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APPENDIX

ANSWERS FURNISHED BY THE ICC TO THE SENATE COMMERCE COMMITTEE IN

RESPONSE TO QUESTIONS SUBMITTED TO THE INDIVIDUAL COMMISSION BY THE SUBCOMMITTEE CHAIRMAN, SENATOR VANCE HARTKE 1

FREIGHT CAR SHORTAGES

Chairman Virginia Mae Browon

Question 1.* During the hearing the question was asked as to what progress was being made toward imposing incentive per diem provisions. In response to that question you indicated that the ICC is reviewing section 1(15) and exploring the possibility of developing an order similar in nature to the demurrage order issued earlier this year. Is this a correct interpretation of what you said ! If so, how would you evaluate the possibilities of such an order being drafted before the end of the summer?

Answer. Yes, you have correctly interpreted my statement at the oversight hearing.

After the hearing on Freight Car Shortages before your committee on May 13, 1969, I began exploring the possibility of the Commission issuing an order under section 1(15) of the Act to help alleviate the car shortage situation. Knowing that a number of problems would arise in the preparation of such an order, I assigned the matter to a staff committee for study and preparation of an order. The draft order should be completed shortly and I anticipate that I will be able to present it to the Commission sometime in August.

Question 1. Can you tell the Committee at this time when the incentive per diem provision will be put into effect or at least when the Commission will hold hearings on this matter! Very frankly, Senator Magnuson and I expected that your report of June 1 would give the Committee a little more information than it did about your schedule for putting this law into effect. We still do not have a fixed time schedule. Can you give us such a schedule now!

Answer. It is not possible at this time for me to state when the incentive per diem provision of Public Law 89 430 will be put into effect because of the fact that hearings have to be held, a report and order would have to be drafted, the matter probably would be appealed to the Commission at least once, and then a court action undoubtedly would follow. All of this would require an indeterminaable amount of time. Therefore, no fixed time schedule, in my opinion, can be given to the Committee.

However, the Freight Car Study conducted by the Commission, which I discussed at some length in my statement to your committee on May 13, 1969, has been further refined by our technical staff and will be considered by the Commission in the near future. I hope that the freight car study which we have made will support the issuance of a hearing order on this matter.

Question 2. It is my understanding that the Western carriers were arguing that the rental charge at issue in the Omaha case was promulgated without any attention being paid freight car supply problems and that the owner roads were arguing that this basic per diem rule would in faot make it less expensive for non-owner railroads to hold cars owned by other railroads. It that correct? Should not car supply be taken into consideration? If it is true that this new order could contribute to freight car distribution problems irrespective of the issue of the order's correctness, why is it being placed into effect on August 1 when we are likely to be faced with a very severe car shortage at that time?

*This question was submitted to Chairman Brown only.
1 The questions and answers are arranged in accordance with subject matter.

(105)

FREIGHT CAR SHORTAGES— continued

Why shouldn't this order be held in abeyance until some sort of incentive per diem order can be issued?

Answer. Your understanding of the Western carriers' and owner roads' arguments in the Omaha case is correct.

Car supply should be taken into consideration in the incentive per diem proceeding, Ex Parte No. 252 (Sub-No. 1), wherein the Commission will make a determination as to whether the basic per diem rates should be increased by an incentive element or elements.

It is my understanding that the district court in Omaha has stayed the effective date of the August 1 order pending an appeal by certain of the railroads to the United States Supreme Court, except with respect to record-keeping rquirements.

As stated above, the order is being held in abeyance by a court and possibly we will be able to issue an incentive per diem order before that stay is liftd by the court.

Question 3. In connection with the ICC's recommendation in its June 1 report that it establish a permanent Railroad Service Board, would it be helpful to establish an advisory committee of shipper and receiver representatives to help develop programs and courses of action to be taken to help eliminate cat shortage?

Answer. The Commission, under its present method of handling car service, has contacted many individual shippers and receivers, as well as groups of them, in an attempt to find solutions for their problems. It is my belief that because of the wide coverage provided our present method has, at least for the most part, worked out fairly well. The advisory committee should not be composed mainly of large shippers and receivers who, in general, do not experience the car shortage problems that many of the small shippers do. Other than that, I believe that an advisory committee would be very helpful in working out courses of action to help eliminate the car shortage problem.

Question 4. Does the Commission feel that shippers should be required to share in the railroad's obligation to supply cars?

What has the Commission done to insure that shippers will be adequately compensated if they provide privately-owned cars?

Answer. I do not feel that shippers should be required to share in the railroads' obligation to supply cars.

The Commission has established reduced volume rates in a number of instances to enable shippers to be adequately compensated for the privately owned equipment supplied by them. Also the Act provides that if a rail carrier uses the transportation instrumentality of the owner of the property being transported, the carrier shall compensate the owner for such use. Accordingly, if the reailroad charges its normal type of published rate which applies when it uses its own cars, a shipper furnishing its privately owned car would then be entitled to compensation in the form of an allowance. While the carrier and shipper generally reach an agreement as to the amount of the allowance, if the shipper feels that a higher allowance is required to compensate it for the use of its equipment, it will request the Commission to decide the matter. There are at least two cases involving allowances on privately owned equipment presently pending before the Commission.

Commissioner Kenneth H. Tuggle

1. I am unable to state categorically when the incentive per diem provision will be put into effect. Our experience in per diem cases makes it plain that broad-brush, blunderbuss or percipitate treatment of this subject would not effectively reach the problem and, at any rate, could not survive the litigation that almost certainly will ensue.

Some appreciation of the problem's highly complex nature and of the exacting decisional standards which must be met can be obtained by reference to Palmer v. United States, 75 F. Supp. 63 and Incentive Per Diem Charges, 332 I.C.C. 11.

It is not simply a matter of summarily ordering user lines to pay more to owner lines, for that could well cause a transfer of revenues which might have to be restored through adjustments in the many divisions of joint rates in order to provide for the revenue needs of the constituent carriers necessary to our rail system.

FREIGHT CAR SHORTAGES—continued To carry out the Congressional intent, the increase in per diem must in fact be an incentive toward increasing the car fleet without impoverishing marginal lines or jeopardizing their ability to perform their essential common-carrier obligations.

An investigatory-research program was begun last year, and we are now proceeding with deliberate speed in analyzing and organizing the data received therefrom to establish a sound and acceptable basis upon which the hearings can be opened as required by the incentive per diem law. This problem is among those of highest priority at the Commission.

2. Your understanding is correct as to the contentions of the Western carriers in the basic per diem case. The concept of basic per diem contemplates that a reasonable compensation be paid for the use of non-owned cars, i.e., an amount that is reasonable as to both user and owner. As the law has developed through past litigation, including directives from the Supreme Court, the concept includes factors for distance as well as time. Thus, as to a few categories of cars it would be possible to hold a car in place at less cost under the new rule than under the former rule which was based on time alone.

That does not mean, however, that the new rule would necessarily contribute to freight car distribution problems. The Commission is exerting every reasonable effort to oversee car distribution, seeking to anticipate regional and local requirements and to issue such car service orders as might be necessary to preclude the undue hoarding of cars.

There are three distinct aspects to the freight car problem : (1) Reasonable compensation for the use of freight cars (basic per diem); (2) Incentive charges designed to encourage the building of more cars; and (3) car service regulation directed at the equitable distribution and most efficient utilization of available

cars.

The Commission's specific power to fix reasonable compensation for the use of cars is not coextensive with its general power to regulate the use. It has been held that the specific power is limited and is not adaptable for other regulatory purposes. Thus, we are precluded from making car supply a factor in determining and promulgating basic per diem rates. Be that as it may, the Omaha court again issued a restraining order postponing the effectuation of the basic per diem order pending appeal to the Supreme Court.

In the meantime, we are exercising our available powers toward increasing the utilization of cars and accomplishing an equitable distribution. Various kinds of car service orders have been issued, including a penalty demurrage order aimed at reducing non-transportation use of cars by shippers. And we are exploring the use of penalty per diem as a means of obtaining more efficient handling of cars by the railroads.

3. Without question the views, ideas and cooperation of shippers would be helpful in dealing with car shortage problems and the fact is that shippers are consulted and do actively participate in the matter. In proceedings before the Commission and in public hearings conducted by railroad rate bureaus, shipper representation is customary. Various groups and associations have been established by the shippers themselves to study this and other problems from the shippers' perspective, and we solicit their views and invite their participation in our efforts to resolve the problem. And I might say their views are presented in our proceedings vigorously and exhaustively. I believe that establishing an additional advisory committee would be largely repetitious of what we now have.

4. Speaking for myself I believe the obligation to supply the facilities of transportation, including cars, should rest with the carriers where the statute now places it. Shippers should not have to share in that obligation. By the same token shippers should be willing to pay a fair and adequate compensation for the use of those facilities and should restrict such use to the purposes for which those facilities were intended, namely, transportation. In addition, I believe the carriers are entitled to a level of compensation, including a fair return on investment, which will insure the growth and continued viability of the common carrier system.

The law now provides that carriers shall pay a reasonable amount to a shipper for the use of the latter's cars, and imposes on the Commission the duty to determine and prescribe what a reasonable charge would be. We have exercised this duty in many cases involving allowances for the use of shipper-owned facilities. FREIGHT CAR SHORTAGES—continued

Commissioner Rupert L. Murphy

1. In Ex Parte No. 252, Incentive Per Diem Charges, 332 I.C.C. 11, I dissented from the majority decision. It was my opinion that we had adequate information and that the Commission should have acted and established incentive rates under the newly enacted Public Law 89 430. Subsequently, the Commission, on December 17, 1967, instituted a new proceeding, Ex Parte No. 252 (Sub-No. 1), to secure adequate information on which to act. The collection of the data and its evaluation is in process. I have refrained from participation in the initial stages of Ex Parte No. 252 (Sub-No. 1), as to procedural matters. I have no information at this time as to the proposed hearing dates. However, in my opinion, this proceeding will be accorded expeditious handling, thereby enabling the Commission to render a prompt decision. Early hearings will give the carriers, shippers, and the general public an opportunity to express their views on implementing the law.

2. In the Omaha case, the western carriers did argue that the rental charge was promulgated without any attention to freight car supply problems. The owner railroads did argue that the basic per diem rates, in fact, make it less expensive for non-owner railroads to hold cars owned by others. The court's opinion in that proceeding entered on May 27, 1969, considered and rejected the above-mentioned contentions of the western carriers. It held that the Commission did give consideration to car supply factors before deciding to prescribe only basic per diem rates since the Commission had instituted a new proceeding in Ex Parte No. 252 for that specific purpose.

While car supply is not a factor in determining basic per diem rates, it is the primary factor in the establishment of any incentive per diem rates. With respect to the contention that the basic per diem rates would make it less expensive for non-owner railroads to hold cars, this contention is based upon the fact that the new basic per diem rates provide for a time and distance factor in lieu of the old rule which only provided for a time factor. It is true that under new basic per diem rates, cars of a certain valuation which stand idle would incur lesser per diem charges per day than under the old rule; this would not be true of cars costing generally in excess of $9,000, and of fairly recent purchase. Moreover, the court, in its opinion, considered this contention and noted that the Commission could resolve any problems created by a non-owned railroad holding cars by either of two methods: (1) use of an incentive per diem rate; and (2) by issuing orders under section 15(1) of the act.

I might point out that shippers, as well as non-owner railroads, are a factor in holding of cars. The Commission is constantly concerned with the problems involving adequacy of car supply and does take the holding of cars into consideration when it issues its service orders and directives.

The order in the basic per diem case which was initially enjoined by the Omaha court was to become effective on August 1, 1969, but has been again, in part, temporarily restrained by order of the Omaha court dated July 7, 1969, pending appeal to the Supreme Court of the United States. There no presumption that the new order when fully effective will contribute to freight car distribution problems. On the contrary, to some extent it should ease those problems. The order will be made effective as soon as possible so as to permit orderly observances of the new basic per diem rates. Incentive per diem rates, when established, can be added to these basic per diem rates.

3. Presently there are a number of industrywide boards, leagues, and associations, made up of industrial shippers and receivers concerned with the movement of commere from which we seek and receive valuable information. We are constantly requesting advice from these groups as to their respective car requirements and have implemented many of these suggestions into the current activities of the Section of Railroads in the Bureau of Operations. I have personally met with these groups on many occasions and find that the representation in the National Industrial Traffic League, shipper advisory boards, and similar organizations accurately reflects demands of their respective groups.

Under section 5a of the act any joint endeavors of the rail carriers in order to avoid antitrust complications must be made in conformity with the act. Under that section, hearings on proposals are generally held on a public docket in which shippers, shipper advisory committees, and the general public are given an opportunity to appear before the various rail committees to present their views. In adjudicatory or rulemaking proceedings before the Commission, interested parties, including shipper associations, advisory committees, and the general pub

FREIGHT CAR SHORTAGES— continued

lic, may participate to the fullest extent in presenting their views and various positions.

Accordingly, in my opinion, there is no immediate need to warrant the establishment of additional shipper advisory committees.

4. With respect to question No. 4, the Commission has no authority to require the shipper to share in the railroad's obligation to supply cars. Under the Interstate Commerce Act, part I, section 1(4), a railroad is obligated to furnish transportation upon reasonable request therefor. Section 1(3) of the act defines transportation to include cars and other vehicles and all instrumentalities for shipment or carriage, and all services in connection with receipt, delivery, and handling of property transported."

Section 15 (13) of the act provides that if a shipper renders any service connected with transportation or furnishes any instrumentality used therein, the railroad may establish in its tariff the charge and allowance to be paid to the shipper for such service or rise of an instrumentality, subject, in appropriate instances to prior approval of the Commission.

The Commission has adhered to the rule that the amount to be paid or allowed to the shipper should not be more than is just and reasonable for the service or instrumentality furnished; that the amount which might be paid should not exceed a reasonable cost to the owner of the goods of performing the service or furnishing the instrumentality used; and whichever of these sums is the lower marks the maximum which the railroad may pay or allow. If a shipper is not satisfied with the allowance it may file a complaint with the Commission. Under section 15(13) of the act, railroads have established mileage allowances on many types of freight cars furnished by shippers. The allowances generally are higher on special purpose types of cars.

There are presently pending before the Commission two proceedings, Investigation and Suspension Docket Nos. 8406 and 8407, dealing with allowances on privately-owned tank cars and privately-owned freight cars (other than tank cars), respectively. In I. & S. Docket No. 8406 the carriers are proposing a new 6-level mileage allowance on tank cars. In I. & S. Docket No. 8407, there are under consideration proposed rules and regulations governing privately-owned freight cars (other than tank cars) and allowances, for example, on covered hopper cars. A number of shippers and shipper associations are participating in the two proceedings.

The hearing examiner's recommended reports were served in these proceedings in April and May of this year, respectively. Exceptions have been filed in I. & S. No. 8406; the date for filing of exceptions in I. & S. No. 8407 has been extended at the request of a party of record. Copies of the two recommended reports are attached for your information.

In addition, in many instances, shippers are given the benefit of reduced rates when the traffic is moved in shipper-owned cars. This is true, for example, in rates on unit train and volume train movements. The use of private cars, however, does not relieve the carriers of their obligation to furnish cars. The use of shipperowned cars does contribute to the carriers' ability to meet its freight car requirements for other shippers.

While I have endeavored to be as brief as possible, it was felt that more than a "yes" or "no" was desirable and necessary. Should there be any additional information regarding this reply I will be most pleased to respond immediately upon your request. Enclosures.

MAY 1, 1964. Hon. JOE L. EVINS, Chairman, Select Committee on Small Business, House of Representatives, Washington, D.C.

DEAR CHAIRMAN EVINS: This has further reference to your letter of April 14 concerning complaints your committee has received of the difficulties confronting small businessmen in obtaining freight service on small shipments. You requested a full and complete analysis of the jurisdiction and powers of this Commission with respect to both rail and motor carriers, and information regarding the number of complaints received by the Commission from small businessmen regarding the failure or refusal of carriers to handle shipments.

In recent years there has been intensive curtailment of less-than-carload service by the railroads, particularly in the East. This apparently is due to

1

i Compare United States v. Pennsylvania Railroad Company, 242 U.S. 208 (1916).

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