Dr. SCHIMMEL. I think you have made a case for coordinating operations. I do not question that. But the fact is that this coordinated express company which, you say, is needed in order to provide effective service, is not owned as an independent corporation, such as American Telephone and Telegraph, but by one of the transportation systems. Mr. FREY. Which, in turn, is owned by the public, the insurance companies, and so forth. Dr. SCHIMMEL. It is owned by one of the transportation companies which is used by the express company owned by it, and not by a group of separate stockholders. Mr. FREY. From an express standpoint-and that is my experience; I am rounding out 40 years in this business next month and 25 years in the air-express business, although we have had contracts for only 16 or 17-the control is always going to be, in my estimation, back with the fellow who pays the freight and you can't get away from it. Again, if you are talking about express, you are talking about traffic which in normal times averages about $1.10 a shipment. What you can do with transactions at $1.10 a shipment is limited. If you let 10 fellows play with that, it's one thing. It will go from $1.10 to $2.10. The minute you get 2 companies, the prices are going to go up. The same is true of air express. The more people in it, the higher your prices. We don't do a carload business; we do a little penny business. The CHAIRMAN. I think you misunderstand Dr. Schimmel. He was not attacking the coordinated operation in any way of both air and rail express handled through one agency. It was the fact that it dealt with two operating groups, air and rail, and one of them completely owned the agency. Mr. FREY. We keep so busy dealing with the shippers we don't think of this. Dr. SCHIMMEL, Don't bother with the board of directors? Mr. FREY. If we serve the shippers properly the board of directors is satisfied, whether the shipment goes by air or by rail. That is where the money comes from. The CHAIRMAN. Thank you, Mr. Frey. (Whereupon, at 12:15 p. m., the hearing adjourned, subject to call of the chairman.) EXHIBIT No. 375 QUESTIONS SUBMITTED TO RAILWAY EXPRESS AGENCY BY THE SUBCOMMITTEE ON WAR MOBILIZATION 1. What is the ownership of Railway Express Agency? What directors of the Railway Express Agency are directors of railroads or air lines? Specify railroads and air lines with whom the Railway Express Agency has contractual relationships. Please give the subcommittee an analysis of the industrial connections of the members of the Board of Directors of Railway Express Agency. 2. When and under what conditions did the Railway Express Agency enter air express? 3. What competition has Railway Express Agency now in railway express, air transport express, and in combination of the two? What competition has it had in the past? 4. When and under what conditions did the Railway Express Agency first require exclusive contracts of air lines or railroads in connection with air express? 5. Have there ever been any modifications in such exclusive contracts? If so, describe such changes, the circumstances under which they were made, and their dates. 6. What contract or contracts does Railway Express Agency have currently with air lines? Specify the lines involved and the dates of the contracts. 7. What other arrangement or arrangements are there for the shipment of air express other than the contract or contracts referred to? 8. How do the rates charged for air express compare with the rates charged for railroad express. 9. How are the expenses connected with movement of air express to and from the airports handled in connection with such air express rates? 10. Specify in terms of pound-miles the amount of air-express cargo transported for each year since the first contract of Railway Express Agency with any air line. 11. What steps have been taken to increase or decrease air express rates? When and by whom was action taken? What changes in rates were made? 12. What steps have been taken to promote shipments by air express, and by whom? Specify amounts spent in advertising, research, etc. 13. How does Railway Express Agency act with the air lines in improving air express service; what improvements have been made; when; and by whom? 14. What system or systems are used as to time involved in getting air express to and from the airports? Specify any changes in such system or systems which have been effected, when and by whom, and the effect of such changes upon the time involved. 15. How do the earnings of Railway Express Agency from air express compare with those from railroad express? Specify in terms of pound-miles if available. 16. State what accounting method is used in dividing expenses and revenue between surface and air transportation with respect to shipments. Be specific as to a shipment received from a manufacturer in an outlying part of Philadelphia and delivered to a merchant in downtown San Francisco; also as to a situation where a shipment is received in or delivered to a community to which there is no air transportation, and where rail transportation is used in part. EXHIBIT NO. 376 PREPARED STATEMENT OF C. A. FREY, VICE PRESIDENT, TRAFFIC RAILWAY EXPRESS AGENCY, INC., BEFORE THE SENATE MILITARY AFFAIRS COMMITTEE SUBCOMMITTEE ON WAR MOBILIZATION At the hearing of this subcommittee on February 10, 1944, Mr. Wendell Berge, Assistant Attorney General of the United States, stated that "The railroads, through their wholly owned subsidiary, the Railway Express Agency, have kept up air rates and restrained the development of the air transport of goods." While there is no truth in this charge it has been repeated time and again by representatives of the Justice Department and certain others during the past 2 years, and I would like now to present for the committee's information and consideration the real facts relating to the air-express business as developed since 1927 by the air express division of the Railway Express Agency and its predecessor, American Railway Express Co. I shall also include answers to the questions concerning ownership of Railway Express Agency, contracts, competition, rates, promotion, etc., as submitted in letter dated March 18, 1944, from Senator Kilgore to President Head, of Railway Express Agency. Regularly scheduled air express business was inaugurated by the predecessor of Railway Express Agency, the American Railway Express Co., on September 1, 1927, a year and a half before the railroads organized Railway Express Agency, and by reason of intensive and continuous promotion by the express companies during the past 17 years, the volume of air express has grown from less than 100.000 pounds in the first 12 months of operation in 1927 and 1928, to over 30,000,000 pounds in 1943, a growth surpassing the phenomental growth of air passenger traffic for which the existing air transport system is primarily designed. Statistics of the Civil Aeronautics Board show that air-passenger revenue-miles for the year ended June 30, 1938, aggregated 444,000,000, as compared with 1,427,000,000 for the year ended June 30, 1943, an increase of 221 percent. In the same period Civil Aeronautics Board statistics show that air express pound-miles increased from 4,140,000,000 to 28,700,000,000, or 600 percent. The express company does not compute pound-miles of air express, but the airlines repart their express pound-mile carryings to the Civil Aeronautics Board. The express pound-miles reported by the Civil Aeronautics Board for the fiscal years 1938 to 1943 are as follows. 1938. 1939 1940_ 4, 139, 864, 883 | 1941_ 8, 313, 494, 765 15, 907, 098, 483 28, 700, 642, 087 Express pound-miles prior to 1938 are not available. For some time past the volume of air express offered has exceeded the capacity of the inadequate number of airplanes available to the air lines and a priorities system for vital airexpress traffic has become necessary. As much as 500,000 pounds of air express has been deplaned or declined by the air lines in one month because of inability of the limited number of airplanes to transport it. The charge that the development of air transport of goods has at any time or in any way been restrained by the railroads or the express company is absurd. The fact that the express business in the United States is conducted by one company, Railway Express Agency, wholly owned by the railroads, appears to disturb some advocates of a separate air express organization. The consolidation of the several express companies into one company and the later acquisition of the express business by the railroads were the direct result of Government action, as was also the establishment of uniform express rates and classifications. Prior to 1918 there were several rail express companies, each of which operated over such railroads as were willing to make contracts with it, and prior to 1914 the several express companies made their own rates as separate and competing carriers. This condition was not considered to be in the public interest by the Interstate Commerce Commission and after an exhaustive investigation into the rates and practices of the express companies the Commission prescribed a uniform express rate structure which treated the several express companies as a single carrier so far as rates were concerned (Express Rates, Practices, Accounts, and Revenues, 24 I. C. C. 380, 28 I. C. C. 131). This uniform express rate structure became effective on February 1, 1914. On December 28, 1917, in order to meet the World War emergency, the Federal Government took over the operation of the railroads of the United States and the Director General of Railroads informed the four independent express companies--Adams, American, Southern, and Wells Fargo-that if they would organize one express company he would appoint that company his agent to carry on the express transportation business over all lines under Federal control. Accordingly, those companies organized American Railway Express Co., and on July 1, 1918, that single express company began operations over all railroads. At the end of Fderal control the Interstate Commerce Commission, under the specific provisions of section 407 of the Transportation Act of 1920, authorized the continuation of the express transportation business by the one company, American Railway Express Co. (Consolidation of Express Companies, 59 I. C. C. 459) (December 7, 1920). In its report in the Consolidation case the Commission said: "Even prior to Federal control and the existing consolidation, there was practically no competition so far as express transportation rates and charges were concerned, express rates being made on the block system prescribed by us and applying alike to all express companies. While to some extent there was competition with respect to the service rendered, the economies and elimination of wasteful services resulting from the consolidation would appear to be more than sufficient to offset any advantages to the public growing out of the separate operation of the four express companies, even if, on a denial of this application, they should resume operations as such, as to which there appears to be some doubt. As to the rates and practices of the consolidated company, we may regulate and control them to the same extent as if there were separate operation." (Consolidation of Express Companies (59 I. C. C. 459, 468).) Subsequently suggestions were made by members of the Interstate Commerce Commission that the railroads should own and operate the express business and on March 1, 1929, the railroads acquired control of the express business theretofore operated by American Railway Express Co., the authority for such acquisition having been granted by the Interstate Commerce Commission in Finance Docket No. 7322, Securities and Acquisition of Control of Railway Express Agency, Inc. (150 I. C. C. 423) (February 11, 1929). The capital stock of Rail way Express Agency consists of 1,000 shares without par value, owned by 70 of the class I railroads of the country in proportion to the amount of express business transacted over their respective lines. A list of such owners and the number of shares owned by each is submitted as appendix No. 1 to this statement. The directors of the agency are selected by the stockholding railroads-6 from the eastern district, 5 from the western district, 4 from the southern district, and 1 at large. As requested by Senator Kilgore, a list of the directors showing their railroad, railroad subsidiary, air line, and industrial connections is submitted herewith as appendix No. 2. A list of railroads and air lines with whom Railway Express Agency has contractual relationships is submitted herewith as appendix No. 3. From the time airplanes were first successfully flown the express companies have been in the forefront of advocates of air-cargo transportation, which position was consistent with their century-old policy of providing the most expeditious transportation to the public at all times through the employment and coordination of the fastest means of transport in existence. Experimentation by the express company with air transport of property antedates by many years the establishment of regularly scheduled air lines. The first air-express shipment was a shipment of silk, valued at $1,000, forwarded from New York City in November 1910 to a Columbus, Ohio, department store. The movement was coordinated with rail express as the airplane which was to carry the shipment was to be flown only from Dayton to Columbus. The shipment moved by rail express from New York to Dayton and was carried in a Wright biplane from Dayton to Columbus. The pilot, an accompanying passenger, and the air-express package of silk were all carried on the lower wing of that early plane, which had no cockpit or cabin and, therefore, no cargo-carrying facilities. Likewise, a year later, when the first air-mail experimental flight was made on Long Island, the cockpit of the airplane used was so small that the pilot, who had the 25-pound mail sack on his lap, had to throw the sack overboard at his destination before he could manipulate the controls of the plane for a landing. On May 19, 1919, almost exactly 25 years ago, the president of American Railway Express Co. wrote one of my predecessors as follows: "The express business had its origin in one man with a haversack until, at the present day, we have reached the point where special express trains at high speed are utilized to a very great extent. The next evolution in the business is the air express and my ambition is to offer that service to the public in the first airplane scheduled for commercial purposes between New York and Chicago." Later in 1919 the largest airplane then in existence, a four-motor Handley-Page bomber, built before the armistice by the British for bombing Berlin, was flown by the late Admiral Mark Kerr nonstop from Nova Scotia to New York, a distance of approximately 1,000 miles. This early demonstration of long-distance flying by a large airplane was immediately converted into action by the management of the American Railway Express Co. to stimulate and promote interest in the transportation of cargo by air. The express company arranged to load the plane with a cargo of express for Chicago, to be flown nonstop from New York for sameday delivery. The loaded plane took off, but because of strong headwinds encountered over the Alleghenies was forced to land in western Pennsylvania after 8 hours' flight, and it was necessary to entrain the express traffic for completion of its journey to Chicago. This early experiment by the express company stimulated interest in air cargo and several airplane manufacturers developed cargo planes in the apparent belief that there was a more immediate opportunity for carrying air cargo than passengers. Several World War aviators, including Capt. Eddie Rickenbacker, also showed considerable interest in this air-cargo experiment, and several air-express routes were projected at the time but without success. The Government in 1918 had started operating planes for air mail, but notwithstanding the many efforts by the express company, airplane manufacturers, and others to promote air cargo it was not until 1925, when contract air-mail service was authorized by Congress, that commercial air-transport companies were organized on a substantial scale. The pattern of commercial air transport in the United States has been developed largely along lines dictated by the Post Office Department following legislative action by the Congress. From 1918 to 1926 the air lines were owned by the Government and were operated solely for air-mail experimentation. The Kelly Air Mail Act of February 2, 1925, authorized contract airmail service and a number of air-transport companies were organized to take advantage of this Government action in support of air transportation. In September 1927, when the Government turned over the last of its air-mail routes to private operators, air-express operations were immediately inaugurated by American Railway Express Co. over such lines as were then prepared to handle cargo and which were willing to include their lines in a common-carrier air-express service. In line with the evolution of express contracts in the United States since 1839, the original air-express agreement between American Railway Express Co. and the air lines contained the following description of the business covered thereby and the so-called "exclusive" provision: "The term 'express business' shall be deemed to mean all traffic of whatsoever nature designated by the shipper for carriage by air and not considered by the parties hereto to be unsuitable or dangerous for carriage by air (excepting the United States mail, passengers, and passengers' baggage) transported wholly by air between points on said route. The air company agrees that during the time in which operations are carried on under this contract it will not accept express business from any party other than the express company, and the express company agrees to use the service of the air company in respect of all such business unless schedules can be made avilable by another air company which the air company cannot provide in which case the express company may use the service of such other air company to give more expeditious service to the public." The contract also contained the following provision as to rates: "The rates and classification of express matter to be covered by this contract shall be as agreed upon from time to time by the parties hereto, subject to regulation by such State or Federal authorities as may have jurisdiction in the premises. "In cases where shipments undertaken to be transported in air service, whether undertaken to be handled by air the entire distance or partly by air and partly by ordinary express service other than by air, do not make better time for delivery to consignee than would have been made by ordinary express transportation by other than air service, the express company shall have the right to reduce the applicable charges to the amounts they would have been had the shipments moved in ordinary express transportation by other than air service, and for the purpose of accounting under this contract the charges so reduced, less amounts, if any, accrued for the express company's established applicable charges for necessary service other than by air, shall be the gross revenue for the air service performed." The several changes in the air-express rate structure from 1927 to 1936 were made under this or similar provision in subsequent agreements, and the uniform air-express rate formula of August 15, 1934, which is specifically referred to in the present air-express agreement, continued in effect with but one change until July 15, 1943. This one change was an increase in the minimum charge from 85 cents to $1 made at the request of the air lines. The uniform air-express agreement of February 1, 1936, contained the following provision relating to air-express rates: "Air-express rates to be assessed on traffic subject to this agreement shall be in accordance with the air-express-rate formula which became effective August 15, 1934, or on such other uniform basis as may hereafter be agreed upon by all the air companies having similar agreements with the express company, and nothing herein contained shall be construed to restrict or limit the air company's control over the rates which the express company may charge for the transportation of air-express matter and the classification tthereof, the intent hereof being that the air company may require such rates as it, in its discretion, may determine, from time to time, subject only to applicable State or Federal laws now or hereafter in effect and to regulation by such State or Federal authorities as may have jurisdiction in the premises; provided, however, that the express company shall not be required without its consent to establish air-express rates less than twice the existing first-class rail-express rates between the same points, unless required by law." Considerable emphasis has been placed by representatives of the Department of Justice on that part of this provision which would have prevented the air lines from requiring air-express rates less than twice the rail-express rates without the express company's consent, and which first appeared in the agreement of February 1, 1936. As heretofore stated, this provision was not in the air-express agreements in effect during the period September 1, 1927, to February 1, 1936, when all of the changes in air-express rates, including the August 15, 1934, rate structure, were made, and, therefore, has had nothing to do with air-express rates. This provision was never invoked by Railway Express Agency and recently has been canceled from the contract. Furthermore, several recommendations for lower express rates made to the air lines in recent years by the express company have not been adopted, presumably for good and sufficient |