Lacking this factor of car utilization, the MCA formula becomes inoperative. Possibly the statistically computed average of 100.3 car miles could be substituted for the adjusted trend line, but MCA itself has regarded that use for his purpose as not proper. In these circumstances, the examiners conclude that MCA has not satisfied its burden of showing that the existing level of allowances is unjust and unreasonable.

Certain protestants who own or lease covered hoppers also take the position that the Commission should prescribe a new bilevel allowance structure, requiring allowance payments of 5.2 cents per mile on loaded or empty miles run by covered hoppers having a depreciated reproduction value less than $11,000, and 7.45 cents per mile for cars of greater value.

The only evidence regarding such a bilevel structure is that in 1966 certain committees of the AAR recommended such a proposal to the AAR Board of Directors, together with a proposal to revise the equalization rule governing covered hoppers (imposing mileage charges only on that empty mileage in excess of a 105 percent ratio). Before acting on the merits of the proposal, the AAR Board of Directors was "flooded with complaints" about it from the Millers National Federation, a party protestant in this proceeding. The Board then referred the proposal back to its committees for further study, and the committees, deciding that the data supporting this proposal had become stale, took no further action.

Protestants argue that the AAR Committees' proposal stands at least as an admission against interest, and that, taken with the evidence of record of protestants whose leasing costs substantially exceed their mileage allowance earnings, it should be used as the basis for the Commission's prescribing new allowances at this time. Protestants' position in this regard is not well taken.

Several protesting shippers who furnish covered hoppers to the railroads show that their leasing costs are in excess of their allowance earnings. International Milling Company, in the 12-month period ending in February 1968, showed leasing costs of approximately $506,464, while its mileage earnings amounted to $149,925, a difference of more than $350,000. During its fiscal year 1967, General Mills paid $401,254 for renting cars, and $6,191 for repairs, while earning $186,130 in allowances and credits, representing a net cost of about $221,000. Peavey Company showed a similar experience during the 1 months ending April 30, 1968, renting its airslide covered hopper cars, ranging between 199 to 230 in number in that period. Peavey's adjusted lease costs were $445,787 while its mileage earnings totalled $225,905. Several other protesting shippers similarly have experienced net deficits in balancing their leasing costs with their mileage earnings.

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Initially, the 1966 AAR committee proposal relating to a new bilevel allowance structure in itself can hardly be held an admission that present allowance levels are unreasonably low. The proposals never got beyond the stage of discussion and negotiation. The bilevel allowance structure was part of a package embracing a specific modification of the equalization rule. We can now only speculate on whether protestants here would have been willing to accept an enforcible 105 percent equalization rule, as a reasonable balancing for the suggested bilevel allowance system.

On the other hand, while the substantial deficits in shippers' accounting for their leasing costs and mileage allowances would seem to be excessive on the surface, protestants present no reasoned analysis of those costs nor any specific basis for translating those deficits into an adequately rationalized new allowance level. Protestants do not specifically argue that the car rentals fixed by independent car line companies are a proper measure of the allowances railroads should pay, and, indeed, such a position would be untenable on its face. The carriers have no apparent control over the prices set by car lessors and it is clear that the amounts of allowances any shipper will earn will depend upon its particular mix of such factors as regularity of shipments, average lengths of car movements, peak seasonal periods, and average turnaround time for the cars. All things considered the examiners conclude that there is no factual basis of record to support a finding that existing allowance levels on covered hopper cars are unjust or unreasonable, or that any new allowance proposal by protestants would be just and reasonable.

ULTIMATE FINDINGS

The examiners find that the proposed equalization rules (item 260) have not been shown just and reasonable and should be canceled, The examiners further find that, with certain required modifications described in detail above, respondents' proposal to impose mileage charges on movements of empty shipper-furnished freight cars when those movements are not directly related to transportation use (item 145) will be a just and reasonable practice.

ORDER

It is the order of the examiners:

That the respondents herein be, and they are hereby, notified and required, within 45 days after this recommended report and order becomes effective, upon not less than one day's notice to the Commission and to the general public, by filing and posting in the manner prescribed under section 6 of the Interstate Commerce Act, to cancel that portion of the suspended schedules naming the rules and regulations (item 260)

found herein not shown to be just and reasonable and to modify other rules and regulations thereof (item 145) in conformity with the findings herein.

That in the absence of a stay or postponement by the Commission or the timely filing of exceptions, the effective date of this order shall be 30 days from the date of service hereof, and that these proceedings be, and they are hereby, discontinued. this 13th day of May 1969.

Dated at Washington, D. C.

By the Commission, Oren G. Hearing Examiners.

Barber and Robert M. Glennon,

(SEAL)

H. NEIL GARSON
Secretary

FREIGHT CAR SHORTAGES-Continued

Commissioner George M. Stafford

1. I am unable to add anything to the report of June 1, 1969, except that the matter is under active consideration. I am as anxious as you and Senator Magnuson that hearings get underway at the earliest opportunity.

2. I did not see the arguments raised in court, but it is my understanding that you are correct. Per diem is to compensate the car owner for cost of ownership and maintenance, and car supply as such has no relevance to such matters. Our decision in the per diem case has now been upheld by two different courts. I am informed that an appeal to the Supreme Court is likely and, that effective August 1, only the bookkeeping aspects of the order go into effect which means that if the Commission is sustained, payments will be retroactive to that date. On that basis, I fail to see how the order will affect the car shortage. Furthermore, since basic per diem and incentive are two different things, there is no reason to hold up the former merely because we cannot yet implement the latter.

3. It is important that shippers know the important role they play in the freight car problem. If such an advisory committee could be utilized to educate shippers of this fact, I think it would be helpful. We are pleased to hear of any new programs or solutions to the problem from whatever source it may be and we do receive many comments at the present time from shippers and their organizations. 4. No, it is the obligation of the carrier to provide suitable equipment for transportation. When it does not, the shipper is entitled to compensation which is basically a matter of negotiation with the carrier, with recourse to the Commission in case of disagreement. There is now pending, for example, such a proceeding involving private tank cars in which adequate allowances will be prescribed.

Commissioner Dale W. Hardin

1. The Incentive Per Diem case will not be assigned for hearing until the statistical information supplied by the carriers in response to Commission orders has been further refined and evaluated. Once this process is completed, the proceeding will be assigned for hearing probably in the fall. All of the Commissioners are fully aware of the seriousness of the problem, and I can assure you every effort will be made to expedite the proceeding. However, in all frankness, I must state that even an expedited proceeding will involve an extended period of time. Additional time, of course, would be consumed if the Commission's final decision is appealed to the courts.

2. In the Omaha case certain western carriers argued that the Commission was required under section 1(14) (a) not only to fix the basic per dim but also fix an incentive per diem rate at the same time. It was the Commission's contention, sustained by the court, that the incentive per diem amendment of 1966 did not interject a new element to be considered in fixing basic per diem. Basic per diem has little relationship to freight car supply, as such. Rather, it is the rental charge to be paid to the owner for the use of his car, regardless of whether or not the car is in short supply. Incentive per diem, on the other hand, is an element to be added, if a need therefor is shown, to the basic per diem rate in times of car shortage to encourage, as its name implies, the acquisition of additional freight

cars.

The contention that the basic per diem rate schedule to become effective August 1, 1969, will make it less expensive for non-owner railroads to hold cars owned by other railroads is, in my opinion, only partly true, i.e., to extent such rates applicable to older cars are lower than the prevailing rate. The opposite would be true where the higher new rates on newer cars are applied. Thus, it would appear that no useful purpose would be served by postponing the effective date beyond August 1, 1969. As a matter of information, however, on July 7, 1969, the Omaha court entered a temporary restraining order postponing the August 1, 1969, effective date, pending appeal to the United States Supreme Court.

3. At present there are advisory shipper groups that customarily estimate the number of cars that will be needed by a particular industry at a specific time or to transport a particular harvest. This information has proved most helpful not only to the Commission but to the rail carriers as well in planning to meet peak demands. The Commission will continue to cooperate with the presently established shipper advisory groups and other similar groups that may be established. The cooperation is premised on a mutual desire to promote an equitable distribution of availble cars.

FREIGHT CAR SHORTAGES-continued

4. It is my view that shippers should not be required to share in the railroads' obligation to supply cars. Shippers by other modes have no corresponding obligation. I do believe, however, that in times of car shortages or threatened car shortage, the Commission should have the authority to require shippers, under threat of penalty, to observe appropriate car service directives and orders.

As to adequate compensation to shippers for tendering shipments in privately owned cars, the Commission and the courts have by a series of decisions determined that a proper allowance constitutes the lower of the following considerations:

(1) The shipper cost in supplying the car.

(2) The railroad's cost if it were to supply the car. When a question is raised with respect to an allowance, which, incidentally, must be published in the tariff, the Commission must determine carrier's and shipper's costs and prescribe an allowance which is no higher than their cost.

Commissioner Donald L. Jackson

1. With respect to your inquiry concerning when the incentive per diem provision will be put into effect or when hearings will be held, I do not think that at this time I can give a precise answer. As noted, this proceeding was initiated before my tenure, and I have not participated in it to date. It is my understanding that hearings will be held at the earliest possible date and that the Commission will decide the matters in an expeditious manner.

2. It is my understanding that in the Omaha case the Western carriers did argue that the rental charge was promulgated without consideration being given to the car shortage problems, and that the owner railroads did contend that the basic per diem rule would make it less expensive for non-owner railroads to hold cars owned by other rail carriers. It is my further understanding that both of these arguments were rejected by the court. It should be pointed out, however, that the Omaha court issued a temporary restraining order on July 7, 1969, which will delay the effective date of the new per diem rates pending appeal to the Supreme Court, but which will require the carriers to maintain records so that the new per diem rates can be put into effect retroactively if its opinion is affirmed. Basic per diem rates involve compensation for ownership and maintenance of the freight cars, and car supply is not taken into consideration. However, car supply is a major consideration in determining incentive per diem rates. Hence, with this distinction in mind and in view of the court's decision, delay in issuance of the order in the basic per diem case does not appear appropriate and would not, in all probability, have any substantial effect on freight car distribution.

The new basic per diem rates do provide that some cars which are idle incur less per diem charges than under the old rule. But again, the court has pointed out that the Commission has other remedies for dealing with non-owner railroads so that this relatively minor facet of the basic per diem proceeding again does not appear to justify further delay.

3. In connection with your inquiry concerning whether it would be helpful to establish an advisory committee of shipper and receiver representatives, I would first point out that presently there are many trade associations and other similar organizations composed of shippers and receivers which now present information to the Commission. Yet, if I find any indication that the views of such interested persons are not being adequately aired and presented to the Commission, I would not be adverse to the establishment of such an additional advisory committee.

4. The obligation to supply cars is placed upon the railroads, and the Commission does not have jurisdiction to require that shippers supply stock. Of course, when shippers do supply cars the law provides that the shipper shall be compensated in a just and reasonable amount. Should a shipper feel that it has not received a fair allowance from the railroad it may file a complaint with the Commission, and the Commission will insure that adequate satisfaction is made.

Chairman Virginia Mae Brown

SMALL SHIPMENTS

Question 1. How is it that the railroads can be permitted to discontinue LCL and other small shipment service, yet you require motor carriers to continue such service? Is there a dual standard in the law allowing for this distinction?