were adjusted to reflect actual operating characteristics of freight forwarder traffic, the additional charges paid by the freight forwarders made a substantial contribution to the railroads' overhead burden, rather than showing a deficit contribution. The same comments made of the freight forwarder traffic would probably apply for other shippers' traffic, where it moves on a flat charge per car, i.e., minimum charges per shipment, etc., and where extra charges are paid for the use of the TOFC flat car and trailer, etc. The Commission should require the railroads, in my opinion, to insert on the waybills, the route of movement, the actual miles of haul and, in connection with movement of traffic where the shipper pays extra charges for the use of the car, the trailer, the tiedown, and the switching at the interchange points, and other extra charges paid on other than TOFC traffic. An analysis made by the freight forwarders' 1969 waybills shows that, in many instances, the extra charges paid by the freight forwarder are shown on the waybills and that actual weights as well as billed weights are shown. The practice has been followed by the Bureau of Transport Economics and Statistics and the Department of Transportation to only tabulate the billed weight and exclude any extra charges paid by the shipper. This practice should be discontinued and all pertinent data should be shown on the waybill and compiled, to insure, to the fullest extent possible, the development of adequate and accurate carload traffic statistics and thus ensure that the Cost Section can price-out the traffic based on actual operating factors and correct revenue figures. In the foregoing, the more important studies made and published by the Cost Section are discussed. A more complete explanation of these studies is provided in Rail Form A, in the Carload Cost Scales, and in the publication entitled "Explanation of Rail Cost Finding Procedures and Principles Related to the Use of Costs," identified as Statement No. 4-54. The subject of this statement, namely, the impact of the Cost Section's studies on railroad freight rates, is now discussed: Rail Form A Rail Form A, together with the procedures provided for the machine processing of the data and the explanation of how adjustment in the factors to reflect the costs more closely for the actual operating factors of a given traffic movement are widely used by transport agencies, shippers, and various other parties. It is known that some railroads, and their statistical bureaus, make annual applications of Rail Form A to individual railroads or groups of railroads. There are other parties, shippers, water carriers, etc., who also apply Rail Form A to the operations of individual carriers or groups of carriers for their use in determining whether the existing or proposed rail rates cover the costs. The results of these studies are used to prejudge the compensatory nature of rates. The use of a standard formula, which can be readily checked by the Commission, or other parties, facilitates the determination of whether the costs have been properly computed. Before the publication of Rail Form A, various formulas and procedures were used to develop the costs. Most of them were inadequate in that they provided little, if any, supporting details, and in some instances, incorrect cost-finding procedures were used. The Rate-makers and cost analysts, both those on the staff of a transport company or independent transportation analysts, make wide use of the costs obtained by an application of Rail Form A to the operations of individual railroads or groups of railroads. As a result, they learn at the outset the extent to which proposed rates cover or fail to cover variable costs and the extent to which the rate should be adjusted either upward or downward to place it on a compensatory level, or to meet the competition from other transport agencies. This information can be utilized to inform management, or others, of the extent to which rates cover or fail to cover costs. This may eliminate the necessity of filing complaints and avoid the expenses incurred in formal procedures. When the results of an application of Rail Form A are introduced in a formal investigation, generally the results are accepted by the various regulatory agencies, providing, of course, that is has been correctly applied and reflects the actual operating factors involved in the movement of the traffic under study. When such data are submitted in support of a proposal to the Suspension Board, the Cost Section (as it usually does) can readily check the computations and inform the Suspension Board as to the reasonableness of the rate. This may insure the proponent of a rate of not having such rate suspended or investigated. This eliminates delays in having rates approved and the expenses in supporting the rates in formal proceedings. Carload Cost Scales The Carload Cost Scales, despite the deficiencies noted above in their construction, serve a useful purpose to the rate-maker and cost analyst. When a problem is first encountered in connection with a rate an existing rate or a proposed rate the first step is to consult the Carload Cost Scales and the Burden Study, which has previously been discussed. However, the burden study was not available for the years 1961 to 1966, and the latest study is based on the year 1969, which is more than five years ago. The Carload Cost Scales, on the other hand, are generally published on a more current basis. While the figures for the year 1971 have not yet been published, nevertheless, the results of this study are available to interested parties. The 1972 Carload Cost Scales are also available. The Rail Carload Cost Scales are thus usually the first source of cost data to be consulted by the rate-maker. The costs shown therein may be adjusted to reflect present-day wage and price levels on a proper basis as has been discussed, and the resultant figures weighed as to their validity under the circumstances present, i.e., whether the traffic movement under review has characteristics which are similar to the territorial average operating characteristics which are shown in the Carload Cost Scales Study. As a result of this analysis, the rate-maker or shipper may be apprised as to whether the present or proposed rate is compensatory and the degree to which the rate may exceed the variable costs. This information may be used to avoid the filing of complaints or the undertaking of an extensive study of the actual costs incurred in the handling of the traffic. In other words, the Carload Cost Scales eliminate delays in having a rate approved or rejected and costly investigations of the rate or rate structure. Distribution of the Rail Revenue Contribution By This study, commonly referred to as the "Burden Study," together with the Cost Section's Carload Cost Scales are the most important studies available for ratemaking purposes. Unfortunately, the burden study was discontinued in 1961 and it was not until in 1973 that the Cost Section prepared such a study based on the year 1966 operations and at a later date the Cost Section prepared a burden study based on operations in 1969. As previously stated, the Cost Section introduced both the 1966 and 1969 studies in Ex Parte No. 270 Investigation of Railroad Freight Structure. It is understood that the burden study based on the year 1972 operations will be published by the Cost Section in the near future. Despite the limitations in the burden studies as previously explained, they provide comparisons of the revenue contributions made for each commodity. In most instances, such comparisons are extremely useful to the rate-maker in judging the compensatory character of a rate or rates on a particular commodity, with commodities having similar characteristics both as to the rate charged and the costs. It is only when the rate involved is for the movement of volume moving low rated traffic such as pulpwood and wood chips, construction aggregates, sulphur, potash, sugar beets, traffic moving in trainloads or unit trains, etc., that care must be taken in making a proper analysis of the revenue-costs comparisons. In most instances, the figures shown in the burden study for such commodities may be completely inapplicable. The rate-cost comparisons for traffic moving on per carload minimum and where extra charges are assessed by the railroad for providing the car and trailer, etc., may be misleading. As previously stated, a study made by the Freight Forwarders and introduced in Ex Parte 270 Supra is a case in point. The burden study introduced by the Cost Section showed that the rates on this traffic did not even cover the variable costs. When the costs were adjusted to reflect actual weight rather than billed weight, the actual number of interchanges is used and the revenues take into account the extra charges paid by the freight forwarders, the traffic was shown to produce a substantial contribution to the carriers' overhead burden, as previously explained. The Cost Section acknowledges that other commodities (other than coal, coke, and iron ore) should be given special treatment in the development of costs, i.e., the costs should be adjusted by using actual operating factors rather than the territorial factors used by the Cost Section in developing the costs. 1 The Cost Section may, as a result of studies introduced in Ex Parte No. 270, be in a position in the near future to make adjustments in the costs in its burden studies for movements of other commodities (other than the six commodities 1 it is now giving special treatment to in the development of the costs). While the Cost Section may decide that it may not be practicable to do so, it may decide to include a caveat for the commodities which are found to have entirely different operating conditions than the territorial average. In any event, the Cost Section should point out to the parties who are responsible for the processing of the one percent waybills furnished by the railroads, that in the future, waybills studies should include actual weights, autual interchanges, and actual miles moved in each territory. In addition, extra charges paid by the shipper should be included in the revenues. This does not refer to transit, stop-off, and similar charges, since these charges could not be included except when a special study is made. In this way, greater reliance may be placed on the burden studies made in the future. In summation, Rail Form A, the Carload Cost Scales, and the socalled burden studies prepared by the Cost Fnding Section have had a significant impact on the railroads' line-haul rates. The value of these studies can be enhanced, as previously discussed, by making up-to-date studies to test the validity of some of the apportionment factors utilized in Rail Form A. The Carload Cost Scales would reflect any changes made in Rail Form A. In order to make the burden studies more accurate, the waybill studies, which are presently being utilized by the Cost Section, should be expanded to include additional data, some of which the railroads would be required to insert on the waybills they furnish the Commission. Actual weights should also be used rather than billed weights and certain accessorial charges should be included with the revenues as previously stated. In addition, the Cost Section should give consideration to expanding the list of commodities which receive special treatment in its studies, i.e., costs are to be computed so as to reflect actual operating factors rather than territorial factors. Possibly the studies submitted in the Ex Parte 270 investigation could be used for this purpose. 1 Iron ore, bituminous coal and lignite, petroleum coke, and coal, copper ore, and railroad equipment moving on its own wheels. REGULATION AND ANTITRUST-COMPLEMENTARY FORCES OR IMPLACABLE OPPOSITES? HONORABLE ROBERT J. CORber Member, Interstate Commerce Commission If we were to rely upon the rhetoric of deregulation for understanding of Government intervention in the forces of the market place we might reach the conclusion that competition and antitrust, on the one hand, and regulation, on the other, are irreconcilably different ideas. Nothing could be further from the truth. Both seek to achieve the optimum in quality, pricing and allocation of goods and services. The differences between them are primarily in timing and the means by which they achieve their objectives. Antitrust takes the long view and attempts (generally after market imperfections arise and injuries signal a need to change market conditions) to recreate competitive conditions conducive to proper demand-supply relationships. Regulation does not wait upon market conditions. Its immediate and ultimate concern is adequate service at reasonable rates on equal terms to all. When necessary it controls pricing, service and competitive practices in order to fulfill this objective without interruptions for adjustments in market conditions. It thus seeks to maintain conditions in transportation that enable commerce in general to participate on equal terms in the free market forces the antitrust laws are designed to protect. It may, and often does, rely upon competitive forces to help achieve its objectives but it is not dependent upon competition for such purposes. The issue, then, is not whether to have regulation or competition. It is, rather, how best to mix the policies of regulation and competition in given circumstances. The History and Function of Regulation Regulation of transportation was not discovered in our free enterprise society although it has been utilized by either the states or the Federal government almost from the beginning. Civilized societies have regulated transportation in one form or another since at least the time of Hummurabi, over 4,000 years ago. An extended search is not necessary to understand why. Transportation is the prerequisite to all other forms of commercial activity. If the producer cannot obtain supplies or move products to market, there would be no market and no occasion for free market Remarks before the 46th Annual Meeting of the Association of Interstate Commerce Commission Practitioners, Atlanta, Georgia, June 19, 1975. |