Interstate Commerce Commission v. New York, New Haven & Hartford R. Company

PETITIONER:Interstate Commerce Commission
RESPONDENT:New York, New Haven & Hartford R. Company
LOCATION:James Wah Toy’s Laundry

DOCKET NO.: 108
DECIDED BY: Warren Court (1962-1965)
LOWER COURT:

CITATION: 372 US 744 (1963)
ARGUED: Feb 28, 1963
DECIDED: Apr 22, 1963

Facts of the case

Question

  • Oral Argument – February 28, 1963 (Part 1)
  • Audio Transcription for Oral Argument – February 28, 1963 (Part 1) in Interstate Commerce Commission v. New York, New Haven & Hartford R. Company

    Audio Transcription for Oral Argument – February 28, 1963 (Part 2) in Interstate Commerce Commission v. New York, New Haven & Hartford R. Company

    Earl Warren:

    Mr. Ginnane, you may continue your argument.

    Robert W. Ginnane:

    May it please the Court.

    After the Commission had made the findings which I summarized just before the recess, it turned to Section 15a (3) which had been added to the Act of 1958.

    Arthur J. Goldberg:

    Mr. Ginnane, before you do that, could you elaborate on the [Inaudible]

    Robert W. Ginnane:

    Yes, very brief.

    Arthur J. Goldberg:

    [Inaudible]

    Robert W. Ginnane:

    On the Commission’s knowledge and on our recent national experience and upon authoritative reports, the recent reports by the Senate Committee on Interstate Commerce and by the Maritime Commission as to the continuing importance of the coastal services in the event of a national emergency.

    And particularly, the Commission reminded itself that at the outset of World War II, the entire coastal and inter-coastal fleet was taken over by the Government.

    Arthur J. Goldberg:

    [Inaudible]

    Robert W. Ginnane:

    The coastal fleet as a whole, including in particular the tankers, has increased as an absolute matter.

    The coastal fleet we’re talking about here in this case and this is all that’s left of the segment of coastal fleet are the deep water carriers that is — as distinguished from the small carriers that go through the inter-coastal canal.

    The deep water carriers that handled bulk cargo.

    Of those, only two are left and they’re before the Court — Sea-Land and Seatrain and they operate a total of seven vessels in this Atlantic-Gulf Trade, right se at the beginning of World War II, there were 19 carriers in this trade operating 139 vessels.

    Of course, they were 139 vessels in break-bulk operation which has disappeared.

    The deep water coastal carriers carrying package cargo —

    Potter Stewart:

    And distribution tankers?

    Robert W. Ginnane:

    And distribution tankers, now consists of Sea-Land and Seatrain and they operate in this Atlantic-Gulf service, seven modern vessels.

    Sea-Lands carrying trailers, Seatrains carrying loaded freight cars.

    Earl Warren:

    How many of these did you say these ships carried?

    Robert W. Ginnane:

    Each of the Sea-Land ships carries 226 loaded highway trailers.

    Earl Warren:

    I see.

    Robert W. Ginnane:

    Seatrain I have forgotten.

    Each Seatrain car carries a hundred loaded freight cars.

    William O. Douglas:

    Now, if I may tend to place [Inaudible]

    Robert W. Ginnane:

    I think a fair reading on the Commission’s report is they felt a need to keep what is still left.

    And leaving to — in large part, the competition whether or not they would with reasonable differential rate protection to be able to somewhat expand the services, because these are pretty — this is pretty expensive equipment.

    Sea-Land when it converted spent about $40 million.

    Arthur J. Goldberg:

    [Inaudible]

    Robert W. Ginnane:

    Well, to take a Seatrain car, for example.

    A Seatrain ship that can handle a hundred loaded freight cars.

    Robert W. Ginnane:

    That’s a pretty good size freight train and depending upon the type of future national emergency, perhaps the disruption of inland facilities, here is a vessel that can move the equivalent of a loaded freight train in one movement along the coast.

    And that one Seatrain vessel, one Sea-Land vessel correspondingly can move 226 loaded trailers, stated otherwise with the present ships, their capacity would be about 1,800,000 tons a year.

    Well, if you’re concentrating on essentials, it could be worth its weight in gold.

    Arthur J. Goldberg:

    [Inaudible]

    Robert W. Ginnane:

    No, this is not that dramatic.

    This is not that precise and dramatic.

    And of course there’s the further problem who, no matter from what source in the Government can predict with precision, what the precise transport needs might be, and the unhappy the event of a war five or ten years from now.

    Arthur J. Goldberg:

    [Inaudible]

    Robert W. Ginnane:

    Not that I know of, and may I put it to you this way, unless, unless the Commission received authoritative testimony that there would be no conceivable national defense value for these vessels, would it be under any requirement to take a gamble.

    That Congress expected to take a gamble.

    There’s an entitled in the absence of authoritative testimony of the contrary such as no one has ever offered to it, that this type of transport could be just as essential in times of emergency as it was during the World War II.

    Arthur J. Goldberg:

    [Inaudible]

    Robert W. Ginnane:

    No.

    But our brief, I may say contains references and quotations from the recent testimony of higher officers in the Department of Defense before Congressional Committees where there’s a continuing current theme that of the importance of a merchant marine and particularly of a domestic merchant marine whose ships would be available, local, and available.

    15 a (3) added in 1958 provides that in a proceeding involving competition between carriers of different modes, the Commission in determining whether a rate is lower than a reasonable minimum rate shall consider the facts and circumstances attending the movement of traffic by the carrier or carriers to which the rate is applicable.

    And then more specifically for this case, rates of a carrier shall not be held up to a particular level to protect the traffic of any other mode of transportation, giving due consideration to the objectives of the National Transportation Policy.

    Now, the Commission recognized the introductory prohibition against holding the rates of one carrier up to protect the rates of another mode.

    But it felt that that introductory prohibition is qualified by the words giving due consideration to the objectives of the National Transportation Policy.

    It noted that that policy requires that the Act be administered not only so as to preserve and recognize the inherent advantages of the different modes but also to provide a national transportation system by water, highway and rail, adequate to meet the needs of the commerce of the United States, the postal service and the national defense.

    It took into account and I had just stated in response to Justice Goldberg’s question that the Atlantic-Gulf coastal shipping trade had declined from 19 companies and 139 vessels just prior to World War II.

    The two deepwater common carriers, Sea-Land and Seatrain operating seven vessels in this trade and the Commission concluded that they represent an essential part of a national transportation system adequate to meet the needs of the commerce in the United States and the national defense.

    And instead of those objectives required, the maintenance of a differential relationship between the rail and the water rates which would enable the water carriers to maintain a rate structure which will enable them to continue economical and efficient coastal services.

    Now, the Commission thought that the 10% differential rail over water which Sea-Land asked for was excessive but in ordering with TOFC rates cancelled, the Commission stated that in its judgment, new TOFC rates could be filed no lower than 6% above Sea-Land’s rates.

    And the Commission’s order was without prejudice while the Commission did not prescribe minimum rates its order was without prejudice to the filing of new TOFC rates, 6% above the Sea-Land rates.

    The three-judge court in its opinion decision held that the Commission should be enjoined from canceling TOFC rates which return at least fully distributed cost.

    The Commission held that the requirement of a rate differential to protect the water carriers’ continued existence, amounted to a holding up railroad rates to protect another mode in violation of Section 15a (3).

    And it held that the evidence and findings did not support the Commission’s conclusion that the National Transportation Policy required that result.

    Now, the Court held that the National Defense Clause of the National Transportation Policy is not an operative policy factor but is a hope for objective.

    And that in any event the Commission’s reliance on the National Defense Clause was not supported by substantial evidence.

    The heart of the Court’s decision seems to be it’s construction of Section 15a (3) as precluding the Commission from requiring rail rates differentially higher than water rates, even to preserve the water carriers from destruction, except where the rail rates are so low as to harm both the rail and water carriers as by a dissipation of the revenues of both or where the rail rates would deprive the water carriers of the inherent advantage of being the low cost mode.

    Robert W. Ginnane:

    So the basic question here posed by the decision below is whether the Section 15a (3) prohibits the Commission from setting aside selectively reduced, but fully compensatory rail rates to prevent the destruction of a competing and efficient coastalized water carrier industry, important for national defense and for the general public use, without regard to whether the water carriers are or are not the low cost mode of transportation.

    Now, I have to clarify the issue as I hope I did in response to Justice White’s question, it should be noted that the District Court enjoined the Commission from canceling all the rail TOFC rates which return at least the rail’s fully distributed cost.

    District Court’s decision permits the Commission to require the cancellation of rail rates which return less than the rails’ fully distributed cost, even though they returned more than their out-of-pocket cost.

    Potter Stewart:

    TOFC is train on flatcar?

    Robert W. Ginnane:

    Trailer-on-flatcar.

    Potter Stewart:

    Trailer-on-flatcar.

    Robert W. Ginnane:

    Or sometimes referred to as piggyback.

    Potter Stewart:

    And it’s always a — on the railroad it’s always the trailer without the — without the truck, is that right?

    Robert W. Ginnane:

    Well there are different systems.

    On some piggybacks, systems are TOFC systems.

    They load the trailer and the chassis, that is the wheels.

    And another type, the [Inaudible] type, the body of the trailer is slit off the chassis onto the flatcar.

    Arthur J. Goldberg:

    [Inaudible]

    Robert W. Ginnane:

    Yes, I should also say sir that we might have the same result anyway by reason of the last sentence of the policy which says all the provisions of this Act shall be administered and enforced with a view to carrying out the above declaration of policy.

    Arthur J. Goldberg:

    Is that where you rely?

    Robert W. Ginnane:

    But we don’t even have to rely on that, this is made expressed.

    Arthur J. Goldberg:

    [Inaudible]

    Robert W. Ginnane:

    And they are like two or three places in the entire Act where there are specific incorporation in the National Transportation Policy.

    Byron R. White:

    [Inaudible]

    Robert W. Ginnane:

    Yes, for the dissenting.

    Byron R. White:

    [Inaudible]

    Robert W. Ginnane:

    They did not base their decision on the relative cost of the carriers.

    The cost evidence indicated that Sea-Land —

    Byron R. White:

    You mean the ten Commissioners.

    Robert W. Ginnane:

    At that point, there were ten Commissioners, there was one vacancy.

    Byron R. White:

    For?

    Robert W. Ginnane:

    So-called majority report which throughout this litigation is referred to as the majority report was concurred in by five.

    The sixth Commissioner, Commissioner Hudson, concurred with a separate expression on page 43 of the record.

    Byron R. White:

    So you have – you have five — you don’t have a majority opinion on that particular [Inaudible]

    Robert W. Ginnane:

    I submit that we do sir.

    Robert W. Ginnane:

    We have five incurring in the main report.

    And I submit as a matter —

    Byron R. White:

    [Inaudible]

    Robert W. Ginnane:

    It said that regardless of which mode of transportation was the low cost.

    It felt obliged to set aside rail rates even though they covered fully distributed cost in order to preserve the efficient remnants of the coastal water carriers —

    Byron R. White:

    [Inaudible]

    Robert W. Ginnane:

    He was talking about cost but he also said I am in general agreement for the majority report and after some discussion, I concur.

    I submit that his, that his statement has to be taken as having concurred with the five to whatever extent was necessary to produce a legally effective decision.

    Byron R. White:

    [Inaudible]

    Robert W. Ginnane:

    That’s right.

    He’s saying that — as a matter of fact he thought the majority had helped that the Sea-Land was the low cost mode.

    Actually —

    Byron R. White:

    [Inaudible]

    Robert W. Ginnane:

    That’s right.

    They didn’t quite make that finding.

    They recited that the cost of – he apparently did.

    Byron R. White:

    Five were there and four dissenting altogether.

    Robert W. Ginnane:

    Four dissenting altogether.

    Well, the Commission did not base its decision on relative cost.

    The cost evidence which is summarized in its report indicated that Sea-Land was the lower cost service, both on out-of-pocket and fully distributed cost basis.

    And that cost evidence as a minimum fully supported the Commission’s finding that the coastal water carriers provide an efficient and economical coastwise service.

    That the Commission has adhered not attempting to provide protection for an obsolete, absurdly high-cost service, such as the old break-bulk service tended to become with increasing costs.

    As a minimum, the cost evidence here at least indicates that Sea-Land is the low cost service.

    The Commission wouldn’t quite make that finding because of variables in the costing of picture.

    William O. Douglas:

    Does that mean that Sea-Land has never compared the cost —

    Robert W. Ginnane:

    If the Commission did not find that they were the low cost, they wouldn’t quite make that finding.

    If they were the low cost on a fully distributed cost basis and then they would of the Commission’s view under the view of the court below have an inherent advantage over the railroads.

    William O. Douglas:

    [Inaudible]

    Robert W. Ginnane:

    That’s right.

    So there’s no contention here and no basis for a contention that Sea-Land is not an economic surface.

    Robert W. Ginnane:

    Perhaps, not quite the low cost service but very close to it.

    Hugo L. Black:

    What do you mean by low cost service?

    What’s included in there?

    Robert W. Ginnane:

    I mean by low cost on a fully distributed cost basis, all the cost.

    Hugo L. Black:

    Based on the investment?

    Robert W. Ginnane:

    No, these are in terms of operating cost.

    Hugo L. Black:

    In terms of what?

    Robert W. Ginnane:

    In terms of operating cost.

    Hugo L. Black:

    Operating cost?

    Robert W. Ginnane:

    Rather than return on investment.

    Hugo L. Black:

    That wouldn’t —

    Robert W. Ginnane:

    Although, the Commission’s definition of costs includes a return on investment.

    Hugo L. Black:

    Well, is there any question here that is — was raised in an opinion recently, came to us in another case as to whether including — considering that cost value of the property, they must consider the investments made by the Government as a part of the investment cost?

    Robert W. Ginnane:

    No, that element — there is no such element in this case at all.

    The so-called public cost?

    Hugo L. Black:

    Yes.

    Robert W. Ginnane:

    There is none of that in this case.

    The subject never came up.

    Hugo L. Black:

    It’s possible, is it not if that’s the correct way to do it that it could come up?

    Robert W. Ginnane:

    It has never been raised, so far as I know in the case of the rates of coastal carriers.

    It has come up once in a recent case in connection with the operation of inland water carriers.

    Everybody in the case agrees that there’s enough ambiguity in Section 15a (3) and it’s proper to look at the legislative history.

    Now, that’s a long legislative history in detail covering three years.

    And I can only hit — what we think are a few of high spots of it, and I won’t represent that my presentation of it is adequate and indeed it may even be unfair.

    The story began in 1955 for the Presidential Advisory Committee, issued a report based on the theme of increased reliance on competitive forces in rate-making.

    It recommended, for example the elimination from the National Transportation Policy of the phrase, standard of destructive competitive practice.

    That would have come out altogether and it was provided that in determining whether a rate is a less than a minimum reasonable rate, and I quote, “The Commission shall not consider the effect such charge and the traffic of any other mode of transportation, or two, the relationship of such charge, the charge of any other mode of transportation; or three, whether such charge is lower than necessary to meet the competition of any automotive transportation.”

    Now, those three prohibitions became known colloquially as the three shall not’s.

    And it’s crystal clear, may it please the Court, that if the Congress had enacted the three shall not‘s and any of the several versions which were presented to it at different times, and at the same time eliminated from the National Transportation Policy, the provision of destructive competitive practices, then the position of the railroads and the court below and here would be completely justified.

    With it, the most important thing about the legislative history is they didn’t get the three shall not’s and they didn’t get the Destructive Competitive Practice Clause out of the National Transportation Policy Of course they supported it.

    Robert W. Ginnane:

    It was opposed by the Commission and by the motor and water carriers.

    The railroad struck the position this, this will mean that the Commission cannot find unlawful or unreasonable or destructive any rate that covers our out-of-pocket costs, no matter what it does to any other mode of transportation.

    The Commission pointed out that under that approach, the railroads would in many instances drive other forms of transportation out of business and that with the disappearance of competitors, the rates of the victors and such a struggle would not long remain on the depressed competitive basis.

    Now, to compress that long a legislative history, by 1958, the Presidential Committee had withdrawn its support of the three shall not’s, admitting that it went too far.

    The Senate Committee said it went too far.

    And so finally, the Senate Committee in 1958 reported the present version of Section 15a (3), they characterized it and since all this paid work really and this was done on the Senate Committee.

    I think it’s important to note that they characterized it as designed to encourage competition in transportation by allowing each form of transportation subject to the Interstate Commerce Act, full opportunity to make rates reflecting the inherent advantages each has to offer with such rate-making being regulated by the Interstate Commerce Commission to prevent unfair or destructive competitive practices as contemplated by the National Transportation Policy.

    Now, those expressed mood that the Commission should more consistently permit each mode to assert its inherent advantages whether they were cost or service.

    I say an expressed mood because it was a widespread agreement as to what the Commission had been doing prior to 1958.

    The railroad said the Commission had been engaging on what they called umbrella rate-making, holding their rates up artificially to protect the rates of competing modes.

    The Commission doubted it.

    Arthur J. Goldberg:

    [Inaudible]

    Robert W. Ginnane:

    Well, it’s down the shipper choice in the marketplace.

    And you have same thing as between the rail and motor carrier, the more flexible services of the motor carriers versus the cost advantages of over certain distances of the railroads of balancing.

    Arthur J. Goldberg:

    [Inaudible]

    Robert W. Ginnane:

    Here, what the Commission did was to use that minimum rate power to ensure it hoped the survival of the remaining efficient coastal carriers.

    Arthur J. Goldberg:

    [Inaudible]

    Robert W. Ginnane:

    That’s the basis on which the Commission works.

    Hugo L. Black:

    Well I would — I understood that inherent advantage to means this, when it was passed and found.

    Well, maybe I’m wrong, that some carriers can go faster than others and they can render quicker service.

    Shippers are operated to pay something extra for that.

    The others can carry at much cheaper flow and the idea is that the Commission sees the one that could carry at flow as it could get the traffic at a much cheaper rate was not deprived of that by the other — the railroad that was in opposition so that they could sell faster.

    That was my understanding of what’s meant by inherent advantage.

    They have an inherent advantage and had been able to carry it cheaper, just as the railroads do over the —

    Robert W. Ginnane:

    That was the general basis for the fact but historically, the water carrier services have been priced somewhat lower than the rail.

    Hugo L. Black:

    As I understand it here, the Commission is all on the basis that the water carrier, carried by water can be cheaper, although it may be slower, and therefore wants to protect that inherent advantage so it won’t be robbed of its chance to carry that transportation.

    Robert W. Ginnane:

    The Commission did not make a finding that the water carriers are the low cost mode.

    Hugo L. Black:

    What did they find?

    Robert W. Ginnane:

    It summarized cost evidence indicating that they might be the low cost mode and that they were close enough to be in the low cost mode that they were certainly an efficient mode of transportation.

    This was not some obsolete mode of transportation that needed massive differentials to keep it alive.

    Hugo L. Black:

    Why does it need any differential if they can’t carry — keep up?

    Robert W. Ginnane:

    Because there was testimony supporting the Commission’s finding.

    Hugo L. Black:

    There was what?

    Robert W. Ginnane:

    There was testimony supporting the Commission’s finding that the service advantages of rail more frequent sailings.

    More frequent movements, faster transit time were such that shippers would not utilize these coastal carriers if the rail rates were at the same level.

    So the Commission found that for them attract traffic, stay in business and operate as efficient coastal carriers, they had to have a rate differential in their rate.

    Hugo L. Black:

    I’m a little confused by that.

    Are we to decide this case then on the basis that even though the railroads can carry just as cheaply as the water carriers, that the Commission has a power under the aegis of inherent advantage who raised the prices of the railroad in order to protect the carriers to get transportation that they can’t get due to their inherent advantages?

    Robert W. Ginnane:

    No, even though the railroad costs are as low as those the water carriers.

    What the Commission did here was to rely on the National Defense and Commerce Clauses of the National Transportation Policy to say that notwithstanding that cost relationship, we think that these remaining coastal carriers should be given a price differential protection which will keep them in business.

    Hugo L. Black:

    That, I would think of as under this last part of the policy provision —

    Robert W. Ginnane:

    Yes, that’s correct.

    Hugo L. Black:

    — rather than the inherent advantage part.

    Robert W. Ginnane:

    That’s correct, sir.

    Byron R. White:

    [Inaudible]

    Robert W. Ginnane:

    That’s correct.

    Byron R. White:

    [Inaudible]

    Robert W. Ginnane:

    And that’s what the Commission did here because it stated flatly that it was not basing its decision on the relative cost.

    Arthur J. Goldberg:

    Do we have to decide it on as far as the [Inaudible]

    Robert W. Ginnane:

    Yes sir, one qualification and admittedly efficient carrier.

    We are not trying to preserve in our kayak mode.

    We urge more strongly that the court below erred in holding that the national defense was not an operative clause of the National Transportation Policy, but I’ve summarized our position on that briefly in response to question for Mr. Justice Goldberg, and for the rest I would submit it on our brief.

    I’d like to leave just one thought.

    The brief of the National Industrial Traffic League and of the Department of Justice suggest that shippers are entitled to the benefits of the inherent advantage railroads may have to produce, to provide a lower rate even though these coastal carriers, whose presence and competition evoked the lower rates, that that’s an inherent advantage to which the shipping public is entitled.

    To paraphrase the Commission’s testimony before the Senate in 1958, I suggest that that in such an inherent advantage would not long be enjoyed by the shipping public after these coastal carriers had disappeared.

    Earl Warren:

    Mr. Price?

    Warren Price, Jr.:

    Thank you, sir.

    If the Court please.

    I’m appearing for Sea-Land Service Incorporated which was formerly known by the name Pan-Atlantic Steamship Corporation when the Commission’s report below was written.

    Since the early 1800’s some years before the first railroad was constructed, there had been scheduled for hire coastal carriers in the United States, as the Commission found below, the coastal areas of the country have, to a substantial degree, been built about the availability of this low cost water service.

    Warren Price, Jr.:

    Sea-Land has operated for about 30 years as had its sole remaining competitor in the coastwise trade, Seatrain Lines.

    Excuse me.

    Present time, Seatrain operates five vessels in this trade, there’s Atlantic Coast, and Atlantic-Gulf, and Sea-Land operates three as a total of eight.

    Also to complete the picture, although it has no particular relevance here, Sea-Land is now in the process of starting a service in the inter-coastal trade.

    That is between New York on the one hand and Los Angeles and San Francisco on the other.

    There are two jumbo trailer ships in that service now.

    A third will be added at some future date, a fourth if possible.

    I might say that the success of this service, we think, will depend largely on the outcome of this proceeding.

    Mr. Ginnane has describe the matter in which the Sea-Land break-bulk service was converted to a trailer ship and the fact that the Commission found that this was an economical service and resulted in substantial savings in cargo handling cost.

    No sooner, however, had this new service been embarked upon than the railroad commenced a program of selective rate-cutting, aimed at the traffic of Sea-Land and Seatrain which unless restrained would have made those carriers completely noncompetitive and unable to continue in service.

    Railroads sought to do this by taking away the traditional differential and putting rates exactly the same as the water carrier rates.

    The 66 rates involved here, they termed pilot rates have indicated that if they are successful here, they will of course extend this program to other areas.

    Arthur J. Goldberg:

    [Inaudible]

    Warren Price, Jr.:

    Yes sir, I’m going to come to that in just a minute.

    Of course, all of these Sea-Land and Seatrain rates are competitive with the railroads and the reverse is not true.

    Now, after extensive hearings, the Commission found that with a spread of 6% in the rates, Sea-Land and Seatrain and the railroads would be able to participate in the available traffic.

    It was not a question here, if they’re taking this traffic away from the railroads, they’re merely putting the rates or allowing the rates to be in a relationship which will permit both modes to compete for the traffic.

    Now, on the question of Mr. Justice Goldberg, we are convinced that for a number of reasons the water carriers would not be able to survive under this relative cost theory that has been espoused by the lower court.

    In the first place, this Court found in United States or in New York versus United States, 331 U.S. 284, transportation cost finding is a highly complex and a very inexact science.

    Cost planning entails many arbitrary assumptions of fact.

    Its results are not susceptible to the mathematical proof.

    But even more important, however, cost finding is based upon factors of a variable and continually shifting nature.

    The rail cost of transporting traffic from A to B will depend upon factors such as the amount of traffic hold in the return hall, the overall load factor, the type of equipment in use.

    The cost of the water carrier will depend upon factors such as the gateway ports through which the traffic moves, the cost of its connecting motor or rail carriers and the extended utilization of its vessels’ load capacities.

    Byron R. White:

    Mr. Price.

    Warren Price, Jr.:

    Yes, sir.

    Byron R. White:

    [Inaudible]

    Warren Price, Jr.:

    The full distributed cost?

    Byron R. White:

    [Inaudible]

    Warren Price, Jr.:

    Both, Your Honor.

    Warren Price, Jr.:

    Specific land —

    Arthur J. Goldberg:

    [Inaudible]

    Warren Price, Jr.:

    That is correct.

    Now, this variability of the carrier cost was duly noted by the Commission in its report below.

    If during a particular study period, a water carrier were found to be the high cost carrier, then under the court’s opinion, it would not be entitled to a differential.

    It would lose traffic immediately to the railroads, its load factor would go down, it’s unit cost up, and you’d have a vicious circle.

    They could never, never regain their low cost position if they ever had it.

    We don’t believe that the Congress and may be presumed to have intended to invoke a hard and fast system of rate-making based upon relative cost.

    The implementation of which would inevitably lead to widespread instability and uncertainty.

    Surely the domestic water carrier industry, all of those traffic is competitive with the railroads and especially in its present marginal status would not be able long to survive any such period of uncertainty.

    Arthur J. Goldberg:

    [Inaudible]

    Warren Price, Jr.:

    It’s probably more applicable, Your Honor, when you’re comparing two different modes of transportation, but there is — my remarks do go to the use of cost.

    Generally, I think costs have a very definite place, particularly to in deciding what the minimum level of a rate should be.

    But when you try to set a complete rate system, a relative rate system of two modes based on relative costs, then I say it’s a very, very poor standard.

    Now, if the opinion of the court below has sustained the rail rates would — which are competitive with the water carriers would all gravitate to levels reflecting no more than their fully distributed costs.

    Now, Sea-Land’s full cost, were say 3% under to the rail full cost on the whole, then the Sea-Land rates allowing for the necessary 6% differential would have necessity on the whole be lower than the Sea-Land full cost.

    And of course, in this circumstance, Sea-Land could not in a long run survive.

    Moreover, there’s traffic moving by almost, it does not and cannot move at the full cost or anything close to it.

    The Commission found that 30% of Sea-Land’s traffic fell in this category.

    Now, Sea-Land would be precluded from sharing in this lower rated traffic because of its probable inability to assess rates sufficiently the above its full cost on other traffic if this lower court opinion is sustained.

    If Sea-Land is precluded from sharing at all lower rated traffic, why its traffic volume would fall down, it would not be able to fill its vessels to the extent necessary for a sound operation.

    Now, a word about the commercial and economic importance of deported coastwise carriers, the court below said that the only economic importance of these carriers lies in the fact that their rates are cheaper than rail, if this advantage is taken away, their economic importance will disappear.

    We submit that this is an extremely short range view as the Commission found the economies of many areas are dependent upon or built about the availability of low cost water service, traffic moves between coastal areas that would not move if it did not have this low cost service because of market competition and other reasons.

    Moreover, there’s not the slightest doubt that if and when the railroads are successful enforcing what remains of this industry out of business, their rates between the coastal areas will go back to where they were before.

    They had this competition or rather they will reflect the same relative basis as the inland rates will.

    This propensity of the railroads was recognized in the debates leading with the Transportation Act of 1920 and the Transportation Act of 1958 as well.

    As testified by countless shippers and water carrier application cases before the Commission, and it specifically recognized in the Merchant Marine Act of 1936, there is a very real need and demand on the part of the shipping public for deep water coastwise services.

    This extends far beyond a mere desire for immediate low cost transportation.

    On the defense aspect, I will just like to read from the first section, declaration of policy, the Merchant Marine Act of 1936, “It is necessary for the national defense to develop one of its foreign and domestic commerce that the United States of Merchant Marine sufficient to carry its domestic waterborne commerce, a substantial portion of the waterborne export and import commerce and so forth.”

    In other words, that is just one of countless expressions by Congress of the defense on economic importance of domestic shipping.

    Warren Price, Jr.:

    We’ve shown in our brief the testimony before Congressional Committees by the deputy chief of naval operations, Admiral Sylvester to the unique defense importance of the coastal shipping in the advent of a nuclear attack, and also the special importance of this rapid cargo handling type of vessel.

    During World War II, as one example, a Seatrain vessel carried an entire division of armament to Montgomery and in Africa, and that was received quite of bit of publicity and the same thing could happen in the event of another war.

    We don’t see that as much more the Commission could have added on the defense aspect.

    It seems to me, it’s extolling the defense virtues.

    It’s more or less like extolling the virtues of motherhood and more or less unnecessary.

    Thank you.

    Earl Warren:

    Mr. Spritzer?

    Ralph S. Spritzer:

    Mr. Chief Justice, may it please the Court.

    As Your Honors have heard, the United States and the District Court joined with the Commission in the defense of the agency order.

    The Solicitor General is persuaded, however, in part upon the basis of the District Court’s opinion that the Court correctly concluded that the Commission’s order cannot stand at least upon its present foundations.

    United States is accordingly an appellant here only in a very limited sense.

    We do question in one respect, and I shall come to that at the conclusion of my argument, the terms of the District Court’s remand.

    More broadly, however, we agree with the court below that a remand is required.

    This is so in our view not merely because of questions which go to the adequacy of findings, though that is a significant aspect of the case.

    One encounters here, we think, a more fundamental issue, namely whether the Commission has fairly construed and applied the essential statutory command which was written by Congress in the Section 15a (3).

    Before getting to the statute, I think it’s necessary to get a clear understanding of the rationale of the Commission’s opinion for the Court.

    Now, the facts of the case have already been stated and I would like that to reemphasize one or two.

    All of the TOFC rates which are now an issue before the Court are concededly, fully compensatory rates.

    That is to say rates which not only cover out-of-pocket costs, as that term is conventionally used but also overhead cost and their return.

    Byron R. White:

    [Inaudible]

    Ralph S. Spritzer:

    Yes.

    However, the District Court’s judgment tell the Commission that it is not barred from ordering the cancellation of any railroad rates which are below the fully distributed cost level.

    So the court has not restricted the Commission.

    Say then, so far as the Commission has purported to order the cancellation of rates which would be at fully compensatory levels.

    Byron R. White:

    [Inaudible]

    Ralph S. Spritzer:

    Yes, I think the District Court assumed that it must, that a regulatory agency in the field of rate-making is going to be able to make a judgment within reasonable limitations as to costs.

    That’s not to say that it’s an easy matter or that it’s mathematically exact to the last decimal point.

    Potter Stewart:

    You have to make that assumption, that’s the very core of its function, wasn’t it?

    Ralph S. Spritzer:

    I would think if one didn’t —

    Potter Stewart:

    Necessary predicate to it — to all its functions —

    Ralph S. Spritzer:

    I would think — I would go further and to say it’s almost a necessary assumption to the policy of creating regulatory agency.

    Potter Stewart:

    Precisely.

    Ralph S. Spritzer:

    Now, we have here then a case in which the Commission has disapproved on the ground that it would be destructive competition, lower rates which on its own premise are fully remunerative.

    Now, the Act in many of its provisions and most notably in Section 15a (2), the paragraph immediately preceding the one we’re talking about today.

    The Act in term seeks efficient railway transportation, this is a paraphrase of 15a (2), at the lowest cost consistent with the furnishing of such service.

    Now, of course, the reason that the Commission has said in this case that the railroads cannot reduce their rates even though the rates as reduced will be fully compensatory, if the reason for that is its concern with the two competing water carriers.

    The report points out that the proposed TOFC rates would bring the rail service down to the level of the existing water carrier rates.

    If the latter water carriers failed to respond with the reduction of their own, they would, the Commission found lose business and as much as they suffer certain service disadvantages as you heard the less speed, the greater hazards.

    If on the other hand the Commission report states the water carriers reduced their rates to restore a price differential, then the Commission indicates there would be a dissipation of carrier revenues for both.

    The Commission then goes on to express a further concern.

    It fears that the reductions and the counter-reductions will generate what it describes at record 29 and I quote it, “As a vicious cycle of rate-cutting,” the end result which then visualizes is the destruction of the water carrier service.

    And it is in this connection that the Commission goes on to say that it believes these Sea-Land and the Seatrain vessels serve an important roles from the standpoint of the national defense.

    Now, it’s obvious, I think that this would be a very different case, if the railroads were here defending rates which were below their out-of-pocket costs or ever below their fully distributed costs.

    Certainly, it is true that the railroads carry an impressively larger number of commodities and that they serve an infinitely greater number of points.

    It’s true that if they could charge unreasonably low rates on some traffic, making it up on other segments for example, where there’s hard competition, that they would be in a position by rate-cutting to kill off the competition.

    Potter Stewart:

    By unreasonably low rates, you mean rate — rates below cost?

    Ralph S. Spritzer:

    Below fully distributed cost.

    Potter Stewart:

    We have a position —

    Ralph S. Spritzer:

    Yes, you might have — In other words, we don’t have here a case such as a charge to National Dairy, in the case Your Honors have just disposed of.

    What we have rather is an attempt by the rail carriers to increase their volume by lowering their margin of profit, the kind of competition which is regarded by this Act, we think, and by the law generally as favored.

    And perhaps, it’s worth noting incidentally that a lowering of rates by regulated carriers does not necessarily lead to — in a shrinking of revenues by the regulated carriers.

    Apart from the fact that lower rates presumably provide benefits to shippers which cannot be ignored, one must also take into account that one of the consequences of artificially high transportation charges by regulated carriers may be and indeed has been to stimulate a shift to private carriage.

    A Senate study on this subject show that in 1956, 21% of the traffic carried between cities, figured on a ten-mile basis.

    In 1946, 21% of it was in the hands of exempt or unregulated carriers.

    In 1959, the figure had risen to 33% and that trend apparently continues.

    And Commissioner Freas in his dissent in this case refers to the tremendous emphasis given to private carriage by what he terms, “umbrella rate-making.”

    Well, since it’s apparent then that the Commission’s reference to destructive competition cannot lean on the facts of this case, cutting of rates below costs.

    It must mean, I take it, one of two things.

    First, the Commission was concerned as I’ve already indicated about the possibility of the downward spiral of reductions which would ultimately pull the rates below the level of full costs.

    And certainly, one can understand this apprehension.

    Arthur J. Goldberg:

    [Inaudible]

    Ralph S. Spritzer:

    Could we have such a case?

    Arthur J. Goldberg:

    Do we have it here?

    Ralph S. Spritzer:

    We have no finding — definitive finding by the Commission as to who has the lower costs here, though there are indications in the evidence that the water carriers may be.

    Arthur J. Goldberg:

    Would your argument be different if this would happen in the case?

    Ralph S. Spritzer:

    No.

    I would say that as long as the high cost mode is getting its fully distributed cost, there’s room for the low cost mode to preserve its differential and get fully ruminative return.

    Arthur J. Goldberg:

    [Inaudible]

    Ralph S. Spritzer:

    I think it’s by definition or so.

    Arthur J. Goldberg:

    [Inaudible]

    Ralph S. Spritzer:

    Yes.

    I think Your Honor is assuming that though the water carriers are low cost, that the difference is not enough to compensate for the service disadvantages.

    I would say that overall then, the railroads have the inherent advantages because the service factor outweighs the cost factor, and what the shipper is entitled to is to make its choice upon the basis of cost and service combined.

    Now, of course this is a great oversimplification because for some shippers, 2% or 3% less in rates may be enough to induce or maybe half of percent would be enough to induce them to patronize the cheaper carrier.

    Others may be willing to pay a 10% premium because they’re interested in speed and so one has a spectrum, one of doesn’t have a point in which all the traffic does one way or the other way.

    Arthur J. Goldberg:

    [Inaudible]

    Ralph S. Spritzer:

    I think Congress has told the Commission in 15a (3), you are to let carriers freely compete each asserting its inherent advantage, so long as each refrains from engaging in practices which will impair or destroy the other advantages, essentially predatory practices.

    In terms of great competition, that would mean certainly that any rate that is above fully distributed cost by definition could not offend.

    Now, I was addressing myself to this concern of the Commission that reduction might provoke counter-reduction and you might have a vicious cycle as the Commission said.

    It seems to me that this does not justify the Commission’s invoking its minimum rate powers anticipatorily.

    Is it not indeed a sufficient answer to this suggestion, that in this very case, the District Court has sustained the Commission.

    As to those proposed TOFC rates, rates which are not any longer an issue before this Court, which would have been below the level of the fully distributed costs.

    And there’s second piece as in the Commission’s report I think and this lies at the heart of it.

    It is that the water carrier should be given the benefit of a rate differential, so that they will get an assured share of the traffic.

    The Commission has found, it’s been pointed out that the water carriers have certain service disadvantages.

    The Commission then undertakes to remedy this by ordering the rail carriers to keep their TOFC rates no less than 6% above the level of the water carriers existing rates.

    Now, I would stress that the Commission has not held either (a), that the water carriers have a cost advantage on the traffic in question or (b) that the rail reductions would prevent the water carriers from asserting or realizing the benefit of any such cost advantages they might have.

    As to (a), the Commission found and I quote it, “We cannot determine on these records where the inherent advantages may lie as to any of the rates in issue”.

    As to (b), it seems to me difficult to see how the reduced rail rates here in question could improperly impair the assertion of any cost advantage which the water carriers might have on this traffic, or is that already indicated if the rails or the high cost mode and if the rails are realizing more than their fully distributed cost on this traffic, then the water carriers obviously can reduce their rates and still receive a fully remunerative return.

    I think then one is necessarily forced to the conclusion that the Commission is seeking to achieve here what it regards as a fair division of the traffic and the maintenance of a stable relationship between these competing carriers.

    Ralph S. Spritzer:

    Indeed, if there’s any doubt at all about, about this, I would say that it was completely disvalued by what the Commission says about boxcar, the rail boxcar rates as distinguished from TOFC rates.

    Now, this part of the Commission’s opinion is advisory.

    You don’t have any boxcar rates before you in this case.

    But the Commission’s report undertakes to tell the railroads what will be favorably considered in the future for boxcar service which also competes with this water carrier service.

    The Commission notes and this is in the record at 36 that boxcar transportation can be provided in many instances more cheaply than the water carrier transportation.

    Nonetheless, the Commission says, the rail boxcar service must also be pegged above the water carrier rates.

    The reason given is that the boxcar service, like the TOFC service, though in lesser degree is more attractive to shippers than the water carrier service.

    Thus, the Commission concludes as to boxcar rates that the more attractive and the cheaper service must be performed at a higher rate.

    And this, it would seem to me, is in terms to deny to a carrier the opportunity to assert its inherent advantages of cost and of service.

    It appears to be doing with Senator Smathers of the Commerce Committee referred to when the bill that became 15a (3) was before the Congress, the Commission seems to be acting as a giant handicapper, fixing rate relationships in his terms so that each will share in the person nobody would drop out of the rates.

    It was that that the Commerce Committee said, the Commission was not to do.

    Arthur J. Goldberg:

    [Inaudible]

    Ralph S. Spritzer:

    Well, I don’t think that they undid with the one hand what they did with the other.

    And I should like at this point therefore to come to the legislative history.

    Now, in the form originally proposed, it’s true that the bill would have absolutely forbidden the Commission without any qualification in determining whether a rate was below a reasonable minimum, would have forbidden the Commission even to consider the effect of that rate upon other modes of transportation.

    The history reveals that this proposal was ultimately modified to meet the objection of the Commission among others.

    An objection voiced by its then chairman, Commissioner Freas.

    That the absolute prohibition might disable the Commission from dealing with rates which were predatory or destructive in the sense that they would undermine the inherent advantages of competing modes, rather than assert legitimately the advantages of the rate proponent.

    And we have quoted in our brief, Commissioner Freas’ statement and I’ll just quote one sentence of it here because I think this is the essence of the point that he stated repeatedly to the Committee.

    If he said, “We are required to accept the rates of the high cost carrier merely because they exceed its out-of-pocket costs, we see no way of preserving the inherent advantages of the low cost carrier.”

    In any event, that other mode would be compelled to depress its rates below full costs in order to preserve its inherent advantages against the high cost mode of transportation.

    I was weary of the history, Congress in recognition of the fourth of this point changed the language ultimately to its present form.

    Both the Senate and House Committee reports on the final bill, tell us and I’m quoting here the Senate report that the new provision was designed to encourage competition by allowing each form of transportation full opportunity to make rates reflecting the inherent advantages each has to offer.

    And then the report goes on, such rate-making would be regulated by the I.C.C. to prevent unfair or destructive competitive practices as contemplated by the declaration of National Transportation Policy.

    Now, there’s something further that’s informative in the Committee reports.

    Both the Congressional Committees expressed their complete approval of two decisions, one this Court’s decision in the Shaffer Transportation case, the other in I.C.C. decision of 1945 in a case known as New Automobiles.

    The specific language of the Shaffer to which the Committee reports referred is the language which states, and I’m quoting from the Court’s opinion, “The ability of one mode of transportation to operate with a rate lower than the competing types of transportation is precisely the sort of inherent advantage that the congressional policy requires the Commission to recognize.”

    New Automobiles was the case in which the I.C.C. or at least though the committees of Congress thought had refused to hold up the rates of one type of carrier to protect another mode.

    The Committee reports, expressed their concern that the Commission instead of adhering to that approach had backed away.

    I think it’s also suggestive that Commissioner Freas, who may well have been the most influential man in shaping this statutory provision to its ultimate form has dissented in the instant case on the expressed ground that the Commission has completely departed from the congressional directive.

    Ralph S. Spritzer:

    His dissent concludes and I think properly that the decision of the majority may well be taken to stand for the proposition that water carriers are ordinarily entitled to rate differentials regardless of the circumstances of the specific case.

    I do not read the statute to require as matter of law or even to permit blanket protection from reasonable competition for the water carriers, or for that matter for any mode of transportation.

    I might add that Judge Hincks extended the examination of the legislative history in the District Court, led him to the same conclusion.

    I’m not suggesting for a moment that if the Commission were to find that the water carriers have a 6% cost advantage, that the Commission could not take steps to protect that 6% cost advantage at least when the point was reached when the railroads were lowering their rate so far that the water carriers could no longer maintain that 6% differential and obtain fully ruminative rates.

    We don’t have that premise to operate on in this case.

    Now in these few remaining minutes that I have, I could best justify my — our stated as an appellant —

    Earl Warren:

    Well, Mr. Spritzer, you don’t have that situation because the court — because the Commission did not make a finding as to cause.

    Ralph S. Spritzer:

    Yes.

    Earl Warren:

    The only reason that isn’t here.

    Ralph S. Spritzer:

    The Commission has not made a finding as to who has the cost advantage or if so, how much it is in percentage terms.

    Earl Warren:

    Yes.

    Byron R. White:

    [Inaudible]

    Ralph S. Spritzer:

    It would make a difference only if the Commission were to find further that the relationship had to be maintained and the rates had to be well above fully distributed cost, so that these carriers could subsidize other traffic on which they could not realize their costs.

    But the Commission has stated above in — well stated in its brief and the Commission’s report bears this out, this isn’t the basis of the decision either.

    I wanted to get for a few minutes to the point on which we are here as an appellant, which it relates to the terms of the District Court’s remands so far as the factor of the national defense is concerned.

    We think that the District Court goes too far when it states that the national defense consideration is merely a hope for objective though truly it is at least that.

    And that it cannot in any circumstances be an operative policy from which a Commission order can draw a substance.

    We believed that if there were a showing, for example, that the particular types of vessels operated by Seatrain had special characteristic, that these were relied upon by the defense establishment to perform a unique role in the case of the national emergency or a war, that this would be the kind of factor upon which the Commission could take into account in undertaking to keep Seatrain operating as a viable carrier.

    Now, we don’t think here that Commission has any basis for saying that Seatrain is threatened with destruction because on its own findings as to costs, that conclusion does not follow.

    But if the destruction of the water carrier were threatened and if there were a specific showing that the water carrier filled a vital need which could not be otherwise filled, then we think the Commission could take this into account.

    Arthur J. Goldberg:

    [Inaudible]

    Ralph S. Spritzer:

    Yes.

    Arthur J. Goldberg:

    [Inaudible]

    Ralph S. Spritzer:

    Yes, and on the second factor, we would think that the Commission would require something more than a generalized statement in a rather outdated Maritime Administration report or Senate report that domestic tonnage is desirable.

    We would think that there ought to be a specific showing that these vessels were needed and vitally needed for purpose that could not be otherwise satisfied.

    There’s no evidence at all for example, in this record from the Department of Defense or from the Office of Emergency Transportation, the people who have the responsibility for wartime transportation needs.

    We suggest, however, that the Commission should not be confined on remand, that it should not be foreclosed from taking and considering additional evidence as to the needs of national defense.

    If it should appear from still other evidence that the continued operation of the water carriers involved is in fact in danger.

    Earl Warren:

    Mr. Helmetag.

    Carl Helmetag, Jr.:

    Mr. Chief Justice, may it please the Court.

    Carl Helmetag, Jr.:

    If the Court pleases, I shall present the only argument on behalf of the appellee railroads.

    And since the Government has set forth some of the positions that we wouldn’t normally set forth in this case, I believe I can shorten my argument somewhat and perhaps save some of the Court’s time.

    Now, the pricing controversy that’s before this Court had been in continued existent for five years.

    It began in 1957 and long as that may seem I would say that the background for this controversy goes back as far as the post-war, post World War II readjustment period.

    In the span of 15 years from 1948 to the present time, there has been dramatic and drastic changes in the transportation industry which has changed the whole economic role of this industry.

    And Mr. Ginnane and Mr. Spritzer referred to the Presidential Advisory Committee’s report on, on transport policy, a study which is made by the so-called, Weeks Committee, headed by then Secretary of Commerce Weeks.

    Now, that committee made a very extensive study of the transportation industry and they found that as late as 1920, the transportation industry was a monopoly industry in which the railroad had a virtual monopoly of all the surface transportation with the exception of a small part which was along the inland waterways.

    However, the situation is completely changed and the Weeks Committee pointed out that the industry now has one of pervasive competition.

    The Weeks Committee went on to say that a shipper, shipping freight between various points has available not only his own fleet of trucks but he has available a complete and widespread system of motor common carrier and motor contract carrier.

    In addition, he has a continental-wide integrated rail system, pipeline and he has a rapidly growing and expanding water carrier industry on the inland waterway, and not to mention a growing air transport industry.

    Now, the Weeks Committee pointed out that while these changes had taken place in the transportation industry, that Government regulation had not kept pace with them and strangely enough was still reflecting monopolistic concept.

    And as matter of fact regulation was being expanded in a period when competition in the industry was growing.

    And to remedy this situation, the Weeks Committee pointed that there is a need for a complete overhaul of the Interstate Commerce Act particularly in the field of inter-mode competitive rate-making.

    And they recommended legislation would permit a greater play of the forces of competition.

    Now after the Weeks Committee report came out in 1955, study committee then both the Senate and the House were formed.

    Study committees of the Senate and House committees on Interstate and Foreign Commerce, and those study committees, principally in the Senate, held extensive hearings at which all people interested in the transportation industry testified.

    And some very significant facts, facts which bear on the price and controversy here were developed in those hearings.

    Briefly, it was brought out that the transportation market as a whole was a growing one.

    But that the railroads’ share of the market was rapidly declining.

    And by contrast the competitors run an entirely different situation, that their competitors — that is the motor carriers, the water carriers and other freight carriers — were not only realizing the growth of the transportation market, but were growing faster than the market by diverting traffic from the railroad.

    Potter Stewart:

    What was the date of these hearings?

    Carl Helmetag, Jr.:

    These hearings, sir, began right after the Weeks Committee report came out in 1955 and continued through 1958.

    And actually, the report of these subcommittee studies is found in the report of the Senate subcommittee which highlighted this problem.

    The subcommittee’s report was entitled, “The Problems of the Railroads.”

    And after noting the decline of the railroad industry in the corresponding growth of the rail competitors, the subcommittee noted that the working capital of the railroad was in a dangerously low position, and that the railroad — that this decline in the railroad was not occasioned by the recession that was then going on in the economy.

    Actually the sickness of the railroad industry were deepening the recession — and eroding the nation’s economy.

    Now, the subcommittee, the Senate subcommittee recommended legislation to permit greater freedom of competitive forces in inter-mode pricing.

    Now, the reason for this was that the subcommittee found that the decline of the railroad was largely caused by overregulation.

    Now, this over regulation was particularly severe in the inter-mode competitive pricing field.

    The Commission in the New Automobiles case, a case which has then referred to by Mr. Spritzer, a case which was decided 1945 had stated that it would not hold up the rates of one mode by artificial pricing restraints or differentials to protect the traffic of another mode.

    Carl Helmetag, Jr.:

    However, while the Commission had announced this policy it was frequently deviating from it and adopting a diametrically opposite policy.

    What the Commission was doing was using its minimum rate powers to prescribe pricing relationships or pricing differentials for the purpose of dividing the traffic among the various modes.

    According to its notions of what it thought were fair shares for each.

    Now, there were two effects from this paternalistic policy of the Commission.

    The first was it was depriving the public of the lower charges that the increased competition ought to bring about.

    And secondly and perhaps more importantly, it were depriving the railroad of the opportunity to effectively compete.

    Now when the two committees of the Senate and House, the committee on Interstate and Foreign Commerce Committee studied the report of the Senate subcommittee, they too were convinced that there was need for a legislation to relax the Commission’s policy with respect to inter-mode competitive pricing.

    And to accomplish this, the committees recommended the statutory language which it presently found in Section 15a (3) and that the recommendations of the committee were accepted.

    And that language which was read to you by Mr. Ginnane, it would became part of the Transportation Act in 1958 and it is the law governing this case.

    If I might briefly summarize the background of this legislation, it was a product of a very serious concern when a part of a Congress with the drastic decline of the taking place in the railroad industry, which the Congress felt was undermining the — the nation’s of the economy.

    By the same — at the same time, the railroad competitors were flourishing and receiving a larger and larger share of the market.

    The Congress was convinced that the decline of the railroad was largely occasioned by the action on the part of the Commission of using artificial pricing differentials, pegging rate to protect the traffic of one mode from the pricing reduction of another, and to terminate this policy on the part of the Commission, the Congress enacted the Section 15a (3).

    So it’s against this background of a rapidly declining railroad industry, which was causing great concern to the Congress that this pricing adjustment ought to be viewed.

    Now, if I might, I would like just momentarily to briefly comment on the circumstances surrounding the adjustment itself that we’re talking about.

    The legislation involved which ultimately became Section 15a (3) was before the Congress in 1957 and it was that time when the railroad were in their most depressed condition.

    And I might say that while the depression of the 1957 and 1958 is over for industry generally, the railroad and particularly those in the east are still seriously depressed.

    When these conditions were just about at their worst for the railroad, Sea-Land one of the appellants here announced in the press and in the journal that it was reentering the coastwise trade with a brand new containership service.

    And as it been explained, this containership service moved highway containers on ships between the port and provide what is in effect the counterpart of a motor carrier service.

    So far as the shipper is concerned or the consignee is concerned, it’s a motor carrier service.

    The freight is picked up at the shipper’s door in a motor vehicle.

    It’s moved in the motor vehicle to the port with the lading intact, no handling of the lading, the container is lifted off the chassis, placed on a ship and moved to a port in the south or the southwest.

    There, it’s unloaded with again with lading intact, placed on a highway trailer, moved over the highway from just the same manner that the motor carrier would through to the consignee place of business.

    Potter Stewart:

    Now, isn’t that exactly the same from the shipper’s point of view, the same service it gets on TOFC railroad —

    Carl Helmetag, Jr.:

    Precisely the same, sir with one minor change with respect to Sea-Land, the container is moved on a ship from port to port whereas with trailer on flatcar or piggyback service, the trailer is moved over the — on a railroad flatcar between the two major cities and fanned out to the consignee in a motor-type operation.

    Potter Stewart:

    But for the shipper and the consignee, he doesn’t — it’s the same except the time and speed?

    Carl Helmetag, Jr.:

    Whatever, whatever takes place by reading the fact it was one service involved a movement of the trailer on a ship and the other moves on a — at a rail flatcar.

    Potter Stewart:

    Well, I appreciate that one might get in a shipwreck and the other might getting a railroad wreck —

    Carl Helmetag, Jr.:

    But the same — but they’re the same from the shipper’s standpoint, they provide what is virtually the same quality of service.

    Now, I might say that the railroad at this time and prior thereto had lost the great deal of traffic to the motor carrier primarily because the motor carrier service was genuinely superior to the rail boxcar service.

    And that when Sea-Land came in and said it was going to provide what in effect was a motor carrier service is, the railroads were greatly concerned about this.

    Carl Helmetag, Jr.:

    It was a new competitive of the same nature as their arts competitors were providing, namely the motor carrier.

    Arthur J. Goldberg:

    [Inaudible]

    Carl Helmetag, Jr.:

    Yes, sir.

    Arthur J. Goldberg:

    [Inaudible]

    Carl Helmetag, Jr.:

    That’s right, sir.

    Arthur J. Goldberg:

    [Inaudible]

    Carl Helmetag, Jr.:

    Yes, sir because let me say this sir, the Commission has never in its history of regulation since 1935 with respect to the motor carrier taken any position like it takes here, that it is entitled to — to hold up motor carrier rates to protect the railroad.

    It’s never taken that position in any instance.

    So that the —

    Arthur J. Goldberg:

    That’s the necessary —

    Carl Helmetag, Jr.:

    Necessary —

    Arthur J. Goldberg:

    — thrust of the —

    Carl Helmetag, Jr.:

    Thrust of this —

    Arthur J. Goldberg:

    Of the decision.

    Carl Helmetag, Jr.:

    That’s right.

    Arthur J. Goldberg:

    [Inaudible]

    Carl Helmetag, Jr.:

    We’re against it, sir.

    We — and we feel likely so we — we — we found that under the paternalistic policy to the Commission of using artificial pricing restraint, restraint to keep the prices pegged, that we could not effectively compete.

    Whether the Commission is of the opinion that this — these artificially high rates are beneficial to the carrier is really immaterial, it’s the customer that determined which mode of transport will be used.

    And we found — and as the Committees of Congress found that we were steadily losing ground under these paternalistic policy and we don’t want them.

    And the Congress said that it doesn’t want them.

    As a matter of fact, it ordered the Commission to abandon them.

    It once — in this field, the free forces of competition to give the customer the lowest price that’s reasonable under the circumstances, and to permit the carrier to compete as business generally does in the marketplace for the customers’ favor.

    Arthur J. Goldberg:

    [Inaudible]

    Carl Helmetag, Jr.:

    That’s right, sir.

    Arthur J. Goldberg:

    [Inaudible]

    Carl Helmetag, Jr.:

    Yes, sir.

    And what we think will preserve the railroad above everything else is to allow us to compete in the marketplace, to reduce our rates, if necessary, to attract traffic and increase our volume.

    Provided the rates exceed our costs and give us a reasonable profit, then we feel that under that kind of competitive climate, that we can successfully compete and that we will be able to have a national transportation system adequate for the commerce in defense of this nation.

    And we might say that that’s exactly what we thought — what we think Congress intended by the enactment of this statute.

    Carl Helmetag, Jr.:

    I’m sorry, sir — I —

    Tom C. Clark:

    I was going to ask about this paternalistic existence.

    Carl Helmetag, Jr.:

    Yes sir.

    Tom C. Clark:

    What do you do with the last clause of 15a (3) where it said, you’re supposed to give consideration to the objectives, I believe, of the National Transportation Policy?

    Carl Helmetag, Jr.:

    Well, sir the — we think the National Transportation Policy sets forth several mandates.

    If you read — if the format of the policy itself sets forth, not enumerated, but specified mandate.

    The most — probably, the most important one and the leading one in the transportation policy itself is the protection of the inherent advantages of the carrier.

    Now this Court had indicated that the inherent advantages, the inherent advantage of low cost is set out in the Shaffer case.

    And the reference to the National Transportation Policy in 15a (3) was incorporated for the purpose of advising the Commission that they should consider that mandate and in particular, and the other mandate of the policy too.

    Now, for example —

    Tom C. Clark:

    Is there a mandate in the National Transportation Policy along the line of its paternalistic policy?

    Carl Helmetag, Jr.:

    No, sir.

    There is none.

    They’re exactly the opposite sir, but the, the mandates of the policy if I might say so indicate that the regulation should be carried out, to bring about sound economics in — in — in — in transportation to preserve inherent advantages to — for the customers and patron, the lowest possible charges without undue preferences, discrimination, and that type of thing.

    Tom C. Clark:

    No protection in the end of it?

    Carl Helmetag, Jr.:

    There’s none of — there’s none in the specified mandate as such.

    But when you get to the end of the policy it says, that if all these things are done and all these guidelines are followed, the end product will be a national transportation system adequate for the commerce and the defense of this nation.

    And that’s what the lower court said.

    They said that the reference to the preservation of the national defense and the commerce of the nation was the hope for end of the policy.

    And that the mandate in the policy preceded, if you will, or came ahead of that, that hope for objective, sir.

    Tom C. Clark:

    Where the hope for there was a direction?

    Carl Helmetag, Jr.:

    Well sir, it’s the Congress’ statement that if the Act taken as a whole, the whole scheme of regulation is carried out by the Commission in conformity with the specific provisions of the statute, and then keeping in mind and recognizing the specified mandates in the policy.

    Then, if that is done and under fair and impartial regulation, the result then will be a national transportation system adequate for the defense that goes on to set the commerce of Postal Department, and in effect, you’d have an efficient economic national transportation system.

    But that is and what we say, Congress meant when it referred to the National Transportation Policy in Section 15a (3), it modified to some extent the prohibition against protective pricing differentials.

    I thought —

    Potter Stewart:

    I’m still not sure to what extent you can see that Congress modified the prohibitions.

    Carl Helmetag, Jr.:

    Well sir, it modified it that by saying that that the regulation should be carried out.

    And in accordance with the National Transportation Policy, and then in all fairness, the legislative history of this section, allow — it’s rather extended over a period of time.

    The reports are quite small and they did not spell out in detail each type of thing that the Commission could or could not do by reason of the incorporation of the National Transportation Policy but if you read them, read the legislative history in the light of the background and particularly in the light of what the Committee said with respect to its desire to end the paternalistic pricing policy to the Commission, it’s pretty clear that the report of the Commission in this instance is without any legal basis to sustain it.

    As a matter of fact, it would appear to us, and I think as it appeared to the lower court, and it’s appeared to the Government here that the very basis is used by the Commission, and the only basis for its report is the precise basis denied to it by Section 15a (3).

    Potter Stewart:

    I’m still not — I still perhaps — I’m being a little dull but I — I still don’t understand what it is your position that the last sentence of 15a (3) does.

    Carl Helmetag, Jr.:

    It tells the Commission that it shall not — you have to read it in connection sir with the prohibition.

    The prohibition is that the Commission shall not hold up the rate of one mode of transportation to protect the traffic of another.

    And then it goes on to (Voice Overlap) —

    Potter Stewart:

    It be very clear if you stop right there.

    Carl Helmetag, Jr.:

    Yes.

    Then it said giving due consideration to the objectives of the National Transportation Policy.

    I believe it says, stated in this —

    Potter Stewart:

    Declared.

    Carl Helmetag, Jr.:

    I may not be reading it quite right.

    Potter Stewart:

    Exactly.

    Carl Helmetag, Jr.:

    But in any event the — in the loop to the National Transportation Policy to find out what the Commission is to do and you’ll find by the very format of the policy itself that it specified several things the Commission shall do.

    And then, then it ends with a dash, a colon, and a dash, and it goes on and say that if all these guidelines are followed, end results of this would be a national transportation system, adequate for the defense and the commerce of the nation.

    Potter Stewart:

    But you say the core of that is a recognition of the inherent advantage —

    Carl Helmetag, Jr.:

    Now sir, if I might address to my argument and to answer your question because I think it leads me into the point I want to make.

    Basically, the Commission says this, at first it distained in this case from deciding off on the basis of the inherent cost advantage.

    Now, very practically there was a good reason why the Commission didn’t do that.

    In this case in addition to the 66 TOFC rates we have involved, there was some 600 of the Sea-Land rate involvement.

    Now, with respect to those comparing the cost of providing the service on those 600 Sea-Land rate, with the cost of the railroad and boxcar service, the Commission cost section found that the railroad with a low cost carrier, in a great many instances, actually, the record before the Commission indicated that they were low cost carrier in most every instance.

    Now, if they had based this decision —

    Potter Stewart:

    The railroad?

    Carl Helmetag, Jr.:

    Yes, the railroads were.

    If they had based this decision upon an inherent cost advantage, the effect would’ve been that the railroads would’ve been entitled to the differential.

    And of course, that would’ve worsened the situation so far as Sea-Land was concerned.

    So the Commission distained and put aside any, any use of the inherent low cost advantage and looked to another section of the National Transportation Policy.

    And they said this sir, they said the question is whether or not these rate reductions constitute unfair or destructive competitive practices, and then they found that they did.

    And they found that they did for this reason, if these rates become effective they will attract traffic from Sea-Land and Seatrain and make it impossible or difficult for them to continue in business.

    In other words, they say that a pricing adjustment which will result in attracting traffic to a carrier is an unlawful one if it will attract enough traffic to harm a competitor, if the diversion is inconsequential, if it doesn’t amount to anything, then the Commission may not follow the prohibition in Section 15a (3).

    Now, the Commission went a little further than that and attempted to bolster to that basic proposition which was apparently completely inconsistent with the statute because the statute said, they shouldn’t hold up the rates.

    And then the Commission says we can when we think it’s to the benefit of preserving a carrier, to bolster that proposition, they referred to the national — preservation of the national defense.

    Carl Helmetag, Jr.:

    And they in some very broad language said that the inter-coastal water carriers were important to the national defense and that they needed differential then they’re favored to survive, and therefore, the Commission in order to preserve them, would prescribe the differential.

    Now, where the Commission got the figure 6% is nowhere in the record.

    Nowhere explained in their report, probably was an informed guess but the source of it is a complete mystery.

    Hugo L. Black:

    Are you saying that they did not have the right to consider the national defense at all?

    Are you saying they gave it too much weight?

    Carl Helmetag, Jr.:

    I’m saying sir, first, I’m saying number — I’d like to say first what the court below did because we’re adopting that position here.

    The court below said that the national defense reliance upon the national defense by the Commission was improper for two basis or for two reasons —

    Hugo L. Black:

    Wholly improper you say?

    Carl Helmetag, Jr.:

    Yes, improper sir, for two reasons.

    First, that there were no findings in the Commission’s report to show in what way the national defense would be jeopardized if the Sea-Land and Seatrain were not preserved.

    There were no findings on that at all.

    All the Commission did was refer to these two fairly old reports as pointed out by Mr. Spritzer, which indicated that there is some value to the national defense of coastwise water carrier.

    But then the court went further and said that regardless of the adequacy of the findings, the Commission is without power to do what it did in this case by referring to the provision in the National Transportation Policy with respect to the preservation of the national defense.

    The court said that the preservation of the national defense as I indicated in answering some other question was the hope for objective of the National Transportation Policy and was not a mandate to the Commission.

    In other words, the Commission upon finding that a particular carrier is desirable to the national defense or valuable to it, it cannot deviate from the requirements of the Act or the requirements of the National Transportation Policy itself, in order to preserve that carrier for the national defense purpose.

    William J. Brennan, Jr.:

    Well, may I ask Mr. Helmetag —

    Carl Helmetag, Jr.:

    Yes, sir.

    Byron R. White:

    But that seems to me, that argument does conceive the preservation of the national defense is an objective of the National Transportation Policy.

    Carl Helmetag, Jr.:

    As the court below sir, characterized it as the hope for an end —

    William J. Brennan, Jr.:

    But whether for — whether hope for or not —

    Carl Helmetag, Jr.:

    Yes.

    William J. Brennan, Jr.:

    — isn’t it an objective?

    Carl Helmetag, Jr.:

    It’s the, it’s the hope — it’s the — it’s the objective sir in the sense that if the entire Act in the scheme of regulation is carried out in conformity with that matter.

    William J. Brennan, Jr.:

    Well I appreciate your argument but I know your position as you’ve restated it very well indeed.

    But what occurs to me is this.

    I expect what’s bothering me is the same thing that my Brother Stewart has addressed it was bothering him.

    After all we’re dealing with 15a (3) —

    Carl Helmetag, Jr.:

    Right.

    William J. Brennan, Jr.:

    And whatever may have been these objectives if you’ll join me for a moment in using that description —

    Carl Helmetag, Jr.:

    Right.

    William J. Brennan, Jr.:

    Preservation of the national defense, preserving to the extent we possibly can, the help of all four modes of transportation, if they are objectives, whatever may have been whether hope or otherwise in as expressed in the National Transportation Policy itself, isn’t there a expressed direction here to the Commission, that for this purpose that in any event, the prohibition is modified to the extent necessary giving due consideration to those objectives?

    Carl Helmetag, Jr.:

    Yes, sir and I think —

    William J. Brennan, Jr.:

    Don’t you mean at least that much?

    Carl Helmetag, Jr.:

    I would think sir the — the way to read it in the context or the format of the section itself is that, if I say, that if you follow the specified mandates, now you’ll note that the specified mandate in the policy sir, if you have of the National Transportation Policy at page 57 of the Commission’s brief, you’ll note that it sets the mandates out by cause, they’re separated by semi-colon, to tell the Commission do each one of these very specific type things, although they’re cast in somewhat general terms.

    And then it goes on and ends that phase of the policy and then says that if again — again, if all of these guidelines are followed, the result will be if you please sir —

    William J. Brennan, Jr.:

    Well, that may be true that those are — that in other words, those are standards which adhered to, should bring about the hope for result.

    Carl Helmetag, Jr.:

    Right.

    William J. Brennan, Jr.:

    But my question is whether in 15a (3) objectives — we’re trying to these same ones, this “hope for results” don’t have a different connotation.

    Carl Helmetag, Jr.:

    Well sir, the court below was of the opinion that they do not —

    William J. Brennan, Jr.:

    I know that —

    Carl Helmetag, Jr.:

    They were of opinion that the hope for objective were not a mandate of the policy and that our position, I would point out that if the transportation regulation is carried on by the Commission subject to the Interstate Commerce Act and subject to the specified mandate in the policy does not accomplish that objective.

    That is of providing the nation with an adequate transportation system, then the remedy which Congress has followed is to amend the statute and that’s exactly what it did in this instance.

    It amended the statute to provide for a freer working of force of the competition and in doing so it specifically stated that the purpose and objective of providing this freer play of competitive forces was to strengthen and improve the national transportation system though that it would be adequate for the growing —

    William J. Brennan, Jr.:

    Well, really —

    Carl Helmetag, Jr.:

    — economy and the —

    William J. Brennan, Jr.:

    Your answer to me really is to all that giving consideration to the objectives is that, yes that if you can accomplish them by adhering to the standard which preceded the objectives —

    Carl Helmetag, Jr.:

    That’s right.

    They are the operative mandates to the policy and then if — if those operative mandates are pursued and followed, then your result would be the thing which the Act spelled out.

    William J. Brennan, Jr.:

    But for 15a (3) those are necessarily interwoven —

    Carl Helmetag, Jr.:

    That’s right the causes which are set off by the semi-colon that precede the end purpose of the policy, and that’s what the court below said and it’s an intelligent, and thus a very meaningful reading of the National Transportation Policy.

    Arthur J. Goldberg:

    How do you read the word in the statute, the word “adequate”?

    Carl Helmetag, Jr.:

    Adequate?

    Arthur J. Goldberg:

    Yes.

    Carl Helmetag, Jr.:

    That’s again very expressive of the hope for end.

    That if these things are done, the transportation system as a whole would be adequate for the —

    Arthur J. Goldberg:

    That’s in the opposite part of the way you describe it.

    Carl Helmetag, Jr.:

    No, sir.

    That follows if you’re reading it sir in the conclusory clause at the end of the policy.

    Arthur J. Goldberg:

    [Inaudible]

    Carl Helmetag, Jr.:

    Oh —

    Arthur J. Goldberg:

    [Inaudible]

    Carl Helmetag, Jr.:

    Yes.

    Arthur J. Goldberg:

    [Inaudible]

    Carl Helmetag, Jr.:

    Yes.

    Arthur J. Goldberg:

    [Inaudible]

    Carl Helmetag, Jr.:

    Right.

    Arthur J. Goldberg:

    [Inaudible]

    Carl Helmetag, Jr.:

    Yes sir, I see that.

    Arthur J. Goldberg:

    [Inaudible] adequate to the needs of national defense.

    Carl Helmetag, Jr.:

    Yes.

    Well — well, perhaps so but you can’t — you can’t read adequate in the sense of this provision in the National Transportation Policy in the light of the legislative history of Section 15a (3) that — that so far as the congress was concerned that the — the adequate transportation system would arise and come out of elimination of the Commission’s paternalistic policy.

    That’s the — that’s the whole genesis of this — of this legislative section and —

    Arthur J. Goldberg:

    [Inaudible]

    Carl Helmetag, Jr.:

    Yes, that’s — yes, sir.

    Arthur J. Goldberg:

    [Inaudible]

    Carl Helmetag, Jr.:

    Well — well, sir maybe “hope” is not quite the right word. Perhaps, you would say that it’s the result.

    And as I pointed out sir that when Congress had become convinced from time to time that the fair administration of the Act under the regulatory provisions of the statute, and under the National Transportation Policy is not resulting in the transportation system that meets the — the desired result then, what it has done is to amend the act, just like it did in when it incorporated in Section 15a (3) and I think it’s highly significant that the Congress said that the purpose of Section 15a (3) was to provide a national transportation system adequate for the defense and the commerce of the nation —

    Byron R. White:

    [Inaudible]

    Carl Helmetag, Jr.:

    But they’re — they’re of — they’re of —

    Byron R. White:

    And in the name of one or two of these that the — some of these —

    Carl Helmetag, Jr.:

    Yes.

    Byron R. White:

    — rates were —

    Carl Helmetag, Jr.:

    That’s right.

    — satisfied below —

    That’s right.

    Byron R. White:

    — isn’t that true?

    Carl Helmetag, Jr.:

    That’s right.

    The Commission utilized —

    Byron R. White:

    But the —

    Carl Helmetag, Jr.:

    — the mandate against unfair or destructive competitor —

    Byron R. White:

    They are opposing mandatory specifics to attain a certain goal.

    Carl Helmetag, Jr.:

    Yes.

    Byron R. White:

    It’s rather strange to me that the goal is mandatory, I mean in the sense that — I mean why put mandatory — what are we trying to do just — here, just to attain some —

    Carl Helmetag, Jr.:

    Well —

    Byron R. White:

    — a hope for a goal by —

    Carl Helmetag, Jr.:

    Well —

    Byron R. White:

    — might as well make the means hope for.

    Carl Helmetag, Jr.:

    But sir you must keep in mind, if I may say so that this National Transportation Policy is not one of the section of the Act as such.

    It’s the preamble, the guideline of the results that the fair and impartial regulation —

    Byron R. White:

    Part of, yes (Voice Overlap) does not appeal from setting aside that the rates below based on one part of the National Transportation Policy.

    William J. Brennan, Jr.:

    Well, 15a (3) anyway makes it the part of the statute.

    Carl Helmetag, Jr.:

    That’s right.

    No question about that.

    William J. Brennan, Jr.:

    So the fact that it’s a preamble is unimportant, isn’t it?

    Carl Helmetag, Jr.:

    No, sir.

    William J. Brennan, Jr.:

    I mean, there’s no particular significance.

    Carl Helmetag, Jr.:

    No.

    No but the — I agree with that.

    But the fact that the nature of the provision and the type of language it cast in — in its position in the statute.

    Byron R. White:

    And I suggest it may and perhaps, when you read 15a (3) that all Congress was really doing was telling — after all, the phase was of over as the different points of view were gelled out —

    Carl Helmetag, Jr.:

    Right.

    Byron R. White:

    Congress thought that thing, all Congress’ really said was that — and now you subject what you were — totally, I can see this subjects to what they were previously doing in intra-mode regulation to the National Transportation Policy.

    Carl Helmetag, Jr.:

    Not sir what they were previously doing broadly cast, but what they said they would do in the New Automobiles case.

    The Commission was doing two things, as the court below said that they were equivocating, they were vacillating.

    They were using two policies if you will sir —

    Byron R. White:

    Well, all, right they were saying that the I.C.C., I suggest that — well, perhaps you have thought that the National Transportation Policy isn’t something that you should have in mind when you have this inter-modal problems in mind, before you, but indeed they are something for you to follow, now follow.

    Carl Helmetag, Jr.:

    I would say this sir that when they refer to the National Transportation Policy in Section 15a (3), Congress was telling the Commission that so far as we, Congress are concerned, the National Transportation Policy prohibits you the Commission from following your paternalistic practices of using artificial pricing restraints to protect the traffic of one mode from the effective price reduction to the other.

    But what the National Transportation Policy does order you to do is to follow the rule which you said you would follow and in which you have deviated from with increasing frequency. Namely, the policy in the New Automobiles case to the effect that that you will not hold up the rates of one mode to protect the traffic of the other.

    Byron R. White:

    Are you saying if you’re going to hold up rates of one mode to protect another, you better have one of the reasons given to the national transportation (Voice Overlap) —

    Carl Helmetag, Jr.:

    And if the principal reason to put the — referring to the National Transportation Policy that Mr. Spritzer pointed out was to ensure that the Commission would still retain the power to protect the inherent low cost advantage of one mode.

    Arthur J. Goldberg:

    [Inaudible]

    Carl Helmetag, Jr.:

    No sir, it is completely different than the railroad originally — Because sir under the — our reading of the statute, the Commission still has the right, and indeed it has the duty to consider the effect of our reduction upon the other modes of transportation, and as the court below pointed out one of the duties it had is to protect the inherent low cost advantage of another mode.

    Two other District Courts have indicated that the Commission has the obligation to consider our price reduction to determine whether they’re predatory, that is made in the sense of trying to destroy another type of transportation or whether they would constitute a monopoly throughout and —

    Arthur J. Goldberg:

    [Inaudible]

    Carl Helmetag, Jr.:

    And they’ve done that sir.

    They’ve done that under this very statute, the lower court — No, sir.

    The Congress has acted not to take the so-called Robinson-Patman’s standard recommended by the Secretary of Commerce.

    Why?

    It’s not too clear but they felt that the recommendation of Commissioner Freas with respect to the necessity of protecting the low cost advantage was really what the Congress had in mind in this situation.

    Byron R. White:

    Well, in regard to the general goal of the national defense, I take it in effect to your argument that it may be true that in order to achieve these goals of the railroads, the Commission could protect the low cost mode.

    Carl Helmetag, Jr.:

    If they’re saying —

    Byron R. White:

    But if it may not protect the national defense by not protecting the low cost mode or by doing damage to the low cost mode.

    You are in effect saying that the highest degree is not recognizing the inherent advantages of the railroad in this case?

    Carl Helmetag, Jr.:

    Well, I’m saying in this case sir that the Commission did not base its decision in any respect upon the preservation of a low cost mode.

    Now, the court below indicated that under other circumstances, the Commission might do that and I was asked whether or not this new statute is the same statute as the railroad originally has, when I said it was different because under this statute, according to what Judge Hincks said in his dictum, that the Commission would have the obligation to consider the effect of our rates upon those with our competitors in order to protect the low cost advantage of these competitors.

    Byron R. White:

    But these rate stand — if the I.C.C.’s actions stand —

    Carl Helmetag, Jr.:

    Yes, sir.

    Byron R. White:

    — the inherent advantage of the railroad is not –-

    Carl Helmetag, Jr.:

    It’s not considered in the light of this case.

    The inherent advantage if you’re talking from the standpoint of low cost advantage which is the way this Court have talked about it in the Shaffer case, then that is not dealt with at all, because the Commission’s basis for finding this rate unlawful was to preserve this other mode of transportation irrespective of its low cost advantage.

    William J. Brennan, Jr.:

    I suppose that instead of giving due consideration to the language there except to the extent necessary to achieve the objectives of the National Transportation Act, we wouldn’t have so much trouble with it, the 15a (3), would we?

    Carl Helmetag, Jr.:

    Well the language of — I’d be somewhat less than candid if I would say that the language of the National Transportation Policy is completely clear that the transportation legislation gets into the statute largely as a matter of compromise.

    You get some difficult language, but I would say this is a reading that the lower court gave it and the reading which we’re suggesting here, we think it is sensible and realistic.

    Potter Stewart:

    If we take it all together —

    Carl Helmetag, Jr.:

    Yes.

    Potter Stewart:

    — it’s like — it’s like a political platform for everybody.

    State writers, organized labor and people who work for efficiency, and Congress obviously said that all its vested interests where in favor with all of you.

    Carl Helmetag, Jr.:

    Sir, if I may bring my argument to a close because I know it’s at the end of the Court’s day and maybe my friend on the other side might have a few things to say, there just two last things that I’d like to comment very, very briefly upon and first is that the language of the court below and a long discourse of court below with respect to the preservation of a low cost advantage.

    It’s essentially a dictum.

    It was not the basis for which the Commission decided this case and wasn’t in this case.

    Carl Helmetag, Jr.:

    Now whether this Court would choose to endorse that or approve it, it’s certainly not for us to say.

    But what we would suggest is and we again iterate that it is not a basis for this decision and we would suggest too that if the Court were to adapt that dictum or to approve it, that the Court not go further and try to, if I may say this with all due respect, layout guidelines as to how you would have determine the existence of a low cost advantage or how the low cost advantage should be protected assuming it was properly found.

    Those matters lie in the field of cost, carrier cost and relative carrier cost and they’re extremely difficult and complex.

    There are areas in which there’s a great deal of disagreement amongst the economists and accountants and we suggest that their matter is, at least in the first instance, are for the expertise of the Commission subject of course to judicial review.

    And we might say that in expressing these views, we’re doing nothing more than echoing what this Court said in New York versus United States, when it’s indicated that the area of cost and relative cost was one particularly within the jurisdiction of the Commission in the first instance.

    Now, just by way of conclusion, we ask the Court to affirm the decision of the three-judge court below and which set aside the order of the Commission as unlawful.

    Earl Warren:

    Mr. Ginnane.

    Robert W. Ginnane:

    Mr. Chief Justice.

    I’ll be very brief.

    William J. Brennan, Jr.:

    Well, may I just ask this?

    Robert W. Ginnane:

    Certainly.

    Potter Stewart:

    Would I be fairly summing up the Commission’s position if I were to suggest they would read that last sentence of 15a (3) as if it read rates of carrier shall not be held up to a particular level to protect the traffic of any other mode of transportation except to the extent as may be necessary and the like to achieve the objectives of that.

    Robert W. Ginnane:

    Yes.

    First I’d like to associate myself with the last remarks of Mr. Helmetag on behalf the railroads.

    We feel with him that some of that detailed discussion, methods of cost determination and so on in the lower court’s opinion is dictum at least in the sense that it wasn’t briefed and argued by the parties, and by any of the parties, and they are complicated and disputed matters which I think it would be unfortunate if it turned out to be generally regarded as binding most upon the industry and upon the Commission.

    Second that — on pages 39 and 40 our brief, we refer to prior decisions of this Court and the lower federal courts as to the steady flat rate and as this Court did in United States v. Capital Transit with 325 U.S. and I quote, “Congress unequivocally reserved to the Commission power to regulate the recent openness of interstate rates in the light of the needs of national defense.”

    Now, that was after the enactment of the National Transportation Policy and I know of not a word in the legislative history, in the 1958 Amendment that purported to undo that.

    And similarly, we don’t know of anything in the 1958 legislative history which indicates a purpose on the part of Congress, to undo that whole portion of the structure of the 1940 Act, particularly those provisions relating to water carriers, water carrier rates, 305 and 307.

    That portion of the 1940 structure from which of this Court found in the series of cases beginning with McLean, coming down to Dixie Carriers that there was a persistent national policy, congressional policy, to preserve or if possible efficient water carrier service for the nation.

    Thank you.