Appendix — Atchison, Topeka & Santa Fe Railway Co. v. United States

Supreme Court brief1976

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Supreme Court, U. §,

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APR 13 1976 |

| MICHAEL RODAK, JR., CLERK |

75-1476

IN THE

Supreme Court of the United States

Ocrosper TERM, 1975

THe ATCHISON, TOPEKA, AND Santa FE RalLway

CoMPANY, ET AL., Appellants,

Vv.

UnrtTep States OF AMERICA AND INTERSTATE

CoMMERCE CoMMISSION, Appellees

April 13, 1976

Press or Byron S. Apams Printine, INC., WASHINGTON, D. C.

Appendix

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INDEX TO APPENDIX

: Statutes ImvOlved ....nccccccceccces

Opinion of district court ............

: ICC Deeision and Order of December

PPE hicsaeersgbieandeg anda dass

ICC Supplemental Report and Order

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APPENDIX TO

JURISDICTIONAL STATEMENT

APPENDIX A

STATUTES INVOLVED

Administrative Procedure Act, § 8. as amended

(5 U.S.C. § 557)

(a) This section applies, according to the provisions

thereof, when a hearing is required to be conducted in

accordance with section 556 of this title.

(b) When the agency did not preside at the reception

of the evidence. the presiding employee or, in cases not

subject to section 554 (d) of this title, an employee quali-

fied to preside at hearings pursuant to section 556 of this

title, shall initially decide the case unless the agency re-

quires, either in specific cases or by general rule, the entire

record to be certified to it for decision. When the presiding

employee makes an initial decision, that decision then be-

comes the decision of the agency without further proceed-

ings unless there is an appeal to, or review on motion of,

the agency within time provided by rule. On appeal from

or review of the initial decision, the agency has all the

powers which it would have in making the initial decision

except as it may limit the issues on notice or by rule. When

the agency makes the decision without having presided at

the reception of the evidence, the presiding employee or

an employee qualified to preside at hearings pursuant to

section 556 of this title shall first recommend a decision,

except that in rule making or determining applications for

initial licenses—

(1) instead thereof the agency may issue a tenta-

tive decision or one of its responsible employees may

recommend a decision; or

(2) this procedure may be omitted in a case in

which the agency finds on the record that due and

timely execution of its functions imperatively and un-

avoidably so requires.

or a decision on agency review of the decision of subordi-

nate employees, the parties are entitled to a reasonable

opportunity to submit for the consideration of the employ-

ees participating in the decisions—

(1) proposed findings and conclusions: or

(2) exceptions to the decisions or recommended de-

cisions of subordinate employees or to tentative agency

decisions; and

(3) supporting reasons for the exceptions or pro-

posed findings or conclusions.

The record shall show the ruling on each finding, conelu-

sion, or exception presented. All decisions, including initial,

recommended, and tentative decisions, are a part of the

record and shall include a statement of —

(A) findings and conclusions, and the reasons or

basis therefor, on all the material issues of fact, law,

or discretion presented on the record; and

(B) the appropriate rule, order, sanction, relief, or

denial thereof.

Interstate Commerce Act, § 15(7), as amended

(49 U.S.C. § 15(7))

(7) Whenever there shall be filed with the Commission

any schedule stating a new individual or joint rate, fare,

or charge, or any new individual or joint classification, or

any new individual or joint regulation or practice affecting

any rate, fare, or charge, the Commission shall have. and

it is hereby given, authority, either upon complaint or upon

its own initiative without complaint, at once, and if it so

orders without answer or other formal pleading by the in-

terested carrier or carriers, but upon reasonable notice, to

enter upon a hearing concerning the lawfulness of such

rate, fare, charge, classification, regulation, or practice;

and pending such hearing and the decision thereon the

Commission, upon filing with such schedule and delivering

to the carrier or carriers affected thereby a statement in

writing of its reasons for such suspension, may from time

to time suspend the operation of such schedule and defer

the use of such rate, fare, charge, classification, regulation,

or practice, but not for a longer period than seven months

beyond the time when it would otherwise go into effect; and

after full hearing, whether completed before or after the

rate, fare, charge, classification, regulation, or practice goes

into effect, the Commission may make such order with ref-

erence thereto as would be proper in a proceeding initiated

after it had become effective. If the proceeding has not

been concluded and an order made within the period of

suspension, the proposed change of rate, fare, charge,

classification, regulation, or practice shall go into effect

at the end of such period; but in case of a proposed in-

creased rate or charge for or in respect to the transporta-

tion of property, the Commission may by order require the

interested carrier or carriers to keep accurate account in

detail of all amounts received by reason of such increase,

specifying by whom and in whose behalf such amounts are

paid, and upon completion of the hearing and decision may

by further order require the interested carrier or carriers

to refund, with interest, to the persons in whose behalf such

amounts were paid, such portion of such increased rates or

charges as by its decision shall be found not justified. At

any hearing involving a change in a rate, fare, charge, or

classification, or in a rule, regulation, or practice, after the

date this amendatory prevision takes effect, the burden of

proof shall be upon the carrier to show that the proposed

changed rate, fare, charge, classification, rule, regulation,

or practice is just and reasonable, and the Commission shall

give to the hearing and decision of such questions prefer-

ence over all other questions pending before it and decide

the same as speedily as possible.

APPENDIX B

IN THE UNITED STATES DISTRICT COURT

FOR THE EASTERN DISTRICT OF PENNSYLVANIA

Civil Action No. 75-201

Tue Arcutson, Topeka AND Santa Fe

Ram.way Company, et al

Vv.

IxverstaTe ComMerce ComMMISSION AND

Unirep States or AMERICA

Before Van Dusen, Cireuit Judge, and

Werxer and Gorsey, District Judges

Werner, J. NovEMBER 24, 1975

This is an action brought by several railroad companies

to set aside an order of the Interstate Commerce Commis-

sion (1.C.C.) cancelling proposed rate schedules which

would have provided increased revenues from the trans-

portation of fresh fruit and vegetables to the east coast.

Jurisdiction of this court was invoked pursuant to 28

l S.C. . 1336(a) and a three-judge court was convened as

required by 28 U.S.C. § 2325. Numerous shippers and

growers have joined this action as intervening defendants.

Briefly summarized. the facts are as follows. In Mav

1974, the railroads filed a series of tarffs and rate sched.

ules with the I.C.C., which tariffs were to replace then-

existing tariffs covering the transportation of perishable

rood products. Subsequently, protests were lodged by ship-

pers and receivers, and the newly-filed tariffs were sus-

pended and hearings begun pursuant to 49 U.S.C. ¢ 15(7)

The hearings constituted Investigation and Suspension

Docket No. 8944, Fresh Fruits and Vegetables. Trans-Con-

finental and Western Points. Hearings were held across

the country at various places and at times until December

20, 1974. On December 20, the presiding administrative

law judge set February 3, 1975 as the date by which briefs

were to be submitted by the interested parties.

On December 30, 1974, the date on which the seven-

months period of suspension of rates under investigation

was to end, the Full Commission issued an order cancelling

the rates, effective thirty days later. As the railroads had

not voluntarily agreed to prolong the suspension,’ ad-

herence to the previously-set briefing schedule would have

resulted in the new tariffs being effective until the I.C.C.

rendered its decision. The 1.C.C. order indicated that the

Commission had dispensed with the necessity of issuing an

initial decision because of the need for a timely final deci-

sion and the I.C.C. had found that the filing of briefs was,

in light of their findings ‘‘not necessary for a proper dis-

position of [the] proceeding.’? A report was issued on

March 14, 1975, which fully explained the basis for the

December 30, order.

The railroads came before this court seeking a tempo-

rary restraining order to prohibit the Defendants ‘‘.. .

from enforcing by any manner or means th» order of the

Interstate Commerce Commission entered .. . on De-

cember 30, 1974.’’ Their request was denied on January

27, 1975. The matter is now before the court for finai

determination.

In their briefs, the railroads have presented several

reasons why the I.C.C. order should be set aside. Their

‘A number of the shippers unsuccessfully petitioned the LC C.

to strike the new rates prior to the expiration of the period of

suspension. The I.C.C. supported a motion by the shippers to

obtain a temporary restraining order against the implementations

of certain new rates by the railroads. This motion was denied by

the United States District Court in Chicago on December 30, 1974.

Blue Chip Inc. v. Western Trunk Line Committee, et al., No. 74C

3758 (N.D. Il. 1974).

principal contention is that the failure to allow them to

submit briefs violated the Administrative Procedure Act

(A.P.A.), 5 U.S.C. § 551 et seq., and violated their right to

due process of law under the Fifth Amendment. Plaintiffs

argue that under §557(c) of the A.P.A., the LC.C. was

required to allow the parties to submit briefs and argu-

ments. Specifically, § 557(¢) provides:

Before a recommended, initial, or tentative decision,

or a decision on agency review of the decision of sub-

ordinate employees, the parties are entitled to a rea-

sonable opportunity to submit for the consideration

of the employees participating in the decisions—

(1) proposed findings and conclusions, or

(2) exceptions to the decisions or recommended de-

cisions of subordinate employees or to tenta-

tative agency decisions; and

(3) supporting reasons for the exceptions or pro-

posed findings.

Defendants’ briefs state that the hearings conducted by

the I.C.C. provided plaintiffs with ample ~pportunity to

present their position and, in fact, plaintiffs did fully pre-

sent their position through their exhibits. Defendants also

argue that the thirty day period before the December 30

order was to be effective afforded plaintiffs the oppor-

tunity to submit proposed findings and supporting reasons

in the form of a motion for reconsideration.* The United

States and the I.C.C. further state that the more rigorous

standards of §557 are not applicable, but, rather, that

. 553 of the A.P.A. governs investigation and suspension

proceedings.

* Plaintiffs did, in fact, file a motion for reconsideration. How-

ever, that motion was not directed at the merits of the I.C.C. find-

ings, but rather was directed at the procedural claims raised here.

Section 553 applies generally to rule making proceedings

and provides:

(ec) After notice required by this section, the agency

shall give interested persons an opportunity to par-

ticipate in the rule making through submission of

written data, views. or arguments with or without op-

portunity for oral presentation. After consideration of

the relevant matter presented, the agency shall incor-

porate in the rules adopted a concise general state-

ment of their basis and purpose. When rules are re-

quired by statute to be made on the record after op-

portunity for an agency hearing, sections 556 and 551

of this title apply instead of this subsection.

The government contends that (15(7) of the Interstate

Commerce Act requires only that decisions in invé stigation

and suspension proceedings be made after ‘full hearing

(49 U.S.C. 415(7)), and that the requirement has been

satisfied.

It is clear that. if < 553 applies to the I.C.C. proceedings

and not 4557. the hearings held by the I.C.C. would satisfy

all statutory requirements. However, the issue raised by

the parties is whether this proceeding was one in which

rules were required to be made ‘‘on the record after op-

portunity for an agency hearing’’ (5 U.S.C. 4 553(¢), em-

phasis added). Plaintiffs claim that under 49 U.S.C. 4 i4(1),

fndings and conclusions must be made in a more specific

form than they were made by the LC.C., because, they

contend that (557 of the A.P.A. governs rate-making

by the I.C.C.

There is support for the government's contention that

these proceedings are governed by 4 993 of the A.P A. and

that 4557 is not applicable here.* However, it is not neces-

2In Students Challenging Regulatory Agency Procedures

SCRAP.) v. United States, 371 F. Supp. 1291 (D. DC.

1974), it was stated: |

Rate-making. involving basically legislative type judgments.

sary for us to decide this question. Even if we assume that

§ 557 applies, the proceedings before the I.C.C. meet the

statutory requirements of the A.P.A.

Section 557(b) provides:

When the agency makes the decision without having

presided at the reception of the evidence, the presid-

ing employee or an employee qualified to preside at

hearings pursuant to section 556 of this title shall

first recommend a decision, except that in rule making

or determining applications for initial liceenses—

(2) this procedure may be omitted in a ease which

the agency finds on the record that due and

timely execution of its functions imperatively

and unavoidably so requires.

The Administrative Law Judge had set February 3, 1975

as the date by which briefs were to he submitted by the

parties. However, under the above-quoted portion of § 557

(hb), it was imperative that the I.C.C. reach its decision by

December 30, 1974, the date on which the seven-months sus-

pension period ended. The LC.C. did so by order dated

December 30, 1974 and subsequently, on March 14, 1975,

issued its full opinion. It is uneontested that all parties

were well aware of the fact that the I.C.C. would have to

act by December 30, 1974, if the published rates were to be

suspended.*

is a form of rule-making which is governed by section 553,

rather than Sections 556 or 557, of the A.P.A. Id. at 1306.

Cf. Aberdeen & Rockfish RR. Co., et al. v. SCRAP, —— US.

(p. 11 of slip opinion of 6/24/75; Nos, 73-1966 & 73-1971) ; Virgin

Islands Hotel Ass’n v. Virgin Islands W. & P. Authy., 476 F. 2d

1263, 1268-69 (3d Cir. 1973).

*In fact, many of the shippers filed petitions with the I.C.C.

pricr to December 30, 1974, to secure suspension of the rates.

Although all of the petitions except one, that of Bud Antle, had

been denied, the Antle petition was apparently still pending when

the suspension order of December 30 was entered.

Plaintiffs have objected to the fact that an initial order

was entered on December 30, 1974, and that the full deei-

sion of the LC.C. was not entered until March 14, 1975,

thereby depriving them of information necessary to pre-

pare revised tariffs for submission to the I.C.C. However,

during that interim period, plaintiffs did, in fact, file a

petition with the I.C.C. This petition to vacate the LC.C.

order was in the format of a brief and contained argu-

ments regarding the proposed rates. It would seem that the

1.C.C. afforded plaintiffs every reasonable opportunity to

be heard, and certainly the record amassed in the proceed-

ings of 5,636 pages of transcript and 200 exhibits attests

to that fact. The full opinion of the L.C.C. consists of 25

pages of text and 43 pages of Appendices, and it seems

clear that the statutory requirements of the A.P.A., even

under §557(c) of .. . ‘findings and conclusions and the

reasons c> basis therefor, on all the material issues of

fact, law,. discretion presented on the record ...’’ have

been met. Plaintiffs also contend that 49 U.S.C. § 14(1)

requires that findings and conclusions be in a more specific

form than they were before the I.C.C. That Section re-

quires only that the report of the Commission state its

conclusions, together with its decision and order. And,

under 49 U.S.C. § 15(7) which governs rate suspension pro-

ceedings, the Commission is required:

. after full hearing, whether completed before or

after the rate ... goes into effect, the Commission

may make such order with reference thereto as would

be proper in a proceeding initiated after it had be-

come effective.

The record evidences the fact that a full hearing was af-

forded the parties. In Alabama G.S.R. Co. v. United States,

340 U.S. 216, 227-228 (1950) the Supreme Court stated that

, 14(1) does not require detailed findings of fact, but rather

only the essential basis of the Commission’s judgment. And

in Kenny v. United States, 103 F. Supp. 971 (D. N.J. 1952),

10a

the court held that § 15(7) of the Interstate Commerce Act

requires:

... that the interested parties, both the carrier and

protestants, shall be afforded an adequate opportunity

to be heard on the merits of the controversy; nothing

more would seem to be required. Id. at 977.

There has, likewise, been no failure to afford plaintiffs

due process of law in accordance with the requirements of

the Fifth Amendment to the Constitution of the United

States. The parties were, as the record shows, accorded a

full and fair hearing and, the Commission acted speedily

in issuing its December 30 order because it was apparently

concerned that allowing the new rates to go into effect for

any length of time would significantly disrupt the produce

traffic. Thereafter on March 14, 1975, the full opinion of

the LC.C. issued. Under 49 U.S.C. § 15(2), orders of the

L.C.C. regarding rates are to take effect not less than 30

days after their issuance. Therefore, had the Commission

not acted with regard for the potential disruptive effect

of the new rates, and issued only its final opinion on March

14, 1975, the rates could not have been suspended until

April 14, 1975, and would have been effective for three

and one-half months, clearly an undesirable result.

We find the contention of plaintiffs that refunds are not

appropriate in this situation to be without merit. Section

15(7) of the Interstate Commerce Act, states:

.. upon completion of the hearing and decision [the

Commission] may by further order require the inter-

ested carrier or carriers to refund, with interest, to

the persons in whose behalf such amounts were paid,

such portions of such increased rates or charges as

by its decision shall be found not justified.

° There was evidence submitted by suppliers that in fact the

produce traffic was severely disrupted during the 30 day period

before the effective date of the I.C.C. order.

lla

Section 15(7) further provides that the burden of proving

proposed new rates to be just and reasonable is on the

carrier. Therefore, it is altogether reasonable for the I.C.C.,

after finding that the requested rates are not just and

reasonable, to order the carrier to refund any monies

collected as part of the increased rates under investigation.

Plaintiffs, in briefs, use the word ‘‘reparations’’, which

appears in § 13(1) of the Interstate Commerce Act, a sec-

tion dealing with complaints to and investigations by the

Commission of violations of law by carriers. This matter is

concerned with §15 of the Act, and, more specifically,

§15(7) which section deals not with rates which are in

use by carriers, but rather with proposed new rates. Here,

the Commission’s Order which found the rates not to be

just and reasonable was issued December 30, 1974, prior

to the expiration of the seven-months suspension period.

It is within the Commission’s power to further order that

any charges paid pursuant to the new rates be refunded,

with interest.

For the foregoing reasons, judgment will be entered for

the defendants by separate order also dismissing the Com-

plaint and affirming the December 30, 1974, order of the

Interstate Commerce Commission.

12a

IN THE UNITED STATES DISTRICT COURT

FOR THE EASTERS DISTRICT OF PENNSYLVANIA

Crvi_ Action No. 75-201

Tue Atcuison, TorpeKA anp Santa FE

Rarmway Company, et al

Vv.

INTERSTATE COMMERCE COMMISSION AND

Unitrep States or AMERICA

Order

The Order of the Interstate Commerce Commission is

hereby AFFIRMED.

The complaint filed by plaintiffs is dismissed and judg-

ment is hereby entered in favor of defendants.

Ir Is So OrDERED.

/s/ Francis L. Van Dusen

Francis L. Van Dusen

/s/ Cuartes R. WEINER

Charles R. Weiner

/s/ James H. Gorsey

James H. Gorbey

Filed November 24, 1975.

Joun J. Haroine, Clerk

ge Rr D. Clerk

—

13a

APPENDIX C

ICC’s Decision and Orde: of December 30, 1974

2530

At a General Session of the INTERSTATE ComMeERCE Com-

MISSION, held at its office in Washington, D.C., on the

30th day of December, 1974.

Grorce M. Starrorp, ALFrep T. MacFarLanp, Kenneta H.

TuGeLe, Wittarp Deason, Date W. Harpy, Rosert C.

GresuamM, A. Dante O’Neat, Cuartes L. Capp,

Commissioners.

Fresa Frvuirs & VEGETABLES, TRANSCONTINENTAL &

WesTERN Pornts I. & S. No 8944*

A decision and order in the above-entitled proceeding,

approved and adopted.

Decision and Order

[Service Date Dee. 30, 1974]

At a General Session of the InrTerstate Commerce Com-

mission, held at its office in Washington, D.C., on the

30th day of December, 1974.

INVESTIGATION AND Suspension Docket No, 8944'

Fresno Fevuirs & VEGETABLES, TRANSCONTINENTAL &

WestTeRN Pornts

It appearing, That by order of May 28, 1974, the Com-

mission instituted an investigation into and concerning

tariff schedules setting forth new increased rates and

charges and new rules, regulations and practices affecting

* Also embraces Fourth Section Application No. 42830, Fruits

and Vegetables from and to Colorado and Utah Points.

' This order also embraces Fourth Section Application No, 42830,

Fruits and Vegetables From and to Colorado and Utah Points.

eS a ey Se heer eee, eee

l4a

such rates and charges, applicable on fresh fruits and vege-

tables, including onions and potatoes, applying generally

on carload movements within the west and between the

west and the east and south;

It further appearing, That a hearing commencing in

Washington, D.C., on September 9, 1974, and subsequently

continued in San Francisco, Calif., Washington, D.C., and

Dallas, Tex. has been held, and that the extensive evidence

adduced has been considered:

It further appearing, That respondents have supported

the proposed rates by cost data designed to show that the

existing rates are unduly depressed, and that the proposed

rates are not excessive, and that primary reliance is placed

on cost data based on current depreciation and capital costs

of mechanical refrigerator equipment and locomotives;

It further appearing, That protestants have adduced evi-

dence tending to show that: (1) the proposed rates, w .ich

represent increases as high as 132 percent over present

rates, will seriously disrupt the marketing of fresh fruits

and vegetables, will largely eliminate the railroads as a

feasible mode of transportation thereof, and will endanger

the availability of these commodities, which are indispen-

sable for a sound nutritional diet, for large segments of

the Nation’s population; (2) certain of the proposed rates

are subject to rules providing for penalty payments for

late deliveries, while other rates on traffic from similar

origins to the same destinations are not subject to such

provisions; (3) the rates are not subject to minimum

weights appropriate for smaller rail cars and to the tariff

circular rule generally known as Rule 66 providing that

charges based on a car ordered apply when a larger car

is furnished by the carrier; and (4) the proposed TOFC

rates are not reasonably related to the proposed carload

rates and are excessive;

ee ee es

;

15a

Ve find, That due and timely execution of our functions

under section 15(7) of the Interstate Commerce Act im-

peratively requires the omission of an initial decision.

We further find, That this decision is not a major Fed-

eral action significantly affecting the quality of the human

environment within the meaning of the National Environ-

mental Policy Act of 1969.

We further find, That the respondents have not shown

the proposed rates to be just and reasonable for the follow-

ing reasons:

(1) The theory of replacement costs of equipment is in-

valid, particularly for mechanical refrigerator cars,

since much of the movement of these commodities

occurs in nonmechanical refrigerator cars. Further-

more, the entire theory of replacement costs is a

coroilary of reproduction value theory used in cal-

culating a fair return on property devoted to trans-

portation, a concept not heretofore accepted by the

Commission, and should not be adopted with re-

spect to only one category of freight. The cost data

adduced which is not based on the described replace-

ment cost theory does not support the proposed

rates. The rates would exceed traditionally com-

puted variable and fully distributed costs by wide

margins in many instances, which is excessive for

the traffic involved (see appendix) ;

(2) The proposed rates would largely eliminate the use

of railroad transportation on many of the consid-

ered commodities with extreme hardship on the

producers and consumers of such commodities ;

(3) The proposed TOFC rates are not shown to be rea-

sonably related to the proposed carload rates;

(4) Certain of the proposed rates are violations of the

outstanding order of the Commission in Washing-

l6a

ton Potato & Onion Shippers Assn., Inc. v. U.P.R.

Co., 300 L.C.C. 537;

(5) The proposed penalty rule does not apply uniformly

to all similar movements;

(6) Insufficient justification for Fourth Section depar-

tures in Fourth Section Application No. 42830 has

been presented.

And we further find, Tuat in view of the above findings,

which will be more fully explained in a report to be issued

shortly, the filing of briefs is not necessary for a proper

disposition of this proceeding.

Wherefore:

It is ordered, That respondents be, and they are hereby,

required to cancel the proposed schedules upon not less

than one day’s notice within 30 days after the service date

of this order.

By the Commission.

Rosert L. Oswap

Secretary

( SEAL)

l7a

APPENDIX

Showing revenue /cost relationships developed by re-

spondents when costs are computed without the contended

for current capital and equipment costs.

Commodity>

Vegetables and Melons other than

carrots, ete. from Imperial Valley

and related origins

Carrots, ete. from Imperial Valley

and related origins

Light Loading Vegetables

Citrus Fruits

Deciduous Fruits

Carrots, onions, potatoes

Potatoes

Potatoes, Idaho

Range of Variable

Rate /Cost Ratios*

1.276 - 1.478

1.389 - 1.544

1.298 - 1.541

1.269 - 1.506

1.111 - 1.378

1.354 - 1.585

1.324 - 1.514

1.085 - 1.446

1.188 - 1.566

Categories of traffic used by respondents

*Average for all weight brackets

1Sa

APPENDIX D

ICC’s Supplemental Report and Order

(Served March 14, 1975)

INTERSTATE COMMERCE COM MISSION

INVESTIGATION AND Suspension Docket No. 8944?

Fresu Frvirs & VEGETABLES, TRANSCONTINEN

TAL &

WesTERN Pornts

Decided December 30, 1974

Service Date: March 14, 1975

Proposed increased rail rates on fresh fruits and vegeta-

bles within west, and between west, east and south

found not shown to be just and reasonable. Schedules

ordered canceled and proceeding discontinued. :

WW, Donald Boe, Donald A. Brinkworth. Leland E. Butler

Richard S. M. Emrich, 111, Erie C. Paul, John J. Posies,

Richard J. Schreiber and Jol ]

a ; i ’ “n MacDe nald S :

cae ) Smith for re-

Eugene D. Anderson, William J. Augello, Frank C

Brooks, Donald G. Dressler, Ernest Fall., Jeffrey Lee Gut-

tero, E. J. Hanson, Richard Harrington, Ronald K Kolins

Dickson R. Loos, Thomas F’. McFarland, Jr.. Richard D.

Maltzman, Larry D. Ripley, Murray S. Simpson and F

MH. Tolan for protestants.

Clinton EF

ture,

red

. Jeffers for Colorado Department of Agricul-

George /] I] f rin for Nor P ; S o

* ° 3 , + th Dak te ° . LD i a

mi ig ota ublic service /OmM-

_ OC

: Phi , I ‘Dor é

s ' ; l also embr ace . | ut I . cy i | ! i € ti ! e 4°

+ . ' 6 - l mn A ) wa ! , :

} riuits and \ { vetables | rom ) | 1 | " |

and To Colorado and 'tah Points.

19a

Report and Order of the Commission

By tHe ComMISsSsION:

By schedules filed to become effective on May 31, 1974,

and later, the respondent railroads operating throughout

the United States published increased rates on fresh fruits

and vegetables as more fully described in Appendix B of

this report. Upon protest by numerous interests the pro-

posed schedules were suspended until December 30, 1974,

when they became effective. Hearings thereon were held in

Washington, D.C. from September 9 to 13, 1974, in San

Francisco, Cal. from Octoder 16 to November 1, 1974, in

Washington, D.C. from November 11 to 20, 1974, in Dallas,

Tex. from December 9 to 11, 1974 and in Washington, D.C.

from December 16 to 20, 1974. The record consists of 5,636

pages of transeript and nearly 200 exhibits. On December

30, 1974, upon concluding that respondents had not sus-

tained their burden of proof to show that the proposed

rates were just and reasonable, we issued a decision and

order requiring the rates to be canceled within 30 days.

That decision and order, included here as Appendix A, in-

dicated that the findings made therein would be more fully

explained in a subsequent report. On January 27, 1975, in

Atchison, Topeka & Santa Fe Ry. Co., et al. v. United

States and Interstate Commerce Commission, C.A. No. 75-

201, (U.S.D.C.,E.D.Pa.) a motion by the railroads to tem-

porarily restrain the order was denied. The rates which be-

came effective on December 31, 1974, and were ordered can-

celled within 30 days, will be referred to in this report as

the proposed rates.

The decision and order listed six numbered reasons for

our finding that respondents had failed to sustain their

burden of proof in this proceeding. These reasons are ex-

plained seriatim immediately below. The affected traffic, its

origins and destinations, markets, present and proposed

rates, contentions of parties, and other matters are dis-

cussed in Appendix B. Our analysis of the cost evidence

20a

presented by respondents and protestants appears in Ap-

pendix C,

Costs. The first reason for our burden of proof finding

in the decision and order is that the costs offered in support

of the proposed rates are invalidly computed. Those costs

were developed generally in accordance with this Commis-

sion’s Rail Form A formula. However, two significant de-

partures from that formula were made. First, depreciation

for mechanical refrigerator cars and locomotives was ad-

justed to reflect current purchase costs of such equipment.

Second, the cost of capital was increased to 13 percent for

application to the current purchase costs of the same equip-

ment. (On TOFC equipment, a 10-percent cost of capital

was used. On the study of movements from Texas, a 13-

percent cost of capital was applied to cars only.)

To make these adjustments, the depreciation and capital

costs applicable under Rail Form A were removed from

the studies and costs reflecting the described adjustments

were added. In arriving at the 13 percent cost of capital, a

debt cost of 9 percent, the approximate interest on recent

equipment trust certificate issues, and a current equity cost

of 14.65 percent, caleulated from the dividend and price

performance of Southern Pacific Transportation Company

(SP) stock, were used. From SP’s capital structure of

54.2 percent debt and 65.8 percent equity, a cost of capital

of 11.15 percent was derived. To this was added approxi-

mately 2 percent as a risk premium, resulting in the ap-

plied 13 percent cost of capital. It was determined that an

annual cash flow of $154 for ears (with a 25-year life) and

$174 for locomotives (with a 15-year life), for each $1000.

invested, was required to recover depreciation and the 13-

percent return after taxes.

Using a current price for a 50-foot mechanical ear with-

out the refrigerator unit, of $38,400., and the required cash

flow of $154. per $1,000. investment, an annual cash flow of

$5,914. for each car was derived. A similar procedure was

in. vill

Zla

followed for locomotives, except in the Texas study. These

required cash flows were s ‘stituted for the capital costs

; >] > att } ~s

and depreciation required by Rail Form A. The latter bases

. . . os ~~ oc ~ e S “ © 0 © tes

depreciation for equipment on original costs, and calc la

cost of capital from current costs of existing debt, imputing

— > , . . ae - : f : - : be

such debt costs to equity. The original cost of the -_ '

* . - - ac) = -

recently acquired mechanical refrigerator cars was F20,00°.

~~ * 6 - P| . 7 = i | : =

Current embedded debt cost is about » percent. Although

adjustments were developed and in-

respondents, they do not con-

costs without those

troduced into the record by

tend that such costs would support the level of rates here

proposed, though they do argue that such unadjusted costs

demonstrate the depressed leve] of the present rates.’

The following table, showing the present and proposed

rates. at the Ex Parte No. 303-A level, the variable costs,

as computed by respondents and percentage relationship

of costs to proposed rates, with and without the described

nts. on movements of vegetables, including lettuce,

adjustmen ’ i a, oe +

from the west coast to New York. N.Y., illustrates the

effect of the adjustments.

- o Per

re Presents 1 -

, Pee ed =

’ Z mat :

: 7; 9° G4 aa

400 11 V9) 450 13% a. vs

- —- 14) 480) 102

00 329 $09 357 14) ]

) soon , ony? r 30 02

7 29°) 429 Sy; 140 pa -

700 «3=— 279 394 272 145 369 ;

pas, : 7 -*? i~

mi) 9449 355 J46 146 331 ii

_ DE 2()2 Os

900 217 326 22¢ }44 302 ]

. ina ‘ 7 an ,

= Per car rates stated in cents per 10U p unds.

. . . :

3 : cr a. i | i : - oi ner

; » of ait te nee Ter 100 pounds in less 1°!

“ atone «s ‘ . +. are state ] rents we! ve

> Rates and « StS ar at n }

wise indicate

; : w Farts 7

eration in Ex Parte NX

: : Q7? iimw are

Protective pervice, 1975. penauibe. are

charges shown herein.

| — } revoc OY d (yet < wnder consid

Protective serviee charges al ts, under ¢

' ” 2°) Increases in Charges for Mechanica!

not included in rates and

22a

It will be observed from Columns 5 and 7 that the proposed

rates, measured by respondents’ conventionally computed

costs, are highly compensatory, but that measured by the

adjusted costs, they are only marginally compensatory,

except for heavier shipments.

Respondents contend that by using the original cost of

equipment as the basis by which depreciation is calculated,

the sum of the depreciation accruals will fall far short of

meeting the costs of new cars, which will be needed if the

railroads are to remain a going concern. They further

contend that if the continued operation of the rail system

at Rail Form A variable cost levels is required, the rail-

road industry will simply consume its assets until disaster

strikes. Consideration of only current cost levels for capital

assets is therefore claimed essential to calculate real-dollar

depreciation expenses.

The issues presented have had a long history in regula-

tory law. The depreciation theory relied on by the rail-

roads in this proceeding was given the status of constitu-

tional doctrine in United Railways v. West, 280 U.S. 234,

253-254 (1930), where the United States Supreme Court

stated:

One of the items of expense to be ascertained and de-

ducted, is the amount necessary to restore property

worn out or impaired, so as continuously to maintain

it as nearly as practicable at the same level of efficiency

for the publie service. The amount set aside period-

ically for this purpose is the so-called depreciation al-

lowance. Manifestly, this allowance cannot be limited

by the original cost, because, if values have advanced,

the allowance is not sufficient to maintain the level of

efficiency.

Justice Brandeis joined by Justice Holmes, dissented at

length from that decision. Justice Stone dissented sep-

arately. In Lindheimer v. Illinois Bell Tel. Co., 292 U.S. 151,

ee ee ere.

A BES IIT =

23a

168-169 (1934), the Court effectually reversed the West

opinion, by finding that if the amounts charged to depreci-

ation exceed the consumption of capital on a cost basis the

rate-payers ‘‘are required to provide, in effect, capital

contributions, not to make good losses ineurred by the

utility in the service rendered and thus to keep its invest-

ment unimpaired, but to secure additional plant and equip-

ment upon which the utility expects a return.”’

In Power Comm’n vy. Hope Gas Co., 320 U.S. 591, 606-

607 (1944) the Lindheimer finding was approved with the

Court stating that by basing annual depreciation on cost,

‘*the utility is made whole and the integrity of its invest-

ment maintained. No more is required. We cannot approve

the contrary holding of United Railways Co. v. West, 280

U.S. 234, 253-254.’’

We recognize that the latter opinions do not proscribe

replacement cost depreciation; they merely hold that this

method of caleulating depreciation is not constitutionally

compelled. Thus, it remains a constitutionally permissible

method, as does the original cost method

However, we are not presently convinced that original

cost depreciation is unsound. The argument that depreci-

ation must be hased on replacement costs in order that

worn out equipment may be replaced, assumes that depre-

ciation charges are the sole source of funds for investing

in new equipment, which is not the ease. Moreover, it should

be noted that respondents do not propose to segregate the

sought depreciation charges into a fund for the purpose of

acquiring new equipment for this traffic. In fact they have

no present plans to acquire such equipment, and refuse to

make any definite commitments for future acquisitions.

They insist that sound investment practices dictate that

the source and application of funds be completely divorced.

In any event, as our decision and order stated, the re-

placement cost theory of depreciation is a corollary of

Yta

using reproduction costs for valuating carrier investment

in property devoted to transportation inasmuch as depre-

ciation charges are deducted from the rate base to account

for property consumed. Hence, it would be conceptually

inconsistent for depreciation to be ealeulated on one basis

and the rate base valued on another. Rate base valuation

and related issues, are presently pending before us in Ex

Parie No. 271, Net Investment-Railroad Rate Base & Rate

of Return, 340 LC.C. 829; 345 L.C.C. 55 (preliminary re-

ports). We decline to anticipate here the results that may

ultimately be reached in that proceeding.

Respondents’ application of capital costs to current

equipment costs constitutes a parvial adoption of reproduc-

tion cost rate base theory. Therefore, we also decline +o

adopt this approach prior to completion of our study of

this entire matter in Ex Parte No. 271. In view of our find-

ing that the cost of eapital has been applied, under our

present position, to improper equipment values, it is not

necessary to consider respondents’ method of developing

‘apital costs.

Although as indicated, we do not understand respond-

ents to contend that costs, without the rejected adjust-

ments, would support the proposed rates, and we found

that such costs were insufficient in the decision and order,

we have analyzed their computations generally in Appen-

dix C. As explained there, the cost studies are deficient

in several additional matters, including the failure to in-

clude in the studies lower car ownership costs and tare

weights of the RS cars. These cars are shown to be widely

used on potato and onion traffic from many origins. No

cost consideration was given to the movements of this

traffic in nultiple-car or traimload movements though it

is evident such movements occur. The rates used are not

shown to be representative for the shipments reflected in

the cost studies: distances were derived by the weighting

of different movements while the rates used were for spe-

we ee

2oa

cifie points. Moreover, the 10-percent rate increase granted

in Iix Parte No. 505 was not refiected in the rate com-

parisons. We conclude that neither respondents’ costs, ad-

justed to reflect equipment replacement costs, nor its con-

veniently computed costs, support the rates proposed.

Disregarding the other de“*iencies in respondents’

studies, if rate-cost comparisons ‘vere made at the in-

creased Ex Parte No. 305 rate levei, the existing rates

would exceed respondents’ conventionally computed costs

in 90 percent of the comparisons contained in respondents’

principal exhibit. In view of our finding that these costs

are deficient and somewhat overstated, we cannot accept

respondents’ contention that the railroads are suffering

massive revenue losses on this traffic.

Diverson to trucking. Hardship on producers and con-

sumers. The second reason for the stated finding of the

decision and order is that the proposed rates would

largely eliminate the use of railroad transportation on

many of the considered commodities with extreme hard-

ship on the producers and consumers of such commodities.

That transportation of much of this traffie by railroad has,

even at existing rates, been rapidly diverting to trucks is

documented at some length in Appendix B. It seems evi-

dent to us that rate increases such as proposed here will

complete the process for many commodities, On the North

Dakota potato traffic there is a history of previous di-

version to truck, which has been stemmed hy rail rate

adjustments. On transcontinental shipments from the Pa-

cific Northwest there has been recent increases in trucking

volume. California shipments of deciduous fruits, and

Texas shipments of nearly all fresh fruits and vegetables,

will, judged by recent trends, be diverted to trucking, if

transported at all. On Colorado potatoes, where the trend

has been toward increased rail transportation, the un-

equivocal testimony is that little of the traffic will move

by rail under the proposed rates.

The exempt truck rates are frequently higher than the

rail rates; diversion occurs because of service differences.

The evidence on exempt trucking rates indicates that al-

though these rates do fluctuate with demand and avail-

ability of trucks in some areas, to a large extent they

have been stabilized by agreement of all parties concerned.

Published schedules, developed through consultation

among truckers, truck brokers, associations of truck

brokers, shippers and their associations, are widely cir-

culated and generally aecepted by shippers and truckers.

Ordinarily, the schedules are changed only once a year.

Shippers find their best interests are served by stable

rates rather than by bargaining over charges for each

movement.

Although competition within the exempt trucking indus-

try appears minimal in most origin areas, that industry

would undoubtedly respond to the proposed rail rates

with increases in its rates since this could be done with-

out adversely affecting its competitive relationship with

the railroads. It is also virtually certain that the costs of

exempt trucking are increasing, dictating increases in the

exempt rates. The railroads presented a study of pro-

jected trucking costs for this traffic. Although we have

heen unable to verify the manner in which this studv was

developed, it is entirely possible that the costs of these

exempt carriers will increase in the amounts shown by

respondents.

The ultimate effect of the proposed rates and rising

truck costs on the rail-motor competitive situation is im-

possible to foreeast precisely, but the conclusion is in-

escapable that the truckers will gain a further advantage

in handling this traffic that they would not otherwise ob-

tain, if the rail rates are increased as proposed. The po-

sition of the railroads on this situation seems one of resig-

Oe eee ee et ow

27a

nation—if they cannot handle the traffic at the rate level

here proposed they would prefer not to handle it on the

theory that their resources can be dive:ted to more lucra-

tive traffic. A principal railroad witness testifying in sup-

port of most of the transcontinental rates stated that the

proposed rates would not be reduced even if all of the

traffic is diverted to motor carriage, A D&RGWR witness

testifying on the Colorado potato traffic did indicate some

adjustments might be made to certain destinations to hold

the traffic to the railroads if a compensatory level of rates

could be retained.

The immediate effect of the proposed rates, covering as

they do a large portion of the exempt commodities ship-

ped, would likely be a shortage of trucks with consequent

rate increases and rate instability, This will impose a

hardship on shippers and render difficult orderly and

timely marketing of these commodities. There is some evi-

dence of previous truck shortages, in California and

Texas, for example, during certain periods.

This would have a detrimental effect on producers. Be-

cause of narrow or non-existent profits in vegetable pro-

duction, a number of producers in Texas have already

ceased production of the considered commodities. Other

producers are seen by the industry as following if the

proposed rates become effective.

The respondents adduced a market study purporting to

show that the retail market for fresh fruits and vegetables

ean without substantial adverse effect absorb the pro-

posed rate increases. We do not find that the data con-

tained in the study supports the conclusions claimed. For

instance, the study includes a table comparing amounts of

increase in unit retail prices from 1964 to July 1974 for

various fruits and vegetables in the Chicago and New York

markets with amounts of increases in rail rates, including

those proposed here. Since it is evident that rail rates are

included in whole or part in the retail prices it is to be

2Sa

expected that the amounts of increases in the prices, re-

flecting also all cost increases associated with producing

and distributing the commodities, would be greater.

A more meaningful comparison, the relative percentage

increases in prices and transportation charges, indicates

that if the proposed rates had been effective in July 1974,

unit transportation charges would have increased by a

higher percentage than prices for all commodities, except

potatoes in the New York market, and for three of the six

commodities in the Chicago market. Prices on potatoes in

July 1974 were higher than present prices.

The contention is made in the study that since retail

prices and transportation charges have generally in-

creased at different percentage rates, increases in trans-

portation charges ‘‘had nothing to do’’ with the increased

retail prices. To us, this merely indicates that other fae-

tors besides freight charges affected the retail prices.

The study indicates that between 1964 and 1973 the per

capita consumption of lettuce in the United States in-

creased 12.0 percent. In 1964 the rail transportation

charge was 14.8 percent of the unit retail price in New

York. In 1973 the corresponding percent was 12.5. This

data is used to support the contention that freight rates

do not affect consumption or retail prices. The study

shows, however, that from 1972 to July 1974 the unit price

of lettuce in New York increased from 38.5 cents to 53.7

cents, an increase of about 39 percent in two years. If the

proposed rates had been effective in July 1974, transpor-

tation charges would have been 17.7 percent of the higher

unit retail price, a far greater percentage than shown for

any other vear in the study period. We cannot conclude

from this that the proposed freight charges will not affect

retail prices, or that the jatter will not affect consumption.

It should be noted that while the study shows an in-

creased per capita consumption of lettuce (12 percent),

ee :

29a

tomatoes (2 percent) and celery (14 percent) it shows a

decline in affected fresh fruit consumption. Per capita

consumption of grapes declined 33 percent, apples, 21 per-

cent, and peaches, 27 percent. The consumption of pro-

cessed fruits and vegetables increased 26 and 32 percent,

respectively.

As shown in Appendix B, the protestants’ evidence con-

firms that the consumption of fresh deciduous fruits and

grapes has declined over the years. In this connection,

testimony was presented by two nutritionists asserting

the importance of fresh fruits, as well as vegetables, in a

balanced diet. This testimony, which we deem important

and relevant, is here quoted at length:

‘Fruits and vegetables are essential to a nutrition-

ally adequate, well-balanced diet. This group of foods

is depended upon to supply practically all of the

amount of vitamin C (ascorbic acid) recommended for

good health and about two-thirds of the recommended

vitamin A value, They are also counted on to contri-

bute to the intake of important minerals and trace

elements, as well as to the water and fiber intake

Well handled fresh produce can be expected to have

a higher nutritive value than the same produce in

processed forms.

‘In addition to contributing specific nutrients, fresh

fruits are particularly treasured for their flavor, tex-

ture and color. They can be served with a minimum

of preparation in contrast to the many other and more

elaborate menu items, especially salads and desserts.

Their consumer acceptability is high.

**Recently USDA made a survey of factors that

influenced the acceptange of fruits and vegetables by

elementary and high school students. We found that

the children accepted fruits more readily than vege-

tables. They accepted the fresh raw fruits more read-

ily, often objecting to the oversweet heavy syrups of

O0a

canned fruits. They rejected fruit that they consid-

ered imperfect. The smallest blemish on a piece of

fruit could cause complete rejection. They seemed to

prefer sweet, bland, and simple flavors as opposed to

tart, bitter or complex flavors.

‘(Fresh fruits have an important place in several

types of therapeutic diets. Their special usefulness

lies in their high nutritive value as compared to their

relatively low calorie value, their high water and fiber

content. their low sodium content, their negligible fat

content (except for avocados, fruits are virtually fat-

free), and their consumer acceptability. Fresh fruits

are almost indispensable in well-balanced acceptable

diets prescribed for diabetes, weight reduction and

control, the prevention and treatment of certain car-

diovascular diseases and some abnormal conditions

of the lower digestive tract.

‘“*A recently recognized value of fresh fruits and

vegetables relates to their fiber content—the portion

that is not digested in the human gastrointestinal tract

but travels along, giving bulk to the material in the

small and large intestine. Diseases of the intestine

are much more prevalent in developed countries than

in developing countries, Also the incidence in devel-

oped countries has increased greatly in the last 40

years. The most important environmental factor likely

to affect intestinal function and changes in the cell

structure of the lining is the type of food eaten, in-

cluding the amount of undigested fiber in the diet.

The major change in diet that preceded the increase

in disease has been the increased use of highly re-

fined foods and the decrease in unabsorbable fiber.

‘‘Surveys have been made of the nutritional value

of household food supplies and the food eaten by indi-

vidual family members The results have shown that

3la

on the average as many as one-half of the nation’s

households and many individuals failed to consume

the kinds and amounts of foods needed to provide

recommended amounts of essential nutrients. More-

over, there has been a downward trend in the quality

of diets since 1955. Two of the nutrients most likely

to be in short supply are vitamins C and A. For these

nutrients, we need to depend heavily on the fruits

and vegetables in the diet. There has been a decrease

in the purchase and use of these foods. (The decrease

amounted to almost 10 percent from 1955 to 1965).

‘The quality of diets is related to income and the

amount of money spent on foods. As incomes increase,

the amount of money spent for food increases and

the number of households having good diets increases.

High income alone, however, is no assurance of a

good diet. In the most recent nationwide survey, it was

found that 91 percent of the households with annual

incomes of $15,000 or over purchased an average of

about 12 (11.9) pounds of fresh fruit per week. In

contrast, among households with incomes below $3,000

only 70 percent of them bought fresh fruit and bought

less than 5 (4.5) pounds per week,

‘*Any action that would increase the cost of fresh

fruit to the consumer can be expected to reduce the

purchases and consumption of fresh fruit, especially

by those in the lower and middle income groups. Such

reduction would further jeopardize the nutritional

adequacy of their diets. Especially hard hit would be

retired and other older persons who are generally on

fixed and limited incomes, and the children in low

income families. Nutritional deficiencies are more fre-

quent in these groups.’’

We do not believe that the force of this testimony is

refuted by evidence adduced by the railroads showing

32a

that frozen and other processed foods contain the same

food nutrients as fresh fruits and vegetables.

Despite the foregoing, we agree with the position of the

railroads that they should not be expected to render

service on this traffic at non-compensatory rates. But we

cannot agree that, in view of the described ramifications

of discontinued rail transportation of these cemmodities,

that their participation or non-participation in this traffic

should be decided by the rate level here proposed. We

believe that the railroads, without detriment to their in-

dustry, and with great benefit to the producers and con-

sumers of this country, can transport the traffic at rates

below those proposed here.

TOFC rates. The third reason for our finding in the

decision and order that the burden of proof had not been

sustained was that the proposed TOFC rates are not

shown to be reasonably related to the proposed carload

rates. As our discussion in Appendix B indicates, the re-

spondents propose not only to increase the TOFC rates,

but to alter their relationship to the carload rates. This

restructuring is stated to be required by the respective

costs of the different services. Although we cannot find

that a restructuring would not be warranted, upon a

proper cost study, we cannot approve the TOFC rates

proposed here. As our analysis of the cost evidence in

Appendix C indicates, the cost data developed for TOFC

service contains the same infirmities previously alluded

to with respect to carload service. Thus, there is no basis

in this record to support the alleged need for a restrue-

turing of the TOFC rates.

Violations of outstanding order. In Washington Potato

& Onion Shippers Ass’n Inc, v. U.P.R. Co., 300 1.0.C. 573,

we prescribed rate relationships on potatoes between

Washington, on the one hand, and Nampa, Idaho and On-

tario, Oreg., on the other. Rates on potatoes from eastern

Washington to the extent that they were higher by more

33a

than 7 cents, and from western Washington to the extent

that they were higher by more than 11 cents, than rates

from the named Idaho and Oregon points, were found un-

duly prejudicial to Washington shippers and unduly pref-

erential of their competitors in Idaho and Oregon. This

was the fourth reason for the stated finding.

As shown in the Appendix B discussion of Washington

and Idaho traffic neither the present nor proposed rates

comply with that finding. The railroads contend that since

the present rates do not conform to the order, and the

proposed rates for Washington do not exceed the present

rate spread over the competitive rates, there is no viola-

tion of the outstanding order here. They argue that in any

event that order may be modified in this proceeding,

The viability of this Commission’s orders rests to a

large degree on the good faith compliance by those to

whom they are directed. In view of the thousands of rates

affected by certain tariff publications, such as those es-

tablishing general rate increases, it is manifestly impos-

sible for us to check each rate relationship to determine

compliance with outstanding orders. Perhaps, even with

good faith efforts to comply with our orders, deviations

will unintentionally occur. But to treat existing violations

of orders as grounds for their vacation as the railroads

suggest here, would largely render all orders nugatory.

Thus, entirely apart from the grounds previously dis-

cussed, we are unable to approve the affected rates on

Washington potato traffic because they are violative of

the outstanding order indicated.

Even if there were adequate grounds for vacating that

order in this proceeding, and we-find no such grounds,

there would be serious procedural obstacles to such action.

Cf. Nueces County Navigation District, et al. v. United

States, et al., Civil Action No. CA-3-4149-C, U.S. D.C.

N.D. Tex., Dallas Div. (1973) vacated and remanded as

moot by the United States Supreme Court in Chicago Rock

Island & Pacific R.R. Co., et al., v. Nueces County Navi-

Sta

gation District, et al., No. 73-1217 (1974). In that proceed-

ing the lower court found that an outstanding port equal-

ization order precluded approval of rates allegedly viola-

tive of that order.

Penalty Rule. The fifth reason for our burden of proof

finding is the uneven application of the proposed penalty

rule included within the proposed rates structure. Under

that rule the railroads would reimburse consignors or

consignees $100. per day up to a maximum of $300., for

failure to make delivery in accordance with schedules

published in the tariffs. To recover the penalty, claims,

accompanied by the paid freight bill, would have to be

filed within 30 days of delivery date. If a market decline

claim is paid on a shipment such payment would be de-

ducted from any penalty payment on the same shipment,

and a penalty payment would be deducted from any mar-

ket decline claim payment on the same shipment, No pen-

alty payments would be made when delay ‘s caused by

any of the following:

(1) Acts of God or public authority.

(2) Strikes, lockouts or other labor disputes.

(3) Heavy or unusual snow accumulation, when re-

sulting in traffic interruption.

(4) Hurricanes, tornadoes or high winds, when re-

sulting in traffic interruption.

(5) Unusual weather conditions, when resulting in

traffic interruption.

(6) Accidents, collisions or derailments causing im-

pairment of train operation.

(7) When reduced train speeds are ordered by fed-

eral, state or local authority.

Nor would penalty payments be made on shipments stop-

ped in transit for partial unloading or other privileges,

or on shipments diverted or reconsigned, except one ad-

ministrative diversion would be permitted.

Numerous objections are made to this proposed rule. it

is contended that the exceptions virtually nullify the rule

by providing grounds for denial of all claims. It is claimed

that the scheduled delivery times are to the marshalling

vards rather than to actual] destinations and thus extend

delivery times. It is argued that the provision for offset-

ting penalty payments against traditional delay payments,

and vice-versa, mixes the concepts of freight charges and

damages for delay. Finally, objection is made to its un-

even application. It applies only to shipments originating

in California, Arizona and portions of Oregon, and does

not apply on shipments originating in Colorado, Idaho,

North Dakota, other portions of Oregon, Texas and Wash-

ington, and applies only to shipments delivered to stations

on the eg Central Transportation Company (PC) and

nd Western Railway Company (NW). Thus,

ai er participate in the proposed rates, but

net the penalty rule. This uneven application of the rule

yon preclude our approval of the proposed rates even

the rates were otherwise shown to be reasonable.

Fourth section relief. In Fourth Section Application No.

42830, permission is sought to depart from the long-and-

short haul provision of section 4 of the act on movements

of fresh fruits and vegetables between points in Colorado

and Utah, on the one hand. and points in official, southern

southwestern, and western trunk line territories, on the

other. The requested relief was withheld by the Commis-

sion’s Suspension and Fourth Section Board until entry

o1 an order after hearing in the lead proceeding, where

the lawfulness of the rates sought to be established is i

ssue. In view of our finding that the lawfulness of the

rates has not been established under other provisions of

the act there are no grounds for granting the requested

fourth section relief and it was accordingly denied in the

36a

decision and order, and included as a sixth reason for the

general finding.

Because of the foregoing reasons we are not able to

approve the proposal before us. Although it would be pos-

sible to identify proposed individual rates that, considered

in light of the present rates, would not be exvessive, such

specific rates cannot be viewed in isolation from the gen-

eral proposal of which they are a part. Approval of only

certain rates would create a new proposal in terms of rate

relationships, the reasonableness of which cannot be de-

termined. Moreover, all of the proposed rates are objec-

tionable, as our findings indicate, under the various find-

ings discussed, on grounds other than the rate level. In

view of these findings it is not necessary or possible, to

resolve numerous subsidiary issues, such a those pertain-

ing to minimum weights and the provisions of the pro-

posed penalty rule. These issues can be decided only in

relaiion to rates otherwise found lawful.

Pursuant to the provisions of section 15(7) of the In-

terstate Commerce Act, respondents were required by or-

der of Division 2, dated December 18, 1974, to keep account

in detail of all amounts received by reason of the increased

rates which became effective on December 31, 1974, speci-

fying by whom and in whose behalf such amounts were

paid, so that refunds could be ordered in the event that

the increased rates were ultimately found not justified.

Because we have concluded that the rates are not shown

to be just and reasonable, the respondents are hereby

ordered to refund with 4 percent interest, the charges

collected by virtue of those rates to the extent such charges

exceeded those otherwise applicable.

Commissioners Murphy and MacFarland did not par-

ticipate.

It is further ordered, That this proceeding be, and it is

hereby, discontinued.

By the Commission.

Rosert L. Oswap

(SEAL) | Secretary

37a

APPENDIX A

DECTSION AND ORDER

At a General Session of the Inrerstare Commerce Com-

Mission, held at its office in Washington, D. C., on

the 30th day of December, 1974.

INVESTIGATION AND SUSPENSION DOCKET

NO. 8944?

FRESH FRUITS & VEGETABLES,

TRANSCONTINENTAL & WESTERN POINTS

It appearing, That by order of May 28, 1974, the Com-

mission instituted an investigation into and concerning

tariff schedules setting forth new increased rates and

charges and new rules, regulations and practices affecting

such rates and charges, applicable on fresh fruits and

vegetables, including onions and potatoes, applying gener-

ally on carload movements within the west and between

the west and the east and south;

It further appearing, That a hearing commencing in

Washington, D.C., on September 9, 1974, and subsequently

continued in San Francisco, Calif., Washingion, D. C., and

Dallas, Tex., has been held, and that the extensive evidence

adduced has been considered;

It further appearing, That respondents have supported

the proposed rates by cost data designed to show that the

existing rates are unduly depressed, and that the proposed

rates are not excessive, and that primary reliance is placed

on cost data based on current depreciation and capital

costs of mechanical refrigerator equipment and locomo-

tives;

1 This order also embraces Fourth Section Application No. 42830,

Fruits and Vegetables From and to Colorado and Utah Points.

38a

It further appearing, That protestants have adduced

evidence tending to show that: (1) the proposed rates,

which represent increases as high as 132 percent over

present rates, will seriously disrupt the marketing of fresh

fruits and vegetables, will largely eliminate the railroads

as a feasible mode of transportation thereof, and will en-

danger the availability of these commodities, which are

indispensable for a sound nutritional diet, for large seg-

ments of the Nation’s population; (2) certain of the pro-

posed rates are subject to rules providing for penalty pay-

ments for late deliveries, while other rates on traffic from

similar origins to the same destinations are not subject

to such provisions; (3) the rates are not subject to mini-

mum weights appropriate for smaller rail cars and to the

tariff circular rule generally known as Rule 66 providing

that charges based on a car ordered apply when a larger

car is furnished by the carrier; and (4) the proposed

TOFC rates are not reasonably related to the proposed

carload rates and are excessive;

We find, That due and timely execution of our fune-

tions under section 15(7) of the Interstate Commerce Act

imperatively requires the omission of an initial decision.

We further find, That this decision is not a major Fed-

eral action significantly affecting the quality of the human

environment within the meaning of the National Environ-

mental Policy Act of 1969.

We further find, That the respondents have not shown

the proposed rates to be just and reasonable for the fol-

lowing reasons:

(1) The theory of replacement costs of equipment is

invalid, particularly for mechanical refrigerator

cars, since much of the movement of these com-

modities occurs in nonmechanical refrigerator

ears. Furthermore, the entire theory of replace-

ment costs is a corollary of reproduction value

theory used in calculating a fair return on prop-

39a

erty devoted to transportation, a concept not

heretofore accepted by the Commission, and

should not be adopted with respect to only one

eategory of freight. The cost data adduced which

is not based on the described replacement cost

theory does not support the proposed rates. The

rates would exceed traditionally computed vari-

able and fully distributed costs by wide margins

in many instances, which is excessive for the

traffic involved (see appendix) ;

(2) The proposed rates would largely eliminate the

use of railroad transportation on many of the

considered commodities with extreme hardship

on the producers and consumers of such com-

modities ;

(3) The proposed TOFC rates are not shown to be

reasonably related to the proposed carload rates;

(4) Certain of the proposed rates are violations of

the outstanding order of the Commission. in

Washington Potato & Onion Shippers Assn., Inc.

v. U.P.R. Co., 300 L.C.C. 537;

(5) The proposed penalty rule does not apply uni-

formly to all similar movements;

(6) Insufficient justification for Fourth Section de-

partures in Fourth Section Application No.

42830 has been presented.

And we further find, That in view of the above findings,

which will be more fully explained in a report to be issued

shortly, the filing of briefs is not necessary for a proper

disposition of this proceeding.

Wherefore:

It is ordered, That respondents be, and they are hereby,

required to cancei the proposed schedules upon not less

40a

than one day’s notice within 30 days after the service date

of this order.

By the Commission.

Rosert L. Oswatp

(SEAL) Secretary

APPENDIX A

Showing revenue/cost~ relationships developed by re-

spondents when costs are computed without the contended

for current capital and equipment costs.

Range of Variable

Rate/Cost Ratios *

1.276 - 1.478

Commodity #

Vegetables and Melons other

than carrots, ete. from Imperial

Valley and related origins

Carrots, ete. from Imperial 1.389 - 1.544

Valley and related origins

1.298 - 1.541

1.269 - 1.506

Light Loading Vegetables

Citrus Fruits

Deciduous Fruits 1.111 - 1.378

Carrots, onions, potatoes 1.354 - 1.585

Potatoes 1.524 - 1.514

Potatoes 1.085 - 1.446

Potatoes, Idaho 1.188 - 1.566

+ Categories of traffic used by respondents

* Average for all weight brackets

es Ot PT ee

4la

APPENDIX B

Potatoes—Red River Valley. Potatoes are grown ex-

tensively in the valley which lies along the Red River in

western Minnesota and eastern North Dakota. According

to United States Department of Agriculture (USDA) the

1973 potato production of this area was 29,190,000 hun-

dredweight, consisting of 12,011,000 hundredweight of

reds; 14,395,000 hundredweight of whites; and 2,784,000

hundredweight of russets. Although customer preference

for the different varieties of potatoes depends on many

factors ineluding price and quality, Red River Valley po-

tatoes are sold in general competition with potatoes grown

in Idaho, Washington, Wisconsin, Colorado, Maine, and

to a lesser extent, in New York and Michigan. Red River

Valley potato movements are shown for 37 of the 41 cities

for which the USDA compiled unload data in 1973. Cities

which received more than 100 carloads are listed below

in connection with a comparison of the present and pro-

posed rates.

Though a few Red River Valley potato shippers are

iocated on the lines of the Soo Line Railroad Company,

most of them are served by the Burlington Northern, Inc.

(BN). Thus, their primary source of equipment is the BN,

or its subsidiary, the Western Fruit Express Company

(WFE). Various types of cars are presently supplied for

this traffic. Five years ago the entire movement was in

RS or RSB cars. The RS cars are equipped with ice bunk-

ers and are designed primarily for use of chunk ice, with

or without ventilation. The RSB cars, converted from RS

cars, are equipped with air circulating fans and interior

slope sheets and conveyors and/or equipment for mechani-

eal loading and unloading. About 1,000 ears were con-

verted to the RSB type to meet the needs of the shippers

for equipment suitable for bulk shipments, About 60 per-

cent of the Red River Valley potato shipments are in bulk.

Although icing service has been discontinued, icing cars

42a

are still serviceable during the winter months, when

heavy potato movements occur, with the use of portable

heaters. However, the RS and RSB cars are being retired

as obsolescent. In October 1974, there were 1,777 RS cars

and 710 RSB ears still in service. The BN forecasts that

all of these cars will ve out of service by 1980.

WFE has also converted meat mechanical refrigerator

cars for use as potato cars. These cars, now designated

RPS cars, are capable of loading 82,000 pounds of pack-

aged potatoes and 98,000 pounds of bulk potatoes. BN

now has 360 RPS cars in service and has plans for con-

verting an additional 93 RPB cars for a total of 453. Total

expenditures on this conversion project will exceed $3

million.

BN also has available 61 conditionaire cars, designated

as RLO cars. These are insulated hopper cars equipped

with mechanical refrigerator units. They are suited only

for bulk loading, but are capable of loading in excess of

165,000 pounds.

The planned 453 RPB cars and the 61 RLO cars will

have a loading capacity of 891 RSB ears.

Although the RS and RSB cars are gradually being

phased out of service, for the season ending June 20, 1974,

75.3 percent of the rail potato movements from the Red

River Valley was in these cars, down from 82.6 percent

for the season ending August 7, 1973.

There was a major downward rate adjustment on this

traffic in 1958 and 1959 to meet truck or market area com-

petition. Another such adjustment was made in 1962. As

a part of these rate reductions, minimum weights were

increased to 40,000 or 50,000 pounds. At the present time

virtually all shipments move at rates subject to the higher

minimum weight since there are no lower rates for heavier

loads. The average railroad shipment of potatoes from

the Red River Valley for the season ending June 1974 was

43a

62,236 pounds. Included in this average were over 214

million hundred weight moving in the heavier loading cars.

The RLO cars carry a minimum loading weight of 165,000

pounds and the RPB and other mechanical refrigerator

cars carry a minimum loading weight of 93,000 pounds.

The proposed rates begin at a minimum weight of 40,-

000 pounds, and decrease at 5,000 pound weight increments

up to 90,000 pounds. The table on the following page

shows the present and proposed rates (for certain mini-

mum weights) from Grand Forks, N. Dak., a representa-

tive origin, to the larger markets of this traffic.

BN states that the large fleet of RS cars was taken into

consideration when the 1958 and 1962 rate reductions were

effectuated. With the obsolescence of the RS and RSB ears

the carriers, it is asserted. no longer have a surplus of

equipment. Thus, it is contended an improvement in reve-

nue is necessary if ‘‘meaningful’’ transportation service is

to be provided in the future. It is pointed out that the

proposed rates would apply on cars officially listed as hav-

ing an inside length not exceeding 54 feet, 8 inches, in

contrast to the present rates which are restricted in their

application, insofar as mechanical refrigerator cars are

concerned, to cars not exceeding 44 feet, 7 inches inside

length dimension. The change will make the rates applic-

able on an additional 2,200 jumbo mechanical refrigerator

cars.

The proposed rates are opposed by the Red River Val-

ley Potatéd Growers Association, which has a member-

ship of about 1,500 growers, merchandisers and processors

of potatoes grown in the Red River Valley, and the Grand

Forks Chamber of Commerce, a non-profit North Dakota

corporation organized for the purpose of fostering and

promoting the business and civic interests of Grand Forks,

N. Dak., as_ well as its trade area, Grand Forks is located

in the center of the valley and its potato growing area.

45a

~ , Pub-,

» North Dakota

ted by the } = raduated

stants suppor that a uniform 8 b

. yrotestants ose tha would e

These } ission, prop toes that

” ic Service Commission, pr ed for potato rea could

lie Ser tes should be devis ints so that each . io ohh

e rates . . olin oe arkets ,

'ESESS ooitad from all meg pM sary ag imananeiion

RERzaECASESS ap vantages ; . or its 2 r

alae zi t~ Z& -- = enJ for the mileag til the RS and RS t 50,000-

ia a -—— = a 1 esen .

is = paying d that until t ffic the pr

= conten h ir trafhe arte in-

= e = «8 They also for their by ex p

— Lo = = if a are phased out as increased y would en-

= -_ zx — 7 = > os a . ; or

= = 2S & = -—=- = nd r mued. 8 on 4

SIRNA SESE pinot should be cont e to use the RS ‘cient. The

=in 4 ’

= i poe re shippers to ge maped oa for that * Soe higher

. Z2e2eE588 pony tir pound loads, t : of rates would read the larger

q eo & ~- >. om > = - l

Bs SRA2t BSB @ > ’ iform scale ble to obta ll

= S => 2 = = ate a = nilo > S apie se

= = 2¢ $3 &@ Ae eK proposed se ights for shippers loading and able to

“€iagRne¢ minimum weigh erator cars for

= n+ hanical refrig bo

(~ -_-_ + DD SS & mec d rotestants

, 22 ¢ £ & ARAN = 2 heavier loads. jections of these p rould be

z ct % 18 = 5 rincipal objecti est increases vou .

- ——- a ae - N= ¢ .

y — ' ¢ ’ sed rates ” t markets, d with

: = a the propo to their larges also concerne

= = Ssgezes + n movements t. Louis. They are ill have on com-

a ¢ SSFRSESHERSE SR ae City, and St. seunl rate scale wi s. It is noted

= = - ~ - &, x a) as Pd 0 : ; reas.

S252 2 hat the pr ducing a the

= ne = 71 N ¢ the effect th bi mong pro osed from

=z He ips a are prop h

= itive relations increases ; ces. The

= — etitive r eater in . me instan

re Ss2e P le, that gr daho in so the

+S S65 x xample, from Ida hown for

, =Sste322 65 for e3 ‘alley than are s -

— - —r a aT ° * > ; . ; 8es 4 s

ee =|» SStnze se = Red River Va the proposed increa resentative _te emg

PSE RREEEE differences in t destinations from ho in the table below.

ES = : n 0

= ss = — £ 3 named paige Idaho Falls, Ida Idaho Falls

Ce fh = = = ea + ie - : G and Forks y Forks $0,000 Ibs.

L -~ “x —_— =F m~ N @ Tv _ Grand 60.000 pounds % inerense

=| « S25 2 $9 8 & on . To: From : 5,000 pounds % increase |

= ct HN - ~- = benno increase 5.6

i ec 7 15.4

= SeR23sE , 35.7

E S€22eeH 283 | sania alge 99.7 aes

- sine SSE5S 28S | | Kansas City, Mo. 90.3

2/88 2 —— St. Louis, Mo. te spread between

a © xisting rate inations would

= : the e ation

iaaecs .& hown that most destin hip.

} S g2a-s8é&. < t is also s ho Falls to icago, on ship

= = 2 2 ae a° nF trand Forks For example,

-_ = = > 6 ~~ [as . a a Gra ff ected.

- a~ . “. = & a oS —“ =f —_ > — e] a e

ee ggiiegiiiats! | be adversely

a4 -— bm cel ons — — _ > —~ oe ~z = -~ < ™

~ & ee SEeaES ee

= - 2 é a a a a as .s

gf = s aE EELEEREUS

Se: st 282i Sez 35

SEES a

46a

ments of 60,000 pounds (using the 50,000-pound rate from

Grand Forks) the present rate spread, Idaho Falls over

Grand Forks, is 83 cents. This would become 56 cents un-

der the proposed rates. On 80,000-pound shipments the

corresponding spread would be reduced from 58 to 44

cents. However, rates somewhat lower, subject to a mini-

mum of 90,000 pounds are proposed for Grand Forks and

not from Idaho.

The Red River Valley protestants also show the rela-

tionship that the present and proposed rates bear to first

class rates from Grand Forks and Idaho Falls for ship-

ments of 60,000 and 80,000 pounds. The percentage rela-

tionship of the present and proposed rates from Idaho

Falls are lower than the corresponding relationship of

the Grand Forks rates.

Comparisons are made of the car-mile earnings of the

present and proposed rates from Grand Forks and Idaho»

Falls on shipments of 60,000 and 80,000 pounds. The ear-

mile earnings of the present, as well as the proposed, rates

from Grand Forks are higher. Comparisons of the present

and proposed rates for shipments of 60,000 and 80,000

pounds to destinations of comparable distances are shown,

indicating that the Red River Valley rates are higher than

Idaho rates on shipments of similar distances. For ex-

ample, although Idaho Falls is 263 miles more distant

from Dallas than Grand Forks, the proposed Idaho Falls

rate is 23 cents lower than the proposed Grand Forks rate

on 60,000 pounds, and 28 cents lower on 80,000 pounds, In

addition to the Idaho potato origins, these protestants are

concerned with potato shipments from Maine to markets

in the eastern and southern markets because the rates

from Maine are not being increased.

Dry Onions and Potatoes—Idaho.and Eastern Oregon.

Southwest Idaho and adjoining Malheur County, Oreg.,

is a major onion producing region of the U.S. The region

grew 11,200 acres of onions in 1974, an increase over

47a

8,300 acres grown in 1969. Yield per acre has also in-

creased from 450 hundredweight in 1969 to 508 hundred.

weight in 1973. The region’s 1973 production amounted

to the equivalent of 12,000 carlots (40,000 pounds). These

onions are marketed throughout the U. S., with 20 percent

of the production going to New York terminals alone.

Philadelphia, Boston and other large eastern cities are

also important markets for this product. Fifteen years

ago virtually all of the onions were shipped by railroad.

In 1974 approximately 42 percent of the shipments were

by truck, though because of increased production the

number of carloads handled by the railroads has remained

at about 6,500 per year. Since a large portion of the onion

crop is stored the shipping season extends from August

through mid-April.

The USDA in a November 1974 publication forecast a

total fall potato production for the U.S. of 287,866,000

hundredweight, of which 80,045,000 hundredweight, or

about 27.8 percent was attributed to Idaho production.

Idaho harvested 300,000 acres of potatoes in 1972 and

323,000 acres in 1973.

There are three recognized potato producing areas in

Idaho. The first, centered around Bingham, Bonneville

and Jefferson Counties in eastern Idaho accounts for 61

percent of the state’s potato production. The second des-

eribed as Twin Falls/Burley (Magie Valley) in central

Idaho accounts for 27 percent of the Idaho potato prodne-

tion. The third area, centered around Elmore County in

western Idaho grows about 12 percent of the state’s

potatoes.

More than 99 percent of the total Idaho potato produc-

tion consists of the Russet Burbank variety. In 1972, 58.9

percent of the production was processed for food, 3 per-

cent for starch and flour, with 23 percent of the crop going

into the fresh market. About 84.6 percent of the shipments

are by railroad and 15.4 percent by truck, relatively few

48a

inbound trucks being available for exempt outbound inove-

ments of potatoes from Idaho.

The present rates on Idaho onions differ from the potato

rates. Generally, the present onion rates are subject to a

minimum of 40,000 pounds. However, from Idaho Falls

and Payette there are onion rates subject to a minimum of

80,000 pounds to a few destinations. The proposed rates

are generally the same for onions and potatoes. The fol-

lowing table shows the present and proposed onion rates

at the Ex Parte No. 281 level, from Payette to representa-

tive destinations.

MINIMUM PRESENT PROPOSED

DESTINATIONS WEIGHTS RATES RATES

(pounds )

Chicago, Il. 40,000 185

60,000 199

80,000 150 158

New York, N.Y. 40,000 249

60,000 319

80,000 243

Dallas, Tex. 40,000 180

60,000 188

80,000 127 149

Atlanta, Ga. 40,000 221

50,000 297

55,000 271

60,000 249

80,000 178 197

Since 1970 reduced rates on potatoes from Idaho were

established subject to a minimum of 80,000 pounds. The

reductions were made to meet truck competition and to

encourage heavier loading. The then existing 50,000-pound

rates were restricted to ice bunker cars and retained. Those

rates, subject to a 60,000-pound minimum were made ap-

49a

plicable for potato shipments in mechanical refrigerator

cars. The proposed potato (and «nion) rates are not re-

lated to type of equipment.

The proposed rates were designed <o establish constant

relationships among origins. Idaho Falls. a representative

origin located in the largest shipping area was used as a

base point and rates from other origins were developed in

relation to the Idaho Falls rates. Thus. the proposed rates

from Nampa are $ cents over the proposed Idaho Falls

rates, and the proposed rates, discussed below, from Moses

Lake, Wash. and western Was uungton are 8 and 13 cents,

respectively, over the proposed Nampa rates. In develop-

ing rate relationships among destinations. the proposed

rates were first established for base or key destination

points and rates to other destinations were related to the

key points. The following table shows the present and pro-

posed rates at the Ex Parte No. 281 level, from Idaho Falls

to a representative destination in each major rate territory.

MINIMUM PRESENT PROP D

DESTINATIONS WEIGHTS RATES RAiws

pounds

Chicago, Tl. 60,000 166 191

80,000 142 150

New York. N.Y. 60,000 221 311

80,000 201 235

Dallas. Tex. 60,000 140 180

80,000 119 141

Atlanta, Ga. 60,000 187 241

80,000 169 189

The Union Pacific Railroad (UP) is the only railroad

originating onions and potatoes in Idaho. More than 90

percent of the cars used in this Idaho traffic are owned by

the Pacific Fruit Express Company (PFE), a car line com-

pany jointly owned by UP and the SP. During 1973, PFE

50a

owned 13,070 mechanical refrigerator cars for the full year.

On December 31, 1973, it had 2,776 RS (ice bunker) cars

in service. UP represents the proposed rates as compen-

satory, and reasonably related as to origins and destina-

tions. Additionally, it points out that if allowed, the pro-

posed rates would result in tariff simplication, reducing

the present hundreds of pages of tariff matter in several

tariffs to 61 pages in one tariff.

The proposed onion rates are opposed by the Idaho-

Oregon Fruit and Vegetable Association, Inc., whose mem-

bership accounts for about 90 pereent of the fruit and

vegetable production of southeast Idaho and Malheur

County, Oreg. The protestant desires the continued use

of the RS ears for the life of the RS car fleet, and hopes

to adapt in the interim to the larger mechanical cars if

markets permit. It regards the RS car with its ventilator

service as the most desirable car for onion shippers, assert-

ing that the larger mechanical refrigerator cars are not

well suited for onions because their minimum weights are

too large for most customers and are too costly. The west-

ern type of onion is large and soft, and hence prone to

bruising which produces decay. Thus protestant states that

high loading in a car subjects the bottom tier to excessive

weight and damage. Onions are now shipped in bags, mostly

50-pound bags. Experiments with cartons, which would

allow heavier loading, have been unsuccessful because ear-

tons do not allow enough ventilation. Therefore, this pro-

testant claims that an increase in the minimum weights will

result in a potential loss of markets to the western onion

shipper unless a diversion to trucking is possible. Idaho

onion shippers are stated to prefer rail over truck service.

The proposed potato rates are opposed by the Idaho

Grower Shippers Association, a voluntary, nonprofit trade

association. Its members, consisting of growers, shippers

and processors of Idaho potatoes account for more than

90 percent of the potato shipments from Idaho.

Hla

Also appearing in opposition to the proposed rates is

the Idaho Potato Commission, a state commodity commis-

sion created to further the production and consumption of

potatoes grown in Idaho. Financing of its activities is pro-

vided by grower, shipper and processor elements of the

Idaho potato industry under a tax currently levied in the

amount of 3 cents per hundred-weight on potatoes enter-

ing commercial channels. For the fiscal year of 1975-76, it

has budgeted $1,196,345 for advertising and $317,970 for

research and education. It points out that Idaho is a far

distance from its market area, making freight costs im-

portant to its program.

Dry Onions and Potatoes—Washington. In the 1972-

73 season USDA statistics show that there were 70,763

earlot originations of potatoes by railroad in the United

States. Of these, 6,775 originated in Washington. During

the same season the equivalent of 138,245 earlots (50,000

or 55,000 peunds) originated by truck, of which 5,196 orig-

inated in Washington. According to USDA statistics for

the period extending from July 1972 through June 1973,

Washington potatoes were shipped by railroad to all major

United States markets, the largest market being New York,

N.Y., which received 522 carloads from Washington. The

total railroad movement from Washington to these major

markets was 3,427. The larger markets and the Washington

carlots received by rail were: Atlanta, Ga., 145; Baltimore,

Md., 129; Boston, Mass., 171; Chicago, TIL, 294; Houston,

Tex., 179; Kansas City, Mo., 101; Los Angeles, Calif., 300;

Philadelphia, Pa., 289. The same source shows that the

equivalent of 4,737 carlots moved by truck to major United

States destinations in this period.

In 1973 Washington originated 268 carloads of onions,

and an unknown amount, but an amount assumed by pro-

testants to be larger, by truck. USDA figures indicate that

a preponderance of these movements were to eastern cities

and Chicago.

52a

Approximately 80 percent of the Washington potato crop

is processed, the balance being shipped fresh. The heaviest

shipping season for Washington potatoes is during July,

August, September and October. Other potato producing

areas market potatoes in this season in competition with

Washington. Recently there has been a substantial diver-

sion of Washington potato movements from rail to truck.

According to figures compiled by the state of Washington,

in 1973, the railroads had handled 245,080,000 pounds of

potatoes by October 25, while only 114,540,000 pounds

moved by rail in the corresponding period of 1974. Potato

shipments by truck dropped one percent in 1974 from 1973.

Washington shippers are served by the Chicago, Milwau-

kee, St. Paul and Pacifie Railroad (Milwaukee), the UP and

BN. There is limited evidence in the record concerning

equipment of the Milwaukee, though one witness indicated

equipment shortages on that line had occurred even during

periods of plentiful supply on the BN. Equipment of the

UP and BN suitable for this traffic has been previously

discussed.

At the present time the rates on Washington onions are

subject to a minimum of 40,000 pounds. Herein it is pro-

posed to eliminate the 40,000-pound minimum, and _ to

establish rates, applicable on potatoes, as well as onions,

subject to minima of 60,000 and 80,000 pounds. The first

table below sets forth the present and proposed onion

rates, at the Ex Parte No. 305 level from Warden, Wash.,

to representative major destinations.

The present rates on potatoes are subject to minima of

50,000, 60,000, 70,000 and 80,000 pounds. The 50,000-pound

rates apply only on RS (ice bunker) cars, the 60,000-pound

rates apply on all mechanical refrigerator cars, the 70,000-

pound rates apply only on smaller mechanical refrigerator

ears and the 80,000-pound rates apply only on large me-

chanical refrigerator cars. The proposed rates are pub-

lished only for minima of 60,000 and 80,000 pounds without

OO ae

53a

reference to car used. The proposed rates are consistently

related to rates from western Idaho.

The second table below shows the present and proposed

rates at the Ex Parte No. 281 level, from Moses Lake,

Wash., a representative point in eastern Washington and

points in western Washington to representative major

destinations. Also shown are rate relationships between

the Washington rates and rates from Nampa, Idaho and

the percentage of rate increases proposed.

DESTINATIONS WEIG ITS "RATES, = RATES

(pounds )

Chicago, 40,000 243

Ill. 66,000 260

80,000 208

New York, 40,000 319

N. Y. 60,000 405

80,000 312

Dallas, 40,000 224

Tex. 60,000 245

80,000 198

Atlanta, 40,000 289

Ga. 50,000 378

55,000 347

60,000 319

80,000 256

Western Washington

Wash.

Moses Lake,

Proposed

Spread

Proposed

Spread

over

Nampa, Proposed

over

num

Min.

Spread

Nampa,

over

Nampa, Id.

Present

Rates

Id.

Spread crense

Proposed

Nampa

Present

Weights

crease

lates

Rates

Hd.

Rates

185 *

(Pounds)

Destinations

207

60,000

Chicago,

5 «=: 163# 13 171

8 166

1584

80,000

Ill.

42*

60,000

New York,

80,000

aN.

196 8 23 164 * 14 201

159 *

60,000

Dallas

13 16

162

1404

135 8

80,000

Tex.

oo)

262

60,000

80,000

Atlanta

16 210

1944

11 2

189%

Ga.

# In RP ears not exceeding 44 feet, 7 inches, minimum weight 70,000 pounds, except RPB cars, minimum weight

75,000 pounds, In RP ears exceeding 44 feet, 7 inches, minimum weight 80,000 pounds.

* Minimum weight 50,000 pounds in RS ears.

——

5Da

The proposed rates are opposed by the Washington Po-

tato and Onion Association. This protestant objects to the

rate increases proposed and to the alteration in minimum

weights, specifically the elimination of the 40,000-pound

minimum on onions, the 50,000-pound minimum on RS

ears, and the 70,000-pound minimum on small mechanical

refrigerator cars. It contends that because of the damage-

ability of onions when shipped long distances in rail ears

that a minimum weight of 40,000 pounds is necessary and

states that the largest mechanical cars cannot load more

than about 50,000 to 55,000 pounds.

The protestant indicates that because of the present rates

Washington shippers have lost sales to shippers closer to

the markets. It believes that the proposed rates would

constitute an economic embargo for their potatoes in some

areas, particularly the midwest. Washington shippers have

started trucking some potatoes all the way to the east

coast.

With respect to the 50,000-pound minimum now appli-

cable to RS cars, the protestant states that such ears are

available and used extensively during vent seasons when

ice service is not required and during heater periods, as

well as when car shortages occur. It asserts that the lowest

minimum proposed, 60,000 pounds, cannot be loaded in

such ears. Concerning the proposed elimination of the

70,000-pound minimum rates presently applicable on small

refrigerator ears, it asserts that the proposed 80,000

pound minimum is excessive since potatoes shipped in bags

cannot be loaded to the proposed minimum of 80,000

pounds. While it is possible to load more than 80,000

pounds of potatoes in bulk in these cars, relatively few

receivers of Washington potatoes are equipped to receive

bulk shipments.

This pretestant objects to the application of the proposed

penalty rule for late deliveries on potato shipments from

origins served by the UP, such as California points and

56a

the Klamath Falls, Oreg. area, and not from Washington

origins, served by the UP.

It also relies on a rate order prescribed by this Com-

mission in Washington Potato & Onion Shippers Assn.,

Inc. v. U.P.R. Co., 300 1.C.C. 537, where it was found that

rates on potatoes from eastern Washington should be no

more than 7 cents higher than potato rates from southern

Idaho and eastern Oregon, and rates from western Wash-

ington should be no more than 11 cents higher than such

rates.

The proposed rates are generally defended as comnin-

satory by the UP and necessary for continued service. It

defends the proposed alteration in minimum weights as

an incentive to heavier loading. It has had several loads of

onions in mechanical refrigerator cars, apparently the

larger type, with weights in excess of 70,000 pounds, some

in excess of 80,000 pounds and one of 95,000 pounds.

UP leaves open the possibility of later making the pen-

alty rule applicable to Washington shipments. It recognizes

that the proposed rate spreads between Washington and

Idaho shipments are not those prescribed in the cited pro-

ceeding, but notes that so are the present rates. It takes

the position that the involved order may be vacated or

modified in this proceeding to allow the proposed rates.

Deciduous Fruits—Washington and Oregon. The total

1974 production of apples in the U.S., according to U.S.D.A.

estimates, was 146,317,000 bushels. Of this total, Washing-

ton produced 27.16 percent. During 1973 there were 10,322

rail shipments of deciduous fruits (including 7,951 ship-

ments of apples) from Washington and 7,951 shipments

(including 1,368 shipments of pears) from Oregon. Cherry

shipments from this area in 1974 amounted to 47414, car-

loads by rail and 1,057 carlots by truck.

The variety of apples grown in Washington and Oregon

is red delicious which is produced for the fresh market and

are not suited for processing. To market their crop these

d7a

states must sell 40 to 50 percent of their total production

in markets east of the Mississippi. The following table

shows rail and truck movements of apples from Washing-

ton to major eastern points in 1973.

DESTINATION RAIL TRUCK*

Atlanta, Ga. 91 275

Chicago, Ill. 274 969

Miami, Fla. 133 156

New York, N.Y. 1,504 297

Philadelphia, Pa. 439 57

*900 cartons per load

Although there has been a fairly constant or increasing

production of apples in this area, the amount being di-

verted to truck has constantly increased. In 1950, 19.1 per-

cent of the shipments moved by iruck. This increased to

43 percent in 1960, 69.9 percent in 1970 and 82.1 percent in

1973. Trucks now make substantial shipments to New

England, New York and Florida, as the above table indi-

cates. In 1973, about 43 percent of the cherry movement

was by truck. Owing partly to a late season this increased

to 56 percent in 1974.

The area’s fruit growers are served by the BN and UP.

Presently there are rates at 40,000 pounds and lower on

apples (and cherries). The 40,000 pound rates would be

continued only for cherries. The lowest minimum weight

proposed for apples is 50,000 pounds. Illustrative of the

proposals are increases in the rates to New York, N.Y.

These increases would amount to 50.67 and 34.7 percent

at 50,000 and 60,000 minima, respectively. Lower rates are

proposed at minima of 70,000 and 80,000 pounds.

The Northwest Horticultural Council, composed of as-

sociations of growers, packers, marketers and shippers

of deciduous fruits and state commodity commissions, who:

account for nearly all apple production in Washington

58a

and Oregon, and over 90 percent of the other deciduous

fruits grown in those states, oppose the increased rates

here proposed. It contends the rates, if allowed, will re-

sult in massive diversion of this traffic to trucks. Presently

the truck rates are higher than the existing rail rates.

Even with that competitive situation, it points out there

has been substantial diversion to trucks. Some of the

proposed rates would be higher than prevailing truck

rates.

This protestant also objects to proposed changes in the

rate relationships of origins, giving Medford, Oreg. higher

rates, not related to distances for many destinations. Op-

position is also taken to the proposed elimination of 40,-

000-pound, and under, rates, except on cherries. This, it

is contended would eliminate the use of RS cars, which

are still needed and used in emergencies. However, this

protestant supports efforts to encourage heavier loading

through incentive rates. It further contends that the rail-

roads have a favorable revenue/cost return on apples

considering heavier loading being experienced in 1974, and

Ex Parte Nos. 303 and 305 increases.

The proposed penalty rule would apply on pears shipped

from Medford, Oregon, but not from other northwest dis-

tricts. This, it is argued, would constitute discrimination

in favor of the Medford shippers whose winter pears are

harvested at substantially the same time as the other

northwest pears and are packed, graded and stored in a

comparable manner.

Fresh Deciduous Fruits and Grapes California and Ari-

zona, A substantial portion of the nation’s grapes and

deciduous fruits shipped for fresh consumption is grown

in California and Arizona. The percentages of California

production of total United States production in 1972, ac-

cording to USDA statistics, for the following named fruits

and grapes were: Apricots, 87.6 percent; cherries (sweet),

33.5 percent; nectarines, 100.0 percent; peaches, 18.2 per-

59a

cent; pears, 40 percent (est.); plums, 100.0 percent; and

grapes 92.4 percent. The 1973 volume of fresh deciduous

fruits shipped from California and Arizona was the equi-

valent of approximately 37,700 carlots.

Much of the California fresh grape and deciduous fruit

traffic is shipped to eastern markets. In 1973 rail ship-

ments te New England states, New York, Pennsylvania,

New Jersey, Maryland, Washington, D.C., Virginia, West

Virginia and eastern Ohio accounted for about 46 percent

of total rail shipments. Nine major cities, Baltimore, Md.,

Boston, Mass., Chicago, Ill., Cincinnati and Cleveland,

Ohio, Detroit, Mich., New York, N. Y., Philadelphia, Pa.,

and Pittsburgh, Pa., received more than half of the fresh

grapes and deciduous fruits shipped from California and

Arizona. California grapes and deciduous fruits are mar-

keted in competition with eastern and southern grown

fruits and melons.

The per capita consumption of fresh grapes and decidu-

ous fruits has consistently declined over the past two dec-

ades, In 1950, the per capita consumption of these fresh

products was, according to a USDA report, 20.1 pounds.

This source shows a per capita consumption of fresh

grapes of 5.4 pounds in 1950 and 1.8 pounds in 1972.

Railroad participation in this traffie has consistently

declined over recent years. In 1960, of 47,899 shipments of

apricots, cherries, nectarines, peaches, pears, plums and

grapes, 72.3 percent moved by rail. In 1970, the railroads

handled 59.1 percent of 34,376 total shipments. Railroad

participation in 1973 was 43.8 percent of 36,711 total ship-

ments. Conversely, shipments by trucks increased 50 per-

cent in the 1960-1973 period. Diversion from rail to truck

increased sharply in 1974. Although truck shipments have

increased as rail shipments have declined, total shipments

declined from 18,239 in 1965 to 11,672 in 1973.

60a

The present rates on this traffic are subject to minimum

weights ranging from 26,000 to 40,000 pounds except on

pears and papayas, for which there are presently rates

subject to a 50,000-pound minimum. Presently, there is a

‘‘rate blanket’? under which the same rate applicable at

Chicago is applicable to points east thereof. The proposed

rates have been increased through ex parte increases by

64.7 percent since 1965.

The proposed rates, except on fresh cherries, are sub-

ject to minima of 50,000, 60,000, 70,000 and 80,000 pounds.

Lower minima of 40 and 45,000 pounds for fresh cherries

are proposed. The following comparison, developed from

a protestant exhibit, compares the present 40,000 pound

rates, under which most of the traffic moves, with the pro-

posed 50,000-pound rates, both at the Ex Parte No. 305

level.

INCREASED

INCREASE

PER CAR

50,000 - $2820.00 $1230.00

REVENUE PERCENT

D MINIMUM REVENUE

WEIGHT PER CAR

ENUE PROPOSE

WEIGHT PER CAR’ RATES

NT MINIMUM REV

PRESE

RATE

77.4%

73.3%

564¢

318¢ 50,000 $1590.00

BOSTON, MASS.

1165.

2755

50,000

50,000 1590.00 —-551¢

318¢

NEW YORK, N.Y.

PITTSBURGH, PA.

482¢ 50,000 2410.00 820.00 51.0%

50,000 1590.00

318¢

CLEVELAND, OHIO

CHARLESTON, W. VA.

CINCINNATI, OHIO

fp)

—

ie)

39.0%

2210.00 620.00

50,000

50,000 1590.00 442¢

318¢

DETROIT, MICH.

INDIANAPOLIS, IND.

CHICAGO, ILL.

1910.00 320.00 20.1%

50,000

50,000 1590.00 S82¢

318¢

MILWAUKEE, WIS.

ATLANTA, GA,

515.00

720.00

2310.00

50,000

50,000 1590.00 421¢

318¢ 50,000

318¢

32.4%

45.3%

462¢

1590.00

JACKSONVILLE, FLA.

COLUMBIA, S. ¢.

MIAMI, FLA.

915.00 57.5%

50:

000

50,000 1590.00 —-501¢ 5

333¢

62a

The California Grape and Tree Fruit League, whose

members produce, harvest or market about 70 percent of

the grapes and deciduous fruits shipped from California

and Arizona, protest the proposed rates, It objects to the

level of rates proposed, to the elimination of the blanket

rates, to the elimination of transit privileges to complete

loading in the origin territory, to changed diversion privi-

leges and the proposed manner of publishing the penalty

rule, previously referred to, and discussed above, and

to the elimination of TOFC service in some areas. It states

that the proposed service changes and increased rates will

without question eliminate all eastbound shipments of

these commodities by rail. It maintains that lading weights

in excess of 40,000 pounds for deciduous produce is un-

realistic because of its highly perishable nature.

It projects that the railroads will have lost 4,000 ear-

loads of fresh deciduous fruit traffic by the end of 1974,

or 30 percent of the 1973 traffic moving by rail. It attri-

butes the diversion of traffic from the railroads to truck-

ing to the inferior service and increased rates of the rail-

roads. It argues that the diversion of eastbound fresh

fruit traffic causes a further erosion of rail traffie moving

westbound since the truckers tend to move their trucks

loaded in both directions. It states that in no other branch

of agriculture and from no other source of production of

fresh deciduous fruit does transportation bear so heavily

on the grower, mainly because of the extremely perishable

nature of the commodities and the long distance hetween

growing area and market.

The respondent railroads contend that the time has

come for each car of traffic to pay its own way, whatever

quantity the shippers desire to ship. They defend the elimi-

nation of the eastern rate blanket as necessitated by costs

of service, noting that competing exempt metor carriers

charge more for the longer distances. In rebuttal the rail-

roads show examples of shipments of grapes and deciduous

63a

tree fruits moving at weights in excess of 50,000 pounds,

and an increase in loading weights in recent years. It de-

fends the described discontinuance of TOFC service as

warranted by dwindling traffic and exceptional operating

costs associated with the handling of the remaining trafic.

Vegetables and melons California and Arizona. Among

the vegetables affected by the proposed rates are aspara-

gus, broccoli, brussel sprouts, cauliflower, green onions,

cabbage, carrots, celery and lettuce. USDA statistics for

1972, based on rail carlot equivalents, show 1,909 ship-

ments of asparagus originated in the United States, all

in California, and Arizona. For the same years, the total

U.S. production and the California-Arizona portion of the

portion of the following commodities were: broccoli, U.S.,

6009 shipments, California-Arizona portion 5,869 ship-

ments (97.7 percent); carrots, U.S. 18,275 shipments, Calli-

fornia-Arizona portion, 13,483 shipments (73.8 percent);

caulifiower, U.S., 5,801, California-Arizena portion, 4,817

shipments (83 percent): lettuce, U.S. 106,334 shipments,

California-Arizona (and other western states) 97,631 (91.8

percent).

Most of this traffic originates on the SP, UP, or Santa

Fe. Over the past 10 years perishable traffic has accounted

for 6.8 percent of UP’s total revenue. In 1973 its revenue

from perishable traffic was $60.1 million, 5 percent of ‘its

total revenue. Hundreds of miles of UP track exist for

the primary purpose of serving shippers of fresh perish-

able commodities. SP, UP and PFE provide virtually all

of the mechanical refrigerator cars for this traffic origi-

nating on their lines. Much of the traffic terminates on

the Penn Central Transportation Company (Penn Cen-

tral). In 1973, 34.7 percent of the total of fresh fruits and

vegetables terminating on Class I railroads, terminated on

the Penn Central.

The present rates are a combination of hundred-weight

and per-car rates. The history, design and structure of

64a

the per-car rates are discussed Vegetables and Melons,

Transcontinental Eastbound, 335 1.C.C. 798. The proposed

rates are stated in cents per 100 pounds. Rates on light-

density fresh or green vegetables, for example, broccoli

and green onions, are subject to minimum weights of 30,-

(00 and 35,000 pounds. Rates are proposed on other vege-

tables and melons, except potatoes, on minimum weights

from 40,000 to 90,000 pounds, at 5,000-pound increments.

Rates on carrots, onions and potatoes are proposed at

65,900, 75,000 and 85,000 pounds. Over the past decade this

traffic has been diverting to trucks more on short than long

hauls, as the following table indicates.

CALIFORNIA

RAIL LETTUCE SHIPMENTS

DESTINATIONS 1 2 % 2 of 1

Salt Lake City, Utah 35 8 22.86

Denver, Colo. 16 4 25.00

Kansas City, Mo 69 13 18.84

Chicago, Ill. 2516 2221 88.28

New York, N.Y. 4653 3824 82.16

Boston, Mass. 1887 1955 103.60

The railroads have concluded that the equipment with

which they must meet their competition (exempt trucking)

is the mechanical refrigeration car having an inside length

of 50 feet. The proposed rates were designed to meet the

costs of such cars. They recognize that the costs associated

with this car will not insure its use in all lengths of haul

or for all weights, On Florida movements, which have been

largely diverted to trucks, they do not intend to publish

rates for this equipment. But these rates are proposed

here on the theory that for large loads and long hauls the

railroads should be able to exercise an inherent cost ad-

vantage,

According to the respondents, they were faced with the

alternatives of leaving the rates at their present levels

65a

to minimize diversion of traffic and thereby recover in-

sufficient revenue to replace refrigerator cars as they wore

out, or to increase the rates to a level commensurate with

costs, risking diversion to motor carriers on shorter hauls,

and generate sufficient revenues to insure replacement of

retired equipment or add to the car fleet for the business

that remains. They have chosen the latter alternative.

Western Growers Association (WGS), a trade associa-

tion of growers of fresh vegetables, melons and potatoes,

whose members produce or ship about 85 to 90 percent of

these products from California and Arizona origins, op-

poses the rates, though its opposition to the rates proposed

on the heavy density commodities, which includes lettuce,

results only from the failure of respondents to provide

assurances that adequate equipment will be made avail-

able to all shippers when needed, and to provide a sub-

stitution car rule. It refers to car shortages that have oc-

curred, most recently in June 1974, and contends that the

proposed rates, as published, will render all small cars

obsolete, thereby making less cars available for loading.

In its view the proposed rates, which provide progressive-

ly lower rates for heavier loading, will result in the ship-

pers using only the larger cars. It seeks a substitution

eor rule under which a shipper would pay the rate for the

weight loadable in a larger car when such a ear is ordered

and a smaller car is furnished. It contends that this is

necessary because the shipment is often sold when the car

is ordered and the buyer expects to pay the rate applicable

to the weight of the shipment purchased. When the carrier

substitutes a smaller car for the larger car ordered, the

full shipment cannot be loaded, and the rate charged is

higher. WGA take the position that when a shipper orders

a large car he should be able to pay the same per unit cost

whether or not the large car is furnished.

WGA opposes the rates on light density vegetables as

excessive per se, and as not reasonably related to heavy

66a

density traffic. It states that the hardship placed upon

shippers of low density commodities by the proposed rates

will have a potentially catastrophic impact upon the grow-

ing, transportation, marketing and distribution of these

vegetables. It also objects to the proposed minimum

weight for small cars on light density vegetables because

of their loadability and the alleged inability of the mar-

kets to absorp heavy shipments of such commodities.

Citrus Fruits—California and Arizona, The considered

citrus fiaits originate from three distinct growing areas,

the San Joaquin Valley of California, with 24 origin

points, the southern California district with 32 origin

points, and the desert area, principally in Arizona, with

five origin points. All origins are subject to the same

transcontinental rates. California-Arizona citrus fruit

production has increased in recent years, growing from

136,000 carloads in 1970 to an estimated 139,900 carloads

in 1974. The latter crop was reduced by frost, It is esti-

mated that the 1975 erop will be 151,700 carloads. Pro-

jections through 1979 indicate further increases in pro-

duction.

The majority of rail shipments moves to destinations

in Transcontinental Territory, to Chicago and points east

thereof. Transcontinental destinations are grouped into

rate groups, rendering the same rate applicable to all

points within the group. For the 1972-73 season, Sunkist

Growers, Ine. (Sunkist) a major shipper, shipped 20,663

shipments of fresh citrus fruits. Of these 10,778 carloads,

52 percent of the total, moved to Rate Groups A and A-1,

which inelude points in Virginia, New York, Pennsylvania,

and New England. Only 1,284 carloads, 6 percent of the

total, moved to Chicago and points grouped therewith.

Fresh citrus fruit is relatively hardy, and can maintain

its quality for a substantial period of time between harvest

and consumption. It does not bruise easily or become

67a

damaged when loaded in large quantities. Hence, it can

withstand long transit and can be loaded up to 80,000 or

90,000 pounds.

The present rate on oranges, grapefruit and tangerines

from California-Arizona origins, at the Ex Parte No. 305

level, to Chicago and New York is 334 cents, minimum

39,200 pounds. The proposed rates, also stated at the

Ex Parte No. 305 level, and related minima to Chicago

are: 375 cents, 50,000 pounds; 320 cents, 60,000 pounds;

284 cents, 70,000 pounds; 255 cents, 80,000 pounds; 233

cents, 90,000 pounds. To New York, the proposed rates and

minima are: 536 cents, 50,000 pounds; 460 cents, 60,000

pounds; 420 cents, 70,000 pounds; 382 cents, 80,000 pounds;

347 cents, 90,000 pounds,

During the past five years, there has been a steady di-

version from rail to truek of citrus fruits moving from

California, even on long haul movements. The percentage

of rail and truck participation in the traftie for recent

seasons shown below:

1968-69 41,840,500 67 33

1969-70 40,759,000 68 32

1970-71 40,018,000 62 38

1971-72 41,979,000 59 41

1972-73 39,060,000 53 47

The lawfulness of the present transcontinental rai!

rates on citrus fruits is.now pending before the Commis-

sion in Docket No. 35960, Sunkist Growers, Inc., et al. v.

Akron, Canton & Youngstown Railroad Company. The

rates sought by the complainants there are lower than

those proposed here, although the complainants are will-

ing to have rates subject to a 50,000-pound minimum es-

68a

tablished that are higher than the present rates, pro-

vided lower incentive rates are established for heavier

shipments.

The proposed rates are opposed by Sunkist, one of the

complainants in the cited proceeding. Sunkist is a coop-

erative marketing assvciation, selling fruit for the account

of its members. It sells about 70 to 75 percent of the

California-Arizona citrus fruit crop produced each year.

It states that the proposed rates will result in the end of

rail transportation as an important and significant mode

of transporting fresh citrus fruit to market. According

to its cata, the proposed rates, when refrigeration charges

are included, will be greater than current costs for truck-

ing at almost all weight levels. It expresses a willingness

to accept rates 12 percent above variable costs computed

in accordance with the Commission's cost formula.

Sunkist objects to the proposed charges for reconsign-

ment and diversion, and the absence of such privileges in

southern territory. It also claims that the proposed rule

governing stopping to unload is too restrictive.

It ascribes the past diversion of this traffie from the

railroads to the lack of incentive rates, to ex parte in-

creases and to erratie service.

The respondents defend the proposed rates as gener-

ally necessary to return the cost of moving the traffic as

well as a return on the capital investment in the refriger-

ator ears used for such movements. They state that the

proposed rates are established at the minima requested

by the shippers.

Fresh Fruits and Veaqetables—Texas. Texas ranks third

behind California and Florida among all the states in the

production of citrus fruit, cantaloupes, watermelons and

approximately 30 different varieties of vegetables. The

principal shipping areas are the lower Rio Grande Val-

ley, the Laredo, Winter Garden, and San Antonio areas,

69a

the Pecos West Texas area and the Hereford area. This

production is marketed in nearby areas, as well as major

U.S. cities, such as Chicago, Pittsburgh, Buffalo and

Detroit.

There has been an increasing diversion of this traffie

from the railroads to trucking. From the Rio Grande

Valley the railroad share of the fresh fruit and vegetable

traffic declined from 45 pereent of total shipments in the

1963-64 season to 19 percent in the 1973-74 season. Ship-

ments to the major markets from Texas by rail declined

to 16 percent of the total in 1973.

At the present time rail rates for this traffie vary with

commodity, The present minimum weights range from

20,000 to 90,000 pounds. The proposed rates, whieh apply

to all fresh fruits and vegetables, are published at mi-

nima of 40,000 pounds, and at increments of 5,000 pounds,

up to 90,000 pounds. The following table shows the pres-

ent and proposed rates on cabbage, ‘‘all vegetables,’ and

dry onions from MeAllen, Tex. to the named representa-

tive destinations for the indieated minimum weights.

DESTINATIONS — dPrevwent Proposed es Oy. ntage

Tnerouse

40,000 50000 40000 O00 40 0000 5O000

Pounds — Pou ix Pounds Pounds _Pounds Pounds

Detroit, Mich. 226 201 435 354 92 76

Pittsburgh, Pa. 234 208 452 372 93 79

Buffalo, N.Y. 242 216 473 385 95 78

New York, N.Y. 277 257 521 429 88 67

Boston, Mass. 277 957 OA 466 103 SI

Chicago, Ill. 187# 183° 392 $20 109 75

+ The rate on ‘‘all vegetables’’ is 210 cents.

* The rate on dry onions is 169 cents.

The proposed rates are opposed by the Texas Citrus

and Vegetable Growers and Shippers (Texas Growers),

a non-profit association representing growers and_ ship-

pers throughout the state. The primary grounds for its

70a

opposition is that the proposed rates would alter existing

rate relationships between Texas and Florida. It is as-

serted that Texas and Florida shippers sell the same

produce in the same markets in the eastern and central

states. Growing costs are said to be about the same in the

two states. Thus, transportation charges can determine

which area is going to sell in a particular market. Texas

Growers show examples of rate disparities which, it is

claimed, would prohibit Texas shippers from. selling

in various markets. The proposed rates, it is stated,

would, for example, result in a disadvantage of 77 cents

per crate of cabbage to Texas shippers in the Buffalo

market. Sales are said to be lost on a difference of 10

or 15 cents per erate. The Florida rates on this traffic

are shown to be generally below the rates proposed on

Texas traffic, and to yield lower car-mile earnings.

A wholesaler of fresh fruit and vegetables, located in

Cincinnati, Ohio, who distributes these commodities

within a 250-mile radius of Cincinnati, testified that Flor-

ida and Texas are competitive on carrots, cabbage, par-

sley and various green vegetables in his market. He

stated that the proposed rates will substantially reduce

his purchases from Texas, and that Texas may be lost

as a source of fresh produce.

The Texas shippers assert that their industry has been

subject to increased costs for seed, fertilizer, water, in-

secticides, labor and taxes. Already, it is claimed, there

are fewer and fewer growers in the Rio Grande Valley

each year. Growers testified that if the proposed rates be-

come effective they will either go out of business or re-

strict operations to nearby areas. They claim they will

derive no advantage from the proposed higher minima.

because of loading and marketing problems associated

with large shipments. Florida has an advantage on ship-

ment weights also.

If the proposed rates render rail service uneconomical,

these shippers do not believe that there will be enough

Tla

trucks available ‘o handle the fresh produce traffic (about

20 percent of the total) moving from Texas. There have

been shortages of trucks during recent shipping seasons.

Although the preponderance of this traffic from beth

Texas and Florida now moves by truck, the&e shippers

claim that the lower rail rates from Florida will tend to

hold the corresponding exempt truck rates down, while

the proposed rates will permit the truckers hauling from

Texas to raise their rates.

The Texas protestants also object to proposed restric-

tions on diversion and stop-off privileges. They complain

that the proposed penalty rule applies on traffic from

California, but not from Texas.

The railroads state that the present rates were estab-

lished for the RS-type cars, and that the adjustment in-

volved here is intended to cover the costs of providing

transportation and sufficient revenues to permit the ear-

riers to invest in the more expensive, and larger, me-

chanical refrigerator cars. They acknowledge that some

of the commodities cannot be loaded at the higher mini-

mum weights proposed, but they think it necessary to

provide an incentive to heavier loading where possible.

They note that a relatively small portion of this traffic

is now moving from either Florida or Texas by rail.

Therefore, the contention is made, that truck rates are

controlling in determining the marketability of fresh

fruits and vegetables originating in both states.

The contention is made that the level of rail freight

rates play no significant role in the marketing of fresh

produce. To support this, figures were adduced showing

that despite a rate disparity in favor of Florida, Texas

increased its share of the combined Texas-Florida ship-

ments in certain markets. (protestants claim this showing,

which involves 1967-68 as a base year, is invalid because

that season was abnormal for Texas because of crop

losses from flooding).

72a

The railroads further show that the present truck

rates are higher than the rail rates. It is also shown that

in some instances the proposed rate level results in rates

lower than rates under a formerly prescribed level.

Potatoes—Colorado. The principal potato growing area

of Colorado is in the San Luis Valley around Alamora,

Colo., in the south-central section of the state. About 700

million pounds of potatoes are grown annually on ap-

proximately 30,000 acres in this area. Potato annual sales

exceed $50 million. About 70 pereent of the potatoes are

of the Russet varieties, about 27 percent are red Me-

Clures and three percent are other varieties.

About 40 percent of the San Luis Valley potato pro-

duction is consumed in Colorado. The major markets out-

side of Colorado are in the states of Kansas, Missouri,

Arkansas, Louisiana, Texas and Oklahoma. In recent

vears there has been an overall increase in rail shipments,

some of which nave been to more distant markets. The

following table shows the destinations of shipments ori-

ginated on the San Luis Valley Central Railroad Com-

pany (SLC) in the 1973-74 season.

Destination State Number of Carloads

Texas 708

Missouri 223

Kansas 186

Illinois 77

Maryland 53

Wyoming 52

Louisiana 49

South Carolina 44

Alabama 33

Oklahoma 30

Nebraska 25

Arkansas 24

Florida 20

Destination State Number of Carloads

New York

Georgia

Colorado

Iowa

Virginia

Rhode Island

Pennsylvania

Indiana

Ohio

Total 1557

—_

rm DS DO DS CO H OI WO

About two-thirds of the San Luis Valley rail potato

shipments originates on the SLC and the balance orig?-

nates on the Denver & Rio Grande Western Railroad

Company (D&RGW). The lines of the SLC extend be-

tween Monta Vista and Center, Colo., a distance of 17

miles. It connects with the D&ERGW at Monta Vista. SLC

derived 62 percent of its revenues from potato traffic in

1973.

In 1971, SLC began to acquire a fleet of 450 large-sized

RS cars from REA Express. These ears, acquired new

by REA in 1957, with scheduled maintenance are expected

to be retired with an average age of 32 years, giving

them about 15 years of remaining service life. They mea-

sure 50 feet, inside length, and can load 75,000 pounds

of potatoes. The San Luis Valley potato shipping season

extends from mid-September through mid-May. Thus, ex-

cept for a few shipments at the beginning and end of the

season refrigeration is not necessary. Ventilation is suf-

ficient in the fall and spring, and heater service is re-

quired in the winter. Of 2,332 rail shipments of potatoes

from the San Luis Valley in the 1973-74 season, 2,219

shipments moved in RS cars, 102 shipments moved in

‘‘eonditionaire’’ cars and 113 moved in mechanical re-

frigerator cars. SLC has none of the latter cars. When

T4a

they are required they are furnished by the major car

line companies. Unlike movements of perishable traffic

from vther areas, rail participation in the San Luis Val-

ley has inereased dramatically in recent years. In the

75a

ment, marketing and traffic organization of potato and

onion cooperative associations in Colorado. The Colorado

Department of Agriculture intervened as protestant.

The protestants contend that since movements of its

1971-72 season, 11,275 tons of potatoes originated on the

SLC. This increased to 31,000 tons in the 1972-73 season,

and to 51,672 tons in the 1973-74 season. Total carleads

shipped in 1972-73 were 1,440 compared to 2,332 carloads

in the 1973-74 season.

trafic are nearly all in RS cars, the justification offered

by respondents, namely, costs of refrigerator cars, does

not apply to their traffic.

They assert that the present fleet of SLC RS ears is

more than adequate for their shipping needs. These ears,

it is stated, could handle 60 percent of the potato traflic,

whereas not more than 30 percent of that traffic is pres-

ently moving by rail. These protestants find the RS ears

are cheaper to use than mechanical refrigerator ears be-

The following table shows the present and proposed

rates to the principal destinations of this traffic from

Alamosa.

PRESENT PRESENT

DESTINATIONS RATES MINIMUM PROPOSED RATES AND :

| WEIGHTS MINIMUM WeIduTe cause there is 1» charge for ventilator service aad the

—— 75.000 1 wa 5,000 90,000 heater service is cheaper than mechanical protective

. service charges.

Dallas; Tex. 92 70,000 144 139 134 132

Houston, Tex. 119 70,000 183 173 172 ne The protestants state that if the proposed rates become

ye a ss Mo. k.. — a. = = oo effective virtually all of the traffic will be diverted to

Senta Cantar. trucking. According to their data, the present rail rates

Kans. 83 70,000 112 111 102 100 are lower than the prevailing truck rates in nearly every

San Antonio, instance; under the proposed rates the truck rates wouk

Tex. 135 45.000 183 173 172 164 ia tntenis Oe ry 4 ; “a Ss ne truck rates would

Topeka, Kans. &3 50,000 134 128 123 122 “Roe 1ey bs ri one the recent success of the rail-

Baltimore, Md. 253 50,000 292 277 264 152 roads in increasing their share of this traffic to reduced

Mauldin, S.C. 213 50,000 265 254 244 133 rates published at the higher minimum weight of 70,000

Springfield, :

‘Mo. 99 70,000 161 153 149 147 pounds

Tampa, Fla. <0 30,008 232 si6 ae = These protestants object t » ¢

New York, N.Y. 260 50,000 309 294 277 265 Rye provestants onject to the changed relationship

that the proposed rates would effect between their rates

' Except as noted.

and rates proposed on Idaho potatoes. They show that

? Minimum weight 80,000 pounds. :

the proposed rates for San Luis Valley would yield

higher car-mile earnings, and constitute a higher per-

centage of Class 100 rates than the proposed Idaho rates.

To certain destinations where the distance is less from

San Luis Valley origins, the Idaho rates are made applic-

able to San Luis Valley shipments.

Evidence in opposition to the proposed rates was pre-

sented by the San Luis Valley Shippers Association, the

Colorade Potato Growers Exchange, (Exchange) and in-

dividual shippers and Associations. The former is an as-

sociation of 13 large shippers accounting for about 70

percent of the potatoes grown in this area. The Exchange

is a cooperative association which acts as the manage-

T6a

The S&RGW, in rebuttal, states that it intends to ini-

tiate any rate reductions necessary to retain this potato

traffic, provided that compensatory levels of return can

be maintained. It states that the proposed incentive rates

for 90,000 pounds to the east are truck competitive

whether the exempt truckers raise or lower their rates.

It contends that the proposed rates will allow the truck-

ers to raise their rates and thereby recoup some of their

increased costs. It states that it ‘‘cannot estimate with

any accuracy what effect this would have on the present

rail-truck differential.’’

TOFC Traffic. TOFC rates on this traffie were first

published in 1962, initially as per 100-pound rates, and

subsequently as per car rates. The per car rates were

based on the TOFC hundredweights or carload rates ap-

plicable on shipments moving in 50-foot mechanical re-

frigerator cars. In 1970, the TOFC rates to the east were

restructured, and were related to carload rates on a per

carton basis. Virtually all of the previous and existing

rates were published for Plan II service, i.e., carrier

owned trailers, carrier pickup at origin and shipper de-

livery from ramp at destination.

The proposed rates are published for Plan II%4 service,

as well as for Plan III service, the latter reflecting the

lower costs of shipper provided trailers. The proposed

rates are published at 70,000 or 80,000 pounds minima,

two trailers per flatear.

The railroads state that previous efforts to relate

TOFC rates to carload rates proved to be mistaken be-

cause of their inability to attract back-haul freight for

the vans. Therefore, they have concluded that each serv-

ice, TOFC and carload, must be considered separately.

TOFC service is stated to be the most expensive to per-

form. The railroads consider TOFC service to be more

flexible and expeditious because no ear switching is re-

quired at origin, and delivery is accomplished over streets

77a

at destination, eliminating much destination car switch-

ing. They contend that the proposed increased rates and

rate restructuring are necessary to put TOFC service on

a compensatory level. They consider their past experience

with TOFC service to have been disastrous, and have no

= to acquire new trailers to replace those being re-

tired.

One of the p ‘neipal protestants to the proposed TOFC

rates is Bud Antle, Inc. (Antle). It is a major California-

Arizona producer of lettuce and celery, with an annual

volume of approximately 10 million cartons of lettuce and

11% million cartons of celery.

Antle considers TOFC service to be the ideal mode of

transporting fresh fruits and vegetables. Presently it has

about 236 trailers under a long-term lease which has

about 30 months to go. It would prefer to continue using

these trailers beyond the present lease. It contends the

railroads are pricing TOFC service, and service in smal-

ler mechanical refrigerator cars, out of existence. It as-

serts that the proposed rates would foreclose almost all

of its TOFC sales in the east, and reduce or terminate

such sales elsewhere.

To illustrate its claim that TOFC service would be

improperly priced under the proposed rates, it shows

that costs per carton of lettuce or celery would be in-

creased more under the TOFC rates than under the ear-

load rates for all but the smallest cars and that the per-

centage increases are greater for the TOFC rates. For

example, the transportation charges to New York on

lettuce would be increased from 40 to 56 cents per carton

on what is considered a marketable shipment. The in-

creased costs per carton for Plan II service would

range from 95 to 139 cents. The increases in the compared

carload rates per carton, would range from 24 to 29 per-

cent, while the Plan IT4 rates, per carton, would be in-

creased by more than 70 percent. It contends that the

78a

proposed rate level applicable on shipments exceeding

60,000 pounds will seldom, if ever, be used because it is

not practical to load and market shipments exceeding that

weight.

Antle developed an alternative structure of rates, which

it proposed to the carriers. Its proposal would allegedly

provide the same amount of revenue to the carriers for

Plan III TOFC service as the carload rates provide for

mechanical refrigerator service after deduction of car

rental expenses and mechanical protective charges, which

are paid to the owner of the equipment. These rates,

lower than those proposed here, were not acceptable to the

railroads.

Antle opposes all of the proposed TOFC rates, except

Plan III rates published to Chicago from some origins,

and its acceptance of those Chicago rates depends on ap-

proval of the corresponding carload rates.

Eastern Receivers. Evidence in opposition to the pro-

posed rates was adduced by the Buffalo Produce Ex-

change, which has 30 members engaged in the jobbing,

wholesaling and distribution of fresh produce. In 1973,

‘t handled 10,285 cars of produce and 244 TOFC ship-

ments. It complains of the published schedules under

which it would not have cars scheduled for placement in

‘ts vard before the eighth morning on California ship-

ments. At one time, California deliveries were received

on the sixth morning. It objects to the proposed rate in-

creases, Which it asserts average between 29 and 50 per-

cent for less service than is presently provided. It claims

the rate increases proposed will increase diversion to

trucks, especially on tomatoes.

George Tiefer, Inc., a wholesale jobber of fresh fruits

and vegetables for supermarkets and retailers, located in

; ; } it} > 28 t

Bronx, N.Y., also appeared in opposition to the rates. It

——

wea ye eee

=. EN ele A GW Ere’ het

es ee ~

ae a

RT eR AIR EE ms OO Om

79a

and 2,000 truckloads of products annually. It states that

it is experiencing adverse consumer reaction as a result

of rapidly rising food costs. It contends that the quality

of service being rendered by the railroads does not war-

rant increased rates.

This receiver gets delivery of its cars near Port Morris.

Its deliveries of California shipments are not received

until the eighth morning, whereas seventh morning de-

livery is provided at nearby Hunts Point. Since both re-

ceiving points take the same rates, it contends it is being

discriminated against.

It also complains of deteriorating rail service and in-

creased damage to freight. It further contends that the

proposal rates unduly prefer carload traffic to the TOFC

traffic.

Hills Supermarkets, Inc., Brentwood, New York,

(Hills) which operates 69 stores in that area, presented a

witness in opposition to the proposed rates. Its receiving

yard is located on the Long Island Railroad, The same

witness also testified on behalf of the Freight Users Asso-

ciation of Long Island, Inc., an association of about 60

Long Island shippers and receivers, and the Shippers

National Freight Claim Council, Inc., an association of

over 300 shippers and receivers of freight. That associa-

tion is concerned with freight loss and damage claims and

related policies and carrier practices.

Hills receives over 1,000 cars of fresh fruits and vege-

tables annually. Formerly, it handled TOFC shipments,

but because of excessive damage to the produce occur-

ring under this mode of transportation, it has virtually

eliminated TOFC shipments. It states that while sched-

uled delivery times are published for stations in Brook-

lyn none is published for Long Island receivers, It fur-

ther contends that the published delivery schedules allow

excessive delivery times.

80a

The witness states that the previous deplorable service

it had been receiving has recently improved. He believes

that better service reduces car detention, per diem and

interchange costs, and that these reductions should be

reflected in the rates.

The witness testified that Hills presently uses rail on

the majority of produce it receives from western states,

but that if the proposed rates become effective, it will

divert those shipments to truck, as it is unable to pass the

increased rates on to the consumers. It objects particu-

larly to the increased TOFC rates and shows instances

where the increases in these rates would be as much as 76

percent, without inclusion of the mechanical refrigeration

charges. Objection is also made to the failure to include

a substitution car rule in the proposed tariff.

The witness contends that the proposed penalty rule

violates section 20(11) of the Interstate Commerce Act

in that it would enable carriers to evade liability for full

actual loss, damage or injury. He argues that the pro-

posed exceptions to the penalty payments are so numer-

ous and broad as to render the rule meaningless. He

further argues that the 30-day requirement of the rule

violates section 16(3) of the aet, which allows overcharges

to be filed within three years from day of delivery.

The United Fresh Fruit and Vegetable Association,

Bronx, N.Y., claims that the proposed rates are almost

double existing rates and the published schedules allow

one day longer for delivery that is now being required.

It complains of heavy loss and damage claims and de-

layed deliveries now being experienced. It does not con-

sider the claimed basis for increased rates, namely, to

build new equipment to be valid since is questions whether

such equipment will in fact be built. It views this pro-

posal as an attempt by the railroads to nullify holddowns

on this traffic granted in ex parte proceedings by this

Commission.

Sla

It shows instances where the proposed rates would

amount to 72 percent on its traffic and asserts any appar-

ent reductions proposed at higher minimum weights are

non-beneficial because fresh produce cannot be loaded at

those minima.

Campbell Soup Company, and its subsidiaries, manu-

facturers of canned foodstuffs, frozen foods, frozen and

non-frozen bakery goods aud packaged pet foods with

plants throughout the country, oppose the increased rates.

It objects to the increases being applied to fresh fruits

and vegetables and not other perishable freight using the

same equipment. It caleulates the proposed increases on

its shipments of carrots as ranging from 6.7 to 51.7 per-

cent. To one plant in Ohio the proposed rates, at the

80,000-pound minimum there would be a reduction for

potatoes, but not at lower minima. It complains of delays

in delivery and contends that better ear utilization would

result in more economical transportation and better ear

supply.

The National Association of Food Chains states that

it does not oppose a reasonable increase on this traffic,

but it wants assurance that there will be improved serv-

ice. It presented extensive evidence of deteriorating

service over recent years. It criticizes the failure of the

respondents to make the proposed rates subject to a car

substitution rule. It notes that only certain carriers pro-

pose to participate in the penalty rule, and requests that

unless the rates are coupled with meaningful tariff pro-

visions to assure significant service improvements as to

both reliability and transit times, the rates be found un-

just and unreasonable.

82a

APPENDIX C

Respondents’ costs are based on Rail Form <A unit

costs as developed by the Western Railroad Association

(for the Western and Eastern Railroads) and by the

Southern Freight Association (for the Southern Rail-

roads), by application of the Coimmission’s Rail Form A

Cost Formula to the 1973 expenses and statistics of the

rail carriers involved. Rail Form A unit costs were de-

veloped for a total of 30 railroads handling the perish-

able traffic, ie. 10 railroads in the West, 12 in the Fast

and 8 in the South. These mit costs were indexed from

1973 to a April, 1974 cost level utilizing the updating pro-

cedure outlined in the Commission Statement No, 2-58,

Rail Carload Cost Scales by Territories as of January

1, 1958. Updating faetors were developed separately for

the West, East and South. The updating factors devel-

oped are 13 percent in the West, 13.8 percent for the East

and 12.5 percent for the South.

Respondents state that in order to more precisely re-

flect the actual costs of the perishable movements the fol

lowing adjustments were made to the Rail Form A costs.

—the application of the Rail Form A unit costs of the

principal railroads which handle perishable traffic to

their respective portions of the rail movement;

—the use of individual railroad mechanical refrigerator

car empty return ratios rather than the regional

averages ;

—the use of the average tare weight for ears of me-

chanieal designation RP and RPL as developed from

the AAR Umler File;

—the use of car ownership costs based on the 1975

average for all mechanical refrigerator cars of the

five major railroad-owned carlines and the Santa Fe;

SSa

—the use of loaded miles of haul over the actual route

of movement;

—-the use of an actual count of interchanges rather

than the development of interchange costs on a car-

mile basis;

—the adjustment of the 1973 costs to the April 1, 1974

level; and

—the development of an average loss and damage cost

per hundredweight for each commodity group on the

basis of the 1973 claim payout experience of the ma-

jor railroads handling the perishable traffic here at

issue.

Traffic Study

Respondents’ traffic study is based on a ten percent traf-

fic sample of all waybills ending in the number 1 for six

Western Roads who originated perishable traflic in 1973.

Respondents indicate these six railroads, Burlington

Northern, Santa Fe, Union Pacific, Southern Paeifie,

Western Pacific and Missouri VPacifie collectively origi-

nated (directly or on short line connections) about 98 per-

cent of the eastbound perishable traffic under considera-

tion in 1978. These six railroads provided a computer

tape, developed from the sample waybills, containing the

car number, commodity, origin city, destination city and

each railroad and junetion handling the ear.

The computer tapes submitted by the six railroads were

then computer processed to develop route segments con-

sisting of delivering road-junctions, possessing road-junc-

tion and receiving road. For example, a movement via ori-

gin - UP - Fremont - CNW - Chicago - PC - destination. The

route segments were then sorted by possessing road and

the waybill information was sent to each road in printout

form. Each line in turn was asked to provide the actual

operating mileages over their particular segment plus the

destination rate group involved,

Sta

For the trailer on flatear-traffic, the highway mile to

the rail ramp and the rail miles beyond were provided by

the railroads involved. Railroads were also asked to pro-

vide the points at which highway interchanges of trailers

were made.

The route segment miles and rate information obtained

from the involved railroads were then applied to each

sample waybill by computer process. Thus for each sam-

ple waybill, the operating miles identified by carrier and

territory (West, East and South) were shown together

with the actual number of interchanges and rate group.

The above 10 percent traffic sample produced 20,378

total waybills for study.

Application of the Cost to the Traffic Statistics

Next, the individual Rail Form A unit costs were ap-

plied to the traffic statistics developed above to obtain

cost scales for the perishable traffic. Respondents’ Ex-

hibit 35 summarizes the results of the cost study and

compares the present and proposed rates with the vari-

able costs shown. These variable costs were developed

for various origin groups and cities representing destina-

tion rate groups. Respondents show ear related costs

separately from net load related costs in order to evalu-

ate the cost of handling various loadings in a particular

size car. The car related costs were obtained by determin-

ing a basie unit cost under the individual ecarrier’s Rail

Form A developed by respondents, multiplying these unit

costs by loaded car miles, and then adding the cost of

interchange and terminal expense. Loaded car miles were

developed from the average origin to common points on

the service route. The mileage over each route was com-

bined into a composite mileage according to the percent-

age of traffic originated by each line. The interchange

portion of the line haul costs were derived by taking the

weighted average number of intercianges and applying

it to the interchange cost pcr interchange taken from the

applicable Rail Form A for the respective railroad. Ter-

minal costs on a per-care basis were also taken from the

appropriate carrier’s Rail Form A application.

Net load related costs were obtained by adding termi-

nal costs, loss and damage and line hau! cost per hundred-

weight. The basic unit costs were then combined and

costed out based on the involved minimum weights to

arrive at a variable cost per hundredweight.

The end results were tested for statistical significance

by use of a standard error calculation and those sample

summaries in Exhibit 35 which had a standard error ex-

ceeding 50 miles were considered unreliable and were ex-

cluded. Resondents state that this was due to the fact

that some rate groups received too little traffic to produce

an acceptable standard error.

In addition, respondents submitted Exhibit 56 later re-

vised as Exhibit 39 which shows the same rates and com-

modity groupings as Exhibit 35, however, the Rail Form

A costs were modified to include a cost of capital of 13

percent after taxes on new refrigerator cars and _ loco-

tives.

Respondents indicate that before the higher cost of capi-

tal was added, the return and depreciation already included

for locomotives and cars were first removed from the unit

costs. The annual before tax cash needed to return 15 per-

cent after taxes as well as recovery of the initial invest-

ment in locomotives and refrigerator cars was then added

to the Form A costs. The investments in the refrigeration

unit was excluded from this calculation. The 12 percent

cash requirement was added to the car mile cost in the case

of the refrigerator cars and to the ewt-mile cost in the case

of locomotives. A detail development of these costs are

shown in respondent’s Exhibit 57. The car-mile cost of

S6a

18.9283 cents * used in Exhibit 39 replaces the cost of 7.0605

cents used in Exhibit 35.

Respondents’ TOFC Cost Study

Respondents also developed variable costs associated

with the movement of fresh fruits and vegetables in Plan

1114 and Plan IIT TOFC service. Costs were developed

separately for 70,000 pound shipments and 80,000 pound

shipments based on two trailers loaded on the same flat

ear moving from points in the Northern and Southern Pa-

cific territory to various destinations in the Official terri-

tory. Respondents’ TOFC costs are based on Rail Form A

unit costs as developed for the individuai rail carriers in-

volved based upon each earrier’s 1973 TOFC operations

and indexed to a April 1, 1974 level. The method used in

computing and indexing the costs was reported to be the

same as that used in compiling the mechanical refrigerated

costs.

Respondents made several adjustments to the Rail Form

A unit costs in order to develop more representative TOFC

costs for the movements at issue, These adjustments, which

have been explained but not illustrated, are described be-

low.

Trailer pickup and ramping costs were based on an aver-

age cost of the originating railroads, weighted for the nuin-

her of shipments originating on each railroad, The average

costs for each railroad was based on the pickup and ramp-

ing cost at each station, weighted according to the number

of shipments originating at each station.

Trailer deramping costs at destination were similarly

developed. When the actual cost of deramping at the desti-

nation point was not known, the average cost of the de-

‘The 18.9283 cents was later revised to 16.3628 cents per Re-

spondent’s Exhibit 38°’.

S7a

ramping railroad was used, developed in accordance with

Rail Form A.

On shipments routed through the St. Louis or Chicago

gateways, the flat car does not go through to the Eastern

railroads and the trailers must be interchanged over the

highway. Respondents indicate for these shipments actual

costs for deramping, drayage and ramping were used to the

extent possible. Regional average Rail Form A costs were

reportedly used when actual costs were unavailable,

Respondents developed an average loss and damage

cost based on the weighted average loss and damage expe-

rience for all commodities of the major railroads handling

perishable traflie in 1973.

With respect to the ratio of loaded to empty car miles,

the same 100 percent empty return was reportedly used for

the mechanical refrigerated trailers as well as for the flat

ears. Further, the Rail Form A unit costs were adjusted

to reflect tare weights of 33.4 tons for a 89 foot TTX flat

ear and 8.4 ton. for trailers, These tare weights were based

on the Santa Fe Railway’s average tare weight experience

in 1973 for flat ears and trailers.

In addition, the TOFC costs under Plan 1144 were ad-

justed to include a 10 percent return on investment after

taxes on the trailer. Since the shipper furnishes the trailers

under Plan III, no costs of ownership was included under

this Plan. In computing rental costs for the trailer body,

respondent used $14,000 as the *‘cost of reproduction new”,

Table 1 below describes how the trailer cost per day and

trailer cost per mile factors were developed. ,

TABLE 1

1. Current purchase price of 40 ft. refriger-

ator trailer less refrigeration unit .... $14,000.00

2. Annual cash flow needed to reeover in-

WEEE 626400065005 0060henaunaunud $ 2,702.45

SSa

3. Cost per trailer day—(Line 2 x Over-

head ratio) + 305 days ........-++e4+: $ 10.22

4. Maintenance expense per day (excluding

mechanical unit) .........-eee ee eeees ~ 1.88

5. Total cost per day—Line 3 + Line4+.... $ — 12.10

6. Total cost per mile

(1) Region VII—-l.ine 5 + 478 miles . $ 0255

(2) Region lif--Line 5 + 339 miles .. $ 03569

Unlike Rail Form A costs, respondents excluded the me-

chanical refrigeration unit from its cost caleulation.

Respondents obtained the miles per trailer day from ICC

Statement No. 1C1-70, Pail Carload Cost Scales by Terri-

tories for the Year 1970. The overhead ratio was taken

from the Santa Fe Railway’s Rail Form A. The mainte-

nance expenses were taken from the Santa Fe Railway’s

Annual Report for 1973, Account 318, (Highway revenue

equipment—repairs). These expenses were divided by the

total number of trailers under lease to arrive at a cost per

trailer.

The results of respondents’ TOFC cost study are shown

in respondents’ Exhibit 62. The method of cost computa-

tion was besed on Yale 17 of ICC Statement No. 1C1-70,

supra. The traffic statistics used in developing the costs

were from the same 10 pereent waybill sample as used for

the computation of mechanical refrigerated costs. The 10

pereent waybill sample resulted in 860 TOFC shipments

heing selected for costing,

Respondents assumed that the ATSF, BN, PFE, SP, UP

and WE! furnished all the trailers in the S60 sample of

TOC shipments. Since the Santa Fe Railway accounts

for approxi: ately 47 percent ef the total refrigerator

trailer fleet, ATSE experience was used in computing the

above trailer rental costs,

Ctttealitb ies tte oases

SYa

In computing the TOFC costs in Exhibit 62, respondents

indicate that each rail carrier’s individual Rail Form A

unit costs was weighted by that carrier’s participation be-

tween any origin and destination pair based on the 10 per-

cent traffie study. An illustration of this weighting process

however was not shown by respondent.

The difference between the Plan I114 and Plan III costs

as presented in I:xhibit 62 lies in trailer ownership, origin

pickup and the empty return ratio.

Under Plan I1'4 the railroads must furnish the trailer,

and are responsible for hauling the trailer to the shipper’s

dock for loading of the commodity and hauling it back to

the TOFC ramp for loading onto the flat car. Loading of

the trailer onto the flat car (ramping) and unloading it

from the flat car (deramping) are performed by the rail-

roads or their agents under both Plan 1144 and Plan ITIL.

Under Plan ili no trailer ownership or drayage costs are

incurred by the railroads. Ilowever, the railroads are obli-

gated to return the emptied trailer to the origin ramp.

Respondent indicate Exhibit 62 does not include a 13

percent after tax rate of return as was ineluded in Exhibit

5) but only a 10 percent return on the trailer body. JHlow-

ever, to illustrate the impact of a 13 percent return on

trailers and locomotives, the cost to stations coded **T-1”’

in Exhibit 62 at the 80,000 pound level would increase from

244.469 cents to 285.190 cents per hundredweight for Plan

1114 and from 199.711 cents to 240.388 cents per hundred-

weight for Plan IIT.

Respondents also introduced Exhibit 12, reeapped as Ap-

pendix C hereto, which shows a comparison of the present

and proposed TOFC rates with the variable costs taken

from respondent’s exhibit 62. Revenue to cost comparisons

are shown separately for 70,000 pound shipments and

80,000 pound shipments moving from points in California,

Arizona and Northern Pacific territory to various destina-

90a

tions in the East. The present rates are shown from the

above three origin points but no distinction is made be-

tween Plan I1!4 and Plan JIT. Conversely the proposed

retes are not shown from any specific origin and are iden-

tified as either Plan 1114 or Plan III. Respondents indicate

in most instances the present rates fail to cover variable

costs,

TEXAS STUDY

Respondents also submitted two statements, Exhibit No.

65 and Exhibit No. 66 which show the movement of perish-

ables in mechanical refrigerator cars from two origins,

MeAllen and Crystal City, Texas to fifteen destination sta-

tions throughout the East and South at various minimum

weights. The origin stations were selected as being repre-

sentative of traflie ori¢inating in the Lower Rio Grande

Valley and from the ‘*Winter Garden’’ area, The destina-

tion stetions were selected from the fruits and vegetables

unload stetement issned by the USDA Agricultural Mar-

keting Service in Washington as being some of the prin-

ciple unloading points for perishable traffic. Respondents

show for each destination, the present rate. the variable

cost, and the proposed rate, all in cents per hundred pounds

and the resulting proposed rate to the variable cost ratios.

Respondents state that the mechanical refrigerator car

costs for these movements were developed in the same

menuer es shewn in its Pixhibit 35. That is, the costs are

weighted averages and were ealculated according to each

railroad’s amount of participation in the perishable traffie.

Using a wayhbill saiple of all waybills ending in the number

one, the muiber of originations and terminations were

computed for each of the railroads, After the percent of

participation was developed, this percent was multiplied by

the applicable terminal costs for that particular railroad.

The portions of the terminal costs were then added to-

cether representing an aggregate of all costs for all roads,

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The line haul costs were similarly developed, using total

perishable car miles on each road as the apportionment

factor.

Respondents indicate that freight train car expenses

were supplied by the Pacific Fruit Express Company. All

other costs for each road were reportedly developed

through application of the Commission’s Rail Form A Cost

Formula to the expenses and statisties of the involved rail-

roads for the year 1973, indexed to April 1, 1974 level. The

unit cost thus developed were applied to the service units

of the sample traffic. The costs include a 13 percent cost of

‘apital applied to current cost of cars only.

As can be seen in respondents’ Exhibit 65 the proposed

rate to cost ratios on shipments from MeAllen, Texas to

various destinations, ranged from a low of 109 percent for

a 70,000 pound shipment to a high of 129 percent on a

90,000 pound shipinent. For shipients moving from Crys-

tal City, Texas to the various destinations shown in Exhibit

66, the proposed rate to cost ratios ranged from a low of

107 pereent for a 20,000 pound shipment to a high of 139

percent also on a 90,000 pound shipment. The variable costs

exceeded the present rates on all of the movements shown

from both origin points,

PROTESTANTS’ COST EVIDENCE

Protestants, Idaho Potato Comission, Idaho Growers

Shippers Association and Idaho-Oregon Fruit and Vege-

table Association as a group take the position that respond-

ent have failed to show that the suspended rates are just

and reasonable. To support this position protestants en-

gaged a transportation consultant to review and analyze

the evidence submitted by respondent and further to de-

termine the compensativeness of the present rail rates on

potatoes and onions originating in Idaho,

Protestants state that respondents cost study treated the

entire State of Idaho as a single origin area for potato and

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onion traffic. This treatment however fails to give consid-

eration to the substantially different rate and transporta-

tion characteristies between potato and onion traflic orig-

‘nated in Western Idaho and potato trafiie originated in

Eastern and Central Idaho, Further protestants point out

that respondents treated potato and onion traffic originated

in Eastern Oregon, which has rate

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