Ex Parte 103

The dark-walled, courtlike hearing room on the eleventh floor of the Interstate Commerce Commission building in Washington normally seats 200 spectators. Last week, however, 500 rail executives, lawyers, traffic experts, clerks, shippers, statisticians and newshawks jostled and crowded their way into this chamber to witness the opening of the biggest railroad rate case in a decade. The thermometer outside on Pennsylvania Ave. stood at 98DEG. Everyone was in his shirtsleeves and a frank sweat. The mahogany paint melted from the metal chairs, stained many a pair of linen trousers. On the dais which runs the width of the room sat I. C. Commissioner Balthasar Henry Meyer, presiding, flanked by Commissioners Ernest Irving Lewis and William Erwin Lee, assigned to the case. Commissioner Lee kept himself cool by waving a silk fan. Sitting in on the case unofficially was Commissioner Joseph Eastman, most liberal and conscientious member of the I. C. C. Present also by invitation were seven representatives of the State Railroad Commissions throughout the land.

The case under consideration was docketed as Ex Parte 103. It contained the petition of Class I railroads in the U. S. for a horizontal (i.e. blanket) 15% freight rate increase (TIME, May 18 et seq.). The first hearings were called last week for the carriers to show that they were in desperate financial straits and needed as an emergency measure more revenue to keep out of bankruptcy. That the roads had reached an economic crisis was repeated in a dozen different ways by a dozen different witnesses put on the stand by Henry Wolf Bikle who, as the carriers' chief counsel, stage-managed the presentation of evidence.

First witness was Dr. Julius Hall Parmelee, director of the Bureau of Railway Economics, who discussed the fall in the value of rail securities to a point where they might soon become ineligible for legal investment by savings banks and trusts. A great grumbly thunderstorm broke in the middle of Dr. Parmelee's testimony, drowned out his monotone of figures but cooled everyone off.

To present the rail security issue from the investor's angle Edward Dickinson Duffield, big-bodied president of Prudential Insurance Co. of America, was placed on the stand by the carriers. As chairman of the Emergency Committee on Railroad Investments of Life Insurance Companies and Mutual Savings Banks, he said he spoke for 50,000,000 policy holders and 13,000,000 depositors whose institutions held about one third of the roads' $10,783,000,000 outstanding bonds. Pointing to the reduced margin of safety between earnings and fixed charges, Mr. Duffield declared: "If the credit of the roads cannot be conserved, we cannot continue to furnish them with new funds necessary for their maintenance and development. . . . An emergency exists. . . . Present earnings are wholly inadequate to support railroad credit."

Because they were the co-authors of the carriers' petition Railroad Presidents John Jeremiah Pelley (New York, New Haven & Hartford), Henry Alexander Scandrett (Chicago, Milwaukee, St. Paul & Pacific) and Whitefoord R. Cole (Louisville & Nashville) appeared to repeat orally their written arguments for a rate increase. Mr. Pelley, speaking for all eastern roads, contended that the rate increase was sought only to tide the roads over to better times and avert wage cuts. Spokesman for all Western lines, Mr. Scandrett testified that the carriers asked for a rate increase only as "a last resort" to save their credit structure. He felt that the I. C. C. should not interest itself too much in Industry's ability to pay a higher charge, as the roads would adjust that matter to meet individual conditions among shippers. Efforts to cross-examine Mr. Scandrett about wages were shut off by Commissioner Meyer on the ground that the Railway Labor Board and not the I. C. C. had jurisdiction on pay scales. Mr. Cole, representing all southern carriers, pleaded for swift action by the I. C. C., asked that no exceptions be made for certain commodities lest the hearings degenerate into "an ordinary rate case." Said he: "The doctor will arrive only to find the patient dead." All three rail presidents plumed themselves on the fact that they had not asked for a rate high enough to guarantee what the law declares is a "fair return" (5 1/4%).

Counsel Bikle proposed that Ex Parte 103 be held open, if and after rate-upping is allowed, so that the I. C. C. could readjust freight charges to meet changing economic conditions. The rate increase, he argued, would thus not need to be considered permanent.

For its part, the I. C. C. expressed skepticism of the roads' claims of efficient and economical management by ordering an independent inquiry of its own. Three Commissioners, including Messrs. Lee and Eastman, were assigned to investigate the roads' methods of purchasing fuel and the prices paid, their handling of coal at tidewater, the use of private freight cars (oil, meat, milk, etc.), the construction of private sidings for shippers and the "spotting" of freight cars for certain industries.

Also last week the Commission ordered a revision of livestock freight rates. For the western trunk line territory whence come 40% of U. S. cattle, 60% of hogs, a 10% average upping was granted. Southwestern rates were cut 6%, while those in the Mountain-Pacific area were reduced 1 3/4%.

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