# Appendix — Boston & Maine Railroad v. United States

> Briefs, arguments, decisions, and more.

URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385001_1344%3A02

## Record

- **Collection:** Supreme Court brief
- **Document type:** Appendix
- **Published:** January 1, 1969
- **Citation:** 396 U.S. 27

## Text

.
.
.
.
| | ; *
. ba |
> . ,
’ >
| .
.
* , |
.
. | |
.
i e
. y | | |
. é
.
| :
| ‘
.
rs : |
F :
; , | |
es .
.
.
. : :
. > ;
| ~e,
.
. :
.
| >
. e |
ie
:
.
’
.
.
| .
. My
| .
.
. .
.
.

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,

se

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

0

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. -

%

a
.

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 ..., 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. ;

4

TA

10.
11

.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-

Q

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.

Pd

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.

a

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

. 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,

4

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 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

P
‘ 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
oO

. . ; 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

x

& . ° » ° -~ . 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
/ , 2. . .
tack? * 4p the Heol il iv ‘egies o Sern eel Gact Wawe ‘at i ii
. awe
vat ta ypeal? eee roll © CO thie rene nt ley #1? jor ve 4 / ith
whete _ teporn set ‘ iragele yi" sh oval jitael theeitebl r iL tai vt “wes
aval .t ta HTatie “" HU hiait meh hiett ac béstit . , \.
. : Be - 2 x
e a . ° Fs * \
» 7 ° .? ;
. *
a . . x
s ad . \
. . ~O - \

‘

‘
a s .
cad “

Ld z / . F -
. ad -
. . ”*
. ° .
,. . . . 3
" . ‘ ‘ Z . P
.
; ‘ .
bow : me
% , nv zi
*.
° , 1 on ge tes . 7
‘

.

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 °

. *
° x . , é
. .
: ‘Theis, tt a] ste eine : Penne h “3 sbiteily «
: . e rs a
% bee ly i' ¢ ; “Lia 4 ‘ “s vu) if : sha by , .
ee . ’ om . .
’ " ial ereiry 4 : ; ( os ’ ? 4
’ . p .
Werk wy! lea Pest a ye ld | fr ‘ io * Pathiw ° qi! . 4, 7 tidal
. te! ‘ ° . ; + 4 '’
habe rhbeel udind “ot ae nr biprite . t+ 7 ‘Mile 7 : % si
* . e *
‘ . .
fe yea ity stl mths ; . Th ° :
’ Ps .
‘ o. 9 . > ’
WSoeet pdeahly Ph tae Oh fi i, ‘ > -
; * : A e* Ld . °
4iftiemil ilietia pleal -* eee
Py ’ . ’ be 2 $
é , -
Fy a r a
* . ’
. *, . r - . a
. : ; Se ,
*
‘ oe . . °
* .
, * ’ *
oe
RL ae 1S cans °

.

i

to

.

-

. . 5
-~ .
. . ‘

A bal april ot Heed © Le peehh ooteerpe Lape Lee abe ws heope Che it
ba ehitty

thie rodatin haaye las tetel

vesull’ would te an utiduls be
.

st Vipelat deopaane

BI thes stiaeti cel
A
P

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

’ ° "

\\ bik bhere te thaede te cbetries ; 1 uy

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 '
. , ° : - .
e . _ -
' 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
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
* - - 7 ri
“ah ee . ‘ ~
a *
- 4
- i ' ' / bite Thistle i i! ery
. .
wet Wienint wt Vera cele. 9
a) . .
2 F . '
» ue a ‘ ; ' + asl ‘
| 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
; P ‘ 1 a é til pitieey A
a pislarl 1 feet wweeny arielen tebe titties
° rs
§ '
fi ; ‘ he -! th id biets
Ps e
P s ; f or
try j ; + ie { ‘ ‘ Cifeat rests se
e
j chal iil jhos ‘ re ail
iV :
. ’ .
.
J i ti fe te) ; | tee
é
4 The agnieii ifr he :
i Ps
é ‘

Da

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

e
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
- ‘ ? cA f
thiade thy itl : } ite ' 4 Pik \j
\ k
‘ . \ -
{ sit ‘ . ,
/
\ o. 4
\ .
\\ \|
, , :

a . Ad
Dac >

.

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 “’ 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-
tinue to prevail, and the general similarity in the: cost ©
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.

oy

Co

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-
ever, to determine whether significant differences actually ©
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-

a

D77
Ad
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

i

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 app

[Text truncated at 120,000 characters. The full text is on the page linked above.]

---

Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385001_1344%3A02. Public record. Not legal advice.