Appendix — Boston & Maine Railroad v. United States

Supreme Court brief1969

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Tres

“JUL 15 1969

IN THE

Supreme Court of the Whitt ‘Sites

October Term, 1969 — ae :

| (Sc 5 eee

~ BOSTON AND MAINE RAILROAD, et al.,

Appellants,

at ® Gate >

UNITED STATES. OF AMERICA, INTERSTATE COMMERCE

COMMISSION, ef al., .

Appellees,

- and | ees

- BOSTON AND MAINE CORPORATION,

Appellant, -

v. ;

UNITED STATES OF AMERICA Anp INTERSTATE COMMERCE

COMMISSION, “

: , _ Appellees.

On APPEAL FROM THE UNITED States District CouRT FOR .THE

District OF MASSACHUSETTS.

APPENDICES D, E, F, G AND H TO | a

JURISDICTIONAL STATEMENT.

-R

Boston AND MAINE CoRPORATION Tue Lone Istanp RaAILroAp Com-

ICHARD Joyce Situ, Trustee PANY ”

of The New York, New Haven Certain. Crass Il, TERMINAL AND

& Hartford Railroad Gompany — . SwitcCHinG RALLROADS

Cart E. Newton, Eso,’

M. Lauck Watton, Iso.

2 Wall Street ©

New York, New York, 10005

Attorneys for Appellants .

f Counsel: .

Georce M. ONKEN, Eso,

RicHarp H. SroKes, Eso. :

GRANVILLE WuiITTLESEY, JR., /ISQ.

Davin G. SCANNELL, Eso. |

J. PETER COLL, JR:, EsQ. -

TABLE OF CONTENTS |

Appendix D:

_ Proposed Report of the Hearing Examiner,

dated December 23, 1965. _

Appendix E:

Report of the Interstate: Commerce Commis-

sion, decided January 17, 1968.

Appendix F: | aoe

1969 District ree Decision

Opinion of the

Judgment of the Court. ........... eer street

tn) ° e

Appendix G:

Report of the Interstate Commerce Commis-

sion, decided September 5, 1962. (Concerning

Removal and Substitution of Examiners).

Appendix HH:

Statutes Involved

Administrative Procedure Act .............

Interstate Commerce Act ............ Rhone

outt ...<.. ay atone Fie tg ae ;

PAGE

oo. ,

APPENDIX D

rar ie

INTERSTATE COMMERCE COMMISSION

‘ Served December 23, 1965.

‘No. 31358 *

CHICAGO, BURLINGTON & QUINCY

R. R. €CO., ET AL

‘

NEW YORK, SUSQUEHANNA & WESTERN _

'. RAILROAD CO, ET AL

7) 7 ; e : a Decided

In Docket No. 31358, per diem charges of $2.40, $2.75, and

$2.88 for the use of railroad-owned freight cars when

on the lines of rail carriers other than their, owners,

found in excess of reasonable compensation. Muilti-

level per diem charges found not in excess of reason-

able compensation in certain instances, and in excess

of yeasonable compensation in others. . Reasonable '

_compensation found and proceeding discontinued.

In Docket Nos. 33145 and 34405, multi-level system of rate

-ealenlation for per diem charges found, unreasonable.

Methods prescribed for the caleulation of per diem

‘ ? : *,

' This report Embraces also’ Docket ‘No. 33145, Railroad Freight -

Car Per Diem Charges and Docket: No. 34405, Southern Railway

Company et al v: The Pennsylvania Railroad Company, et al.

' eharges on a multi-level basis adequat¢ to reasonably.

compensate owners of freight cars and to provide for

fair, reasonable, and non- discriminatory assessment

of charges upon railroads using such cars. —

ate orders entered.

Andrew, C. Armstrong, John C,. Ashton,: Richard Rh.

Bongartz, S. R. Brittingham, Jr., Robert J. Cooney, John’

A. Daily, Kemper A. Dobbins; Robert H. Duesenberg,

_ J. Durkin, Donald M. Dunn, Kenneth I. Ekin, A. Paul

‘Funkhouser, James A. Gillen, John Guandolo, Alfred W. °

Hesse, Jr., Howard D. Koontz, A. W. Laisy, R. D. Lalanne,

Joseph L. Lenihan, Charles M, Little, David G. Macdonald,

G. M. Mariner, John F. McCartney, John £. McCullough,

R. K. Merrill, Martin A. Meyer, Jr., P..C. Mullen, W. H.

Parsons, Charles D. Peet, Duncan B. Phillips, Ernest

Porter, Leo I. Pou, Howard E. Roos, Albert B. Russ, Jr., --

Jolkn J. Schmidt, Andrew C. Scott, John S. Shannon, T. J.

Slattery, Elmer B, Trousdale, Donald L. Turkal,, Harold

B. Vikoren, Robert J. Williams, Claude. R. Wilson, Jr.,

Robert W. Yost, and Erle.J. Zoll, Jr., appeared for com-

er in No. 31358 on reheariyg and reconsideration.

* Reginald Ames, Hewitt Biaett, p. LR. ’ Brittingham, Jr.,

Benson T. Buck, J.T. Clark, John 1. Colgren, Clifford T.

Coonies, Richard E. Costello, John C. Danielson, Kemper |

A. Dobbins, Gerald E. Dwyer, John W. Hanifin, L. W.

Hobbs, Thormund A. Miller; C. Harold Peterson, Roland.

Posey, W. C. Purnell, Edward M. Reidy, John F. Reilly, .

E. L. Ryan, Jy., Jerome I, Shapiro, Matthew V. Stepsis,

and Herbert A. Waterman appeared | for interveners in

support of complainants in No. 31358 on rehearing and _re-

consideration. :

Andrew J. Azzara, Richard Swan Buell, Andrew M.

Calamari,-WAmes 1. Collier, Jr., William T. Griffin, Joseph

P. Hawryluk] William J. Hickey, Neal Holland, J. N. Hood,

Theodore, S4 Hope, Jr., George M. Onken, Carl E, Newton,

Peter Benton Spruance, Richard H. Stokes, William Tat-

lock, M. Lauck Walton, and Granville Whittlesey, Jr.,

appeared for defendants in No. 31358 on rehearing and’

reconsideration.

William J. Hickey and J. N ‘Hood appeared for inter- :

veners in support of defendants in No. 31358 on rehearing

‘and reconsideration:

All. of: the above-named counsel and, in addition, the

following: Martin J. Keating, Gordon E. Neuenschwander,

Eldon S. Olson, Richard Hl. Strodel, Donald L. Turkal, and . © ;

L. F. Van Kleeck for respondents in No. 33145.

John Guandolo,. David G. Magdonald and Duncan B.

Phillips for complainants in No. $4405.

Reginald Ames, Andrew JJ. Azzara, Richard R. Bongartz,

S. R. Brittingham, Jr., Benson T. Buck, Richard Swan |

Buell, John H. Colgren, James I. Collier, Jr., Clifford :

Coomes, J. Crossan Cooper, Jr., James A. Gillen, Wilt

1. Griffin, John W. tHManifin, Theodore S. Hope, Jr., Jauks

W. Hoeland, Howard D. Koontz, ‘A. W. Laisy, Richard D.

Lalanne, R., K. Merrill, Thormund A. Miller, Carl E.

- Newton, George M. Onken, Eldon S. Olson, W. H. Parsons,

C. Harold Peterson, Roland Posey, John F. Reilly, Howard

E. Roos, Albert B. Russ, Jr., M.D. Sampels, John J.

Schmidt, John S. Shannon, Richard H. Stokes, William

Tatlock, Wiliam A. Thie, Elmer B. Trousdale, Donald L.

Turkal, E. L. Van: Dellen, Harold B. Vikoren, M. Tauck

Walton, Edward K. Wheeler, Granville Whittlesey, Jr.,

and Robert W. Yost for defendants in No. 34405.

Lyman*C. Bybee for Bureau of Inquiry and Compliance,

Interstate Commerce ‘Commission,

REPORT AND ORDER

RecomMgNpdep By R. C. Bamrorp, Hearine EXAMINER

These proceedings -concern charges * made by railroads

for the use of their freight cars by other railroads. Docket

No. 33145 is an investigation instituted by the Commission - »

on July 24, 1959, pursuant to the provisions of. Sectior

1(14)(a) of the Interstate Commerce Act, for the purpose

of establishing reasonable rules, regulations, and practices

with respect to the compensation to beepaid for the use of

freight cars which are not owned by the ‘using carrier. It

was assigned to be heard on a consolidated record with the

proceedings in Doeket 31358, which casé was reopened for

further hearings by order of March 24, 1959. During the

course of the hear ings, a complaint proceeding, Docket No.

34405, was filed by Southern Railway Company, et al,

which involvéd issues similar to those presentéd in Docket

No. 33145. By order of March: 10, 1964, this*case was

assigned for hearing together with Docket 31558 and 33145,

then in progress.

The first of these three proceedings, in point of time, is

Docket 31358, which was commenced by a complaint filed

September 21, 1993, by 19 of the larger Class I railroads

against nine e% astern railroads. The complainants sought

*a finding and declaration by the Commission that each of

the rates of $1.75, $2.00, and $2.40 per ‘car per day were

just, reasonable, and otherwise lawful during the periods

they were effective, ‘and that the performance of orderly

transportation’ service by rail in the public interest re-

quired uniform observance of such rates by the defendants

together with other carriers. Fifteen class I railroads

intervened in behalf of complainants, and 56 railroads,*

4 ‘ o .

2 Referred to as “per diem” or “car rental” charges. See Ap-

pendix A for-definitions of various terms.

® Listed 1 Chicago, B,& O. R. Co. v. New York; S.& W.R:

Co., 71.C. C. 291.

principally classes II and ILI, intervened in behalf of the

defendants. The Commission, on October 17, 1955, found

and de}lared that the per diem charges of $1.75, $2.00, and

2.40 #ere not in excess of reasonable compensation during

the periods they were effective, and that the $2.40 charge

Was not in excess of reasonable compensation for the then

present use, and ordered the proceeding discontinued.‘

Chicago, Bed Q. R. Co. v. New York, S. & W. R. Co., 297

Bs as ee 291 (1999

On review by a eee Federal District Court in

Massachusetts it was held, one judge dissenting, that the

Commissign had jurisdiction under sections 1(11), 13(1),

. tnd 16 of the Act and section 5(d) of-the Administrative

Procedure Act (5 U.S. C. A. 1004(d)) to enter a declara-

tory order with respect to the reasonableness of past car-

hire charges. Boston & Maine. Railroad et al vy. United

States, 162 I. Supp. 289 (1958). The Court further (1)

indicated that the Commission should not have rejected

without a more thorough inv estigation and more detailed

findings and analysis, a suggestion that the railroad ae-

‘counts pertaining to ear-hire costs be broken down td reflect

more accurately the actual annual cost of maintaining a

freight car; (2) questioned whether “depreciation should

be based on ‘undepreciated ledger value or on undepreci-

ated reproduction value, used by the Commission; (3) dis-

approved the Commission’s use of average car age in

establishingsthe car-day divisor, and (4) condemned its

failure to give adequate consideration to mileage as an

element in arriving at charges for car-hire. Because of the

failuré to consider mileage, the Court vacated the order of

the Commission , discontinuing the proceeding and re-

manded the clip further proceedings not inconsistent

with the majority gpinion of the Court.

9°

‘Reversing, in part, the finding of the Hearing Examiner that y

the rate of $2.40 was in cet of reasonable compensation to the

extent that it exceeded $ 2.10.

On appeal to the Supreme Court, the Commission sought

and was granted remand of the preceeding to it for con-

sideration and disposition in accordance with the terms

of-the three- pig court’s decision and order. Boston &

Maine R. Co. v. United States, dd8 U.S. 68, Accordingly;

‘upon petition “of the. complainants and supporting inter-

veners, the Commission on March 24, 1959, reopened the

proceedings for further hearing.

On July 24, 1959, the Commission, by order in Docket

No. 33145, initiated prescriptive action under section 20

of the Act requiring detailed reports from the res pondent

railroads to facilitate more accurate computation of

freight ear per diem charges, and ordered an investigation

pursuant to section 114) (a) looking to the establishment |

of reasonable rules, regulations, and practices with respect

té determining the compensation to be paid for the use

of ecarrier-owned freight cars not owned -by the using

carrier. All rail carriers subject to part | of the Act were

madesrespondents. At the same time, the proceedings in

Nos. BIBDS and 33145 were assigned for hearing on a

sons eea! record,

Prior to pa) 10, 1 most of the dete ndants | in Docket

No. 31358 were parties to an agreement which provided the

organization and method-by which the daily rate was to be

established. ‘This agreement shad been appreved by the

Commission’ pursuant to See. o(iav) of. the Act, and became

effective on October 7, 19902.° On June 10, 1953, these

® Association of elmerican Railroads—Agreement, 277 1 C-C. 413;

Ahnapee OW, Ky. Con Akron cy B: RB. Be. Cane a, A, A. fs

302-1. CC. 263. Vhis agreement provides for use of the services:

of the oF cakuities of the Operating Transportation Division

of the Association of American. Railroads, and the Board of

Directors of that organization, to make studies and recommend

establishment and changes in rates, charges, rules and regulations

vovermiay per diem, mileage demurrage and storage. . Rates sub

(footnote continued on next page)

defendants withdrew from the agreement insofar as it

concerned per diem rates and, following the increase to

$2.40 on August 1, 1953, notified other lines that they

would not pay the increased amount.* Thereafter they

continued to receive and deliver cars of other lines but

paid car rental at a lesser rate, generally in the vicinity

of $2 per day. They have continued this practice with

respect to the rates as subsequently intreased.

Following the institution of proceedings in Docket 31358

there were filed, and are now pending in the United States

District Court, Southern District of New York, 109 com-

plaints, consolidated by the Court for all purposes wherein

numerous rail plaintiffs seek to recover from the New

York, New Haven and Hartford and the Boston & Maine,

for the use by the defendants of plaintiffs’ cars at a rate

of $2.40- per day from August 1, 1953, through December

31, 1956, of $2.75 from the latter date to December a

(footnote continued from previous pave)

nutted to the members of the agreement by the AAR Board ot

Directors are effective only upon majority vote of the members but

the close identity. between the membership of the agreement and

that of the Association, together with the use of the Association's

faciitics and committees to administer the provisions of the agree-

* anent have resulted in the rates being generally referred to as AAR

raivs. bor convemence, they will be so designated in’ this report

Without suggesting, however, that the legal distinction between the

two organizations .is.not- valid. A. description Gt the procedures

involved in calculating and effectuating per diem rates appears 1m

elhnapee & W. Ry. Co. v. Akron B. BR. Co:, 300 1. C. C. 73

"The first rairoadeto refuse payment was the New York Sus

. quehanna & Western Railroad Company which was not a party to

the agreement. Its refusal took place on March 16, 1951, and

Is the only one which involved payments under the $1.75 and $2.00

rates. Tt appears that subsetjucrit to the institution of proceedings

In Docket J1358 this defendant cluinged management, paid arrears

at the rates assessed and has since paid the assessed rates. No issue

thus remains with repect to the rates preceding the $240 rate,

1959, and since then of $2.5 88,7 less interim payments of

about $2.00 per day made under temporary sAtlements.

The defendants answered contending, among other things,

‘that the claimed rates were unreasonably high and counter-

claimed for the difference between the amounts actually

paid and any lesser amounts oe might be found rea-

sonable. — Baltimore & O. BR. Co. \ New York, N. H. &

H.R. Co., 196 FB. Supp. #24, 726 6-727 (1961). On June to,

1962, the Court disposed of several ah and directed

immediate entry of partial summary judgment for plain-

tiffs... The jiidgment in’ favor of 21 of the plaintiffs

exte eed only to a declaration and adjudicatron that they

are entitled to recover per diem in such amounts as are

found by the Court to be due them

ees * based upon a rate to be found just, fair,

reasonable and now-discriminatory by the Literstate

Commerce Commission, of which said Commission

“shall advise this Court: and thereafter to be ulti

mately determined and fixed by this.Court for each

month beginning with August, Too° to daie to be

computed with interest.”

The order provided for grant of partial judgment for

the remaining plaintiffs. Entry of final money judgment

was stayed pending the dete ‘rmination by the Commission

of the per diem controversy in No. 31358 or until further

order of the Court. ‘The plaintiffs were directed, with

their consent, to amend their complaint in this proceeding

so as to request the Commission

o** * without regard to the proceeding pending i

Docket No. 33145, to advise this Court what. per

diem rate was just, -fair, reasonable and non

discriminatory for cach mouth bewinning with Au

‘Whether the complaints have been vunended to include charges

accruing thereatter, oF to include charges based upon the malty

level rates, etfective January, [, 19o4, is mot of record

‘gust 1903, to edate, for the purpose of the suits

consolidated herein; * * *”?

Accordingly, the plaintiffs ‘(complainants ini $1308) .

sought ‘and were ‘granted le vive to so amend their com

plaint. luterveners and petitioners tor tntervention also

sought appropriate leave to intervene in support of the

complaint so to be amended. By order entered by the

entire Commission on. December 19). 1962, leave owas

granted. 2 ; | ar

The Hiiwois Central Ry eons Company, one of the con

plainants in No. 8bsos, is a defendant in two suits ponding

before the Suprenie Court of the State of New York,

County of New’ York, captioned, in part, in one case,

Boston and Maine Railroad vy. Llinvis Central Ratlroad,

Index No. 115 59, and, in the other, New York, New Haven,

and Hartford Railréad Company’ ¥. Llinvis Central Rail

road, Index No. 70 63. “In each case, the plaintiff! sted

the Hlinois‘Central for interline freight’ bakances and it

counterchiuimed for per.diem balances. tn dismissing the

Boston and Maine’s motion to dismiss the ‘Counterehun

against it and for summary judgment, the Court deferred

ruling on the counterclaim: tocawait advice from this Com

Inisston as to what per diem rates it would: tind lawful

Aceordingly, the complainants in No, SU8358 tiled an amend

ment of the complatit praving that the Conunission, with

out regard to the proceeding in No. 38145, advise not only

the United States: District Court for the Southern District

of New York, but also the atorententioned Supreme Court

of the State of New York tn the cases there ponding, What

per diem rate. was just, fair, reasonable, and nondiserini

hatory for each mouth Posy with August, 1995) fo

date, and in so advising the court, find and declare that a

rate no less than evdieh ob the tates tno issue ie Neo Sbsos

was, during the period each Wee tn foree, just, fare, reason

able, and vomliseriminatory

ray

“Ou Marely 2, 1964, Southern: Railway Company and its

affiliates tiled a comuphaint with this Corumission (Docket

No. CHHOO), ptinsuant to section® 1b) (a) oof the Act,

against the Ponusy tye Hattrouel and ntmerous ather

railroads, as defendants, © hetlenorine the validity: of the

Anultitevel per dion rittes Wiel? head replaced the $2.88

rate; ethoetive January tS atid pravinas the © outs

steu to HX for the future, reasonable rules,’ forulations,- itd

aud, practives respeetauy Preaght ewe per “chen Serv Lee

caida the compe tetition to he pared and the bass there

for Cousotidatian of the: prdecediiy Von het UP TSS: ‘Ayith

those in Nos. bos and aula \\

Is Beqes tod and er ante,

“On Marvel @, TS6k, the Cones — yrernitod complaints

Noo Sbsos leave to taether aniendytheu complaiit so. as

}

effeetive on diaiuary tad

: ;

Brietlin stated, tlie dssties presented Loy the Comiitissten

min the peak ite etibed proceedings ie Whiethied the Fates

charged abl various tines over the rant Etec amel ae hyve

by ear ao hits rivilrowaeds for the use of there ears “by othe

railroads woretyust, Peasatablo quid comipetsatery ds pre

Virled di Soethou Phd), PCED) aad VebD Cad ot the Net,

dal i mets what rates. woulgh meet ‘the: standard: for edets

periods atid what ate, eatis. or method: ot cotablistirns

rates. wilh insure the satisfaction oof Ghat stumdard: oi the -

future. ™ : Pas

Piet OMEN ALA UDiee iis

Pari the carty cleveldjame nt of the raabway networks

Which now earner the United State WoW as Ostomy fot

tha cactiy itil likes To wequibe Preiht ears necessary fat

their “own operation sido ote botaie thea aie therm awn

to being im tssue the peabte level rates aw tied® lad become: ,

service. Where freight originating on opeline inoved to. a

destination on another, the laclinise Was physteally trans

Porred from the car of The originating line to the ear of

the cofmecting Tne. As the railroads serew, this — of

yervies proved wueconomical and it Aventually

general practice for the originating carrier to

te the connecting line for onward movement

haratacd denis

bowenne thi

dleliver its

litter:

PEO rohit agape. liecoadmne obtigatory on, Cartiers where’

rr ‘disJurbinge the lading? With the enactment et the”

ate Commerce Act, the then establishoud custom: of

through ‘routes: Were established. Sep oe Ilinois

Coe 00.92. CURR. Co. Tee. ( ', OO, 44-45; Chicago,

ROD Py. CoN USS. 884 BS sO, ‘On, Woe Wz, Us

¥. Ponnsuloantia Ro €o., 338 US GE, 61d. While eso

THe to transportation efereney, however, this method ¢

oper ow ereated certain pro heuis with wliieh the ndlwatey V

hig Wrestle ever sinee, che-oreinnins Hine as deprived

Of the tise of its car until its veturn, white the Cen ee Ling

Hittes are otablod to perforin Gear portion at this train por

Latron service Without i Hoy ing he “ot them own cars. -

* "The right of the car owner to COLLPOTESAT LOU Whos its cut

ds used by another tine has Prequoutly , ay recowniged

See: Pirgata Blue -Ridae Ras Swicthe rs fr oo | Oss &

OU OM OT Tt rs a fundamental ofinciple that ace

owner obs ontithed te idleqiiate Cot potisition ton the tine

of bits eu I ihethes carrier” Morchead & North Bork

HOR, Co Vv. Chesa poate POF 0. 100-1. gan:

- . , aS Een

| ae is i af \ re ldiage shy re hou ( \ Views ‘eee, A f l

Ry. Co. 1 Cc 72 1h Vecartamimcat of the ariouiet.

Ob eonipeen ition and the Jabber un whitelb it is te Ie

et al. howe Vi iF, lias bron lt abject to cols dey ah I, oN

me tel thon ated aletlerener of “epee bhbaen li thier beats sou’

Ter litte 4 isstie UF ith T - ate clbstotarily referred ber

‘

~D12

, the rates were generally one cent per mile on cars of special |

- construction, and *4 cent per mile on ordinary cars. They

r : were established by various agreements between railroads,

as no national association then existed. In the early 1870’s

'a railroad in New England experimented with a combina-

tion mileage and demurrage plan, and two central-western’

carriers employed a rate of 50 cents per day between them-

selves. -In 1888 a combination of mileage and per diem

payment was attempted but abandoned after a few moriths ©

due, among other factors, to the increased accounting costs.

- The ‘straight mileage system was finally abandoned in-—

1902 and on July 1 of that year the flat daily rate system

of charging became effective. See Rules for: Car-Hire ~.

Settlement, 160 I. C. C. 369, 374-375 ; Chicago, R. 1. & P.

Ry. Co. v0. S., 284 US 80, 101-103. This method pre-

_vailed until January 1, 1964, when it was modified by

providing a scale of daily rates varying with the value of

the car. By 1920 the daily rate -had risen to $1 per day,

and by September 1, 1947, to $1.50 per day. Subsequent

_inereases were. as follows:

>, a ” Effective Nov. 1, 1949 | $1.75 a

meee (eee, 2 ae os

‘ | Aug. 1, 1953 2.40

| Jan. 1,1957 2.75

; Dec. 1,1959 2.88 |

Jan. 1, 1964 Multi-level rates.

In Docket 31358 findings are sought in order to assist

ie in resolving specific disputes as to the amount of. damages,

« ‘ if any, to which-the complainants may be entitled. The

® The daily rate was originally entitled a “per diem’’ when pro-

- mulgated in 1902. Certain parties prefer the term “car rental”.

‘Both terms are used herein to mean the compensation to be paid,

on whatever basis computed.

b13

Commission’s findings in this case as to the reasonableness

of the rates charged in the past can have effect only as an

aid to the settling of the dispute between the parties, and

to the Courts as an aid in settling the amount of damages

they may award. Dockets 33145 and 34405, which invoke

the Commission’s authority under Section 1(14)(a) of the

' Act, require the issuance of an order for the future. The ~

principles which govern the Commission’s findings should —

not differ, however, as Between the past, present or future

rates, other than made Wier by limitations on the

information available f their application,

Section 1(10) of the Interstate Commerce Act defines

‘‘car service’ as including, inter alia, the use, control,

supply, movement,’ distribution, exchange, interchange, _

and return of cars by any carrier by railroad subject to |

Part I. Section 1(11) makes it’ the ‘duty* of every such —

carrier by railroad to furnish safe and adequate car serv-°

ice and to establish, observe, and enforce just and reason-

able rules, regulations, and practices with respect to car -

service. Unjust and unreasonable rules, regulations, and

practices with respect to car service are prohibited and de- ;

clared unlawful. Section 1(14)(a) authorizes the Commis-

sidn, after hearing, to establish reasonable Tules, regula-

tions, and practices with respect to car service, including

the compensation to be paid and other terms of any con-

tract, agreement, -or arrangement for the use of any car

not owned by the carrier using it. ‘The term ‘‘compensa- -

tion’’ is commonly understood as having the meaning of

making whole, an equivalent, indemnification, maintaining

an equilibrium, or providing a quid. pro quo for a service

rendered. As used here it does not connote any element

of profit to the owner, nor may it be measured by the

benefit to the user. The ‘charge should be equivalent to

the car-ownership costs which the user would ‘have to

_ bear if it owned the car. See: Virginia Blue Ridge Ry.

v. Southern Ry. Co., 96 I. C. C. 591, 593-594; Marcellus & e

Di14

- Otisco Co. v. New York Central R. Co., 104, 389, 392;

_ Rules for Car-Hire Settlement, 160 I. C. C. 369, 378;

Palmer v. United States,-75 F: Supp. 63; Black’s Law

Dictionary, 4th Ed., 1951; Funk & Wagnalls New Standard

_Dictionary, 1946; Webster’ s Third New International Dic-

' tionary, 1961.

It is apparent that if there were but two railroads, and

each ‘used the other’s cars to the same degree, the pay-

ments would balance out and it would matter little whether

they were established at $1 or $100: per day. ‘For those

railroads today whose payments balance out receipts

within reasonable limits, the problem is quite similar. The

actual situation however is far more complex for many

carriers. In 1960 there were over 100 Class I line-haul

' railroads, over 300 Class: II line-haul railroads, and about

200 Class I & II Switching & Terminal Companies and

electric railways involved in these payments. At any

given time a carrier may be a net ¢reditor as to one line,

and a net debtor as-to others. A line which is, in total

amount, a net creditor line on an annual basis, may be in

a net debtor position with respect.to particular lines, and

_ all these relationships can vary from month to month -

throughout the year.

Railroads having.a high ratio of originations of ship-

ments to terminations generally occupy a net per diem

creditor status, since they earn more on cars sent off line

than they pay on cars received. They suffer from par-

ticular problems, not the least of which is the loss of use

of cars. sent out in interchange sérvice, and the necessity

_of using, in their place, interchange cars of other carriers

_ which may be older and less desirable. At times, it ap-

pears that they may have to forego shipments where no

ears are available. At the same time railroads with a

high ratio of terminations to.originations, net per diem

debtors, have equivalent problems. With large numbers

of cars of other railroads delivering freight to points on

Eel Se

D15

their lines, they are required by the AAR Car Service _

Rules to place outgoing loads in such cars, losing the .

“opportunity.to earn-per diem credits by use of their own

ears. Delays, justified or not, in the return of cars to

owners, have engendered. criticism and allegations of

abuse of car service rules ip this respect. The problem |

‘is also intimately connected with that of the adequacy

of the total supply of cars available to carry the nation’s :

commerce.” No small part of the present dispute arises

‘from the desire to use the compensation payments as a |

method of enforcing the car service rules governing the

return of foreign cars,!! or as a method of solving the

problem of car shortages. As pointed out in Palmer v.

United Statcs, 75 F. Supp. 63, the only power vested in the

Commission is to establish reasonable compensation for

' the use of the cars. ‘‘The penalty or incentive character- |

istic of the per diem is merely an inherent quality of a

charge based upon time.’’ (p. 68). ’

Certain fundamental distinctions exist which make this”

problem different from, and render of little guiding value,

Presently the subject of a separate proceeding, Investigation of

Adequacy of Railroad Freight Car Owmership, Car Utilization,

Distribution, Rules and Practices, Ex Parte No. 241, 323 I. C. C.

48. Proposed legislation to authorize the Commission to consider

this factor is pending before the Congress of the United States.

_ Even if such authority is conferred, however, it remains essential:

to ascertain in the first instance the charges which, as precisely as -

possible, are necessary to compensate car owners for their owner- .

ship costs, and the manner in which these costs may be fairly dis-

tributed among users. |

“1 The term “foreign cars”, as used herein, has reference to.a

car which is not, at the time, on the owner’s tracks. See Appendix

A. The “penalty” theory, designed. to induce prompt. return of

cars, has played no small part in the approach to solution of the

per diem problem. See, for example, Car Shortage—J nsieficient

Transportation Facilities, 12 1. C. C. 561, 573. In that case. the

difficulty of dealing with enforcement of car service rules via the ©

per diem route was noted. Section 1(14)(a) of the Act now

‘confers power on the Commission to make and enforce rules respect-

ing car service.

+ DIG

the cases and arguments which have to do with the charg-

ing of rates by railroads, utilities, or other businesses to -

their customers. In the latter cases, the charge is for

the services or articles being sold, out of which charge

must come the cost and profit to the particular industry.

It must contain the element of bringing in additional capi-

~ tal over and above that.expended in providing the service

or article to the user. The-function to be performed by

the per diem charge, and the responsibility of the Com-

'- mission, is to ensure an equitable sharing of the ownership

burden when railroads make use of cars of other lines.

That burden’is comprised of the costs of acquiring the

car, taxes assessed thereon, and the cost of repairing and

maintaining the car as an effective revenue producing

‘piece of equipment. The problem is not one of fixing

rates, in the customary sense, but of ascertaining the -

burden and providing a method by which it may be fairly

shared by all users, including the owner when acting as a

user of its own car. Since the car owner is to be made

_whole, it is first necessary to ascertain what amount will

be necessary on an annual basis to accomplish this result.

Cost Section Studies

. To facilitate the investigation in Docket ‘ta 33145, the

Commission incorporated in the order of invéstigation an

‘order under Section 20 of the Act, requiring the filing of

special reports by the carriers. The tentative form of

these reports and the nature of the studies to be accom-

plished in preparing them were thereafter established as

a result of conferences between attorneys atid accountants

for interested parties, a representative of the Association |

of American Railroads (AAR), and staff members of the

Cost Finding Section, Bureau of Accounts,’of the Com-

mission. After a formal pre-hearing conference, at’ which

copies of the proposed forms were distributed, all parties

were afforded an opportunity to file verified statements

for or against them, and thereafter to file rebuttal state- |

D1i7

.ments.!2 After study of these statements and considera-

tion of the contentions of the parties, the final form of the

reports was determined by the Cost Section staff and.

served on all railroads. Only the Class I line-haul roads

“were required to complete all of the forms. -Other roads,

including short lines, switching and terminal companies

and electric railways were required to complete only

Forms 1, R-1A, and 10. ° The nature of the special studies —

which. were made is indicated by the list of reporting

forms, as follows: ;

Form A — Preliminary Survey of Equipment

Repair Facilities. ~§ ~

1 — Special Study of Freight-train Car-

| miles and Car-days. -

R-1A — Report of Per Diem Days and Pay-

ments.

2 — Special Study of Amounts charged

to Account 814 for Direct Wages

Applicable to Freight-train Car Re-.

pairs. | .

: - Special Study of Amounts Charged ~

to Account 314 for Direct Materials

Applicable to Freight-train Car Re-

pairs.

4 —_ Summary of Special Study of Work

ae of Freight-train Car Inspectors.

5 — Separation of Account 314—F reight-

train Cars—Repairs.

6, — Separation of Number of Cars,

Original Cost, Equipment Obliga-

tions and Interest thereon, Appli-

1? The participation by the respondents in the preparation of the

forms did not, of course, make. binding upon them the results of the

studies made. In some instances certain respondents did not agree

that ‘the: proposed studies: would produce reliable results, and

-evidence, subsequently offered, challenging those results is con-

sidered later in this-report. ;

10.

.DI8 = ~w:

cable to Freight:train Cars, between

Per Diem Cars and All Other

Freight-train Cars.

- Special Study of Switch Engine

Hours Applicable to — train

car Repairs.

Non-revenue Freight-Used in Equip-

ment. Repairs.

Maintenance of Power Facilities for

the Year 1960.

- Analysis of Certain Items Reported

in Annual Report, Schedule 376—

Hire of Freight Cars, for the Year

1960.

Maintenance of Work ieauipant

Maintenance of Miscellaneous

Equipment.

Taxes Applicable to “Freight: train

Car Ownership.

Analysis of Relation Between In-

vestment in Shops and Enginehouses

and Cost of Repairs Made’ in Such

Facilities. ae

Survey of Car Accounting Methods.

Special Study of Accounting for Re-

packing of Journal Boxes.

The studies were actbnaginehed during the calendar year

1960 and, during the course of that year, the Cost Section

sent to the respondents a series of five documents of ex-

planatory matter, based upon questions raised regarding

the studies. Special arrangements were-made to assign

field examiners of the Bureau of Accounts to assist, and

34 such examiners were used: for this purpose. During

the study period they made 97 visits to 69 shops, train

yards, or railroad offices, ners in 29 different states.

ff ¢

D19

gen

Their reports were sent to the Cost Finding Section and,

if any discrepancies appeared in the manner in which the

carrier was conducting the special studies, correction

thereof was requested. Certain of the forms were re-

quired to be filed for the first quarter of the year and,

after audit thereof, and testing their results against 1959

reported data, any data which appeared of doubtful ac- |

curacy was referred to the particular. carrier for further

check.

On May 23, 1961, there was ial an Industry Ad- ©

visory Committee on Per Diem Costs consisting of rep-

reseritatives from the Baltimore and Ohio, Chicago, Burl-

ington & Quincy, Illinois Central, New York, New Haven

and Hartford, Long Island and Boston and Maine Rail-

Toads, and the American Short Line Railroad Association.

. The views of this group. were sought, after conference

with ‘staff members of the Cost Finding Section, as to a

proposed treatment of the deficiency of. the reimburse-

ment for the repairs of foreign per diem cars.1% 7

‘The special studies were accomplished, and: reported

on the prescribed forms, by 104 Class I Line-haul Rail-

roads. To the extent they were required to do so, re-

ports were also received from other lines, as follows:

Class II Line-haul Railroads — 72

Class I Switching & Terminal Com-

panies 27

. Class II Switching & Terminal Com-

panies 45

* Line Haul Electric Railways 3

' Other Electric Railways 8

Total Short. Lines 155

Class I Line-haul Railroads 104

Total Reporting Roads 259

18 More fully described subsequently herein.

ER IRE

D20

From the information received as a result of these spe-

cial studies, and the annual reports of the carriers, to

gether with certain data obtained’ from the Seetion of

Valuation of-the Bureau of Accounts, the Cost Finding

Section made a series of cost computations, more spe~

‘cifically described below, which were subsequentiy re-

ceived in evidence after extensive cross-examination of ie

the staff officials responsible for their preparation. -The

Cost Section also prepared and offered in evidence a cost

formula for consideration by the Commission, dé¢signed te

develop costs of per diem car ownership, should it be con-

cluded that prescription of a formula was desirable.**

The results of the Cost Section’s computations are pre-

sented in four tables which are designated Summary T-1,

Summary MT-1, Summary MT-2, and Summary MTS?»

Summary T-1 computes. a single-factor, per diem unit

cost for foreign per diem cars, in a er similar to

-that heretofore employed by the AAR for the same pur-

pose. It makes no allowance for age, value or trpe of

ears, nor does it separate mileage costs from other trpes

of costs. As computed, based upon 1960 figures, it indi-

cates a unit cost of 249.903 cents per car per day.**

This Summary also computed a total and a daily aver-

age amount of deficiency in the reimbursement received

by railroads for repairs made by them to ears of other

lines amounting, using 1960 figures, to 41417 cents per

day. ' ‘ .

14 This formula is designated by the Cost Section as Rail Form

H, No. 7-62, Formula For Use In Determining Per Diem Charges

_ For The Use Of Freight—Train Cars. It will be reterred to Deres~

after as Form H.

15 The cost analyses supporting these summaries are also contaimed

in the exhibits of the ‘Cost Section.

16 The methods used by the Cost Section to reduce ammual costs

to daily costs are set forth in more detail in discussimg issues

- connected therewith, —

Summary MT-I separates unit costs for all per diem

cars into those attributable to mileage, and those at-

tributable to all other causes, the latter being designated -

as “‘time’”’ costs. This was accomplished by separating

ownership costs for all cars according to percentages for:

mileage and time, developed by the Valuation Section of

' the Bureau of Accounts. The total mileage costs were re-

duced to a unit cost per car mile by dividing by the total

ling-haul and switching miles, after adjusting the latter

by..a factor purporting to reflect the greater repair costs

engendered by switch movements. The time portion of

the total costs was divided by the total active per’ diem

-car days for all railroads to develop the unit cost per

active car day. The cost per mile thus developed, using

- 1960 figures, was 2.323 cents, and the cost per car day,

148.738 cents. These figures were not designed to directly

ascertain car rental costs, since railroads do not maintain

car records of switching mileages, but the figures were

computed as a necessary step preliminary to the computa-

tions in the following.summaries. Both Summaries T.1

and MT-1, employ: the original cost of freight cars and

of freight car repair facilities as a basis for the compu-

tation of depreciation and interest on depreciated invest-

ment. Since one of the contentions in these cases involves

the choice between use of’ original and reproduction costs,

the Summaries were each provided with an alternative

calculation based upon th latter theory, by which they

may be adjusted. / :

Summary MT-2 develops a unit daily cost for each of

the Class I line-haul railroads separately, and for Class II

Toads by groups, as well as individually for the defendant

railroads in Docket 31358 and for the various different

groups of reporting railroads in the special study pro-

gram. In this Summary the unit daily costs are com.

.puted to show the amount each railroad, or group of

roads on an average, contributes to the costs of 'owner-

ship of foreign cars on. their lines taking into account the

D22

average mileage o over which they move siiite cars. It dif-

fers from Summary T-1 in that while still designed to

return to car owners their full costs of ownership, it at-

tempts to refine the data so as to reflect differences be-

tween using lines measured by. the-use they make of- the

‘cars. Thus, for each railroad in this Summary,. the mile-

_ age cost deyeloped in MT-1 is multiplied by the 1960 line

haul and equated switching ™ car miles of foreign. per

diem cars on the. particular carrier, and the result divided

by the per diem days paid for by that carrier in the same

year, to reduce the mileage charge to a daily amount..

Similarly, the time cost’ developed in Summary: MT-1 is

divided by the particular carrier’s daily average ratio of —

active foreigh per diem cars on its line to total foreign

per diem cars‘on its line, to produce unit tifne costs per —

total car day. Addition of the time costs, and the mile-

age costs reduced to a time basis,: produces a dajly unit

charge applicable to each carrier, or group of carriers, for

which the computation was made. The. unit cost for all

U. S. railroads computed by the method in MT-2, which

is comparable to the unit cost of 249.903 cents per day in

. Summary T-1, is 277 cents, made up of a mileage factor

of 138 cents and a time factor of 139 cents. ‘The’ differ-

-ence results from giving effect to mileage, since: foreign

per. diem cars. ran more miles per day than the com- |

bined average of all per digm cars. Like Summary T-1,

there is included in this computation no allowance for age,

value or type of cars, The deficiency in user roads: recov-

ery of repair costs, developed in Summary T-1, may’ be

‘directly applied to the results reached by. application of

_ the MT-2 formula. .

Summary MT-3 favainhes an shicrantine method of cal-

culating, the. per diem car rental: costs. chargeable to in-

‘dividual \user railroads, taking the mileage factor into ac-

count, but without computing a daily rate based upon, each

17 See Fdotnote No. 128, below.

- D23

carrier's average operations.’ It is designed: to develop,

rather, time charges based upon tlie .time each car is.

actually retained by the user road, and mileage charges

based upon the’ mileage each car is actually moved by

the user road. The factor for average switching costs ‘is

reduced to a daily amount and. included in the time costs,

resulting in a daily charge of 149 cents. The mileage cost

of 2.323 cents developed in Summary MT-1 js applied to

line haul mileage only. Use of this method requires: that

precise car records bé kept showing, not only the days

each forgign per diem car is on line, but the total miles

- traveled by it. ees

At the hearings it appeared that other factors, such’ as.

the age, value, or type ? car, might deserve consideration.

As a result, the Cost Section, utilizing the data and com-

putations heretofore descrihed, made certain additional.

calculations to the extent possiblerg ithin the limits of

available information, tending to -shéw the‘ results of com-

puting costs using each of the four formulas, T-1, MT-1,

MT-2, and MT-3, with depreciation and interest on de.

preciated investment computed on different ear Values,

using both original and Yveproduction cost bases, Since

the special stadies did not provide for separation of re-

pair costs, ete. by value of car, it was assumed tliat all

costs. otheg than depreciation and return would remain

the same, regardless of the value or age of the car. For

convenience of comparison, the value brackets used in this

computation are the same as employed in the AAR multi-

level rates now in effect. Issues concerning the details

and results of the Cost Section studies are considered sub-

sequently in this report. : ,

A. ALR. Catcratioxs

~ Per diem calculations by the AAR staff during the

past 15 years, have ‘followed the same general pattern

— I mt have differed in their details with respect to cael

D24

rate, Cost statistics for a recent 12 month-period have

been used in each instance and figures developed for re-

to cars, property taxes, depreciation on cars and

on apportioned value of shops, enginchouses, power plants

and shop and power plant machinery,ginterest on depre-

ciated value of the same, apportioned cost of. general ex-

pense, miscellaneous maintenance of equipment: accounts,

maintenance of shops, enginehouses, ete., interest. on in- -

vestment in stock of freight car material, interest on work-

-ing capital, and deadhead haul cost of -repair material.

Each was divided by a ear day divisor to develop a unit

cost per day, and the results totalled. Generally the AAR

‘staff - calculated alternative ‘costs, using different bases,

such as ledger value, reproduction value, ete., leaving to

the General Committee and the Board of Directors ofthe

NAR the decision as-to which result should be submitted

to the subscribers to the agreement for vote.

The car day devisor has regularly been computed by tak-

ing the average of the ratios, for varying numbers. of

years, which total cars, less bad order and surplus cars:

on owners,” lines, bore to total cars. -This average ratio,

applied to the number of days in the year for which the

cost statistiés were calculated, produce a figure referred

to as *tactive car days per.car per year’? which was meul-

tiplied by the average number of cars in service during

that year.'* Prior to the calculations supporting the $2 40.

rate, periods | of from five to fifteen years had been used.

For all the rates now in issue, the average of car utiliza-

tion ritios ‘for the preeeding twenty-year period ‘were

used.

For the calculation of car repair expenses, the costs of -

the most recent vear were used in calculations supporting

’" The caleul tions stippe eng the S288 and multi-level rates

differed, in that two car dé Vv divisors were employed. The total cars

at the end of the year was employed to calctilate unit cost of deprect

ation and interest on freight cars while the average of the cars in use

at the beginning and end of the year was used for all other COsts.

a - , »

. D25 .

the $2.75 and earlier rates, In the calculations support-

ing the $2.88 and multi-level rates, the repair expenses for

the most recent five year period were averaged, after ad-

justing them to the Ww age and price level of the most re-

- cent year. 7

Depreciation on freight cars hie alwe ays been calculated

on a straight line basis at the average of rates used by the

carriers and approved by the Commission, except that cal-

culations supporting the multi-level rates used a flat three

percent rather than the average of 3.06 percent.” Begin-

ning with the calculations supporting the $2.40 rate, re-

production cost of the cars was used ‘aS the base for de-

preciation. Depreciation on apportioned value of shops,

enginehouses, ete., has been based upon original cost in

all calculations except that supporting the $2.40 rate, when

the reproduction cost basis was employed.

Interest on investment has been calculated at six per-

cent before taxes on both freight cars and repair facilities,

using the average of depreciated original and reproduc-

tion costs as a base for the $2.40 rate and depreciated re-

production cost as a base for subsequent rates. Prior to

_ the $1.50 rate the caleulations had differed, with depre-

. Glated original cost used as the base for interest on repair

facilities. — 7

In developing the multi-level rates, the AAR ‘staff cal-

culated the annual ¢osts per car for all items mentioned '

above except interest and depreciation on freight cars.

The latter were separately calculated with respect to each.

of the value brackets, using reproduction cost as a base.

Inauguration of rates graduated according to the value

of the car imposed substantial changes in the system w hich

“had theretofore prevailed in aecounting for the compensa-

tion payments. With a single rate applicable to all cars,

carriers had only to determine from the junction reports,

showing when cars’ were received and delivered: io each

carrier, the total number of days per diem ‘to be multiplied

D26

by the rate. It is now necessary to determine the number

of days for each car and the rate bracket applicable to

that car, calculating charges on each car separately.

Administration of the multi-level rate system was estab-

lished by the organization of a Control Center within the

Operating-Transportation Division of the Association of

_,American Railroads. On March 29, 1963, the Board of

Directors of the AAR authorized an appropriation for

this purpose, to acquire office space, equipment, data proe-

essing machinery and necessary employees. The first in-

structions to all United States, Canadian and Mexican

railroads were sent out .on May 6, 1963, and revised on

June 25, 1963. They included forms for reporting all

cars at their original cost, and the amounts of additives

_ to those costs, if any, together with sundry information

including the year installed, whether new, rebuilt, or see-

ond-hand, AAR mechanical designation, ete. \ table was

included from which the multi-level rate applicable to each

car could. be ascertained. A standard punch card method

-of reporting the same data was provided for car owners |

having the equipment for this purpose. Where owners

reported on the forms, the cards were punched at the Con-

trol Center.

All railroads had reported, as requested, by the latter

part of September, 1963 and a preliminary. Master List’

of all per diem cars was distributed to all railroads on

October 10, 1963, listing 1,706,414 CUrs Tapdphabetic code,

mechanical designation and car series order. Also dis-

tributed on that date was a preliminary alternate Master |

List covering the same cars but listed without regard té

mechanical designation. . To the railroads submitting re-

quests therefor, there was distributed the same data ou.

magnetic tapes and on master series decks of ecards, tor

use in appropriate data processing machines. Between |

September and December 31, 1963, numerous’ corrections

to the reports were submitted by the railroads, caused bi

D27

cars retired, installed, changes in mechanical designation,

and changes in valuation. All were processed ‘through

the end of the year-and, on January 15, 1964, Master List

No. 1 and Alternate Master List No. 1, in written as well

as magnetic tape and punch card form, were distributed.

The function of the Control Center thereafter was, and

will continue’ to be, the processing of reported changes in

cars and the sciathly publication of. corrections to. the

Master List. The first three such publications in 1964 ~

contained, on an average, about 5,000 changes each.

In choosing a rate to “be submitted to the members of

the per diem agreement ‘for vote, the’ AAR officials cus:

tomarily have considered the various calculations receiv ed

from the staff, on ‘occasions revised them in some respects,

and rounded ‘off the results to produce an even number of

cents per day. Thus calculations of $2.76961 and. $2.87940

were rounded to $2. mo and $2.88. While the validity of the

caleulations used in ascertaining the costs have been chal-

lenged i in these proceedings, it is clear that the AAR rates

have purported to do no more than equate the daily own-*

ership costs of freight cars in per diem service. The

multi-level rates: which became effective yn January 1,

1964, are as follows :.

Value Bracket Per Diem Rate

(1) $ 1,000 and ess $2.16

(2) 1,001 to 5,000 279

(3) 5,001 to 10,000 3.58

(4) 10,001 to 15,000 $507

(5) 15,001 10 20,0000 ee

Lae (6) Over $20,000 : 774

“On April 1, 1965, following the close of the hearings: in

these proceedings, a further revision was made in. the

D28

scale of multi-level rates, of which official notice is hereby

taken. This revision substituted four 1iew brackets for’

cars formerly covered by Bracket No. 6, as follows:

(6) $20,001 to $25,000 $7.11

(7) 25,000.01 to 30,000 | “9,00

(8). 30,000.01 to 35,000 10.18

(9) 35,000.01 andover 12.18

Assignment of cars to appropriate brackets is accom-

plished on the basis of their depreciated original cost

plus additions and betterments. When cars were built in

their own shops, car owners may include in the original

cost certain expenses which may. not have been eapital-

ized at the time of building. These so-called ‘‘additives’’

are challenged by Southern Railway, and are treated sub-

sequently herein. This carrier urges a third method of

calculating per diem rates, which differs from both the

AAR method and the caleulations of the Cost Seetioti.

With some exceptions it accepts the Cost Section cal-

culation of repair costs, but supports rates based upon

recovery of capital costs by depreciating original cost

over a 14 year period, instead of 30, using a double de-

clining balance method, and allowing 8 percent intérest

before taxes on the undepreciated balazice. These conten-

tions are considered further in other sections of this re-

port.

_ Although all common carriers by railroad in the United

States are affected by the payment of per diem rates, the -

matter is of particular interest to those which, on an an-

nual basis, are net creditors or debtors by appreciable

amounts. While numerous carriers appeared and par-—

ticipated in the hearings, the’ parties filing briefs, and ae-

tively concerned with these EFoncodings » may be identified

aus follows:

(1) Complainants .in Docket No. oe supporting the

‘past AAR fates. |

(2) Defendants in Docket No. 313908, Opposing the =

AAR rates.

(3) The ‘*20 Road”? er -

(4) The } NYG, PRR, C,M, St. P&P, Bua the Lehigh Val-

ley.

(9) ‘The NY, NH&H, and the B&M.

(6) The Long Island and the New Jersey and New York

Railroads,

(7) The Southern masta System.

These groups are by no means mutually exclusive, there

being a number of overlapping memberships. Thus, for

example, the NYC group, while also complainants in

Docket 31358 and supporting rates there based solely on

time, favor a time-mile: age system for the future. Most

of the other complainants are in the ‘*20° *Road”’ Group,

and oppose time-mileage for the future. The NY, NH&H |

group and the Long Island group favor a time-mileage

“system as does the NYC group but, unlike the latter, op-

pose use of: reproduction costs. Southern Railway, which

also opposes use of reprodugtion costs, supports a time

onl} rate substantially higher \in the early years than the

AAR rates which are based upon such costs. For the

purposes of this report, the issues have been grouped into

those respecting the car day divisor, the ownership re-

™ Great Northern, Northern “Pacific, Chicago, Burlington &

Quincy, Colorado & Southern, Atchison, Topeka, and Santa Fe,

Illinois Central, Denver & Rio Grande Western. Western Pacitic,

Louisville & Nashville, Gulf. Mobile & Ohio. Western Maryland.

Union Pacific, Southern Pacific, Norfolk & Western. Atlantic

Coast Line, Seaboard, Missouri Pacific, Texas & Pacific. Soo Line.

St. Louis-San Francisco, Chesapeake & Ohio, Fort Worth & Denver,

~ and Baltimore & Ohio.

D30

’

pairt and maintenance costs, ownership capital costs, (in-

cluding taxes), and alternate proposals for the construe-

_ tion of charges. Determination of the ownership burden

and its distribution, among users are then considered, fol-

lowed by consideration of the past rates.

I11—Cark Day AND Gyr MILE Divisor

Reduction of the total annual cost of car ow nership, to

an amount per car per day, w hether all costs or only those

attributable to the passage of time are used, requires as-

certainment of the number of car days to be used as a

divisor. It has been. customary to exclude from total pos-

sible car days, the car days of unserviceable cars requir-

ing repair and cars which, for lack of available employ-

~ment’are considered surplus. In other words, the cost

of. the per diem fleet must be spread over and borne by

the cars engaged iy cz arning revenue. Two special studies

in Docket 33145 were carried out to supply working data

for this purpose. The first prov ‘ided a seven day sample

of car miles, a twelve day sample of number of service-

able freight-train cars on line, a seven day sample of:

number of ‘‘No-Day’’ cars ** on line and of cars out of

service due to repairs. The latter sample was subdivided

so as to show separately cars on repair tracks undergoing

or awaiting repairs, cars on repair tracks repaired and

awaiting switching, cars on stor age tracks awaiting

switching to repair ‘rales ‘ars held in train yard await-

ing.movement to repair tracks, cars moving empty in

trains en routé to shops, cars stored awaiting disposition,

and other cars. Another seven day sample was taken of

surplus per*diem cars, also subdivided to show the cause-

Surplus cars were ascertained by a count of serviceable

,empty cars on hand at 12:01 A. M. of the next day follow-

“"No-Day” cars are those for which no per diem charge

accrues due to their being. received after midnight and delivered

before the succeeding midnight.

D31

ing a.test day which had not been placed for loading, and

a similar count made 48 hours later of those same cars to

establish the number which had not been placed for load-

ing in the meantime. Another study called for a report

from the carriers, subdivided by type of car for the year

1960, showing per diem payments and receipts, and _re-

claim payments and receipts, together with a report of per

diem days receivable by type of car, for cars on rail-

roads outside the United States. -

In developing the car day divisor for 1960, the Cost.

Section averaged the total freight train cars in service

at the beginning and end of the year to obtain 1,685,910

cars. Analysis of the special studies and reports hereto-

fore described developed that 44,710 of these ears were

not in per diem service, leaving 1,641,200 as the average

number of per diem cars in service in 1960. There Was

thus indicated a possible 600,679): 200 car days of. per diem

cars for the yvear2"* The studies of bad order,¢ars and

surplus cars developed deductions of 59,02 29,930. car days

and 68,565,413 car days, ‘respectively, owing to these ‘two

causes. The balance of 473,083,857 active car days, divided

by 1,641,200" cars in service, produces 288.2 25 active car

days per car for the year 1960.

The active car days per car, as developed from -the cost .

section studies, furnishes a: measure of the days, on an

average, that each car was engaged in revenué producing

sérvice.*!| While it provides a measure of the days over

which the revenue from its service may be spread, it is not a

satisfactory measure of the days ‘over which ownership

costs should be spread. Per diem payments by users ‘are

made, with unimportant exceptions, for each day a foreign

‘ar is on line, whether or not in a surplus or bad order

- a 1.641.200 cars multiplied by 366 days.

*! This term, as used here, includes empty return movements,

as well as Ioaded movements and day's cars are in possession of ship-

pers or consignees.

"Y | DB | ;

2 : a

category.2* Payments are thus made for days exeluded in

the calculation of the 288.25 days mentioned above. For

this reason, the cost section calculations did uot separately

compute the active car days per car, but employed the. unit

costs per active car —_~ as a step in computing the daily

costs for foreign cars spread over the total days in 1960 on

which per diem iaietie were made. The active days of

‘per diem cars on foreign lines was multiplied by the unit

cost per active ear day of all per diem cars to produee a

total cost for cars on foreign lines. This amount was then

‘divided by the total days on which per diem was paid te

spread the €ost. over the total number of payments. - In

Summaries MT-1 and MT-2, the mileage factor was redueed

to a daily figure in a similar fashion by dividing the total

mileage cost by the car miles of all per diem cars.. The eyst

_per ear mile was then multiplied by the total thileag ve of

foregn per diem cars and the result diy ided by the per diem

days paid for.

It is apparent that fairness to users of foreign cars re-

quires that total ownership costs of. such cars be spread

over the total days for which payments.are or should be

made, rather than over total active car days only. The 1960

Cost Section studies indicated a total of 223887324 aetive

ear days of per diem cars on foreign lines, aud a total of

237,908,943 days for which per diem was paid for sueb

cars. The indicated ratio of per diem payable days to ae-,

tive car days is 1.06263. Applying ‘this ratio-to the 472.

083,857 total active car days of all per diem cars, produces

some 02,715,000 per diem payable days, or about 306 per

22 For various reasons, and pursuant to particular. arrangements

certain reclaims are permitted or per diem charges waived. |

1960 the difference between total foreign per diem car days on ime

and total days paid for was 1,054 653 days, less than, 5 vf one

percent.

D33

ra)

diem payable days per car per year, for application to the

tetal costs of all per diem cars.2*

Au appreciable difference exists betwedn the car day

__liviseras-computed by the Cost Section methods and those

used by the AAR in the calculations underlying the various

per diem rates in issue. The analysis underlying the rate

of $2.88 employed a figure of 332.99, days per car based

upon the average of utilization ratios tor the twenty vear

period, 1939 through 1958. Calculations underlying the

waulti-level rates ehuployed a figure of 330.98, using the aver

age for the period 1942 through 1961. For the vear 1960,

the figure calculated in the same fashion is 322 days, some -

33 days more than the 306 developed by the special studies.

_ The difference stems in part from the AAR system of corm-

puting directly a divisor applicable to the total costs of all

‘ars instead of separating the costs attributable to: foreign

per, diem cars, ax did the Cost Section. The most significant

differences are as follows: .

First: The cost analyses underlying the AAR rates, in

‘aleulating the total possible per diem car days, did not ex-

clude cars not in per diem service. Thus, for the year 1960,

the figure used was’ 1,685,910, rather than 1,641,200. The

former figure admittedly inicludés cabooses and other cars

wot used in per diem service. Its use resulted.in an excess

of 16,363,860 possible car days for that year. The same

‘method was used throughout the process of averaging the

twenty year periods. While the AAR caleulations did not

exclude the car days of cars not in per diem service, it ap-

pears that they neither excluded the costs attributable to

such cars. Inclusion of the costs and car days of the extra

cars would introduce error into the calculations only to the

“8 The same result may be reached by dividing the total ownership

costs Tor 1960 as computed by the Cost Section, $1,256,295,212 by

the calculated Summary T-1-cost of $2,499 per day, and’ then divid-

mg the required number of total per diem payable days so indicated

: > Pee CESSES : ,

Ww 1.641.200 cars in service.

D34

extent that these. cars incurred costs substantially different

from those of per diem cars.*

Second: In ‘calculating **active™’ “ear days, the AAR de-

dueted only the surplus aiid bad order ear days of cars.

on owner’s lines, All days of cars on foreign lines are

treated as active. By including the surplis and bad or-

der car days of foreign per diem cars the divisor Was ¢n-

larged, producing, in relation to costs of all cars, and with

_ somewhat less accuracy, an effect ‘similar to the Cost See-

tion recognition of the greater significance of per diem

- days paid for.

Third: The deduction for surplus ears used ‘by the AAR

appears greatly underestimated. Members of the, AAR

regularly report to that organization, on Form CS-44, the

number of surplus cars on hand, both home and foreign.

A one-w week test i in February, 1949, indicated that approxi-

mately 1.6 percent were foreign cars and thereafter’ the

amount to be deducted for surplus cars was reduced by’

this percentage, _ As reported, the daily average figure for .

home and foreign surplus cars for, 1960 was 36,672. Re-

duced by. the factor above mentioned to eliminate ‘foreign

_ ears, and multiplied by 366 days, produces a figure of

13,421,952 surplus car days, less than 20 perce of the

umber indicated fy the Cost Section studies.”

——

* The 1960 studies indicate that the non-per diem cars constituted

less than three percent of the total. See also: Alabama, T..& N.

R. Co. v. Alterdeen & RR. Co., 27410. ©. 383, 387.

25. On the tther hand, the deduction as computed by the AAR for.

home ‘cars out of servige due to repairs exceeds that mdicated> by

the special studies.. Members of the A AK report on Form CS-00

‘ the home per diem cars out of service ior this cause. A testi

. < — t ‘

September, 1956, maicated that these reports were nnderstated some

23.4 percent. In subsequent per diem cost calculations they were

‘increased by this. percemtage. Vor the sear 1900. the reported -

‘number of 132,597, thus increased, and niultiplied by 300) days,

produces 59,886,040 bad order gar days. The special studies innli-

cated 54,198,734, a difference of about 0 pereesit.

D30

The 1960 studies were based upon actual counts of cars

ou hand. and not placed for loading at the beginning and

end of a 48-hotir period. The reports on CS-44 are based

upon the judgment of each carrier's personnel; -The .lat-

ter require that each carrier estimate, at the end. of each

day, the émpty cars of Land at loading@statious in excess

of the number ueeded for the next days loading. It-is a

figure which the AAR witness conceded was ‘not very

accurate, was génerally understated, particularly in. peri-

ads of car shortage, and subject to a ** psychological fac-

tor.”” For the purpose of these proceedings the figures

resulting from ‘the 1960 studies, and the ear day divisors

* produced thereby, must be taken as the more reliable.

~The car day divisor used by. the Cost Section was based’

solely on 1960 statistics, and was applied to 1960 costs.

In past Computations used to develop .the per diem rate,

the AAR has employed a somewhat different approach.

Using various periods of time,*from five to twenty years,

the average of the annual ratios of *tactive’’** to. total

cars has been developed, aud that-average ratio multiplied

by the number of days in the year 7 to obtain “active car

days per car ‘per year." This figure has then been mul- -

tiplied by the average number of cars in use during that

year. In its 1949 decision,?* the Commission said:

The per diem rate could be revised upward and

downward periodically to conform to annual fluctu-

ations in the number of active cars, and if based on

the approximate costs of ownership and mainten-

ance and active’ecars for a designated recent year it

could not be said 10 be unreasonable. Or the rate

* The AAK uses the term “active cars” to include.all cars owned -

or leased in‘ the vear less bad order and surplus cars on lines of

“owners. Si oe

7 The “year” referred to is. the year whose cost statistics: were

employed in the AAR calculations

** tlabama, 7. &N.R. Co. vy. Aberdeen & R. BR. Co., 274 1. ¢

383, 389 : ee

Dei ae

‘ Py

could be determined by the use of wun uietiv e-car ratio

based, from time to time, on the average number. of

active cars in use over a representative period of ¢

years, and, if p> redicated on the approximate costs of

ow nership and. miainte hance fora designated recent

‘year, the-rate so fixed could not be said’ to be un.

reasonable... Stated ditferently, there is a rather wide

zone of reasonableness within, which the exrriers

may establish a lawful per diem rate. The evidence

is persuasive that ancactive-car divisor reflecting

av erage uge, now approximating 20 vears, of freight

cars in service, and covering re presentative periods

of both heavy and light traffic, would produce more

wecurite results than-a.period of 5, 40, or 15 vears.”*

There can be: Jitthe dispute that whe rey the object ‘of the

computation is to ascertain the cost per aetive ear day for:

any given period, not only must the’ actual costs incurred

in that period be employed, but also the actual ‘actite ear

days for that same period. Per diem charges, however.

are established for use in thy future, and the enrployment

of a car day divisor based on an average active ear day

ratio over a longer period stems, in part at least, from the

desire to Upproximate the ave rage conditions of, ear use

to be anticipated. ‘Use of the longer-period is founded in

the assumption that the rate bei UU © ‘stablis hed will remain

‘in effect over a humber of years, “duriiy Which the average

car wsage will prevail, “The AAR approach, however, its

sulles that the per diem COsts for the year of compaitation

(or the 3 year average as used more recently) ‘will be

representative, but that the active car ratio for that same

period will not be representative, of the future years;

an assumption which appears somewhat inconsistent.

Another purpose Was ‘mentioned by .the Comuitission in.

the 1949 decision, as follows:

"The use of an active Gar divisor predicated on

“average age would result: in’ the maintenance of a

D37 ;

* ce >

relatively high per diem rate when traftie is heavy

and cars are in urgent detiand, and a per diem rate

relatively low when trafic is light aid many thous-

ands of freight cars are idle.”’. 274 1 C.-@. 383,

- - 389.

It is apparent that the foregoing rationalization is true

only if the divisor chosen. actually represents the approx-

“imate mean of car Usidge conditions over the ‘future years

during which the computed rate will apply :

The evidence in these cases is convincing that a substan

Hal part of the gar repair costs in any year varies with:

the amount of use given the car in that year, and that,

senerally, the total industry-wide repair work undertaken

Varies with the overall demand for ears. Unless the aver-

age car day divisor is applied to the average per diem costs

for the same period of time, it does HOt Ineasure the owner-

ship costs. for the pamt. If the average of a period of

“7 paist vears Is to be chosen as a measure of future car

utilization, the same measure strould apply to costs, and it

should -be beesuse of some demonstrated relationship: be-

"tween the past and expected future usage. The fact that

the average age of all ears in interchange service. some

"Nor is there tHy reason to conclude that the failure to compen

sate the owner in light: traftic years would be balanced by ‘ove:

“compensation in-heavy traffic years Cars mover tn remain idle

depending upon slupments offered, not. upon the wintlyence of oper

hem charges: which attempt to simulate a free market condition

The suggestion is not new, however’ See the dissenting report of

the Director of Maintenance and Operation, Union and: Southern

Pacitic Systems. to the Keport of Commission on Interchange of

Freight Cars. ¢ McCrea Report) Proceedings of the American

Railway Association, Vol §. 1909, page YO. The sometimes.

mentioned theory that per diem rates’ should be set higher when

ears are Most needed than when -trathe is heht appears completels

repugnant to the principal of mitabh sharing of costs. See cont

ment im Car Shortag Lusi thc weit Transp rtatwn. Poaciliticy. 2

1 (°C. S01, 573

D3s

over OU years old, is about 20 years, las ne apparent

relationship to the annual car Usage vor dees it warrant

the conclusion that thé av erage Usage over.that period is at

sound nieasure of -average car usage conditions for an

indeterminate period in the future” See Bosfou & Mein

Railroad v. United States. W2 F. Supp. 289, 297.

The AAR has experimented with-ihe use of 3 115 and

20 year periods to. estimate the car utilization to-be antics

pated in the future, without any apparent logical basis for

choosing the particular period. The record in these pre

ceedings does not provide any rational basis te suppert

such ‘a choice, Should there occur a vielent tuctuation

in car utilization between two consecutive vears, per chen,

rates based upon. the first night be unrealistte for wppbrea

tion in the second, but the record does not iudieate that

such thuctuations are normally to be Npeteek Between

1946 and 1961, the ntivization as compated by the AAR

varied from So. 12°: to sh co The greatest + hange aarred

between 1957 and 1098. a drop of 65 Generally the

difference betwee any Iwo years was less than 4 percent

For’ reasons mentioned subsequently herein. the (Maxaarns’

iner is of the opinion that per diem costs may bx eal,

culated annually andthe rates reviewed ora yearly beisis.

while such annual review docs not arhgemarind amply a

change | in the rates af sim ithar, intervals, LL Pehide hs MR MeCes

sary the attempt to PPro inate conditl Lis VEY Go spNUR

of future time by reference to any finest spacicot pxast. time.

A change in rates: would not be required hy the results of:

operations over a year of demonstrably utivesual cotdit vans

unless there Wits reasoth to aubitied) ttle there cou is LAREN’,

Projected utilization for the tollowing year could de moor

reliably estimated by app Weation of expertetocd’ pudgmient

” Comparative analysis of AN prvclactrd

tion ratios fur the single prion year. aut t Wwetage of retrals

5. 10 and 20 prior vears, indiates the use ot the single prot

vear world. have been tore accurat

D39

te the existing economic conditions, the experience of the

patst Years, and the trend, if any, in the utilization factor,

than by uncritical reliance upon an average of any number

of past vears.

“To the extent that any portion of the car user charges

is measured by mileage, it is necessary to calculate a figure

similar to the car day divisor, in order to equitably spread

the costs attributable to this factor over the miles operated.

Caleulations of this nature have not been necessary under

the basis of rates used in the past, and the only evidence

available iy this reeord is that developed by the special .

studies in 1960.) Data reported on Form 1 produced total

figures for daily ayerage line haul ear miles of all carriers

for home and foreign per diem ears. 1 educting the aver-

age number of surplus cars on line from the average serv-

iweable cars, produced a figure for average active cars

Which, divided into the average car miles, indicated that

the average distance traveled by home per dient cars.

Was S20 miles, by foreign cars, 58.0 mules and by all per

_ditem cars, 44.5 miles, per active car day. A separation of

the amounts reported:on-Form 1 between eight classes of

Cars suggests that appreciable ditferences exist in the utili.

zation Which should be retlected in the Mileage portion of

the charge.” Thus, TOFRC cars are reported as averaging

220.9 line haul imijes per active ear day, stock cars, 93.8,

box ears, including automobile cars, OOS, other that curs,

0.4, closed ‘hoppers, 44.5, Upren hoppers, O12, and gon a

dolas, 26.5. While this breakdown is possible from the

data reported ou Form ly that studs was hot designed to

dscerhun average mileages by élasses of cars, and was hot

stratified wath that purpose dn mind. tn some instances,

such as the TORC cars, a relatively small number of ears

Was involved, nel the cost section Wilhess ithelicated doubt

as to the extent toowhieh relianee could be Placed upon the

averages In these cireumstances it’ would not. be proper

le attempt the enleulation of mileage charges Varying with

the tape ot earcin reliance upon the information now avail

D40

-able. Appropriately designed samples should be promptly

taken, however, and‘such caleulations made if differences

such as are suggested by this record proved to exist. On

the evidence it is found that, for present purposes, an

average car mile divisor applicable to all ears must be

employed. In this connection the comments in- Section

IV-A of this report are applicable. See Pages 43 et seq.

L1]—Ownersuip Repair Cosr

A—Geuneral.

In its 1955 decision, the Commission observed. that.

freight car repairs constituted the largest single category

of expense included in the car rental charge, amounting

to some 40 percent of the total.“ The special studies

conducted by the Cost Section during 1960 were, in large

part, directed to the’ problem of anakyzing the cost of

repairs to per diem cars and development: of data which

would aid in resolving some of the issues raised in respect

to those costs. Particular attention was given to separa-

tion of the expenses charged to Account 314 which, as

noted in the 1955 report, is the largest of the primary oper-

ating ¢xpense accounts embracing nearly 10 percent of

total freight expense. -'The basie separation in connection

with all repair expenses was between home and foreign

per diem cars, with repairs to each separated between:

owner and user responsibility work.°2) Two sample studies

were made, using Forms 2 and 3, heretofore mentioned,

and covering seven periods of two days gach at intervals .

3 The report’in llabama, T. & N. BR. Co.-v. Aberdeen & R. R.

Co., 274 1. C. C. 383, indicates that repair costs were, in 1946, about

44 percent of the total costs employed in fixing the per diem: rate.

*2 Definitions of these and other terms used in the. studies are

set forth in Appendix A to this report. “The distinction is necessary

to insure inclusion in the per diem charge only those’ costs which

should fairly be shared by all users... Repairs due to improper use -

of the car are not shared under this separation.

D41

during 1960, to develop the proportion of repair wages.

and materials applied in each of these categories by repair

facilities. Another test, using Form 4,’ covering seven

test periods of one day each at intervals during rll AiG

Was conducted to develop the. proportion of Wages of car

inspectors assignable to various of their functions, inelud-

ing repairs made by them in train yards. This ‘study also

sought to develop the cost of materials used in the making

of such repairs and the consist of. the trains inspected.

These studies: were carried out by all Class I liné-haul

carriers, and analysis thereof indicates that about 79

percent of all wage and material costs were items of owner-

ship responsibility and seven percent items of user re.’

sponsibility. The remaining 14 percent involved non-per-

diem cars which are not involved in these ‘proceedings.** ,

The total ownership repair costs for 1960, as computed

by the Cost Section, amounted to $983,715,117, and com-

prised over 46 percent of the total expenses included in

the per diem cost caleulation.

Account 314° was analyzed. by each Class | line-haul |

‘arrier on Form 5, for the year 1960, so as to show sepa-

rately the following items:

1. Freight-train car repair wages. ‘

-2. Freight-train car repair materials.

®. Amounts paid to and received from other railroads

on account of car repair work. |

+. Wages—train -yvard inspection.

0. Payments fer foreign cars destroyed, less salvage

6. Switching expenses in connection with freight-train

‘ar repairs. ;

3 In all studies, NOM-pel dient Cars, including cabooses ariah wari

age cars were excluded,.and the costs applicable theretis separated

trom the analysis.

D42

¢. Miscellaneous ‘items in account 314, including general

shop employees, power, heat, light, ete.

Repair wage and material costs for the entire year, as

thus segregated, were separated between per diem owner-

ship expenses and other expenses on the basis developed, by

the sample studies made on-Forms 2, 3, and 4. A separate

sample study included in Form 5, conducted during ‘four

months, one in the middle of each quarter of 1960, was

used to analyze the amounts paid to and received from

other railroads on account of car repair work. The results

“were employed to separate the total of such payments and

receipts in Account 314-between owner and user responsi-

bility. Miscellaneous items in Account 314 were assigned

to ownership costs on the basis of the repair, train yard

inspection and switching costs, shown in that. account.

Form 4, heretofore mentioned, provided a basis for sepa-

rating the wages paid for train yard inspection between

‘various functions, and was also used to pick up certain

portions of such wages charged to Account 402 and else-

where. There was. excluded the portion of such wages

assignable to transportation activities.** , The portion

_ assigned exclusively to making repairs in tual yards was

separated beaween home and foreign cars, and ownership —

and user responsibility as indicated by ‘the study. That

portion of inspectors wages assignable to looking for

mechanical defects. and carding for defects was assigned

to. ownership expenses on the basis of the costs of the

repairs made to such cars, while a portion of miscellaneous

inspection work costs was assigned to per diem ownership

costs on the basis of the distr ibution of all-other inspection

costs in Form 4.

“These included such activities as coupling air hoses,. testing

air, oiling journal boxes, adjusting packing, checking and cafding é

‘cars for conmnodity loading, preparing. ears for loading, coopering,

cleaning, inspecting amd adjusting lading, closing side duors, check-

ing for right-of-way clearance, ete.

D43

Paynients tor foreign cars destroyed, ‘less, salvage, ‘were

excluded from the ownership cost computation as was also

the amount in Account 314 for switching expenses in

connection with’ freight-train -car ‘repairs. ‘The latter,

which does not cover all switching expenses which are

related to repair of cars was replaced by a computation

based upon the factor of $49.08 per switching locomotive

hour, as developed from Rail Form A, Formula*for Use

in Determining Rail Freight Service Costs.” Using spe-

cial study Form 7-A, a sampling’ was taken on seven

selected-days throughout the year 1960 to show the switch

engine hours switching bad ordér cars. The switch engine

hours were expanded to a full year and multiplied by the

above cost to produce a total cost for switching bad-order

cars. This amount was then distributed between per diem

and nou-per-diem cars on the basis of the number of each

switched. Separation of switching’ costs of per diem ‘bad

order cars between ownership and other costs was made:

on the basis of the costs of repairs done to each, A sample

study was made on Form 11 to develop the costs of repack-

~ ing journal boxes separated between home and foreign

cars, and ownership and user responsibility, and the pro-

portions used to distribute to per diem ownership costs >

the charges for this item in Account 402.

‘The cost of transportifig repair materials to locations

where they are to be used is covered by the item of non- .

revenue freight. By a seven day sample study similar to

those described above, the ton-miles applicable to ‘such

freight for use in the repair of equipment, shops and

enginehouses, was developed and a total ‘cost computed

using 1.23 cents per ton mile. The latter figure results

from dividing all freight expenses and return on invest-

ment of Class I line-haul railroads, other than the portions

** Issued. by the Cost Section as Statement’ No. 2-57 in July, 1957,

.as information. A revised-edition was issued in November, #903.

‘as Statement No. 6-63,

D4t

applicable to per diem cars, by the total tou-miles of beth

revenue and non-revenue freight. A portion was assigned

to ownership responsibility repairs’on the basis of the

distribution of the particular equipment maintenance ac-

count involved. 7 . ; ;

The various facilities used in accomplishing repairs, in-

cluding shops and enginehouses, shop machinery, power

plants; power plant machinery, power transmission sys-

tems, work equipment and miscellaneous equipment, were »

made the subject of special studies, as a result of whieh, a

portion of their costs of maintenance, depreciation, taxes,

and interest on investment was assigned to ownership costs

of per diem cars. Depreciation was based on original cost

and interest on depreciated original cost, using for the

latter a.rate of 6.62 percent before taxes, equivalent te

4 percent after taxes. Depreciation, taxes and interest are

not included in the total of $583,715,117, but are listed as

separate cost elements and treated later herein.

B—Bad Order Switching.

Account 314 contains some of the costs of switching bad

order cars, but not all. In developing the cost of this

item, the Cost Section eliminated the amount of $6,673,463

appearing in Account 314, ‘and substituted therefor $91.-

687,133, which it then separated between per-diem and

non-per diem cars on the basis of the number of ears

switched.** Separation of the per diem car portion be-

tween ownership ‘and user costs was then accomplished

on the basis of the cost of repairs. The substituted figure

was computed by multiplying the total switch engine heurs

of locomotives engaged in switghing bad order cars, de-

veloped from the special studies, by $49.08 per hour. Their

- hourly cost was taken from Rail Form A calculations for

~ ;

\- * The.ratios used were developed from the statistics obtained from

the seven day test on Study Form No. 1.

D45

the United States as a whole, and inclgdes all costs, includ- .

ing overheads, related to switching, for- both yard and

road engines.“* Southgrn Railway contends that. total

switching expense of bad order cars for 1960. does not

exceed $84,192,071... This is based upon the assertion ‘that

nearly all such switching is accomplished by yard engines,

having lower costs of operation than the average of ‘yard

aud road engine: switching. Southern’s’ alialysis of this

cost uses a percentage of 5.241 obtained by dividing totil

~witching hours of yard locomotives by total hours switch-

mg bad order cars. This percentage was then applied to

costs of maintenance of equipment and transportation

accounts of yard locomotives. Similar allocations of costs

of water and fuel stations, shops, and enginchouses were

made, and five peFeent taken of switching maintenance! of

way expense, Floating equipment expense was eliminated,

Allocation of return on cars, shops, ete, was based jon

either 5.241 percent or the rounded figure of five percent,

In distributing the total cost between home and foreign

cars, and between ownership and user responsibility, °

Southern Railway employed the same method as did =

Cost Section. When reduced to the cost per -active dar

day, the difference in method used by Southern Railway

results in a reduction of slightly over one cent below the

repair figure calculated by the Cost Section. |

There ix no evidence in this proceeding as to the per-

centage distribution of switching of bad order ears as,

between road and yard engines. The special studies did

wot attempt to make this distinction since the Cost Section

officials did not believe the refinement would produce sig-

nificant results. On brief, Southern Railway suggests that

farther refinement is,possible by more accurate determi-

wation of the switching hours of all locomotives. It ap-

pears not unlikely that the greater part of sWitching of

on Nav eluding, however, such items as loss” and damage, trathe,

NXjeNses, etc.

—D46

bad order cars would be sccuiiptisliod ly yard engines.

and that the cost may vary somewhat from that indicated

by the hationwide average switching cost per hour. South-

ern Railway's analysis suggest. that the actual-cost may

be somewhat lower when a gre: ler portion ix based on

the costs of yard engines and that ft is feasible to so refine

the cost of this item. No party challenged the refinement

as calculated. The difference in result, however, is rela-

lively smalt when reduced to a daily basis and supports

the Gost Section’s decision to’ use: thy nationwide average

¢ost for the purposes of its study.

The analysis mad by Seuthern assumes that all bad-

‘order? switching was done with vard locomotives, If the

suggested refinement is to be accomplished in the develop:

ment of costs of car ownership, a samples study. will be

required to determine the extent 10 Which this type of

sWitehing is accomplished by-vard and road locomotives.

The Examiner recommends iat, iis it basis for future cost

stadies, a sampling be made ane the suggested refinement’

accomplished. On the Present recbrd, however, there is

no foundation for a finding as to the extent of de parture

of precise costs of switching bad order ears trem the

average costs of all switching. In these cireuistateces,

and if view of the wedligible impact on the ultimiate daily

cost, the WVerage costs tiseal iy. the Cost Section are found .

to be the more reliable, . |

(' Train Yard laspection, hte,

It is contended: that tritin sae tispeetions is not con

dluctod for purposes whieh should be related to per diem

‘costs, The Pine t tepn, iis arated, ‘ primarily concerned

With transpottation activities on the using line, rather that

the determination of repairs related to costs of ownership

It is not denied that one ofthe purposes Od sted <0

Hots ts to deterinine. whether repairs are teoded. or that

such requis, When mule, are of a TN yn Whitch fioaupils ,

fall within the sphere of Ownership respousibility. The

Conmuission lms cousidered ‘this contention on prior occa

sions, and hone of the arguments in this record warrant

any conclusion | different: from that heretofore reached.

The contention that no portion of depreciation of repair

facilities should be apportioned to work on foreign CATs, .

since such facilities would be muiitained i Te AY event to

repair ‘hing. cars, is an application, of the marginal cost

theory , hot customarily aceepted by the © OLJMISsiOn, . The

sate is true, with respect to allocation of the expe lise of

Miterest on investment in ‘these facilities. - “

. th thacete Deficien ye

Remaining issues with reinpwet to the special ptiidies of

1960, aml the resulting Cost) Section analysis of repair

costs, are concerned puitiarily with the distribution ‘of

costs between home and foreign per em tars and invelve

the validity’ 6f an amount which, a> caleulated by the Cost

Section, purports to represent the exteut by whieh rein

bursement by owners to isers for ownership re spomsibality

reyutirs made ly the latter fail to meet the vetual cost

of such repairs. This is the socalled “repair cle ticle Hey.

A great deal of repaint work is accomplished oi fore ray

cars by using railroads. Ke ypairs mindy eather by the owe!

OF tiser necessitated by Mmproper use and handling of the

carare net considered ownership cesponsibilita items, ene

the costs are customarily borne by thee riilroad respotsible

Bor the’ Purpose ff Computing car rental charges, owner

ship repair waste aie those mide hea Ssary hy ordinary

¢ ‘ e

"in (hidge, Boe OR. Cov. New York S's Wk = Pal

"Ee CC, 290, 208, the Cotmanissidn regeeted the contention that

i tost ort Hispeca tinigs jet lien cut tor chetergrenne thy, tae! ah win’ Doel

repairs, 4s well as the cost of mispectin te cleterminie the aheduaes

Of requurs thle, Were not properky onety Vide as Henan then

Phic stile there tiettioned as necessane te seperate “out trafis peorta

Cheett UNM Te lias’ been thtach See Db emetiberts Nar’ | t

lds

‘

Usage, and the tuatuntemimece normally required Ae keep the

"Car in good operating condition. bater hanse Rules of the

Association, of American Railroads provide specitioally -

for the caleuhitron, of the dinounts which owners are te

retinburse te ser. fon repuurs tithe Iyy the latter." The

figures “used by the Cost Seebion in tleveloping the total

repatr gost include all costs which were ussigtnal as the

respons(bility OF the owners, whether Liew Were uecom

plished by the owners or by users. - Lnitiatly the ealeulation

of ownership Cost Wits accomplished upon the dssulnption

that owners fad fully veiutburspa sens, attel biel thas

bore thietiiseds es, all the Costs. of Ow Lership Pes patistbulity

repairs. : Certain- respondents contend that’ the: apnonnts

Which owners reimburse to users for such Pepuairs, pyrsu

wut te the AAR rules, are inadequate, and that thie dei

vieney should te taken tite aecount in cdoulating the

OWHErSHIp cost ane resulting ear taental charges. OM the

" POSTIOLT of total OW HOT SHE Pespen sibility repairs. for

the vour 1st, ds computed by the Cast Section analysts,

*, the distribution pioduced Toy thre scatapele’ stradie: Uidieatos

that SISO 4AS298 w a. acconiplished bay User railrowds ‘ate

that SUS SITL0 of this HME Wats net. reiublursed te

them by the OW Hers. PMistuabentest oven thy pred dieu thay

paid for by oath & S tatleededs on TY600 this amounts to

HALE conte per dia No nidiiber ot respotdents ehalhenge

oth the existemen ane Fieetetinde of Chis’ theuure es is

‘ Phe hatge ek stihl y “Chestertiedt feet tine, Pal thahataen

_ when atin tale natl we ottapelstie rey tits port which beth Te spuriie

sthle : ‘ ,

‘ 2 0

: a. statettiowt of the cur repeat cholacmoues fey mithin ty Winton san

chat iti: cabecous' ed tauetbce teabbay Se Cee? ‘| alent oA

dion collet. fy «he prectationt gol interes repaere tac elites uti)

pleut ! 2 TTT lalligy it " wit ij wl «4 rel j it iftiel-

ler sweet related overhe ul tenn peteelad ‘ Lo ture of “il Ns 1h bhiy

festatenmnt wat Others Low atlicoael | ’ persetoeet

Afi hd tee LO Lares stipe abe nit ab the wtie feta , 4 i! i} i tly fur

hetu charge , ,

‘ be

‘ee ; ea x

. pas

_* ° 4 = F . ad

Prom the data obtamed on Forms 2.75, and:4, allocation

percentages were developed tor wages and materials used

in re pear of cars which were applied to the total Xpenadl

tures: for the Year T9600 Of the reported hibor costs in

effecting repairs during the test period, some INS percent |

were assigned to owne rehip repairs on foreign cars, While -

about 284 pereent of material ests were so assigned. dn

apportioning total expenditures for the vear however, the:

Cost Section applied the combined percentage. for these

[Wo items, amounting to LO.OIS percent, to the total

amoutits of both wages and muiterials This produced au

figure of Sod, ao Po Which Tomstituted over oo ‘pereent

of the challe gid expense of FING, 42550

It ts contended tiat iiuslidaition of the combined: pet

centage to the total wages and materials cost for the veut

produced an excessive allocation to foreign ear repair costs

Of seme S780 74 Application off the wage and miaterial:

percentages developed by the. sample studies separately

to the reported aetuad wages afd mate Whats in Necount utd

-for fle year T60, however, would not nece ssavily produce

the tnore reliable tesult ats alleed.-sinee identical units

ae not uivelved The Porm 2 study of répair wages was.

vdntined te direct fretht-train ear repaie wages which

abe chareed te Vecount he ty Wits -restricted te Waltics

paund te empdovecs’ vetually making. repairs te freight train

cis. Baeludted: trom the study were Wanses pando gang

foretns th, Cheehors Jtispectot Me Ie bepuail cured Write thy?

Trae Travan This prrctane s, a Ea om berg weal in Pooonebtioninma

parts, Crane Operators, employees ongaacd i making toads

and other general shop CIP LON ees. portions of wakes of

etiptoy ee ~ workin ae trobile pepe lanats, signe Spe rN isons

employees not actually” working “anh Gas : Wases of om

plow ees chiaread ih Pern Genin peal Wade iicdindoat i

the samiple stieby as partial the-oost of reconditioned eee

instalheal ano ears ‘The Porm So material studv wae’ eon

tHhtnead tas nraterab calimeethy apepthiedt fer ata “tad oNeluchedl

. . ; Low i F , ; m

materials ‘uscd th recondition. peat is Whack were -tet

directly applied Lo cats. Recondit: Leatiesh gsitts, w he tw sel,

Were priced at serap value. plus a pre rata at labor, mate

rial and shop overhead applicable bo rooduktonma, mnelud

ing an allowance for freight Uratesportation pod to others

and a proportion of store Gxapetises ty os apparent that

the detatled seperation ok Various age anil thaaterial items,

with the ¢ Usig titi ntot bar tienes at the t or ta Saateriala

cost for the Pre prerne of the study ert meTyar yt waite: the

application ot the specitic perventagws fer owe ote th

ttemts of like tithe appearimas in Porm os amal-that the inter.

tainaglings requited the ep ipelical ion wl Pike wnt ham aL peers nt

. aye in dss tenn the annual Aten oft miety W AKUS amd rhhaada

rials lo the Vabb iets yiite roy tees ( cethoaiest Zs . vhien mah

° > - ce

have been devised. te ddiswlose tiany of the ovshparteats in

more detail-but there ts me dass fareooladans that thes

would’ have produced Pestelts an meets aooureeds :

It ts also contenthad that thc bert tadhes bre @

‘need inconsistent results with cesncer’ he reshative

dinheunts of Wikae, ania Nicelebickl ceests teehiayata nherent

defects whiek retater thins scabtapeles | suits whabh: - ‘te

comavetion With this cantlomtion. exc hs Ars meweal ts

the refusal fe Peeeive ba oval bbs \« \ tetpa? oth, reel ‘te

show cetanls of thi SDM LUT CULTS) } Bas ee atnaaly «fs

of total actual charges to Vocou 3 veur: Pade

inalicatedt that Wika : Cubes! Tule berg ss ’ thawed

anil frivteriiails saber 42 partquartal- Viens ' F bePaerediaanad

by the Borne 2 ay abt stiabios, > ah My pectweeget Woanage

costs atl 7 poreynt tatorns wes % “The wiebted ‘exhibits

contained cata’ dad oatvotari vARA NN vies gation af

Witte bo thiate fial cost bran £ thy pose aM siadtors, conned

the full youl distr cbyatyon tee Pvvens wc 4.

Vast each of - i Heb EN Lid oN t _ Te \ apripals

Pest iteienti \ Wal beaarivent | & 1 “4% 4 : airteod aan

Morn 2 the expenditure at oY Ske a S Vien. foabeaen op

repMuiring owhership. items on foreigie cars, and, on Form,

So some SSIOQVIS TT for materials, a ratio of more than:

ene to ten At the same tine, this carrier's Form 5 amily:

stsoof Necount S14 for the vear showed a ratio of about

| to 17.

The analysis of Necount 31, as reported by the carriers

for eweh quarter and Por the year l60, on Form 3, in

eluded in total wates, theise patel to Poremen, idspectors,

vheekers, clerks and other supervisory persommel applicable?

to Preight train ear repairs made at shops, rip. tracks.

whl tebile pepaae dats, as well as ait allowanee for vaca

trom ated holiday pay. While the total wages uecessarily ©

Heltided Overtitng pay, wakes reported in theesample study

‘were Titnited fo straight time tates, whether ‘or het the

hours invelved were overtime beurs: ‘The Form 2 and 3

studies were desiited to deve loop thie relative AMOunts of

laabvor dati mnatewials’ chiplived as bewveen five categories of

“wetivitwy he. Owner responsibility (home Cars, Owner

respotesibility. (forema cars), User responsibility (home

curs), Loser responsibility. (lorem earsd, iid all other

Preicht Train cars Coe lidinig, cabooses, ele.) They were

haat dlestiy tel to treasure andividial fractions of the total

vearly Wie aun material expense. ‘Phus, the fuet that,

When exgaunded: tea full wear. the sariple aimounts tail

Tey appetite thee tertals reported on Porn oO das ne’

J bendtaiev to cuinipeedel them valiits

Phe compartisotiy tied, ane these sought te be miade

Prone chat i the oxehucded exhibits, purporting to denion

strate ciecuraey er diredmability. of the Porm. 2,3, and 4

mune stindies, are nef peredasive Tas diet contended

that the thelivicdtual chores imeorreetyy beportock Thre Wiittis

aned miateriads on Portus 2 aad 3. ant the Cet hist geetava

ties on the Union Pacitio over the VA test ins were sted

ds te ivelye the otphleation of quiateral’d having actotal

Cost ool te teere Chiat tem tines the clipeet wore puted

vat Laicenes chen ; Wilbert roid bbecaties Sabie thre. pirtio od

Dor

all carriers was about one to three, it is apparent that

the indicated extreme of Union Pacific experience was

balanced out by that of-other carriers, . The sample was

‘hot intended to develop proportions for any single carrier,

Development of the proportions of direct wage and mate©

rial costs for each of the five Categories of interest: was |

accomplished to provide a basis tor apportionment .of. a

number of other costs, not reasonably susceptible of dircéet

allocation. Respondents do not chillenge this technique

- of cost analvsis. The difference in the components ef!

Wage and material costs between Form 3 and the sample

_ studies necessarily produces differences in the ratios ‘as

between the wage and material figures, A Mere showing

of such differences does not warrant a finding that the

samples were defeetive. “The cumulation of such examples

by consideration of the excluded exhibits would add,

nothing.

Exhibit R-117 is a-three page document containing a

tabulation of Forms, 2,3, and 5, data as-reported by some

45 railroads, together with calculations showing, for each

railroad, the percentages of reported material cost to labor

‘cost as shown on each form. Exhibits R21] through R314

are reproductions of summary tabulations made by the

Cost Section of reports of railroads on Forms 2, 3, 4, and

». Mach of the latter consists of S to 1 lerge sheets con-

faiving from 12 to 14 columns of data. Mach was objected

to by various parties on the ground that they had not been

exchanged with all participants in advance of the hearing,

and on or before the date provided therefor in the special

procedire pursuant. to which these cases were handled.

The objections were sustained.” |

* Other exhibits which also were riot exchanged on or before

the dates applicable thereto were admitted, since mo party: objected

The acquiescence of all parties to these departures trom the special

procedures provides no precedent for permitting other departures

‘where: such acquiescence is lacking. ea

Don

At the close of the last session:of hearings im 1962, the

procedure to apply to the further hearings Was announced

on the record. ‘The renewed hearing Were to eomumence or

Mareh 25, 1964, aind all: parties avere to exchutige their

remaining direct evidence en or ‘before January 6, 1904

By subsequent order of the Conunission, the date for

exchange of this evidence by all parties was extended to

January 27, 1964. Exhibit Ro117 Wats lirst exchanged with

other partiés at the time it was offered tor “adentitication

at the hearing on April 20, 1964. On anuary 27, 1964, all

the data underlying Exhibit ROLIT had been avaithables to

all parties for well over a year in theg@tiles of the Cos!

Section. No satistactary explanation was ollered tor the

failure to make the exhibit. available to. all parties on on

before the prescribed exchange -date. “Rules of special

procedure inade for the conduet of particular cases are.

designed to insure equitable. treatment of all partic. atl

should not be lightly disregarded. “There, it was oxpectea

that all parties would have UPPrordnmately two-months to

study the direet testimony, atu prey are Por crass exci

tion and rebuttal. © The abjections to this exhilit wer

well founded.

At the close of thie si sston of hearings hedd ou with

of 1964, the procedure to Qppelye to the Cupther hori

Was also whnouneed on the record The re rhewead hear

“were to COMMmMEEE On October PO TO4, aid all palptios wer

to exchange ther further rebuttal Stimons arab od

on or before September 21, WG By subscquent ord yr

the Comunisston, the date for exehuatmee of His « Vibe Ww

extended to September 2s. W964 sand the ebite tors i

tron of hearings extended to October OT ied t vt

R-311 through R314 were tirst exehanoead with ol baat

ties on November TO, WG4. at the tine they av

for tdentitication he GPRUReh baton -

these: exhibits wer “bepradu Lian Hhiqad be bY '

all parties for nearhk two vent No satistiaetary o4

Dod4

& . ° » ° -~ . r a .

tion Was offered for the failure to make them available? to

other parties on or before September 27, 1964. The special

procedure was not satistied by notifVing parties on Septem.

ber 24, 1964, three days prior to the exchange date, that

an attempt. would be made’ to have these documents made

part.of the record by reference. This was attempted but.

objections of some partios defeated the proposal.

Notwiths landing the hilar: lo comply, With the special

rules “of procedure, At has been strongly urged, -both at

the hearing and on brict, that these exhibits should) be

received ino evidence because they constitute: Summaries

‘of the data received dy the Cost ‘Scéetion upon Which much

of the cost analysis, and in particular the calculation of the

repairaleticieney, depends.“ Full and intelligent considers.

tion of the issues by the Commission is Impossible,

ix argued, Unless these ddcunients, and, ir fact, all the dats

and calculations unde rlving the Cost Seetion analysis, are

nade part of the record and-ay lable for reference. This

argument overlooks the fact that the coufheting Interests

of many different: parties are involved in these causes and

that fairness to all requires that all material upon which

any one of them rehes be brought forth ou fhe record and

the Oy) portunity: provided“ lo produce, if possible, evidence

Which rebuts ar explaing it. ‘I partios Inve had at least

two years dufing which there was free access to‘all the

material unele rly ine the Cost) Seetion analysis to extract

cand: present anything whieh they consider beuetits their

position or aids the Comunission. The volume of the récord

demonstrates that full advantage has been taken of this

opportunity: Phe Cost) Section and -the Commission's

Bureau of Inquiry prepared and presented in evidence all

the materials related to the cost an: ysis ving ‘h they coil

sidered vot’ Imports ince to the Commission | n disposing of

the issues. To permit last minute ocdinng of the record

*Or,-in lieu thereot, it as requested: shat’ the “Commission take

otheial notice of their contents : :

With masses of data with no specification or limit as to

its use would invite fishing expeditions and the making ot

surprise arguments on briefs. which opposing parties would

have no Opportunity to rébut, explain, or answer. As

noted above, the ouly stated purpose tor which Exhibits

R-311 through R-314 were dtfered would not Warrant the

conclusions sought to be drawn therefrom. No convincing

reason has been offered why the special rules of procedure

shiould be waived: for these exhibits: over the duly regis"

tered objections of ‘inter ‘ested parties.

Monthly . reports iv the “Association of American Rail-

roads, by member carriers, tor’ the Years 1960 through

1962 indicate: that, on the average, about-15 percent -

cars awaiting light repairs were foreign per diem cars.*

The Cost Section studies also jndicated ‘that foreign per

diem cars in bad order and awaiting repair in 1960 averaged

18.802 percent of all bad order cars awaiting repairs.

“These figures, it is argued, de moustrate’ that an alloeation

of over 25 percent of the wage and unaterial costs to such

repairs is excessive, The cited statistics dé net, howey er,

provide any reliable indication of the relative numbers of

cars actually repaired.’ The evidence warrants the conclu-

sion that: repairs to foreign per diem cars, on which per

diem payments are accruing, are more likely to be made,

While repairs to home cars can be made as needed. Thus,

the cost section studies for the year 1960 indicate that,

on an average, fereign per diem cars actually repaired

and awaiting switching constituted some 27 percent of all

cars in that category, Only rarely are heavy repairs made

to foreign per dicey cars, and it appears not unreasonable

that the percentage of wage and material costs ine Arred by

“reason of light repairs to such cars should be less thiin the -

percentage of cars repaired, .

The allocation in the Cost Section study of wages of car

Inspectors is alse challe need as ASSIQMiNg UN OXCOSSIVE pores

‘f \AR leorm ¢ ‘SOUA.

Dd6

tion thereof to foreign car ownership costs. ‘The

amount assigned to ownership costs, however, is not

tested. The figures dey eloped by the Cost Section studi

indicate that it. cost $25,687,329 to ispect foreign cars

ownership responsibility items, while the cost to inspes

home cars for stich items was only sSL8,058,710. A:

same’ time, the wage and material repair cost for

two groups was $99,524,715 and sLOOSS81.245, respectiveh

That the samples show more time of inspectors soe

inspecting foreign cars than home cars, although the rey

to the latter may have been much more costly. does’

Paki

render the ’ analysis of inspection work wireliable. T:

is no suggestion that the inspectors, in nuiking their rey

for the purposes of these studies, failed to report the

tribution of their time and activities to the best of th.

ability, or that the results of that study were not accurs

summarized. Foreign per diem cars, as indivated by

ary

Cost Section studies, had a daily average car milea

58 miles, while home per diem cars averaged only. 22

miles, a relationship quite similar to that between ti.

spection costs. More ‘inspection would necessarily, »

from the additional interchanges. Sabstautialh

extensive repairs are made to home than to forcigy

diem cars and greater expenditures for this purpose »

It does not follow that Inspection to determine the

for such repairs, or to ascertain the adequacy of the. we

accomplished, increases in proportion.”

The sample studies of repair costs were intendesr!

separate from all costs, those which should be inclu!

in car rental charges because they were properly

classified as the responsibility of owners, Costs

inspection work between ownership: and user responsibilit

basis of the costs of the ownership and user negro

made to the cars, and may possibly have. auiderstated the msn

expense of the ownership item.

*® The Cost Section study distributed the costs of car inspec

° Do7

calegory were subdivided between those incurred in respect

10 foreign cars and those incurred in respect to home cars.

It is significant that the criticisms of these studies are

directed to the latter separation. Other than switching, the

total amount of ownership costs for both home and foreign

cats, as indicated by the samples, is not challenged, yet the

cecision as to whether a particular repair Was or was not

au oWnership item would appear to require far more -judg-—

ment than the determination of the classification of the car

as home or foreign. ay |

These studies were the subject of extensive planning and

review, not only by staff members of the’ Cost Section, but

also by experienced. officials ‘of the railroads which con-

ducted the actual sampling. The measurement of economic .

aclivities by use of appropriate samples is a customary

procedure dictated by yecessity where, as here, the volume

of activity is large. ti the studies in the. present case,

Lowever, were based upon ** judgment?’ samples, not: only

a> 16 the stratification of the sample and form of data, but

also, IM many Instances, the reported data itself was a Judg-

inent distribution as betwen different functions. Thus, the

report of mspectors activities required cach inspector to

exercise his judgment as to the portion of his time spent

on ten different functions. and the test days were chosen

. Ob a judgment: basis. Forms 2. 3, and 7 were similar. -

The proportions of costs developed by these samples were

used 160 allocate the actual expenditures for the full year

‘1900. In recent years there has been a substantial develop-

ment of random sampling techniques, and the rehiabilitt of

. .sadies conducted pursuant to appropriately designed

samples has’ been recognized by the Commission. In

lwercased Parcel Post Rates, 1997, 303 1. CL CL 59, 72, the

Commission stated that ‘scientifie or random sampling

should be substituted for ao series of samplings selegted

mothe basis of the judemeimt of the Department's enrploy:

a ‘.

apeitipiecl wh repaart inf we anste "aul ol

“istration of ele! breton ty teatial sony teed a

a8 - F Phas é ' thd ’

y -* J , |

ees, ho nthe Yo how capable the latter tay be See adse

Reto mation “at Mates -Fearth tls: Me af, Aida as

£4 Gt. Al hough: wor4atlert * jundyctiie ta spnpiiats hive

breve Customary Wi The fabet, citi Hapeiersoutty tit thie stbessettee ot

betler Patines fern Aartielisstatin, dinboun, meted itee hats the

wlvantige of welnafality within ipuctletable liatiits This i

vork aivanebalele Uy piedacin ns sannaphy

Whether scnentttic or judgaie i aH lithe bs erp love ‘il,

ile Ue te, is Witenedead je ‘ne whapiny Aife Ve late steel a

Var betis Compute nie il a MEN OTH, milly thie ibnceds tttadet bre nae!

shemigtied dis te teahate mite prot bhithers Thitta, bate sepnantate

suinipolings, Hither ole fnent wha ioe WiE ewan) & prgetaalidy’ Prev

others Youd “ae thet tiaye Ladod anal ittngal wots, Heth

bicatie wel Hoven, othdientoal By thy Form 3 sh ital 4

satniplesee mins Thuteal pt, partion ail ot all tle timated vont

Lose rerganpotlalits Ailwer mond als real vo is sanmeuntiad to’

CT prepeett ony Hvvtans wits ant Sg) percent on Tongue

= (APs Thi briabeigece’ esl 13 Sabb pendent wae ipa tie gb tor githint

than pier com cate, und wae « vduile J trou fuer (lei fetyanwid

eration Sti titties shall, ry at thie Vimts uy burteeal ia:

repuat vb. Pevteine eaye five tbe els ialt ol cipeply ite tee total

Witae oti Wish deal tityle for rene), Vie Hater tof ads part

eel ele Volofwal from theese, sani? the Phe teatjon pete at the

Appartionyient.w iin deriveal Feat tty Bovis opel ' . ' hu pele: -

(lew al steve cecal cpbocouat

Time Vitel

‘ttevend al

4s Wake tha

Viera tee oof Ubi

HHP prernereual of thy a rae To Tan

States Tar woul evi, Vdnadian pe

alot veqiual uitergy i thi tyvengetieriat thy

“hi Dandie jest ange ad hd Yils gle qua lin dra uh

ate angl tert

ae | ‘82 cual aed a temtad at Lar ferinis : sive ineten | vite iy

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tack? * 4p the Heol il iv ‘egies o Sern eel Gact Wawe ‘at i ii

. awe

whete _ teporn set ‘ iragele yi" sh oval jitael theeitebl r iL tai vt “wes

aval .t ta HTatie “" HU hiait meh hiett ac béstit . , \.

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tse vunty, atu prolably te Ler peragheaite eo xputines al pac ilie Mi

“Leper Abin :

‘hs Prom these of other cars. at dy Wot cortuin thas at wonkd:

ph Properly the lest ribiition of Gwtegstip Cipsts be

tween Herne and fore ah Cite’ ae ,

Hous Hepnets ane avomipeliotiead 4 b biepen chemugetiond “ani

ui ppe wl for this work Such ovt Weave Hepat ane taney»

Hiitile bet Poeun Cuts, anil the’ ests ot” Lfittns olay ee

opitiable oan hapa junit ber bepeatts toe bine fate ‘I'he

overwhe dita; ht jar ity” ot bepaatnas fa fone Tar ou y ae nee

walled “tah hepaihs. cme lotianiky wecomplished at nage

Trach» of in sdicges wath Hhsniiteal pipet, posed ivimarits fs

fo Stel werk taiuhi TOD wrth ob Fivaiin Cites is alew

weterally ee ctrpelis tient al Ulicsnse breaticnns Phy Oe Cee

by joan ts iitiniatels contented with’ day’ tar aba AL tes pataa,

bon ayetinttie ™ ariel Is ap Hyyed fads ovoudy ave rth “Vet

Mresuriialals, dt owenlel bye neu anably walle -

; Hepeseubed tt it PL ee teh Wit shirt’ beet Pheu

. .? Par

Wonk, however ; eo el aad aewegeutlin dit ral D stl,

ehent eary thar “lina nih Waerk ave aigtbre vend, caneed’ taate ti al .

ten Ne Nt baleen py i" Ii Up POULE s, "thal thes |

Dray wEtion OF costs at hea , eh Haverdities capapeli able to

hetie vars oud a pprewsalily ‘ sal the proportion deveb

oped at Trane bepeide Lacihitnes ae eps tt ge Ay dte te dick pet

leefiatels hh Veh ‘ih anton” ftv belatietiolit: of the

vans tncat Tortan are Ht these diye “beatae Woke tansduals Werk the’

;

a a tiaeny tint “ul dis the ! iitenity von i lun Wits ( dacebinee aent

‘0 “ , \ : ‘ ‘ . PE ,

Foreigners 6 Phas at the faunpele: oubanl” Guan pak Say thin °

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habe rhbeel udind “ot ae nr biprite . t+ 7 ‘Mile 7 : % si

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ba ehitty

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vesull’ would te an utiduls be

st Vipelat deopaane

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le TUke) aie a tint +! ’ baeee te ts) sheet, Pheu

; tatu ' annepele jo tent weal sth. Sth a al it

ae pepstatin ited 10

vat : oust Chae ev tletee Vane vbigie ebente a |

Loeat tarts Li tia Picetee Phe at thee bh thie Purbuate

ta betel, Deiat tae hate, bail iy it Weigle if

ioe’ cal 6 vee dually -etvabitioat os r bis T TH

ettols beacate rial sue ii ‘4 y Wr T

aulieits. tet Wet dinniin thin fu.) }

divin cut “ote ; fe P

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tig curt Pepeagt chelivictie i!

corti chemeuts Gh ospoau fii pedi os

* ne .

tate ter the papuate eel Tist- i rb } fan9

. ,

whieh th JAA Piehe’-” ode) the piphivuies i

| Yiune, Fe, cient oib ut i’ ij ; Wriears = vul

tue ' vet Uh giert | yet ’ a tis A ita ; ;

e , , .

ibeatits i opepebeeperaate Saat Tra TTT hs hail

z 4

tieete ool tealeens site ri has Lteet siathal iv

& .

Tinsies teetgelet wedbo ly abbett i pala

5 Z s ,

cat Mar thee ovfenk hid ove’ teu cade '

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' iv te evel vege sal Tigh S saan ii “, ites i .

*. y 5 Aut }

the t Hn, the hive wie ( he kee te ‘ by ;

F © ’ ;

ee ;

hy V\n Tinie hi TLL. ii hibel ij 4

thy ‘ Ta ete “abless : Tt zm pute P

< . 7 LZ

tis: ve fismtotral steel tbat sa ; j it

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“vcrh he! sie il bee eueee S. rail one! ; ' j Patptab

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“shies aed Jha

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ae Uda dt {+4

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bith

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tite j @ «al

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"sttitlat te Those Which estet oe the cur peutal nate: pbself,

eel whieh fastened! the presen pa@coodliaes

Tt ots geentenmebhoad Chaat Hn eh weteerark. aepepelne sition ot thie

Whee thie reetltinig Hie tee Ob Penitiieriation

bidet ee otpelie hh wreates Pepa Le Poreiar capes on

Pelation teoeut dive on die ob sueh ears. a Hote abaye

“werthed dy j\ “ th beeeneedie baits iteat or thins COUPE GUREDTAR TDD T LOG

“NN begets - I) de stineesdoa idieat thi Jiterst it cannest rane hanny

wt thi \ Vl Hhittees Tet temobtiteotiant cuits certain ele

Te nf curst u seeded ho porcvedttes eh a repens sive: offecdt

Molithe oo prikinnateed hy eentonn ben Teron, there ties De

cyte’ teteebetees cen type pier! “ot nn eal Hispector tw

liberating ho neetin “ah Heeteie. hequatinie Tepaain, whieh

reetilts “i ditehed Joved od repuatt slieyp work levels, the

ot ich thie’. clon » heed lipped > HW4iN Hinvelinigr fo thi effet

Wohrethes nT weet tt ois Che Phet. the ‘lati Peet aut renital

ie tol te by cletertmed bw othe extent-of then Tenenes

feo courPeetee Che ont series vale coh thre -\ \K Ver the extent

tlasst Phys day ty dpe cebeaa tind. ethene of. this beatin thers

seceemnapelne dt Te te ee eT a That qiert, however, theu

prin poe , daeeh aed thi Patt onuiblens . Of othe charges bee

yieuetebeakbey city ih vardatiol |i bs, Meteo, comjpectimpad

“whether th Sepanet vad the eas rental Hiatus Wenkd te felt

Aut the operational level .at reps WMT any mere force

s than the Ge setted deliberate, iadequaéGy of reimbrrsement™

’ 4 : ~

obsth, \ \i obeabie

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“ah ee . ‘ ~

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- i ' ' / bite Thistle i i! ery

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wet Wienint wt Vera cele. 9

a) . .

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| rites! i 4 ‘ i} ' ; yt! ryeth

f bitt o ' tat iije 7 its anti ! je t ‘te tyydi

c ,

“rs Py ‘ ijuat 7 Pathe lipee i! akatitge

’ I os : . :

° Mistur ! it! “4 i !

Tle " - i } eUticwyed ‘j ré j ! ts

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a pislarl 1 feet wweeny arielen tebe titties

° rs

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fi ; ‘ he -! th id biets

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try j ; + ie { ‘ ‘ Cifeat rests se

j chal iil jhos ‘ re ail

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4 The agnieii ifr he :

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é ‘

The argument is made that allowance of the repair deti

cieney is essential if equitable treatment is to be given

user lines, and that to fail too make such allowance would

constitute a taking of their property without due process

It is asserted that, since the total amount for which thes

were Hable in’ L960 Was SoA, aud, since they were

hot reimbursed for $98,954,020 of ownership repairs made

by them, users have, in effect, already paid that. much

The failure to deduet it} before calculating the por diem

charge allegedly requires them to pay at twice. The appeal

fo justice in. this contention loses force, however, upon

close scrutiny.

All of the several hundred carriers athected by these

rates are users olears of cacheother, make repairs on cars

of others, and, to the extent that there is a detieieney in

the reimbursement for the cost of such ripates, sutPes

therefrom. The record warrants the conclusion that the.

imipaevt of the deficiency varies widely ‘from ocarrior to

carrier. OF all these carriers, only four support the conten |

fion that the deficiency shoutd be caleulated aud.subleactod

from the total ownership: costs in determining the «eat

rental charge? None, including these tour, have al

tempted to have the AAR rates for retmbursciumeut reviscad

to eliminate the deticienéy, Of the four whieh support the

contention vnly one, the Long Island Railroad, appoars on

this record to suffer trom the deficiency. Both the Boston

& Maine and the New York, New Haven aud) Hartford

appear Tr deriye substantial henetits Cron (Ke failure ‘ol

the AAR rates to include all repair -cdsts. Ao study of

pavinents and receipts of TNoamajor rathroads in commection

with the B&M and-the NY, NEL, Indicates that! un boo, -

the BEM received a total of $57,818.75, for vepairs ib tide:

to their cars aust gail the siume dines $t62 017.08 for re

52 The Boston & Maine Railroad, New York, New tlavou A thy

ford Railroad, bong Island Railroad and: New terse, X Now Yi

Railroad. ay a

*’

| Ye ‘

gaits they uae to BWM oars ote y ap paatoud

BAM recor eb the bemetit OP neaely Ehtow toy

bursed VoOsts ii Ee paib ues hi ths -eaat Which

Vhe \i in Vlavenu? Ties to eee poe 4

renuburse

tor repartee whieh ft tuacde and preach thy Tit

uo ee UT. - li hpeved thie bay higcibht- aal ty } ti iw

Whibeiibiit sed Vist UNL Lhe ben Ehaee A

to Pecover under the AAR cai

It is tear that has.d hi

heared wily ta Lik NE thu Lt i

Pepualts bo thee car eet vbherbhied tha

cat tls eat Bhahs the TAM a { \iw }]

dloturnanth Reb dagithaatigia. tas 1 ’ wall

Loroisen Cans thicete by heal bet t Pa ‘

able . Mg 64 1th "silk iv \ bays

UPA Gost pers Bho,

VAUKCISe carelul earbebea Vet hie

Pe puti We KR bibick thang! ti Zea yh ee

- ‘< s

thine arpeait ta bak buh | brhat { -\& ,

ditto ta bret Me tN baht wt if V4

A\\ tials thanks is x thas Witte ,,

{> ? cA f

thiade thy itl : } ite ' 4 Pik \j

\ k

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{ sit ‘ . ,

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considered necessary by that raihvoad, the record does not

warrant a finding that unnecessary repairs are made to

any measurable extent. The major originating liges have

shipper demands for cars requiring the use of . foreign:

ears Which need repairs, not only for safety purposes but

alse to make them fit to handle the freieht. These lines

have not the extent of choice im ears to’be supplied, and

are obliged to make more light repairs than predominately

termunating lines,

/ The Long Island. Railroad, having me cars in per diem

SeTVECR, does het OJON the benetit of the allegedly under

priced repairs. “Tis however, the only line suffering a loss

from this situation which seeks to have it: remedied by a

reduction ii the per diem charges.’ As computed for

1960, the reduetion amounts to doccents per day spread

over the per diem days paud tor by Class TP line-haul roads,

and about 42 eents por day af spread over the per diem

days patd for by all Ul So roads. -bigures assembled) by

20 railroads for the vear T960 tidieate that total payinents

ly them to the loony I <devniel for repairs lo their cars were.

SOR SL2E TO Nssumine the accuracy of the ‘deficiency is

ealeulated by the Cost Seetion, this would indicate ‘h pos

sible Qoretmbarséd amount, sing the average figure, off

some S37 075 These rathroads bad over 400,000 per diem

dave of their ears on the Long -Tslaud. At the average

qdleduetion of 4) cents per day this dine would receive an

offsetting: reduction in per diem costs of over $160,000,

over four times the indicated floss. The record also shows

that the Longe Tdi, like all Other railroads, imeurs fia-

hility for repagr of foreign cars whieh falls into. the user

class, and whieh at satisfies by returning the cars to the

owners, paving the owners at ANR rates for effecting the

‘ a fe : i

Phe New Terses and New York Ralroad aiav oceupy a

wetter position tut the yeeormd is net clear am this respect See

leowevet Vere, hea ‘\ < \ \ I’ ( « \ ae ric ke (oo 31s | { {

D67

repairs.- It thus obtains certain benefits from the ability

to pay for the repairs at the AAR rates instead of making

the repairs itself, at higher cost. While this class of repair

work is not part of se Ue costs included in the car

rental charges, its existence cannot be ignored in consider-

ing the extent to which carriers suffer from the limitations

on reimbursement in the AAR rates.°*. The record does

not disclose the extent to which benefits were obtained -in

this manner but it is apparent that even this railroad did

not suffer unmitigated inequity from the lack of complete

reimbursement for its expenses in repairing: foreign cars.

The experience of the New Jersey and New York Railroad

in this respect is not shown.

It thus appears that none of the railroads, which suffer

losses due to the repair deficiency, other than the four

above-mentioned, consider the ‘matter material, Those -

Which have taken active part in this proceeding , oppose

use of the. deficiency as a deduction from the per diem

rate. The B&M and-New Haven, which urge use of the

deficiency in this manner, appear to have benetited from

the existence of the deficiency, and it is clear that they

would experience less favorable repair balances if the

AAR rates were increased to the extent necessary to

climinate the apparent deficiency. If, however, the deti-.

cieney is deducted from the per diem charge, these lines

stiind to obtain a further benefit. “Since they are per diem

debtors, such a reduction, like any other action having

the effect of reducing the rate, would lower the net balance

payable by lines in this position. The consequence would

be that these lines, which have already enjoyed the benetit

of having their cars. repaired at savings in cost exceeding

* For 1960, the long Island reveived $7,185.42 from the New

York Central for repairs to the latter's. cars, but paid that line

SIS.84248 for user repairs on its.own cars. for whieh the | ong

Island was responsible. [t thus received the benefit of nearly twice

- the amount of deficiency that it suffered on the fepairs it made.

D68

the losses they sustained in making under-cost repairs *

other cars, would receive a second benefit from deducting

the deficiency from their per diem bills. The other r lies,

on the other hand, would suffer a double loss. This is not

equity. It cannot be found that failure to deduet the

alleged ropes deficiency from the per diem charge would

result in’ a taking of property without due process ; from

he parties seeking this relief.

Upon all the evidence, it. is found that the car repair

deficiency, to the extent that it actually exists,’ should be

corrected by adjustment in the AAR billing rates, anu

that any attempt to compensate for the deficieney by a

deduction from the ear rental is Sa Ww ould be unreason-

able.

Car repair costs and associated maintepance expenses.

as developed by the 1960 Cost Section studies ahd analrsis

have, for the purposes of this report, been grouped in the

following list.

1. Freight-train car, repairs including

allocation of inspection costs, non-reve-

nue freight, overheads, maintenance of

shops, power plants, work equipment,

miscellaneous equipment, and switch-

ing DAG Order. CAPS ................. $583,715.11

2. Depreciation on freight-train car repair

facilities rate on undepreci ated

original cost. Sereiaes ere te ' $ 8,023,022

3. Property bins on car repair facilities $ 3.824.242

Gi Pe CI ois cc noc a nk ee ccucctaes $ 28.140.25¢

5. Return on investment in freight-train

ear repair facilities computed at 4%.

(after income taxes) on . depreciated

original cost ....... eee er ae 1... $ 11,489,897

‘.6. Return on working capital .......... 8. 2308.16

Total . $638.088.s5-

4 ~D69. : | .

ae A -_ is = °

This’ total cost, divided by the 1,641,200 average number

of per diem freight train cars in serie in 1960 produces

uli average-repair and maintenance cost per car of $388.80.

The latter figure, divided by 306 per diem payable: days

results in an average daily cost of $1.27.. No di Apute exists

with respect te the amounts assigned to pdyroll taxes,

propert taxes on repair facilities, and return on working

ca}ital.| Contentions regarding the use of reproduction .

Cogts’ ax higher rates of interest with respect to depre-

clgtion and interest on investment in repair facilities are

considered later herein. The’ Exarhiner finds that the

ownership costs develaped by the Cost Section studies,

ay/portionments, and atialysis, for maintenance and repair

of freight cars and associated facilities for 1960, are as

raccurate as could reasonably be obtained and fairly rep-

resent the costs for the period covered.

: ane 7

IV—Ownersuip ‘CapitaL Costs

A—Investment Base.

Ownership: costs, other than repair and Inaintenance

costs, include the costs related to the acquisition of curs

atid the property taxes thereon.*? Compensation ta the

owner for the -burden which is assumed in purchasing or

building the car has customarily beei calctlated, ‘on an

annual basis, by including an amount representing the

depreciation charges for one year and an amount repre-

senting an-interest return on the depreciated balance ot

° r

**\WWhile doubts have been expressed in the, past, there appea

to be no current controversy regarding the method used to estamate

‘property taxes on freight cars: These are so varjed from staute

state as to make_ precise measurement impracticahle, ~The’ am nuunt

is estimated by both the AAR And the Cot Section by use of 4

factor developed ‘by taking a’ ratio of all property taxes

mvestment, which is applied to the investment in freight cars q

iactors for recent years have been as ‘tollows: 1048—0.077 1o50—

1.003, 1952—0.976, 1958—1.123, 1960 1,163, 19611083.

D70 ©

the cost. The dabculitions: underiying the AAR rates prior

* to 1953 used the average original cost of the cars as the

base for dépreciation; thereafter the base ‘employed was

_ the average origingl cost adjusted by an index designed

to produce what has been called reproductfon cost.

Straight line method of depreciation has been used, at the

‘average of vates used by carriers and authorized by ‘the —

Commission, approximately 3.0 percent, except that in

calculating the: multi-level rates a flat three percent was

used instead of the 3.06 percent average.. Beginning with

the studies underlying the $1.50 rate, in 1947, the base

used to computg interest was the average of depreciated

original cost’ and depreciated reproduction -cost of the

average car in the fleet. Studies underlying the $2. 75 and

later rates used depreciated reproduction cost as the base.

In all. instances, interest was computed at. six percent

before taxes.58 :

The analysis beopintod by the Cost Section in these

_ proceedings used original cost as the base for depreciation

and depreciated original cost as the base for interest

-charg¢s. ’ Straight line depreciation was used at a rate of

3,.32-percent.°® Interest at a rate of 6.62 percent before

taxes, equivalent to 4 percent: after texes, was allowed on

the depreciated original cost. The Cost Section calculated

the depreciation charge on freight cars for 1960 at $197,-

060,088, to which it added $17,594,870 representing the

depreciation which would have accrued on cars still in

service but was not reported since they had been fully

depreciated in the past.

Depreciation and_ interest charges ‘on investments in car repair

- facilities aré considered subsequently.

. 8 Salvage value was taken at 17 percent, and service value to be

depreciated at 83 percent. Division of the latter by the assumed 25

years service life produces'a‘rate of 3.32 percent.

D71

The use of this traditional method of measuring this :

element of. ownership burden gives rise to certain issues

_ upon which the parties are irreconciliably opposed. Cer-

tain of the respondents, particularly those who are also

defendants in Docket 31358, support the use of original

cost as the base for both the depreciation charge and

interest return. A number of respondents, primarily com-

posed of the complainants in Docket No. 31358, support the

use of reproduction cost for both purposes. The former

group urges the use of an interest rate no greater than

employed by the Cost Section, and preferably lower, while

the latter group. seeks the use of an interest rate of six

percent .after taxes, or higher. Southern Railway urges

the use of original cost as a basis but would apply a 14 year

service life for depreciation purposes, using a double P

declining balance method, and allowing interest of 8 percent

before taxes. As an aid to the consideration of these

issues, the Cost Section calculations include alternative

amounts reflecting the use of reproduction cost as a base.

Railroads which buy or build cars today face a problem

caused, in large part, by the radical change in the character

and cost of railroad freight cars which has occurred in

_ the past twenty years. A gradual increase in the cost of

‘ _produeing standard cars would not by itself have pro-

duced so pressing a problem, so long as freight cars, on

the average, were of a few general types and cost:about

the same to build and maintain. Such had been the situ-

ation for many years prior to World War II and, while

increasing costs resulted in increasing the car rental rate

up to the one dollar per day which it reached in 1920,

' and at which it remained until 1945, there had appeared no

radical variances in the average costs of cars in the fleet.

‘This condition underwent a substantial change after 1945.

> “’ Between 1915 and 1945 the Bureau of Valuation cost index

for Account 53, Freight Train Cars, rose 154 points, an average of

_ about five points per year. Between 1945 and 1960 the increase was

365 points, or nearly 25 points per year.

D72

‘ The problem of rapidly i increasing costs ‘i been aug-

mented by the development of special types of cars, and

' special features for the protection of freight which, to-

gether with the trend to larger cars, has produced appreci- .

able disparities between the cost basis of the existing fleet

and that of the fleet of the future. In part, the problem

_is transitional, with old,and cheaper cars still composing

the major part of the fleet and having great influence, prior

_ to 1964, on the measure of the per diem charge. It is

apparent, however, that for the foreseeable futufe, wide

disparities in the costs of various types of cars will con-

of freight cars which, prior to 1940, permitted the applica-

tion of a uniform rental charge, cannot be expected. Since

the ownership of most carriers varies as between types and —

. numbers of cars, employment of a uniform charge, which

_- averages the costs ofall cars, cannot be expected to com-

_ pensate them: for their particular investments. Some

| graduation of rental charges.appears unavoidable. A step

in this direction was taken on January 1, 1964, when the

multi-level scale of charges, based on car costs was ‘in-

stituted.**

Certain respondents contend that rates varying with car

cost cannot be approved or prescribed due to the lack of |

reliable information as to the extent such cars vary in their

repair cost experience and annual utilization. It is argued

that the new, high-cost cars receive much greater use- than

the older cars, and should have their higher costs spread

over a greater number of active days than the average of

all cars. The increasingly higher investments required to

acquire new freight cars in recent years, however, makes it

*! Special provisions existed prior thereto ageiticable to certain cars.

Thus additional loading surcharges were applied to the use of

particularly expensive, heavy duty cars. Such arrangements may nét

be necessary with the use of a multi-level rate system based on

car value but the record does not warrant a finding on this point.

D73

necessary to apply varying rates in order to approximate

the burden undertaken by owners of such cars. While some .

evidence indicates that the newer cars spend more time

off line than old cars, and perhaps incur a greater number °

of per diem payable days by foreign lines, it does not sup-

port any finding that their overall-utilization, both on and

off line, is measurably different. It was not shown that any

workable separation can be made between cars on the basis

of value, which relates to utilization.*?. No studies were

made with respect to this alleged distinction in the car day

divisor and no basis exists for finding the average divisor

inapplicable to cars in all value brackets. i

A similar conclusion is required with respect. to costs of

repair and maintenance. If a significant difference. exists, —

the age of the car appears to provide a more certain meas.

ure than the depreciated value currently assigned to the

car. It cannot be found on this record, however, that any

measurable progression in repair costs exists in relation-

to either the age or depreciated value of the car. Nor can

it be found that the difference, if any, between the average

repair cost and the actual repair cost of new or old cars,

is so great as to make unreasonable the results reached by

use of the average. 3

__ Certain evidence, developed in connection. with the study

of per diem payable days, suggests that car utilization, and

perhaps repair costs as well, vary more reliably in relation

to the type of car in use. Thus, line haul mileage per

_active car day, and per diem payable day, for TOFC ears

* The difference, if any exists, appears to be more related to the

age of the car than to its depreciated value. Some testimony suggests

that very old box cars, the so-called “work-horses” of the fleet,

may be held aside. from general use normally but employed in

cases of shortage or periods of high activity. Such practices would

affect the car day divisor applicable to such cars but the record

does not support a finding: in this respect. It is also suggested:

that the newer cars have a higher car-mile utilization. _

[> oe Di4

appears greater than for other per diem cars. At the same

time, however, this added use ‘apparently results in higher

repair costs for such cars which would offset to. some extent

the benefit of the greater utilization. ‘Whether the net

result would vary appreciably from that produced by use

of average figures is conjectural. The Commission would

not be warranted in disapproving rates varying . with

car cost merely because of the asserted possible differences

. -in utilization and repair costs.® Appropriately designed

scientific samples should be taken of both elements, how-

exist. If they do, separate. calculations taking them into

account would be indicated for future years.** That a more

complicated process would result should not be a deterrent

to equitable calculation and distribution of the ownership

burden. The importance of simplicity in fact and appear-

ance which prevailed in the past in connection with calculat-

ing per diem charges. has ‘largely disappeared with the

advent of machine processing of data.™

Certain of the predominately terminating lines express

a fear that in times of car surplus, originating lines will

tend to employ the higher cost cars, regardless of the

°° In dealing with commercial matters, sdlutions which accomplish

substantially fair results within a reasonable time may well produce

more-real justice than long delayed searches for minute accuracies.

** The car day divisor is an item of such importance in the develop-

ment of unit costs that its calculation annually is imperative. The

added effort, necessary in taking sufficient periodic samplings to

permit reasonably accurate estimates of active car days, surplus car —

days, and bad order. car days, is justified by: the importance of

- equitable distribution of the ownership costs.

* There is, of course, a practical limit to the extent of subdivision

of rates. The ability of properly programmed computers to assimilate’

and apply a myriad of such factors is probably. unlimited, but of

more importance is the judgment of responsible officials as to the

' value of adding such factors.

DI5

freight revenue to be derived: from the lading. Without. -

doubt it would be possible to abuse the use of multi-level

rates in this fashion but it cannot be found on the present

record that such will oceur. ne

The increasing interest in the use of reproduction cost

_ asa base for calculation of the depreciation and interest on

investment elements of per diem costs has paralleled the

increasing cost of replacing cars since World War II. In

prior years the more significant factor in the development |

of car rental rates was. the repair and maintenance cost,

since this, like the car day divisor, fluctuated more notice-

ably than did the cost of replacing cars. It also repre-

sented, proportionately, a greater part of the total costs.

The marked increase in the capital outlay necessary to ac-

quire replacement cars in recent yearg brought to the front

‘the need to more accurately assess and provide for compén-

sation for this element of the ownership burden. - With

the value of the average car largely influenced by the

great number of old cars, use of reproduction cost as a base

for calculation of depreciation and interest represented an

attempt to provide compensation for higher capital costs

of new cars.” In Alabama, T. & N. R. Co. v. Aberdeen

& R. R. Co., 274 I. C. Cy 383, and in the first report in

Docket No. 31358, Chicago, B. d& Q. R. Co. v. New Y ork, S.

& W. R. Co., 297 I.-C. C. 291, the Commission approved the

use of this base.~. With the institution of the multi-level

‘il ‘

rates, designed to meet the ownership burden for ears in.

separate cost categories, however, the problem caused -by

the single average rate has disappeared. As users employ

cars in the various value brackets, paying rental charges

measured by their particular capital costs, they will neces-

Tt cannot be overlooked, however, that the fleets of most, car

owners were comprised of both old and new cars. While: indeter-

minate in extent, the inadequacy of the single rates to cover costs of

the new cars was, at least in part, balanced by Overcompensation .

on the older cars.

D76

, 7 oe Ea

sarily be returning to the owners an appropriate proportion

of the ownership burden generated by those cars. Use of:

the reproduction cost base can no longer be justified 6n this

basis. %p

For many years there has .been a continuing decline in|

the purchasing power of. the dollars used to acquire cars,

due to a continuing increase in‘the wages and cost of

Materials used in their construction. Many more dollars

would be required to‘ reproduce today a car_originally built

in the 1940’s,‘and a ear owner, receiving payments from

car users in dollars of current purchasing power, does not

Teceive the same relative contribution to the cost of thecar

as it made at the time of purchase. Had each user of the

car been the original purchaser, it would be subject to the

same erosion of the purghasing power of the dollars used,

and may reasonably be expected to bear a share of that

erosion. The use of reproduction cost asa base attempts

to translate into dollars of today’s value, the number of

higher value-dollars expended to buy the car, and to spread

the impact of inflation over all users, including the owner..

In principle, equating the per diem dollars contributed by

‘users to dollars actually expended by the owner, by means

of an appropriately constructed index, ‘appears essential

to fair compensation. Thus, to the extent, that the car

rental charge is comprised of a return of actual funds in-

vested, whether méasured by depreciation charges or

- otherwise, the contribution pt users to the cost may be

measured in dollars of purchasing power equivalent to

‘those expended. It does not follow, however, that the

blanket application of such an index to the original cost

-of the car may fairly be employed to expand any other.

element of the ownership burden. | ‘ |

Proponents of the reproduction cost basis point out the

Substantial increases in the cost of cars now. being con- °

structed, and stress that users of per diem cars should con- *

tribute to the extra cost of the car which will have to be pur-

D77

chased to replace the car currently in use. In recent years

the total number of freight cars in the national per diem

fleet has decreased; although generally the carrying capac-

ity per car has increased. Cars now being constructed are

larger, more expensive, and have more modern and intricate

equipment than the cars they replace. The improvement.

in their carrying capacity is multiplied by improvements in

roadbeds, rails, engines, and operating practices. Gener-

ally, however, these latter factors are contributed by all

using railroads and constitute a proportional contribution

- to the increased revenue producing capabilities of the new

cars.. So long as the contribution of users is measured by

the costs of the car actually used, it cannot be denied that

_ the higher costs will be rateably borne when tlie new car is -

- put into use. It is contended, .however, that unless car

users also contribute in advance ‘to the extra cost of the °

expected replacement cars, the entire risk of the investment

will fall upon particular carrtérs, with a concomitant de-

pressant effect on the incentive to undertake ‘such invest-

ments. It is argued that the owner must take the risk of

variations in the amount of use given the new car, by itself

or other carriers; a risk associated with the level of econo-

mic activity and volume of traffic demand. A further

risk, although one concededly not susceptible of measure-

ment, is said to be the loss due to the unavailability of.

the car when needed by the owner, due to- its being off

line. These various factors, it is argued, should be included

as appropriate elements of the cost of car ownership, to

which users should contribute, and may be taken’ into

. account, at least in part, by use of ‘reproduction cost as a

base for.interest on the depreciated balance of the cost.

Without doubt, a car rental rate which is inadequate to

compensate owners for the use of their cars tends to

dampen interest in the expansion of the fleets of individual

carriers. The compensation which may be éstablished by

the Commission, pursuant’ to the provisions of Section

D78

1-(14)(a) of the Act, must be reasonable, however, and

cannot be based on conjecture. It cannot be found on this

record that car owners actually incur measurable losses

due to the failure to have new cars on- their linés at par-

ticular times to meet traffic demands. Assuming, however,

_that situations do occur wherein. opportunities to obtain

‘and move freight are lost because the cars on line are

insufficient in number, or in location, it does not follow

that a contribution should be exacted from all car users

to make the owner whole. : Cars move off the owners’ lines

th interchange service when placed for such movements

by the owner. All lines participating in the movement,

including the owner, earn revenue from it.*? The element

of compensatibn here proposed is analogous to damages

‘ for tort, but, if the car is returned in reasonable course

of time, then its availability to the owner in the interim

is not the fault of any ‘party to the movement. If the car

is unreasonably delayed in its return, to the extent of

violation of the car service rules, the matter is one to be

handled as it arises by procedures apart from the car

_ rental rates. :

_ Assuming that a car owner has paid for the car with

its own funds, and recovers each year a portion of its |

investment through inclusion of the depreciation charge,

the ine#fsion of an interest return on the unrecovered

portion of the investment is designed to: compensate for

the interest which might have been earned on that amount

in an equivalent alternate investment. No reason appears

why that amount should be inflated with the passage of

time by application of an index purporting to represent

the increased cost of building or buying freight cars.

There is no basis in this record for a finding that possible

alternate investments would have undergone such appre-

ciation, or any appreciation, or if they had, that the owners -

67 The value of the on-line use of the car to the owner is not a

factor to be measured in determining the ownership burden.

D79

would have taken such advantage of it as to convert the

‘amount into a higher figure upon which the same interest

return would be computed. Interest on alternate invest-

ments would normally be received annually in the same

general fashion as per diem payments, and thus undergo’

the same reduction in purchasing power.

The compensation to which owners are entitled is for the

car being used, not for the use of some better car which

may be built in the future.** That changes in technology,

design, size, and equipment, may make the subsequently

acquired cars even more expensive is not improbable. The .

record demonstrates, however, that railroads do not make |

car for car replacements, nor do they set aside car rental

receipts for the purpose of replacing existing cars.

Whether replacement will. be made by any particular car-

rier, the extent to which new cars will duplicate their

predecessors, and more particularly, the extra cost of the

replacement fleet due to such of the above-mentioned fac:

tors as may be effectuated makes advance estimation of

_the extra cost mere conjecture. It cannot be found that

¢-the increased interest return resulting from inflating the

base by use of the reproduction cost index would have any

- rational relation to the amount of such additional cost.

Inasmuch as owners of cars *can expect to be compen-

sated, under the multi-level rate system, for their cost as

they are used, the only argument for the advance payment

of the extra cost of such cars is the effect on the incentive

of carriers to invest in them. In the light of the evidence

presented: in these proceedings, this contention is not

persuasive. It is generally conceded that railroads in this:

country do not purchase or build freight cars: for the pur-

_ pose of renting thém to other.carriers. The undertaking

to pledge credit or commit present funds to the acquisition

of revenue producing equipment is one faced by ail enter-

* 6&8 Section 1(14) (a) appears to permit no other conclusion.

D80

~ prises. While it is true that the car owner. engaging in a»

replacement program must izcur, in the first instance, the

burden of responsibility for the expenditures, which is not

shared .by the users, this condition inheres in the nature oe

of the enterprise. Recompense for this burden is an ele-

ment of profit, not cost, and should stem froni the ‘profits

of the enterprise, derived from the revenue producing

activity of the freight car.°® It should not be. sought

from the joint users of ‘the car whose duty, by definition

and long aécepted practice, is to bear their share of the

_ costs. No reason appears why a usér should contribute to

the extra cost of a replacement car which may or may not:

be acquired in the future, and which ‘it may never use, or, — :

if it does use stich car, then pay a rental charge based

upon the same increased cost. The proposal is. speculative,

not susceptible of reasonable ascertainment, and would

" produce additional problems, equally conjectural in —

nature.”° ;

Another ownership risk, for which ‘compensation is

_ sought by inflation of the interest return base, is that asso -

ciated with premature obsolescence due to traffic changes. or |

technological progress, and that associated with reduced ;

economic activity resulting in lack of revenue’ producing

employment for the car. This risk, however, is already

borne by all users, due to the manner in which the owner-

. ship cost is distributed. The car day diyisor excludes a

Some contribution by users appears in the allowance of interest

on the funds actually expended by the owner to acquire the car.

See Charges for Protective Service to Perishable, Freight, 215 -

I, C..C, 684, 690. Wee, :

7 Tf users of present cars are required to pay more than is needed

to meet the ownership burden on those cats, on the theory: that they

should’contribute to the extra costs of a replacement car, it is appar-

ent that, having contributed a‘ portion of the investment in the new

ear, they should not be required to pay the owner an interest return »

thereon, — . ° a

D81

large ‘percentage of home surplus and bad order cars, on

owners’ lines, while the dividend includes the costs of all

cars.’ The quotient is thus enlarged so as to spread over

all days of active cars, a rateable portion 6f the costs of

cars for which current employment is not available or feas-

ible. Owners having home cars on line, not in vse by reason

of the above-mentioned risks, receive in the daily car rental

_ payments for cars in aetive use a share of the costs of the

idle cars. °

Expenses of repairs and maintenance, and property

taxes on freight cars are ineurred annually, in dollars of

substantially equivalent purchasing power as those received

annually from users as contribution thereto pursuant to -

the prevailing car rental charges. The Examiner ‘finds .

that no justification whatsoever has been shown for enlarg-

ing the base upon which interest on investment is computed

and that the unreturned balance of tigi er’s original

expenditure should be used therefor. — pplication of an

appropriate index ‘reflecting the loss in purchasing power

of the dollar to that portion of the ownership burden repre-

sented by the actual cash outlay of the owner is found to be

proper in order to equitably share the impact of such

changes.2

_ Included in, ownership cost is an allocation of a portion

of charges for‘depreciation and interest on repair facilities,

‘including shops, engineho ses, powerplants, ete. It has .

_ been customary, and the Commission in its prior report

in Docket 31358 approved the use of original cost as a base

‘for calculation of depreciation, on these facilities. The

71 Thus, in 1960, the per diem payable days excluded 86.5 percent

of the home surplus and bad order cars, thus spreading their costs

over the lesser number of cars in use, at a higher cost per car day.

72 In effect, the car should .earn each year a share of its cost,

measured in dollars which would buy that same share of the car as

did the dollars originally spent. a , |

D8&2

depreciation rates vary, due to the‘substantially longer life

of the facilities and variances in their character. No issues

have been raised with, respect to this charge. Interest on

the depreciated investment in repair facilities has been com-

. puted, in recent years, upon a depreciated reproduction cost

base, also approved in the last report. The discussion

above, with reference to the interest base for freight cars,

is equally applicable to these facilities, When reduced to

an amount per car day, the figure is relatively small. None-

_. theless, no justification has been shown for enlarging the

dollar value of the investment in repair shops, ete., by

application of the index of freight-car construction costs.

The connection is, if possible, even more remote than that

enjoyed by freight cars. .

. The cost index employed in the development of recon-—

struction costs by the AAR is challenged by the Boston & -

Maine and New Haven as including the costs of a nymber

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