But if the railroads themselves can't agree and as I say, the Burlington was one of the greatest objectors to the majority desire to get that kind of a car-ownership bill-I think this bill would be a great detriment to the industry.

And I think again, gentlemen, in spite of thef act that it would add money to the New York Central revenues, and in spite of the fact that our car ownership shows that we own more cars in our fleet than we use. Now, this is the end of my testimony.

But I should like also to put in the record a statement here-actually I was asked to do this by Mr. Loomis-in testimony before this committee yesterday the following statement was made by the Honorable Floyd V. Hicks, Member of Congress from the Sixth District of the State of Washington, and I am quoting:

There is another aspect which is of at least as deep concern to me as a member of the House Committee on Armed Services, and that is that the boxcar shortage is having an adverse effect on our defense efforts. Ammunition destined for Vietnam has been delayed because of the scarcity of freight cars.

Mr. Chairman, I am afraid that Mr. Hicks has been misinformed. And I beg leave to set the record straight. There is not a single instance of delay in the delivery of any ammunition destined for Vietnam or any other place because of a shortage of freight cars. On the contrary, the performance of the railroads in meeting the requests of the Military Traffic Management and Terminal Service has brought high praise from the Department of the Army, and is a matter of considerable pride to the railroad industry.

I beg your leave to read this paragraph from a letter addressed to the Association of American Railroads from Gen. John J. Lane, commanding officer of the Military Traffic Management and Terminal Service, dated September 15, 1965, on the matter of the railroads' performance in meeting the demands of the Department of Defense. And I would like to introduce the entire letter into the record. The CHAIRMAN. Let it be included in the record. (The letter is as follows:)

DEPARTMENT OF THE ARMY,

MILITARY TRAFFIC MANAGEMENT AND TERMINAL SERVICE,
Washington, D.C., September 15, 1965.

Mr. DANIEL P. LOOMIS,
President, Association of American Railroads,
Transportation Building, Washington, D.O.

DEAR MR. LOOMIS: By way of summary of our discussion during your visit on September 10, I wish to again express my appreciation for the excellent cooperation and support given the Department of Defense by the Association of American Railroads and the U.S. railroads during recent months. On several occasions unusual requirements have called for special attention by your staff and prompt action by the railroads. The response to these unusual situations, in each instance, has been exemplary.

With respect to the impact of increasing requirements, I hope the estimates furnished during your visit are helpful. I anticipate refinements in forecasting for the period January-March 1966. Estimates for these months will be provided your staff as quickly as the pertinent data are available.

I share your concern about effective freight car utilization. We shall continue to concentrate on our traffic control operations to obtain optimum utilization of cars, particularly for export traffic. It is our policy to obtain as fast a turnaround as is feasible. I would appreciate information on any occasions when this policy is being violated. Admiral Sutherling, my Deputy for Operations, is on the west coast this week and will devote special attention to this question.

On some occasions, military exigency may require an uncommon response on the part of the U.S. transportation industry. I assure you, however, that it will be my purpose to confine requests for such a response to occasions where it is necessary in the national interest.

With best personal regards,
Sincerely,

JOHN J. LANE,

Major General, U.S. Army, Commanding.

Mr. PERLMAN. And I should like to quote from this letter from General Lane of the Department of the Army. I will just quote one paragraph:

I wish again to express my appreciation for the excellent cooperation and support given the Department of Defense by the Association of American Railroads and the U.S. railroads during recent months. On several occasions unusual requirements have called for special attention by your staff and prompt action by the railroads. The response to these unusual situations, in each instance, has been exemplary.

So I should like to introduce that letter from General Lane into the record.

The CHAIRMAN. It has been included in the record.
Does that conclude your presentation?

Mr. PERLMAN. That concludes my presentation, sir.
The CHAIRMAN. Mr. Younger, any questions?

Mr. YOUNGER. Just one.

In regard to your statistics on page 14, the revenue ton-miles, there has been a lot of testimony that the product of the country has increased such and such a percentage, and that the railroads' capacity has fallen such and such. Now, your figures here show that from 1926 to 1964 your revenue ton-miles or the hauling capacity has increased 48 percent. I wonder just how that percentage of increase compares with the product increase; that is, some measure of what should be hauled by the railroads. Do you have any figures like that? Mr. PERLMAN. No. But I could get the figures for you and have them inserted in the record.

Mr. YOUNGER. I think it would be well to get that comparison, because there has been so much made in the testimony before that the railroads haven't kept pace with the productivity of the country.

Mr. PERLMAN. Yes, sir. I would say that they have not, that their competition has gone ahead of them; that is, the amount of transportation and especially truck transportation. But, as I say, in the last 2 years we have shown an upturn in the competitive intercity net tonmiles hauled by the railroads compared to other forms of transportation. And I think that these new methods and techniques that Î mention in here are adding immeasurably to it.

Mr. YOUNGER. One thing that is not clear in my mind, if they put in the per diem rate of $4.50 a day, or whatever the rate is, you say that that would yield money to your road because you have more cars on loan than you have other cars on your own line?

Mr. PERLMAN. That is right.

Mr. YOUNGER. So that you would gain by that. If that were trueand I take it it is why in particular would you object to that being done?

Mr. PERLMAN. Purely in the interest of the railroad industry, sir. We people in the industry say we should have less regulation. And the moment that a minority of the group can't agree with the majority,

they want to run to the Commission to have the majority's will overthrown. I think that is wrong. I think it is put up or shut up in any kind of a game. If you ask for less regulation, you shouldn't have your tongue in check at any time you think you can get some advantage out of more regulation, ask for more regulation. My interest in this thing is, I think the railroad industry is better off letting the free forces of competition have their full sway rather than have more and more regulation piled on us by the Congress and by the Interstate Commerce Commission. I think there should be enough statesmanship in this industry to solve its own problems. And that is why I am here.

Mr. YOUNGER. Thank you very much, Mr. Pearlman.
The CHAIRMAN. Mr. Nelsen.

Mr. NELSEN. Thank you, Mr. Chairman.

I notice in your statement on page 2 you refer to the system of ownership and the cars in possession, 108,323, and on your tracks 103,237, which would indicate that some of your cars would be on somebody else's tracks.

Mr. PERLMAN. Yes, sir.

Mr. NELSEN. Now, the question I would like to ask refers to an excerpt from the examiner's report, the recommended order and finance docket No. 21989 dealing with the Pennsylvania Railroad and the New York Central's merger. In this particular docket they refer to the fact that between 1952 and 1963 equipment rent for the Pennsylvania Railroad rose from $16 million to $71 million; on the New York Central, from $12 million to $38 million. It goes on to state that the increase in the Pennsylvania equipment rate payable is primarily attributable to a change in policy from purchasing equipment to leasing equipment. For 1952 to 1963 its number of available freight cars declined from 194,000 to 134,000, or a net decrease of 60,000 cars. If this is brought to current date, it would be 83,000 cars. Then it goes on with reference to the New York Central:

We note that during the period of 1952 to 1963 its number of available freight cars declined from 142,000 to 88.000, a net decrease of 54,000 cars. And if this is brought up to a current figure, it would be 63,000 cars.

Now, I realize that when you go to cars of greater capacity it does make these figures really inaccurate as far as a description of the situation that does occur. But this is a 10-year period. Here you refer to 9 months. I wonder if you have any observation relative to this document?

Mr. PERLMAN. Well, No. 1, there are several parts to this.

In the Pennsylvania ownership versus the leasing, in order to reduce their official debt instead of going out and buying new freight cars and putting out equipment trust certificates, or fixed debt, they arranged with insurance companies to buy these cars for them and lease them back to them over a number of years. And the costs-the rental cost, you might say, or the ownership cost were practically the same, just a little more, enough to let the insurance companies make a little interest on them.

Mr. NELSEN. In other words, the rental is not of other railroads' cars, it is of an insurance company or some finance plan, and they

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have rented cars in that manner rather than buying them and owning them themselves?

Mr. PERLMAN. That is right. That amounts to almost $250 million, which isn't shown in their ownership, but it is shown as leased cars. And it isn't shown in their debt for that reason.

Now, Mr. Smucker is here for the Pennsylvania, and he could amplify that actually better than I could. But I know of my own knowledge that that is what happened.

Also in that period, instead of buying boxcars on the Pennsylvania they have gone, not to the Flexi-Van, but to the Trailer Train, which is a piggyback form of containerization different than ours. And they lease from Trailer Train these cars, and they are not in their ownership.

Am I right on that?

Mr. SMUCKER. Yes, sir.

Mr. PERLMAN. So of the figures again, that is why I said that at the beginning, you can use figures any way you want, but you have to know what they mean. And the same way with our ownership.

Now, the Burlington in its system controls the Colorado and Southern Railroad. The Colorado and Southern Railroad and the Burlington, in putting in car ownership, take the consolidated figure. And I would refer again to Mr. Miller of the AAR for my facts, because again I am quoting other railroads' practices and AAR practices. Now, we own over 70 percent of the Pittsburgh & Lake Erie. So we have consolidated returns also.

So when we talk about the New York Central, in that which you read that was New York Central Railroad alone. We have many, many subsidiaries, wholly owned, 15-percent owned, 51 percent, but the P. & L.E. is over 80-percent owned. And we make consolidated returns for them just like the Burlington which includes the Colorado and Southern figures in theirs. And that is what brings up this figure I gave you of 108,000.

Mr. NELSEN. I understand.

Thank you very much.

The CHAIRMAN. Mr. Harvey.

Mr. HARVEY. You referred to free forces of competition a minute ago. But aren't these per diem charges set by the Interstate Commerce Commission?

Mr. PERLMAN. No, sir; these per diem charges are voted upon by the membership of the Association of American Railroads. And they are set by them. And Interstate Commerce Commission has nothing to do with it.

Mr. HARVEY. I am a newcomer to this. Why are we authorizing the Interstate Commerce Commission to go ahead and raise them?

Isn't that what we are doing, we are giving it the authority to do that?

Mr. YOUNGER. No.

Mr. HARVEY. I thought in reading it that it authorized them to do it, but didn't compel them to do it.

Mr. YOUNGER. No.

Would the gentleman yield?
Mr. HARVEY. I would be glad to.

Mr. YOUNGER. I am not a lawyer, but this merely says that if it actually raises the rate, this is the method they must use in calculating their rates; it doesn't say that they must fix the rates, all it says is that if you do fix the rates, the rates must be fixed in this manner as set forth in the bill.

Isn't that your understanding of it?

Mr. PERLMAN. Yes, sir.

Mr. HARVEY. We certainly aren't talking about the free forces of competition, are we?

Mr. PERLMAN. I would say so.

Mr. HARVEY. In either event, if they are agreed upon by the railroad or the Interstate Commerce Commission says so, there are no free forces of competition, either they are agreed upon by the railroad or the Interstate Commerce Commission sets them. In either case is there any competition?

Mr. PERLMAN. What I meant, sir, was that we have always said that the railroad should be allowed as much freedom from regulation as possible. They should be able to set their own rates. They should be able to set their own hours of service, all those kinds of things, just like any other industry under the free enterprise system in America. Now, this just gives the Commission one more fiat from the Government in this whole regulatory sphere.

Mr. HARVEY. I could accept your argument, but on the surface of it, $2.79 to rent the $5,000 article per day barely covers fees for interest on loan, if you want to borrow $5,000 for a day that would only take care of the interest, that is all. So on the surface it doesn't sound like a reasonable thing. I fail to understand your argument there.

Mr. PERLMAN. When these rates were set they were calculated on their cost, including interest. You see, some of these cars that you have talked about are depreciated down to a value of a thousand dollars.

Mr. HARVEY. Granted, they are depreciated down, as we discussed this morning, they have taken it into account. But I still gather, looking at the table here, that to rent a vehicle worth up to $5,000 you pay a charge of $2.79 a day, or thereabouts. And when you calculate the interest on a $5,000 loan, you can't go down to the bank and borrow it any cheaper than that. So all you are doing is paying interest on it, that is about it. Either that, or I don't understand this bill at all. That is possible.

Mr. PERLMAN. You have got up to a 30-year life on these cars. And that is why you

Mr. HARVEY. But that is taken into account in establishing your per diem charge, isn't it?

Mr. PERLMAN. Yes.

Mr. HARVEY. The car is depreciated, and the per diem charge is based upon the depreciated cost, after you have established your depreciation charge, and so forth. I am talking about one that is depreciated down to $5,000. And it still costs $2.79 now a day to rent it. But I am saying that you can't go to the bank and get $5,000 for less than that interest alone.

So it just seems to me on the surface it is a pretty low charge unless you have got some other explanation that I don't know of.