Petition — Aliquippa & Southern Railroad v. United States
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DEC 28 1S78 .
A Ne eR) © a CLERK
IN THE “s
Supreme Court of the Rnited States
OcToBER TERM, 1978
No ¢8-1049
ALIQUIPPA AND SOUTHERN RaILRoOAD COMPANY, ET AL.,
Petitioners
Vv.
INTERSTATE COMMERCE COMMISSION, ET AL.,
Respondents
ee
PETITION FOR A WRIT OF CERTIORARI TO THE
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
Fritz R. Kaun
VERNER, LITPFERT, BERNHARD
& McPHeERSON
1660 L Street, N.W.
Suite 1000
Washington, D.C. 20036
SaMuEL P. DELISI
1500 Bank Tower
207 4th Avenue
Pittsburgh, PA 15222
THomas C. DorsEY
2000 Massachusetts Avenue, N.W.
Washington, D.C. 20036
Attorneys for Petitioners
Pagss or Brrzon S. Apams Patntino, Inc., Wasuineton, D. C.
at.
«se — ve
INDEX
Page
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Reasons For GRANTING THE WRIT ...............446- 6
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CITATIONS
CasEs:
Aberdeen € Rockfish R.R. v. United States, 270 F.
i at Ce oie ee lila camineia bee 10
Allied Chemical Corp. v. Burlington Northern, Inc.,
ih ao in eagel 6a anaes 7
Alton & S.R.R. v. United States, 49 F.2d 414........ 7
Baldwin v. Scott County Milling Co., 307 U.S.478 .... 8
eB h, O.R.R. vy. Aberdeen & Rockfish R.R., 393 a
ii Citations Continued
Baltimore & O.R.R. v. United States, 277 U.S. 291 .... 11
Berwind-White Coal Mining Co. v. Chicago & E.R.R.,
OLS fe re PERSP rere ee 7
Boston & Maine R.R. v. United States, 208 F. Supp. 1
TUS LOL alte 4 a hhh Cadoand Renee He 05+ ex
Burlington Truck Lines v. United States, 371 U.S. 156 9
Cancellation of Wharfage Absorption, 335 1.C.C. 477 7
Detroit Produce Ass’n v. Director General, 62 I.C.C.
Te a acta aed bap see tl ded bas Go 4-50 0 7
PE EET Cle HU cs cn vd decicaccnsseevys 9
Galveston Commercial Ass’n vy. Atchison, T. € S.F. Ry.,
Oe ye ee Cpu s cede seme ms ee beds censeeems 7
ICC v. J-T Transport Co., 368 U.S. 81 .............. 11
International Proteins Corp. v. Baltimore & O.R.R.,
ee BR RES, 15 5 as Ces bd he tne S008 099 00.48 7
Iverson v. United States, 63 F. Supp. 1001 .......... 7
Ligon Specialized Hauler v. ICC, os, 77-3302, 77-3253
(Sra Cir. November 14,1978) .......c.ccccccces 9
Long Island Rail Road v. ‘Aberdeen & Rockfish R.R.,
NT Ls shed Chak se daw Rad doe t ceadee ees 2
Pennsylvania R.R. v. Kittaning Iron & Steel Mfg. Co.,
TT Wis wc ba hain Fh MEO EAS AOS We Od 0 > 8 6, 7
Red Ball Vegetable Co. v. Illinois Central R.R., 197
ih A SIR Ree bard phe Foes Chewbhaa te taboces een 7
Remittance of Demurrage Charges, 349 I.C.C. 411... 3
Schiihle’s Grape Juice Co. v. Director General, 63
SM REE A Lies knee take 6 cvaid eS rissa 600-00 5 7
Seaboard Air Line R.R. v. United States, 382 U.S. 154 2
SEC v. Chenery Corp., 332 U.S. 194 ...........eeees 9
Swift é Co. v. Hocking Valley Ry., 243 U.S. 281 ...... 7
Turner, Dennis & Lowry Lumber Co. v. Chicago, M &
Ee Re PNR eee 6, 7
United States v. Braverman, 373 U.S. 405 ............ 8
United States v. Chicago Heights Trucking Co., 310
ME | 5 vbdurs HARON aed h dae 4 sy oheek hens 8
United States v. Florida East Coast Ry., 410 U.S. 244 9
United States v. ICC, 352 U.S. 158 .......... eevee 7
United States v. Philadelphia &é f. Ry., 184 F. 548... 8
STATUTES:
49 U.S.C. § 10101 et seq.:
OP Tk SEU bg en biccsytesvdcavanwvans’s 2
Citations Continued iii
Page
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ok OE Ae era ey nn aeer 2
as OE 56 yhie a G's bo Nek bed ce dae wee 2, 5,8
Public Law 95-473, 92 Stat. 1337 et seq. ..........005 2
Railroad Revitalization and Regulatory Reform Act of
1976, Pub. L. 94-210, 90 Stat. 31 et seq.:
RR Ber ee 4
MISCELLANEOUS:
Locklin, Economics of Transportation (7th Ed. 1972) 6
Vanderblue and Burgess, Railroads: Rates Service
a) ee eee
Van Metre, Industrial Traffic Management (1953) .... 6
IN THE
Suprene Court of the United States
OcroBeR TERM, 1978
No.
ALIQUIPPA AND SOUTHERN RAILROAD COMPANY, ET AL.,
Petitioners
Vv.
INTERSTATE COMMERCE COMMISSION, ET AL.,
Respondents
PETITION FOR A WRIT OF CERTIORARI TO THE
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
The Aliquippa and Southern Railroad Company, et
al.,’ petition for a writ of certiorari to review the judg-
ment and opinion of the United States Court of Ap-
peals for the Third Circuit.
OPINIONS BELOW
The opinion of the court of appeals (App. B, pp.
4a-30a) is reported at 583 F.2d 678 (3rd Cir. 1978).
The decision of the Interstate Commerce Commission
(App. C, pp. 3la-84a), which it sustained, is reported
at 353 I.C.C. 567 (1977).
1 Petitioners are listed in the Appendix (App. A, pp. 1la-3a).
2
JURISDICTION
The order of the court of appeals denying petition-
ers’ timely petition for rehearing en banc was denied
on October 5, 1978 (App. D, p. 85a). The jurisdiction of
this Court is invoked under 28 U.S.C. § 1254(1). Long
Island Rail Road v. Aberdeen & Rockfish R.R., 99 S.Ct.
46 (1978); Seaboard Air Line R.R. v. United States,
382 U.S. 154 (1965).
QUESTION PRESENTED
Whether the court below erred in sustaining the de-
cision of the Interstate Commerce Commission upon a
basis not invoked by the agency itself, namely, that
railroad demurrage charges are not ‘‘rates’’ or
‘‘charges’’ within the meaning of the Interstate Com-
merce Act, 49 U.S.C. § 10101 et seq., and the Elkins
Act, 49 U.S.C. § 11903.
STATUTES INVOLVED
Involved are the provisions of what formerly were
sections 1(3) (a), 1(5), 1(6), 2, 3(1), 6(1), 15(6) and
15(15) of the Interstate Commerce Act, 49 U.S.C.
§§ 10102(23), 10701(a), 10705, 10741(a), 10741(b),
10747, 10750, and 10761,’ and former section 41(1) of
the Elkins Act, 49 U.S.C. § 11903, the terms of which
are set out in the appendix (App. E, pp. 86a-91la).
STATEMENT OF THE CASE
By notice of proposed rulemaking served October
19, 1972, the Interstate Commerce Commission recom-
* Pub. L. No. 95-473, approved October 17, 1978, codified, with-
out substantive change, the provisions of the Interstate Commerce
Act and related laws.
3
mended that railroads collecting demurrage charges be
required to remit all but $10 per car per day to the
carriers that owned the freight cars against which de-
murrage had accrued (App. F, pp. 92a-96a). A proceed-
ing was instituted based upon thirteen provisions of
the former Interstate Commerce Act,’ the National
Transportation Policy and the Administrative Proce-
dure Act, and all railroads subject to the Interstate
Commerce Act were made respondents.
The Commission determined, in its notice, that the
$10 amount ‘‘appears to be more than adequate to com-
pensate the railroad on whose lines the foreign car is
being detained.” * Although written statements of facts,
views, and arguments concerning the proposed rule
were invited, no hearing was scheduled at this or any
other time of the proceeding.
On April 25, 1975, the Commission issued an interim
report which sunported adoption of the rule and held
that private car owners (shippers and other investors)
as well as railroad car owners should receive the de-
murrage revenue collected in excess of $10 per car per
day.’ The proceeding was reopened for further evi-
3’ Former sections 1(4), 1(5), 1(6), 1(10), 1(11), 1(18), 1(14),
1/15), 1(17), 1(21), 6(7), 18(4), and 15(1) of the Interstate
Commerce Act.
*The amount was determined, as stated by the Commissicn,
simply because it was the first increment of demurrage charges
that, at the time, generally was applied in increments of $10, $20,
and $30 per car per day depending on the extent of the detention
period (App. F, pp. 92a-93a).
>The Commission, in its interim report, ‘‘assume(d] that the
first level of charges, currently $10 per day, will result in adequate
retained revenue.’’ Remittance of Demurrage Charges, 349 1.C.C.
411, 442 (1975). Although participants were invited to submit
figures to overcome the Commission’s presumption, the Commission
denied petitioners’ request for a hearing. 349 I.C.C. at 417.
4
dence concerning the costs, benefits, and feasibility of
implementing the proposed rule, together with any ad-
ditional argument on the Commission’s clarification of
the rule (App. G, pp. 97a-99a).
Prior to issuance of the Commission’s final report,
Congress amended former section 1(6) of the Inter-
state Commerce Act by inserting the following new
sentence:
Demurrage charges shall be computed, and rules
and regulations relating to such charges shall be
established, in such a manner as to fulfill the na-
tional needs with respect to (a) freight car utiliza-
tion and distribution, and (b) maintenance of an
adequate freight car supply available for trans-
portation of property.°
Comments were solicited by the Commission on the
effect of the amendment on the proposed rule (App.
H, pp. 100a-102a).
The Commission’s final report and order was served
April 7, 1977. The Commission found that it had juris-
diction to consider the proposed rule under both sec-
tion 1(6) of the Interstate Commerce Act, as amended,
and its car service powers, and that the remittance of
all demurrage charges collected ‘‘in excess of $10 per
car per day, is just, reasonable, and otherwise lawful’’
(App. C, p. 73a).
Following appeals to the Commission for reconsid-
eration, which were denied, petitioners filed a petition
° Railroad Revitalization and Regulatory Reform Act of 1976,
Pub. L. No. 94-210, § 211, 90 Stat. 46 (amending former section
1(6) of the Interstate Commerce Act, and now codified at 49 U.S.C.
§ 10750).
5
for judicial review of the Commission’s decision.’ On
review, the court of appeals upheld the Commission’s
finding that section 1(6) of the Interstate Commerce
Act authorizes it to promulgate the demurrage remit-
tance rule (App. B, 13a) and held that the proposed
rule was ‘‘rationally supported’”’ as defined by the
‘arbitrary and capricious’? standard of 5 U.S.C.
§ 706(2)(A) applicable to notice and comment rule-
making (App. B, pp. 18a-19a).
Additionally, the court considered petitioners’ claim
that the proposed rule, by including private car own-
ers as well as railroad car owners in the remittance
scheme, permits the payment of unlawful rebates to
shippers who are private car owners in violation of
former section 15(15) of the Interstate Commerce Act,
49 U.S.C. § 10747, and former section 41(1) of the
Elkins Act, 49 U.S.C. § 11903. Rejecting our argu-
ments, the court (App. B, pp. 26a-27a) stated:
‘“‘We have given careful consideration to these
arguments and conclude that petitioners have mis-
construed the purposes of §15(15) and § 41(1),
as well as the concept of demurrage.
” * al
Consequently, we do not believe that a demur-
rage charge can properly be understood as a ‘‘rate”’
under §41(1), or as a ‘“‘charge”’’ as that term is
used in § 15(15).”’
The court concluded it was unable to say that the
inclusion of private car owners in the Commission’s
7A petition for judicial review in the United States Court of
Appeals for the Third Circuit also was filed by thirty-three rail-
road petitioners and four intervening railroads. Both petitions
were consolidated before the court of appeals.
6
demurrage remittance rule is a violation of the Inter-
state Commerce Act, and it did not express any con-
clusion with respect to potential violations of the
Elkins Act (App. B, p. 29a). The court also did not
address or even acknowledge petitioners’ argument
that the apportionment of demurrage revenues between
carriers can be effected only in accordance with the
procedures of former section 15(6) of the Act, 49
U.S.C. § 10705.
REASONS FOR GRANTING THE WRIT
Demurrage is a charge imposed by railroads upon
shippers and receivers of freight who detain cars for
loading or unloading beyond specified times.’ ‘‘The
purpose of demurrage charges,’’ said this Court in
Pennsylvania R.R. v. Kittaning Iron & Steel Mfg. Co.,
253 U.S. 319, 323 (1920), ‘‘is to promote car efficiency
by penalizing undue detention of cars. The duty of
loading and of unloading carload shipments rests upon
the shipper or consignee. To this end he is entitled to
detain the car a reasonable time without any payment
in addition to the published freight rate.’’ Accord,
Turner, Dennis & Lowry Lumber Co. v. Chicago, M.
¢& St. P. Ry., 271 U.S. 259, 262 (1926).
That demurrage is a ‘‘rate’’ or ‘‘charge’’ within the
regulatory scheme heretofore never has been doubted
by the courts or the Commission. Demurrage uniformly
has been held to require publication in tariffs as any
*Locklin, Economics of Transportation (7th ed. 1972) p. 587;
Vanderblue and Burgess, Railroads: Rates Service Management
(1924) pp. 257-258; Van Metre, Industrial Traffic Management
(1953) pp. 315-318.
7
other rates or charges,’ and it has been held to be law-
ful only if just and reasonable * and nondiscrimina-
tory.”
In these respects, the courts and the Commission
have treated demurrage no differently than they have
other accessorial rates or charges, such as wharfage,”
icing’ and, as is most pertinent, reconsignment.”*
The court below inexplicably held that demurrage
was neither a “‘rate” nor a ‘‘charge.’’”’ It, accordingly,
concluded that remittance of a portion of the demur-
® Berwind—White Coal Mining Co. v. Chicago & E.R.R., 235
U.S. 371, 375 (1914); Allied Chemical Corp. v. Burlington North-
ern, Inc., 353 L.C.C, 49°, 501-502 (1977); Schuhle’s Grape Juice
Co. v. Director General, 63 1.C.C, 129, 132 (1921).
1° Swift & Co. v. Hocking Valley Ry., 243 U.S. 281, 290 (1917) ;
Allied Chemical Corp. v. Burlington Northern, Inc., 353 1.C.C.
499, 501-502 (1977) ; International Proteins Corp. v. Baltimore &
O.R.R., 355 1.C.C. 187 (1976).
't Pennsylvania R.R. v. Kittaning Iron & Steel Mfg. Co., 253
U.S. 319, 323-324 (1920) ; Galveston Commercial Ass’n v. Atchison
T.& S.F. Ry., 25 1.C.C, 216, 227 (1912).
% United States v. ICC, 352 U.S. 158, 162 (1956) ; Cancellation
of Wharfage Absorption, 335 I.C.C. 477, 522 (1969).
18 Alton & S.R.R. v. United States, 49 F.2d 414, 427 (N.D. Cal.
1931) ; Red Ball Vegetable Co. v. Illinois Central R.R., 197 1.C.C.
385, 390-391 (1933).
* Turner, Dennis & Lowry Lumber Co. v. Chicago, M. & St. P.
Ry., 271 U.S. 259, 263 (1926) ; Detroit Produce Ass’n vy. Director
General, 62 1.C.C. 283, 286 (1921).
* Iverson v. United States, 63 F. Supp. 1001 (D.D.C. 1946),
relied on by the court of appeals, is inapposite. That case merely
upheld the I.C.C.’s power to increase the amount of demurrage
assessed upon cars in critical short supply, pursuant to the pro-
visions of former section 1(15) of the Act, 49 U.S.C. § 11123,
which, by its terms, allows the agency to adjust ‘‘any or all rules,
regulations, or practices’’ of the carriers affecting car service.
8
rage collected by the railroads w the shippers furnish-
ing their equipment could not be a rebate, within the
meaning of former section 41(1) of the Elkins Act, 49
U.S.C. § 11903. The lower court’s construction of the
law is an impermissibly narrow one; this court often
has held that rate concessions, no matter what form
they may take and no matter how indirectly they may
be given, are proscribed." Indeed, in United States v.
Philadelphia & R. Ry., 184 F. 548, 544 (C.C, E.D. Pa.
1910), the court specifically held that a jury can prop-
erly find an unlawful concession where a railroad failed
to collect and retain its entire published tariff rates
with regard to demurrage charges:
‘rT }he verdict establishes the contention of the
government that it was not a valid settlement of
a disputed claim but was the cancellation of a de-
murrage charge by the defendant for the purpose
of making a concession... in the matter of charges,
in violation of the Interstate Commerce Act.”
The lower court’s conclusion, of course, did not track
the Commission’s. The Commission found that its pro-
posed regulation would not result in the payment of
a rebate to the shippers furnishing their equipment,
not because demurrage was neither a rate nor a charge,
but because “‘the delivering carrier will receive its full
rate and compensation for all demurrage charges and
will merely remit the excess to the car owner.’’ 353
1.C.C, at 594 (App. C, p. 70a).
Thus, the court below upheld the Commission’s de-
cision on a ground altogether different than had been
invoked by the agency. This clearly is error and con-
1 United States v. Braverman, 373 U.S. 405 (1963); United
States v. Chicago Heights Trucking Co., 310 U.S. 344, 353 (1940) ;
Baldwin v. Scott County Milling Co., 307 U.S. 478, 485 (1939).
9
trary to the fundamental rule of administrative law set
forth by this Court in SEC v. Chenery Corp., 332 U.S.
194, 196 (1947):
‘“*TA] reviewing court, in dealing with a determina-
tion or judgment, which an administrative agency
alone is authorized to make, must judge the pro-
nied of such action solely by the grounds invoked
y the agency. If those grounds are inadequate or
improper, the court is powerless to affirm the ad-
ministrative action by substituting what it consid-
ers to be a more adequate or proper basis. To do
so would a the court into the domain which
Congress has set aside exclusively for the admin-
istrative agency.”
Accord, FPC v. Texaco, 417 U.S. 380, 397 (1974);
Burlington Truck Lines v. United States, 371 U.S. 156,
169 (1962).
The lower court’s error colors all of its decision. Not
merely did it mistakenly conclude that payment to
shippers of a portion of demurrage collected from ship-
pers furnishing their equipment, in compliance with
the Commission’s proposed regulation, would not be a
rebate. The perception of the court below that demur-
rage is neither a ‘‘rate’’ nor a ‘‘charge”’ led it to disre-
gard our argument, without so much as a footnote com-
ment that, on carrier-owned equipment, the division of
revenues between the railroads can be effected only in
accordance with the procedures of former section 15(6)
of the Act, 49 U.S.C. § 10705. That provision obliges a
‘“‘hearing’’ and an evidentiary record that comprehends
the several factors that the Commission must consider
in prescribing a division of revenues.”
See United States v. Florida East Coast Ry., 410 U.S, 244,
238 (1973); Ligon Specialized Hauler v. ICC, Nos, 77-3302, 77-
3253 (3rd Cir. November 14, 1978).
10
This Court, in Baltimore & Ohio R.R. v. Aberdeen
& Rockfish R.R., 393 U.S. 87, 92 (1968), affirmed a dis-
trict court’s remand of a Commission order which pre-
scribed divisions between northern and southern rail-
roads based on an insufficient record:
“Tf we were to reverse the District Court, we
would in effect be saying that the expertise of the
Commission is so great that when it says that aver-
age territorial costs fairly represent the costs of
Me orth-South traffic, the controversy is at an end,
even though the record does not reveal what the
nature of that North-South traffic is. The require-
ment for administrative decisions based on sub-
stantial evidence and reasoned findings—which
alone make effective judicial review possible—
would become lost in the haze of so-called exper-
tise. Administrative expertise would then be on its
way to becoming ‘‘a monster which rules with no
es limits on its discretion’? (citation omit-
ted).’’
The Commission’s decision regarding the amount of
demurrage to be retained by the delivering carrier was
determined on a record woefully insufficient to support
such a division of revenues. The lower court over-
looked this insufficiency by applying the wrong stand-
ard of judicial review.” In fact, the Commission de-
cided the split of demurrage revenues initially without
benefit of any record or opportunity by petitioners to
present within the appropriate statutory framework
18 Aberdeen & Rockfish R.R. v. United States, 270 F. Supp. 695,
710 (B.D. La, 1967), aff’d as modified, 393 U.S. 87 (1968) ; Boston
& Maine R.R. v. United States, 208 F. Supp. 661, 674 (D. Mass.
1962), aff’d mem., 371 U.S. 26 (1962).
ll
their evidence concerning a just and reasonable appor-
tionment.”
Petitioners do not dispute the need for an adequate
freight car supply and better freight car utilization.
Their self interest obliges both. Obviously, the Com-
mission must consider these factors, specifically enum-
erated by the Congress in the amendment to former
section 1(6) of the Act, 49 U.S.C. § 10750, in promulgat-
ing rules and regulations relating to demurrage, But
as long as the Commission’s demurrage remittance rule
will result in a division of revenues between carriers,
the Commission also is required to adhere to the appli-
cable procedures under former section 15(6) of the
Act, 49 U.S.C. § 10705.”
The procedural requirements of 49 U.S.C. § 10705 in
_ no way conflict with agency attention to the additional
factors of section 1(6).” If there is to be a remittance
to the owning railroad of a portion of the demurrage
collected by the originating or delivering carrier, the
factors contained in section 1(6) certainly can be in-
cluded among those that must be considered by the
Commission in fixing the split of revenues between
participating lines.
Petitioners are being asked to share with the car
owners revenues they previously collected and retained
in full. The Commission’s apportionment of those rev-
'* The notice instituting the administrative proceeding proclaimed
that the $10.00 amount ‘‘appears to be more than adequate to
compensate the railroad on whose lines the foreign car is being
detained’’ (App. F, p. 93a).
© Baltimore & O.R.R. v. United States, 277 U.S. 291, 300-302
1928).
* See, e.g., ICC v. J-T Transport Co., 368 U.S. 81 (1961).
12 13
enues, on a basis predetermined by the Commission, CONCLUSION
without adherence to the procedural requirements un- eo ;
der 49 U.S.C. § 10705, will be devastating to several of The petition for a writ of certiorari should be
the petitioners and in turn impair their ability to sup- granted.
ply transportation service to the public. Respectfully submitted,
For example, petitioner Canton Railroad submitted
evidence to the Commission that it received $66,310 in Fritz R. KAHN
demurrage revenues during the first quarter of 1975. a BERNHARD
Application of the Commission’s demurrage rule would & McPHERSON
1660 L Street, N.W.
reduce its demurrage revenues to $36,532, which would | Sirite 1000
ree A = pon el “i of a. sig rm Washington, D.C. 20036
119,112, Considering that petitioner’s reported ne
income for 1975 was $68,000, the effect of the Commis- mG RaPg cell
sion’s order is ruinous. 307 4th Avenue
The court below dismissed with a cursory footnote Pittsburgh, PA 16222
(App. B, p. 17a), the havoe to be wrought upon several THomas ©. DORSEY
of the petitioners, and ignored petitioners’ right to dle ear tg N.W.
present evidence pursuant to 49 U.S.C. § 10705 regard- | re ae
ing the justness and reasonableness of the division of | Attorneys for Petitioners
revenues ordered. If, as the Commission now evidently |
believes, demurrage is to be treated as revenue to be Dated: December 1978
apportioned between several carriers, it has no choice
but to observe the procedural safeguards of 49 U.S.C.
§ 10705.
APPENDIX
a ree
_-
a = se
a
Er
la
APPENDIX A
Petitioners are:
ALIQUIPPA AND SOUTHERN RAILROAD COMPANY;
CHESTNUT RIDGE RAILWAY COMPANY; EAST ERIE
COMMERCIAL RAILROAD; EAST JERSEY RAILROAD
AND TERMINAL COMPANY ; GETTYSBURG RAILROAD
COMPANY; LAKE ERIE, FRANKLIN & CLARION RAIL-
ROAD COMPANY; McKEESPORT CONNECTING RAIL-
ROAD COMPANY; MONONGAHELA CONNECTING
RAILROAD COMPANY (THE); MORRISTOWN AND
ERIE RAILROAD COMPANY; NORTHAMPTON AND
BATH RAILROAD COMPANY ; PHILADELPHIA, BETH-
LEHEM AND NEW ENGLAND RAILROAD COMPANY ;
PITTSBURGH AND OHIO VALLEY RAILWAY COM-
PANY; PORT JERSEY RAILROAD; RAHWAY VALLEY
RAILROAD; UNION RAILROAD COMPANY; UPPER
MERION AND PLYMOUTH RAILROAD COMPANY ;
AMERICAN SHORT LINE RAILROAD ASSOCIATION ;
ABERDEEN AND ROCKFISH RAILROAD COMPANY ;
ALEXANDER RAILROAD COMPANY; APACHE RAIL-
WAY COMPANY (THE); ARCATA AND MAD RIVER
RAILROAD COMPANY (THE); ARKANSAS & LOUISI-
ANA MISSOURI RAILWAY COMPANY ; ASHLEY, DREW
& NORTHERN RAILWAY COMPANY; BELFAST &
MOOSEHEAD LAKE RAILROAD COMPANY; BELTON
RAILROAD COMPANY; BERLIN MILLS RAILWAY
COMPANY; BIRMINGHAM SOUTHERN RAILROAD
COMPANY; BROOKLYN EASTERN DISTRICT TERMI-
NAL RAILROAD; BUTTE, ANACONDA & PACIFIC
RAILWAY COMPANY ; CANTON RAILROAD COMPANY ;
CARBON COUNTY RAILWAY COMPANY; CEDAR
RAPIDS AND iOWA CITY RAILWAY COMPANY;
CENTRAL NEW YORK RAILROAD CORPORATION ;
CHATTAHOOCHEE INDUSTRIAL RAILROAD; CHAT-
TAHOOCHEE VALLEY RAILWAY COMPANY; CHI-
CAGO SHORT LINE RAILWAY COMPANY; CHICAGO,
WEST PULLMAN AND SOUTHERN RAILROAD COM-
PANY; CITY OF PRINEVILLE RAILWAY; CLARE-
MONT AND CONCORD RAILWAY COMPANY; COLO-
RADO & WYOMING RAILWAY COMPANY; COOPERS-
TOWN & CHARLOTTE VALLEY RAILWAY CORPORA-
TION; CUYAHOGA VALLEY RAILWAY COMPANY
2a
(THE) ; DANSVILLE AND MOUNT MORRIS RAILROAD
COMPANY; DARDANELLE & RUSSELLVILLE RAIL-
ROAD COMPANY; DELRAY CONNECTING RAILROAD
COMPANY; DeQUEEN AND EASTERN RAILROAD
COMPANY; DULUTH & NORTHEASTERN RAILROAD
COMPANY; EAST CAMDEN & HIGHLAND RAILROAD
COMPANY; ESCANABA AND LAKE SUPERIOR RAIL-
ROAD COMPANY; FAIRPORT, PAINESVILLE AND
EASTERN RAILWAY COMPANY; FONDA, JOHNS-
TOWN AND GLOVERSVILLE RAILROAD COMPANY;
FORE RIVER RAILROAD CORPORATION; FRANK-
FORT AND CINCINNATI RAILROAD COMPANY;
GREAT SOUTHWEST RAILROAD INCORPORATED ;
GREEN MOUNTAIN RAILROAD CORPORATION;
GREENVILLE AND NORTHERN RAILWAY COMPANY ;
IOWA TERMINAL RAILROAD COMPANY; JOHNS-
TOWN AND STONY CREEK RAILROAD COMPANY ;
KENTUCKY AND TENNESSEE RAILWAY; LACKA-
WAXEN AND STOURBRIDGE RAILROAD CORPORA-
TION; LAKE SUPERIOR & ISHPEMING RAILROAD
COMPANY; LAKE TERMINAL RAILROAD COMPANY
(THE); LAONA & NORTHERN RAILWAY COMPANY ;
LaSALLE AND BUREAU COUNTY RAILROAD COM-
PANY (THE); LAURINBURG AND SOUTHERN RAIL-
ROAD COMPANY; LONG ISLAND RAIL ROAD COM-
PANY (THE); LONGVIEW PORTLAND & NORTHERN
RAILWAY COMPANY; MANUFACTURERS’ JUNCTION
RAILWAY COMPANY ; MARINETTE, TOMAHAWK AND
WESTERN RAILROAD COMPANY; MERIDIAN & BIG-
BEE RAILROAD COMPANY; MICHIGAN NORTHERN
RAILWAY COMPANY, INC.; MIDDLETOWN AND NEW
JERSEY RAILWAY COMPANY INCORPORATED; MIN.
NEAPOLIS, NORTHFIELD AND SOUTHERN RAIL-
WAY; MINNESOTA TRANSFER RAILWAY COMPANY ;
MISSISSIPPI EXPORT RAILROAD COMPANY; MO-
DESTO AND EMPIRE TRANCTION COMPANY; MONT-
PELIER & BARRE RAILROAD COMPANY; NEVADA
NORTHERN RAILWAY COMPANY; NEWBURGH AND
SOUTH SHORE RAILWAY COMPANY (THE); NORTH
LOUISIANA & GULF RAILROAD COMPANY; OREGON
& NORTHWESTERN RAILROAD COMPANY; PEARL
RIVER VALLEY RAILROAD COMPANY; PECOS VAL-
LEY SOUTHERN RAILWAY COMPANY (THE); PORT
HURON AND DETROIT RAILROAD COMPANY; PRES.
——
3a
COTT AND NORTHWESTERN RAILROAD COMPANY
(THE); PROVIDENCE AND WORCESTER COMPANY ;
RIVER TERMINAL RAILWAY COMPANY (THE);
SABINE RIVER & NORTHERN RAILROAD COMPANY ;
SALT LAKE, GARFIELD AND WESTERN RAILWAY
COMPANY; SAND SPRINGS RAILWAY COMPANY;
SANDERSVILLE RAILROAD COMPANY; SAVANNAH
STATE DOCKS RAILROAD COMPANY; STOCKTON
TERMINAL AND EASTERN RAILROAD; TERMINAL
RAILWAY ALABAMA STATE DOCKS; TEXAS &
NORTHERN RAILWAY COMPANY; TEXAS, OKLA-
HOMA & BASTERN RAILROAD COMPANY; TEXAS
SOUTH-EASTERN RAILROAD COMPANY; TRONA
RAILWAY COMPANY; TULSA-SAPULA UNION RAIL-
WAY COMPANY; VALDOSTA SOUTHERN RAILROAD ;
VENTURA COUNTY RAILWAY COMPANY; WARREN
& SALINE RIVER RAILROAD COMPANY; WYAN-
DOTTE SOUTHERN RAILROAD COMPANY; WYAN-
DOTTE TERMINAL RAILROAD COMPANY; = and
YOUNGSTOWN AND NORTHERN RAILROAD COM-
PANY (THE).
4a
APPENDIX B
UNITED STATES COURT OF APPEALS,
THIRD CIRCUIT,
Bautimore aANp Onto Cutcaco TerminaL Rartroap ComPaNy
et al., Petitioners,
V.
Unrrep States of America and Interstate Commerce
Commission, Respondents,
Central Vermont Railway, Inc., Duluth, Winnipeg and
Pacific Railway, and the Detroit and Toledo Shore Line
Railroad Company, /ntervenors,
Burlington Northern Inc. and Union Pacific Railroad
Company, /ntervenors,
Duval Sales Corporation, International Minerals & Chem-
ical Corporation, Evans Products Company and Pullman
Leasing Company, /ntervenors,
The Texas Mexican Railway Company, /ntervenor.
Axiquippa AND SourHerN Rartroap CoMPANy
et al., Petitioners,
Vv.
Unrrep States of America and the Interstate Commerce
Commission, Respondents,
Duval Sales Corporation, International Minerals & Chem-
ical Corporation, Evans Products Company and Pullman
Leasing Company, Jntervenors,
The Texas Mexican Railway Company, Intervenor.
Nos. 77-1714, 77-1732.
Argued July 25, 1978.
Decided Sept. 6, 1978.
Before Apams, Weis and Hicatnsotnam, Circuit Judges.
a ee ee
5a
Oprnton Or THe Court
Apams, Circuit Judge
Petitioners in these consolidated cases ' request us to set
aside an order of the Interstate Commerce Commission
(ICC) entered on April 7, 1977, in Ex Parte No, 289, ‘‘Re-
mittance of Demurrage Charges by Common Carriers of
Property by Rail.” * By its order, the ICC adopted a regu-
lation requiring the remittance to freight car owners of all
demurrage charges collected by the delivering carrier that
are in excess of ten dollars per day per car.’ Specifically,
petitioners maintain that the order exceeds the statutory
power of the agency; that it is arbitrary, capricious, and
without rational basis; and that it fails to comply with the
Administrative Procedure Act (APA) * and the Interstate
Commerce Act (ICA),.°
For the reasons set forth below, we deny petitioners’ re-
quest,
‘In No. 77-1714, a petition was filed on behalf of thirty-three
railroad petitioners and four intervening railroads for review of
the ICC’s order in Ex Parte 289, In No, 77-1732, a petition for
review was filed by the 214 member railroads of the American
Short Line Railroad Association. Both petitions are brought pur-
suant to 28 U.S.C.A, §§ 2321, 2342, and 2344 (1978) to enjoin a
final order of the ICC,
* 353 1.C.C, 567 (1977) ; 42 Fed. Reg. 19146 ; 39390 (1977) (to be
codified in 49 C.F.R. § 1254.10),
*Demurrage is the charge imposed upon shippers and receivers
for the detention of freight cars beyond the allotted free time
period for loading and unloading. Traditionally, all demurrage
payments have been made to and retained by the delivering car-
riers. Under the ICC order at issue here, these payments would
be remitted by the delivering railroads to the freight car owners.
*5 U.S.C.A, § 551 et seg. (1977 & Supp. 1978).
°49 U.S.C.A. § 1 et seq. ( 1949, 1951 & Supp. 1978).
6a
T
Ae
The regulation at issue is a recent attempt by the ICC
to deal with the long-standing shortage in this country of
railroad freight cars.° The car shortage, resulting from
both an insufficient supply and an inefficient utilization of
freight cars, is an outgrowth of the present national car-
pool system. Under the system, the freight cars that are
owned by individual railroads constitute a single, common
pool, used by all rail carriers. Thus, the same loaded freight
car is transported over the lines of different connecting
carriers to the ultimate destination point. While more effi-
cient than the earlier practice of shifting freight from the
ear of one carrier to the car of another, the pool system has
at the same time made ‘¢ more advantageous economically
for railroads to utilize the freight cars of the originating
carriers than to purchase and waintain their own. The na-
tional freight car shortage is the acknowledged result.’
During the past several years, che ICC has taken a num-
ber of major actions in an attempt to ease the car shortage:
(1) it has adopted various ‘‘car service’’ rules to regulate
the placement and movement of freight cars;* (2) it has
established a uniform schedule of ‘‘per diem’’ charges,
which are those incurred daily by one railroad for the use
° See United States v. Florida E. Coast Ry. Co., 410 U.S. 224,
230-31, 93 S.Ct. 810, 35 L.Ed.2d 223 (1973); United States v.
Allegheny-Ludlum Steel Corp., 406 U.S. 742, 743-46, 92 S.Ct.
1941, 32 L.Ed.2d 453 (1972); Note, The Freight Car Shortage
and ICC Regulation, 85 Harv.L.Rev. 1583 (1972).
" See, e. g., United States v. Allegheny-Ludlum Steel Corp., 406
US. at 745-46, 92 S.Ct. 1941.
* Sec, e.g., ICC v. Oregon Pac, Indus., Inc., 420 U.S. 184, 95 S.Ct.
909, 43 L.Ed.2d 121 (1975); United States v. Allegheny-Ludlum
Steel Corp., 406 U.S, 742, 92 S.Ct. 1941, 32 L.Ed.2d 453; Reading
Co. v. Commodity Credit Corp., 289 F.2d 744 (3d Cir. 1961).
Ta
of another’s cars;* (3) it has added an ‘‘incentive’’ ele-
ment to the basic per diem rate; '® and (4) it has imposed
an increase in demurrage charges."
ox Parte No. 289, the proceeding in question here, was
instituted in October 1972, to determine whether remittance
of the penalty portion of the demurrage charges to the
carriers owning the cars would create an added incentive
for such carriers to acquire additional cars, Following no-
tice in the Federal Register**® and submission of written
statements by a number of the ninety-seven participating
parties, the ICC, on April 25, 1975, issued its Interim Re-
port.’* The Report adopted the principle of the proposed
remittance rule and reopened the proceeding for receipt of
additional evidence regarding the plan’s feasibility and
costs. Following notice of the proposed further rulemak-
ing,’® one hundred-eighteen parties submitted additional in-
formation to the ICC.
*See Union Pac. R.R. Co. v. United States, 300 F.Supp. 318
(D.Nev.1969) ; Boston & Me. R.R. v. United States, 297 F.Supp.
615 (D.Mass.), aff’d per curiam, 396 U.S. 27, 90 S.Ct. 196, 24
L.Ed.2d 142 (1969).
See United States v. Florida E. Coast Ry. Co., 410 U.S. at 224,
93 S.Ct. 810, on remand, 368 F.Supp. 1009 (M.D.Fla.1973), aff’d
mem., 417 U.S. 901, 94 S.Ct. 2595, 41 L.Ed.2d 207 (1974).
‘See General Mills, Inc. v, United States, 364 F.Supp. 1278
(D.Minn.1973).
‘® Demurrage charges consist of both penalty and compensatory
elements. See ICC v. Oregon Pac. Indus., Inc., 420 U.S. at 189-191,
95 S.Ct. 909. The latter element is that portion of the demurrage
charge which serves to compensate the railroad for the additional
per diem payments it must make to the car owner as a result of
the loading or unloading delay. The remainder of the demurrage
charge is understood as the penalty portion.
8 37 Fed. Reg. 22884 (1972).
349 I.C.C, 411 (1975).
* 40 Fed.Reg. 18797 (1975).
8a
On April 7, 1977, the ICC issued its Report and Order in
Ex Parte No. 289."° It concluded that adoption of the pro-
posed remittance rule would be beneficial to the public and
the rail industry, as well as administratively feasible. Con-
sequently, the agency directed that the rule become effec-
tive on July 6, 1977. However, the effective date was subse-
quently stayed by the ICC pending judicial review.
Il.
A.
The principal argument made in support of the petition
to set aside the order in question is that the ICC lacks a
statutory base to promulgate the demurrage remittance
rule. The ICC, in turn, contends that it does have the requi-
site authority under 49 U.S.C.A. §1(6)(Supp.1978), as
amended by the Rail Revitalization and Regulatory Reform
Act of 1976 (4R Act).""
The 4R Act added a provision to § 1(6) which states that
‘*{djemurrage charges shall be computed, and rules and
regulations relating to such charges shall be established, in
such a manner as to fulfill the national needs with respect
*° 353 1.C.C. 567 (1977).
*' Pub.L.No.94-210, § 211, 90 Stat. 31, 46 (1976). In its Interim
Report of April 1975, the Commission found that it had jurisdic-
tion under three car service provisions of the ICA, 49 U.S.C.A.
§§ 1(11), 1(14) (a), and 1(15) (1959 & Supp.1978). Subsequent to
the Report, the 4R Act was enacted, and on March 3, 1976, the
1CC solicited comments on the effect of the new legislation. In its
final Report and Order of April 1977, as well as in its brief sub-
mitted to this Court, the ICC, while continuing to assert that it
has authority to promulgate the remittance rule under the three
above-mentioned sections, relied principally upon the amended
version of § 1(6). In light of our holding that § 1(6) provides the
ICC with the necessary authority to promulgate the demurrage
remittance rule in question it is unnecessary to decide whether
jurisdiction might properly be founded upon §§ 1(11), 1(14) (a),
and 1(15) as well.
9a
to (a) freight car utilization and distribution, and (b) main-
tenance of an adequate freight car supply available for
transportation of property.” Petitioners assert that the
statutory directive that ‘‘demurrage charges shall be com-
puted’’ cannot properly be interpreted to authorize the
ICC to ‘‘divide’’ demurrage revenues between the deliver-
ing carrier and the owner of the car.
In analyzing a question of statutory construction, the
Supreme Court has said that it accords deference to the
interpretation given the statute by the officers or agency
charged with its administration. Udall v. Tallman.” While
1849 U.S.C.A. § 1(6), (Supp.1978), in full, provides :
It is made the duty of all common carriers to the provisions
of this chapter to establish, observe, and enforce just and
reasonable classifications of property for transportation, with
reference to which rates, tariffs, regulations, or practices are
or may be made or prescribed, and just and reasonable regu-
lations and practices affecting classifications, rates, or tariffs,
the issuance, form, and substance of tickets, receipts, and bills
of lading, the manner and method of presenting, marking,
packing, and delivering property for transportation, the facili-
ties for transportation, the carrying of personal, sample, and
excess baggage, and all other matters relating to or connected
with the receiving, handling, transporting, storing, and deliv-
ery of property subject to the provisions of this chapter which
may be necessary or proper to secure the safe and prompt
receipt, handling, transportation, and delivery of property
subject to the provisions of this chapter upon just and reason-
able terms, and every unjust and unreasonable classification,
regulation, and practice is prohibited and declared to be un-
lawful. Demurrage charges shall be computed, and rules and
regulations relating to such charges shall be established, in
such a manner as to fulfill the national needs with respect to
(a) freight car utilization and distribution, and (b) mainte-
nance of an adequate freight car supply available for trans-
portation of property.
1 380 U.S. 1, 16, 85 S.Ct. 792, 13 L.Ed.2d 616 (1965). Accord,
Batterton v. Francis, 432 U.S. 416, 424, 97 S.Ct. 2399, 53 L.Ed.2d
448 (1977); Lehigh & New Eng. Ry. Co. v. ICC, 540 F.2d 71, 80
10a
the agency’s interpretation is by no means controlling,”® to
sustain the ICC it is necessary only that we find its inter-
pretation to be a reasonable one.*' As Tallman recognized,
‘‘we need not find that [an agency’s] construction is the
only reasonable one or even that it is the result we would
have reached had the question arisen in the first instance
in judicial proceedings.”’ ”
Petitioners in the present situation argue that the plain
meaning of the phrase ‘‘demurrage charges shall be com-
puted”’ should control, that previous use of the term by the
ICC does not indicate an understanding that it confers
upon the agency the power to divide demurrage revenues,
and that the division of revenues is such a substantial
change from prior practice that an express authorization
by Congress to divide demurrage charges is required.
While the language of § 1(6) does not specifically author-
ize remittance to car owners, it is equally clear that the
statute does not prohibit such an arrangement. By focusing
solely upon the phrase ‘‘shall be computed’’, petitioners
tend to restrict what appears to be the rather broad au-
thorization granted to the ICC by the 1976 amendments to
§ 1(6).** Indeed, the provision not only directs the ICC to
(3d Cir. 1976), cert. denied, 429 U.S. 1061, 97 S.Ct. 784, 50 L.Ed.
2d 776 (1977) ; Lucas Coal Co. v. Interior Bd. of Mine Operations
Appeals, 522 F.2d 581, 584 (3d Cir. 1975).
*° See Batterton v. Francis, 432 U.S. at 424, 97 S.Ct. 2399.
** See Udall v. Tallman, 380 US. at 16, 85 S.Ct. 792.
** Udall v. Tallman, 380 U.S. at 16, 85 S.Ct. at 801, quoting with
approval Unemployment Compensation Comm’n v. Aragon, 329
U.S. 143, 153, 67 S.Ct, 245, 91 L.Ed. 136 (1946).
** As this Court stated in Lehigh and New Eng. Ry. Co. v. ICC,
540 F.2d at 80, ‘‘[s]urely, the scope of the Commission’s responsi-
bilities under the Act requires a generous construction of its statu-
tory authority.’’
lla
compute demurrage charges with the purpose of enhancing
freight car supply, utilization, and distribution but also
mandates the agency to establish ‘‘rules and regulations
relating to such charges.’’
The legislative history of the 4R Act further indicates
the appropriateness of a broad reading of the amendment
to §1(6). The statute encompassing the provision was en-
acted by Congress for the general purpose of revitalizing a
sagging railroad industry.** It was the declared policy of
Congress, araong other things, to balance the needs of car-
riers, shippers, and the public; to help place the nation’s
railroads in a position competitive with that of other modes
of transportation, so as to promote more adequate and effi-
cient transportation services; and to increase the attrac-
tiveness of investing in railroads and rail-service-related
enterprises.”
One of the means of fulfilling these aims was the amend-
ment pertaining to demurrage charges. That provision,
comprising only eight lines in the 120-page statute, under-
standably did not attract much congressional comment.”
The few portions of the legislative history that deal with
the demurrage provision, however, lend support to the
ICC’s broad interpretation of §1(6).
** See Pub.L.No.94-210, § 101, 90 Stat. 31, 33 (1976) (codified at
45 U.S.C.A. § 801 (Supp. 1978) ).
*9 Td,
2° The debates on the floors of the Senate and House of Repre-
sentatives fail to offer any insight into congressional thought with
regard to the demurrage provision, for the section was never men-
tioned other than in the reading of the bill. Rather, the debates
focused on the Final System Plan and other provisions of the 4R
Act involving financial assistance by the federal government to the
railroads. See 121 Cong.Ree. 38117, 38441, 41334, 41888, 42169
(1975) ; 122 Cong.Ree. H92, $271, S741, H401 (daily eds. Jan. 20,
21 & 28, 1976).
l2a
During the initial review of the railroad reform legisla-
tion in the House of Representatives, the Committee on
Interstate and Foreign Commerce was informed of the
ICC’s pending consideration of the demurrage remittance
rule in Ex Parte No. 289, and it gave no indication of its
disapproval.” This is of special significance in light of the
Supreme Court’s holding in Zuber v. Allen * that an agen-
cy’s interpretation of the statute it is charged with imple-
menting ‘‘carries most weight when the administrators
participated in drafting and directly made known their
views to Congress in Committee hearings. .. . In such cir-
cumstances, absent any indication that Congress differed
with the responsible department, a court should resolve
any ambiguity in favor of the administrative construction,
if such construction enhances the general purposes and pol-
icies underlying the legislation.’’ * In addition, we find sub-
stantial support for the ICC’s interpretation of the demur-
rage provision in the Joint Explanatory Statements of the
Conference Committee. It declared with regard to the sec-
tion: ‘‘Other amendment made by this title: . . requires
the Commission to establish rules and regulations for the
** The Committee received a letter from ICC Acting Chairman
O’Neal with his comments on the proposed 4R Act. In his analysis
of the demurrage provision, the Acting Chairman stated:
Another proceeeding, Ex Parte No, 289, Remittance of De-
murrage Charges by Common Carriers of Property by Rail,
concerns a proposed rule requiring remittance to the car
owner by a non-owning road of all demurrage charges in
excess of $10 per day per car. The purposes of the proposals
are to create an added incentive for the car owner to acquire
additional cars and to remove any inducement to the non-
owner to encourage detention of foreign cars in order to benefit
from collection of demurrage charges.
See Report of the Committee on Interstate and Foreign Commerce,
H.R.Rep. No. 725, 94th Cong., Ist Sess. 240 (1975),
** 396 U.S. 168, 90 S.Ct. 314, 24 L.Ed.2d 345 (1969).
2° Td, at 192, 90 S.Ct. at 327.
13a
computation of demurrage charges so that freight car utili-
zation is maximized and car owners receive adequate com-
pensation...” *
In light of this statutory history, and the goals of the
legislation, we are unable to say that the ICC’s views that
§1(6) authorizes it to promulgate the present demurrage
remittance rule is an unreasonable one.
B.
Petitioners also contend that the order in Ex Parte No.
289, even if within the ICC’s power, must be set aside as
arbitrary and capricious and as unsupported by substantial
evidence. In this regard, petitioners assert that the appli-
cable standard of review is the one established by the APA
5 U.S.C.A. § 706 (1977), and that the ICC determination,
by failing to demonstrate a sufficient nexus between demur-
rage remittance and improved freight car utilization and
supply, cannot survive such review.
Section 706(2) requires, inter alia, that the reviewing
court hold unlawful and set aside agency action, findings,
and conclusions found to be—(A) arbitrary, capricious, an
abuse of discretion, or otherwise not in accordance with
law;... [or] (E£) unsupported by substantial evidence in
a case subject to sections 556 and 557 of this title or other-
wise reviewed on the record of an agency hearing provided
by statute ...’’" Since the present proceeding involves no-
%© Final Conference Report, S.Rep. No. 595 and H.R Rep. No.
781, 94th Cong., 2d Sess. 135, reprinted in [1976] U.S.Code & Ad-
min.News, pp. 149, 150 (emphasis added). Similar statements are
found in the other committee reports which discussed the demur-
rage provision. See Conference Report, S.Rep. No. 585 and H.R.
Rep. No. 768, 94th Cong., 1st Sess. 128 (1975); Report of the
Committee on Interstate and Foreign Commerce, H.R.Rep. No. 725,
94th Cong., Ist Sess. 73 (1975).
7d. 5 U.S.C.A. §§ 556 and 557 (1977) establish procedural
requirements for hearings mandated by §§ 553 or 554.
l4a
tice and comment rulemaking under 5 U.S.C.A. § 553
(1977), and is not one ‘‘reviewed on the record of an
agency hearing provided by statute,’’** the ‘‘substantial
evidence”’ test of § 706(2)(E) would not appear to be ap-
plicable.* As we recently stated in Ford Motor Co. v.
United States,” the basic standard of review in proceed-
ings such as this one is the ‘‘arbitrary and capricious”’
standard of § 706(2)(A).”
It is generally settled that the scope of review of agency
actions under § 706(2)(A) is narrow.” A unanimous Su-
“5 U.S.C.A. § 551 (1977) defines ‘‘rule’’ as ‘‘the whole or a
part of an agency statement of general or particular applicability
and future effect designed to implement, interpret, or prescribe
law or policy or describing the organization, procedure, or practice
requirements of an agency ... .’’ ‘‘Rulemaking’’ is defined in
that same section as ‘‘agency process for formulating, amending,
or repealing a rule.’’ Jd, Ex Parte No. 289 clearly falls within
this category of proceeding.
5 U.S.C.A. § 706(2)(E) (1977).
“ See, e.g., Weinberger v. Hynson, Westcott & D:nning, Inc.,
412 U.S. 609, 622 n. 19, 93 S.Ct. 2469, 37 L.Ed.2d 207 (1973) ;
American Iron and Steel Inst. v. EPA, 568 F.2d 284, 296 (3d Cir.
1977) ; Asphalt Roofing Mfrs. Ass’n v, ICC, 567 F.2d 994, 1002
n. 5 (D.C. Cir. 1977) ; National Nutritional Foods Ass’n v. Wein-
berger, 512 F.2d 688, 700-701 (2d Cir.), cert. denied, 423 U.S. 827,
96 S.Ct. 44, 46 L.Ed.2d 445 (1975) ; K. Davis, Administrative Law
of the Seventies, § 29.01-3 (1976).
*° 569 F.2d 196 (3d Cir. 1977), cert. denied, —— U.S, ——, 98
8.Ct, 2844, 56 L..Ed.2d 785 (1978),
8° See id. at 198. :
** See, e.g. Bowman Transp. v. Arkansas Best Freight Sys.,
419 U.S. 281, 285-86, 95 S.Ct. 438, 42 L.Ed.2d 447 (1974) ; United
States v. Allegheny-Ludlum Steel Corp., 406 U.S. at 749, 92 S.Ct.
1941; Citizens to Preserve Overton Park, Inc. v. Volpe, 401 U.S.
402, 416, 91 S.Ct. 814, 28 L.Ed.2d 136 (1971) ; Ford Motor Co. v.
United States, 569 F.2d at 198-99. Several courts of appeals, in-
cluding this one, have observed that in notice and comment rule-
making the ‘‘arbitrary and capricious’’ and ‘‘substantial evidence’’
15a
preme Court noted in United States v, Allegheny-Ludlum
Steel that ‘‘{w]le do not weigh the evidence introduced
before the Commission; we do not inquire into the wisdom
of the regulations that the Commission promulgates, and
we inquire into the soundness of the reasoning by which
the Commission reaches its conclusions only to ascertain
that the latter are rationally supported.’’*® Accordingly,
we examine the evidence and arguments offered by the ICC
in order to determine whether the demurrage remittance
rule is ‘‘rationally supported.’’
In its Interim Report and final Report and Order, the
ICC extensively discussed the arguments of both propo-
nents and opponents of the remittance rule, and concluded
that the rule would likely achieve its intended purpose of
increasing freight car supply and utilization. Its reasoning
was forthright, relying upon ‘‘the fundamental economic
proposition that a greater return on an investment will pro-
vide an increased incentive to invest in that item, whether
it be stocks, cars, or as in this case, freight cars.” *° While
criteria tend to converge. See, e. g., Synthetic Organic Chem. Mfrs.
Ass’n v. Brennan, 503 F.2d 1155, 1158 (3d Cir 1974), cert. denied,
420 U.S. 973, 95 S.Ct. 1396, 43 L.Ed.2d 653 (1975) ; Associated
Indus., Inc. v. United States Dep’t of Labor, 487 F.2d 342, 350
(2d Cir, 1973) (Friendly, J.). See generally Friendly, ‘‘ Some Kind
of Hearing’’, 123 U. of Pa.L.Rev. 1267, 1313 (1975); Pedersen,
Formal Records and Informal Rulemaking, 85 Yale L.J. 38, 46-51
(1975). Of course, an agency decision without any evidentiary
support, in the administrative record will not be upheld. The
evidence presented, however, need only establish a rational basis,
rather than substantial support, for the agency action. See Almay
Inc. v. Califano, 569 F.2d 674, 680-81 (D.C. Cir. 1978).
406 U.S. 742, 92 S.Ct, 1941, 32 L.Ed.2d 453 (1972),
3° Td. at 749, 92 S.Ct. at 1946, Accord, Ford Motor Co. v. United
States, 569 F.2d at 199.
*° 353 ICC at 589, As the ICC continued:
As demurrage regulations presently exist, the delivering
carrier, who may not own one freight car, is nevertheless
16a
admitting that return on investment would be only one of
several factors affecting a decision whether to purchase
freight cars, the ICC claimed that the rule would at least
tend to encourage such decision. Moreover, the agency con-
cluded that the remittance rule would have an affirmative
effect upon the supply of cars. Pointing to evidence ad-
duced in earlier proceedings that large sums of demurrage
charges remained uncollected by the carriers, the ICC
reasoned that the requirement of the remittance rule, which
is based on billed rather than collected demurrage charges,
would likely encourage carriers to be more rigorous in
their collection of the charges. This, the agency maintained,
would enhance the general regulatory effect of the demur-
rage system."
entitled to the entire demurrage charge even though this sum
may far exceed any costs incurred, In addition, there is no
indication that this demurrage revenue is presently being used
by the delivering road to purchase additional cars, This money
is, therefore, a bonus to a carrier who has no interest in
whether or not a car is being detained, However, the car
owner, whether private or foreign road, has its equipment
detained and unavailable for further use, and thereby loses
revenue, This is especially true of private car owners who do
not receive per diem but a mileage allowance, This remitted
amount which table 5 shows is approximately $22 for each
excess day ($11 if it is assumed that Service Order No, 1124
inflated demurrage by 50 percent), which SP estimates to be
approximately $62.50 a car annually, will be an added divi-
dend to car owners. When these figures are multiplied by the
vast number of cars in the transportation system, the rule
will certainly have a signifigant positive impact on car supply,
Id.
** 349 ICC at 435.36, The ICC elaborated as follows:
The shipper to whom the carrier delivers a car pays the
demurrage. He has control of the car and determines how
long he will hold it, One of the factors he will consider in
deciding how long to detain a car is the amount of the demur-
rage charges.
This proposal does not alter the level of demurrage charges,
It merely shifts the payment of part of these charges from one
17a
Further, the ICC carefully weighed the benefits of the
proposed rule against the claims of its opponents that de-
murrage remitiance, by reducing railroad revenues and re-
quiring additional administrative expenses, would place
undue economic burdens upon many carriers.” The ICC
group, the receiving carrier, to another, the car owner, Since
it ean make no difference to the shipper whether he pays the
charge to one party rather than another, it may appear that
the implementation of this proposal would have no impact on
ear utilization.
However, evidence collected by the Commission staff in
another proceeding suggests that this proposal may have a
positive impact on car utilization, The Commission has issued
a Notice of Proposed Rulemaking and Order in Ex Parte No,
285, Maintenance of Records Pertaining to Demurrage, Deten-
tion, and Other Related Accessorial Charges by Rail Common
Carriers of Property. In that notice and order, served August
16, 1972, we indicated that inquiries by the Commission's field
staff revealed that large sums of money resulting from de-
murrage charges remained uncollected by the carriers or that
such debts were canceled because carriers did not maintain
adequate records, Other indications that carriers do not always
collect demurrage charges appear in Demurrage Rules and
Charges, Nationwide, 340 1,C.C, 88, 92 (1971), and /neentive
Per Diem Charges—1968, 387 1.C.C, 217, 233 (1970),
When carriers do not actually collect demurrage charges,
an important economic incentive for shippers to release cars
with dispatch is lost. Under the proposal herein, the car
owner would receive part of these demurrage payments, Faced
with the necessity of paying these sums to the car owner, the
delivering carrier would have added motivation to pursue the
charges against the shippers and receivers. The incentive to
release cars would be greater and some improvement in car
utilization could reasonably be expected,
Id.
“The short-line railroads, in particular, have expressed their
strong concern about the possible detrimental impact of the remit-
tanco scheme upon their operations. Their claims, whether legiti-
mate or not, are not determinative, Rather, they are but one of
several considerations relevant to ascertaining the rationality of
18a
found that many of the projections set forth by the object-
ing carriers were based on short-term start-up expenses,
and therefore were subject to question. Thus, the agency
concluded that the benefits of the proposed rule outweighed
the burdens.*" Having reviewed the ICC’s reasoning, we are
the ICC’s rule, As a unanimous Supreme Court reasoned in a
proceeding quite similar to the present one:
It may be conceded that the immediate effect of the Com-
mission's order will be to disrupt some established practices
., and on oeeasion to cause serious inconvenience , . . If
the Commission were thrusting these regulations upon an
admittedly smoothly functioning transportation industry . . .
the rationality of its action might well be open to question,
But such is not the case,
United States v. Allegheny-Ludlum Steel, 406 U.S, at 753, 92 S.Ct.
at 1948 (upholding ear service rules requiring the return of freight
cars in the direction of the lines of the railroads owning the cars).
** 353 ICC 589-91, The ICC declared in its final report ;
In conclusion, we realize that the cost data submitted by
many of the reporting roads is inflated and that many of the
expenses are unsubstantiated. (For example, a carrier states
that it needs four additional employees but it does not indicate
how it arrived at this figure.) However, despite our reserva-
tions as to the accuracy of the cost data presented, even
taking it at face value, we are nevertheless unable to find
that the costs of administering the rule are excessive, As can
be seen from table 4, average startup expenses of $14,219 and
annual expenses of approximately $0.90 for each excess demur-
rage day are not unreasonable, unjustifiable, or unduly bur-
densome, Even if expenses were slightly higher, the evidence
of record still supports the finding that the costs of admin-
istering the rule are not prohibitive.
The record also indicates that in terms of cost-benefit, the
proposed rule is justified. Table 5 shows that the total amount
of demurrage that would have been remitted for the period
July 1 through December 31, 1973, to private and foreign car
owners by 42 roads is $40,387,455, Even if we discount the
effects of Service Order No, 1124, which inflated this figure
by an estimated 50 percent, $20,193,727 would still have been
remitted to car owners during this 6-month period, This dis-
19a
unable to say that the agency’s solution is not ‘rationally
supported,’’ “
C,
Petitioners further contend that the ICC’s order in Kix
Parte No. 289 must be set aside for failure to comply with
certain procedural requirements of the APA, 5 U.S.C.A.
§558(c) (1977), and of the ICA, 49 U.S.C.A. § 17(14) (b)
(Supp. 1978).
L.
Section 553(¢) provides in pertinent part that ‘‘[a]fter
consideration of the relevant matter presented, the agency
shall incorporate in the rules adopted a concise and general
statement of their basis and purpose.” It is the petitioners’
position that this section requires that the statement by
the agency be supported by more than conclusory asser-
tions, and that the ICC remittance rule is invalid because
of the agency’s failure to comply with this requirement.
counted amount would constitute between a $10 and $11 return
on a car owner's investment for each excess demurrage delay.
When this amount is compared to the costs of administering
the rule, it becomes evident that the costs are not so burden-
some as to outweigh the rules’s benefit in providing an incen-
tive for the purchase of additional equipment and, thereby,
in increasing car supply.
Td, at 590-91,
‘In light of the ICC’s extensive discussion of the benefits and
burdens of the demurrage remittance rule, we are also unable to
accept petitioners’ contention that the agency has failed to provide
this Court with a basis for determining whether the proposed rule
comports with the National Transportation Policy, 49 U.S.C.A,
prec, § 1 (Supp.1978), See generally A. L. Mechling Barge Lines,
Inc, v. United States, 876 U.S, 375, 84 S.Ct, 874, 11 L.Ed.2d 788
(1964); Schaffer Transp. Co. v. United States, 355 U.S, 83, 78
8.Ct, 173, 2 L.Ed.2d 117 (1957).
20u
Those courts which have considered the issue agree that
§ 553(c) is designed to facilitate meaningful judicial review
of agency action.” When engaging in such review, courts
have expressed their intention to limit their scrutiny to’
the actual reasoning set forth by the agency.” Thus, post
hoc rationalizations advanced in the course of judicial
review have been considered insufficient bases for sustain-
ing an administrative action.”
However, in recognition of the limited purpose of the
statement requirement of § 553(¢c), the provision has not
been seen as a vehicle for searching judicial oversight of
agency decision-making.” As the District of Columbia Court
of Appeals made clear in Tabor v. Joint Board for Enroll-
ment of Actuaries, the mere failure to publish the state-
ment of the rule’s basis and purpose at the same moment
as the regulations are published does not constitute a
violation of § 553(c)."° Rather, ‘‘[t]he enquiry must be
** See, e. g., Tabor v, Joint Bd, for Enrollment of Actuaries, 185
U.S.App.D.C, 40, 44-47, 566 F.2d 705, 709-12 (1977); Alabama
Ass'n of Ins, Agents v. Board of Governors of the Fed. Reserve
Sys., 533 F.2d 224 (5th Cir, 1976), amended, 558 F.2d 729 (5th
Cir, 1977), cert. denied, 435 U.S, 904, 98 S.Ct. 1448, 55 L.Bd.2d
494 (1978); National Nutritional Foods Assoc’n v, Weinberger,
512 F.2d at 701, See generally Pederson, Formal Recurds and
Informal Rulemaking, 85 Yale LJ. 38, 78-4 (1975); Note, The
Judicial Role in Defining Procedural Requirements for Agency
Rulemaking, 87 Harv.L.Rev. 782 (1974), See also Atchison, T. &
S. F. Ry, Co. v. Wichita Bd. of Trade, 412 U.S, 800, 807, 93 S.Ct.
2367, 87 L.Rd.2d 350 (1973); SEC v, Chenery Corp,, 332 U.S,
194, 196-97, 67 S.Ct, 1575, 91 L.Ed, 1995 (1947); American Iron
& Steel Inst, v. EPA, 568 F.2a at 296.7; Dry Colors Mfrs, Ass’n
Inc. v. Department of Labor, 486 F.2d 98, 104 n, 8 (8d Cir, 1973).
rn Tabor v, Joint Bd. for Enrollment of Actuaries, 566 F.2d
at \
"Td.
Id.
“566 F.2d at 711,
2la
whether the rules and statement are published close enough
together in time so that there is no doubt that the state-
ment accompanies, rather than rationalizes the rules.’’ *°
In the present situation, the ICC’s notices in the Federal
Register of the proposed further rulemaking and of the
final rule themselves satisfy the requirement of § 553(c)."'
In addition, there can be little doubt that the ICC Interim
Report as well as its final Report and Order more than
fulfill the statutory purpose of facilitating judicial review.”
2.
The contention of petitioners regarding the time require-
ments set forth in the ICA, 49 U.S.C.A. § 17(14)(b) (Supp.
1978), presents a more difficult problem, That section pro-
vides: ‘Within one year after February 5, 1976, (the date
of the enactment of this subdivision] the Commission shall
conclude or terminate, with administrative finality, any
formal investigative proceeding with respect to a common
carrier by railroad which was instituted by the Commission
on its own initiative and which has been pending before
the Commission for a period of three or more years fol-
lowing the date of the order which instituted such pro-
ceeding,’’*
Petitioners argue that the proceeding here was a ‘‘for-
mal investigative proceeding’’, that it was pending before
the ICC for a period of more than three years subsequent
to the initiation of the proceeding, and that it continued
°° 7d. at n, 14,
** See 40 Fed.Reg. 18797 (1975) ; 42 Fed.Reg, 19146 (1977).
* The Supreme Court has previously found a ‘‘comprehensive’’
ICC report to ‘‘fully comply’’ with the requirement of § 553(¢).
See United States v. Allegheny-Ludlum Steel Corp., 406 U.S. at
747, 758, 92 S.Ct. 1941, 32 L.Ed.2d 453.
8°49 U.S.C.A. §17(14)(b) (Supp.1978) (emphasis added).
22a
for more than one year after the enactment of § 17(14)(b).
They maintain that the appropriate sanction for such a
violation of the section is the setting aside or dismissal of
the proceeding. Respondents, on the other hand, answer
that the proceeding here was an informal one; that the
ICC’s Notice of Proposed Further and Amended Rule-
making and Order initiated a proceeding that was separate
from that instituted in 1972 by the ICC’s initial notice in
Ex Parte No. 289; and thus that the time limitations were
not transgressed. In any event, they insist that dismissal is
neither required nor appropriate.
Recent opinions of several courts of appeals have con-
sistently distinguished between ‘‘informal rulemaking’’
under the APA, 5 U.S.C.A. § 553 (1977), which need not be
conducted with the procedural formalities of a trial, and
‘formal rulemaking’’ under 5 U.S.C.A. §§ 556 and 557
(1977), which is required to have an evidentiary hearing.”
There is no disagreement among the parties here that Ex
Parte No. 289 comes within the former category, that of
‘*informal rulemaking.’’ Respondents seek to establish that,
—because the proceeding in question is “informal” for pur-
poses of the APA, it is also “informal” for purposes of
the ICA, 49 U.S.C.A. § 17414) (b) (Supp. 1978).
We disagree, The ICC offers no evidence or reasoning
to support the assertion that Congress, when drafting
§ 303 of the 4R Act, which amended the procedural require-
ments of the 7CA, had in mind the characterization that
several courts have given to notice and comment rulemaking
under the APA, 5 U.S.C.A, § 553. In the absence of any
evidence, such a congruence seems to us implausible. While
the purpose of the APA is to establish general procedural
** See, «. g., National Ass’n of Food Chains, Inc. v, ICC, 175
U.S.App.D.C, 346, 351, 585 F.2d 1308, 1313 (1976); Buckeye
Power, Inc. v. EPA, 481 F.2d 162, 170 (6th Cir, 1973) ; Phillips
Petroleum Co, v, FPC, 475 F.2d 842, 851 (10th Cir, 1973), cert.
denied, 414 U.S. 1146, 94 S.Ct, 901, 39 L.Ed.2d 102 (1974).
23a
guidelines for a broad range of administrative agencies,”
the ICA applies to a much narrower set of circumstances,
Thus, it is reasonable to believe that Congress, when draft-
ing the 4R Act amendments to the ICA, was thinking in
terms of the particular problems of the ICC and the rail-
road industry.”
Indeed, such an interpretation of congressional intent
is affirmatively supported by the available legislative his-
tory of §17(14)(b). Paragraph (14)(b) was added to § 17
of the ICA in 1976, as part of Congress’ broad attempt in
the 4R Act to expedite ICC procedures. Congress was
particularly concerned with the lengthy delays traditionally
accompanying railroad-related matters. Thus, in § 303(a)
of the 4R Act, 49 U.S.C.A. §17 (Supp.1978), deadlines
were established by Congress for the completion of evi-
dentiary proceedings by ICC sub-units, the submission of
initial reports to the full ICC, and the consideration and
final disposition of administrative appeals. Furthermore,
in §303(b) of the 4R Act, Congress established deadlines
for the disposition of ‘‘any formal investigative proceed-
ing with respect to a common carrier by railroad.’’ We are
unable to find any indication, either on the face of the 4R
Act or in the legislative history, that Congress intended
proceedings such as Ex Parte No. 289 to be exempt from
a statutory time requirement.”
55 See Wong Yang Sung v. McGrath, 339 U.S. 33, 70 S.Ct, 445,
94 L.Ed. 616 (1950),
°° This is evident from the text of the 4R Act itself, See Pub.L.
No.94-210, 90 Stat. 31 (1976).
** Indeed, that Congress intended § 17(14) to be applied broadly
is indicated by the congressional comments, although few in num-
ber, that were made during the drafting of the section. See, e. g.,
Final Conference Report, S.Rep.No.595 and H.R.Rep.No.781, 94th
Cong., 2d Sess. 162, U.S.Code Cong. & Admin.News 1976, p. 177:
‘*The conference substitute follows the House bill except that it
incorporates the Senate provision that . . . all proceedings insti-
24a
It is not without significance that the ICC, in its annual
reports to Congress, has consistently designated notice and
comment rulemaking proceedings such as the present one
as ‘formal proceedings’’.”° In contrast, informal proceed-
ings have included such ICC activities as applications for
temporary authority to operate a motor vehicle, applica-
tions to deviate from regular routes, and applications for
temporary authority to lease or control. It is most likely
that it was this categorization of proceedings that Congress
had in mind when drafting § 17(14) (b).
Consequently, we hold that Ex Parte No. 289 constituted
a ‘‘formal investigative proceeding’’ under the ICA, 49
U.S.C.A. §17(14)(b), and that the statute’s time require-
ments are therefore applicable.”
Nevertheless, we do not believe that the ICC’s failure
in this case to comply with the statutory deadline requires
us to dismiss the proceedings. Section 17(14)(b), applying
to proceedings initiated prior to the enactment of that
section, contains no express sanction for noncompliance
as does §17(14)(a), which pertains to ICC investigations
begun since the provision’s enactment.” This distinction
tuted by the Commission shall be concluded with administrative
finality, within 3 years after such proceeding was initiated.’’
See. e. g., 91 ICC Ann.Rep, 111 (1978); 89 ICC Ann.Rep.
101-2 (1976),
°° We decline to accept the ICC’s contention that Ex Parte No.
289 was actually two proceedings. The ICC claims that the April
1975 Notice of Proposed Further and Amended Rulemaking began
a new rulemaking proceeding which merely capitalized on the
efforts of the earlier activity. In light of the ICC’s own language
in the Interim Report and the April 1975 notice to the effect that
the reopening was simply a continuation of the earlier proceeding,
we find the ICC’s argument before us to be unconvincing.
*° 49 US.C.A, § 17(14) (a) (Supp.1978) provides: ‘‘ Any formal
investigative proceeding with respect to a common carrier by rail-
25a
in the language of the two sections indicates a desire on
the part of Congress not to place ongoing proceedings under
the same absolute time limit as proceedings instituted sub-
sequent to the enactment of the 4R Act.
Furthermore, we are unconvinced that, as an equitable
matter, injunctive relief barring enforcement of the ICC’s
order would be at all appropriate in this instance, While
§17(14)(b) evidences a congressional desire to eliminate
delay in ongoing ICC proceedings, this purpose is but one
of several that animated the 4R Act. Accordingly, it is
necessary to balance the congressional aim of eliminating
delay against the equally strong goals of revitalizing the
nation’s railroad system and alleviating the boxcar short-
age. In light of these competing purposes, and of the vast
resources that have obviously been expended in the course
of Ex Parte No. 289, to enjoin the proceeding at this
juncture would appear to be inappropriate. Furthermore,
petitioners have failed to offer any evidence that they have
been unduly prejudiced by the additional delay of two
months beyond the statutory limit.”
We therefore hold that, while the ICC has exceeded the
time limitations established by § 17(14)(b), dismissal here
is neither required nor warranted,
road which is instituted by the Commission after February 5, 1976,
shall be concluded by the Commission with administrative finality
within 3 years after the date on which such proceeding is instituted.
Any such proceeding which is not so concluded by such date shall
automatically be dismissed. ’’
*! Obviously, such a demonstration of prejudice would have been
particularly difficult for petitioners to make, since the two-month
delay beyond the statutory limit merely served to further postpone
the eventual enforcement of the order to which they object.
26a
D.
Petitioners’ final claim is that the ICC rule, by including
private car owners in the demurrage remittance scheme,”
permits the payment of unlawful rebates in violation of
49 U.S.C. §§15(15)™ and 41(1).% It is contended that
these sections will be violated by the order, since the pay-
ment by a railroad for the use of a private freight car will
exceed the owner-shipper’s cost of furnishing the car, and
since the receiving carrier will in effect be paying an allow-
ance which will not be published in its tariffs for the use
of a car.
We have given careful consideration to these arguments
and conclude that petitioners have misconstrued the pur-
poses of §15(15) and §41(1), as well as the concept of
demurrage. Sections 15(15) and 41(1) were designed to
ensure reasonable and nondiscriminatory rates and charges,
and to prevent any type of departure from published trans-
*? In its final Report and Order, the ICC reasoned that: ‘‘An
increasing percentage of the Nation’s carrier fleet is owned by
private interests. The evidence shows that between 1972 and 1974
private car owners and shippers added 35,711 cars to the transpor-
tation system. These investors should receive a fair return on their
investment as well as carriers.’’ 353 1.C.C, at 594.
"49 U.S.C.A. §16(15) (Supp.1978) provides: ‘‘If the owner
of property transported . . . directly or indirectly renders any
service connected with such transportation, or furnishes any instru-
mentality used therein, the charge and allowance therefor shall be
published in tariffs . . . and shall be no more than is just and
reasonable and the Commission may . . , determine what is a
reasonable charge as the maximum to be paid... .”’
49 U.S.C.A, §41(1) (Supp.1978) makes it unlawful ‘‘to offer,
grant, or give, or to solicit, accept, or receive any rebate, concession,
or discrimination in respect to the transportation of any property
. whereby any such property shall by any device whatever be
transported at a less rate than that named in the tariffs published
and filed by such carrier . . . or whereby any other advantage is
given or discrimination is practiced.’’
27a
portation rates.** In contrast, the essential nature of de-
murrage is that of a car service regulation.*”° Consequently,
we do not believe that a demurrage charge can properly
be understood as a ‘‘rate’’ under § 41(1), or as a ‘‘charge’’
as that term is used in § 15(15). Unlike the use of the terms
in those provisions,”’ demurrage remittance relates not to
rail carriers’ property, but to excessive delay caused by the
shipper or receiver in the loading or unloading of freight
cars. Furthermore, it is neither a ‘‘charge and allowance’’
paid by the railroads for use of freight cars nor a reduction
of the railroads’ rates for owner-shippers. Rather, demur-
rage is a cost imposed upon the receiver, the penalty por-
tion of which will be transmitted to the owner by the
delivering carrier.
As Judge Prettyman observed in his oft-quoted opinion
in Iversen v. United States:
[D]emurrage charges are in part compensation and in
part penalty; ... in full character they are neither,
not being rates as that term is used in connection with
rate-making, nor penalties as that term is used in
respect to penal impositions. They are sui generis.
Historically, textually, in purpose and in content, they
are an integral part of the established rules and regu-
lations relating to the use and movement of cars. From
the beginning they have been sustained as rules and
* See United States v. Braverman, 373 U.S, 405, 406, 83 S.Ct.
1370, 10 L.Ed.2d 444 (1963) (unanimous) ; Zl Dorado Oil Works
v. United States, 328 U.S, 12, 66 S.Ct. 843, 90 L.Ed, 1053 (1945).
* See ICC v. Oregon Pac. Indus., Inc., 420 U.S, 184, 190, S.Ct.
909, 43 L.Ed.2d 121 (1975) (unanimous),
*’ See notes 64 and 65 supra.
**63 F.Supp, 1001 (D.D.C,.1946), aff’d mem., 327 U.S. 767, 66
S.Ct. 825, 90 L.Ed, 998 (1946),
28a
regulations. They could not have been sustained as
carrier charges or as penalties.”
* Jd, at 1005, cited with approval in ICC v. Oregon Pac, Indus.,
Inc., 420 U.S, at 190 n. 7, 95 S.Ct, 909, 913 (emphasis added).
In reaching this conclusion, Judge Prettyman relied in part on
the opinion of the Virginia Supreme Court of Appeals in Norfolk
& W. R. Co. v. Adams, Clement & Co., 90 Va. 393, 18 S.E, 673
(1894), His discussion of that case is of particular relevance to the
present proceeding:
In 1894 the Virginia Supreme Court of Appeals considered
the validity of a demurrage charge in view of a state statute
which forbade a railroad to charge any fee or commission
‘‘other than the regular transportation fees, storage, and
other charges authorized by law.’’ The official report of the
matter says:
‘‘The company had made a rule, of which plaintiffs had
notice, that a charge of $1 per car per day would be made
for every detention of a car for the purpose of loading or
unloading beyond seventy-two hours from the time that the
ear was placed at the disposal of the shipper or consignees,
as the case might be.’’
The court said:
‘It [the demurrage charge] is neither a transportation
charge, nor a storage charge, nor a terminal charge, nor a
subterfuge for adding to the cost of transportation in excess
of the rates preseribed.’’
The court sustained the charge on the ground that after
allowance of a reasonable time for unloading, the railroad
‘‘ean make reasonable rules and regulations and charges for
such service as bailee, as it may see fit,’’ and said, ‘‘Such
charges are not carrier charges in the meaning, intendment,
or prescription of the statute,’’
Thus, the original support for the right of a railroad to
impose a demurrage charge was that such charge constituted
a reasonable rule and regulation in respect to the use of the
ear, the purpose being to prevent delay in loading and un-
loading.
Iversen v. United States, 63 F.Supp. at 1003-4,
29a
As a result, we are unable to say that the inclusion of
private car owners in the ICC’s demurrage remittance
order is a violation of the ICA.
III,
For the reasons herein set forth, the petition to set aside
the order of the ICC in Ex Parte No. 289 will be denied.
30a
On Petitions ror Review or AN ORDER OF THE
INTERSTATE COMMERCE COMMISSION
(Ex Parte No, 289)
Nos. 77-1714 and 77-1732
Present: Apams, Weis and Hicornsornam, Circuit Judges
JUDGMENT
These causes came on to be heard on the record from
the Interstate Commerce Commission and were argued by
counsel on July 25, 1978.
On consideration whereof, it is now here ordered and
adjudged by this Court that the petitions for review from
the order of the said Interstate Commerce Commission
are hereby denied and the order of the said Commission
filed April 7, 1977, be and hereby is affirmed. Costs taxed
against petitioners.
ATTEST:
/38/ M. ExvizasetH Fercuson
M. Elizabeth Ferguson
Acting Clerk
September 6, 1978
3la
APPENDIX C
Served April 7, 1977
INTERSTATE COMMERCE COMMISSION
Ex Parte No. 289
REMITTANCE OF DEMURRAGE CHARGES BY
COMMON CARRIERS OF PROPERTY BY RAIL
Decided March 18, 1977
Upon investigation, proposed regulation requiring remittance to the
freight car owner by a nonowning railroad, on whose lines a car
is being detained under demurrage, of all demurrage charges
collected in excess of $10 per car per day, modified in certain
respects, and adopted. Appropriate order entered.
Curtis H. Berg, W. Donald Boe, Jr., and William R.
Power for carrier proponents.
C. W. Bath, Oliver Callson, T. A. Ellaby, James F.
Fox, H. Richard George, James J. Irlandi, James E., Is-
bell, Jr., A. E. Leitherer, J. W. McDermond, Thomas F.
McFarland, Jr., Robert P. Post, Jon R. Roy, Larry G.
Smethers, Harold E. Spencer, A. T. Walter and George
William Wright for private car owner or lessee pro-
ponents.
Robert C. Binn, Emried D, Cole, Jr., Donald E. Cross,
Robert S. Davis, Samuel P. Delisi, Thomas C. Dorsey,
Louis T. Duerinck, Richard 8S. M. Emrich III, James L.
Howe III, Peter J. Hunter, Jr., Harvey Huston, C. H.
Johns, Howard D. Koontz, Albert W. Laisy, Richard D.
Lalane, Patrick McEligot, Richard J .Murphy, Joseph J.
32a
Nagle, R. R. Pumphrey, T. J. Siegel, John McDonald
Smith, T. M. von Sprecken, Jr., R. H. Stahlheber, Sidney
Weinberg, and Kinga M, LaChapelle for carrier opponents.
Barry Chasnoff, John Hart Ely, and William A. Kutzke
for United States Department of Transportation, oppo-
nent.
Report AND OrDER OF THE COMMISSION ON FURTHER
HEARING
O'NEAL, Commissioner:
This proceeding was instituted by notice of proposed
rulemaking and order of October 12, 1972. (Notice was
published in the Federal Register on October 26, 1972,
Vol. 37, p. 22884.) Therein, adoption of a proposed rule
was set forth for consideration. The proposed rule would
require that: “The non-owning railroad on whose line a
car is being detained under demurrage, shall remit to the
railroad car owner all demurrage charges collected in ex-
cess of $10 per day.” All common carriers of property by
railroad subject to the Interstate Commerce Act (the act)
were made respondents. They along with all other inter-
ested parties were invited to submit written statements of
facts and arguments. In response to these representations
an interim report of the Commission (349 I.C.C. 411), en-
tered March 28, 1975, and served April 25, 1975, was is-
sued, In the interim report, certain procedural matters
were initially resolved. We held that the Commission had
jurisdiction to allocate demurrage revenues under sections
1(11), 1(14)(a), and 1(15), and that no oral hearing was
required in this proceeding. Also, in discussing the merits
of the proposed rule, we concluded in the interim report
that its adoption was warranted in principle. Car utiliza-
tion would be improved and the greater return on the car
owner’s investment, which would result from our adoption
of the proposed rule, would increase the incentive to in-
vest in freight cars and thereby improve car supply. We
ae et ee
33a
also determined that private car owner participation in
the rule was also supported by these same principles of
car utilization and supply. However, because of the lack
of evidence on the cost and administrative aspects of the
rule, the proceeding was reopened for the receipt of fur.
ther evidence on its feasibility and implementation. Par-
ticipants were asked to submit specific information con-
cerning present demurrage records and the modification
and additional expenses which would be incurred by the
implementation of the proposed rule. Nineteen guideline
questions were provided to aid participants in the presen-
tation of the requested material. The notice of amended
rulemaking proceeding was published in the Federal Reg-
ister, April 30, 1975 (Vol. 40, No. 84, p. 18797).
One hundred and eighteen parties including 101 rail car-
riers or carrier organizations submitted evidence on the
merits, feasibility, and implementation of the rule.
Twenty-six’ initial and thirteen reply statements were
filed. Most carriers submitted their information through
the Association of American Railroads or the American
Short Line Railroad Association, A few other parties
consolidated their views.
As in the interim report, we will group participants
according to their major viewpoints. They are (1) carrier
* Petitions for leave to intervene filed by Duval Sales Corpora-
tion, Evans Products Company, and International Minerals and
Chemica! Corporation jointly, and Pullman Transport Leasing
Company separately, were granted by orders entered September
24, 1975. The petition for leave to intervene filed by FMC Cor-
poration was granted by order entered November 28, 1975. By
order entered August 10, 1976, the initial statements of the Dela-
ware and Hudson Railway Co. (D&H) and the Detroit Terminal
Railroad Company were striken for failure to serve a copy of these
statements on all parties of rerord. D&H’s statement was subse-
quently admitted by order entered March ji, 1977.
34a
proponents,’ (2) private car proponents,’ and (3) pro-
ponents who consist mainly of carrier and carrier orga-
nizations.*
All evidence and arguments not mentioned have been
considered and given due weight. Discussion of many of
the various examples given in support of argument has
been omitted since its inclusion would unduly lengthen
this report. Similar arguments of the various participants
will be discussed together to simplify discussion of the
various positions.
Before discussing the merits, costs, and feasibility of
the implementation of the proposed rule, we will consider
what effect, if any, the amendment of section 1(16) of the
* Burlington Northern, Ine., and Union Pacifie Railroad Com-
pany.
* Archer Daniels Midland Company; Allied Mills, Ine.; Bay
State Milling Company; Cargill, Incorporated; Duval Sales Cor-
poration; Evans Products Company; IMC Corporation; Garvey,
Ine.; General American Transportation Company; General Mills;
Hercules, Incorporated ; International Minerals and Chemica] Cor-
poration; International Multifoods Corporation ; Peavey Company ;
The Pillsbury Company; Pullman Transport Leasing Company ;
and Swift Edible Oil Company and Swift Fresh Meats Company
—Division of Swift and Company.
*American Short Line Rail’ Association; Association of
American Railroads; Robert W. Meserve and Benjamin H. Lacy,
Trustees of Property of Boston and Maine Corporation, Debtor;
Cedar Rapids and Iowa City Railway Company; Chicago, Mil-
waukee, St. Paul and Pacific Railroad Company; Elgin, Joilet and
Bastern Railway Company ; Florida East Coast Railway Company ;
Illinois Central Gulf Railroad Company; Robert OC. Haldeman,
Trustee of Property of Lehigh Valley Railroad Company; Louis-
ville and Nashville Railroad Company; Mississippi Export Rail-
road Company; Norfolk and Western Railway Company; Robert
W. Blanchette, Richard C. Bond, John H, McArthur, Trustees of
Property of Penn Central Transportation Company, Debtor (now
a part of ConRail) ; and Delaware and Hudson Railway Company.
35a
Interstate Commerce Act by the Railroad Revitalization
and Regulatory Reform Act of 1976 (4RA) has on the
Commission’s jurisdiction in this proceeding. Except for
the jurisdictional issue, we will set out our discussion and
conclusions of the participants’ contentions after the pre-
sentation of all the arguments and evidence,
JURISDICTION
Jurisdiction.—Section 1(6) was amended by the 4RA as
follows:
Demurrage charges shall be computed, and rules
and regulations relating to such charges shall be es-
tablished, in such a manner as to fulfill the national
needs with respect to (a) freight car utilization and
distribution, and (b) maintenance of an adequate
freight car supply available for transportation of
property.
By order dated February 27, 1976, the Commission noted
that the amendment of section 1(6) appeared consistent
with the announced purposes of this proceeding, and soli-
cited comments on the effect of the amendment. Wighteen
statements in response were submitted.°
®’ American Short Line Railroad Association; Archer Daniels
Midland Company; Association of American Railroads; Bay State
Milling Company; Burlington Northern, Inc.; Cedar Rapids and
Iowa City Railway Company; Duval Sales Corporation; Evans
Products Company; Exxon Company, U.S.A.; Farmland Indus-
tries, Inc.; Florida East Coast Railway Company; FMC Corpora-
tion; General Mills; Grain Divisions/Cook Industries; Interna-
tional Minerals and Chemical Corporation; International Multi-
foods Corporation ; Mississippi Export Railroad Company ; Missouri
Pacific Railroad Company ; Peavey Company; Penn Central Trans-
portation Company; The Pillsbury Company; Pullman Transport
Leasing Company; U.S. Department of Transportation; and the
Union Pacific Railroad Company.
36a
The parties principally discuss whether the recent
amendment conferred, confirmed, or refuted the Commis:
sion’s jurisdiction to establish the proposed rules. Carrier
opponents generally argue that the Commission did not
have jurisdiction before section 1(6) was amended and
that jurisdiction was not conferred by the recent amend-
ment. Counter arguinents by carrier and private car
owner proponents, however, state that the amendment con-
firms the Commission’s authority to promulgate the pro-
posed rule.
Carrier opponents.—Opponents to the rule argue that
the stated purposes of the amendment are defeated by the
proposed remittance scheme, which is said to be governed
by principles of equity, not of car utilization and distri-
bution, or of an adequate supply. They argue that no
evidence has been presented to establish that the proposal
will cause car owners to purchase additional, or shippers
to release equipment expeditiously. In fact, the rule is
argued to have the opposite effect since nonowning car-
riers will have less motivation to collect demurrage
charges for the reason that they will be remitting the ex-
cess amount to car owners; and shippers detaining their
own equipment, it is further argued, will have less incen-
tive to release cars quickly because demurrage in excess
of $10 will be remitted to them. (Further elaboration of
these points will be given in the discussion of car utiliza-
tion infra.) It is also contended that since the amendment
merely authorizes the Commission to regulate the “level”
of demurrage charges, it does not confer power to divide
the charges—as is being done in this processding.
Still another argument is that the Commission is trying
to combine unlawfully the two powers conferred by the
amendments to sections 1(6) and 1(14)(a) of the act; the
power to compensate an owner for the use of its cars and
37a
the power to regulate the use of cars." Section 1(14) (a)
of the act was amended to encourage the purchase, ac-
quisition, and efficient utilization of freight cars. In estab-
® Sec. 1(14) (a):
(14)(a) It is the intent of the Congress to encourage the
purchase, acquisition, and efficient utilization of freight cars.
In order to carry out such intent, the Commission may, upon
complaint of an interested party or upon its own initiative
without complaint, and after notice and an opportunity for a
hearing, establish reasonable rules, regulations, and practices
with respect to car service by common carriers by railroad
subject to this part, including (i) the compensation to be paid
for the use of any locomotive, freight car, or other vehicle, (ii)
the other terms of any contract, agreement, or arrangement
for the use of any locomotive or other vehicle not owned by
the carrier by which it is used (and whether or not owned by
another carrier, shipper, or third party), and (iii) the penal-
ties or other sanctions for nonobservance of such rate, regula-
tions, or practices. In determining the rates of compensation
to be paid for each type of freight car, the Commission shall
give consideration to the transportation use of each type of
freight car, to the national level of ownership of each such
type of freight car, and to other factors affecting the adequacy
of the national freight ear supply. Such compensation shall
be fixed on the basis of the elements of ownership expense
involved in owning and maintaining each such type of freight
ear, including a fair return on the cost of such type of
freight car (giving due consideration to current costs of ecapi-
tal, repairs, materials, parts, and labor), Such compensation
may be increased by any incentive element which will, in the
judgment of the Commission, provide just and reasonable
compensation to freight car owners, contribute to sound car
service practices (including efficient utilization and distribution
of cars), and encourage the acquisition and maintenance of a
ear supply adequate to meet the needs of commerce and the
national defense. The Commission shal] not make any incentive
element applicable to any type of freight car if the Commis-
sion finds that the supply of such type of freight car is ade-
quate. The Commission may exempt such incentive element
from the compensation to be paid by any carrier or group
of carriers if the Commission finds that such an exemption is
in the national interest.
38a
lishing rules and regulations (after oral hearing) for the
compensation to be paid a car owner, the Commission was
directed to consider whether there is just and reasonable
compensation to the owner, and whether it will contribute
to sound ear practices and encourage the acquisition and
maintenance of car supply. This, it is argued, has not
been done in this proceeding. Therefore, the Commission
has no jurisdiction under section 1(14)(a), and cannot
combine this section’s compensatory element with the de-
murrage provisions of section 1(6).
Private car and carrier proponents.—Proponents, on the
other hand, contend that the legislative history of the
amendment to section 1(6) supports the Commission’s ju-
risdiction. In this regard, it is pointed out that the House
Committee and Senate Report indicates that section 1(6),
as amended, “requires the Commission to establish rules
and regulations for the computation of demurrage charges
so that freight car utilization is maximized and car own-
ers receive adequate compensation.” Final Conference Re-
port, S. Rep. 94-595 and H.R. 94-781, 94th Cong., 2d Sess.
135 (1976). In addition, proponents contend that the “na-
tional needs” for maintenance of an adequate freight car
supply are not being met under the traditional demurrage
system because lines which do not invest in cars are being
rewarded at the expense of actual investors. However, if
demurrage charges are paid in part to car owners, such
charges will increase the car owner’s return on its invest-
ment and will thereby be an added incentive to purchase
additional cars, This proponents stress, will help maintain
an adequate freight car supply.
The U.S. Department of Transportation (DOT) con-
tends that one of the goals of Congress in enacting the
4RA was to encourage the purchase, availability, and effi-
cient utilization of cars. This is reflected in the amend-
ments to section 1(6) and 1(14) of the act, which the DOT
argues, requires a complete reassessment by the Commis-
39a
sion of all rules governing freight car acquisition, main
tenance, distribution and utilization. It is submitted that
this proceeding is too narrow and does not adequately
deal with these concerns. Proponents, therefore, recom-
mend that this proceeding be suspended and a broad in
vestigation of the best methods to assure sufficient avail-
ability and utilization of freight cars be instituted.’
Conclusions.—The legislative history of the amendment
to section 1(6) of the act and the wording of the section
itself establishes the Commission’s jurisdiction to remit
excess demurrage charges to car owners to provide them
with adequate compensation for the use of their cars, The
Joint Explanatory Statement of the Committee of Con-
ference, Report 94-768, p. 128, 94th Cong., Ist Sess. (1975),
states that:
The house Amendment requires that rules and regu-
lations be established for the computation of demur-
rage charges so that freight car utilization was maxi-
mized,
Conference Substitute
The conference substitute follows the House amend-
ment, but insures the Commission will consider the
transportation use [sic] the car and provide a fair
return on investment in freight cars.
Further evidence is presented that the legislature indi-
cated that charges contain a compensatory element. In the
Joint Explanatory Statements of the Committee of Con-
ference, Report 94-781, p. 142, 94th Cong., 2d Sess. (1976),
"The Union Pacific Railroad Company filed a response to the
DO's statement, referring to it as a motion to suspend the instant
proceeding. The statement is in the form of a recommendation, is
not separately titled as a motion, and, therefore, will not be con-
idered as a motion but as a request or recommendation.
40a
two different breakdowns for sections 1(6) and 1(14) (a)
indicate that demurrasje charges can be used to compen-
sate owners of cars as well as per diem charges. The re-
port states that the proposed legislation:
(13 requires the Commission to establish rules and
regulations for the computation of demurrage charges
so that freight car utilization is maximized and car
owners receive adequate compensation ;
(14) reforms existing law with respect to compen-
sation when one carrier pays for the use of a freight
car owned by another carrier; * * *
Specific mention of this proceeding is also made in the
Report of the Committee on Interstate and Foreign Com-
merce, Report No. 94-725, p. 241, 94th Cong., 1st Sess.
(1975). In discussing the Commission’s continuing activi-
ties in the area of demurrage, it stated that:
The purposes of the proposals are to create an added
incentive for the car owner to acquire additional cars
and remove any inducement to the nonowner to en-
courage detention of foreign cars in order to benefit
from collection of demurrage charges.
Thus, the legislative history of section 1(6) clearly in-
dicates that the Commission is not restricted to section
1(14)(«) of the act in providing an incentive for car own-
ers to acquire additional cars. The amendment provides
another basis of jurisdiction in addition to the Commis-
sion’s car service authority discussed in the interim re-
port (349 I.C.C. 411.415). Freight car supply will be fos-
tered under the rule as investors receive a greater return
on their investment, which will be an added incentive for
the purchase of additional cars. As more fully elaborated
in the Discussion and Conclusions hereinafter, the pro-
posed rule clearly will fulfill the purposes of section 1(6)
by meeting the Nation’s needs for the maintenance of an
4la
adequate freight car supply. Therefore, we find that the
Commission has jurisdiction to promulgate the proposed
rule.
In regard to the request of the DOT to suspend this
proceeding in favor of a broader investigation, any fur-
ther delay in the ultimate determination of this proceed-
ing would only complicate and postpone the Commission’s
efforts to alleviate car shortages. The request will, there-
fore, be denied.
ADMINISTRATIVE Costs OF IMPLEMENTATION
Private car and carrier proponents.—Carrier and pri-
vate car proponents argue that the railroads presently
require sufficient recordkeeping data to institute the pro.
posed new demurrage remittance scheme with minimal
expense, Proponents point out that railroads presently
keep accurate demurrage records showing car ownership
and number, constructive placement date, actual place-
ment date, date of release, amount of demurrage, et ce-
tera. Accordingly, they conclude that the only additional
burden that will be placed on the delivering road is the
computation of the arbitrary or excess demurrage
charges.
Some private car proponents feel that opponents to the
rule have exaggerated the administrative startup and an-
nual costs of the remittance to include installation of new
computer systems and other extraneous expenses which
would be incurred even without the adoption of the rule.
They argue that railroads could use demurrage bureaus
and other associations to handle the administrative and
recordkeeping functions and provide the necessary audit-
ing safeguards, which exist in the present system. Costs
would, therefore, be ininimized. No direct evidence of the
costs of the proposed rule was provided by private car
proponents, as this information was thought to be within
the knowledge of the carriers,
42a
It is also pointed out by private car proponents that
the extension of the rule to private car owners will not
result in excessive administrative costs. Tariffs presently
provide for the payment of mileage allowances to private
car owners on tank ears and nontank cars. Railroads also
keep accurate records of the movement of private cars
over their lines; data is gathered and consolidated; and
payments are made on a “fleet” basis to the private car own-
ers. Therefore, a framework for the proposed rule is said
to exist already.
The two carrier proponents, the Burlington Northern
(BN) and the Union Pacific Railroad Company (UP),
submitted data on the costs of implementing the rule on
an individual basis, They used the last 6 months of 1973
as their study period, They state that the present record-
keeping system can provide the necessary information,
although an expanded computer printout to display the
required data would be needed by the BN and the UP
would have to modify its average-agreement forms, Start-
up expenses for BN would be $2,500, and for UP startup
would be $1,950. Annual expenses thereafter would be
$48,180 for the BN and $16,000 for the UP, for additional
personnel,
Carrier opponents.—The Association of American Rail-
rouds (AAR) * estimates that the annual costs of adminis-
tering the rule will range between $1.5 and $2 million. It
submits an estimated startup and annual cost for 89 rail-
roads which total approximately $500,000 for the former
costs and over $1.5 million in annual administrative ex-
penses, These additional costs are based on the projected
need for additional employees (auditors, clerks, and su-
* The AAR represents all its members except the BN, UP, Denver
& Rio Grande Western Railroad Company, and Pittsburgh & Lake
Erie Railroad.
43a
pervisors), forms, travel, and computer expenses, Some
of the carriers indicate that the methodology needed to
implement the rule was used in preparing the cost data
presented to the Commission. The following table shows
the costs for 12 selected railroads (including the 2 carrier
proponents, the UP and BN).
TABLE 1
Estimated startup and annual costs
Carrier Startup Annual
Atchison, Topeka & Santa Fe Railway
CMON Srvc scessnccewioters scenes $ 4,350 $ 48,070
Burlington Northern, Inc. ........+0006+ 2,500 48,180
Chicago and North Western Transportation
COI Sic ccccccccesssepnessvepens 17,200 99,063
Cheasie System .....cccccccvrccscedeves 31,184 208,366
Florida East Coast Railway Company .... 500 10,000
Illinois Central Gulf Railroad Company .. 135,000 133,200
Missouri Pacific Railroad ...........006 7,484 80,834
Norfolk and Western Railway Company .. 6,500 110,954
Penn Central Transportation Company’ .. 717,945 332,713
Southern Railway System Lines? ........ das 224,000
Southern Pacific Transportation Company . 7,512 46,500
Union Pacific Railroad Company ........ 1,950 16,000
’ Now a part of ConRail.
* Costs without using a demurrage bureau.
Cost data was also presented by three demurrage bu-
reaus. The bureaus believe that the costs of administering
the rule would be lower if necessary accounting and audit-
ing functions were done on a group basis as is presently
done on a large portion of churges for demurrage, deten-
tion storage, and average agreements, While, additional
expenses will still be incurred in implementing the rule
(for personnel, forms, travel, and computer expenses), on
44a
a group basis these costs will assertedly be less than if
each railroad performed the functions individually. The
foreseeable costs which would be prorated among the bu-
reau members are estimated as follows:
TABLE 2
Costs of demurrage bureaus
Bureau Startup Annual
Pacifie Car Demurrage Bureau
(for 34 member railroads) ............. $12,129 *$ 87,129
Southeastern Demurrage and Storage Bureau
(for 58 member railroads) ............. 15,032 208,392
Demurrage, Western Weighing and Inspection
Bureau (for 91 member railroads) ..... Pees 397,464
‘This represents costs for new forms which it appears would be
used throughout the year, and, therefore, is not an accurate startup
cost,
* The annual estimated cost will be $110,000 more if the bureau
polices the rule where there are no regional] bureaus certifying the
amount,
Only three railroads, the Chessie System, Penn Central
Transportation Company (PC) (now a part of ConRail),
and Southern Pacific Transportation Company (SP), spe-
cifically indicate that their costs include the amounts to be
paid the demurrage bureaus.’ Therefore, it is unclear
whether the costs submitted by the other individual rail-
roads are costs which (1) would be incurred if the demur-
*The Pacific Car Demurrage Bureau, and nine Demurrage,
Western Weighing aud Inspection Bureau members’ costs were
their allocable portion of the demurrage bureau costs. The 21 mem-
bers of the Southeastern Demurrage Bureau did not present indi-
vidual prorated costs, only the total costs to the bureau of all its
members.
45a
rage bureaus were not utilized, (2) would be incurred in
addition to the costs reported by the demurrage bureaus,
or (3) inelude individual costs and costs payable to the
demurrage bureaus.
To obtain an indication of the administrative costs if
demurrage bureaus were utilized, we took the number of
excess demurrage days presented by the Pacifie Car De-
murrage Bureau’s members and divided that by the pro-
rated costs to the members.” The startup and annual cost
for each excess day is $0.035 and $0.2514 respectively.
The American Short Line Railroad Association
(ASLRA), utilized cost data submitted by 46 member
lines" to project the costs of administering the rule for
its 214 member lines. The expenses based on a per-car-
handled basis (which includes all revenue cars handled
and not just arbitrary cars) are as follows:
©The bureau submitted the prorated costs to the individual
roads so that we could compute the charges for each excess day.
It was the only bureau to provide us with this breakdown. The
startup cost is not totally accurate as it represents the cost of new
forms which would be used throughout the year. The startup and
annual costs per excess day represents the costs prorated over
the annualized excess days.
1 One member of the ASLRA study group is the Cedar Rapids
and Iowa City Railway Company (CRANDIC) which also sub-
mitted data to the AAR. There could be other overlaps in the
ASLRA’s projection of costs to its total membership if demurrage
bureaus have also submitted costs for the same road, However,
from the evidence presented, we are unable to calculate the fre-
quency of this double reporting. The ASLRA study group in-
cluded 27 members in the eastern territory, 7 in the southern
territory, 2 in the western territory, and 3 in the Mountain Pacific
territory.
46a
TABLE 3
Additional administrative expenses of rule for
A.S.L.R.A. membership
Total cars Expenses Total
Railroads handled per car expenses
Class I Switching and Terminal 3,687,518 $0.035 $129,063
Class II Switching and Terminal 995,944 081 80,671
Class I Line-haul ............ 1,508,202 0115 173,443
Class II Line-haul ............ 1,703,935 0115 195,953
, | ee re 7,895,599 ees 579,130
These figures are based on data submitted by the study
group for the time and cost of preparing the administra-
tive study (which was done on a manual basis). These
costs do not include the auditing, claims, or overhead ex-
penses associated with the proposed rule. ASLRA states
that if these expenses were added to the above figures, the
total expenses woud be $1 million annually. It is argued
that such an increase in administrative costs is a needless
and unjustified waste of carrier revenues.
The rule can either be implemented by the reporting
roads on a manual or computer basis, or the administra-
tive functions could be turned over to demurrage bureaus
or other carrier associations. Costs would vary accord-
ingly. Assessments of individual implementation of the
rule are provided by the Chicago, Milwaukee, and St. Paul
and Pacific Railroad (CMSP) and the Chicago and North
Western (CNW). Assessments of demurrage bureau im-
plementation are provided by the Pacific Car Demurrage
Bureau (PCDB) and Southeastern Demurrage Bureau
(CFDSB),
* The expenses are based on averaged data from the first quarter
of 1975 for the 46 roads in the ASlra’s study group. These costs
were projected to the entire membership by multiplying the num-
ber of cars handled in 1974 for each class and type.
47a
The CMSP states that if the proposed rule were put
into effect, it would have to develop an entirely new sys-
tem for accumulating demurrage records. This would
mean converting its present manual method into a com-
puterized system. Such a changeover would entail new
forms, converting present records into machine-process-
able records, and computer programming. After these
initial startup programs (amounting to $142,800), CMSP
also indicates it would incur $714,350 annually in adminis-
tering the rule. This figure is based on the costs of 5 key-
punch operators, 1.52 full-time computer programmers, 15
auditors and 3 supervisors. The startup and annual costs
for CMSP for each excess demurrage day are $1.0893 and
$5.4493, respectively.
The CNW indicates that it would implement the rule
on a manual basis, as is presently done with its demurrage
records. Employees would record the car initial and num-
ber, name of ear owner, station accounting number and
name, miscellaneous bill date and number, number of ex-
cess demurrage days, and amount of refund to car owner.
It would also maintain a list of payments made at sta-
tions, which would be verified against billings. After veri-
fications are made, cars would be drawn off listings and
classified by car owners for payment. The startup and
annual costs for each excess day are $0.1028 and $0.5921,
respectively, for CNW.
The PCDB presently receives from its members a
monthly copy of demurrage records covering all cars re-
ported. These reports are reviewed for possible under-
and overcharges, and claims are handled by the Bureau.
Under the rule it would also determine the amounts due
from other railroads and certify that the proper remit-
tance was made between carrier member and other rail-
roads. It anticipates that if the rule goes into effect, it
would need six additional clerks to analyze each demur-
rage record for possible remittance to car owners, and
48a
for further review if claims are presented and adjust-
ments made, A separate filing and posting system would
also be needed, a number of forms would have to be re-
vised, and several new six-part forms printed to cover
remittance and record of cars to car owners.
The SEDSB reviews records to determine charges ex-
ceeding the value of $10 per car per day, identify car
owners, car initial and number, station, date of demur-
rage or detention bill, and amount due. On average agree-
ments, it will require a complete restatement of all cars
for industries which habitually delay cars. Under the pro-
posed rule the excess amount will be identified as to the
car owner, and auditors will review railroad accounts to
determine if proper amounts are paid. Both the SEDSB
and PCDB will assure the proper transfer of funds for
railroads in other territories, with the understanding that
similar bureaus in other territories will do the same. They
state that otherwise the rule will be impossible to admin-
ister. AAR replies, based on the evidence presented in all
the initial statements, that the annual cost for administer-
ing the rule is approximately $3.5 million dollars.
The following table is our summary of the costs of the
proposed rule as alleged by respondents. It is based on
data submitted by 42 roads for the period July 1 through
December 31, 1973.
TABLE 4
Costs for implementing proposed rule
I. Startup expenses
(1) Lowest startup expense (Sunset Ry.) .... $6.00
(2) Highest startup expense (CMSP) ....... 142,800.00
(3) Average startup expense ............... 14,219.00
II. Annual expenses
(1) Total annual expense for 41 roads ....... $2,768,740.00
(2) Annualized number of excess demurrage
SAN Cat-A nun eibd on-j 0d nbdh-o dbs ted vee 3,068,004.00
49a
Replies.—In reply, proponents reiterate their views that
the carrier opponents are exaggerating the costs of the
program. BN states that if only 25 percent of its demur-
rage revenues were remitted, the administrative expenses
would only amount to 4.23 percent of the total demurrage
charges. Private car owners, Duval Sales Corporation,
Evans Products Company, International Minerals &
Chemical Corporation (Duval), state that for 19 selected
railroads the cost to remit the excess charges to private
ear owners for the period July 1 through December 31,
1973, is $134,376. When this is divided by the number of
penalty demurrage days (184,950), the cost is 73 cents a
day. Since the cost of administering the present demur-
rage program is $6 a day, the administrative cost is said
to be more than adequately covered by the $10 to be re-
tained by the delivering carrier,
Aprequacy or $10 Minimum
Private car and carrier proponents.—Private car and
carrier proponents argue that the sum ($10) to be re-
tained by the delivering carrier is adequate compensation
to cover the administrative expenses of the rule, per diem,
and the switching expenses associated with the delivery
of the car.
Proponents state that the average per diem charge to he
paid to owning railroads during periods of demurrage 1s
approximately $4. Thus, the remaining $6 is arguably
more than adequate to cover charges associated with the
delivery of the car. They cite Ormet Corp. v. Illinois Cen-
tral R. Co., 341 1.C.C. 647 (1972), where the Commission
held that in providing relief from penalty demurrage
charges, the delivering railroad should retain $4 per car
per day to offset per diem plus 20 percent thereof for
administrative costs. This expense, it is noted, falls far
short of the $10 to be retained by the delivering carrier
under the proposed rule. Moreover, this is especially true
50a
in cases where payments are made to private car owners
since there are no per diem charges.
In cases where delivering carriers have shown per diem
and switching charges in excess of $10, proponents note
that it has not been established whether these costs are
representative, or their percentage of the total number
of cars involved. In addition, proponents contend that
these costs should not be considered controlling in deter-
mining whether the $10 is adequate because the level of
line-haul rates is set after considering per diem expenses
and switching costs. Proponents state that it is a common
practice to extend the line-haul car costs to include an
average of 4 days at origin and 4 days at destination, cit-
ing “Rail Carload Cost Seales for 1973,” ICC statement
No. 1C1-73, p. 137. Proponents note that Rail Form A .
unit costs also include the added expenses incurred in
switching cars to and from hold tracks. Therefore, pro-
ponents conclude, a carrier is compensated for its ex-
penses by its division of freight rate, and if any cost ad-
justment is needed, it should be in the line-haul rate.
Carrier opponents.—Opponents state that generally cars
which incur demurrage in excess of $10 a day are those
which have been constructively placed on railroad-owned
tracks. Additional switching is necessary for these cars
when (a) the delivering road moves the ear to a holding
point, (b) cars held at these points are repositioned as
other cars move in and out, and (ce) actual delivery is
made, Additional costs are also incurred for track and
protective services.
Opponents note that each additional switch is an
added expense for the delivering road in terms of actual
switching costs and administrative expenses to record the
position of the cars. For example, CMSP indicates 10
minutes of additional time is needed per switch—which
costs $12.94, Such costs, carrier opponents maintain, will
5la
not be covered by the $10 to be retained by the delivering
road.
The Boston and Maine (B&M) submitted a study of
daily conditions and locations of cars for July 1973, to
illustrate that switching costs are not covered by the re-
tained $10. Out of 1,091 cars handled, 638 were identifiable
as having excess demurrage. On these cars there were
1,900 switching movements which would cost between
$34.06 and $44.08 if they were intraplant or other than
intraplant secondary movements, respectively. Based on
these figures, the switching costs would be between $64,714
and $74,233. But if the proposed remittance were in effect,
B&M indicates that $56,865 would have been remitted to
the car owner and, consequently, the B&M would have
suffered a loss of over $10,000.
The ASLRA also argues that per diem expenses are not
met by the retained amount. It submits that class IT rail-
roads normally are not accorded per diem reclaim by
connecting carriers. Although, in theory, the short lines’
division of the fixed arbitrary and terminal lines per diem
reclaim allowance makes the switching and terminal lines
whole for their per diem responsibility on backhaul cars
interchanged with the trunklines, in fact, according to
ASLRA, this is not so. ASLRA states that “shortfalls”
can occur (1) when the holding line assesses a local
revenue charge on shipments; (2) when there is a high
turnaround of relatively low per diem equipment and low
turnaround of higher speed rated equipment (a further
discussion of this point is contained in the section on
average agreements); and (3) when there are changes in
patron volume, detention times, or equipment value.
Taking the average of the ASLRA study group carriers
(except those not within the normal range indicated by
the average for other railroads), demurrage retained ex-
ceeds per diem by only 22 cents per car handled, Of the
25 class II line-haul short lines in its study, ASLRA states
52a
that all but 2 would have net per diem costs exceed de-
murrage income by amounts ranging from 47 cents to
$27.47. (See appendix A.) The statement presented by one
of its members, the Meridian & Bigbee Railroad, submits
that it presently collects in demurrage revenue only 15 per-
cent of its per diem car costs on an annual basis. The pro-
posed rule would, therefore, aggravate a presently critical
situation.
Although opponents concede that demurrage is not con-
sidered a source of revenue, they argue that the money
derived from demurrage is vital to offset additional oper-
ating costs which directly relate to the detention of equip-
ment and car-hire costs during detention. Demurrage is
also used to offset high-value equipment placed on assign-
ment to delivering roads by car owners on which per diem
rate exceeds the storage charge. The loss of this revenue,
according to opponents, could force marginal lines into
bankruptcy. Opponents conclude that the $10 to be re-
tained by the delivering road is inadequate.
Replies.—Proponents reply that opponents of the rule
have not established that, overall, the $10 to be retained
by the delivering road is inadequate to meet costs.’ How-
ever, in those limited instances where costs are not met
by demurrage, it is maintained that the division of the
line-haul rates should cover these costs.
Opponents continue to argue that costs incurred by the
delivering railroad are not covered by the $10 portion of
the demurrage charge. The ASLRA states that the mini-
mum detention to the point of the first arbitrary day is
7 days. Thus, a carrier has 1 or more days of per diem
before demurrage begins. Yet, no line-haul rate or division
as The Norfolk and Western Railway Company in its reply states
that if remittance is ordered, then the $10 limit should not be
altered to reflect added switching expenses as these are covered in
the Rail Form A unit costs.
al ee
ee
53a
of rates contemplates covering costs for 7, 8, or 9 or more
days of per diem responsibility before the assessment of
demurrage for the first aribtrary days begins.
AVERAGE AGREEMENTS AND Runarounp CLAIMS
There is some question whether average agreements
would be difficult or impossible to utilize under the pro-
posed rule. In an average agreement, a shipper offsets the
early release of a car (credit) against a late release (debit).
Excess debits are then billed at $10 and arbitraries (which
cannot be offset by credits) are billed according to the
different level of charges on a monthly basic without regard
to car ownership.
Private car and carrier proponents.—Proponents fore-
see no problems with average agreements, They contend
that data for determining charges is available from ex-
isting average agreement forms since the car initial, num-
ber, and date placed and released are specified. Remit-
tance is not affected by “free” and $10 days, but only days
in excess of $10, and, therefore, the rule would have no
adverse effect on average agreements. The UP proposed
the following method of computing charges under the av-
erage agreement: chargeable days for average agreement
multiplied by $10 equals the amount chargeable at $10 a
day. Then the amount chargeable at $10 a day is divided
by the number of debit days per average agreement to
equal the amount apportionable to each car owner per
each debit day.
Carrier opponents.—Rail carrier opponents, on the
other hand, state that if the proposed rule goes into effect,
average agreements will have to be canceled. They argue
that under an average agreement if each credit has a
value of $10 in offsetting debits, the delivering carrier
could suffer a net loss when per diem and switching costs
are not adequately covered by demurrage charges retained
, 54a
by the carrier. It is also contended that cars with high
per diem can be used to offset low per diem cars, so that
a delivering carrier cannot collect enough demurrage to
offset the car costs of the high—value per diem equip-
ment. For example, a $3.50 per diem charge for a coal
lhopper could offset a $22.88 per diem charge for a 60-
foot boxcar.
Examples of the problems created by average agree-
ments were cited by the SEDSB. If each credit has a
value of $10 in the offsetting of debits, it states that an
anomalous situation would develop. On one average agree-
ment, reflecting a total of 64 cars, $900 in demurrage
charges were assessed, with $240 representing possible
pay out to foreign railroads. Yet, there would be per diem
and switching charges of $845.09, so that the delivering
carrier would suffer net loss of $185.09. In another in-
stance, an average agreement covering 231 cars involved
total demurrage charges of $4,770 with related costs of
$6,366.11. Under the proposal $900 would be remitted to
the car owners.
Opponents also contend that the purpose of the rule
would be thwarted by ‘runaround’ claims. Runaround oc-
curs when newly arrived cars are placed for unloading
before previously arrived cars held under constructive
placement. A runaround claim lists all cars in the order
of arrival and constructive placement dates. The place-
ment date of the first cars is then substituted for the date
of the first constructively placed car and demurrage is
recalculated on the basis of substituted dates. Therefore,
the owner whose car was actually detained might not re-
ceive the penalty charge. Similar situations assertedly
would result in claims for bunching, weather interference,
and frozen or congealed lading.
Members of the PCDB also suggest that consideration
be given to delaying the remittance of the excess charges
under average agreements for a period of 6 months to
55a
review for correctness and to minimize the handling of
monies between the carriers.
Replies.—Proponents deny that there will be any prob-
lem with average agreements since debits, credits, and
free days are not in issue because such matters affect un-
chargeable days before penalty demurrage commences.
BN also states that runaround and bunching problems are
resolvable and will be minimized by identifying car-owner-
ship under this proposal.
CLaim PROBLEMS
Private car and carrier proponents.—Proponents also
forsee no problem with claims by a shipper against a rail-
road for excessive charges already paid as this is said to
rarely occur. However, if the carriers desire protection
against car owner bankruptcy, a bond could be posted by
the car owners. In other instances, if there is a valid claim,
the delivering road could withhold future payments to the
car owner until the appropriate amount is accounted for.
Carrier oppovents.—Carrier opponents state that they
should be protected against claims for demurrage charges
paid and remitted which are not applicable. They also sub-
mit that the threat of a lawsuit may force them to drop
a claim which they might otherwise file lest the cost of the
suit deplete or exceed the demurrage charges that the
delivering road would be entitled to under the rule.
LEASES
In the interim report, the Commission determined that
in a lease situation, the lessee of the car should be con-
sidered the owner. Both proponents and opponents con-
tend, however, that the only practical approach in leasing
arrangements is for the delivering road to remit the ex-
cess charges to the lessor or owner of the reporting marks
(those marks assigned to cars by the AAR), as is cur-
56a
rently done with mileage allowance."* The lessor and
lessee could adjust the lease to take into account the re-
mittance to the lessor. The burden of recordkeeping would
then be on the car-owning company.
Allied Mills * states that if any controls are necessary
in lease situations, ones similar to those imposed under
the mileage rules should be used. This would prohibit the
ear line from refunding to the lessee demurrage charges in
excess of the rental expenses to the private car lines,
REMITTANCE TO Private Car OwnerRS AND EARMARKING
Private car and carrier proponents.—Private car pro-
ponents stress that they should be included within the
proposed rule, a conclusion already reached in the interim
report. They argue that they are the ones damaged by the
detention of their equipment and are, therefore, entitled to
be compensated. To hold otherwise, assertedly, would be
discriminatory.
It is also contended that private car owners are sup-
plying an ever-increasing proportion of the Nation’s
freight cars (between 1972 and 1974 private car owners
and shippers added 35,711 cars to the transportation sys-
tem), while carriers who have not increased their car sup-
ply are reaping the benefits of the investments of others
by retaining excess demurrage charges. Archer Daniels
Midland shows that the national car fleet expanded (pri-
marily because of private investment from the years 1972
to 1974 by a total of 3,636 cars; however, the carrier fleet
* Hercules, Inc., asks that the Commission determine when the
free time begins on trip-lease cars.
*® Allied Mills states that the Commission was incorrect in its
interim report in stating that Allied Mills favored remittance of
all demurrage charges. It only favors remittance of charges in
excess of $10 per car per day.
57a
decreased by 32,075 cars. Such a significant portion of the
investors in freight cars, it is argued, cannot and should
not be excluded from benefiting from the proposed remit-
tance scheme.
Carrier opponents.—Some carrier opponents contend
that the Commission will err in extending the rule to pri-
vate car or lessor/lessee owners (which as already noted
was found appropriate in the interim report). They argue
that private and carrier car owners have traditionally
been treated differently by the Commission and that no
justification has been presented in this proceeding for dis-
regarding that distinction. They note that railroads have
the responsibility of furnishing cars, and, thus, alone are
entitled to retain excess demurrage charges. They also ar-
gue that the funds should not be remitted to the private
car owners because they have not invested in cars which
are in short supply, but rather in cars that are in surplus,
such as tank cars and covered hoppers. The BN (a pro-
ponent of the rule in other respects) also fears that if
private car owners are included, it would be counterpro-
ductive for they will have less of an incentive to release
cars on time since they themselves would reecive the
excess demurrage charges. Lastly, the AAR argues that
remittance of the charges to private owners is an unlaw-
ful rebate in violation of section 15(13) of the act which
requires that payments to car owners not exceed reason-
able costs.
Replies.—In reply to the allegations that the remit-
tance to private car owners violates section 15(13), Bay
State Milling Company argues that the statute applies to
“excess allowances from railroad funds for railroad serv-
ices performed by the shipper.” As the proposed rule
applies to the disposition of excess demurrage charges paid,
section 15(13) is argued to be inapplicable.
If a remittance is allowed to private car owners, the
AAR urges a downward adjustment in car-mileage pay-
58a
ments and that the funds be earmarked for purposes bene-
ficial to railroads and shippers alike, such as research and
development in freight car design.
Earmarking.—In ail other respects, opponents and pro-
ponents of the rule agree that there should be no ear-
marking of funds. Private car owners point out that there
is no law which requires parties, other than common car-
riers by railroad, to purchase and supply railroad freight
cars, and, therefore, that there is no statutory basis for
earmarking of funds.
Participants also agree that earmarking would not be
in the best interest of car owners. They foresee policing
problems and questions as to whether it may be feasible or
necessary for car owners to purchase additional cars with
the fund. Forced acquisition, the carriers claim, would also
distort car investment which takes into consideration fac-
tors such as freight and car-hire revenues. As in Demur-
rage Rules and Charges Nationwide, 340 I.C.C, 83, 90
(1971), it is argued that earmarking be found unwar-
ranted.
Car UTILizaTION AND Suppiy
Private car and carrier proponents.—Even though they
believe funds should not be earmarked for the purchase
of additional cars, proponents contend that general eco-
nomic principles dictate that if car owners are compen-
sated for being deprived of their freight cars, their in-
centive to purchase cars will be stimulated. They agree
that the Commission was correct in holding in the interim
report that the proposed rule will have a positive impact
on car supply.'®
‘° A number of private car proponents did not state whether they
thought the rule would increase car utilization and supply. How-
ever, they stated that if the rule was warranted, its application
should be extended to private car owners,
59a
Carrier opponents.—Carrier opponents, on the other
hand, argue that the proposed rule will not increase
freight car supply. They argue that the additional pur-
chase of freight cars may be curtailed as funds once
available to the delivering road will now be consumed by
the administrative costs of the program or be totally lost
when remitted. They further contend that the loss of these
demurrage funds (there is no increase in the charge to
offset the loss), will have a serious impact on roads ex-
periencing financial difficulties. (The ASLRA states that
its 1973 study group derived 3.5 percent of their gross
revenue, 7.6 percent exclusive of local traffic, from arbi-
trary demurrage.) It is also suggested that the rule might
discourage the collection of demurrage charges and de-
crease car utilization since the rule only applies to charges
actually collected and not billable demurrage. This would,
in turn, have a detrimental effect on the shippers’ incen-
tive to release cars quickly."
Carriers submitted data showing the amount of de-
murrage charges to be remitted to carrier and private
car owners, Generally the study period was July 1
through December 31, 1973. Participants agree that this
test period does not accurately reflect the amount of de-
murrage normally chargeable, for during this period Car
Service Order No. 1124 was in effect for approximately
91.69 percent of all cars. It is estimated that Service
Order No. 1124 inflated the amount of demurrage subject
to remittance by as much as 53 percent for the N&W;
67.55 percent for AAR member roads; and 55 percent
for the Penn Central. It is, therefore, argued that the
amount to be remitted when compared to the adminis-
trative costs of the rule does not justify the proposal.
*" Carriers argue that there is no indication in the present record
that presently large sums of demurrage remain uncollected or that
carriers can or have the ability to influence a shipper to detain
cars longer than necessary.
60a
Appendix B shows the amount of demurrage to be re-
mitted between various roads, and appendix C shows
the amount to be remitted to specified private car owners
by certain selected roads. Since not all railroads partici-
pated in this proceeding and since the reporting roads
generally did not know how much demurrage would be
received from other roads under the rule, it cannot be
determined what the total amount remitted compared to
the total amount received by a particular road would be.
However, based on the data submitted by reporting roads
for the last half of 1973, the amount of demurrage to be
remitted can be estimated. The following table is our sum-
mary of these amounts as reported by 42 reporting roads.
(See appendix D.)
TABLE 5
Amounts of demurrage payable to foreign railroads and private car
owners, assuming the proposed remittance rule had been in effect
during the July 1 through December 31, 1973, study period and
the number of demurrage days reflected by these amounts
(1) Total amount of demurrage payable to foreign
railroads, assuming the rule had been in
effect during the study period ............ $37,752,616
(2) Total number of demurrage days reflected in
SRE DE wud oe eh vee Acd end be beeeb uteccekaene 1,650,127
(3) Average amount payable to foreign railroads
EF ND GE ive c Bec cdaneocaeressic $22.88
(4) Total amount of demurrage payable to private
car owners assuming the rule had been in
effect during the study period ............ $2,634,839
(5) Total number of demurrage days reflected in
BD pha vageayss arth fs hsb4060 500008 068 122,579
(6) Average amount payable to private car owners
POF GOMULTAGS GAY ...scsvccsevcvvccecees $21.50
Opponents contend that the amount to be remitted to
the car owner would not affect decisions to purchase addi-
tional cars. The SP, for example, states that demurrage
revenues are too insignificant and too unpredictable to
6la
influence a decision of whether additional equipment is
needed. Demurrage accounts for less than 2 percent of its
freight revenues (or only 1 percent of car-hire revenues).
SP states that based on its demurrage revenues in 1974,
it received $250 per car. If the excess amount remitted
were an additional 25 percent, this would only be $62.50
more, and represents less than 2 percent of its threshold
revenue requirement of at least a 10-percent return on in-
vestment after taxes.
Lastly, opponents argue that car owners, although given
the opportunity to commit themselves to purchase addi-
tional cars, have failed to do so, which is said to seriously
put into question that Commission’s conclusion that the
Nation’s car supply will actually increase. CRANDIC sug-
gests that a more direct and less expensive way to solve
the car shortage problem would be to reduce the amount
of free time, do away with average agreements, and im-
plement detention charges for storage of empty private
cars,
Replies—AAR answers that even if all the money re-
mitted to private car owners was used to purchase addi-
tional cars, this would only amount to between $21 million
and $26 million (based on a 50- to 60-percent reduction of
actual demurrage charges payable for the 6-month 1973
base period to account for Service Order No, 1124). At
$35,000 a car only 75 additional cars could be purchased,
which would not appreciably increase car supply. More-
over, there is no guarantee that the money remitted will
be used for this purpose. Because of such a limited impact
and the assertedly high cost of administering the rule,
AAR concludes that its adoption is not warranted.
Discussion AND CoNcLUSION
As stated in the interim report, in order to adopt the
proposal, we must be satisfied that the rule will achieve
62a
its intended purpose of increasing car supply and utili-
zation, will be administratively feasible, and the benefits
of the rule will outweigh the expenses incurred in its
implementation. We have previously discussed in the in-
terim report the positive impact the rule will have on car
utilization and supply, and, therefore, a detailed discus-
sion of our conclusions is not necessary, although we
would like to reemphasize some conclusions we reached
therein.
First, inadequacy of car supply has been a recurring
problem in the Nation’s carrier fleet. Congress has spe-
cifically recognized the problem and amended section
1(6) of the act to insure that an adequate car supply is
maintained. While the Commission has taken numerous
steps to alleviate car shortages by increasing incentive
per diem, shortening the length of free time, and issuing
ear service order in addition to other innovations in this
area, the problem remains. The proposed rule, we believe,
will contribute to the Commission’s continuing policy of
encouraging the maintenance of an adequate freight car
supply.
Carrier opponents argue that there is no guarantee that
the amount of money to be remitted will be utilized by
carrier or private car owners to purchase additional cars
beeause, indeed, there has been no commitment to do so
by these parties. However, this argumeut overlooks the
fundamental economic proposition that a greater return
on an investment will provide an increased incentive to
invest in that item, whether it be stocks, land, or as in
this case, freight cars. Return on investment may not be
the sole factor in determining whether an investment in
freight cars is made, but its influence cannot be disre-
garded.
As demurrage regulations presently exist, the deliver-
ing carrier, who may not own one freight car, is never-
theless entitled to the entire demurrage charge even
a a ee
63a
though this sum may far exceed any costs incurred. In
addition, there is no indication that this demurrage reve-
nue is presently being used by the delivering road to
purchase additional cars. This money is, therefore, a
bonus to a carrier who has no interest in whether or not
a car is being detained. However, the car owner, whether
private or foreign road, has its equipment detained and
unavailable for further use, and thereby loses revenue.
This is especially true of private car owners who do not
receive per diem but a mileage allowance. The remitted
amount which table 5 shows is approximately $22 for each
excess day ($11 if it is assumed that Service Order No.
1124 inflated demurrage by 50 percent), which SP esti-
mates to be approximately $62.50 a car annually, will be
an added dividend to car owners. When these figures are
multiplied by the vast number of cars in the transporta-
tion system, the rule will certainly have a significant posi-
tive impact on car supply.
Administrative expenses.—Those opposing the rule have
argued that the costs of its administration far outweigh
any benefit that can be derived from its implementation.
However, the evidence of record fails to support this
contention.
Carriers presently require sufficient information in their
present demurrage forms to calculate the demurrage
charges in excess of $10 a day. It has been adequately
demonstrated that the rule is feasible from a recordkeep-
ing and administrative viewpoint with employees or com-
puters drawing the necessary information from existing
or slightly modified demurrage forms. In addition, if de-
murrage bureaus are utilized, the implementation of the
rule would be simplified, as there presently exists a frame-
work for tabulating demurrage and auditing records.
Costs, of course, will be incurred in implementing and
administering the rule; but it has not been shown that
64a
these costs will be excessive. Where a carrier data shows
high implementation costs, such costs in many instances are
attributable to instituting a computer system where none
previously existed or to hiring additional employees to do
the computation on a manual basis. However, a large por-
tion of the data on implementation costs does not specify
whether the estimated costs (both startup and annual)
would be incurred if demurrage bureaus were used, or if
the costs are individual expenses in addition to the pro-
rated charges of the bureaus. Costs not based on the use of
demurrage bureaus, where expenses would be significantly
less than an individual’s expenses, significantly inflate the
costs to implement and administer the rule, and thus, ap-
pear to overstate the actual amount needed.
Indeed, it has been clearly shown that demurrage bureaus
can significantly cut the costs of administering the remit-
tance scheme by economies of operation since, in most
instances, the existing staff, machinery, and facilities, with
slight modification, can be used to implement the proposal.
Based on the data submitted by the three reporting bu-
reaus, startup and annual expenses for administering the
rule for 183 members would be $30,439 and $692,985, re-
spectively. Using data submitted by members of the PCDB,
annual and startup costs for each ‘‘excess’’ day, would be
$0.251 and $0.035, respectively. These figures, we believe,
more accurately indicate the costs of the proposed remit-
tance scheme if demurrage bureaus are used, although we
realize that carrier members may have certain expenses in
addition to those of the bureaus.
In conclusion, we realize that the cost data submitted by
many of the reporting roads is inflated and that many of
the expenses are unsubstantiated. (For example, a carrier
states that it needs four additional employees but it does
not indicate how it arrived at this figure.) However, de-
spite our reservations as to the accuracy of the cost data
presented, even taking it at face value, we are neverthe-
65a
less unable to find that the costs of administering the rule
are excessive. As can be seen from table 4, average startup
expenses of $14,219 and annual expenses of approximately
$0.90 for. each excess demurrage day are not unreasonable,
unjustifiable, or unduly burdensome. Even if expenses were
slightly higher, the evidence of record still supports the
finding that the costs of administering the rule are not
prohibitive.
The record also indicates that in terms of cost-benefit, the
proposed rule is justified. Table 5 shows that the total
amount of demurrage that would have been remitted for
the period July 1 through December 31, 1973, to private and
foreign car owners by 42 roads is $40,387,455. Even if we
discount the effects of Service Order No. 1124, which in-
flated this figure by an estimated 50 percent, $20,193,727
would still have been remitted to car owners during this
6-month period. This discounted amount would constitute
between a $10 and $11 return on a car owner’s investment
for each excess demurrage day. When this amount is com-
pared to the costs of administering the rule, it becomes
evident that the costs are not so burdensome as to out-
weigh the rule’s benefit in providing an incentive for the
purchase of additional equipment and, thereby, in increas-
ing car supply.
Inadequacy of amount.—It has been contended by some
carrier opponents, especially the ASLRA, that the $10 to
be retained by the delivering road is insufficient to meet
delivering carrier costs (per diem, switching, and adminis-
trative expenses).
The switching costs are reflected in the line-haul rate by
Rail Form A’s unit costs. These figures are based on aver-
age costs for a particular region and are used to calculate
the switching costs associated with line-haul movemerte,
Per diem expenses are also used in computing the line-
haul rate. Therefore, it is incorrect to assume that the $10
-
66a
to be retained by the delivering roads is the only source of
revenue available to cover switching costs and per diem
expenses. Since the evidence indicates that these costs in
certain instances are not presently recoverable from de-
murrage charges (although it is not clear whether the ex-
penses are covered by other revenue), an adjustment in the
reclaim allowance, switching charge, or division of rates
may be needed."* Then, if it can be shown that the costs of
the delivering railroad are not consistently being met, the
carrier is free at any time to seek increases in applicable
rates and charges.
The adequacy of demurrage is not in issue in this pro-
ceeding. If any carrier can demonstrate that its costs (per
diem, switching, and administrative expenses) are not
being met, the proper recourse is to petition the Commis-
sion to increase the amount of basic @emurrage or other
8 Notice is taken of Rule 5, Code of Car Hire Rules and Inter-
pretations-Freight, ‘‘The Official Railway Equipment Register,’’
Vol. 92, No. 1 (July 1976). It provides that:
(a) An amount (Note 1) for each loaded car handled in
Terminal Switching Service except as otherwise provided in
paragraph (b) may be reclaimed by each individual switching
road from the road for which the service was performed, In
determining the amount, an average number of days not to
exceed five (5) shall be used. The average number of days
shall be determined annually, or at such other periods as may
be agreed upon by the interested roads, by an examination of
the records (Note 2) of each individual switching road for
each local territory. However, on the request of the majority
of the interested roads in any local territory, the settlement
of terminal switching reclaims will be on the basis of actual
time involved in handling of cars during the month for which
reclaim is made subject to a maximum of (8) days on any one
ear and the maximum average of five (5) days per car.
Note 1.—The word ‘‘amount’’ as used in this rule shall be
the product of (1) average time established as an arbitrary,
or actual time, subject to maximums provided in this Rule,
and (2) the actual car hire rate on each car handled in switch-
ing service,
——
67a
appropriate rate or charge. A deficiency in basic demur-
rage, switching charges, or other rate or charge, should not
be offset by revenue from penalty demurrage. To do so
would vitiate the incentive element of arbitrary demur-
rage and also, as noted in the interim report, deprives the
car owner of part of the return on his investment. In the
event that basic demurrage would be increased in excess of
$10, these rules would be adjusted accordingly to provide
that the car owners would receive the demurrage in excess
of the higher level of basic demurrage.
Average agreements and claims.—We do not feel that
average agreements present the problem that the railroads
have envisioned. The proposed rule only affects demurrage
in excess of $10. Under present average agreements a
credit of $10 is used to offset a debit of $10, and, therefore,
the delivering carrier will not receive any demurrage on a
haul where no arbitrary demurrage is assessed. This will
not be changed. The rule provides that the delivering car-
rier shall retain $10 of the charges collected, the demur-
rage in excess of the $10 debit up to $10 will be retained by
the delivering road. Therefore, the rule will have no ad-
verse impact on average agreements since (1) carriers pres-
ently receive no compensation for debit days which are off-
set by credit days, and (2) the delivering road, as in other
situations, will retain up to $10 for arbitrary days which
has been found to be sufficient to cover costs. It has not
been sufficiently shown that a carrier’s costs would not be
met by the sum to be retained ($10) under average agree-
ment, However, as in the case of our discussion of switch-
ing and other administrative costs, if it can be established
that costs are not being met, the carrier can seek relief
from the Commission to retain a greater amount.
We would like to make a suggestion to those who argue
that average agreements are not feasible because high per
diem ears can be used to offset low per diem cars and,
therefore, costs will not be covered by the $10 to be re-
68a
tained by the delivering carrier. The per diem charge is
based on numerous factors including the cost of equipment
and its relative supply in the marketplace. To increase car
supply and utilization, the carriers could provide that a
credit and debit will not offset each other unless the per
diem charges are relatively similar, i.e., within a range of
20 percent or some other figure. This would prohibit the
offsetting of a $3.50 coal car with a $22.88 60-foot boxcar.
This avenue of compromise should be explored before car-
riers consider implementing their threats to terminate
average agreements.
Another area of expressed concern is that of runarounds.
We feel that respondents can devise a method of dealing
with this situation in order to fulfill the purposes of the
- rule in compensating an owner whose car is actually de-
tained. Under the present demurrage system, no problem is
presented because the delivering carrier keeps all demur-
rage, and hence no provisions are presently necessary.
However, this does not mean that a solution does not exist.
For example, in runaround situations, the amount to be
remitted to each car owner could be determined as follows:
Total chargeable demurrage—($10 X total days all cars + Amount
to be remitted to car owners subject to runaround are held)
Amount to be remitted
= amount per day
Number of days ears held
This amount multiplied by the number of days the car was
held would determine what amount is to be remitted to
each car owner.” ‘
For example: Car owned by X was constructively placed on
day 1, car owned by Y constructively placed on day 2, and car
owned by Z placed day 3. Car X is released day 6, Car Y released
day 5, and Car Z released day 4. Demurrage is computed at $10
the first day, $20 the second, and $30 thereafter. In a runaround
situation, the released dates on later-placed cars will be substituted
for those of earlier placed cars. The total amount of demu
that could be assessed under the runaround claim is $180, The total
69a
Claims.—Next we will discuss the argument that claims
against shippers for demurrage charges in some cases may
not be pursued where legal fees for collecting these claims
exceed the amount to be retained by the delivering road.
In addressing this contention we note that a carrier is
under a legal obligation to collect demurrage charges
properly assessed, and the implementation of this rule
does not relieve a carrier of this duty. However, only a
small percentage of claims are contested, and expenses
incurred in pursuing these claims would generally be re-
coverable from the $10 to be retained by the delivering
road. It is also noted that demurrage bureaus handle
claims and prorate the costs to their members so that the
cost burden is shared by a number of carriers. We, there-
fore, conclude that legal expenses incurred in collecting
demurrage charges would not be a problem under the pro-
posed remittance scheme. If, however, it can be shown as
stated above, that costs are not being met, a carrier can
seek relief from the Commission to retain a higher amount.
In situations were (a) a carrier has received demurrage
charges from the shipper and has remitted this amount to
the owner, and (b) it is later determined that the charges
were in fact not applicable or otherwise lawfully due, then
the carrier can seek direct reimbursement from the car
owner or withhold forthcoming remittances until the
amount is satisfied. The best method of solving this prob-
lem can best be determined, however, by the respondents
themselves.
number of days held by all cars is 9 days. Therefore, the deiivering
carrier would subtract $90 as the amount it would re.ain, The
remaining $90 would then be divided by the number o/ days the
cars were actually held (9) to get the amount per day ot $10, This
multiplied by the days each car was held would give us th amount
to be remitted to each owner. $50 to X, $30 to Y, and $10 to Z.
See section 1, rule 8, section E note 1 of the Demurrage “*riff
4-J, ICC H-59, for a thorough analysis and computation of ‘.mur-
rage in a runaround claim.
70a
Private car owners.—The interim report concluded that
the proposed remittance rule should also apply to private
car owners. This determination was sound. An increasing
percentage of the Nation’s carrier fleet is owned by private
interests. The evidence shows that between 1972 and 1974
private car owners and shippers added 35,711 cars to the
transportation system. These investors should receive a
fair return on their investment as well as carriers. Some
proponents note that private car owners have made invest-
ments in freight cars without the rule and may continue to
do so, if the proposed rule is not implemented. While this
may be true, it is an unconvincing argument for concluding
that, therefore, no additional incentive is needed. Indeed,
such investments may have been much greater if the in-
centive heretofore had been in effect.
For those who argue that the remittance would be an
unlawful rebate, we reiterate our position stated in the
interim report (349 I.C.C. 411, 438), that rebates are not
involved because the delivering carrier will receive its full
rate and compensation for all demurrage charges and will
merely remit the excess to the car owner.
In the interim report we concluded that the remittance
in lease situations should be paid to the lessee. Although
the Commission has held that the lessee is the car owner
in considering other demurrage questions (see Car Demur-
rage Rules, Nationwide, 350 1.C.C. 777 (1975) ), we feel that
under the proposed rule it would generally be more efficient
and administratively practical to have the excess demur-
rage remitted to the lessor as is done with the mileage
allowance. The administrative costs would then be in-
curred by the lessor in determining what amount if any,
should be remitted to the lessee. Existing demurrage rules
as to when “free time” begins (or as the lease agreement
otherwise specified) would be controlling in determining
when demurrage begins.
However, in a long-term lease of equipment by a private
car owner to a railroad, the lessee should be considered
Tla
the car owner as proposed in the interim report. This
would simplify the administration of the rule, for the re-
porting marks on the car would be that of the lessee, and
the delivering carrier would not be aware of the identity of
the lessor, or if in fact, the car is leased.
We believe, however, that restrictions on the amounts to
be remitted to private car owners are necessary to encour-
age and not discourage the timely release of equipment.
For example, assume private car owner X is the consignee
or consignor of a car on which excess demurrage accrues
because of causes attributable to X. (This could occur when
there is congestion on X’s track, or when there are no pri-
vate tracks and the car is held on carrier track.) X would
pay the delivering carrier the demurrage charges and any
excess demurrage would then ultimately be remitted to the
car owner, X. Therefore, X would only pay $10 per car per
day and no penalty or arbitrary charge. This would nullify
the incentive to release quickly the car which is provided
by the penalty portion of the demurrage charge.
To correct this situation, the proposed rule will be modi-
fied as follows :*
(c) Excess demurrage shall not be remitted to a
private car owner who for reasons attributable to the
owner causes the accrual of the excess charge. The
excess amount, which would otherwise be remitted
under the rule, shall in these situations be retained by
the delivering carrier.
In determining if the excess demurrage is caused by rea-
sons attributable to the car owner, this provision shall be
*° Leases can provide for an adjustment if the demurrage is
caused by reasons attributable to the lessor or lessee.
72a
interpreted and applied in accordance with demurrage
rules and principles.
Earmarking.—Lastly, we conclude that no restrictions
should be placed on the use of the funds to be remitted to
car owners, either private or foreign roads. It would be
difficult to force a car owner to purchase additional equip-
ment, and to supervise and administer such a provision.
The proposed remittance is a sufficient incentive to the
purchase of additional cars without putting an absolute
limit on the use of the remitted funds.
Upon consideration of the record, we conclude that adop-
tion of the proposed rule, as amended, which is set forth
below, would be in the public interest, is reasonable and
otherwise lawful to ‘‘the maintenance of an adequate
freight car supply’’ as required by section 1(6) of the act.
(a) Exeept as otherwise provided hereinafter, the non-
owning railroad, on whose lines a car is being detained under
demurrage, shall remit to the freight car owner, all demurrage
charges collected in excess of $10 per car per day.
(b) That under this rule, for the purpose of determining
the car owner in the lease of a freight car, the ear owner will
be the lessor; except that in cases where there is no notice of
the identity of the lessor, the lessee shall be considered as the
car owner.
(c) Exeess demurrage shall not be remitted to a private
ear owner who for reasons attributable to the car owner causes
the accrual of the excess charge. The excess amount, which
would otherwise be remitted under the rule, shall in these
situations, be retained by the delivering carrier.
‘
ee eee ee
eS ee
73a
Finpinos
We find:
(1) Th
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