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2. That Federal tax laws be amended to encourage local and State tax relief for passenger carrying railroads.

3. That State and local governments take such steps as may be required to effect a greater degree of equity with respect to tax burden on railroad property in relation to taxpayers generally.

4. That where the railroads are unable to operate a particular local or commuting service at a profit, and where such service is essential to the community or communities served, that steps be taken by State and local authorities, or both, to provide the carrier the cost of the service plus a reasonable profit.

5. That the executive departments of the Federal Government consider the implications of the national transportation policy in connection with the procurement of passenger-train services by the Post Office Department, Department of Defense, and other agencies of the Government.

6. That railroad management take steps to eliminate duplicate passenger trains, terminal, and other facilities insofar as will be consistent with the law and the public interest.

7. That experimentation by the railroads with new types of coaches, sleeping cars, dining and other facilities be continued.

8. That railroad management continue its efforts to improve the attractiveness of railroad passenger service as a means of stimulating more adequate volume of traffic.

9. That railroad management make studies of the elasticity of demand (effect of price on volume of traffic) for railroad passenger service so as to provide a basis for adjustment of fares, adjustment of schedules for convenience of prospective passengers, and systematic continuous, and higher quality advertising

and promotion generally designed to improve public acceptance of rail travel. Every possibility of developing additional patronage should be fully and continually explored.

In 1968 proposals to discontinue so many of the remaining intercity trains were made by railroads that we considered it necessary to so advise Congress. In July of 1968, we submitted to Congress a complete Report On Intercity Passenger Service.

Briefly summarized, we pointed out in that Report that intercity rail passenger service in this nation has been declining rapidly since 1950. In a period when intercity travel has more than doubled, rail service has shrunk to less than half of its former size. At a time when the demand for intercity service is expected to double, more and more people are accepting the inevitability of losing the last remaining medium and long-distance rail service. In the last ten years

The number of regular intercity trains has declined nearly 60 percent.

Thirteen railroads have abandoned all intercity service, and seven have only one pair of trains left.

Intercity service over 36 percent of the 1958 routes has been completely eliminated.

Noncommutation passengers have decreased 40 percent, and first-class passengers have dropped nearly 70 percent.

Rail investment in new equipment for intercity service has nearly ground to a halt, and the quality of service has deteriorated in a number of instances. In 1967, the increasing demise of intercity service sharply accelerated. Intercity passenger miles and revenues all decreased 15 percent in that year alone. The total costs of providing even this reduced level of passenger service increased more than 20 percent.

In 1967 and 1968 mail revenues on the trains declined by $109 million, about 36 percent, and express revenues went down by $23 million. The amount of this revenue decline alone constituted about 30 percent of the total 1968 passenger train revenues. This sudden erosion of revenue converted a number of passenger trains from marginal to heavy deficit operations. The fact is that passengers alone cannot financially sustain many intercity trains, and without support from other traffic or other sources, those trains must be acknowledged as a heavy burden on interstate commerce. While it is important to note that the volume of filings under section 13a has been sharply increasing, the most critical problem is presented by the recent receipt of several proposals to discontinue the last remaining rail passenger service between major areas in the country, particularly in the West.

In view of the trends in rail passenger operations and discontinuance proceedings, we do not believe the significant segments of the last remaining long- and mediumdistance intercity rail passenger service will survive the next few years without a major change in Federal and carrier policies.

Changes in Federal policy are urgently needed, and a comprehensive governmental review of the present and future need for intercity rail service should be undertaken at once. The Northeast Corridor Project involves only a limited part of the problem. Beyond that, the existing governmental environment does little more than weakly support that level of service which the railroads, themselves, can afford. The quality and quantity of that service are deteriorating. The forces underlying this trend grow stronger. Present programs-public and private-cannot reverse this decline. And we do not believe that any significant action will be taken until a consensus is developed on whether a national intercity rail system is needed. The national ambivalence toward the problem not only fosters inaction and inconsistency in governmental policy, but it encourages railroads to continue the present trends.

Against this background, we recommended legislation that 1) would authorize the making of a comprehensive study of the Nation's needs for intercity passenger service and the role of the railroads in meeting that need; and 2) would amend section 13a of the Act so as to provide more effective and efficient regulation of intercity railroad passenger train discontinuances.

This recommendation was introduced as S. 3861 and H.R. 18212 in the 90th Congress and was considered in hearings before your Committee and the House Committee. No action was taken however.

(c) Study of the Cost of Railroad Passenger Service.-At the request of Chairman Magnuson of this Committee and Chairman Staggers of the House Committee, the Commission is presently conducting an investigation of the actual costs of intercity rail passenger service. The investigation was initiated in order to provide Congress with more adeguate information for consideration of possible changes in federal policies relating to intercity rail passenger service.

The investigation is based on an intensive study of eight rail passenger systems which provided nearly half of the noncommuter passenger service in the nation during 1968. The study is expected to show, for the eight passenger systems, (1) the extent of savings which they could have realized if no intercity passenger service had been operated in 1968 by those carriers, (2) the salvable value of capital invested in their passenger service, (3) their future replacement requirements for passenger cars, (4) the cash flow effects of discontinuing intercity passenger service and (5) the time required to achieve full savings.

The investigation is being conducted in cooperation with the following organizations: Department of Transportation, Federal Railroad Administration; Association of American Railroads; Railway Labor Executives Association; National Association of Railroad and Utility Commissioners; and National Association of Railroad Passengers. The final results of the study are expected to be forwarded to the Congress shortly. 2. Motor Carrier Service 4Interstate Highway System.

In its report, Motor Service on Interstate Highways-Passengers, 107 M.C.C. 95, decided April 12, 1968, the Commission reached certain tentative conclusions dealing with the utilization of superhighways (including those highways making up the National System of Interstate and Defense Highways) on a permanent basis by certificated regular-route motor carriers of passengers and property Many of such carriers now generally use these highways as uncertificated alternate routes pursuant to the Commission's Deviation Rules Revise, 1957. The provisional judgments in this report were made upon investigation of the parties' proposals and the examiner's recommendations.

Noting the substantial differences between the operations of regular-route passenger and property carriers, the Commission expressed the tentative belief that the use of superhighways by these carriers should be under separate sets of rules in order that the distinctions in service and the exigencies of each, as well as the public interest, may be fully considered and preserved. Because a case-by-case processing of the literally thousands of regular-route property carrier applications which could be anticipated would present à considerable strain on the Commission's limited personnel and budgetary resources, a general rule of construction was considered to be the best alternative. The general rule of construction is predicated upon a "corridor” concept, and represents an attempt to preserve existing competitive relationships to the fullest extent possible consistent with the public interest and the national transportation policy. Briefly, the proposed rule would allow regular-route carriers of property to operate over

+ See also Chapter III, Section C (General Rate Increases—Motor Carriers of Passengers), p. 138 infra.

superhighways,* between points on their authorized regular service routes as an incident to their outstanding certificated authority, provided that (a) the superhighway route* is wholly within 25 airline miles of the carrier's authorized regular service route or routes, or (b) the distance over the superhighway route 5 from the carrier's point of receipt of a shipment to its point of release of the same shipment is not less than 85 percent of the distance between such points over the carrier's regular service route or routes. For those property carriers authorized to serve intermediate points on their underlying service routes, operations pursuant to (a) above would entail permission to serve intermediate points on the superhighway routes.

In the light of the more intense competition between regular-route passenger carriers and in anticipation of far fewer applications from such carriers, a simplified case-by-case application procedure was proposed whereby regular-route carriers of passengers might file for and acquire certificated authority to operate over superhighways between points on their authorized regular service routes, including authority to serve intermediate points on said superhighways and connecting routes, upon a showing that use of such superhighway routes would not materially change the competitive situation between such carriers and any other. Proof that the distance from the point where the carrier picks up passengers to the point where the carrier discharges the same passengers over the superhighway route is not less than 90 percent of the distance between such points over the carrier's authorized regular service route or routes was specified as constituting prima facie evidence that a material change in the competitive situation will not result from the carrier's use of the proposed superhighway route. Also included under the passenger carrier superhighway rules in the interim report is a “through-bus” provision, pursuant to which passenger carriers combining operations at a common point of service in order to effect a through movement between a point on an authorized route of one such carrier and a point on an authorized route of another such carrier jointly apply for and obtain certificated authority to conduct such combined operations over appurtenant superhighways.

The superhighway regulations proposed in the interim report contain certain provisions looking toward the maintenance of adequate service at points on the existing service routes to which the superhighway routes are appurtenant. Additionally, with respect to the property carriers, there are certain safeguards directed against the conduct of operations which have resulted in destructive competition. Also proposed is a thorough revision of the Commission's Deviation Rules Revised 1957, which contemplates the administration of the diviation operations of passenger and property carriers under separately stated rules. Included, among various other modifications, is a provision, in lieu of the present alternate route provisions of the deviation rules, under which regular-route passenger and property carriers might file for and obtain permission to operate, without certificates, over any highways as alternate routes between points on their authorized service routes, provided that use of such alternate routes would not materially change the competitive situation between such carriers and any other.

The Commission emphasized the provisional nature of the conclusions reached in the interim report, stating that such reflected its present inclinations as to the ultimate disposition of these proceedings, and all parties and other interested persons were invited to file further statements of facts, views, and arguments respecting its tentative conclusions. Various parties have submitted additional statements in response to the proposal and a final decision in the matter should be forthcoming in the near future. In a related area, the Commission is presently investigating a proposed nationwide increase in fares by the motorbus industry. This matter is discussed elsewhere in this report.

D. INTERMODAL TRANSPORTATION

1. Intermodal Rate Competition

Rate regulation has a significant impact on the national economy. The cost of transporting goods from their source to market is an important factor in the price of every commodity offered for sale. The keen competition among carriers as they struggle for larger shares of the available traffic stimulates the acquisition of new, larger, and specialized equipment; the search for new methods of pricing; and the means of providing more efficient service. This has led to such innovations as piggyback unit trains, and the rent-a-train concept. While many rate and service changes involving interplay of competitive forces between different modes go into effect without challenge, those which are contested before the Commission are highly complex and often involve very critical and important issues of economic regulatory policy.

5 (Including highways connecting such superhighways with the carrier's regular service route or routes.)

Illustrative of these issues is the Commission's Division 2 recent decision in Grain By Rent-A-Train, IFA Territory to Gulf Ports, 335 I.C.C. 111. This proceeding involved an investigation of a novel concept of rate-making, proposed by the Illinois Central Railroad Company, for the transportation of export grain from stations on its lines, located principally in central Illinois, to certain Gulf ports. The tariff schedules were allowed to become effective pending a determination of their lawfulness by the Commission. The rent-a-train concept is new, particularly to the extent that it provides a fixed substantial annual rental charge of $1 million for the use of an entire train consisting of 86 carrier-owned hopper cars, or $700,000 for a similar number of shipper-furnished cars (with an added charge for additional cars, up to a total of 115 cars per train), which is applicable regardless of the number of trips made or the tonnage transported for the shipper during the year. In addition, the tariff provides certain ton and train mileage rates, and a guaranteed average speed for the train.

According to the railroad and its main supporting shipper, Cargill, Inc., this proposal was designed to meet a special situation existing in east central Illinois where a gap has been created between the great technological progress in production of grain, particularly corn, and the lagging system of distribution, including storing and transportation. This highly productive land-locked area is said to be at a significant competitive disadvantage, compared to the areas close to low-cost barge transportation on the Illinois River. Thus, the tariff offers the involved shippers an opportunity to participate in the export market via the Gulf ports by encouraging the greater use of rail service for the movement of a steady and large volume of grain traffic, resulting in efficient rail transportation at reduced costs. The railroad has indicated that the primary objectives of the rent-a-train are to (1) increase respondent's rail movement of export grain on a profitable basis from an area in Illinois which is presently operating at a disadvantage, insofar as exports through the Gulf ports are concerned, because of its distance from water transportation; (2) alleviate car shortage through greater car utilization, spreading the movement of grains more smoothly throughout the year, and thereby reducing the peak volume handled during the grain harvest season; (3) create transportation savings in the movement of export corn, wheat, and oats, which will stimulate the construction of modern high-speed grain handling facilities, the need for which has been created by technological advances in corn harvesting methods; and (4) afford benefits to farmers and grain elevators by improving the price they may receive for their grain through the availability of reduced transportation costs.

This proposal was actively supported by the Department of Transportation and the Department of Agriculture. Opposing the proposal were, among others, certain operators of country elevators, grain merchandisers, processors, and exporters, and an organization of waterway operators. Generally, the position of the protestants is that the proposed tariff is not a valid tariff, and that it is otherwise unlawful as a discriminatory and destructive competitive practice.

Following a full hearing the Hearing Examiner, in his report, approved in principle the rent-a-train concept, finding that, as such, it does not violate any provisions of the law and that it may be a worthwhile innovation which deserves a fair trial. He found, however, certain substantial defects and deficiencies in the proposed tariff, including the absence of a specified annual minimum number of trips or tonnage and the lack of clarity as to certain provisions. Accordingly, he ordered the cancellation of the proposed tariff, but without prejudice to the establishment of new schedules not inconsistent with the views expressed in the report.

Upon considering the exceptions to the examiner's report taken by both the proponents of the rates and protestants, Division 2, in all basic respects, affirmed the examiner's decision.

In formal proceedings involving intermodal rate competition the Commission has responded fully to the Congressional admonition, manifested in the enactment of section 15a(3) of the Interstate Commerce Act, by the Transportation Act of 1958. We have not impeded the lawful exercise of carrier managerial discretion in the establishment of rates and charges deemed necessary to meet intermodal competition. The small number of proceedings before the Commission principally involving allegations of unwarranted rate reductions designed to capture traffic from a competing mode of transportation and the decline in the expressions of Congressional concern that the Commission has unduly interfered with the efforts of one mode of transportation to retain or recapture traffic threatened to be diverted to another, bear ample testimony to the effectiveness of the Commission's present administration of the Act.

A recent proceeding involving these issues was the so-called Ingot_Molds case, Investigation and Suspension Docket No. 8038, Ingot Molds from Pennsylvania to Steelton, Kentucky, 323 I.C.C. 758 (1965), 326 I.C.C. 77 (1965), sustained sub nom. American Commercial Lines v. Louisville & Nashville R. Co., 392 U.S. 571 (1968). In that proceeding, the railroads, seeking to capture the traffic from the barge and truck lines which had been handling it, slashed their rates on ingot molds from two Pennsylvania origins to a Kentucky destination, from $11.86 to $5.11 a ton, the precise level of the barge-truck rate. Upon investigation, the Commission found the proposed rate reduction not just and reasonable because destructive of the barge-truck lines' inherent cost advantages, based upon a comparison of the competing carriers' full costs. The lower court set aside the Commission's order, stating that the Commission inadequately had explained its reliance upon the fully distributed cost standard in measuring the relative efficiencies of the contending carriers. The court ascribed this to the Commission's misinterpretation or misapplication of the relevant statutory provisions, read by the court as allowing carriers to be free to offer whatever rates they will so long as they recover the proponent carrier's out-of-pocket, or marginal, cost.

The Supreme Court reversed. It held that the Commission in no way was foreclosed from relying upon fully distributed costs as a measure of inherent cost advantages. The Commission could, after due consideration, decide that some other measure of comparative costs might be more satisfactory in situations involving intermodal competition than the fully distributed cost standard that it traditionally has utilized. However, added the Supreme Court, that is a far cry from saying that it must use another standard, such as out-of-pocket costs.

The Supreme Court disclaimed passing on the merits of the economic arguments made by the railroads' expert witnesses in the proceeding before the Commission. Noting the pendency of Docket No. 34013, Rules to Govern the Assembling and Presenting of Cost Evidence, the Supreme Court declared that it was the Commission's intention to exercise its informed judgment by considering the economic issues involved through a rulemaking proceeding in which it could evaluate the alternatives and possible consequences of a departure from the fully distributed cost standard. Until that evaluation was completed, the Supreme Court believed the Commission was justified in taking the position that it would continue to follow its practice of dealing with individual rate reductions on a fully distributed cost basis.

Subsequently, the railroads published a rate adjustment which placed the rail rate slightly above the barge-truck rate, but whether this has enabled them to participate in the traffic, we do not yet know.

Furthermore, in an effort to clarify the cost and regulatory issues involved, the Commission republished its notice of proposed rulemaking, designated as No. 34013 (Sub-No. 1), to determine, primarily: (1) what inherent cost advantages of the respective modes of transportation are entitled to protection under section 15a(3) of the Interstate Commerce Act and the National Transportation Policy, and (2) under what circumstances and in what manner should particular costs be recognized in cost comparisons involving competition between various modes of transportation to protect and preserve those advantages. That proceeding is now pending before the Commission. 2. Coordinated Transportation

The goal of a truly coordinated national transportation system involving all modes has been an important national objective for many years. While to a large extent, progress in this area depends upon technological advances, cooperative efforts by the carriers, and the role of promotional and other governmental activities, the Commission has always had a significant role in facilitating coordination among carriers subject to its jurisdiction. This active role is fully contemplated by the national transportation policy's admonition that the Commission's regulation should be directed “[T]o the end of developing, coordinating and preserving a national transportation system . .” as well as many specific provisions of the Act itself. While many of these provisions authorize the Commission to compel the carriers to perform certain specific acts in the interest of coordination, the Commission's general philosophy and approach has been to encourage

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