Commission and found to be not unreasonable.

This is particularly true as to the rates from West Virginia to the eastern seaboard. Coal moving on these rates is the prime target of pipeline proponents.

The railroad freight rate on this movement, as well as from Pennsylvania and Maryland, have been reviewed by the Commission several times and as recently as 1957 were found to be reasonable. As I shall explain later, the railroads have voluntarily reduced the most important of these rates.

Since the close of World War II, the rates and charges for railroad service have increased because of the constantly rising costs of labor, fuel, and materials. This situation is not peculiar to the railroad industry but has spread in varying degrees over all segments of the economy. Although we have had increases in costs, in the last 2 years, we have not increased our freight rates to meet them, notwithstanding our great need for additional revenue.

In applying the increases in rates authorized by the Interstate Commerce Commission, bituminous coal has borne a lower increase, with two minor exceptions, than any other commodity moving in interstate

commerce.

Statistics prepared and distributed by the Bureau of Transport Economics and Statistics, Interstate Commerce Commission, indicate that from 1946 to 1960, the railroad rate level of the United States, on all traffic increased 112.1 percent. The authorized increases on all products of mines were 86.2 percent. The authorized increases on coal and coke are shown as 77.9 percent.

It should be obvious from these showings that the impact of the rising cost spiral in the postwar period, particularly as to transportation costs, has been lighter on bituminous coal than on virtually all other interstate commerce.

In its decisions, passing on the merits and necessity of the general increases in rates and charges required by the railroads, the Commission has recognized that the declines in production and consumption of bituminous coal have not been attributable to increases in freight rates but are caused by other factors having no relation to freight

rates.

At this point I wish to direct your attention to the relative trends of average coal prices and rail rates during the past 32 years.

(App. E. follows:)

APPENDIX E

Bituminous coal prices versus freight rates, 1928 to 1960

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1 Average values from 1928 to 1935 do not include selling expense. From 1936 on, the values include selling expense, except in 1939, when the average value is reported as including some selling expense. For 1936, the value, including selling expense was $1.831 and excluding selling expense $1.761. (Minerals Yearbook Review of 1940, p. 779.)

2 1928 is the first year for which the average railroad revenue on bituminous coal is available.

Authority: For average values, U.S. Bureau of Mines; for average railroad revenues, Interstate Commerce Commission.

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Mr. GILL. Appendix E is a comparison of the average value (price) per ton of bituminous coal produced in the United States in each year 1928 to and including 1960, with the average freight revenue per ton received by the railroads for transporting coal.

In column 2 I have shown the average "coal price" per net ton for each year starting with 1928. In column 3, I have shown the "coal rate" or average revenue per net ton of railroad revenue on coal originated by class I railroads in the same year.

The statement indicates in column 4, that for the years 1928 through 1941 the coal price was below the coal rate; from 1942 through 1960 the coal price was greater than the coal rate in varying amounts from 5 cents per ton (1942) to $2.25 per ton (1948).

On appendix F, I have charted the figures contained in appendix E. This permits a graphic presentation of the situation I have just described. The shaded area reflects the period from 1928 through 1941, during which the coal price was under the railroad coal rate in varying amounts.

This is the situation shown in column 4 of appendix E. (App. F follows:)

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Mr. GILL. During the period from 1942 through 1960, the coal price was greater than the railroad coal rate. This showing is from the figures in column 5 of appendix E.

The average values of coal are prepared by the U.S. Bureau of Mines of the Interior Department. The average freight rates are prepared by the Interstate Commerce Commission.

The coal interests sometimes offer comparisons of the relative increases in coal prices and coal rates, using a base year around 1948 or 1949. This, however, covers up the fact that there were tremendous increases in coal prices during the war years when railroad freight rates were virtually static. If we go back to the beginning of the inflationary cycle, which began in about 1939, we find that coal prices increased an average of 155 percent between that year and 1960, as compared with an increase of only 52 percent in railroad freight rates on coal.

These figures demonstrate that the cost of coal transportation in railroad service has had far more stability than the pricing of coal and has increased in substantially lesser degree than has the price of coal.

The use of imported residual oil and natural gas by industry and utilities has affected the production and transportation of coal.

In some areas it has been possible to mitigate the impact of the use of these competitive fuels on the railroad and coal industries but by and large the coal industry has recognized the frustrating situation created along the eastern seaboard by the dumping of imported residual oil.

It has heretofore been a fact that coal pricing and railroad freight rates could not be adjusted to meet the situation fully.

Residual oil is the heavy oil left as a residuum in the distillation of crude oil. In the trade it is known as No. 6 or bunker C. Its principal uses are as a steam fuel for utilities, industries, heating plants, and for vessels. The main source of the residual oil used along the east coast, to the detriment and displacement of coal, is Venezuela and the Netherlands Antilles. None moves by pipeline in interstate commerce; it reaches the seaboard by oceangoing vessels only.

It has long been the position of the National Coal Association-and they had a presentation here, Senator-that relief from the effects of the unfair displacement of coal by imported residual oil is in a firm import restriction of this oil.

The coal association has taken this position before Congress in connection with bills to restrict the importation of oil and also in hearings by the Interior Department in connection with allotted quotas of residual oil.

Some time ago, Dr. Ford Edwards, in testimony before the House Ways and Means Committee on behalf of the National Coal Association, testified that foreign oil, with its capacity to cut prices, has placed relentless pressure on coal; also that

Foreign oil had displayed a willingness, and indeed an eagerness, to take over markets on a basis which, tested by their own statements, are uneconomic to them.

And that coal's efforts to keep competitive with other fuels—

are nullified by a competitor who can and will sell his product at losses of 20 to 40 cents on the dollar to gain a market.

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