I am trying to get your reasons why you think it should die, and I am asking you if you think that oil produced in violation of State law, hot oil, probably pumped off a neighbor's land, should be permitted free shipment in interstate commerce. You know whether you favor that or not. Mr. HADLICK. Yes; because I favor freedom of commerce. Senator CONNALLY. Is there anything else you want to say? Senator CONNALLY. We will hear you as long as you care to be heard. Mr. HADLICK. I thank you. Senator CONNALLY. Mr. Hadlick, I want to ask you one other question, if you do not mind. I want to direct your attention to section 4 of this act. Now, under section 4 there, the Oil Administrator, Secretary Ickes, has power to lift these restraints under certain conditions, has he not? Read that over. Mr. HADLICK. Yes; apparently so. Senator CONNALLY. Have you taken it up with him at any time? Mr. HADLICK. No, sir. Senator CONNALLY. In other words, under section 4, anyone in the industry who has a complaint as to those conditions may take it up and make representations and have a hearing, I assume. Has your association ever taken any action of that kind? Mr. HADLICK. No, sir. Senator CONNALLY. All right; thank you. Is Mr. Schock here? Mr. SCHOCK. Yes, sir. Senator CONNALLY. All right, Mr. Schock; tell us who you are and all about yourself. STATEMENT OF CLARENCE SCHOCK, MOUNT JOY, PA., REPRESENTING THE INDEPENDENT PETROLEUM JOBBERS ASSOCIATION OF PENNSYLVANIA Mr. SCHOCK. Mr. Chairman, my name is Clarence Schock, and I reside at Mount Joy, Pa. I am here representing the Independent Petroleum Jobbers Association of Pennsylvania. As to my competency, I will say that the business in which I am interested originated in a small way in 1876. I have been associated with it since 1886, and during all that time we have operated as independent jobbers. I am appearing here today, as stated, as a representative of the Independent Petroleum Jobbers Association of Pennsylvania in the interest of its members. Senate bill no. 790, introduced by Senator Connally, of Texas, proposes to amend the Connally hot-oil law, making it permanent instead of allowing it to expire by limitation on June 30, 1937. Many interests are involved in this proposal. Chiefly, there is the interest of the oil industry and the public interest. The interest of the oil industry involves the interest of the oil producer, the interest of the oil refiner, and the interest of the oil marketer. The public interest involves the cost to the consumer and the question of national defense and safety. The interest of the refiner and I refer to the refiners who are not producers-is to get a price on crude oil which will give him a fair opportunity to compete with such refiners as are producers of crude oil. The interest of the marketer is to get a fair margin on which to operate and earn a fair profit. So far as the interest of the oil industry is concerned, I am speaking on behalf of the oil marketer and particularly the independent oil jobber. Under the existing Connally hot-oil law, the State compacts, the approval thereof by Congress, and the cooperation of the Interior Department, the producers of crude oil are working in perfect concord, and we have a monopolistic control of both supply and price more complete and powerful than ever has occurred in the past 50 years. There is no genuine open tank-car market. There is no genuine open-cargo market. All is artificially controlled. The supply and price of petroleum has been more or less controlled ever since the days of the Oil Trust, but never has that control been so complete as it is today. Today it is impossible for the oil jobber to buy gasoline in the open tank-car market and be able to earn a profit on the basis of such cost. It is necessary for the jobber to go to the major integrated supplier and secure a contract which will give him a cost on gasoline lower than the posted open market tank-car price. In bygone days there was always a posted spot market for gasoline at which tank cars of gasoline could be purchased by anyone normally entitled to tank-car price. Today this price is purely artificial and is intended to compel the purchaser to secure a contract with the major oil companies, with the result that today unbranded gasoline is quoted at a higher price than the advertised branded merchandise. In ordinary commercial practice in general lines of merchandise unbranded commodities of the same quality are quoted and sold at a lower price than advertised branded merchandise, presumably and properly to cover cost of advertising. In the oil business it is different, because of monopolistic control. This control is so complete at present that many large independent purchasers of petroleum who have local customers who prefer to give to them their business find themselves discouraged when seeking a new source of supply, indicating that there is some agreement between suppliers which keeps suppliers from entering into active competition at any price. Platt's Oilgram, under date of February 8, 1937, indicates the present price of 6 cents per gallon for 65 octane and above gasoline f. o. b. Gulf ports. Transportation rate for moving gasoline from Gulf ports to Atlantic seaboard under same date is 0.90 cent per gallon, which makes the delivered most of a gasoline to the cargo buyer purchasing on the present spot market 6.90 cents per gallon. The average tank-car price at New York, Philadelphia, and Baltimore on February 8 was 7.08 cents per gallon, allowing a cargo marketer only 0.18 cent per gallon margin. It is easily seen that it is impossible at this margin to operate a cargo terminal, supply tank cars, sales expense, and so forth, on this small margin. This price was the spot price on unbranded gasoline. Retail prices in eastern Pennsylvania and Delaware on the same date ranged from 712 cents per gallon to 10 cents per gallon, with an average freight rate of approximately 0.65 cent per gallon. It is readily seen that a jobber purchasing gasoline on the spot market at the average price of 7.08 cents per gallon plus an average freight rate of 0.65 cent, making a total cost of 7.73 cents, would only have a maximum gross operating profit of 2.27 cents per gallon between tank-car cost and retail price, provided, however, that it was sold at the top retail price in the area, namely, 10 cents per gallon. In the case of jobbers operating in areas where the retail market is 72 cents per gallon, he would actually have to sell the material at 0.23 cent per gallon less than his cost of merchandising only, not to mention his operating costs and overhead. In the same area mentioned above, branded merchandise sold by major or integrated companies is being sold to jobbers marketing the branded material in the same area at an average delivered cost price of 7 to 74 cents per gallon, against the unbranded cost of 7.73 cents per gallon, delivered by tank wagon to commercial consumers' premises. It hardly seems possible that any major integrated company can justify selling branded gasoline to consumers in lots of 500 gallons at delivered tank-wagon prices less by as much as from 1 cent to 1.73 per gallon than the jobbers' cost on quantities of 10,000 gallons delivered by tank car. Integrated companies also at the present time are leasing expensive service stations at rentals of one-fourth to 1 cent per gallon, such service stations having an average monthly gallonage of 3,000 to 8,000 gallons. It is impossible to justify leasing expensive locations for practically no return whatever on the investment. These are some of the evils fostered by Federal oil control. It is within the power of Congress, and it is worth while to investigate; and it is worth while to investigate and learn the facts from the books and records of the major oil companies. These expensive methods of marketing would not be possible if free competition were prevalent instead of the present monopolistic control. This profligate expenditure of money in operation of service stations indicates the excess profits enjoyed by major oil companies and their ability to conduct ruinous competition against the same jobbers whom they supply. We cannot too strongly emphasize the fact that the integrated major oil companies are given a great and unfair advantage over the nonintegrated marketer. The control of production provides for them an excess profit in production which they can use to cover losses in marketing. Let me point out the extent of this increased profit from the standpoint of one of the members of this association. In 1935 it required the refining of about 1,000,000 barrels of east Texas crude oil to supply the gasoline required by a member of this association. The cost of crude oil was then, because of production control, $1 per barrel. Without production control the price of crude oil might have been as low as 25 cents per barrel, and certainly not over 50 cents per barrel. In other words, by act of Congress this supplier was benefited as much as $750,000, or not less than $500,000. The purchaser of the gasoline in this instance lost money in his jobbing business. This can hardly be called a fair disposition of excess profits acquired because of control of crude-oil production by act of Congress. It is generally conceded that the independent marketer can do business at less cost than the large integrated oil companies. That fact is the only reason that independent oil marketers find it possible to buy supplies from the integrated major oil companies. There is not sufficient gasoline produced by independent refiners, even before the present control law, to supply all independent marketers. Accordingly, independent marketers who had a clientele who preferred to deal with them have been purchasing most of their supplies from the major oil companies. We independent jobbers wouldn't have a chance at any time, either under control or before control, of buying our supplies from major oil companies if it were not for the fact that we are able, by our lower marketing costs, to give a major oil company a better return than they can get themselves. Today, however, the major oil companies are closing in on us; they are using their profits in production to cover losses in marketing in such manner that it is difficult for the independent jobber to keep out of the red. Many have gone under. Many are too deeply in debt to stand the battle. Those of us who are economically sound and free from debt are not having a good time. We independent jobbers developed the distribution of petroleum products for the refiners; and as the integrated companies waxed stronger and richer by excessive profits wrung from the people during the long period of monopolistic prosperity, these rich and powerful integrated companies have stepped into the marketing end of the business with the candid declaration to many of us independents that we would be gradually put out of business. The independent marketer can render better service at the same cost and equal service at lower cost than the major oil companies can do, but we can't compete in marketing against integrated companies who, under special privilege granted them by the Connally hot-oil law, now under consideration, are permitted to make excessive profit in controlled crude-oil production. It is to the interest of the consumer to preserve the existence of the independent marketer in order that his efficient competition in marketing may be utilized in keeping down costs to the consumer. It is manifestly unfair to protect the producer of crude oil by price fixing, which is the unavoidable result of controlled production, and at the same time fail to give the same protection to the independent refiner and the independent marketer. Some members of the oil industry have believed that it is possible to accomplish price control in every department of the oil industry. I think it is safe to say that at the present day most of us are convinced that the control of retail prices by the retail dealer to the consumer is practically impossible. This seems to be a local problem in each community and cannot be regulated either by a national association or the Federal Government. If it be impossible to control prices in all departments of the industry, with a fair allotment of opportunity for profit to each department of the industry, then it is unfair to give the advantage of price control to any one division of the industry, as is being done under the Connally hot-oil law, the State compacts, the approval of Congress, and the cooperation of the Interior Department. From the standpoint of those in the industry who do not profit by this control it seems that, so far as the oil business is concerned, the Department of the Interior is a department of a federation of integrated oil companies. The balance sheets of the large oil companies are beginning to reflect this advantage, and it is conceivable that there is much advantage that will not be reflected in the financial statements. All of which seems to violate the Sherman Act. We ask no specal privilege. We ask no protection. We simply ask that the Federal Government withdraw in some manner the advantages of price control by act of Congress, which the integrated oil companies and producers now enjoy, in order that independent marketers may be able to buy in a competitive market and sell in a competitive market, instead of the present situation which compels us to buy in a controlled market and sell in a highly competitive market. Now, as to the public interest, let us speak of the cost to the consumer. This committee will probably be supplied with detailed statistics showing how little increased cost to the consumer has resulted from control of crude-oil production. In an industry so thoroughly artificially controlled, both as to supply and price now and before Federal control, it is probably difficult to get statistics that will prove anything. Nobody can say today what the price of gasoline would be if there were no Federal control. Nobody can say that the price today without Federal control would be just the same as it was immediately before Federal control. The operation of free competition following the advent of the east Texas field did not have time to develop fully and prove just how the price would have been if controls of various sorts had not been immediately applied. It is inconceivable to me that anybody should claim that control of production, with resulting increase in price of crude oil, will not make the price of gasoline to consumers, ultimately, on the average, higher under such control than without such control. I see no sane reason for submitting statistics to try to prove that a higher price of crude material will not commensurately increase the price of the finished merchandise. It seems to me axiomatic that increased cost of raw material, all other things being equal, will necessarily increase the cost of the finished product and consequently the selling price of the same; and accordingly we contend that the result of controlled production and consequent controlled price and higher price will necessarily, ultimately, in the long run increase the cost to the consumer. Much sophistry will probably be used in the handling of statistics to prove that the consumer does not suffer, but I am unwilling to believe that it can be argued that because 25 divided by 12 equals 2 it can be proven that 100 divided by 1812 equals 219. I refer you to Mr. Swanson's statements before this committee. The only reason for control of production which deserves any consideration is the claim that it must be done to conserve our natural resources. Much has been said, both pro and con, about the possibility of exhausting our petroleum resources. This cry began many years ago when the production of petroleum after the war caught up with demand and the price structure was threatened. The major oil companies never made any plea for governmental control so long as the demand exceeded the supply and nobody gave heed to the subject. This cry of conservation only came to the public ear after the supply of crude oil became greater than the domestic and foreign demand. It was then that the masters of the oil industry 125095-37-8 |