Costs of making cooperage stock, both tight and slack, increased by approximately 25 percent in the past two years, while prices for slack barrels remain about the same and for tight barrels declined by 15 percent. The cooperage industry's real need is help in competing with less-expensive containers. Except for the transportation of whiskey, shippers have available for all commodities suitable substitute containers of every description, which are lighter and cheaper than wooden barrels. Startling reductions in the use of barrels have occurred in the last seven or eight years-for sugar 40 percent, for lime 90 percent, and for flour down to practically nothing. Freight charges on substitutes are often only a fraction of those on cooperage stock. Thus, as to jute bags, which are made near consuming points, a carload has a container capacity equivalent to eight carloads of cooperage stock.

Woods of value.-Mahogany logs, included in woods of value taking an arbitrary over common-lumber rates, move from Pensacola, Fla., to southern and central territories mostly. Irrespective of whether increases are permitted generally or on lumber, it is urged that none is justified on this traffic, since under present rates it is bearing a burden of ton-mile earnings higher than on the total tonnage of all commodities or of all lumber moving throughout the United States under either the present or proposed rate levels.

Other lumber interests.-The veneer and plywood industry in Wisconsin and northern Michigan, while protesting increased rates on inbound logs, would not oppose a 10-percent increase on outbound products.

A number of lumber interests favor the proposed increase, including manufacturers and a few dealers in Washington, the South, and the Southwest, and a cypress manufacturer in Florida, some of whom ship in large volume. A few of them sell extensively to railroads car and other materials and cross ties. Operators of plants creosoting and otherwise treating timber, poles, and cross ties also support the railroads' petition. The attitude of those favoring the increase is that greater revenues will improve railroad purchasing power, stimulating business in general as well as the lumber industry. A Pacific coast witness testified that the 6-cent maximum reflects less than one-fourth of the fluctuations during the past year in the mill-base value of lumber.

Pine-lumber producers in Colorado, Arizona, and New Mexico, suggest a uniform-percentage increase, contending that the 6-cent maximum would unduly prefer Pacific coast and Inland Empire competitors.

7007838-VOL 226- -8

MANUFACTURES AND MISCELLANEOUS

Within available limits it is not possible to deal separately with all the numerous and varied manufactured products and miscellaneous commodities which have been discussed in the record. The basic contentions urged in opposition to increases upon them are those which have been stated in general-summary form. Some of these commodities, such as the vegetable oils, have been considered earlier herein; others, important from the volume of their tonnage, will be discussed. Those which were presented in the record, but which are not specifically mentioned or discussed herein, have not been ignored.

Petroleum and its products.-The extent to which the rates upon petroleum and its products are based upon or held by our orders is described in General Commodity Rate Increases, 1937, supra, pages 714-718. We there authorized increases as proposed by the applicants, which were generally either 1 cent per 100 pounds, or else involved upward changes in applicable column ratings. The present opposition to further increases comes from producers and jobbers— generally those who are not able to utilize their own or associated pipe lines or tanker vessels-and consumers in destination areas to reach which rail carriage is essential.

Producers of petroleum products, principally gasoline, in the Midcontinent area, Oklahoma, Kansas and Texas, who are dependent solely upon rail transportation for long hauls, oppose any increase in their rates. Much of their business into Chicago and other points has been lost to other producers who ship their gasoline by pipe line or by water. The protestants sell to independent jobbers, and compete with larger producers who use gasoline pipe-line facilities in getting to competitive markets.

Many factors other than freight rates determine or bear upon the marketing of gasoline, such as cost of production, service, quality, national advertising of brands, availability of supplies in the consuming territory, and efficiency of refinery operation. Transportation cost by rail, it is testified, governs the distribution of the products of the protestants to such an extent that if present rail rates are increased 15 percent as proposed a large portion of the shipments by rail will be eliminated, although protestants concede that such an increase will have no effect upon the retail price of gasoline.

The price at which producers can deliver their products to jobbers is the most important factor governing their operations. It is mainly a question of relation between the rail-transportation costs of the protestants and those of their competitors who have gasoline pipe-line or other available transportation facilities. The average estimated cost at present of marketing gasoline for producers in the Midcontinent field is stated to be 5.5 cents per gallon. At the time of the hearing

the quoted spot price of 70-72 leaded gasoline at the refinery was 5 cents per gallon, so that if this basis be established as accurate protestants sustained a loss of 0.5 cent per gallon.

Protestants in 1916 and 1917 sold their products throughout the area east of the Rocky Mountains except in New England. Gradually they have since become confined to markets in the Standard Oil Company of Indiana territory, and Nebraska, Oklahoma, and Texas Competing refiners in central western territory have been piping crude oil from the Midcontinent field and producing all of their products at such refineries, and because of cheaper pipe-line transportation costs have been able to dominate the greater part of the markets. In 1930 and 1931, gasoline pipe lines were constructed and put into operation and refiners in the Midcontinent field who could use such means of transportation began diverting their shipments thereto and thereafter were able to undersell refiners who had only rail transportation available.

The 15-percent increase sought by the rail carriers will increase the present rail rates from group 3 in Oklahoma, to representative destinations in western trunk-line territory by from 4 cents to 7 cents per 100 pounds. The rate to Chicago, for example, including the increases authorized by us as above stated, is 37 cents, or about 2.44 cents per gallon. The proposed increase of 15 percent will increase the rate to Chicago to 42.5 cents per 100 pounds, or to about 2.81 cents per gallon, an increase per gallon of 0.37 cent.

Increases will force protestants seriously to consider building gasoline pipe lines to serve their refineries. Plans for two such lines have been discussed, one for a line to the Gulf coast, and another for a line through Oklahoma, joining independent refineries in north Texas, Oklahoma, and Kansas to interior Iowa distributing points or possibly to Omaha, Minneapolis, Chicago, or Indianapolis. It is not clear that sufficient volume could be obtained to insure the success of these enterprises.

A factor of considerable importance in marketing gasoline by rail from the Midcontinent field has been the reduction in rail rates from pipe-line terminal points in western trunk-line territory to meet motortruck competition at those points. For example, from Chicago and Wood River, Ill., Kansas City, Mo., Des Moines, Iowa, and Omaha, Nebr., and from other terminal points, the rail carriers have reduced their rates by amounts ranging from 0.5 cent to 5.5 cents per 100 pounds to meet such competition. These reduced or truck-compelled rates were established at various times in the period 1931 to 1933. Recently, in July 1937, rates were reduced from Superior, Wis., to numerous Minnesota points by from 1 to 8.5 cents to meet potential pipe-line competition. Rates from Chicago to numerous points in

Iowa and Illinois were reduced by 4 cents, and to Cedar Rapids, Iowa, by 5 cents, to meet threatened competition by barge and truck from Wood River, Ill. Such rates could not be increased to the normal basis so as to yield more revenue to the rail lines, unless the motortruck rates were also increased. Many of the reduced rail rates are intrastate, made to meet competition of intrastate motortruck carriers over whose rates we can exercise no authority.

There is also a truck-compelled scale of rates in the Southwest for distances up to 250 miles. That scale is from 0.5 cent to 5.5 cents less than the reasonable-maximum scale prescribed by us in this territory.

The rates on petroleum products from St. Louis, Chicago, Tulsa, Oklahoma, and Big Springs, Tex., as illustrative, to points in central territory were considered by us in Petroleum and its Products, 171 I. C. C. 286. From St. Louis and Chicago to central territory 32.5 percent of first class was prescribed with specific rates from the Midcontinent field. These rates were made effective on March 15, 1932, but in June 1932 the central-territory lines reduced the prescribed basis to 29 percent of first class which reduced the rates an average of 3 cents per 100 pounds, but no like reduction was made in the rates from the Midcontinent refineries to central territory. In the increased-rate case in 1937 we authorized an increase of 1 cent in the latter rates, and the central carriers voluntarily increased their general rate basis from 29 percent of first class to 30 percent, so that these carriers still have authority to file and publish schedules to increase their rates to 32.5 percent of first class without further authority from us.

Similarly, numerous rates to southeastern territory have been reduced below the maximum basis authorized by us. For example, from New Orleans, La., to Jackson, Memphis, and Nashville, Tenn., Greenville and Tupelo, Miss., and Birmingham, Decatur, and Montgomery, Ala., the present rates are from 4 to 18.5 cents less than the maximum authorized. These reductions were made to meet water competition, particularly to Memphis.

The independent producer protestants express the opinion that if the rail carriers would apply the reasonable-maximum rates prescribed by us they would secure more revenue than from the 15-percent increase here proposed. The rate relations which would then be in effect would, in the opinion of these protestants, put all refiners upon a proper competitive relation. This suggestion, however, ignores the conditions which forced reductions from the rail carriers in most of these instances, namely, a losing competition with other agencies of transportation. There is no reason to believe that any such amount of increased revenue as has been suggested would be

obtained if all competitive reduced rates were increased to the maximum reasonable basis. However, there is every reason the rail carriers should review with care the whole body of these competitive rates, to discover if the causes which led to their being made have ceased to be controlling.

From the Midcontinent field, for the period 1919 to 1937, the freight rate per gallon on gasoline has remained relatively stable for several years. In the same period, the crude-oil price (average at KansasOklahoma wells) ranged from 5.43 to 2.76 cents per gallon, the highest price being 8.1 cents in 1920. The wholesale price (tank-car price) ranged from 17.3 cents in 1919 to 5.9 cents in October 1937, and the retail price at service stations ranged from 25.41 cents to 14.4 cents in the same period. An increase in the freight rate of 15 percent would increase the 2.44-cent rate of October 1937 to 2.81 cents per gallon. It is clear that freight rates do not control or greatly affect the price of crude oil, or the wholesale and retail prices of gasoline. The price structure has fluctuated regardless of the freight rates.

Representatives of large producers appeared at the hearings, but did not oppose the percentage freight increase sought. They are not particularly interested in the all-rail rates from the Midcontinent field, but are interested primarily in the shorter hauls, and therefore oppose only a flat increase in cents per 100 pounds. They estimated that to obtain the same amount of revenue from a flat increase as from a 15-percent increase, the rates on gasoline would have to be increased at least 3.5 cents per 100 pounds. Most of the refined products of the larger producers that move by rail move for relatively short distances at rail rates which are somewhat higher than trucking costs. Such traffic, they assert, will not stand the additional burden that would be cast upon it by such a flat increase in rates.

A large number of independent producers in the Midcontinent field who depend upon rail service do not oppose increases in the rail rates, provided increased transportation costs are borne by all producing companies, including those who use other means of carriage than the rails. Our inability to control a situation where so much of the governing competition is not within our jurisdiction makes it impossible for us to accomplish such an equalization.

In the final analysis the chief difficulties faced by the protestants arise from competitive producing and marketing conditions and only incidentally from the rail freight-rate structure alone. And to a considerable extent the same difficulties prevent the applicant rail carriers from obtaining the full benefit of rates which we have already approved as reasonable, but which in the exercise of their managerial discretion they do not endeavor to maintain as going rates.